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The World Trade Organisation (WTO): A Close View

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The below mentioned article provides a close view on the World Trade Organisation (WTO).

Subject Matter:

On January 1, 1995, the day on which the Uruguay Round took effect, GATT was trans­formed into the World Trade Organisation.

This transformation turned GATT from a trade accord into a permanent membership organisation, responsible for governing the conduct of trade relations among its members, GATT obligations remain at the core of the WTO.

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However, the WTO Agreement requires that its members adhere not only to GATT rules, but also to the broad range of trade pacts that auspices in recent decades. This undertaking ends the free ride of many GATT members (especially developing countries) that benefited from, but refused to join, new agree­ments negotiated in the GATT since the 1970s.

New issues include the following:

1. A new general agreement on trade in ser­vices, which would establish new rules specifically to deal with services sectors, that previously had not been subject to GAIT law.

2. An agreement on trade-related investment measures (TRIMs) that would limit utilities of governments to impose certain types of performance requirements on the domestic operations of foreign-controlled firms that might have the effect of distorting interna­tional trade.

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3. An agreement on trade-related intellectual property (TRIPs) that would establish new rights and obligations of governments with reference to patents, copyrights, trademarks, trade secrets, and other matters pertaining to intellectual property.

Structure:

WTO serves as single international institu­tion comprising GATT and all the results of the Uruguay Round. The Ministerial Conference (MC), composed of the representatives of the members of WTO, is the apex body, which must meet every two years and which is the executive authority of the WTO, empowered to take deci­sions under the relevant Multilateral Trade Agreement (MTA).

Meanwhile, the decision of the MC are carried out by the General Council (GC) which is an executive body comprising all members and which meets as and when necessary. In addition, it interacts with other inter- and non-governmen­tal organisations functionally related to the WTO.

Under the GC are three Functional Councils (FC) which deal respectively in matters relating to trade in goods, trade in services and trade in intel­lectual property rights. These councils are empowered to set their own rules and procedures subject to the approval of the GC. They can also establish subsidiary bodies with power to enact their respective FC decision.

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In addition, the MC appoints three Functional Committees on Trade and Development; Balance of Payments Restrictions; Budget, Finance and Administration. There is also a dispute settlement body that is concerned with problems relating to disputes among member countries and non­conformity to the WTO guidelines.

Functions of WTO:

The WTO performs the following its impor­tant functions:

1. Administration:

Through various councils and committees, the WTO administers the various agreements contained in the Uruguay Round, plus agreements on government procurement and civil aircrafts.

2. Tariff cuts:

The WTO supervises the imple­mentation of the tariff cuts (averaging 40%) and reduction of non-tariff measures agreed to in the negotiations.

3. Watchdog:

The WTO is a watchdog of inter­national trade. It examines the trade regimes of individual members on a regular basis.

4. Resolving trade wars:

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In the various bodies of WTO, member’s flag proposed or draft measures by others that can cause trade conflicts (wars).

5. Updating trade statistics:

Members are also required to update trade measures and statis­tics, which are maintained by the WTO in a large database.

6. Dispute settlement:

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The WTO acts as a per­manent dispute-settlement mechanism. A major objective of the WTO is strengthening the GATT mechanism for setting trade dis­putes. The old GATT dispute mechanism suf­fered from long delays, the ability of accused parties to block decisions of GATT panels that went against them, and inadequate enforcement. The dispute settlement mecha­nism of the WTO addresses each of that weaknesses. It guarantees the formation of a dispute panel once a case is brought and sets time limits for each stage of the process.

The WTO, from the very start of any conflict between members, provides several conciliation mechanisms for finding an amicable solution. Trade disputes that cannot be solved through bilateral tasks are adjudicated under the WTO dispute settlement ‘court’.

Panels of independent exports are established to economic disputes in the light of WTO rules and provide rulings. This tougher, streamlined procedure ensures equal treatment for all trading partners and encourages members to live up their obligations.

7. Management consultancy:

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The WTO is also a management consultant for world trade. Its economists keep a close watch and undertake studies on the main trade issues of the day.

8. Forum:

Finally, the WTO is a forum where countries continuously negotiate exchanges of trade consensus to further lower trade barriers all over the world.

Through various councils and committees, the WTO administers the many agreements con­tained in the Uruguay Round, plus agreements on government procurement and civil aircraft. It oversees the implementation of the tariff cuts and reduction of nontariff measures agreed to in the negotiations.

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It is also a watch dog of internatio­nal trade, regularly examining the trade regimes of individual members. In its various bodies, member’s flag proposed or draft measures by oth­ers that can cause trade conflicts. Members and statistics, which are maintained by the WTO in a large database.

A major objective of the WTO was streng­thening the GATT mechanism for settling trade disputes. The old GAT dispute mechanism suffered from long delays, the ability of accused parties to block decisions of GATT panels that went against them, and inadequate enforcement.

The dispute-settlement mechanism of the WTO addresses each of these weaknesses. It guarantees the formation of a dispute panel once a case is brought and sets time limits for each stage of the process. The decision of the panel may be taken to a newly created appellate body, but the accused party can no longer block the final decision.

A nation that loses a dispute must either bring the offending practice into conformity, offer suitable compensation to the aggrieved parties, or face retaliation. The dispute-settlement issue was especially important to the United States because this nation was the most frequent user of the GATT dispute mechanism.

In addition, substantial institutional reform of the GATT process was sought under the GATT Uruguay round for expediting the process for settlement of disputes and for launching a regular trade policy review mechanism.

India and the WTO:

While controversy ranges around India’s commitment to WTO guidelines and whether India stands to gain from it, the new trade arrangements are an established fact and are bound to impact on India’s trade in various aspects. It-is time to4ake stock of the nature and amount of impact that India is likely to undergo in the coming years.

To begin with, India’s participation in inter­national trade is quantitatively marginal at around 0.7%. If share in world trade is an indicator of the extent of globalisation then India is still a long way off from going ‘global’. However, important changes are imminent with respect to trade- in agriculture, textiles and pharmaceutical industry in particular, as well as the services sector, to mention a few.

Impact of World Trade Organisation on Various Sectors:

(a) Impact on Agricultural Sector:

The impact is to be felt through:

(i) Reduction in Subsidies on Agricultural Products:

This was done in the form of withdrawal of support prices beyond 10% of the value of gross agricultural output This, however, will not have much effect in India as the subsidies provided are well below the stipulated figure.

(ii) A Minimum Level of Import Content in Total Consumption:

This was stipulated to be at least 3% initially, and gradually raised to 5%. This clause too is not effec­tive for India, as it is a country classified as one having Balance of Payment (BOP) problems and hence exempted from the clause.

(iii) Disbanding on Public Distribution System (PDS):

According to the WTO stipulation, the agricultural produce have to be procured and sold at the market price. The Government of India’s stand is that the PDS is for the benefit of the poor consumer and not for the poor farmer. Hence this clause too, is not binding for India.

(iv) Seed Patenting:

In concession to the WTO dictates that seeds must be paten­ted, India enacted the Plant Breeders Right (PBR) by 2000, whereby the farmers were free to use farm-raised seed for growing crops, provided that the farmer does not use the seed for commercial purpose (farmer’s privi­lege). The same act also reserved the right of the agricultural researcher to experiment with protected variety seed (researcher’s privilege).

(b) Impact on the Textile Sector:

The Multi-Fibre Agreement (MFA) stipulates that the quota system fostered by the eight impor­ting countries (Australia, Canada, EEC, Finland, Norway, USA, Japan and Switzerland) is to be lifted within 10 years. This is supposed to benefit the UDC exporters of cotton textiles, India being one of them. This argument, however, does not stand ground for two specific reasons.

First, 10 years is a very long time during which developed countries like Portugal, Greece and Spain in the EEC and Mexico in NAFTA block are likely to consolidate their textile industry. Second, India is not the only country that is going to benefit from the arrangement. In fact, competition is going to stiffen among the East Asian and South East Asian countries and Indian products are not in high profile so far as price and quality are con­cerned.

(c) Impact on the Pharmaceutical Sector:

Patenting under TRIPS has been extended to the large area of micro-organisms like bacteria, algae, fungi and virus that serve as the basis for the pharmaceuticals industry. Patents on micro­organisms are already acquired, or likely to be acquired by the multinational firms sooner than the developing countries can lay claim to these. Thus, there remains little scope for LDCs to gain from the new arrangement.

(d) Impact on the Services Sector:

The opening up of trade in services like bank­ing, insurance, telecommunications and shipping to foreign companies is going to impact on the services sector of the developing countries like India in a major way, as the development of ser­vices in these sectors in the developed countries far outstrips that in the developing world.

India and the TRIPS:

TRIPS agreements cover the following areas copyrights, trademarks, including service marks, geographical appellations of origin, industrial designs and products as well as process patents. Under the Indian Patent Act of 1970, only processes and not products are patented. Under the new requirement, a transition period of ten years is allowed for the adoption of the pro­duct patent.

A paper presented by Federation of Indian Export Organisation (FIEO) titled ‘Implications of WTO on India’s Trade’ reveals that trade and non-trade barriers have not really disappeared following the setting up of WTO, but has re-emerged under fresh garbs in the deve­loped countries, while the UDC has been forced to open their economy and markets to interna­tional competition.

The paper divides trade barri­ers into three categories:

i. Tariff barriers

ii. Anti-dumping

iii. Safeguards.

For example, while agricultural sector has opened up and our farmers can export their grains and cut flowers to the West, in practice, floricul­ture is subject to 15 to 20% duty by the EU coun­tries on the plea that India is not a developing country. Besides, the EU has erected safeguard measures by setting high standards for pesticide residues for fruit and vegetable exports resulting in stiff barriers against their entry in the West. Barriers have also been created on the issues of labour standard and environment. Use of child labour has been made a ground for blocking Indian carpet imports into the Western countries.

Insistence on sanitary measures and eco-friendly technology are other forms of non-trade barriers used by the developed countries, besides several anti-dumping duties.

WTO’s Performance: A Review:

Since its constitution in 1995, the WTO has proved itself to be much more effective than the preceding GATT. Particularly, its dispute settle­ment mechanism has been very active, with as many as 118 complaints dealing in 83 matters within the first three years of its existence. To what extent this reflects its efficiency or popular­ity among member nations, however, is another matter. In contrast, it may be pointed out that only 200 cases had been disputed under GATT during 47 years of its existence.

Achievements of WTO:

During the short span of seven years, the WTO has concluded a Information Technology Agreement and embarked on studies on invest­ment, competition policy, transparency in govern­ment procurement and trade facilitation.

i. Market orientation and tariff-based pro­duction has increased among the partici­pating countries.

ii. Restrictive measures for BOP reasons have declined.

iii. Services trade has been brought into the multilateral system.

Many UDCs have undertaken radical reform measures in relation to trade, exchange and domestic.

WTO provisions for services trade (GATs). TRIPS and TRIMS have succeeded to a large extent in curbing bilateralism in trade. Unified dispute settlement system has effectively blocked the possibility of unilateral overruling of panel decision.

The trade review mechanism under WTO has ushered in a process of continuous monitoring of trade practices and promoted greater transparency aiding liberalisation.

Despite its achievements, the WTO has gene­rated considerable resentment and mistrust among the developing countries who allege increasing interference and clout-wielding by the developed countries. The following are considered to be the limitations of WTO.

Limitations of WTO:

i. The major share of benefits emanating from WTO provisions so far has gone to the developed countries, who have suc­cessfully avoided adopting measures (like MFA quota-lifting) that would ben­efit the developing countries.

ii. The WTO has not taken measures against non-trade barriers lifted against UDC imports into developed countries.

iii. Provisioning under GATS and TRIPS are heavily biased in favour of the high- skill technologically superior countries.

iv. The WTO has not been uniform between its approach towards flow of capital and its approach towards flow of labour. While it encourages flow of capital, it is silent on labour movement across borders.

v. While dispute settlement body has earned credit for its achievements, most of the cases settled by it have gone in favour of the developed countries.

Other International Institutions Relevant for Globalisation:

Among the other institutions relevant for globalisation, the following are the most impor­tant ones:

1. International Monetary Fund (IMF)

2. World Bank

3. Asian Development Bank

4. European Union.

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