Impact of GATT and WTO Impact of GATT and WTO on Indian Foreign trade.on Indian Foreign trade.

By group 5

GATT: IntroductionGATT: IntroductionThe General Agreement on Tariffs and

Trade(GATT) was established in 1948 in Geneva to pursue the objective of free trade in order to encourage growth and development.

The principal purpose of GATT was to ensure commodity trade through the removal or reduction of trade barriers. The first 7 rounds of negotiations were conducted under GATT were aimed at stimulating international trade through reduction in tariff barriers and also by reduction in non tariff restrictions on imports imposed by member countries.

Hence it provided a useful forum for discussions and negotiations on international trade.

Uruguay Round of Uruguay Round of negotiations: 8negotiations: 8thth round of round of GATTGATTStarted in Sept 1986 at a special session

of GATT contracting parties held at the ministerial level. World trade had undergone a structural level since 1948

The share of agriculture in world merchandise had declined from 46% in 1950 to 13% in 1987. Simultaneously the contribution of various other sectors to GDP of developed countries had undergone a qualitative change ( rapidly increasing). It ranged between 50-70% of the GDP in 1986. The share of employment in the service sector was also increasing.

Thus UR contained the mandate to have negotiations in 15 areas. In part 1, negotiations on Trade in goods were to be conducted in 14 areas and in Part 2 negotiations on Trade in services were to be conducted.

Certain new areas such as Trade Related Aspects if Intellectual Property Rights (TRIPs) and Trade Related Investment (TRIMs).

Dunkels proposals.

UR and its implications on UR and its implications on Indian foreign trade:Indian foreign trade:Reduction in basic duty and export

subsidies: India promised to reduce the basic duty by 30% which was to be effected over a period of 6 years and was to cover raw materials, intermediates and capital goods. This did not include agricultural products, petroleum products, fertilizers and some non ferrous metals like zinc and copper.

The GATT stipulates that anti dunping proceedings will be terminated if the volume of dumped imports from a particular country is less than 1% of the domestic market.These clauses do help India to protect its exports from anti dumping investigations. It would have been favourable if the figure of dumped imports as a share of domestic market been more than 1%.

Regarding the prohibition of export subsidies GATT agreement stipulates that countries like India with per capita income less than $1000 are exempt from the removal of such subsidies for products where their share in world trade is less than 3.25%.

Indian Exports in 2001 Indian Exports in 2001 Covered by GATT Covered by GATT

agreement: (in US $Million) agreement: (in US $Million) Item World India India’s share

(%)

Rice 7530 631 8.4

Tea 2978 415 13.9

Spices 2440 252 10.3

Iron Ore 8758 321 3.7

Leather Manufactures

24082 779 3.2

Gems and Jewellery

56135 6242 11.1

Total 5555028 36258 0.66

Using this criterion, India’s share exceeds in rice, tea, iron ore, leather manufactures, gems and jewellery. All these items account for 22.8 percent of the total exports. This implies that 77% of the exports aer not covered by GATT agreement. Thus reduction of export subsidies or their removal is not likely to produce any disastrous effect on our exports as alleged by many critics.

Effect of TRIPsEffect of TRIPsSupposed to have disastrous

effect on our economy more ecpecially in two vital areas i.e.

(i) Pharmaceuticals: Scope of the new patent regime.

(ii) Agriculture: Patent or patent like protection in Agriculture.

- Patents Bill and Seeds Act (2004)

TRIMs and its impact:TRIMs and its impact:Main features of TRIMs are:All restrictions on foreign capital/ investors/

companies should be scrapped.The foreign investor shall be given the same

rights in the matter of investment as a national investor.

No restriction will be imposed on any area of investment.

Nor will there be any limitation on the extent of foreign investment-even 100% foreign equity will be permitted.

Imports of raw materials and components will be allowed freely.

Foreign investors will not be obliged to use local products and materials.

Export of part of the output will no longer be mandatory.

Restrictions or repatriation of dividend, interest and royalty will be eliminated.

There will be a complete exclusion of provisions like phased manufacturing programme which is intended to increase the indegenous content in manufacture.

GATT on textile and GATT on textile and clothingclothingProposals to liberalize the trade

of textiles and clothingsThe Act proposes to phase out

MFA over a 10 year period and to fully liberalize the textile sector at the end of the ten year period.

3 phases ( 16%, 17%, 18% liberalized)

Social Clause in GATT::Social Clause in GATT::The US representative proposed

under the social clause to levy a countervailing duty on imports from developing countries aimed at offsetting the low labour costs prevailing there.

They declared that this clause was motivated by humanitarian concern so that the developing countries adopt proper standards of living for the workers and pay them better wages.

Conclusion:Conclusion:The consensus is that the UR has

been a game in which the more powerful nations lay down their rules.

History of GATT reveals that whenever newly industrialized nations have challenged the competitive strength of the developed countries , they have immediately retaliated by imposing tariff and non tariff barriers. They have now enlarged it in the form of TRIPs and TRIMs.

The social clause was also conceived with the same intention of blunting the competitive advantage of developing nations.

The solution lies in the fact that developing countries should take advantage of multi lateral trade organizations and show their combined strength by closing their ranks, rather than surrender their sovereignty one after another.

WTO

WTOWTO

•The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

•At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.

•The goal is to help producers of goods and services, exporters, and importers conduct their business.

IMPLICATIONS FOR INDIAIMPLICATIONS FOR INDIA India does not stand to gain much by shouting for

agriculture reforms in developed countries because the overall tariff is lower in those countries.

India will have to tart major reforms in agriculture sector in India to make Agriculture globally competitive.

Same way it is questionable if India will be major beneficiary in dismantling of quotas, which were available under MFA for market access in US and some EU countries.

It is likely that China, Germany, North African countries, Mexico and such others may reap benefit in textiles and Clothing areas unless India embarks upon major reforms in modernization and up gradation of textile sector including apparels.

Agricultural sectorAgricultural sectorThe provisions of W.T.O offered ample

opportunities to India to expand its export market.

International price of agricultural commodities have since then plummeted, because of which domestic price turned higher than international price, which made India an attractive market for import of most agricultural commodities.

This situation resulted in a wide spread decline in agricultural export and had also pressure on domestic value.

Contd…Contd…The impact of W.T.O on agriculture

was severely felt by India as cheap imports have frequently hit the Indian market, causing shock waves among the agriculture producers.

The changes in agricultural exports reveal that during pre W.T.O period the increase was significant and could not be sustained in the post W.T.O period whereas imports remarkable than post W.T.O period and the rising export trend rose steadily.

PHARMA SECTORPHARMA SECTORIn Pharma-sector there is need for

major investments in R &D and mergers and restructuring of companies to make them world class to take advantage. India has already amended patent Act and both product and Process are now patented in India.

However, the large number of patents going off in USA recently, gives the Indian Drug companies windfall opportunities, if tapped intelligently. Some companies in India have organized themselves for this.

TELECOM SECTORTELECOM SECTORThe General Agreement on Trade in Services

(the “GATS”) was one of the most important achievements of the Uruguay Round of negotiations that led to the creation of the World Trade Organization (the “WTO”). In 2001, international trade in services constituted approximately $1.450 trillion which represents almost 20% of total global trade in goods and services combined.

Telecommunication services are important not just because annual telecommunications revenues run into hundreds of billions of dollars a year and a significant proportion of global GDP but also because they enable the supply of other types of services as well as the production of goods.

PROBLEMS FACING PROBLEMS FACING INDIA IN WTO ANDINDIA IN WTO ANDITS IMPLEMENTATIONSITS IMPLEMENTATIONS

Predominance of developed nations in negotiations extracting more benefits from developing and least developed countries.

Resource and skill limitations of smaller countries to understand and negotiate under rules of various agreements under WTO.

Incompatibility of developed and developing countries resource sizes thereby causing distortions in implementing various decisions.

Contd…Contd…Non-tariff barriers being created by

developed nations. Dismantling of MFA (Multi Fiber

Agreement) and its likely impact on countries like India.

Under TRIPS question of high cost of Technology transfer, Bio Diversity protection, protection of Traditional Knowledge and Folk arts, protection of Bio Diversities and geographical Indications of origin, for example Basmati, Mysore Dosa or Champagne. The protection has been given so far in wines and spirits that suit US and European countries.

WHAT INDIA SHOULD WHAT INDIA SHOULD DO?DO?

The most important things for India to address are speed up internal reforms in building up world-class infrastructure like roads, ports and electricity supply. India should also focus on original knowledge generation in important fields like Pharmaceutical molecules, textiles, IT high end products, processed food, installation of cold chain and agricultural logistics.

India's ranking in recent Global Competitiveness report is not very encouraging due to infrastructure problems, poor governance, poor legal system and poor market access provided by India.

India’s exports & imports before India’s exports & imports before 19911991YEAR

EXPORTS Growth Rate%

IMPORTS Growth Rate%

Trade Balance

1 2 3 4 5 6

1970-71 1535 8.6 1634 3.3 -99

1980-81 6711 4.6 12549 37.3 -5838

1981-82 7806 16.3 13608 8.4 -5802

1982-83 8803 12.8 14293 5.0 -5490

1983-84 9771 11.0 15831 10.8 -6060

1984-85 11744 20.2 17134 8.2 -5390

1985-86 10895 -7.2 19658 14.7 -8763

1986-87 12452 14.3 20096 2.2 -7644

1987-88 15674 25.9 22244 10.7 -6570

1988-89 20232 29.1 28235 26.9 -8003

1989-90 27658 36.7 35328 25.1 -7670

1990-91 32553 17.7 43198 22.3 -10645

Restrictions on foreign Restrictions on foreign trade:-trade:- India was largely and intentionally isolated

from the world markets, to protect its fledging economy and to achieve self-reliance.

Foreign trade was subject to:- import tariffexport taxesquantitative restrictionsforeign direct investment was restricted by upper-limit equity participationrestrictions on technology transferexport obligationsgovernment approvals (these approvals were needed for nearly 60% of new FDI in the industrial sector).

Conditions of Indian economy in Conditions of Indian economy in 19911991

Foreign currency reserves plummeted to almost $1billionInflation was at a rate of 17%High fiscal deficitsForeign investors and NRI’s had lost confidence in Indian EconomyCapital was flying out of economyDefaulting of loans

IMPORTANT REFORM MEASURESIMPORTANT REFORM MEASURES

Major measures initiated were as follows:DevaluationDisinvestmentDismantling of the industrial licensing regimeAllowing foreign direct investmentPrivatizationRemoval of import restrictionsReduction of the peak customs tariffNew financial sector reforms

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