Wto

WTO & its Implications WTO: World Trade Organization •

A Multi-lateral organization which facilitates the free flow of goods and services across the world and encourages fair trade among nations.

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The result is that the global income increases due to increased trade and there is supposed to be overall enhancement in the prosperity levels of the member nations. •

1947: GATT (General Agreement on Tariffs and Trade)- Reduce tariffs as financial barriers to trade.

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1995: WTO (World Trade Organization) - trade in goods + agriculture + services + intellectual property -binding trade disputes procedure ; Facilitate global corporate transactions.

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Barriers to trade of goods = Tariffs

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Barriers to trade in services = Measures ( Regulations, Laws, Administrative Rulings)

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148 members (3/4 developing countries)

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Ministerial conference (every 2 years)

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General Council (monthly) •

oversees day to day operations

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directs the dispute settlement system

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incharge of the trade policy review mechanism

WTO: purposes •

To assist the free flow of trade by facilitating the removal of trade tariffs or other border restrictions on the import and export of goods and services - Multilateral trade agreements (MLAs)

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To serve as a forum for trade negotiations

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- Most favoured nation clause - National treatment clause - exceptions: poor countries •

To settle trade disputes based upon an agreed legal foundation

Principal Objectives of WTO •

To help trade flow smoothly, freely, fairly and predictably;

1) Trade without Discrimination:•

Trade without discrimination through the application of Most Favoured Nation (MFN) Principle. As per MFN clause, a member nation of WTO must accord (give) the same preferential treatment to other member nations which it gives to any other member nation.

2) Raising The Standard Of Living:•

Raising the standard of living and incomes and ensuring full employment of the citizens of its member nations.

3) Optimum Use of World's Resources:•

Ensuring optimum use of world's resources and, thereby, expanding world production and trade of goods as well as services.

4) Settlement of Disputes:•

Settlement of disputes among members through consultation, conciliation, and as a last resort through dispute settlement procedures.

5) Growth of Less Developed Countries (LDCs):•

It recognizes the need for positive efforts designed to ensure that developing countries especially the LDCs, secure a better share of growth in international trade.

6) Protection of Environment 7) Enlargement of Production and Trade 8) Employment

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WTO: Functions To meet its objective, WTO performs the following Functions 

Administering W.T.O Trade Agreements.

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Acting as a Forum for trade negotiations.

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Settling and Handling Trade disputes

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Monitoring and reviewing national trade policies,

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Assisting the member in trade policies through technical assistance and training programmes

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Technical assistance and training for developing countries.

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Co-operation with other International Organization

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Implementation Of Reduction In Trade Barriers

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Assistance to IMF and IBRD to achieve greater coherence in global economic policy.

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Administration of Agreements- WTO shall look after the administration of 29 agreements (signed at the conclusion of Uruguay Round in 1994), plus a number of other agreements, entered into after Uruguay Round.

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Examination of Trade Policies- WTO shall regularly examine the foreign trade policies of member nations, to see that such policies are in line with WTO’s guidelines.

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Consultancy Services

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Collection Of Foreign Trade Information

WTO Principles: 1. Non-Discrimination •

This is a very simple principle which advocates that every member country must treat all its trading partners equally without any discrimination, meaning that if it offers any special concession to one trading partner, such concessions need to be extended to its other trading partners as well in entirely.

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2. Reciprocity •

This Principle reflects that any concession extended by one country to another need to be reciprocated with an equal concession such that there is not a big difference in the countries Payments situation. This was further relaxed for developing countries facing severe Balance of Payments crisis.

3. Transparency •

The multilateral trading system is an attempt by governments to make the business environment stable and predictable. Thus this principle ensured that there is lots of transparency in the domestic trade policies of member countries.

WTO : Key principles •

Non discrimination

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Transparency: all regulations accessible and open to appeal

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Temporary exemption: to MFN and NT i.e., on short-term economic crises

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Lock-in effect: once a commitment is made, it is very difficult to withdraw it

Following are the ten ways in which the organization affects the world Trade and its member countries 1. The system helps promote peace 2. Disputes are handled constructively 3. Rules make life easier for all 4. Freer trade cuts the costs of living 5. It provides more choice of products and qualities 6. Trade raises incomes 7. Trade stimulates economic growth 8. The basic principles make life more efficient 9. Governments are shielded from lobbying 10. The system encourages good government WTO Agreements

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•

The WTO Agreement - “an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations” (Preamble, para.4).

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The agreement

defines

the

functions

of

the

organization,

its

structure, the qualifications for membership, and decision-making procedures and requirements. •

It also calls for efforts to improve the coherence of global economic policy-making. However, the WTO Agreement itself contains no substantive trade policy obligations: these are to be found only in the annexes.

WTO: The legal framework: •

Annex 1 contains most of the detailed rules, and is divided into three sections: •

1A, containing the revised General Agreement on Tariffs and Trade, the other agreements governing trade in goods, and a protocol which ties in individual countries’ specific commitments on goods;

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1B, the General Agreement of Trade in Services, texts on specific services sectors, and individual countries’ specific commitments and exemptions; and

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1C, the Agreement on Trade-Related Aspects of Intellectual Property Rights.

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Collectively, the agreements included in Annex 1 are referred to as the Multilateral Trade Agreements, since they comprise the substantive trade policy obligations which all the members of the WTO have accepted.

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Annex 2 sets the rules and procedures for dispute settlement. Annex 3 provides for regular reviews of developments and trends in national and international trade policy.

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Annex 4 covers four “plurilateral” agreements (later reduced to two) which are within the WTO framework but which have limited membership.

WTO : Multilateral trade agreements (MLAs)

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Agriculture Agreement

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Agreement on Technical Barriers to Trade (TBT)

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Agreement on Sanitary and Phytosanitary Measures (SPS)

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Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)

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General Agreement on Trade in Services (GATS)

The main agreements of WTO are 1) Agreement On Agriculture (AOA) :Objective: to increase market orientation in agriculture trade. •

It provides for commitments in the area of market access, domestic support and export competition.

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The members have to transform their non-tariff barriers like quotas into equivalent tariff measures.

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2)

Agreement

on

Trade

In

Textiles

And

Clothing

(Multi

– Fibre

Arrangement):•

This provides for phasing out the import quotas on textiles and clothing in force under the Multi - Fibre Arrangement since 1974, over a span of 10 years i.e. by 1st January, 2005.

3) Agreement on Manufactured Goods •

The developed countries agreed to reduce tariffs on manufactured goods other than textiles by 40%. The tariffs would now be brought down to an average of 3.8% from earlier 6.3%.

4) Agreement on TRIMs •

An Agreement on Trade Related Investment Measures (TRIMs) calls for introducing national treatment of foreign investments and removal of quantitative restrictions.

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Certain investment measures that discriminate investment were to be withdrawn such as

against

foreign

 Obligation on foreign investors to use local inputs.  To produce for exports as a condition to obtain imported inputs.  To meet export obligation.  Employment of local people.  Technology Transfer requirements.  Use of specific production technology.  Local equity requirement.  Control on use of imported inputs. The member nations of WTO including India have withdrawn the above measures to encourage trade related investment. Positive Impact of TRIMs:TRIMs agreement have positive impact on developing countries as foreign investment is treated at par with domestic investment.

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For Eg. TRIMs agreement will encourage foreign firms to invest in India. This will generate a good amount of competition. In order to survive, Indian firms will have to be proactive with competitive strategies, which not only would improve their performance, but also would provide better service to customers. Negative Impact of TRIMs:Developing countries (including India) have withdrawn a number of measures that restricts foreign investments. TRIMs agreement also favours developed nations. MNCs from developed countries with their huge financial and technological resources can displace Indian industry and play a dominant role. Besides foreign firms will be free to remit profits, dividends, etc. to parent company. This will cause foreign exchange drain on developing nations. 5) Agreement on TRIPs Trade Related Intellectual Property Rights (TRIPs) pertain to Patents and Copyrights. Whereas earlier on process patents were granted to food, medicines, drugs and chemical products, the TRIPs Agreement now provides for granting product patents also in all these areas. 6) General Agreement On Trade And Services (GATS) For the first time, trade in services like banking, insurance, travel, maritime transportation, mobility of labour etc. has been brought within the ambit of negotiations. The General Agreement on Trade in Services (GATS) provides a multilateral framework of principles and services which should govern trade in services under conditions of transparency and progressive liberalization. GATS has two major requirements 1) To grant the Status of Most Favoured Nation (MFN) to other member nations on non-discriminate basis with regard to trade in services and 2) Maintenance of transparency. There is also commitment for progressive liberalization. The inculsion of Services in agreement shows their growing importance in world economy. Under GATS, India has made commitment for 33

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activities where foreigners are allowed to enter. The choice of activities have been based on national benefit like impact on capital inflows, technology, employment etc. Improvements in the quality of service that will emerge from liberalisation and increased competition will contribute to increase in efficiency, productivity, consumer welfare and growth in developing countries. No doubt there is a wide difference in the quality of services rendered between the developed and developing countries. The inclusion of trade in service sector is likely to be more beneficial to developed countries than to developing countries. Positive Impact of GATS:GATS provide an opportunity not only to avail services from other member countries but also to increase the quality of its own services due to competition. Foreign firms are allowed in number of service sectors. Through joint ventures or partnership foreign firms may enter in India. This will enable Indian firms to expand and diversify their service activities with professional expertise and foreign support. In many developing countries, sectors like travel and tourism, hotels, retail trading, banking, insurance, education and communication are open for international competition. Negative Impact of GATS:In GATS agreement member nations have to open up the services sector for foreign companies. Developing countries including India have opened up the services sector in respect of banking, insurance, communication, telecom, transport etc. to foreign firms. Developing countries may find it difficult to compete with giant foreign firms due to lack of resources and professional skills. 7) Disputes Settlement Body The Disputes Settlement Body (DSB) set up under WTO seeks to plug the loopholes and provide security and predictability to the multilateral trading system. In addition to the above, the Uruguay Round also reached agreements on the understanding and implications of certain articles of GATT 1947, viz, pre-

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shipment inspection, rules of origin, import licensing, anti - dumping measures and countervailing duties, safeguards, subsidies etc. WTO rules and Public health •

Goods: GATT

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Technical barriers to trade: SPS, TBT

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Intellectual property and trade : TRIPS

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Services: GATS

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Right to regulate trade : TPRM

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Trade dispute resolution

Specific Health Issues and Most relevant WTO Agreements

Progressive Liberalization and Health Policy •

WTO (WHO) members will face decisions whether to liberalize trade in services through market access and national treatment commitments, including trade in health-related services

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GATS 2000 round of liberalization negotiations potentially affects health policy in two areas:  Evaluating requests from other countries for, and offers to other countries of, specific commitments for market access and national treatment

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 Negotiations on GATS rules WTO AGREEMENTS ON TRADE IN SERVICES – IMPLICATIONS General Agreement on Trade in Services (GATS) •

GATS is one of the most important trade agreements to emerge from the Uruguay Round negotiations that created the World Trade Organization (WTO)  Services are one of the fastest growing areas for many economies  Services of many kinds play important roles in the protection and promotion of health  GATS provides the multilateral legal framework for liberalizing international trade in services

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GATS creates numerous challenges for people working in public health  GATS is a complex legal agreement that borrows from existing international trade law to create new rules for services  GATS has become the subject of significant controversy, especially with respect to how the Agreement will affect health-related services and health policy

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GATS covers policies, practices and laws that affect trade in services among WTO members.

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GATS contains general obligations and disciplines, such as mostfavored-nation treatment, that apply to all measures affecting services within the scope of the Agreement.

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GATS allows WTO members to make specific commitments on market access and national treatment and to tailor those commitments to national policy ends.

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GATS sets the objective of progressive liberalization of trade in services, meaning that WTO members will negotiate over new specific commitments in service sectors subject to the Agreement.

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The process of progressive liberalization under GATS requires the active involvement of health policy-makers.

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Before making any specific commitment under GATS, governments should ensure they have thoroughly assessed the implications of opening health systems to foreign services and the potential costs and benefits of making legally binding commitments.

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Countries may wish to experiment through autonomous liberalization of certain health related services, and only make commitments under GATS after a careful assessment of its effects.

GATS – Four ways of supplying services as trade in services: MODE

MEANING

Mode 1

Trade takes place from-

Cross-border trade

EXAMPLE Telehealth,

the territory of country Laboratory A into that of B

Medical

services,

Transcribing, Research

and

Experimental development. - Passing of information by means of fax or email

Mode 2 Consumption abroad

Services

consumed

by-

Tourism,

Medical

and

nursing

nationals of country A ineducation provided to foreign students territory of country B

and trainees. -

Consumers

who

cross

borders

to

obtain medical treatment Mode 3 Commercial presence

A

service

country

A

supplier crosses

Movement of natural

thea European company in Ecuador

border to establish and provide

a

service

country B Mode 4

of- Establishment of a private hospital by

Temporary

in

Health insurance companies, Physician Practices, Diagnostic facilities , Clinics

movement- Doctors , nurses and allied health

from country A to B to professionals supply a service

persons

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moving

to

another

country to temporarily provide their services

Managing the GATS Process from a Health Policy Perspective: Principles •

Liberalized trade in health-related services should lead to an optimal balance between preventive and curative services

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Involvement of both private industry and civil society is important to ensure that liberalization of health-related services promotes participatory health policy.

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Improving access and affordability of health-related services should be a goal of liberalization of trade in health-related services.

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The status of health as a human right should inform and guide proposals to liberalize trade in health-related services.

Key Questions •

To what extent is the sector already open to foreign service providers, and what have been the regulatory concerns posed by existing foreign competition?

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Do the commitments fit the strategies and directions identified by national health policy?

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What effect would the commitments have on government-provided health services?

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What regulatory burdens would the commitments create for the government in health-related sectors?

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Would the commitments eliminate or weaken regulatory approaches necessary for the protection and promotion of health?

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What evidence and principles can be brought to bear to analyze the possible effect of the commitments?

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Can the commitments be crafted both to protect health policy and to liberalize trade progressively?

Trade related aspects of Intellectual Property Rights (TRIPS) Intellectual property Rights seek to protect the interest of inventors and developers of products and processes from being copied by others. It is also one of the WTO multilateral agreements having a major impact on health sectors in member countries because it affects access to medicines and medical equipment in several ways: • The impact of intellectual property rights under TRIPS will influence patent protection of medicines and other health-related products, and therefore the prices of such products are expected to rise. • The ability to produce generic versions of patented medicines is limited due to patent restrictions and restrictions on reverse engineering. • TRIPS has an impact on allocation of research and development funds. Claims were made that TRIPS contributed towards a boost in research and development activities in the pharmaceutical sector of developed economies, in contrast to what was originally promised from TRIPS. Those avenues of impact can lead to issues related to accessibility and affordability of medicines, and can thus undermine public health in many developing countries.  Agreement on TRIPs cover the following areas: Copyright and related rights, trade marks including services marks, industrial designs, geographical indications, patents, layout designs of integrated circuits and protection of undisclosed information or trade secrets. Disputes over TRIPs agreement are to be governed by WTO dispute settlement procedures. TRIPs agreement desires to reduce distortions and impediments to international trade while protecting intellectual property rights.

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Positive Implications of TRIPs AGREEMENT :1) Patents:Under Agreement on TRIPs, protection is given to patents, copyrights, layout designs etc. For Eg.:- when patented drugs get exclusive marketing rights for certain period, and if some other firm wants ' to use that products name, they have to take permission from patent holder. Permission may be given only after signing agreement for royalty or fees. 2) Public Health:The Doha Conference held in Doha, Qatar in Nov. 2001, recognized the need to protect public health and to provide medicines to all. 3) Geographic Indication Status (GIS):WTO also provides GIS for certain items. Once a country gets GIS, the firms from only that country can use the generic brand name. For Eg. : - India has obtained GIS for Darjeeling Tea and also for other products. This means, only Indian firms can use Darjeeling Tea brand, which shows Darjeeling Tea produced in India is unique. Negative Implications of TRIPs AGREEMENT 1) Favours Developed Nations As under TRIPs, protection is given to IPRs such as patents, trademarks, layout designs etc. Thus it favours developed nations as they have large number of patents. 2) Agriculture In Agriculture patenting of plant varieties is done through TRIPs. This may have serious implications for developing countries. MNCs are in a position to develop almost all new varieties with the help of their financial resources and expertise. This may transfer all gains in the hands of MNCs. 3) Micro - Organisms

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Research in Micro-organisms is closely linked with the development of agriculture, pharmaceuticals and industrial biotechnology. Patenting of Microorganisms again will benefit MNCs.

Explain the impact of WTO Agreements on Indian Economy. OR Analyse the impact of WTO agreements on India. What are its Pros and Cons? IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY:The signing of WTO agreements will have far reaching effects not only on India’s foreign trade but also on its internal economy. Although the ultimate goal of WTO is to free world trade in the interest of all nations of the world, yet in reality the WTO agreements has benefitted the developed nations more as compared to developing ones. The impact of WTO on India’s economy is staged as follows:I. Positive Impact / Benefits / Advantages / Gains from WTO:1) Increase in Export Earnings:Estimates made by World Bank, Organisation for Economic Co-operation and Development (OECD) and the GATT Secretariat, shows that the income effects of the implementation of Uruguay Round package will be an increase in traded merchandise goods. It is expected that India’s share in world exports would improve. 2) Agricultural Exports:Reduction of trade barriers and domestic subsidies in agriculture is likely to raise international prices of agricultural products. India hopes to benefit from this in form of higher export earnings from agriculture. 3) Export of Textiles And Clothing:-

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With the phasing out of MFA (Multi - Fibre Arrangement), exports of textiles and clothing will increase and this will be beneficial for India. The developed countries demanded a 15 year period of phasing out of MFA, the developing countries, including India, insisted that it be done in 10 years. The Uruguay Round accepted the demand of the latter. But the phasing out Schedule favors the developed countries because a major portion of quota regime is going to be removed only in the tenth year, i.e. 2005. The removal of quotas will benefit not only India but also every other country'. 4) Multilateral Rules and Disciplines:The Uruguay Round Agreement has strengthened Multilateral rules and disciplines. The most important of these relate to anti - dumping, subsidies and countervailing measures, safeguards and disputes settlement. This is likely to ensure greater security and predictability of the international trading system and thus create a more favourable environment for India in the New World Economic Order. 5) Growth to Services Exports:Under GATS agreement, member nations have liberalised service sector. India would benefit from this agreement. For Eg:- India’s services exports have increased from about 5 billion US $ in 1995 to 96 billion US $ in 2009-10. Software services accounted for about 45% of service exports. 6) Foreign Investment:India has withdrawn a number of measures against foreign investment, as er the commitments made to WTO. As a result of this, foreign investment and FDI has increased over the years. II.Negative Impact / Problems / Disadvantages of WTO Agreements on Indian Economy:1) TRIPs:The Agreement on TRIPs at Uruguay Round weights heavily in favour of Multinational Corporations and developed countries as they hold a very large number of patents. Agreement on TRIPs will work against India in several ways

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and will lead to monopoly of patent holding MNCs. As a member of WTO, India has to comply with standards of TRIPs. The negative impact of agreement on TRIPs on Indian economy can be stated as follows A) Pharmaceutical Sector:Under the Patents Act, 1970, only process patents were granted to chemicals, drugs and medicines. This means an Indian pharmaceutical company only needed to develop and patent a process to produce and sell that drug. This proved beneficial to Indian pharmaceutical companies as they were in a position to sell quality medicines at low prices both in domestic as well as in international markets. However, under the agreement on TRIPs, product patents needs to be granted. This will benefit the MNCs and it is feared that they will increase the prices of medicines heavily, keeping them out of reach of poor. Again many Indian pharmaceutical companies may be closed down or taken over by large MNCs.

B) Agriculture:The Agreement on TRIPs extends to agriculture through the patenting of plant varieties. This may have serious implications for Indian agriculture. Patenting of plant varieties may transfer all gains in the hands of MNCs who will be in a position to develop almost all new varieties with the help of their huge financial resources and expertise. C) Microorganisms:Patenting of micro - organisms will again benefit large MNCs as they already have patents in several areas and will acquire more at a much faster rate. 2) TRIMs :Agreement on TRIMs provide for treatment of foreign investment on par with domestic investment. This Agreement too weights in favour of developed countries. There are no provisions in Agreement to formulate

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international rules for controlling restrictive business practices of foreign investors. In case of developing countries like India, complying with Agreement on TRIMs would mean giving up any plan or strategy of self - reliant growth based on locally available technology and resources. 3) GATS:One of the main features of Uruguay Round was the inclusion of trade in services in negotiations. This too will go in favour of developed countries. Under GATS agreements, the member nations have to open up services sector for foreign companies. The developing countries including India have opened

up

services

sector

in

respect

of

banking,

insurance,

communication, telecom, transport etc. to foreign firms. The domestic firms of developing countries may find it difficult to compete with giant foreign firms due to lack of resources & professional skills. 4) Non - Tariff Barriers:Several countries have put up trade barriers and non - tariff barriers following the formation of WTO. This has affected the exports from developing countries. 5) Agreement on Agriculture (AOA) The AOA is biased in favour of developed countries. The issue of food security to developing countries is not addressed adequately in AOA. The existence of global surpluses of food grains does not imply that the poor countries can afford to buy. The dependence on necessary item like food grains would adversely affect the Balance of Payment position. 6) Inequality within the Structure Of WTO There is inequality within the structure of WTO because the agreements and amendments are in favour of developed countries. The member countries have to accept all WTO agreements irrespective of their level of economic development. 7) LDC Exports The 6th Ministerial Conference took place at Hong Kong in December 2005. In this Conference, it was agreed that all developed country members

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and all developing countries declaring themselves in a position to do so, will provide duty - free and quota - free market access on a lasting basis to all products originating from all Least Developed Countries (LDC). India has agreed to this. Now India's export will have to compete with cheap LDC exports internationally. Not only this, the cheap LDC exports will come to Indian market and compete with domestically produced goods. Conclusion: India will face several problems in the process of complying with WTO agreements, but it can also reap benefits by taking advantage of changing international business environment. For this it needs to develop and concentrate on its areas of core competencies.

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