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21
21.2 Business Environment
optional use of world's resources andsustainable development. It was one of
the most notable achievements of the post second world war. The basic
principle of GATT is that each member country agrees not to make unilateral
tariff increases, thus preventing the outbreak of tariff wars. There have been
of global trade talks since 1948. The 3 most recently completed
roundsrounds
cight of GATT agreements-the Kennedy round (completedin 1967), the
Tokyo
have agreed
(completed
round to in 1979)and the Uruguay round (completed in 19931
reduce world tariffs substantially (the first two by l/3rd each
and the last by about 40 percent).
last round created anew body, the World Trade Organisation
fact, thewhich
In(WTO), represented the GATT in 1995. It also created a new legal
mutual
structure for multilateral trading. Under this, all members have equal
countries whe
rights and obligations. Till the WTO was formed, alldevelopingfrom most of its
were members of GATT enjoyed the rights, but were exempt
obligations to liberalise trade. The obligations appliedonly to the developed
countries. Such special treatments were phased out gradually over seven vear
period 1995-2002. There is also a dispute settlement mechanism with greater
the firet
power to enforce rulings over non-tariff barriers than in thepast. In
GATT dealt with
three years, the WTO dealt with 132 complaints, while the
300 complaints in 47 years.
in
In 1997, negotiations involved agreements to lower trade barriers
telecommunications, financial services and information technology, which
were left incomplete in the Uruguay round. This was an important step, because
these agreements greatly increased the amountof trade covered by WTO rules
and dispute settlement procedures. This led to larger trade volumes and cleared
the way for a new global trade round.
By January 2002, the WTO had 144 member countries including China with
30 more, including Russia, hoping to join in. Since 1950, world export volumes
have grown twenty one fold, while world GDP has grown only 7 fold. This
situation would not have been achieved without the liberalisation of
international trade achieved through successive rounds of tariff negotations.

21.2 WTO-OBJECTIVES, FUNCTIONS AND SCOPE

Unlike GATT, WTOhas a permanent legal status with a set of rules, principles
and procedures on multilateral trade agreement, which are not binding on
member countries. Anymember can stay out of an agreement without the need
to sign the same. At the time of its inception, there were 77 members with India
being one of the founding members. Since then, the number of members of
WTO has been rising.
21.2.1 Objectives of WTO
The WTO has further broadened and reframed the obiectives based on the three
principles of (i) non-discrimination, implying acceptance of any reciproca
tariff reduction negotiated by one country with any of its trading partnei
 WTOand India 21.3

(i) eliminations of non-tariff trade barriers such as quotas, except Tor

agricultural products and nations in balance of payments difficulties, (ii)
consultations among nations in solving trade disputes.
Important objectives of the WTO are the following. These are sought to be
achieved through more rigorous and tougher enforcement of policy of export
competition, market access and free trade:
(i) Implementation of the new world trade system as visualised in the
agreement;
(ii) Promotion of worldtrade so as to benefit each country;
better balance
(m)) Ensuring that developing countries are able to secure aforeign trade
of
In the sharing of benefits from the expansion
corresponding to their development needs;
world trading system to faster economic
() Breaking hurdles to an open
growth through tree trade;
among trading partners to benefitconsumers
() Raising competitiveness
through global integration; improve the world
Enhancement ofproduction and productivitylevels to
(vi)
level employment; resources;
Expansion and optimum utilisation of world
(vii) population and
Improvement of the level of living for the worldcountries.
(viii) the member
accelerating economic development of
WTO
21.2.2 Functions of
WTO has declared to perform the following important functions as per
The
itspreamble:
agreements as well as other agreements
(i) To facilitate multilateral trade
Policies Review Body (TPRB)
and their implementation through Trade
of potential concern to the
soas to provide an early warning of trends
participant in the trading system on periodic basis.
nations relating to multilateral
(i) To negotiate all matters of the member their trade related
trade and toprovide them a platform for solving
problems.
settlement of disputes
(ii) To administer rules and procedures concerning
among the trading partners.
implementation
(iv) Tofaclitate the administration, operationalisation and
of multilateral trade agreements.
Bank and their affiliated
(v) To work in tandem with IME, World
trade.
organisations for realising better results in the area of global
21.2.3 Scope of WTO
Earlier, GATT was limited to only trade in manufactured goods. WTO focused
multilateral
on the progressive liberalisation of trade in services under the first
21.4
Business Environment
covers tradein all service sectors andthe
agreement on trade. This agreement
a controversial area, has also been
supply of service in allforms. Agriculture,
included and other areas having implications for the production process of
WTOalong with IMF and World bank
go0ds are being gradually covered. ensuring greater coherence
significantly influence the global trade policy by in
included the Uruguay Round are
Some important agreements of WTO as
the following:
on agriculture ensures that the
(1) Agreement on Agriculture: Agreement of non-tariff quantitativa
participating nations do not maintain any typesminimum import prico
levies,
import restrictions, variable import countries have
discretionary import licensing, etc. All the participating percent of the
thant 5
to reduce domestic support price if it is greater and 10 percent
totalvalue of production in case of developedcountries nations. WTO
of the total value of production in case of developing
bringing down trada
promotes competition in product market. By
barriers and elimination of discriminatory trade practices, WTO
endeavours to increase market access.
agreement aims af
(2) Agreement on Trade of Textile and Clothing: This requires
having free exports of textile and clothing across the countries. It which
the complete eradication of Multi-Fibre Arrangements (MFAs),
had been in practice up to December 1994. MFAs were aseries of
bilaterally negotiated quota restrictions to check/limit the access of
developing countries' textile exports to the developed countries. This
agreementenvisaged that by January 1, 2005, all non-tariff barriers in
textile and clothing industries would be done away with. Reduction/
elimination of non-tariff was to be implemented in phases and the
developing countries were permitted to practice non-tariff barriers, if
the imports were threatening their domestic industries.
(3) General Agreement on Trade in Services (GATS): The basic objective
of this agreement is toattain progressively a liberalised, multinational
mechanism of trade in services (like banking, insurance,
telecommunications, air transport and shipping tourism, etc.) under the
lens of transparency. This would expand and promote economic growth
among the trading countries and would also help under developed
countries in the attainment of economic development. This agreement
would be applicable under the following conditions:
(i) MNCs are permitted to operate across all member countries.
(ii) Each trading partner would accord immediately and
unconditionally to services and service provider of any other
country.
(iii) Ithas been agreed that 'Most Favoured Nation' (MFN) would not
be possible for every service activity. So, parties may ask for specitlC
exemptions, which would be reviewed after five years.
WTO and India

This agreement is extremely important for India as it possesses avast

reservoir of specialists like IT professionals. chartered and cost
accountants, doctors, technicians to the entire worid.Therefore. GATS
would accelerate the trade of professional services.
(4) Agreement on Trade Related Investment Measures (TRIMS): TRIMS
under WTO seek toabolish all restrictions, measures and conditions
imposed on the investments from outside. TRIMS allow foreign
investors to invest any where and every where in the world in any or
every economic activity of their liking. The Agreement further
guarantees that all the units (whether domestic/indigenous or foreign
external) shallbe treated at par without any discrimination amongst
them regarding the terms of regulations and policies. Main features of
Agreement on TRIMs are:
(i) Foreigncapital/investment should be free from restrictions.
(ii) Foreign and domestic investors willbe treated at par.
(ii1) Foreign investors willbe free to choose area of investment.
(iv) No limitation will be imposed by the host country on the extent of
investment. Even 100 percent foreign equity will be permitted.
(v) Investors willbe free to import raw materials, components, inputs
and intermediate goods.
(vi) Utilisation of local raw materials or products will not be made
mandatory for foreign investors.
(vi) Investors willnot be obliged to export a portion of their output.
(vii) No restrictions willbe imposed on the repatriation of dividend.
interest androyalty to their home land.
(ix) Investors will not be subjected to phased manufacturing
programmes.
In this regard, Muchkund Dubey, abureaucrat has expressed some
reservations expressing, "That developed countries have got every thing
they might have desired from TRIMS agreement. In the interest of
developing nations it seems necessary to formulate international rules
for controlling restrictive business practices of foreign investors."
However, TRIMS agreement does not take any cognizance of this
observation.
(5) Agreements on Trade Related Intellectual Properties (TRIPS): TRIPs
may be termed as information/intellectual property having commercial
value. The agreement covers copyrights, trademarks, trade secrets,
patents, industrial designs, geographical indicators, integrated circuits,
etc. Main features of TRIPS are:
(i) Each member to get protection through exclusive rights, returns
in the form of fee or royalty for under taking innovations;
 21.6
Business Environment
(ii) To ensure a balance between the interest of the innovator on the one

and the users on the other:

(iii) hand
Dispute Settlement Body will solve/settle disputes between the WTO
members.
The member countries of the WTO are expected to practice TRIPS
through necessary laws and regulations and enforce effective
implementation againstany infringements. TRIPS has fixed atransition
period of 5years for developing countries and eleven years for less
developing countries.
ECONOMY
21.3 IMPACT OF WTO ON INDIAN
written abot th
After Uruguay agreements (1993), much has been said and
possible positive or negative impact of WTO on India, which mav ha
mentioned as followS:
In Sunna.
(1) Reduction in Subsidies and Conservation of Resources:
of WTO, it is said that it will improve the economic condition of India
It willhelp in attaining high standards of research, development and
productivity. Technological advancement will take place. Excessive
utilisation of non-renewable productive resources due to rise in
population, will be checked.In this way, it will become possible to
conserve productive resources.
(2) Increase in Exports of FoodGrains: After the reduction in subsidy on
agriculture, the cost of productionand prices of agricultural goods will
rise in worldmarkets. Indian agriculturalists will gain by this rise in
prices.
(3) Freedom to Use Improved Seeds: Farmers willhave the benefit of using
improved seeds prepared by MNCs. Economicliberalisationmay help
India's agriculture.
(4) Expansion of Trade and Transfer of Technology: It is estimated that
value of world trade willincrease by $ 250 billion. India's position in
the exports of ready made garments is quite good. So, India will gain by
the prosperity in world trade.
(5) Benefits to Service Sector: After the inclusion of trade in services under
WTOproposals, India will benefit. With the expansion of trade in
service sector, unemployed people in India will get employment.
(6) Investment Measures: As per the provisions of TRIMS of WTO, India
stands to gain. It willallow the Indian government to exercise its right
tolimit and cannelise the foreign investment in trade.
Critics argue that agreements of WTO0 will only harm UDCs like India. It
seems, their fears are also not unfounded. Supporters of Marxist ideology (like
of Somnath Chatterjee and Brinda Karat) will argue that WTO documents will
WTOandIndia 21.7

make India acolony of the developed countries of the world. Following

arguments are put forth by them:
(1) Slashing Down Subsidy:India being acountry of smalland marginal
farmers, any reduction in subsidy, as per the agreements of WTO will
hit hard the poor farming class of the country.
(2) Branded Seeds May Fuel Existing Inequalities in Rural India: Only
capitalist farmers will be able to make use of costly branded seeds.
developed by MNCs. Poor and marginal farmers will not be able to use
such seeds. This willonly widen the gap between the poor farmers and
the rich capitalist farmers.
(3) TRIMS and India: As per TRIMS, India willnot be able to impose any
restriction on foreign investments. MNCs will set up industries in the
cOuntry and the domestic units of such industries willnot be able to face
competition. Consequently, domestic industry may get marginalised.
(4) TRIPS: TRIPSwill discourage the progress of research, development
standards for all
and innovation in India. The imposition of uniform
result in the
member countries (developed and under developed) will will only
It
discouragement of the process of research and innovation. services.
medical
aggravate the backwardness of our agriculture and
panacea for all the ills
WTOdocuments cannot be expected to provide a
with which India suffers.

Check Your Progress

1. Explain the objectives, functions and scope of world trade organisation
(WTO).
2. Discuss the functioning of the World Trade Organisation. Justify the
membership of it for India.
3. How WTO is expected to affect the agriculturally dominated countries like
India?
4. Write short notes on:
(i) GATT
(ii) WTO and India
(iii) General Agreement on Trade in Services (GATS)
(iv) Trade Related Investment Measures (TRIMS)
(v) Trade Related Intellectual Property Rights(TRIPS)