India and WTO – Detailed Analysis of All Related Issues and Concepts
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India and WTO – Detailed Analysis of All Related Issues and Concepts
Table of Contents
- Why WTO replaced GATT?
- Uruguay round and outcomes
- Principles of trading system – WTO
- Major WTO agreements
- Main Ministerial Meets
- Impact of Regional Trading Agreement on WTO
- Is WTO India’s friend or foe?
- What is Indo-US’s WTO problem?
- Why India stayed out of ITA-II in Nairobi?
- How India’s stand differs when it comes to services?
- Should India provide market access in higher education?
World Trade Organization, as an institution was established in 1995. It replaced General Agreement on Trade and Tariffs (GATT) which was in place since 1946. In pursuance of World War II, western countries came out with their version of development, which is moored in promotion of free trade and homogenization of world economy on western lines. This version claims that development will take place only if there is seamless trade among all the countries and there are minimal tariff and non- tariff barriers. That time along with two Bretton wood institutions – IMF and World Bank, an International Trade Organization (ITO) was conceived. ITO was successfully negotiated and agreed upon by almost all countries. It was supposed to work as a specialized arm of United Nation, towards promotion of free trade. However, United States along with many other major countries failed to get this treaty ratified in their respective legislatures and hence it became a dead letter.
Consequently, GATT became de-facto platform for issues related to international trade. It has to its credit some major successes in reduction of tariffs (custom duty) among the member countries. Measures against dumping of goods like imposition of Anti-Dumping Duty in victim countries, had also been agreed upon. It was signed in Geneva by only 23 countries and by 1986, when Uruguay round started (which was concluded in 1995 and led to creation of WTO in Marrakesh, Morocco), 123 countries were already its member. India has been member of GATT since 1948; hence it was party to Uruguay Round and a founding member of WTO. China joined WTO only in 2001 and Russia had to wait till 2012.
Why WTO replaced GATT?
While WTO came in existence in 1995, GATT didn’t cease to exist. It continues as WTO’s umbrella treaty for trade in goods.
There were certain limitations of GATT. Like –
- It lacked institutional structure. GATT by itself was only the set of rules and multilateral agreements.
- It didn’t cover trade in services, Intellectual Property Rights etc. It’s main focus was on Textiles and agriculture sector.
- A strong Dispute Resolution Mechanism was absent.
- By developing countries it was seen as a body meant for promoting interests of wests. This was because Geneva Treaty of 1946, where GATT was signed had no representation from newly independent states and socialist states.
- Under GATT countries failed to curb quantitative restrictions on trade. (Non-Tariff barriers)
Accordingly WTO seeks to give more weightage to interests of global south in framing of multilateral treaties. Here, a number of other aspects have been brought into, such as Intellectual property under Trade related aspects of Intellectual Property (TRIPS), Services by General Agreement on Trade in Service (GATS), Investments under Trade related Investment Measures (TRIMS).
Uruguay Round and its Outcomes
This (8th round of multilateral negotiations) round begun in 1986 and went on till 1994. Uruguay Round of negotiations covered more issues and involved more countries than any previous round. It prescribes, among other things, that tariffs on industrial products be reduced by an average of more than one-third, that trade in agricultural goods be progressively liberalized, and that a new body, the World Trade Organization, be established both to facilitate the implementation of multilateral trade agreements and to serve as a forum for future negotiations.
Agreements to liberalize trade in industrial products include reductions in tariffs and removal of quantitative restrictions. The advanced countries agreed to reduce tariffs on industrial imports amounting to 64 percent of the total value of their imports of such products; 18 percent of their industrial imports were already duty-free under commitments made prior to the Round. By comparison, the developing countries agreed to lower their tariffs on about one-third of their industrial imports, and the participating transition countries on three-quarters of theirs. Tariff reductions are to be completed by the year 2000 except for certain sensitive sectors such as textiles, for which the reductions must be completed by 2005. Further, outcome of this round mandated reduction of import duty on Tropical Products, which are mainly exported by developing and least developed countries.
The most important of them were a fixed timetable for dismantling the multi-fibre agreement (MFA) governing trade in textiles enshrined in the agreement on textiles and clothing (ATC) and the agreement on agriculture (AOA). Consider each in turn.
As per the ATC, developed countries would progressively bring greater volumes of textile trade under the normal Gatt tariff disciplines. It was recognised that the developed countries (like any other country) also needed time for ‘structural adjustment’. The time was mainly required for achieving domestic political acceptance of structural change in these economies. Accordingly, it was decided that by January 1, 2005 all textile trade would be off quotas. What was the actual experience?
While countries like Norway did follow the time table, both the US and the EU used simple arithmetic to postpone the end of quotas on exports of developing countries till the end of the period. This was done by the simple expedient of initially bringing out of quotas only those textile and clothing items where exports of developing countries were minimal. When 2005 approached, an attempt was made to scuttle the ATC by arguing that it would be harmful for exports of less competitive developing countries!
it was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The Agreement on Textiles and Clothing provided for the gradual dismantling of the quotas that existed under the MFA. This process was completed on 1 January 2005. However, large tariffs remain in place on many textile products.
Principle of the Trading System – WTO
1) Non Discrimination
a) Most Favored Nation
Treating other nations equally- Under the WTO agreements, countries cannot normally discriminate between their trading partners. If they grant some country a special favor (such as a lower customs duty rate for one of their products), then they’ll have to do the same for all other WTO members.
Some exceptions are allowed. For example,
- Countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside.
- Or they can give developing countries special access to their markets.
- Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate.
b) National Treatment :Treating foreigners and locals equally
This principle of “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS)
National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.(as this happens before entry into domestic market)
2) Freer Trade : Gradually through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively. From time to time other issues such as red tape and exchange rate policies have also been discussed
3) Predictability : Through binding and Transparency
With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable.
| The Uruguay Round increased bindings
Percentages of tariffs bound before and after the 1986-94 talks
(These are tariff lines, so percentages are not weighted according to trade volume or value)
In the WTO, when countries agree to open their markets for goods or services, they “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes countries tax imports at rates that are lower than the bound rates. Frequently this is the case in developing countries. In developed countries the rates actually charged and the bound rates tend to be the same.
4) Promoting fair competition
The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted competition.
The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.
Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual property, services, for example. The agreement on government procurement (a “plurilateral” agreement because it is signed by only a few WTO members) extends competition rules to purchases by thousands of government entities in many countries. And so on.
5) Encouraging Development and Economic Reforms
The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements. And the agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries.
Over three quarters of WTO members are developing countries and countries in transition to market economies. During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization programmes autonomously. At the same time, developing countries and transition economies were much more active and influential in the Uruguay Round negotiations than in any previous round, and they are even more so in the current Doha Development Agenda.
Major agreements of WTO
All these agreements were concluded during negotiations of Uruguay round i.e. in or before 1995. In most agreements new proposals have been brought in by different countries, which we will discuss later.
- Agreement on subsidies and countervailing measures – SCM
The WTO SCM Agreement contains a definition of the term “subsidy”. The definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist.
In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.
Further, Such Financial contribution must also confer benefit to the industry. Now, in cash grants, benefit will be straightforward to identify, but in cases where there is loan or capital infusion from government/ Public body, it will not be that easy. Such issues are resolved by appellate body of WTO.
Only “specific” subsidies are subject to the SCM Agreement disciplines. There are four types of “specificity” within the meaning of the SCM Agreement:
- Enterprise-specificity. A government targets a particular company or companies for subsidization;
- Industry-specificity. A government targets a particular sector or sectors for subsidization.
- Regional specificity. A government targets producers in specified parts of its territory for subsidization.
- Prohibited subsidies. A government targets export goods or goods using domestic inputs for subsidization.
Hence there are two types of prohibited subsidies –
- Subsidies contingent upon export performance.
- Subsidies contingent upon use of domestic content over imported goods.
Further, there is separate category of ‘Actionable subsidies’. These are not prohibited but countries can take ‘Countervailing measures’ against these subsidies or they can be challenged in ‘dispute resolution body’ of WTO.
For a subsidy to be actionable, 3 conditions should be present –
- Injury to domestic industry due to subsidized imports of other country.
- There isserious prejudice: Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing Member or in a third country market. For e.g. If India starts subsidizing its textile sector heavily, then China can claim that this subsidy is causing serious prejudice to its textile industry.
- Nullification or impairmentof benefits accruing under the GATT 1994. It means when benefit to be accrued from reduction of tariffs (under GATT) are nullified by increase in subsidies.
Against such subsidies members can take Countervailing Measures, such as imposing countervailing duties or antidumping duty. These can only be done in a transparent manner and a sunset period should be specified. Recently, India imposed Anti- Dumping duty on imports of stainless steel from China.
Countervailing Duty – It is imposed on imported goods to counterbalance subsidy provided by the exporter country.
Anti-Dumping Duty – At times countries resort to subsidize production or exports so heavily that exporters are able to sell goods below domestic price or even cost of production in foreign markets. It is aimed at wiping out target country’s industry. Anti-Dumping Duty is aimed at counterbalancing such subsidization.
- General Agreement on Trade in Services – GATS
The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade, GATT: creating a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants (principle of non-discrimination); stimulating economic activity through guaranteed policy bindings; and promoting trade and development through progressive liberalization.
While services currently account for over 60 percent of global production and employment, they represent no more than 20 per cent of total trade (BOP basis). This — seemingly modest — share should not be underestimated, however. Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue, owing to the introduction of new transmission technologies (e.g. electronic banking, tele-health or tele-education services), the opening up in many countries of long-entrenched monopolies (e.g. voice telephony and postal services), and regulatory reforms in hitherto tightly regulated sectors such as transport. Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.
Services negotiations in the WTO follow the so-called positive list approach, whereby members’ schedules of specific commitments list all of the services sectors and sub-sectors where they undertake to bind the market opening and the granting of national treatment to foreign service suppliers, apart the listed barriers that remain. Sectors and sub-sectors not included in the schedule are exempt from any obligations as regards market access and national treatment.
West is pushing hard to move from positive list approach to negative list approach. In negative list approach, services where GATS is not applicable will have to be negotiated, agreed upon and specified. India is against this concept as it will throw open almost whole Indian services sector to western multinational giants.
Negotiations is services under GATS are classified in 4 modes, interests of different countries depend upon this classification –
Mode 1 – It includes cross border supply of services without movement of natural persons. For eg. Business Process Outsourcing, KPO or LPO services. Here, it’s in India’s interest to push for liberalization given its large human resource pool and competitive IT industry.
Mode 2 – This mode covers supply of a service of one country to the service consumer of any other country. E.g. telecommunication
Mode 3 – Commercial presence – which covers services provided by a service supplier of one country in the territory of any other country. This opens door of relevant sector in one country to investments from another country. Accordingly, it is in west’s interest to push for liberalization here. There has been sustained pressure to open up higher education sector, insurance sector, Medical sector etc through this mode.
Mode 4 – Presence of natural persons – which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country. E.g. Infosys or TCS sending its engineers for onsite work in US/Europe or Australia. Here again it’s in India’s interest to push for liberalization. In 2012, India dragged the US to the World Trade Organization’s (WTO’s) dispute settlement body (DSB) over an increase in the professional visa fee (H1B/L1).
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.
It remains an issue between Developed and developing countries. TRIPS was fine tuned in favor of developing countries in 2003, as part of Doha development agenda, when all members agreed to compulsory licensing in certain cases. However, now U.S. and Europe remain unhappy about current strict terms of patent allowed by TRIPS
The Agreement on Trade-Related Investment Measures (TRIMS) recognizes that certain investment measures can restrict and distort trade. It states that WTO members may not apply any measure that discriminates against foreign products or that leads to quantitative restrictions, both of which violate basic WTO principles. A list of prohibited TRIMS, such as local content requirements, is part of the Agreement. Recently India was dragged to WTO by U.S. over former’s specification of Domestic Content Requirement in relation to procurement of Solar Energy cells and equipments.
WTO’s agreement on agriculture was concluded in 1994, and was aimed to remove trade barriers and to promote transparent market access and integration of global markets. Agreement is highly complicated and controversial; it is often criticized as a tool in hands of developed countries to exploit weak countries. Negotiations are still going on for some of its aspects.
Agreement on agriculture stands on 3 pillars viz. Domestic Support, Market Access, and Export Subsidies.
- Domestic Support – It refers to subsidies such guaranteed Minimum Price or Input subsidies which are direct and product specific. Under this, Subsidies are categorized into 3 boxes –
a) Green Box – Subsidies which are no or least market distorting includes measures decoupled from output such as income-support payments (decoupled income support), safety – net programs, payments under environmental programs, and agricultural research and-development subsidies.
Such as Income Support which is not product specific. Like in India farmer is supported for specific products and separate support prices are there for rice, wheat etc. On the other hand income support is uniformly available to farmers and crop doesn’t matter.
US has exploited this opportunity to fullest by decoupling subsidies from outputs and as of now green box subsidies are about 90% of its total subsidies. It was easy for USA because it doesn’t have concern for food security. Further, it has prosperous agro economy, and farmers can better respond to markets and shift to other crops. But in India, domestic support regime provides livelihood guarantee to farmers and also ensures food security and sufficiency. For this MSP regime tries to promote production of particular crop in demand. And this makes decoupling Support with output very complicated.
USA was also in position to subsidies R&D expenditure in agriculture as almost all the farming in US is capitalist and commercial. Big agriculturists spend substantial amount on technology upgradations and R&D. But in India about 80% of farming is subsistence and hence, India & other developing countries can use this opportunity.
b) Blue Box – Only ‘Production limiting Subsidies’ under this are allowed. They cover payments based on acreage, yield, or number of livestock in a base year.
‘Targets price’ are allowed to be fixed by government and if ‘market prices’ are lower, then farmer will be compensated with difference between target prices and market prices in cash. This cash shall not be invested by farmer in expansion of production.
Loophole here is that there no limit on target prices that can be set and those are often set far above market prices deliberately. USA currently isn’t using this method, instead here EU is active.
c) Amber Box – Those subsidies which are trade distorting and need to be curbed.
The Amber Box contains category of domestic support that is scheduled for reduction based on a formula called the “Aggregate Measure of Support” (AMS).
The AMS is the amount of money spent by governments on agricultural production, except for those contained in the Blue Box, Green Box and ‘de minimis’.
It required member countries to report their total AMS for the period between 1986 and 1988, bind it, and reduce it according to an agreed upon schedule. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least – developed countries do not need to make any cuts.
As we can note that Subsidies were bind to levels of 1986-1988, there was inequality at very beginning of the agreement. At that time subsidies which latter came under ‘Amber Box’ were historically high in western countries. In developing countries, including India these subsidies were very limited. It is only now under pressure of Inflation in prices of agricultural Inputs, and wide differences between market prices and Minimum support Price, subsidies have grown to this level. In effect developed countries are allowed to maintain substantially higher amount of trade distorting subsidies.
Under this provision developed countries are allowed to maintain trade distorting subsidies or ‘Amber box’ subsidies to level of 5% of total value of agricultural output. For developing countries this figure was 10%.
So far India’s subsidies are below this limit, but it is growing consistently. This is because MSP are always revised upward whereas Market Prices have fluctuating trends. In recent times when crash in international market prices of many crops is seen, government doesn’t have much option to reduce MSP drastically. By this analogy India’s amber box subsidies are likely to cross 10% level allowed by de Minimis provision.
Bali Summit, Trade facilitation and Peace Clause
(See Bali Ministerial Meet in next section)
- Market Access: The market access requires that tariffs fixed (like custom duties) by individual countries be cut progressively to allow free trade. It also required countries to remove non-tariff barriers and convert them to Tariff duties.
Earlier there were quotas for Imports under which only certain quantities of particular commodities were allowed to Import. This is an example of Non-tariff Barrier.
India has agreed to this agreement and substantially reduced tariffs. Only goods which are exempted by the agreement are kept under control.
Maximum tariff has been bonded as required by WTO, under which a higher side of tariffs is fixed in percentage that should never be surpassed. Generally actual tariffs are far below this high limit. This makes custom policy transparent and tariffs can’t be fixed arbitrarily.
If India is able to diversify its production and add value by food processing, then this is a win-win deal for India. A number of commodities are exported to West and low tariffs in west will benefit Indian suppliers.
- Export Subsidy: These can be in form of subsidy on inputs of agriculture, making export cheaper or can be other incentives for exports such as import duty remission etc. These can result in dumping of highly subsidized (and cheap) products in other country. This can damage domestic agriculture sector of other country.
These subsidies are also aligned to 1986-1990 levels, when export subsidies by developed countries was substantially higher and Developing countries almost had no export subsidies that time.
But USA is dodging this provision by its Export credit guarantee program. In this, USA gov. gives subsidized credit to purchaser of US agricultural products, which are to be paid back in long periods. This is generally done for Food Aid programs, such as (Public Law-480) under which food aid is send massively to under developed countries. India also received this Aid in 1960’s. But this is only at concessional rates and credit options. But this results in perpetual dependence on foreign grain in recipient countries and destroys their domestic agriculture. So this is equally trade distorting subsidy, which is not currently under ambit of WTO’s AOA.
There is little doubt that subsidies and support to agriculture should be controlled and better targeted. WTO negotiations also claim to work towards this direction, but inherent conflicting and vested interest of few countries are too influential in WTO. Every country has different requirements and different product mix, so enough flexibility is must in any agreement. Further, right to food is a global movement and is guaranteed by numerous UN conventions. So, ensuring food security is a domestic concern of a nation, international community can just advice but can’t coerce other sovereign country. Thus, India has to made its expenditure much more effective, with dynamic policy and resist any outside pressure which is misdirected towards negative results for Indian people.
Special Safeguard Mechanism
A Special Safeguard Mechanism (SSM) would allow developing countries to impose additional (temporary) safeguard duties in the event of an abnormal surge in imports or the entry of unusually cheap imports.
Debates have arisen around this question, some negotiating parties claiming that SSM could be repeatedly and excessively invoked, distorting trade. In turn, the G33 bloc of developing countries, a major SSM proponent, has argued that breaches of bound tariffs should not be ruled out if the SSM is to be an effective remedy. SSM is quite important in a scenario in which west has significant powers to subsidize their production and in turn, exports.
At the 2005 WTO Ministerial Conference in Hong Kong, members agreed to allow developing countries to “designate an appropriate number of tariff lines as Special Products” (SPs) based on “food security, livelihood security and rural development”
6) Multifibre Arrangement and Agreement on Textiles and Clothing
The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. Developing countries and countries without a welfare state] have an absolute advantage in textile production because it is labor-intensive and they have low labor costs.
The Arrangement was not negative for all developing countries. For example, the European Union (EU) imposed no restrictions or duties on imports from the emerging countries, such as Bangladesh, leading to a massive expansion of the industry there.
It was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The Agreement on Textiles and Clothing provided for the gradual dismantling of the quotas that existed under the MFA. This process was completed on 1 January 2005. However, large tariffs remain in place on many textile products.
- Sanitary and Phyto- Sanitary Measures
This agreement was one of the results of Uruguay Round of negotiation entered into force with the establishment of the World Trade Organization on 1 January 1995. The Agreement sets out the basic rules for food safety and animal and plant health standards. It allows countries to set their own standards. But it also says regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life or health. And they should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.
Main Ministerial Meets
- Singapore ministerial meet and ‘Singapore issues’ – 1996
The ‘Singapore issues’ term refers to areas of
- trade and investment;
- trade and competition policy;
- trade facilitation; and
- transparency in government procurement,
These four issues have collectively come to be known as the Singapore issues in the context of the WTO, because it was at the first ministerial conference of the WTO in Singapore in 1996 that they were first brought up as possible areas on which the multilateral body could initiate negotiations.
As it can be inferred from these four areas, only ‘trade facilitation’ is directly related to trade, while other three are only indirectly related (if not unrelated) to trade. Developed countries wanted to include all these areas in negotiations. In contrast, developed countries wanted implementation of outcomes of Uruguay round. Hence, from very beginning of WTO deliberations, contradictions of interests of both developed and developing world came to surface, which continues till date.
Further, The USA and Norway were behind the push for bringing in labour standards in the WTO, but developing countries were able to get the meeting to agree that the International Labour Organisation is the competent body to do such work.
What was India’s stand?
On issues like investment and competition policy, India feels that having a multilateral agreement would be a serious impingement on the sovereign rights of countries. To an extent, of course, this is inherent in any multilateral treaty, but investment is seen as an area in which ceding sovereign rights would leave governments, particularly developing country governments, with too little room for maneuver in directing investments into areas of national priority.
These are concerns that many other developing countries also share. In addition, on the specific issue of competition policy as applicable to “hardcore cartels,” India has pointed out that there is no clarity on whether these would include export cartels. The Organisation of Petroleum Exporting Countries (OPEC) is perhaps the best known example of an export cartel that rigs prices by fixing production ceilings. On the issue of transparency in government procurement, the Indian position is that while the principle is entirely acceptable, there cannot be a universal determination of what constitutes transparent procedures. On trade facilitation, India has argued that once again while the idea is unexceptionable, developing countries may not have the resources — by way of technology, or otherwise — to bring their procedures in line with those in the developed world over the short to medium term.
- Doha Ministerial meet and ‘Doha Development Agenda’ – 2001
For the next ministerial (Seattle) meet developed countries tried to push a lopsided agreement on Singapore Issues down the throat of developing countries, but latter successfully resisted. All this while, allegations were hurled on developed countries for ignoring developmental challenges of developing and least developed countries. This made developed countries to agree to a ‘developmental agenda’ and new round of negotiations – Doha Development Round begun at 4th ministerial meet in Doha. It is said that this was agreed to by developed countries in expectation that contents of ‘Singapore Issues’ will be agreed by dissidents.
Main issues of Doha Development Round
a. Agriculture – First proposal in Qatar, in 2001, called for the end agreement to commit to substantial improvements in market access; reductions (and ultimate elimination) of all forms of export subsidies (including under Green and blue box); and substantial reductions in trade-distorting support.
The United States is being asked by the EU and the developing countries, led by Brazil and India, to make a more generous offer for reducing trade-distorting domestic support for agriculture. The United States is insisting that the EU and the developing countries agree to make more substantial reductions in tariffs and to limit the number of import-sensitive and ‘special products’ (aoa) that would be exempt from cuts. Import-sensitive products are of most concern to developed countries like the European Union, while developing countries are concerned with special products – those exempt from both tariff cuts and subsidy reductions because of development, food security, or livelihood considerations. Brazil has emphasized reductions in trade-distorting domestic subsidies, especially by the United States (some of which it successfully challenged in the WTO U.S.-Brazil cotton dispute), while India has insisted on a large number of special products that would not be exposed to wider market opening.
b. Access to patented medicines – A major topic at the Doha ministerial regarded the WTO Agreement onTrade-Related Aspects of Intellectual Property Rights (TRIPS). The issue involves the balance of interests between the pharmaceutical companies in developed countries that held patents on medicines and the public health needs in developing countries. Before the Doha meeting, the United States claimed that the current language in TRIPS was flexible enough to address health emergencies, but other countries insisted on new language.
On 30 August 2003, WTO members reached agreement on the TRIPS and medicines issue. Voting in the General Council, member governments approved a decision that offered an interim waiver under the TRIPS Agreement allowing a member country to export pharmaceutical products made under compulsory licenses to least-developed and certain other members. It also allows members to not to allow evergreening of Patents.
c. Special and differential treatment (SDT) – SDT as a principle has been there since 1970’s in multilateral negotiations under GATT. In Doha round, members agreed that Developing and Least developed countries will continue to be eligible for a favorable treatment. However, of late developed countries are dragging their feet here too. They now claim that big developing countries like India, China, Brazil and South Africa are unreasonable in their demand and only least developed countries are rightful claimant of differential treatment. Here it is inconceivable that poor countries like India are to be treated at par with western developed world. At the December 2005 Hong Kong ministerial, members agreed to five S&D provisions for least developed countries(LDCs), including the duty-free and quota-free access.
d. Implementation issue: Developing countries claim that they have had problems with the implementation of the agreements reached in the earlier Uruguay Round because of limited capacity or lack of technical assistance. They also claim that they have not realized certain benefits that they expected from the Round, such as increased access for their textiles and apparel in developed-country markets. They seek a clarification of language relating to their interests in existing agreements.
Apart from this, there was agreement on prevention of appropriation of Traditional Knowledge of developing world by Corporations in west
- Cancun Ministerial Meet – Abandonment of Singapore issues – 2003
At Fifth WTO Ministerial Conference, the main task was to take stock of progress in negotiations and other work under the Doha Development Agenda. With Doha Development Agenda in place it was expected that some concessions will be made on Singapore issues, but position remained entrenched as they were.
The only positive development from the point of view of trade negotiations was the creation and survival of the new developing country negotiating group, the G-20. In particular, subsequent mini-negotiations have seen the growing importance of members of the G-20 like India, Brazil and South Africa.
- Geneva Talks – 2004 – Here Singapore issues were dropped from Doha Agenda. Further it was agree to proceed in areas of agriculture, Non- Agricultural market access, Services and Trade facilitation.
- Potsdam , 2007
In June 2007, negotiations within the Doha round broke down at a conference in Potsdam, as a major impasse occurred between the USA, the EU, India and Brazil. The main disagreement was over opening up agricultural and industrial markets in various countries and how to cut rich nation farm subsidies.
- Bali Ministerial Meet and ‘Bali Package – Trade Facilitation and Peace Clause’ – 2013
In Bali Trade facilitation was agreed to by all nations and for adjustments/adaptations to limits under Agreement on Agriculture (de minimis provisions); a ‘Peace clause’ was agreed at. Peace clause gave countries 4 year times to adjust to the limit and avoid sanctions.
Date for ratification of Bali agreement was 31 July, 2014, on which India declined to ratify unless a ‘permanent solution’ is reached. After this, in November, India – US reached understanding in which time limit of 4 years was removed and in return Trade Facilitation was agreed to by India.
Notably, in Deal at Bali, Developed countries were able to woo under developed countries on basis of a ‘Special Package’ for them directed toward Social and physical infrastructure. India as a result was isolated in all this, only South Africa extended some support to India’s stand
Trade Facilitation requires member countries to invest in Infrastructure that facilitates Imports and exports, simplify custom procedures and remove other non-tariff barriers.
It should be noted that development of Infrastructure is already a priority for government and it is much desirable in agriculture too, as India is net exporter of agri products. But issue was of 4 years of ‘peace clause’, which now stands removed.
‘Trade facilitation deal’ was marketed by developed countries as a progressive and much needed deal for good of all type of countries. It is being said that it will boost up Global GDP by $ 1 Trillion and will add millions of new job. This argument has a little or no empirical backing and it is feared that western supplier will invade domestic markets of developing and underdeveloped countries. ‘Trade facilitation’ along with ‘special package’ is like saying that gains of developed countries will be so big, that losses of under-developed countries will be lucratively compensated by them.
- Latest – Nairobi Ministerial Meet – 2015: Recently concluded Nairobi meet was a huge disappointment for the developing and under developed world. Here, U.S. trade Representative unabashedly called Doha Development Agenda a dead, outdated and undesirable course. West is desperately trying to set aside development aspect of negotiations, to which it had agreed in Doha. Its focus is now on Trade Facilitation Agreement which was agreed to in Bali meet. Further, they are trying to introduce new issues (including some Singapore issues) such as Government Procurement, E-commerce, Investment, Competition policy. To this India and other developing countries took strong objection.
In the run-up to the Nairobi meeting, a large majority of developing countries led by India, China, South Africa, Indonesia, Ecuador, and Venezuela prepared the ground to ensure that the Doha Round of negotiations are not closed by the two trans-Atlantic trade elephants. They also tabled detailed proposals for a permanent solution for public stockholding programmes for food security and a special safeguard mechanism (SSM) to protect millions of resource-poor and low-income farmers from the import surges from industrialized countries.
Again, the two proposals were actively opposed by the US, which led a sustained campaign to ensure that there was neither an outcome on continuing DDA negotiations nor a deal on SSM and public stockholdings for food security.
Highlights of Nairobi outcomes:
- There was a commitment to completely eliminate subsidies for farm exports
Under the decision, developed members have committed to remove export subsidies immediately, except for a handful of agriculture products, and developing countries will do so by 2018. Developing members will keep the flexibility to cover marketing and transport costs for agriculture exports until the end of 2023, and the poorest and food-importing countries would enjoy additional time to cut export subsidies.
- Ministers also adopted a Ministerial Decision on Public Stockholding for Food Security Purposes. The decision commits members to engage constructively in finding a permanent solution to this issue. Under the Bali Ministerial Decision of 2013, developing countries are allowed to continue food stockpile programmes, which are otherwise in risk of breaching the WTO’s domestic subsidy cap, until a permanent solution is found by the 11th Ministerial Conference in 2017.
- A Ministerial Decision on a Special Safeguard Mechanism (SSM) for Developing Countries recognizes that developing members will have the right to temporarily increase tariffs in face of import surges by using an SSM. Members will continue to negotiate the mechanism in dedicated sessions of the Agriculture Committee. (This means issue is not closed and still under negotiation).
- There were other decisions of particular interests of least developing Countries. One of them is Preferential Rules of Origin. It entails that ‘Made in LDC’ products will get unrestricted access to markets of non-LDCs.
- There was affirmation that Regional Trade Agreements (RTAs) remain complementary to, not a substitute for, the multilateral trading system (WTO).
- Ministers acknowledged that members “have different views” on how to address the future of the Doha Round negotiations but noted the “strong commitment of all Members to advance negotiations on the remaining Doha issues.
Impact of Reginal trade agreements/ Trans pacific Partnership (TPP) on WTO
Association of South East Asian Countries (ASEAN), European Union, North American Union etc. are some associations that provide more liberal and seamless access of member’s markets to fellow member countries. This runs counter to objectives of WTO which seeks to establish a global rule based system of trading with minimal barriers. However, for so many different countries at different stages of socio-economic development, it is nigh impossible to agree to a common trading regime. Consequently, countries lobby with group of likeminded countries and aim at arriving at a mutually symbiotic agreement which ensures a win-win deal for all participants.
Entering into a free trade agreement or formation of custom union may at times violate ‘Most favorable Nation’ principle of WTO. Hence, most such agreements are entered into keeping in mind exceptions allowed by MFN principle. Agreements while giving preferential treatment to few members must not create new trade barriers for nonmembers.
Recently, 12 nations led by United States concluded a Trans Pacific Partnership Treaty (TPP). Treaty includes both developed and developing nations (like Vietnam, Peru, and Chile). The contents of this treaty are on the lines of stand taken by U.S. in WTO negotiations. It provides stringent provisions for Labor Standards, Environment Standards and Intellectual Property. Further, it gives power to private corporations, to sue member countries for violation of terms of treaty. US’s biggest trade partner China is not party to treaty. Negotiations led by US are underway for a similar treaty with European countries, dubbed as Trans-Atlantic partnership.
On the other hand India and China are participating in and leading negotiations of Regional Comprehensive Economic partnership (RCEP) Agreement. This agreement is likely to reflect interests of developing countries in its final draft.
It is said that when such strong regional agreement (TPP and RCEP) will emerge reflecting different positions taken by different countries, negotiations will start among these two groups and over time they will be subsumed under WTO. However, it is feared that US is likely to use its dollar muscle to lure developing and least developed countries to join these not so fair treaties.
It is best said that course of multilateralism is evolving and only time will tell whether WTO will ever be able to provide a common trading platform aimed towards development or not.
Is WTO a friend or foe of India?
India is one of the prominent members of WTO and is largely seen as leader of developing and under developed world. At WTO, decisions are taken by consensus. So there is bleak possibility that anything severely unfavorable to India’s interest can be unilaterally imposed. India stands to gain from different issues being negotiated in the forum provided it engages with different interest groups constructively, while safeguarding its developmental concerns.
In absence of such a body we stand to lose a platform through which we can mobilize opinion of likeminded countries against selfish designs of west. Thanks to vast resources of developed countries they can easily win smaller countries to their side. WTO provides a forum for such developing countries to unite and pressurize developed countries to make trade sweeter for poor countries. Accordingly, India remains committed to various developmental issues such as Doha Development Agenda, Special Safeguard Mechanism, Permanent solution of issue of public stock holding etc.
Apart from this, Dispute Resolution Mechanism of WTO is highly efficient. Chronological list of cases in WTO can be accessed here. Countries drag their trading partner to this body when action of one country is perceived to be unfair and violative of any WTO agreement, by other country.
Cases of Complaints against India
- India — Certain Measures Relating to Solar Cells and Solar Modules (Complainant: United States)
- India —Anti-Dumping Duties on USB Flash Drives from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu(Complainant: Chinese Taipei)
- India —Measures Concerning the Importation of Certain Agricultural Products(Complainant: United States)
- India —Certain Taxes and Other Measures on Imported Wines and Spirits(Complainant: European Communities)
Cases of Complaints by India
- United States —Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Complainant: India)
- Turkey —Safeguard measures on imports of cotton yarn (other than sewing thread)(Complainant: India)
- European Union and a Member State —Seizure of Generic Drugs in Transit(Complainant: India)
Hence, WTO is a body which provides opportunity to aggrieved country to bring unfair trade practices to notice of Dispute Settlement body and to bring an end to such unfair practice. This dimension of WTO makes it a desirable and neutral body as it seeks to create a just global trading system.
What is Indo – US’s WTO problem?
Since end of cold war both countries have witnessed a spectacular improvement in bilateral relations in almost all spheres. However, at WTO platform two countries remain arch rival and leaders of opposite camps. U.S. has severe disliking for India’s position in atleast two spheres – Agriculture and Intellectual Property.
We have already seen that Agreement on Agriculture which was hatched in Uruguay round negotiations is heavily tilted in favor of developed world. For balancing this India as part of Group of developing and least developed nations (G-33) proposed amendment to AOA in 2008. Current quest of G-33, toward achieving permanent solution is follow up story of this proposal only. As of now, Peace Clause agreed to in 2013, allows us perpetually to continue our food stocking program at administered prices, without being dragged into WTO for violation of AOA.
Further, as part of Doha Development Agenda, developing countries managed to tweak ‘Agreement on Trade related aspects of Intellectual Property’ (TRIPS) in favor of developing countries by allowing compulsory licensing in certain circumstances. First compulsory license was granted by Indian Patent Office to NATCO for ‘nexavar’ drug produced originally by German firm Bayer AG.
Since then US pharma industry has been apprehensive of frequent evocation of this principle in developing world. US not only want this concept to be done away with, it also wants a liberal IPR regime which allows evergreening of patents. Indian Patent Act as amended in 2005 allows protection of both product and process, but it allows patent only when there is enhanced efficacy of the substance. If a company re-invents a previously known substance in to new form e.g. from Solid to Liquid, then protection can’t be granted. India due to its promising pharmaceutical industry exploits these powers religiously. Since India’s course is not violative of TRIPS, question of India being challenged in WTO doesn’t arise
Domestic Content Requirement in Solar Panel
Recently, India lost this case to US in WTO’s dispute resolution body. India has prescribed ‘domestic content requirement’ for procurement of Solar cells/panels for its target of installing 100 GW of solar power by 2022. Under this some (about 5%) procurement was reserved to be bought from Indian vendors, to promote indigenous industry. US alleged that this is against principles of Non Discrimination and National Treatment.
India now has appealed against this decision and can get 2 year reprieve from rolling back of scheme.
Earlier this year, WTO had ruled against the Indian ban on import of poultry meat, eggs and live pigs from the US, stating that it was not consistent with international norms.
Recently, U.S. has double the fees for certain categories of H1B and L1 visas to $4,000 and $4,500 respectively. H1B and L1 visas are temporary work visas for skilled professionals. India is the largest user of H1B visas (67.4 per cent of the total 161,369 H1B visas issued in FY14 went to Indians) and is also among the largest users of L1 visas (Indians received 28.2 per cent of the 71,513 L1 visas issued in FY14). India is likely to pursue bilateral discussions over the issue, but as last resort it may head to WTO if nothing comes out.
Why India stayed out of Information Technology Agreement-II in Nairobi?
As many as 53 WTO members agreed in Nairobi to a seven-year time frame to scrap all tariffs on 201 IT products that account for an annual trade of $1.3 trillion. Such a pact is touted to drive down prices of items ranging from video cameras to semi-conductors. However, India had been opposing such an agreement on fears that the deal would benefit only those countries (notably the US, China, Japan and Korea) that have a robust manufacturing base in these products, and not India. This Information Technology Agreement is being called ITA-II. Original ITA was signed in 1996. New ITA aims at expanding lists of items covered and total elimination of custom tariffs in 7 year framework. Since 1996 many new items have creeped in electronics industry which remains outside the ambit of ITA. Current dismal state of Indian electronic industry is often attributed to ITA of 1996. This compelled India to keep certain electronic items tariff free which gave us infamous ‘inverted duty structure’. Here, domestic products are charged to higher excise duty than custom duty on imports. This put Indian manufacturers at serious disadvantage in comparison to foreign vendors.
It is expected that by 2020 India will consume electronic items worth $ 400 billion. As per current situation, out of this it is likely to import atleast goods worth $300 billion. Electronic hardware manufacturing is one of the main components of ‘Make in India’ and ‘Digital India’ program. Hence India stayed away from ITA-II.
How India’s stand differs when it comes to services?
From India’s point of view, services present a different picture from agriculture and industrial tariffs. As an emerging global power in IT and business services, the country is, in fact, a demander in the WTO talks on services as it seeks more liberal commitments on the part of its trading partners for cross-border supply of services, including the movement of ‘natural persons’ (human beings) to developed countries, or what is termed as Mode 4 for the supply of services. With respect to Mode 2, which requires consumption of services abroad, India has an offensive interest.
In sharp contrast, the interest of the EU and the US is more in Mode 3 of supply, which requires the establishment of a commercial presence in developing countries. Accordingly, requests for more liberal policies on foreign direct investment in sectors like insurance have been received. These developed countries are lukewarm to demands for a more liberal regime for the movement of natural persons.
Unlike many developing countries, India has taken offensive positions in this area as it has export interests in information technology (Mode 1). The country also seeks greater access to the EU and the US in terms of the movement of natural persons, or what is termed as Mode 4 in cross-border supply of services. Lack of movement in Mode 4 due to opposition by the US and the EU may affect India’s ability to offer much in other modes of services.
India would also like to see issues like economic needs test, portability of health insurance and other such barriers in services removed. As far as delivery of services through commercial presence (Mode 3) is concerned, there is an increasing trend of Indian companies acquiring assets and opening businesses in foreign markets in sectors such as pharmaceuticals, IT, non-conventional energy, etc. This is further evidenced by the increase in Outward Foreign Direct Investment. India may, therefore, have some interest in seeking liberalisation in Mode 3, although it may need to strike a balance with domestic sensitivities in financial services. Mutual recognition of degrees, allowing portability of medical insurance, reducing barriers to movement of professionals, etc, are some of the areas of interest to India.
An important issue relating to the delivery of services and liberalisation is domestic regulatory reforms. Appropriate domestic regulations are necessary to prevent market failure as well as to address issues like quality control, accreditation and equivalence, effective registration and certification systems, revenue sharing, etc, for protecting and informing consumers. In addition, regulatory frameworks can also advance transparency. Any market access commitments that India might make during the ongoing negotiations must be preceded by an effective regulatory framework. The hiatus in the negotiations could be utilized for putting into place appropriate regulatory regimes in different service sectors.
Some experts are of the view that under the Uruguay Round commitments, developed countries already have a liberal trade regime in Mode 1 (which covers Business Processing Outsourcing or BPOs) with regard to some of the service sectors of interest to India. Further research needs to done to assess the extent of autonomous liberalisation undertaken by developed countries, which can be locked in during the negotiations, and consequent gains that can accrue to India. Further, even in the absence of additional liberalisation, India’s service exports would continue to grow in view of its cost advantage and demography. India could also explore the possibility of finalizing mutual recognition agreements with the main importers of services, so that differences in national regulatory systems do not act as barriers to its exports.
Should India provide market access in Higher Education?
As we have read in General Agreement on Trade in Services, Mode 3 classification covers services provided by a foreign commercial establishment through physical presence in relevant country. Accordingly, western countries are pushing hard to get unrestricted access to Indian education sector under this mode and again India is defensive. India has already made some offers on this front to WTO in run up to Nairobi Meet. Topics are still under negotiation and discussion.
Coverage of higher education in GATS will encourage treatment of education as a tradeable commodity. It is possible that any agreement will curb power of Indian government to provide subsidy and support to the sector. Further, it is likely to affect reservation policy of India. Further, foreign university will consume scarce educational human resource available in India, leaving less competitive domestic and public institution starved of good teachers. It is also feared that this will speed up process brain drain from India as foreign universities are likely to design courses under ambit of their parent institution.
On other hand, India is in desperate need to create more and better quality educational institutions. Gross enrolment in higher education is just 12% while government aims to increase it to 30%. For all this, it is imperative that more investment is attracted in the sector. Overtime due to competition, students will get better educational alternatives and at cheaper costs. However, for this to happen, government has to draw certain redlines while negotiating on the issues of support to public institutions, scholarship to weaker sections and on its reservation policy.
India has to continue its effort to prevent issues of developmental importance to be sidelined. Until this is done WTO cannot impinge upon sovereignty of India. India has already marked red line in sectors such as agriculture by making it clear than there is no scope of compromise on its positions. West has relentlessly tried to project India as rigid and uncompromising negotiator. However, these attributes are better suited to U.S. and other developed countries. They have been backtracking on various commitments under Doha Development Round and desperately trying to bring in new issues including Singapore issues. These issues are prejudicial to interests of majority of countries and vast majority of population. Consequently, majority of countries stand with India after failure of every meet.
India needs to upscale its diplomatic capability. In recent Nairobi meet, it was seen that while developed countries spoke in unison, there was no such unity in developing countries. Brazil, a prominent member of WTO, has already broken away from G-20/33 group and has aligned itself close to position held by developed countries; thanks to its globally competitive agricultural sector. India made a serious effort last year at India- Africa summit to arrive at common agenda for WTO and was largely successful. However, there needs to be larger combined effort in bringing on the common platform of developing nations in all continents. U.S. has been already doing it for several years and that’s partly why it remains most assertive and subtle power in any negotiation.
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