Chapter 38 GATT/WTO AND GLOBAL LIBERALISATION BUSINESS ENVIRONMENT PART 7 : GLOBAL ENVIRONMENT
WTO principles and agreements are a very important component of the global business environment significantly impacting domestic as well as global business.
The General Agreement on Tariffs and Trade (GATT), the predecessor of WTO, was born in 1948 as result of the international desire to liberalise trade.
The GATT was transformed into a World Trade Organisation (WTO) with effect from January, 1995.
India is one of the founder members of the IMF, World Bank, GATT and the WTO.
The Preamble to the GATT mentioned the following as its important objectives.
1. Raising standard of living.
2. Ensuring full employment and a large and steadily growing volume of real income and effective demand.
3. Developing full use of the resources of the world.
4. Expansion of production and international trade.
For the realisation of its objectives, GATT adopted the following principles:
1. Non-discrimination: The principle of non-discrimination requires that no member country shall discriminate between the members of GATT in the conduct of international trade.
2. Prohibition of Quantitative Restrictions: GATT rules seek to prohibit quantitative restrictions as far as possible and limit restrictions on trade to the less rigid tariffs.
3. Consultation: By providing a forum for continuing consultation, it sought to resolve disagreements through consultation.
The Uruguay Round
Uruguay Round (UR) is the name by which the eighth Round of the multilateral trade negotiations (MTNs) held under the auspices of the GATT is popularly known because it was launched in Punta del Este in Uruguay, a developing country, in September 1986.
The UR sought to broaden the scope of MTNs far wider by including new areas such as:
• Trade in services
• Trade related aspects of intellectual property (TRIPs)
• Trade related investment measures (TRIMs).
GATT and WTO
Following the UR Agreement, GATT was converted from a provisional agreement into a formal international organisation called World Trade Organisation (WTO) with effect from January 1, 1995.
Salient Feature of Ur Agreement I
Liberalisation of Trade in Manufactures
Liberalisation of trade in manufactures is sought to be achieved mostly by reduction of tariffs and phasing out of non-tariff barriers.
Tariff Barriers : The major liberalisations in respect of trade in manufactures, regarding tariffs, are:
1. Expansion of tariff bindings
2. Reduction in the tariff rates
3. Expansion of duty-free access
Non-tariff Barriers: In the area of NTBs, the Agreements to abolish voluntary export restraints (VERs) and to phase out the Multifibre Arrangements (MFA) are regarded as landmark achievements for developing countries.
Liberalisation of Agricultural Trade
The important aspects of the UR Agreement on agriculture include.
2. Tariff binding
3. Tariff cuts
4. Reduction in subsidies and domestic support.
The General Agreement on Trade in Services (GATS) which extends multilateral rules and disciplines to services is regarded as a landmark achievement of the UR
In short, the GATS covers four modes of international delivery of services.
1. Cross-border supply (transborder data flows, transportation services)
2. Commercial presence (provision of services abroad through FDI or representative offices).
3. Consumption abroad (tourism)
4. Movement of personnel (entry and temporary stay of foreign consultants)
Trade Related Investment Measures (TRIMs) refers to certain conditions or restrictions imposed by a government in respect of foreign investment in the country.
The Agreement on TRIMs provides that no contracting party shall apply any TRIM which is inconsistent with the WTO Articles.
One of the most controversial outcomes of the UR is the Agreement on Trade Related Aspects of Intellectual Property Rights including Trade in Counterfeit Goods (TRIPs). TRIPs along with TRIMs and services were called the “new issues” negotiated in the Uruguay Round.
A product is regarded as dumped when its export price is less than the normal price in the exporting country or its cost of production plus a reasonable amount for administrative, selling and any other costs and for profits.
Members may take safeguard actions, i.e., import restrictions to protect a domestic industry from the negative effects of an unforeseen import surge, if a domestic industry is threatened with serious injury.
Safeguard measures would not be applicable to developing countries where their share in the member country’s imports of the product concerned is relatively small.
The WTO Impact
The Fourth session of the Ministerial Conference of the WTO was held in Doha (Qatar) in November 2001, in which Ministers from the 142 member countries participated.
The Doha meet concluded by drawing up the ‘Doha Development Agenda’ for new trade liberalisation talks
The Doha Ministerial adopted three major declarations: (i) on the negotiating agenda for the new WTO round, (ii) on some 40 implementation concerns of the developing countries and (iii) on the political statement dealing with patents and public health.
One remarkable achievement of the Doha Ministerial for developing countries is that in the case of TRIPs and public health. it allowed waiver of the patent law to face a national emergency.
WTO and India
The Uruguay Round Agreements and WTO have come in for scathing criticisms in India. Many politicians and others have argued that India should withdraw from the WTO. Most of the criticisms are either baseless or due to lack of knowledge of the international trading environment, and misinformation, or are just meant to oppose the government by the opposition parties.
India’s gain from trade liberalisation has been constrained by her limited participation in global trade.
India has taken several measures to comply with the TRIPs Agreement: these include amendments to some laws and new legislations.
Estimates of India’s possible gain from the trade liberalisation vary very wide — between $2 billion and $7 billion a year. Although the liberalisation of trade in textiles will benefit the developing countries, India’s gain will depend a lot on her competitive strength vis-a-vis other textile exporters.