The World Trade Organisation (WTO)

A Brief History

The Shortcomings of GATT

As a result of these shortcoming’s the WTO was established as an international organization that will oversee the operation of rule based multilateral trading system. The WTO is based on series of trade agreements negotiated during the Uruguay Round (1986-1994). The Marrakesh treaty established the WTO at the end of Uruguay round.

The Uruguay Round (1986-1995)

Guiding Principles of The WTO

Major Agreement of the WTO

Export Subsidies under AOA

• Developed countries needs to reduce the value and volume of export subsidies by 36 percent and 24 percent respectively over a 6-year period.
• Developing countries had a milder commitment of 24 percent and 10 percent respectively over 10 years period.
• The export subsidies in the AOA (Part V, Article 9) that are subject to reduction commitments include:
• Direct subsidies to agricultural producer’s contingent on export performance;
• Subsidies on agricultural products contingent on their incorporation in exported products;
• Provision on favorable terms of internal transport and freight charges on export shipments (developing countries are exempt from commitments on this form of subsidy provided that it is not used to circumvent reduction commitments),
• Subsidies to reduce the cost of marketing exports of agricultural products excluding export promotion and advisory services (here again, developing countries are conditionally exempt from reduction commitments);
• Sale or disposal for export of non-commercial stocks of agricultural products by the government or its agencies at a price lower than the comparable price charged for a like product by buyers in the domestic market
• Payments on the export of an agricultural product that are financed by virtue of governmental action whether or not a charge on the public account is involved, including payments that are financed from the proceeds of a levy imposed on the agricultural product concerned or on an agricultural product from which the exported product is derived.

Domestic Support under WTO

Domestic support was divided into three kinds of boxes, each representing a different kind of subsidies.

Green Box:

• Green box subsidies are considered to be minimum trade distorting in terms of production and trade.
• Direct income support schemes unlinked to production are examples of the green box. Research and Development support, Providing extra income to farmers etc falls under this category
• Subsidies under green box does not have any reduction commitments under AOA.
• The subsidies provided by Rich nations mostly comes under green box.

Blue Box:

• Blue box subsidies are considered somewhat less trade distorting, while they directly link production to subsidies, they also set limits on production by imposing quotas.
• Blue Box subsidies are also exempt form reduction commitments.

Amber Box:

• Amber box subsidies constitute all form of domestic support that is considered trade distorting by encouraging excess production.
• Under WTO principles, “amber box” subsidies create trade distortions because they encourage excessive production through farm subsidies to fertilizers, seeds, electricity and irrigation.
• Within the amber box, de minimus is the minimal amount of subsidy WTO permits at 1986-88 prices. The de minimus figures for developed and developing countries are at five and 10 per cent of their agricultural production respectively.

General Agreement on Trade in Services

• For the first time, trade in services like banking, insurance, travel, transportation, movement of labour was brought within the ambit of negotiations in the Uruguay round.
• The GATS provide multilateral framework of principles and services under condition of transparency and progressive liberalisation.
• Negotiations is services under GATS are classified in 4 modes, interests of different countries depend upon this classification:

Trade Related 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.
• Prior to the TRIPS agreement the IPR concerning the trade including patent, trademarks, copyrights and industrial designs were governed by the Paris Convention of 1863.
• The Paris convention was fairly liberal and left the subject matter of patents and IPR on the respective governments.
• Under these lose laws the commercial interests of the Developed countries were adversely affected.
• Therefore, TRIPS was concluded during Uruguay Round.

Trade Related Investment Measures

• 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 the procurement of Solar Energy cells and equipment.

India and the WTO

Indian was one of the 23 founding members of erstwhile GATT. India is also a leader of groups like G 33 and G 77 representing least developed countries. India in initial years due to its policies of import substitution and protecting infant industry was never very active in negotiations.

India at the WTO meetings

Source: Compiled from WTO website, Ministerial document and other sources.

Recent WTO negotiations and India

• Doha round of trade negotiations has been under way since 2001.
• The negotiations cover several areas such as agriculture, market access, Trips, dumping and anti-dumping and trade facilitation.
• The conduct, conclusion and entry into force of the outcome of the negotiations are part of ‘Single undertaking’ that is nothing is agreed until everything is agreed.
• The Doha round has made very little progress. The subject of DDA featured in almost every round of talks, but nothing substantive has come out.
• In October 2011, efforts were made by some of the developed countries to use the G 20 summit to advance the agenda for eight ministerial conference scheduled to be held in Geneva in 2011.
• They wanted to set the stage for plurilateral agreements on selected issues in the WTO negotiations rather than multilateral negotiations. Also, they wanted to introduce new issues for negotiation, namely climate change, energy security and food security.
• These proposals are however strongly objected by various members including India.
• At the Geneva conference, during 15-17 December 2011, ministers adopted a number of decisions on IPR, electronic commerce, small economies, LDC’S accession and trade policy reviews.
• A number of members expressed strong reservations against PLURILATERAL approaches. Members including India stressed that any different approaches in work ahead should conform to the Doha mandate, respect the single undertaking and should be multilateral, transparent and inclusive.
• Many members highlighted the importance of agriculture negotiations, trade facilitation, special and differential treatment and NTMs.
• Developing countries, including India, China, Brazil and South Africa met on the sidelines of the conference and issued a declaration emphasizing the development agenda.

India at the Bali Conference

• The Bali ministerial conferences of WTO ended in encompass.
• The two most important issues among many taken at Bali conference are agreement on trade facilitation and public stockholding for food security purpose.
• The former relates to removing red tapes, reduction of administrative barriers to trade, documentation and transparency, latter deals with the procurement and distribution by government agencies for food security purpose.
• At the meeting, India maintained its stand that any agreement on trade facilitation must not be taken until a permanent solution is granted for public stockholding issues for food security.
• Despite intense pressure from the USA, India refused to abide and has allowed the deadline of TFA to pass.
• The important development during the conference was that India not being able to gather the support of other Developing and LDCs countries despite the fact the LDCs have generally backed the issue of food security.
• Only three countries Cuba, Bolivia and Venezuela backed India. This signifies that developing countries are divided on the issue of Trade facilitation as it is most likely to benefit the developing countries.

By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University