The Great Depression (1929-35) and its aftermath began to induce the world community to think of some sort of harmonious trade relations on the global level. This common feeling resulted in the beginning of the multilateral trade negotiations on the General Agreement of Tariffs and Trade (GATT) in January 1948 in Geneva. The principal purpose of GATT was to ensure competition in commodity trade through the removal or reduction of trade barriers (free trade), the ultimate aim being the encouragement for growth and development of all member nations. Seven rounds of negotiations were conducted under GATT till 1986 for stimulating international trade by reducing tariff barriers and also non-tariff barriers on imports imposed by member nations.
The 8th Round of GATT (1986-1993) – The URUGUAY ROUND (UR) of Negotiations:
The 8th Round of GATT negotiations (Uruguay Round) was started in September 1986 at Punta del Este in Uruguay. During the four decades since the establishment of GATT in 1948 to 1986, world trade had undergone a structural change:
1) The share of agriculture in world commodity trade which was 46 percent in 1950 had declined to 13 percent in 1987.
2) The share of service sector in GDP of developed countries (DCs) was rapidly increasing (ranging between 50-70 percent of GDP by 1986).
3) The share of employment in the service sector of DCs was also increasing fast (about 70 percent).
4) Japan and other newly industrialized nations began having more advantage in commodity trade.
These factors impelled the DCs under the leadership of USA to take the initiative of bringing the service sector into trade negotiations. Thus the UR contained the mandate for negotiations in 15 areas. In Part I, 14 areas of negotiations on Trade in Goods were to be done:-
(1) Tariffs, (2) Non-tariff measures, (3) Tropical products, (4) Textiles and clothing, (5) Agriculture, (6) GATT articles, (7) Safeguards, (8) Natural resource-based products, (9) Multilateral Trade Negotiations, (10) Subsidies and Countervailing measures, (11) Dispute Settlement, (12) Trade Related Aspects of Intellectual Property Rights (TRIPs), (13) Trade Related Investment Measures (TRIMs), (14) Functioning of GATT Systems (FOGs).
Part II dealt with negotiations on Trade in Services.
The traditional GATT subjects between 1948 and 1986 were tariff and non-tariff barriers and improvement in GATT rules and disciplines on subsidies and countervailing measures, anti-dumping measures etc. New areas such as TRIPs, TRIMs and Trade in Services were introduced in the negotiations of the 8th round of GATT.
DUNKEL PROPOSALS – Final Act – WTO:
The 8th Round negotiations were to be concluded in 4 years. But differences between participating nations on areas like agriculture, textiles, TRIPs and anti-dumping measures prevented an agreement. So, Mr. Arthur Dunkel, Director General of GATT compiled a detailed document, popularly known as Dunkel Proposals as a compromise document for the member nations, which culminated into the Final Act on December 15, 1993 (Marrakesh). India signed the agreement along with 117 nations on April 15, 1994. One provision of the agreement entailed converting the GATT into the World Trade Organization (WTO). The WTO as contained in the Final Act was established on January 1, 1995 with headquarters in Geneva. India became its founder member by ratifying the WTO agreement on December 30, 1994. The strength of the member nations is 153. The present WTO Director General is Pascal Lamy.
Governance at WTO - Need for change:
The technical structure of the WTO is based on two documents, namely, the ‘General Agreement’ for ensuring non-discriminating trade in all goods and services and the ‘Specific Accords’ on trade issues, which are the outcome of the UR. At the WTO, each nation has a single vote and decisions are largely by consensus. But in practice, the U.S., Europe and Japan have dominated in the past. This apparently seems to be changing now.
Though the initial WTO conferences were marked by lack of unity among developing nations, these have gradually matured into tough negotiators. Through the Singapore (1996) to the recent Geneva (July 2008) Rounds, the developing nations have learnt not to be lured by the DCs. During the Doha Round (2001), the developing nations achieved some notable concessions by insisting that their concerns had to be heard if further rounds of trade negotiations were to be initiated in future. With China’s joining the WTO (November, 2001), the developing nations found a powerful voice on their side.
But the most basic change that is required is a change in governance within the WTO so as to ensure that it is not just the voices of the trade ministers (representing each nation) that are heard in the WTO.
WTO – Symbol of Global Inequalities and Hypocrisy of the DCs:
While the advanced industrial countries had preached and forced the opening up of the markets in the developing nations to their industrial products, they have continued to keep their markets closed to the products of the developing nations, such as textiles and agriculture. While they preached that developing nations should not subsidise their industries, they continue to provide billions in subsidies to their own farmers which under-cut their production costs, making it impossible for the farmers of the developing nations to compete. According to World Bank Report, European Union (EU) and USA together allow domestic support to their farm sector to the tune of $ 370 billion in a year. While they preached the virtues of competitive markets, the USA quickly pushed global cartels in steel and aluminium when its domestic industries seemed threatened by imports. The USA pushed for liberalization of information technology and financial services, but resisted liberalization of the service sectors in which the developing nations have strength, namely, maritime and construction services.
The trade agenda has been so unfair that not only have the poorer nations not received a fair share of the benefits, but the poorest region in the world, Sub-Saharan Africa was actually made worse-off. According to a World Bank calculation, its income fell by over 2 percent due to the trade agreement.
The global protests over these inequities began at the Seattle Round of negotiations (1999). Since then, the movement has grown stronger and the fury has spread. These inequities have increasingly been recognized, and that, combined with the resolve of the developing nations, resulted in the Doha “development” Round of negotiations (November 2001). This Round put on its agenda the redressing of some of these past imbalances. But it proved to be a ‘nothing’ Round, as have been the meetings in subsequent years.
Main Areas of the WTO Agreement and their Implications for India:
1) Reduction in Basic Duty and Export Subsidies: Under the WTO regime, quantitative restrictions have to be phased out. India accordingly brought down basic duties. These tariff reductions were also a part of the economic reforms undertaken in India. The Agreement also stipulates anti-dumping proceedings as well as prohibition of export subsidies.
2) TRIPs: Under TRIPs, patents shall be available for any invention, whether product or process, in all fields of industrial technologies. Patent protection will be extended to micro organisms, non-biological and micro-biological processes and plant varieties. This implies that the patent holder would resort not only to manufacturing monopoly, but also import monopoly and the concerned national government would not be able to exercise price control on the imported products. The Doha Round particularly stressed on Intellectual Property Rights (IPRs). Importance of IPRs cannot be denied. But these rights need not balance out the rights and interests of producers with those of the users. These rights may in effect result in denial of life-saving medicines to the poor (prices being too high due to the patent regime), slow-down of research studies and even bio-piracy (international companies patenting traditional foods and medicines). There have been a number of bio-piracy cases of India’s herbal wealth (Haldi, neem, basmati rice).
3) TRIMs: TRIMs were initiated by the USA in 1980s since it was losing ground in competition in goods to Japan and other newly industrialized nations of East Asia and it intended to recover its lost ground through trade in services. The main motive was to benefit Multi National Companies (MNCs) so that they could undertake investment in financial services, telecommunications, marketing etc. Already under New Economic Policy (1991), India has been over bending to woo foreign direct investment and so, several structural changes have been undertaken in the Indian economy.
4) Textiles and Clothing: The WTO Agreement has made certain proposals for liberalizing trade of textiles and clothing. Textiles exports constitute the single most important item of export of developing nations. Ironically, the developed nations, claiming to be great champions of free trade, imposed the most comprehensive quota restrictions under the multi-fibre agreement (MFA).
Thus, whenever newly industrialized nations have challenged the competitive strength of the DCs, they have retaliated by imposing both tariff and non-tariff barriers. These barriers have been enlarged in the form of TRIPs and TRIMs. The innovation of the Social Clause (to levy a countervailing duty on imports from developing nations to offset low labour costs there) was also conceived with the same intention of blunting competitive advantage of developing nations.
This game of DCs will continue. Reforming the WTO will require further thrust on more balance trade agenda – more balanced treatment of developing nations’ interests, more balanced treatment of concerns like environmental issues and such issues beyond trade. The EU has conceded to some steps (except subsidies) in that direction. The challenge is to get the USA and Japan to participate towards that end. In the meantime, the developing nations should take advantage of the multilateral trade organization and show their combined strength by being united.
Geneva Round (July 2008):
In the latest Round of talks in Geneva the U.S. proposed that our agricultural market be opened up to the extent of 40 percent surge if India wanted to enhance tariff on import of farm produce by 15 percent for checking farm produce import from foreign nations. Our Commerce Minister retaliated rightly that food and livelihood is not a trade related issue. India and China jointly put forth the proposal that developing nations be allowed to impose extra 25 percent duty on import of farm products if import exceeds by 15 percent. The USA did not agree to this proposal.
Even though developing nations have been persistently opposing the issue of opening of the agricultural market, the latest Geneva Round has made it clear that sooner or later, DCs will get through their proposals by some means or the other in subsequent WTO negotiations. India should be prepared to meet such an eventuality well ahead by strengthening its agricultural sector.
The 8th Round of GATT (1986-1993) – The URUGUAY ROUND (UR) of Negotiations:
The 8th Round of GATT negotiations (Uruguay Round) was started in September 1986 at Punta del Este in Uruguay. During the four decades since the establishment of GATT in 1948 to 1986, world trade had undergone a structural change:
1) The share of agriculture in world commodity trade which was 46 percent in 1950 had declined to 13 percent in 1987.
2) The share of service sector in GDP of developed countries (DCs) was rapidly increasing (ranging between 50-70 percent of GDP by 1986).
3) The share of employment in the service sector of DCs was also increasing fast (about 70 percent).
4) Japan and other newly industrialized nations began having more advantage in commodity trade.
These factors impelled the DCs under the leadership of USA to take the initiative of bringing the service sector into trade negotiations. Thus the UR contained the mandate for negotiations in 15 areas. In Part I, 14 areas of negotiations on Trade in Goods were to be done:-
(1) Tariffs, (2) Non-tariff measures, (3) Tropical products, (4) Textiles and clothing, (5) Agriculture, (6) GATT articles, (7) Safeguards, (8) Natural resource-based products, (9) Multilateral Trade Negotiations, (10) Subsidies and Countervailing measures, (11) Dispute Settlement, (12) Trade Related Aspects of Intellectual Property Rights (TRIPs), (13) Trade Related Investment Measures (TRIMs), (14) Functioning of GATT Systems (FOGs).
Part II dealt with negotiations on Trade in Services.
The traditional GATT subjects between 1948 and 1986 were tariff and non-tariff barriers and improvement in GATT rules and disciplines on subsidies and countervailing measures, anti-dumping measures etc. New areas such as TRIPs, TRIMs and Trade in Services were introduced in the negotiations of the 8th round of GATT.
DUNKEL PROPOSALS – Final Act – WTO:
The 8th Round negotiations were to be concluded in 4 years. But differences between participating nations on areas like agriculture, textiles, TRIPs and anti-dumping measures prevented an agreement. So, Mr. Arthur Dunkel, Director General of GATT compiled a detailed document, popularly known as Dunkel Proposals as a compromise document for the member nations, which culminated into the Final Act on December 15, 1993 (Marrakesh). India signed the agreement along with 117 nations on April 15, 1994. One provision of the agreement entailed converting the GATT into the World Trade Organization (WTO). The WTO as contained in the Final Act was established on January 1, 1995 with headquarters in Geneva. India became its founder member by ratifying the WTO agreement on December 30, 1994. The strength of the member nations is 153. The present WTO Director General is Pascal Lamy.
Governance at WTO - Need for change:
The technical structure of the WTO is based on two documents, namely, the ‘General Agreement’ for ensuring non-discriminating trade in all goods and services and the ‘Specific Accords’ on trade issues, which are the outcome of the UR. At the WTO, each nation has a single vote and decisions are largely by consensus. But in practice, the U.S., Europe and Japan have dominated in the past. This apparently seems to be changing now.
Though the initial WTO conferences were marked by lack of unity among developing nations, these have gradually matured into tough negotiators. Through the Singapore (1996) to the recent Geneva (July 2008) Rounds, the developing nations have learnt not to be lured by the DCs. During the Doha Round (2001), the developing nations achieved some notable concessions by insisting that their concerns had to be heard if further rounds of trade negotiations were to be initiated in future. With China’s joining the WTO (November, 2001), the developing nations found a powerful voice on their side.
But the most basic change that is required is a change in governance within the WTO so as to ensure that it is not just the voices of the trade ministers (representing each nation) that are heard in the WTO.
WTO – Symbol of Global Inequalities and Hypocrisy of the DCs:
While the advanced industrial countries had preached and forced the opening up of the markets in the developing nations to their industrial products, they have continued to keep their markets closed to the products of the developing nations, such as textiles and agriculture. While they preached that developing nations should not subsidise their industries, they continue to provide billions in subsidies to their own farmers which under-cut their production costs, making it impossible for the farmers of the developing nations to compete. According to World Bank Report, European Union (EU) and USA together allow domestic support to their farm sector to the tune of $ 370 billion in a year. While they preached the virtues of competitive markets, the USA quickly pushed global cartels in steel and aluminium when its domestic industries seemed threatened by imports. The USA pushed for liberalization of information technology and financial services, but resisted liberalization of the service sectors in which the developing nations have strength, namely, maritime and construction services.
The trade agenda has been so unfair that not only have the poorer nations not received a fair share of the benefits, but the poorest region in the world, Sub-Saharan Africa was actually made worse-off. According to a World Bank calculation, its income fell by over 2 percent due to the trade agreement.
The global protests over these inequities began at the Seattle Round of negotiations (1999). Since then, the movement has grown stronger and the fury has spread. These inequities have increasingly been recognized, and that, combined with the resolve of the developing nations, resulted in the Doha “development” Round of negotiations (November 2001). This Round put on its agenda the redressing of some of these past imbalances. But it proved to be a ‘nothing’ Round, as have been the meetings in subsequent years.
Main Areas of the WTO Agreement and their Implications for India:
1) Reduction in Basic Duty and Export Subsidies: Under the WTO regime, quantitative restrictions have to be phased out. India accordingly brought down basic duties. These tariff reductions were also a part of the economic reforms undertaken in India. The Agreement also stipulates anti-dumping proceedings as well as prohibition of export subsidies.
2) TRIPs: Under TRIPs, patents shall be available for any invention, whether product or process, in all fields of industrial technologies. Patent protection will be extended to micro organisms, non-biological and micro-biological processes and plant varieties. This implies that the patent holder would resort not only to manufacturing monopoly, but also import monopoly and the concerned national government would not be able to exercise price control on the imported products. The Doha Round particularly stressed on Intellectual Property Rights (IPRs). Importance of IPRs cannot be denied. But these rights need not balance out the rights and interests of producers with those of the users. These rights may in effect result in denial of life-saving medicines to the poor (prices being too high due to the patent regime), slow-down of research studies and even bio-piracy (international companies patenting traditional foods and medicines). There have been a number of bio-piracy cases of India’s herbal wealth (Haldi, neem, basmati rice).
3) TRIMs: TRIMs were initiated by the USA in 1980s since it was losing ground in competition in goods to Japan and other newly industrialized nations of East Asia and it intended to recover its lost ground through trade in services. The main motive was to benefit Multi National Companies (MNCs) so that they could undertake investment in financial services, telecommunications, marketing etc. Already under New Economic Policy (1991), India has been over bending to woo foreign direct investment and so, several structural changes have been undertaken in the Indian economy.
4) Textiles and Clothing: The WTO Agreement has made certain proposals for liberalizing trade of textiles and clothing. Textiles exports constitute the single most important item of export of developing nations. Ironically, the developed nations, claiming to be great champions of free trade, imposed the most comprehensive quota restrictions under the multi-fibre agreement (MFA).
Thus, whenever newly industrialized nations have challenged the competitive strength of the DCs, they have retaliated by imposing both tariff and non-tariff barriers. These barriers have been enlarged in the form of TRIPs and TRIMs. The innovation of the Social Clause (to levy a countervailing duty on imports from developing nations to offset low labour costs there) was also conceived with the same intention of blunting competitive advantage of developing nations.
This game of DCs will continue. Reforming the WTO will require further thrust on more balance trade agenda – more balanced treatment of developing nations’ interests, more balanced treatment of concerns like environmental issues and such issues beyond trade. The EU has conceded to some steps (except subsidies) in that direction. The challenge is to get the USA and Japan to participate towards that end. In the meantime, the developing nations should take advantage of the multilateral trade organization and show their combined strength by being united.
Geneva Round (July 2008):
In the latest Round of talks in Geneva the U.S. proposed that our agricultural market be opened up to the extent of 40 percent surge if India wanted to enhance tariff on import of farm produce by 15 percent for checking farm produce import from foreign nations. Our Commerce Minister retaliated rightly that food and livelihood is not a trade related issue. India and China jointly put forth the proposal that developing nations be allowed to impose extra 25 percent duty on import of farm products if import exceeds by 15 percent. The USA did not agree to this proposal.
Even though developing nations have been persistently opposing the issue of opening of the agricultural market, the latest Geneva Round has made it clear that sooner or later, DCs will get through their proposals by some means or the other in subsequent WTO negotiations. India should be prepared to meet such an eventuality well ahead by strengthening its agricultural sector.
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