5 WTO Agreements Promoting Liberalization of Trade

Here we detail about the five agreements which seek to promote liberalization of trade.

1. Liberalisation of Trade in Manufactures: Agreement on Tariff Bindings and Tariff Reduction:

1. Firstly, the provision for expansion of tariff bindings which prevent the developed countries from increasing tariff rates in future beyond a particular level.

Tariff bindings cover 99 per cent of imports. Secondly, the agreement provides for reduction in tariff rates by the developed countries by 40 per cent from 6.2 to 3.7 per cent. Thirdly, the agreement provides for expansion of duty free access from 20 to 43 per cent of their imports by the developed countries.

It is however important to note that gain to the developing countries from tariff reduction by the developed countries is not very significant. The average reduction of tariffs on their imports to the developed countries is estimated at 30 per cent and in case of labour-intensive industrial products such as textiles, clothing, leather goods and certain processed primary products such as fish products which are regarded as sensitive, the reduction in tariffs is less than even the average reduction of 30 per cent.

On the other hand, the offers of tariff cuts on imports of manufactures by the developing countries are estimated at about one-third of the average tariff reduction by the whole world. The expansion of tariff bindings which prevent the developing countries from increasing tariffs in future represent significant gains for the developed countries.

2. Agreement on Agriculture:

To achieve liberalisation of agricultural trade, agreement on agriculture was also reached during multinational trade negotiations resulting in the establishment of WTO in 1995. Agreement on agriculture was highly significant as agriculture was a highly protected sectors in the developed countries. This distorted world prices of agricultural products prevented the developing countries to realize the benefits of their comparative advantage. As a result, exports of developing countries could not increase significantly.

Agreement on agriculture includes the following conditions:

(a) Tariffication:

It was agreed that existing non-tariff barriers imposed by the member countries would by replaced by suitable tariffs which would provide almost the same level of protection. This is called tariffication.

(b) Tariff Bindings:

The agreement on agriculture also required that developed countries would reduce their tariff bindings by an average of 36 per cent within six years from 1995. The developing countries were required to reduce tariffs by an average 24 percent over a period of 10 years, while the least developed countries are not required to make any commitment regarding reduction of tariffs on their farm products. The developing countries were permitted to indicate only their maximum bindings. For example, India declared maximum bindings of 100 per cent on farm products and 300 per cent on edible oils.

(c) Subsidies and Domestic Support Policies:

Reduction in Agricultural subsidies and domestic support prices is another important aspect of agreement on agriculture. The developed countries such as USA and the countries of East European Union (EU) maintain high level of agricultural subsidies and other domestic support programmes to protect their farmers and prevent the imports from the developing countries. As a result, exports of farm products of the developing countries suffer a lot. WTO agreement on agriculture requires that subsidies on farm products should not exceed 10 per cent of the value of agricultural production.

Besides, it was agreed that product specific subsidies, non-product specific subsidies on fertilizers, irrigation, power and seeds etc. were also not to exceed 10 per cent of the value of agricultural output. Agreement on agriculture also provided that countries with closed agricultural markets will have to import agricultural commodities to the extent of 3 per cent of their domestic consumption, going up to 5 per cent over six years. However, developing countries which were facing balance of payments problems were exempted from this rule of compulsory imports.

Agreement on agriculture also provides that countries are free either to give patents on agricultural products or to evolve an effective sui genris (i.e. special) system of protection for plant breeder rights. It implies freedom of multiplication and exchange of indigenously produced seeds or plants in the country.

In other words, the farmers are free to retain seeds from their own harvests for their uses and exchange with each other. The only exception is seeds evolved genetically through the tools of high-tech biotechnology.

The patent fee would be payable if the seed or plant varieties bought are genetically superior to and more productive than the local varieties. Thus, the farmers will have to pay a patent fee on branded seeds or plant varieties imported from developed countries. The commercial sale of such seeds would be affected by patents.

3. GATS (General Agreement on Trade in Services):

The General Agreement on Trade in Services (GATS) has been one of the major achievements of Uruguay Round of negotiations which now forms part of WTO legal framework GATS covers all service sectors including financial services, telecommunications, transport, tourism, audio visual and professional services. GATS requires some basic obligations to be fulfilled by all member countries of WTO with regard to international trade in services.

GATS applies to services provided by service suppliers of one country and sold to consumers of another country (for example tourism). It also applies to services provided by the commercial presence of a supplier of one country in the territory of another (for example bank of a country providing banking service in another country). It is equally applicable to services supplied by companies of one country in the territory of another. However, GATS shall not cover services provided by the government which are not supplied on a commercial basis.

GATS requires countries to provide most-favoured nation treatment (MFN) to all member countries. It implies that equally favourable treatment is to be accorded to service suppliers of all member foreign countries. GATS also requires that member countries should have transparency in their trade in services.

This implies that each country to promptly publish all its relevant law and regulations pertaining to services including international agreements pertaining to trade in services to which the country is a signatory. Besides, each member country shall provide all information sought by any other member country relating to any service covered by GATS. Further, the countries are required to accord Foreign Service suppliers the same treatment as domestic service suppliers.

The countries may be exempted from GATS if they face balance of payments difficulties. They may also be exempted from GATS for national security reason as well as for purposes of protecting public order. The GATS requires that the countries would provide market access to Foreign Service suppliers.

Hence, they would not impose restrictions on the number of service suppliers, total value of service transactions, the total number of service operations, joint ventures through which service may be supplied and the participation of foreign capital.

The GATS has excluded labour movement from its purview. It allows countries to apply immigration laws to regulate the entry of persons into their territories. Countries are specifically allowed to apply visa requirements selectively to some countries and not to others.

4. TRIPS (Trade Related Intellectual Property Rights) Agreement:

One of the most controversial agreement of Urugay Round of negotiations relates to Trade Related Intellectual Property Rights or briefly known as TRIPS. The agreement regarding TRIPS requires member countries to provide patent protection to all products or processes in all fields of technology.

This protection is granted subject to the following three conditions:

(1) The product or the process is a new one

(2) It contains an inventive step

(3) It is capable of industrial application for 20 years from the grant of the patent.

TRIPS agreement corers the following seven intellectual properties:

(i) Patents

(ii) Copyrights and other related rights

(iii) Geographical indications

(iv) Industrial designs

(v) Trade marks

(vi) Layout designs of integrated circuits

(vii) Undisclosed information including trade secrets.

Patents shall be available without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. The patent-holder would enjoy exclusive marketing rights for a particular period. Any body else seeking to manufacture and sell the product would have to establish that there has been no violation of the patent- holder’s rights. The term of patent under the new regime would be 20 years from the date of the filling of the application.

Since the patent would be available for products or processes, it would be possible in chemical-base products like drugs and pharmaceuticals, agro-chemicals, alloys and food products to take patents for new products for 20 years and process patents thereafter for another 20 years. The countries which do not have product patent in certain areas (in India, agriculture and horticulture, technologies relating to atomic energy and chemical based products like chemicals, alloys, drugs and pharmaceuticals, agro-chemicals, food products and so on are exempt from product patents) are given 10 years transition period for the introduction of product patents.

The countries are free to give patents or adopt an effective sui genris system of protection for plant breeder rights enshrined in the International Union for Protection of new Plant Varieties UPOV) convention. A period of five years was given to implement the provisions of the TRIPS agreement. In respect of Copyrights and related rights India is a signatory to the Berne convention. Likewise, in respect layout designs and integrated circuits India is signatory to Washington Treaty whose main obligations have also been incorporated in the TRIPS.

5. Trims (Trade Related Investment Measures) Agreement:

TRIMS agreement refers to conditions or restrictions imposed on foreign investors. This agreement requires that investment regulations by member countries have to give same treatment to domestic products and imports. The TRIMS agreement specifically forbids imposing restrictions on operations of an enterprise which result in protecting domestic products and making imports disadvantageous. The foreign trade related restrictions on investment by foreign enterprises were generally imposed by developing countries including India.

The following conditions which favour domestic production were prohibited under TRIMS agreement:

1. Local content requirement:

That is, foreign enterprises must use a certain amount of locally produced inputs in production of products.

2. Trade balancing requirement:

That is, imports by a foreign enterprise shall not exceed a certain proportion of exports by it.

3. Trade and foreign exchange balancing requirements.

4. Domestic sales requirement:

This requires an enterprise to sell a certain proportion of its output locally.

However, it was agreed that subsidies applicable solely to domestic enterprises and government procurement policy in favour of domestic producers will not violate the TRIMS agreement. Thus, under TRIMS Agreement, investment regulations have to accord same treatment to domestic products and imports. The TRIMS agreement requires removal of quantitative restrictions on imports and exports. However, exemptions are allowed if a country is suffering from balance of payments problems.

The industrialized countries were required to eliminate conditions covered under TRIMS by July 1, 1997. Developing countries were required to do so by 2000 and least developed countries were required to eliminate them by 2002. India notified the TRIMS required by it before 2000.

It notified two TRIMS conditions:

(1) Relating to local content requirements in the production of certain pharmaceutical products and

(2) Dividend balancing requirements in the case of investment in 22 categories of consumer items.

These were to be eliminated by 1-1-2000. The developing countries, including India, requested for extension of transition period for the elimination of the notified TRIMS. In view of the failures of the Seattle Ministerial Conference and Cancun conference no final decision was taken on this request of the developing counties.