INDIA & THE WTO
INDIA & the WTO
HISTORY OF GLOBAL TRADE
The history of human civilisation is owes its richness to trade and interactions with other cultures. The Indus Valley Civilization (one of the first human civilisations of the world) for instance, indulged in fostering long-distance trade in order to procure resources like gold, silver, pearls and tinted gems. Caravans of merchants travelled far and wide in order to indulge in trade with Persia, Arabian Gulf, China & Mesopotamia. A few centuries down the line, Silk Route became a prominent trade route. It lasted between 130 B.C. and 1453 A.D. and connected China and the Far East with the Middle East and Europe. Everything from silk and spices to techniques for making glass & gunpowder traversed from the East to the West. So significant was the origin of gunpowder, that it aided nation-states to gain advantages in war and metamorphosed the geo-political landscape of the regions along this course.
Over the years, as world trade prospered and explorers, scholars, conquerors and merchants criss-crossed the globe, stories about the mystical land called India began to do the rounds. Christopher Columbus, the fervent Italian voyager, sailed all the way across the Atlantic Ocean, hoping to find India. While he had little luck in his endeavor, Vasco da Gama became the first European to set his foot on the Indian soil. Subsequently, the marvel and mysticism about the wonders of India began spreading to the West just like the aroma of its spices, enticing ambitious trading companies such as the British East India Company to come to the country. Cotton and silk goods, indigo, and saltpetre, were some of the items that earned admirers in the West, who developed a penchant for these exotic goods. The avarice of the British for lucrative profits saw the rise of colonialism.
Major developments like the genesis of capitalist model of development and industrial revolution occurred during this period. Focus started shifting to manufacturing as much and as quickly as possible in1 order to bolster trade, and maximize profits. Technologies such as Henry Ford’s assembly line production, the invention of power loom and the introduction of railways began to gain currency so as to expedite trade.
GENESIS OF THE WTO
The imprints of trade and commerce began to be felt on the relations between nations and major economic phenomena began to have ripple effects on the international political landscape. In fact, gradually, among other things, deterioration of international trade & protectionism became one of the factors, which culminated into World War II. The turmoil that accompanied the war made great powers of the world realise that international economic collaboration and enduring peace and security are closely entwined. This prompted US President Franklin Roosevelt & British Prime Minister Winston Churchill to sign the Atlantic Charter.
A few decades down the line, developing nations like India realised that in order for them to prosper, they need to change their outlook from an inward-looking protectionist stance to an outward orientation. Policies like Look East Policy and globalization became a medium for India to engage with the rest of the world and to strengthen its position in world trade.
The significance of trade remains vital to the global politics even today, as the world’s largest economies – US and China – are embroiled in an ensuing trade war which is likely to have a major effect on the economies of the world, including India.
Several attempts were made to placate the global trading network after the establishment of GATT (General Agreement on Trade and Tariff) in 1947 with the primary focus on liberalizing and escalating world trade. The GATT’s main objective was the reduction of barriers to international trade and it was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a sequence of agreements. Also it was established to scheme lucid and transparent network for international trade henceforth the agreement comprised few set of principles like:
1. Most Favoured Nation (MFN) principle under which each economy engaged under trade has to treat all other economy analogous with respect to tariffs and other trade scenario as it treats its most favoured nations.
2. Reciprocity principle under which an economy has to share its advantage which is enjoyed by it in the form of any given bilateral agreement whether it is market access or tariff reduction simultaneously with residual contracting economies. This principle is cohort to most favored nation.
3. Transparency principle is indispensable for harmonized system of trade for import shield henceforth GATT restricted the practice of quota except for agricultural trade.
4. Tariff reduction was the most crucial principle for trade protection during inchoation phase for negotiation because GATT text lays out the compulsion of the contracting parties.
First negotiation round of GATT was held at Geneva in 1947 with 23 member countries which targeted 10 billion US dollars of trade worked on 45000 tariff line concessions. Seventh round of negotiation of GATT took place at Tokyo in 1973-79 having 99 member countries which worked on 4400 tariff lines and targeted 300 billion US dollars of trade. In these seven rounds of negotiation agricultural trade was ostracized. One of the main causes of abandoning agriculture in the GATT negotiation was its member nations, as they were developed economies they majorly focused on manufactured and industrial products. Uruguay round of negotiation which took place in 1986finally fixated agriculture for the first time. Objective to bring agricultural trade in their agenda was to eradicate resistance between European Union and USA with respect to agricultural trade but it took seven years to reach the consensus and at last agreement was framed. Because of isolationist policies of industrialized economies world food markets were distorted due to which prices of agricultural products started plummeting making global market instable. Nearly 60% of trade disputes submitted between 1980 and 1990 to GATT were related to agriculture. Also economic rationale of including agriculture within GATT framework is:
a.) Comparative Advantage
b.) World market instability
c.) The effects of protectionism
Initially economies with comparative advantage in agricultural products were unable to export and therefore could not enjoy the export revenues and those economies with no comparative advantage had been producing agricultural commodities with high assistance from government due to which efficient production was getting distorted. Primarily when the dialogues on agriculture initiated European Union (EU) and USA were apart in their stand. First negotiation on agricultural trade came from USA suggesting a “zero-zero”option which appeared non pragmatic and was opposed by EU.
Table 2.1: Summary table of GATT Negotiations since 1947
|Round||Year||No. of member countries||Value of trade ($ US billion)||No. of tariff concessions|
To liberalize trade and to raise the living standards WTO (World Trade Organization) the successor to GATT was set up on 1st January 1995. Agreement on Agriculture includes three pillars which are the following:
a.) Domestic support: Agreement on agriculture negotiated during Uruguay round classifies subsidies into three categories of boxes which are amber box, blue box and green box. The domestic support allows the reduction of domestic subsidies but on the basis of trifling distortions in trade and production some kind of subsidies was exempted from reduction. Green box measures comprise government support to research and development, and promotion policies. It also includes environmental protection and regional development programmes. All kind of domestic support measure which are considered to distort trade and production fall under amber box. Blue box measures referred to decoupled income support and it covers payment directly linked to animal numbers, but under arrangements which also bound production by imposing production quotas or requiring farmers to set aside part of their land.
b.) Export subsidies are another pillar in which developed nations are required to reduce export subsidies by minimum 36% by value or 21% by volume over a span of 6 years. Figures for developing nations are either 24% minimum cut in export subsidies by value or 14% cut by volume within the span of ten years.
c.) Market access: This tool refers to the reduction to tariff barriers to trade by the members of WTO. All non-tariff barriers were to be converted into corresponding levels of tariffs. All nations avowed a schedule of base period tariffs which is known as bound tariffs. All the bound tariffs has to be reduced in the following manner:
I. For developed countries the quantum of reduction has to be 36% over a span of 6 years.
II. For developing countries the quantum of reduction has to be 24% over a span of 10 years.
The World War II, one of the deadliest military wars of all time, was followed by the formation of the General Agreement on Tariffs and Trade (GATT). Formed in 1948, GATT was intended to lift economic recovery after the war. It is the product of the Bretton Woods Conference, 1944, which also envisaged financial reconstruction of the global economic system post the war. Twenty-three nations ratified GATT. There was also a recommendation to establish the International Trade Organization (ITO) in 1944. However, ITO was not ratified and failed to materialize.
GATT governed the principles of world trade until 1994. This period witnessed eight rounds of tariff negotiations: Geneva (1947), Annecy (1949), Torquay (1951-51), Geneva (1956), Geneva (1960-61), the Kennedy Round (1964-67), the Tokyo Round (1973-79) and the Uruguay Round (1986-94). Some of the major issues that this multilateral treaty addressed were tax reduction, anti-dumping agreements, and removal of tariff & non-tariff trade barriers.
The Uruguay round proved to be a major breakthrough in the global trading system, for it was this conference, which led to the birth of the World Trade Organization (WTO). The discussions led to the acknowledgement of the need for a collective approach towards addressing the challenges of globalization, which were gathering momentum in the 1990s. As the world grappled with new issues and challenges of trade, discussions revolved around several components:
(i) The General Agreement on Trade in Services (GATS):
This legal agreement attempted to supervise and liberalise trade by reducing or eradicating trade barriers such as tariffs or quotas. It, thereby, sought to create conditions of trade that are mutually advantageous to the parties involved.
(ii) The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS):
It sought to improve protection of intellectual property rights across borders. TRIPS requires members to ensure rights pertaining to copyright, geological indications, industrial designs, integrated circuit layout-designs, new plant varieties, patents, trademarks, trade names & confidential rights.
(iii) The Understanding on Rules and Procedures Governing the Settlement of Disputes:
It established rules for resolving conflicts between members.
(iv) The Trade Policy Review Mechanism:
It documented national trade policies and assessed their conformity with WTO rules. These basically apply to the domestic regulations that a country applies to foreign investors (usually under its industrial policies). The Agreement on Trade Related Investment Measures (TRIMS) allows international firms the room to operate more easily within foreign markets. For example, it bans policies like local content requirements and trade balancing rules, which have been designed to protect the interests of domestic industries against foreign competitors.
These discussions culminated in signing of agreements in Marrakech, Morocco, in April 1994, and their ratification. Thus, the World Trade Organization was born. Today, the WTO has as many as 164 members, representing 98% of the world’s trade. Afghanistan became the 164th member of WTO on 29th July, 2016.
The World Trade Organisation is a global platform for trade and a forum for governments to negotiate trade agreements. It is also a place for them to settle trade disputes peacefully. WTO operates on a system of trade rules. Though negotiated and signed by governments, the goal of these agreements is to help producers of goods and services across the world to conduct their business without the fear of erratic policy changes. It also allows governments to meet social and environmental objectives.
The WTO has three guiding principles: (i) protecting the interests of developing countries against discriminatory trade practices of large and powerful countries; (ii) to limit trade only through tariffs and to provide market access not less favourable than that specified in their schedules; and (iii) to help governments resist lobbying efforts by domestic interest groups seeking special favours.
Some of the functions of WTO include:
(i) Administration of WTO trade agreements –
The WTO agreements encompass goods, services and intellectual property. They lay down the principles of trade liberalization and the permitted exceptions.
(ii) Offering a forum for trade negotiations
These agreements are not static; they are renegotiated from time to time keeping in mind the changes in trade-related issues.
(iii) Handling trade disputes
The WTO’s procedure for resolving trade quarrels ensures that trade flows smoothly. Aggrieved countries bring disputes to the WTO, if they think their privileges under the agreements are being infringed. Independent experts are appointed for adjudication of disputes.
(iv) Monitoring national trade policies
Various WTO councils and committees seek to ensure that the requirements are being followed and that WTO agreements are being properly implemented.
(v) Facilitating technical assistance and training for developing countries
WTO agreements contain special provision for developing countries in order to help them build a robust economic foundation. For example, these include offering longer time periods to implement agreements and commitments, measures to enhance their trading opportunities.
(vi) Cooperation with other international organizations
The WTO maintains regular dialogue with non-governmental organizations, other international organizations, the media and the general public on various aspects of the WTO to enhance cooperation and increase awareness of WTO activities.
Roberto Azevedo is the current Director General of the Organization. Headquartered in Geneva, the organization consists of the following bodies:
India’s association with the World Trade Organization goes back to the days of GATT, its predecessor. India has often steered discussions in favour of the less developed and developing countries, right since its membership in the GATT.
During the Uruguay talks, India & Brazil were not too keen on negotiating on services on an equal footing with the industrialized world. They also pointed out that the industrialized nations failed to live up to their commitments w.r.t. trade in textiles and agrarian products. India & Brazil urged the members to rescind the measures that contradict GATT and not to introduce new measures. Over time, however, India softened its stance towards the First World Countries. Eventually India and other developing countries (G-10) succumbed to the US position of inclusion of new issues – services, intellectual property and investment measures – in the discussions.
A major turning point in India’s approach to trade occurred in 1991. Crippled with severe economic challenges and trade deficits, India was forced to open its doors to the outside world. Liberalization, privatization and globalization became the governing principles of India’s foreign policy. The dismantling of trade barriers and welcoming foreign investors was in sharp contrast to India’s earlier protectionist stance. This proved to be a game changing year for India’s economy.
After its integration with the global economy, India made efforts to emerge as a growing economy. The WTO membership was one such platform, which seemed to be promising for India’s growth. Thus, India joined the WTO on 1st January, 1995. Some of the major areas where India has benefited from this membership include granting access to various markets, reduction of tariff and non-tariff barriers, peaceful resolution of disputes on an equal footing, granting of concessions and getting an impetus for trade.
MAJOR MINISTERIAL MEETS
The first Ministerial Conference of WTO was held in Singapore during December 9-13, 1996. It included plenary meetings and various business sessions related to the agenda of the WTO’s first two years of activity and the implementation of obligations under the Uruguay Round Agreements. The discussions revolved around trade and investment, trade and competition policy, trade facilitation and transparency in government procurement. These were collectively called ‘Singapore Issues’.On matters like investment and competition policy, India felt that having a multilateral agreement would be a serious impingement on the sovereign rights of countries. On the specific issue of competition policy as applicable to “hardcore cartels,” India pointed out that there is an ambivalence on whether these would include export cartels. On the subject of transparency in government procurement, the Indian position was that though the principle is entirely acceptable, there cannot be a universal determination of what constitutes transparent procedures. On trade facilitation, India argued that developing countries may not have the resources to bring their procedures in line with those in the developed world over the short to medium term.A few years down the line, these issues were abandoned in the Cancun Round, 2003.
This was the fourth Ministerial round. Discussions revolved around:
a. Agriculture –
The negotiations revolved around the need to establish a fair and market-oriented trading system through strengthened rules, and specific commitments on government support and protection for agriculture. They also encompassed special and differential treatment for developing countries, enabling them to meet their needs, in particular in food security and rural development.
The United States insisted on making substantial reductions in tariffs and to limit the number of import-sensitive and ‘special products’ (AoA) that would be exempted from cuts. While the developed regions are concerned about import-sensitive products, the developing countries are concerned with special products – that are exempt from tariff cuts and subsidy reductions because of development, food security or livelihood considerations. Brazil stressed on reductions in trade-distorting domestic subsidies, especially by the United States; whereas India insisted on a large number of special products that would not be exposed to wider market opening.
b. Access to patented medicines –
The Ministerial Meet had discussions on TRIPS. The issue involves the balance of interests between the pharmaceutical companies in developed countries that held patents on medicines and the public health needs of people in in developing countries. The United States claimed that the current language in TRIPS was flexible enough to address health emergencies, while other countries insisted on a new language.
After voting, member governments approved a decision that offered an interim waiver under TRIPS. It allowed a member country to export pharmaceutical products made under compulsory licenses to least-developed countries and certain other members. At the same time, it also allows members to not to allow evergreening (i.e. extending the life of patents without necessarily enhancing the drug’s therapeutic efficiency) of patents.
On November 6, 2015, the World Trade Organization Council extended the exemption for LDC WTO members to implement provisions of the TRIPS agreement related to pharmaceutical products until 2033.
c. Special and differential treatment (SDT)
In the Doha round, members agreed that developing and least developed countries will continue to enjoy a favorable treatment. At the December 2005 Hong Kong ministerial, members agreed to five S&DT provisions for least developed countries (LDCs), including duty-free and quota-free access.
However, of late developed countries now claim that big developing countries like India, China, Brazil and South Africa are unreasonable in their demand of SDT and only least developed countries are the rightful claimants of differential treatment. Addressing the World Trade Organization Ministerial Meeting in New Delhi (May’19), the former Commerce and Industry Minister, Mr Suresh Prabhu, stated that “questions being raised on S&DT are controversial and extremely divisive.”
The Generalized System of Preferences is an example of S&DT. Here, developed countries offer non-reciprocal preferential treatment (such as zero or low duties on imports) to products originating in developing countries. Preference-giving countries unilaterally determine which countries and products are included in their schemes. Recently, USA pulled the plug on GSP for India, alleging that India has not provided it with “equitable and reasonable access to its markets”. India is not likely to ask the US to review the move.
This was the ninth WTO meeting and it led to the adoption of the Bali Package. These decisions revolved around streamlining trade, allowing developing countries more possibilities for providing food security, furthering least-developed countries’ trade and helping development more generally.
Trade facilitation was agreed to by all nations. It requires member countries to invest in infrastructure that facilitates imports and exports, to simplify customs & to remove other non-tariff barriers. A ‘peace clause’ (which gave countries 4 years time to adjust to the limit and avoid sanctions) was also agreed upon. While India initially declined to ratify the agreement, it later on signed on the dotted line after reaching an understanding with the US, in which the time limit of 4 years was removed and in return, trade facilitation was agreed to by India. Developed countries were able to woo under-developed ones on the basis of a ‘Special Package’ for them directed toward building social and physical infrastructure. As a result, India was isolated.
The 10th Ministerial Conference culminated in the adoption of the “Nairobi Package” – a sequence of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries (LDCs).
(a) The developed members committed to remove export subsidies immediately, except for a handful of agriculture products, while the developing countries agreed to do so by 2018. Furthermore, the developing members were given the flexibility to cover marketing and transportation costs for agriculture exports until the end of 2023, and the poorest and food-importing countries would get additional time to cut export subsidies.
(b) Members also adopted a Ministerial Decision on Public Stockholding for Food Security Purposes. It commits members to engage constructively in finding a permanent solution to this issue.
(c) A Special Safeguard Mechanism (SSM) for Developing Countries recognizes that they will have the right to temporarily hike tariffs in face of import surges by using an SSM.
(d) There were decisions pertaining to Preferential Rules of Origin. It necessitates that ‘Made in LDC’ products will get unobstructed access to markets of non-LDCs.
(e) There was an assertion that Regional Trade Agreements (RTAs) remain complementary to (not a substitute for) WTO.
(f) Ministers accredited that members “have different views” on how to address the future of the Doha Round negotiations.
The meeting was a huge disappointment for the developing and under developed world. Here, the US unabashedly called Doha Development Agenda outdated. The West focused on the Trade Facilitation Agreement, which was agreed to in Bali meet. Further, they have also been trying to introduce new issues (including some Singapore issues) such as government procurement, e-commerce, and investment and competition policy into the ambit of discussions. To this, India and other developing countries took strong objection.
The latest round of WTO Ministerial Conference led to discussions on the adoption of decisions on eliminating fisheries subsidies by December’19; e-commerce; small economies & intellectual property. There was no consensus on key issues. The US blocked a permanent resolution on government stockholding for food security purposes. India & China were reluctant to immediately commit to a deal on fisheries. India also hardened its stance on newer issues like e-commerce & investment facilitation. The draft ministerial declaration was devoid of issues related to India’s primary concerns like multilateralism, Doha Development Agenda and SDT.
MAJOR WTO AGREEMENTS & IMPLICATIONS FOR INDIA
a. Enterprise-specificity: A country’s government targets a specific company or companies for subsidization.
b. Industry-specificity: A government targets certain sector or sectors for subsidization.
c. Regional specificity: A government targets producers in particular areas of its territory for subsidization.
d. Prohibited subsidies: A government targets export products or goods using native inputs for subsidization.There are two types of prohibited subsidies – subsidies dependent upon export performance; and those contingent upon the use of indigenous content over imported goods. Further, there are ‘actionable subsidies’ – these are not barred, but countries could take ‘countervailing measures’ against these subsidies. Alternatively, they could be challenged in the ‘dispute resolution body’ of WTO. However, for a subsidy to be actionable, 3 conditions should be present –a. Injury to domestic industry due to subsidized imports from another country.b. There is serious prejudice arising as a result of adverse effects (e.g., export displacement) in the market of the subsidizing member or in a third country market. For instance, if India starts subsidizing its textile sector severely, then China can claim that this subsidy is causing serious prejudice to its textile industry.c. Nullification or impairment of benefits accruing under the GATT, 1994 by increase in subsidies.Against such subsidies, members can take countervailing measures, such as imposing countervailing duties or anti-dumping duty. These can only be done in a transparent manner and a sunset period should be specified. Sunset clause under the agreement requires that a countervailing measure must be terminated after five years, unless it is determined that continuation of the measure is necessary to avoid the persistence or recurrence of subsidization and injury.(i) Countervailing Duty – It is levied on imported goods to counterbalance subsidies provided by the exporter country.For example, in March’19, the Ministry of Commerce & Industry, Government of India, recommended the imposition of countervailing duty on imported Chinese pneumatic tires.(ii) Anti-Dumping Duty – Sometimes countries resort to subsidize production or exports so heavily that exporters are able to sell goods below domestic price or even production cost in international markets. Anti-Dumping Duty is aimed at checking such subsidization and protecting the interests of the domestic industry of the importing country.For instance, in January’19, India imposed anti-dumping duties on 99 Chinese products, including chemicals & petrochemicals, pharmaceuticals, fibres & yarn, rubber & steel items. Similarly, in April’19, it imposed an anti-dumping duty on solar cell components from China, Malaysia, Saudi Arabia & Thailand.
GATS was inspired by the ideas of creating a credible system of international trade norms; principle of non-discrimination; stimulating economic activity through definite policy bindings and progressive liberalisation of trade.
Services negotiations in the WTO follow the discussions on the so-called positive list approach and the negative list approach. In the former, members list all of the services where they undertake to reduce tariff or non-tariff barriers. It entails the opening of markets and the granting of national treatment to foreign service suppliers vis-à-vis the items in the list. In contrast, the latter approach is related to those services where trade barriers are maintained. The West is ardently advocating to move from positive list approach to negative list approach. India is against this idea as it will throw open almost the entire Indian services sector to the mercy of western multinational giants.
Negotiations in services under GATS are classified into 4 modes –
(i) Cross border supply of services, without the movement of natural persons. For e.g. Business Process Outsourcing (BPO), KPO or LPO services. India can leverage its large pool of human resources and competitive IT sector and push for liberalisation in mode 1.
(ii) Supply of a service of one country to the consumer of another country; e.g. telecommunication.
(iii) Commercial presence, which encompasses services provided by a service supplier of one country in the territory of any other country, creating scope for foreign investment. Accordingly, it is in the West’s interest to push for liberalization here. For example, higher education, insurance, medical, etc.
(iv) Presence of natural persons, which covers facilities provided by a service supplier of one country through the presence of natural persons in the territory of any other country; e.g. a company sending its engineers for onsite work in US/Europe or Australia.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an intercontinental agreement administered by the WTO that lays down the minimum standards for various types of intellectual property (IP).(i) Copyright – This refers to the legal right to control the production and selling of a book, play, film, photograph, or piece of music. Copyright protection, however, extends to expressions and not to ideas, procedures, methods of operation or any mathematical concepts.(ii) Geographical indications – Geographical indications are defined as indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographical origin (Article 22.1). Article 24 states some of the exceptions to the application of GI. For example, members are not obliged to bring a GI under protection, where it has become a generic term for describing the product in question.
(iii) Industrial designs – Article 25.1 of the agreement obliges members to provide for the protection (for at least 10 years) of independently created industrial designs that are new or original.
(iv) Integrated circuit layout-designs – WTO defines layout designs as the three-dimensional disposition, however expressed, of the elements, at least one of which is an active element, and of some or all of the interconnections of an integrated circuit, or such a three-dimensional disposition prepared for an integrated circuit intended for manufacture.
(v) Patents – The agreement requires members to make patents available for any inventions, whether products or processes, in all fields of technology without discrimination, subject to the tests of novelty, inventiveness and industrial applicability. There are certain exceptions to this rule. For example, members may exclude from patentability inventions contrary to ordre public or morality; and diagnostic, therapeutic and surgical methods for the treatment of humans or animals.
(vi) Trademarks – The basic rule contained in Article 15 is that any sign, or any combination of signs, capable of distinguishing the goods and services of one undertaking from those of other undertakings, must be eligible for registration as a trademark, provided that it is visually perceptible.
TRIPS agreement was revised in favor of the developing countries in 2003, as part of the Doha development agenda, when all members agreed to compulsory licensing in certain cases. However, now US and Europe remain unhappy about the current stringent terms of patent under TRIPS.
Developing countries, including India, have time and again floated proposals in the WTO for incorporating a new provision in the TRIPS agreement related to prevention of theft of traditional knowledge such as Ayurveda and naturopathy. It has asked for mandatory disclosure of source or origin of the biological resource, evidence of prior informed consent and benefit sharing from patent applicants before granting any patent to a company in order to check bio-piracy.
1. Trade-Related Investment Measures – TRIMS
Negotiated during the Uruguay Round, TRIMS applies to measures that affect trade in goods. This agreement states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions). Thus, the members will not apply any measure that discriminates against foreign products or that leads to quantitative restriction.
2. Agreement on Agriculture – AoA
Designed to remove trade barriers and to encourage transparent market access and integration of global markets, AoA stands on 3 pillars:
(i) Domestic Support, i.e., subsidies such as guaranteed minimum price or input subsidies which are direct and specific to a product. This can be divided into:
a) Green Box – Subsidies which are not or least market distorting. It includes measures such as income-support payments, safety-net programs, payments under environmental programs and agricultural research and development subsidies. In the case of developing countries, special treatment is provided in respect of governmental stockholding schemes for food security purposes and subsidised food prices for urban and rural poor.
The US has exploited this opportunity by decoupling subsidies (non-trade distorting subsidies) from outputs and financing research & development of agriculture.
b) Blue Box – These production limiting subsidies cover payments based on acreage, yield or number of livestock in a base year.
The government is given the room to fix ‘targets price’ if the ‘market prices’ are lower than the farm prices. EU has been actively using this method.
c) Amber Box – Those are trade distorting subsidies which need to be curbed. They contain a category of domestic support that is scheduled for reduction based on a formula called the “Aggregate Measure of Support” (AMS). This refers to the money spent by governments on agricultural production, except for those contained in the Blue Box, Green Box and ‘de minimis’.
It required member countries to report their total AMS for the period between 1986 and 1988 & reduce it according to an agreed upon schedule – 20% for developed countries over six years starting in 1995 and 13% over 10 years for developing countries. Least developed countries do not need to make any cuts.
In addition to these subsidies, there is a ‘de-minimis provision’, which allows member countries to maintain trade distorting subsidies or ‘Amber box’ subsidies. It is 5% of the total value of agricultural output for the developed countries and 10% of total value of agricultural output for the developing countries.
Peace Clause is a product of the Bali Summit. Article 13 of AoA contains a “due restraint” or “peace clause” which controls the application of other WTO agreements to subsidies. According to the provisions, Green Box domestic support measures cannot be the subjected to countervailing duty action or other subsidy actions. Also, they cannot be subjected to actions based on non-violation nullification or impairment of tariff concessions under the GATT.
(ii) Market Access requires that tariffs, which have been fixed (like custom duties) by individual countries should be cut progressively to facilitate free trade. It also encompasses removal of non-tariff barriers (e.g. quotas on import). India is a signatory to this agreement and has substantially reduced its tariffs. It only regulates exempted goods.
(iii) Export subsidies are limited to four situations: (i) product-specific reduction commitments within the limits stated in the schedule of the WTO Member; (ii) any excess of budgetary outlays for export subsidies; (iii) export subsidies consistent with the special and differential treatment provision for developing countries; and (iv) export subsidies other than those subject to reduction commitments provided that they are in conformity with the anti-circumvention disciplines of Article 10 of the Agreement on Agriculture.
A Special Safeguard Mechanism (SSM) was designed as a safety valve, allowing developing countries to impose additional (temporary) safeguard duties in the event of an abnormal surge in imports or the entry of unusually cheap imports.
In March’18, India raised quite a few concerns pertaining to agricultural trade in the Mini-Ministerial meet of WTO members. India’s concerns stem from the fact that for a large number of developing WTO members, agriculture remains the staple source of livelihood; and they are still grappling with the question of food security. India, along with other developing nations has time and again pointed towards addressing the asymmetrical nature of this multilateral trade. India is also of the opinion that the developed nations must do away with Aggregate Measure of Support. It has expressed the desire to designate a set of special products, which are imperative to their livelihood, food security and rural development. SSM was also seen as a major defence mechanism by them in the face of surging imports. At the same time, there are differences among the developing countries when it comes to the nitty-gritties of these issues.
The Multi-Fibre Agreement governed global textile trade until the Uruguay Round. This framework for bilateral agreements or unilateral actions that established quotas, limiting imports into countries whose domestic industries were facing serious harm from rapidly increasing imports. Since MFA was not in tandem with the principles of GATT, it was replaced by the Agreement on Textiles on 1st January, 1995.The ATC is built on the following crucial elements:
(a) the product coverage, which entails yarns, fabrics, made-up textile products and clothing
(b) a framework for the integration of these textile and clothing products into GATT rules
(c) a liberalisation process to enlarge existing quotas (until they are curbed) by increasing annual growth rates at each stage;
(d) a special safeguard mechanism to deal with new cases of serious damage (or threat) to domestic producers during the transitional period;
(e) establishment of a Textiles Monitoring Body to oversee the implementation of the Agreement and ensure that the rules are followed;
(f) other provisions, including rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions, etc.
The result of Uruguay Round, SPS agreement sets out the basic rules for food safety and animal and plant health standards. It allows countries to set their own standards, based on scientific regulations. But they should be in force only to the extent that is necessary to protect human, animal or plant life or health. Also, they should not capriciously or unjustifiably discriminate between countries with identical or similar conditions. The Technical Barriers to Trade Agreement (TBT) tries to ensure that regulations, standards, testing and certification procedures do not create superfluous obstacles to trade.The most common complaints as far as SPS & TBT measures are concerned are that importing countries are not abiding by the international standards. For example, in the recent times, developed regions like USA & EU have reduced the limits of pesticides in agriculture. This has had an impact on the export of India’s agro-products like tea & basmati rice. Another frequent grievance relates to long delays in completing risk assessments or allowing imports.
MAJOR DISPUTES INVOLVING INDIA AT THE WTO
a. Disputes against India
(i) Tariff treatment on certain goods (India v/s Japan, EU)
On May 10, 2019, Japan has requested consultations with India regarding the tariff treatment that India allegedly accords to certain ICT goods. Tokyo accuses New Delhi of charging excess duties to give impetus to its local manufacturing. These tariffs, Japan has argued, counter India’s commitment of charging them at 0% (in consonance with the IT Agreement, 1996). India, however, has defended its move by arguing that the identified IT and telecom products on which import duties have been imposed did not exist in the present form when the agreement was signed. Therefore, they fall outside its jurisdiction. Other members like the USA and EU have also requested the WTO to join these negotiations and to side with Japan.
(ii) Measures concerning sugar & sugarcane (India v/s Guatemala, Brazil, Australia)
India’s domestic support (CVM) schemes and alleged export subsidies have led to a string of countries like Guatemala, Brazil and Australia to request WTO dispute consultations with India. While arguing its case, India asserted that the subsidies it provides are in the form of production subsidies, which are permitted under the WTO. The export subsidies, too, are given for production and marketing purposes, which are also permissible under the WTO rules. Furthermore, India opined that its exports of sugarcane are not significant enough to cause a surplus in the global market, as is being alleged by other WTO members.
(iii) Export Related Measures (India v/s US)
On 14th March, US filed a request for dispute consultations with India in the WTO. The issue revolved around subsidies & CVMs. Various countries like Japan, Brazil, Canada, China, EU, Thailand, etc. supported the allegations of US. Since the parties failed to reach a consensus, the WTO has established a panel to resolve the dispute. What is particularly worrying for India is the large number of third parties that resonate with the US.
(iv) Measures related to solar cells & solar modules (India v/s US)
In this case, too, the US was supported by other countries like Brazil, Canada, China, EU, Japan, Norway, Ecuador, etc. The dispute dates back to 2013, when US alleged that the domestic content requirement of India’s Jawaharlal Nehru National Solar Mission for solar cells & solar modules are inconsistent with GATT. In 2016, the Dispute Settlement Body ruled in the favour of US. However, according to the latest developments, India has countered the WTO’s moves by seeking the establishment of a compliance panel to resolve the issue. India is trying to convince the panel that its rules are now compliant with the WTO ruling. The dispute is still going on in the WTO.
(v) Measures on Imports of Iron and Steel Products (India v/s Japan)
On 20 December 2016, Japan requested consultations with India relating to certain measures imposed by India on imports of iron and steel products into India. Since bilateral talks didn’t prove fruitful, Japan requested the establishment of a panel to look into the issue in March’17. Meanwhile, a group of countries like Australia, US, Ukraine, China, EU, Indonesia, etc. became third parties to the row. The Novemeber’18 ruling upheld Japan’s view regarding the safeguard duty imposed by India on steel imports.
b. Disputes filed by India
(i) Measures on Steel and Aluminium Products (India v/s US)
India alleged that some of the measures practised by the US flout the provisions of the Agreement on Safeguards & GATT. China, Russia, Hong Kong, EU, Mexico, Thailand, etc. joined the consultations. India also claims that the imposition of high import duties on aluminium & steel items by the US has impacted exports of these products by Indian businesses. India has alleged that the US move is also not in compliance with global trade norms.
(ii) Measures Relating to the Renewable Energy Sector
On September 9, 2016, India requested consultations with the United States regarding certain measures of the latter relating to domestic content requirements and subsidies instituted in the energy sector. It argued that these subsidies contravene the provisions of TRIMS, GATT & SCM. The report of the panel is yet to be released as of now. Numerous other countries like China, Brazil & EU became parties to this case.
FUTURE OF WTO
Since the last WTO Ministerial Conference in December 2017, trade officials have been struggling to take forward a number of unrelated, incremental initiatives. There is no apparent organising logic, nor any systemic perspective. During the short span between December 1, 2017 and April 15, 2018, the Chinese and American governments were responsible for a much larger percentage of G20 protectionism (42%). The proliferation of trade distortions implemented by G20 members since their leaders last met is broad-based and not exclusively a Sino-US affair.
Since 2008, countries topping the list of trade protectionism are the US (1,200 measures) followed by India (730), Russia (610) and Argentina (480). The number of anti-dumping initiations rose to a high of over 360 in 2018, nearly double the count seen in 2011. Conversely, the number of regional trade agreements, which saw a continuous rise post the Asian financial crisis in 1997-89 to reach a peak of 34 in 2008, declined sharply to a modest 8 in 2018. Importantly, the major chunk of protectionist measures does not comprise tariff measures. Approximately 70% of the G20 restrictive measures are in the form of export measures, mostly tax-based, followed by trade finance, import tariffs, subsidies (17%, including export subsidies) etc.
The expectations of developing countries from trade also get belied due to sizeable support by the developed nations to their farmers in a situation of market failure and other uncertainties. The support through subsidies tends to bring distortions in commodity prices. The Organisation for Economic Cooperation and Development estimates the quantum of subsidies by developed nations to vary from US$ 300-325 billion annually, which is much higher than that estimated for developing countries. This has become a bone of contention in trade talks as farm lobbies in the US, Europe and Japan have steadily exercised political clout to influence officials and lawmakers to continue giving subsidies to farmers.
Another point of concern is that developed countries design and implement stringent non-tariff measures (NTMs), which exacerbate the problems faced by poor countries that are willing to export. NTMs significantly add to the cost of trade. However, the costs of acquiescence with many NTMs are asymmetrical across exporters because compliance depends on production facilities, technical know-how and infrastructure — factors that are usually inadequate in developing economies. These countries are, therefore, unable to compete in international markets and hardly gain from sectors with comparative advantage such as agriculture, textiles and apparels.
Developing countries are willing to break the deadlock on these issues and are preparing a common ground to alter the mandate of the global trade body. India, in particular, seeks amendment of laws on unilateral action by members on trade issues and a resolution of the WTO’s dispute settlement system. The expectation is that the meeting may lead to policy guidance on issues such as global norms to protect traditional knowledge from patenting by corporates, protection through subsidies, e-commerce, food security and continuation of special and differential treatment to poor economies.
A meaningful reset for the WTO requires a new work programme that reverses the build-up in discrimination against foreign commercial interests witnessed, since the global financial crisis began. The time is opportune for developing countries to voice their concerns and push for a stable and transparent environment for multilateral trade. India must do its homework to focus on the unresolved issues and address the newer ones, which are of interest to developed nations, mainly investment facilitation. The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters.
• Agricultural product
Defined for the coverage of the WTO’s Agriculture Agreement, by the agreement’s Annex 1. This excludes, for example, fish and forestry products. It also includes various degrees of processing for different commodities.
• Amber Box
Domestic support for agriculture that is considered to distort trade and therefore subject to reduction commitments. Technically calculated as “Aggregate Measurement of Support” (AMS).
• Anti-dumping duties
GATT’s Article 6 allows anti-dumping duties to be imposed on goods that are deemed to be dumped and causing injury to producers of competing products in the importing country. These duties are equal to the difference between the goods’ export price and their normal value, if dumping causes injury.
• Blue Box
Amber Box types of support, but with constraints on production or other conditions designed to reduce the distortion. Currently not limited.
Getting around commitments in the WTO such as commitments to limit agricultural export subsidies. Includes: avoiding quotas and other restrictions by altering the country of origin of a product; measures taken by exporters to evade anti-dumping or countervailing duties.
• Commercial presence
Having an office, branch, or subsidiary in a foreign country. In services, “mode 3” (see “modes of delivery”).
• Compulsory licensing
For patents: when the authorities license companies or individuals other than the patent owner to use the rights of the patent — to make, use, sell or import a product under patent (i.e. a patented product or a product made by a patented process) — without the permission of the patent owner. Allowed under the WTO’s TRIPS (intellectual property) Agreement provided certain procedures and conditions are fulfilled. See also government use.
Unauthorized representation of a registered trademark carried on goods identical or similar to goods for which the trademark is registered, with a view to deceiving the purchaser into believing that he/she is buying the original goods.
• Countervailing measures
Action taken by the importing country, usually in the form of increased duties to offset subsidies given to producers or exporters in the exporting country.
• Decoupled income support
Support for farmers that is not linked to (is decoupled from) prices or production.
When prices and production are higher or lower than levels that would usually exist in a competitive market.
• Domestic support
(Sometimes “internal support”.) In agriculture, any domestic subsidy or other measure which acts to maintain producer prices at levels above those prevailing in international trade; direct payments to producers, including deficiency payments, and input and marketing cost reduction measures available only for agricultural production.
Occurs when goods are exported at a price less than their normal value, generally meaning they are exported for less than they are sold in the domestic market or third-country markets, or at less than production cost.
• Export-performance measure
Requirement that a certain quantity of production must be exported.
• Food security
When the nutritional needs of a country or population are met consistently. This is commonly described as when people or populations “at all times have physical and economic access to sufficient, safe, and nutritious food to meet their dietary needs and food preferences for a healthy life”. “Food security” and “self-sufficiency” are not the same, and a key debate is whether policies aiming for self-sufficiency help or hinder food security.
• Free trade area
Trade within the group is duty free but members set their own tariffs on imports from non-members (e.g. NAFTA).
The WTO’s General Agreement on Trade in Services.
General Agreement on Tariffs and Trade, which has been superseded as an international organization by the WTO. An updated General Agreement is now the WTO agreement governing trade in goods. GATT 1947: The official legal term for the old (pre-1994) version of the GATT. GATT 1994: The official legal term for new version of the General Agreement, incorporated into the WTO, and including GATT 1947.
• General obligations
Obligations which should be applied to all services sectors at the entry into force of the GATS agreement.
• Geographical indications
Place names (or words associated with a place) used to identify products (for example, “Champagne”, “Tequila” or “Roquefort”) which have a particular quality, reputation or other characteristic because they come from that place.
• Green box
Domestic support for agriculture that is allowed without limits because it does not distort trade, or at most causes minimal distortion.
Generalized System of Preferences — programmes by developed countries granting preferential tariffs to imports from developing countries.
• Import licensing
The need to obtain a permit for importing a product; administrative procedures for obtaining an import licence.
• Intellectual property rights
Ownership of ideas, including literary and artistic works (protected by copyright), inventions (protected by patents), signs for distinguishing goods of an enterprise (protected by trademarks) and other elements of industrial property.
• Local-content measure
Requirement that the investor purchase a certain amount of local materials for incorporation in the investor’s product.
Most-favoured-nation treatment (GATT Article I, GATS Article II and TRIPS Article 4), the principle of not discriminating between one’s trading partners.
• Modes of delivery
How international trade in services is supplied and consumed. Mode 1: cross border supply; Mode 2: consumption abroad; Mode 3: foreign commercial presence; and Mode 4: movement of natural persons.
• National schedules
In services, the equivalent of tariff schedules in GATT, laying down the commitments accepted — voluntarily or through negotiation — by WTO members.
• National treatment
The principle of giving others the same treatment as one’s own nationals. GATT Article 3 requires that imports be treated no less favourably than the same or similar domestically-produced goods once they have passed customs. GATS Article 17 and TRIPS Article 3 also deal with national treatment for services and intellectual property protection.
• Natural persons
People, as distinct from juridical persons such as companies and organizations.
Non-tariff barriers, such as quotas, import licensing systems, sanitary regulations, prohibitions, etc. Same as “non-tariff measures”.
• Peace clause
Provision in Article 13 of the Agriculture Agreement saying agricultural subsidies committed under the agreement cannot be challenged under other WTO agreements, in particular the Subsidies Agreement and GATT. Expired at the end of 2003.
Unauthorized copying of materials protected by intellectual property rights (such as copyright, trademarks, patents, geographical indications, etc) for commercial purposes and unauthorized commercial dealing in copied materials.
• Preferential trade arrangements (PTAs)
This is the term used in the WTO for trade preferences, such as lower or zero tariffs, which a member may offer to a trade partner unilaterally. These include the Generalized System of Preferences schemes, under which developed countries grant preferential tariffs to imports from developing countries. They also include non-reciprocal preferential schemes granted through a waiver by the General Council, meaning the member has been exempted from applying the most favoured nation (MFN) principle.
• Rules of origin
Laws, regulations and administrative procedures which determine a product’s country of origin. A decision by a customs authority on origin can determine whether a shipment falls within a quota limitation, qualifies for a tariff preference or is affected by an anti-dumping duty. These rules can vary from country to country.
• Safeguard measures
Action taken to protect a specific industry from an unexpected build-up of imports — generally governed by Article 19 of GATT. The Agriculture Agreement and Textiles and Clothing Agreement have different specific types of safeguards: “special safeguards” in agriculture, and “transitional safeguards” in textiles and clothing.
• Sanitary and phytosanitary measures (SPS)
Measures dealing with food safety and animal and plant health.
Sanitary: for human and animal health.
Phytosanitary: for plants and plant products
• Special and differential treatment (S&DT):
Special treatment given to developing countries in WTO agreements. Can include longer periods to phase in obligations, more lenient obligations, etc.
• Special products (SP)
In Doha Round on agriculture: products for which developing countries are to be given extra flexibility in market access for food and livelihood security and rural development.
• Special safeguard mechanism (SSM)
In Doha Round on agriculture: a tool that will allow developing countries to raise tariffs temporarily to deal with import surges or price falls.
There are two general types of subsidies: export and domestic. An export subsidy is a benefit conferred on a firm by the government that is contingent on exports. A domestic subsidy is a benefit not directly linked to exports.
Customs duties on merchandise imports. Levied either on an ad valorem basis (percentage of value) or on a specific basis (e.g. $7 per 100 kgs.). Tariffs give price advantage to similar locally-produced goods and raise revenues for the government.
• Technical barriers to trade (TBT)
Regulations, standards, testing and certification procedures, which could obstruct trade. The WTO’s TBT Agreement aims to ensure that these do not create unnecessary obstacles.
• Trade facilitation
Removing obstacles to the movement of goods across borders (e.g. simplification of customs procedures).