World Trade

Organization: WTO
Recent developments in view of India
8/27/2014

Contents
Prior to WTO: ...................................................................................................................................... 3

A.

GATT (General Agreement on Tariffs and Trade) .................................................................... 3

1.

Important GATT Rounds ........................................................................................................... 4

1.1.
1.1.1.

Uruguay Round....................................................................................................................... 4

1.1.2.

Doha Development Round.................................................................................................... 5

WTO and its Functions ...................................................................................................................... 6

B.
1.

Bali Package ................................................................................................................................... 8

C.

Reasons why Indias Veto shocked the world ......................................................................... 10

D.

Rodriks trillema ............................................................................................................................ 11

International Trade Organization

A. Prior to WTO:
1. GATT (General Agreement on Tariffs and Trade)
History

GATT was signed in 1947, took effect in 1948, and lasted until 1994; it was replaced by the
World Trade Organization in 1995.

Goals

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement
regulating international trade.
According to its preamble, its purpose was the "substantial reduction of tariffs and other
trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous
basis."
It was negotiated during the United Nations Conference on Trade and Employment and was
the outcome of the failure of negotiating governments to create the International Trade
Organization (ITO).

GATT held a total of nine rounds,

Name

Start

Duration

Geneva

Apr47

7 months

Annecy

Apr49

5 months

Countries

Subjects covered

Achievements

23

Tariffs

Signing of GATT, 45,000

tariff concessions affecting
$10 billion of trade

13

Tariffs

Countries exchanged some

5,000 tariff concessions

Torquay

Sep50

8 months

38

Tariffs

Countries exchanged some

8,700 tariff concessions,
cutting the 1948 tariff levels
by 25%

Geneva
II

Jan56

5 months

26

Tariffs, admission of
Japan

$2.5 billion in tariff

reductions

Dillon

Sep60

11
months

26

Tariffs

Tariff concessions worth

$4.9 billion of world trade

Kennedy

Tokyo

Uruguay

May64

Sep73

Sep86

Nov01

Doha

37
months

74
months

87
months

62

Tariffs, Antidumping

102

Tariffs, non-tariff
measures,
"framework"
agreements

123

159

Tariffs, non-tariff
measures, rules,
services, intellectual
property, dispute
settlement, textiles,
agriculture, creation
of WTO, etc
Tariffs, non-tariff
measures,
agriculture, labor
standards,
environment,
competition,
investment,
transparency,
patents etc

Tariff concessions worth

$40 billion of world trade
Tariff reductions worth more
than $300 billion dollars
achieved
The round led to the
creation of WTO, and
extended the range of trade
negotiations, leading to
major reductions in tariffs
(about 40%) and agricultural
subsidies, an agreement to
allow full access for textiles
and clothing from
developing countries, and
an extension of intellectual
property rights.

The round is not yet

concluded. Bali Package
signed on the 7th December
2013.

1.1. Important GATT Rounds

1.1.1. Uruguay Round
History
The round was launched in Punta del Este, Uruguay in September 1986, followed by negotiations in
Geneva, Brussels, Washington, D.C., and Tokyo, with the 20 agreements finally being signed in
Marrakeshthe Marrakesh Agreementin April 1994.

Goals
The main objectives of the Uruguay Round were:

to reduce agricultural subsidies

to lift restrictions on foreign investment, and
to begin the process of opening trade in services like banking and insurance.

They also wanted to draft a code to deal with copyright violation and other forms of intellectual property
rights.

Achievements
4

an umbrella agreement (the Agreement Establishing the WTO);

goods and investment (the Multilateral Agreements on Trade in Goods including the GATT 1994
and the Trade Related Investment Measures (TRIMS));
services (General Agreement on Trade in Services (GATS));
intellectual property (Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS));
dispute settlement (DSU);
reviews of governments' trade policies (TPRM).

The agreements for the two largest areas under the WTO, goods and services, share a three-part outline:

broad principles (such as the General Agreement on Tariffs and Trade and General Agreement
on Trade in Services);
extra agreements and annexes;
lengthy schedules (lists) of commitments made by individual countries.
One of the achievements of the Uruguay round would be the Uruguay Round Agreement on
Agriculture, administered by the WTO, which brings agricultural trade more fully under the GATT.
The agreement also imposes rules and disciplines on agricultural export subsidies, domestic
subsidies, and sanitary and phytosanitary (SPS) measures through the Agreement on the
Application of Sanitary and Phytosanitary Measures

1.1.2. Doha Development Round

History

The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001. Subsequent
ministerial meetings took place in Cancn, Mexico (2003), and Hong Kong (2005). Related
negotiations took place in Paris, France (2005), Potsdam, Germany (2007), and Geneva,
Switzerland (2004, 2006, 2008);

Objectives:

To lower trade barriers (Government Induced restrictions on International trade) around the world,
and thus facilitate increased global trade.
Since 2008, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs
and non-tariff barriers, services, and trade remedies.
The most significant differences are between developed nations led by the European Union (EU),
the United States (USA), and Japan and the major developing countries led and represented
mainly by India, Brazil, China, South Korea, and South Africa. There is also considerable
contention against and between the EU and the USA over their maintenance of agricultural
subsidiesseen to operate effectively as trade barriers

Issues:

Agriculture has become the lynchpin(vital issue) of the agenda for both developing and developed
countries.

Three other issues have been important.

o Compulsory licensing of medicines and patent protection(Now resolved)
o Review of provisions giving special and differential treatment to developing countries
o Problems that developing countries are having in implementing current trade obligations.

B. WTO and its Functions

Introduction

The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade.

The organization officially commenced on 1 January 1995 under the Marrakech Agreement,
replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.

The organization deals with regulation of trade between participating countries by providing a
framework for negotiating and formalizing trade agreements and a dispute resolution process
aimed at enforcing participant's adherence to WTO agreements, which are signed by
representatives of member governments and ratified by their parliaments.

Most of the issues that the WTO focuses on derive from previous trade negotiations,
especially from the Uruguay Round (19861994).

Functions

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

Additionally,

It is the WTO's duty to review and propagate the national trade policies, and to ensure the
coherence and transparency of trade policies through surveillance in global economic policymaking.
Assistance of developing, least-developed and low-income countries in transition to adjust to
WTO rules and disciplines through technical cooperation and training.

(i) The WTO shall facilitate the implementation, administration and operation and further the objectives of
this Agreement and of the Multilateral Trade Agreements, and shall also provide the frame work for the
implementation, administration and operation of the multilateral Trade Agreements.
(ii) The WTO shall provide the forum for negotiations among its members concerning their multilateral
trade relations in matters dealt with under the Agreement in the Annexes to this Agreement.
(iii) The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of
Disputes.
(iv) The WTO shall administer Trade Policy Review Mechanism.

(v) With a view to achieving greater coherence in global economic policy making, the WTO shall
cooperate, as appropriate, with the international Monetary Fund (IMF) and with the International Bank for
Reconstruction and Development (IBRD) and its affiliated agencies.
Issues that arises as globalization proceeds in todays society:

Protectionism
Trade barriers
Subsidies
violation of intellectual property (due to the differences in the trading rules of every nation)

The World Trade Organization serves as the mediator between the nations when such
problems arise. WTO could be referred to as the product of globalization.

The WTO is also a center of economic research and analysis: regular assessments of the
global trade picture in its annual publications and research reports on specific topics are
produced by the organization.

Finally, the WTO cooperates closely with the two other components of the Breton Woods
system, the IMF and the World Bank.

1. Bali Package
Introduction

The Bali Package is a trade agreement resulting from the Ninth Ministerial Conference of the
World Trade Organization in Bali, Indonesia on 37 December 2013.

It is aimed at lowering global trade barriers and is the first agreement reached through the WTO
that is approved by all its members. The package forms part of the Doha Development Round,
which started in 2001.

Provisions

The accord includes provisions for lowering import tariffs and agricultural subsidies, with the
intention of making it easier for developing countries to trade with the developed world in global
markets.
Developed countries would abolish hard import quotas on agricultural products from the
developing world and instead would only be allowed to charge tariffs on amount of agricultural
imports exceeding specific limits. Another important target is reforming customs bureaucracies
and formalities to facilitate trade.

The Bali Package consists of ten separate decisions by the Ministerial Conference, covering four areas
as follow.
Trade Facilitation

Agreement on Trade Facilitation reaffirms that the non-discrimination principle of Article V of

GATT 1994 remains valid. Agreement will reduce red-tape and streamline customs. It will be
legally binding, require some expense and a certain level of technology. LDCs will be supported
in building capacities to implement the changes. Although, some critics worry governments may
have to prioritize funds for trade facilitation over other important areas such as public health or
education.

Agriculture
Covers food security in developing countries.

General Services
Public Stockholding for Food Security Purposes
Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products, as
Defined in Article 2 of the Agreement on Agriculture
Export Competition

Cotton

Cotton

Development and LDC issues

Covers measures Least developed

treatment and market access.

countries (LDCs) and developing countries, including preferential

Preferential Rules of Origin for Least-Developed Countries - simplified rules for identifying origin
and qualifying for preferential treatment with importing countries.
Operationalization of the Waiver Concerning Preferential Treatment to Services and Service
Suppliers of Least-Developed Countries - allows preferential treatment to be given to LDCs for 15
years from date of agreement adoption.
Duty-Free and Quota-Free (DFQF) Market Access for Least-Developed Countries
Monitoring Mechanism on Special and Differential Treatment - consisting of meetings and other
methods for monitoring special treatment given to developing countries.

C. Reasons why Indias Veto shocked the world

Trade diplomats in Geneva have said they are "flabbergasted", "astonished" and "dismayed" and
described India's position as "hostage-taking" and "suicidal". Here are nine reasons why they say India's
stance made no sense.

10

India has been a vocal backer of world trade reform. It has criticized the small clubs of countries,
led by the United States and European Union that lost patience with the slow pace of global
reforms and started to discuss faster liberalising of trade in certain areas, such as services and
information technology products. India is not in any of these groups. But this veto is likely to give
them even more momentum as hope of a global trade pact, long in doubt, appears to be over.

India's veto may be the beginning of the end for the WTO. Trade experts say that if the WTO's
20-year-old rulebook does not evolve, more and more trade will be governed by new regional
agreements such as the Trans-Pacific Partnership, which will have their own rules and systems of
resolving disputes. That could lead to a fragmented world of separate trade blocs.

India's new government was widely seen as being pro-business. And yet it blocked a deal on
"trade facilitation", a worldwide streamlining of customs rules that would cut container handling
times, guarantee standard procedures for getting goods to and from their destinations and kill off
vast amounts of paperwork at borders around the world. Some estimates said it would add $1
trillion to the world economy as well as 21 million jobs, 18 million of them in developing countries.

Nobody else was negotiating. This meeting was simply supposed to formally adopt the final trade
negotiation text into the WTO rulebook, following its agreement by ministers at a meeting in Bali
last December. India's then Trade Minister Anand Sharma hailed the Bali deal as a landmark in
the history of the WTO. "We were able to arrive at a balanced outcome which secures our
supreme national interest," Sharma said at the time. India did not hint at any further objection until
days before it wielded its veto, and even then it made no concrete demands until the WTO
meeting to adopt the new rules was in progress.

India did not object to the deal it vetoed. Its objections were unconnected to trade facilitation. It
blocked the trade facilitation deal to try to get what it wanted on something else: food security.

India had already got what it wanted on food security. At Bali, it forced a big concession from the
United States and European Union, which initially strongly opposed its demands, but agreed that
India could stockpile food at subsidised prices, reversing the trend of trying to reduce and remove
trade-distorting food subsidies globally. The arrangement was temporary, but the WTO agreed to
work towards a permanent solution within four years, by the end of 2017.

India's demands reversed its previous position. India blocked the trade facilitation deal because it
wanted the WTO to move to a permanent solution more quickly than the four-year timeline. But
diplomats say that India was offered a two-year timeframe before Bali but it insisted on four.

India's veto could put it in legal danger. As part of the Bali deal, India won a pledge that nobody
would bring a trade dispute to challenge its food stockpiling programme, which is widely thought
to have broken the WTO rules. However, diplomats say that Bali was a "package" of 10
agreements, and the only legally binding part was trade facilitation. If that fails, the package
unravels, and India may lose its protection.

India was isolated. Cuba, Venezuela and Bolivia voiced support, but diplomats say other big
developing countries such as Russia, China and Brazil, as well as India's neighbour Pakistan,
were among the chief opponents of its veto. Poorer countries stand to lose most, WTO chief
Roberto Azevedo told the WTO meeting after the deal collapsed. "Theyre the ones with fewer

options, who are at risk of being left behind. Theyre the ones that may no longer have a seat at
the table."

D. Rodriks trillema
The government deserves congratulations for its firm stand at the WTO, which finds support in
Rodriks trilemma

The Princeton don Dani Rodrik is one of the worlds leading economists. He is a firm believer in
and supporter of globalisation. However, he has also posed a famous globalisation trilemma.

A trilemma describes a situation where only two of three things can hold true at the same time. If
any two out of three conditions prevail, the third cannot. Thus, according to Rodrik, economic
globalisation, political democracy, and national determination are mutually irreconcilable. We can
have at most two at one time.

Democracy is compatible with national sovereignty only if we restrict globalisation. If we push for
globalisation while retaining the nation state, we must jettison democracy. And if we want
democracy along with globalisation, we must shove the nation state aside and strive for greater
international governance.

As Rodrik argues, if we want to deepen both economic globalisation and political democracy, we
would require global institutions that are truly democratic, which respond to legitimate demands,
the very basic needs of world citizens that is governance at a global level. Since such a global
political community is as yet a distant, quite unrealisable dream, we have to accept the
sovereignty of nation states responding to the demands of their citizens. That is if we respect the
democratic ideal.

Prioritising food security

11

What the government has shown is that it is unwilling to sacrifice the basic requirements for food
security of the Indian people at the altar of what Rodrik terms hyperglobalisation. The needs and
rights of the Indian people must always come first for a democratically elected regime and the
Modi government is to be congratulated for affirming its commitment in this regard, despite the
humongous pressure it was placed under, both by lobbies within India and powers abroad.
Sacrificing the national agenda of food security for the sake of an even deeper globalisation is not
an option for a sovereign government of India.

But Rodrik actually demonstrates something even more important. He suggests that reempowering national democracies places the world economy on a stronger footing. Developing
strong markets and open economies requires more government, not less. He says, Markets
need to be embedded in institutions of collective deliberation and social choice. Weakening
democracy in the quest for deeper globalisation is one of the worst bargains we could strike.
Building on the work of David Cameron (the Yale political scientist, not to be confused with the
British Prime Minister), Rodrik shows that contrary to popular expectation, governments have
grown the largest in those economies that are the most exposed to international markets. And
after testing out a number of possible alternative explanations for this counter-intuitive result,
Rodrik finally concludes that this is because in highly globalised nations, citizens demand that
their governments compensate them against the risk that international economic forces expose
them to.

Two outstanding facts about the situation regarding food subsidies and the WTO. One, that the
U.S. and the European Union currently provide four to ten times the agricultural subsidy per
person compared to that provided by India. And two, that India faces a real crisis of hunger and

malnutrition among a very large number of its people. In such a situation, it is only natural that a
sovereign democratically elected government will seek to protect the interests of its citizens,
rather than be subject to palpably unfair trade agreements.
Unfair agreements

12

There are two decisions that have proved contentious here: the Ministerial Decision for an
agreement on trade facilitation (TFA) and the Ministerial Decision on public stockholding for food
security purposes. India has refused to sign the TFA in the absence of a permanent solution on
subsidies on account of public stockholding for food security purposes. This is at the heart of
Indias entire architecture of food security built up over the last four decades, which includes the
system of procurement from and assurance of minimum support prices (MSP) to its farmers and
the public distribution system (PDS), culminating in the recently passed Food Security Act.

The present WTO ceiling on domestic support is pegged at a mere 10 per cent of the value of
production, which is itself calculated at fixed reference prices of the 1986-88 period. This is
ridiculously low, and unrealistic and unfair, not just to India but to many other nations with a large
farm sector. It may be useful here to remember that despite all the efforts to move people to
urban areas and away from agriculture, the latest United Nations population estimates show that
even in the year 2050, around 800 million Indians will continue to live in rural areas. No
democratically elected and accountable government of India can afford to ignore the interests of
these people, especially given the vulnerability of farming, deeply aggravated by the newly
emerging context of climate change. More than 80 per cent of Indias cultivators are small and
marginal farmers, who grow crops on less than 5 acres of land. They face increasing challenges
of water and livelihood security and need continued government support to enable them to earn a
sustainable income. This support that we need to provide our farmers cannot be given within the
limits set by the WTO agreements.

Paragraph 47 of the Doha Ministerial Declaration is abundantly clear on a single undertaking,

which means that all agreements come into force together as a package. Thus, India is
absolutely right in insisting that the TFA can be agreed to if and only if there is an agreement
on subsidies on account of public stockholding for food security purposes. Apart from the massive
support the government has received from farmers organisations and civil society groups within
India, it has also secured the support of countries such as South Africa, Bolivia, Cuba, Venezuela
and the tacit support of the G-33, except Pakistan.

What is much more surprising is the kind of media furore that the Indian governments position
has evoked. This can only be seen as a reflection of the way in which the discourse on free
market fundamentalism has acquired a dominant position over the last 20 years. A deeper
reflection on Rodriks trilemma would hopefully disabuse many people, who assume that any and
all steps towards the free market are an unmixed blessing in themselves, forgetting that robust
structures of governance are essential to the functioning and legitimacy of the market mechanism
in all capitalist democracies, including the most advanced among them.