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Preface-
Almost every magazine / UPSC related book / Newspaper Editorials talk about WTO frequently. but they all use
extremely complicated language,(assuming that a reader is already knowing the basic concepts of WTO & free trade. but
its not true in most cases- that’s why WTO becomes a boring topic for most candidates & they end up trying to cram up
Doha conference etc. with out understanding the basic concepts on WTO.
so here I try to explain WTO in as simple manner as i can.
Complicated things are intentionally left out, Many examples here, will be politically & technically ‘not correct’ but I’ve
wrote it in that way so new comers can understand basic things about WTO easily.
Contents
Tariff barriers..........................................................................................................................................................2
Non-Tariff barriers. .................................................................................................................................................2
what was happening before WTO. ...............................................................................................................................3
Why agreements? ......................................................................................................................................................3
Annex ........................................................................................................................................................................5
#1 Annex : GATT .........................................................................................................................................................5
#2 : Annex of GATS (services)...................................................................................................................................6
TRIPS =Trade related intellectual property rights ..........................................................................................................6
What is TRIPS all about?..........................................................................................................................................6
why TRIPS is imp? ...................................................................................................................................................6
India's Problem with GI ...........................................................................................................................................7
Time limit...............................................................................................................................................................7
What is the Use of these agreements? / What are the trading principles in WTO?..........................................................8
Without Discrimination ...........................................................................................................................................8
Freer Trade (bringing down barriers in international trade) – ....................................................................................8
Predictability ..........................................................................................................................................................9
Fair compitition ......................................................................................................................................................9
Economic Reforms ..................................................................................................................................................9
1944.................................................................................................................................................................... 13
1947:................................................................................................................................................................... 13
1986.................................................................................................................................................................... 13
Tariff barriers
- Tariff = A government tax on imports or exports
- When Indian Govt. puts heavy import duty / custom duty on Foreign Products – either that import item
becomes very costly so people will buy desi* items. (and there will be smuggling of foreign items! Like
Gold watches/ perfumes etc in the 80s.) *Desi= domestic / indian
- This protects domestic players. (= industrialists/ businessmen.) from competition from foreign players.
Non-Tariff barriers.
- When Desi players are given subsidies / preference over the foreign players by Govt. of India.
- For example,
o when Govt. is buying some phones/ Xerox Machines, in the tender it’ll mention that only
Domestic companies can fill the tender.
o making polices in such a way that its hard for foreign player to start factory / introduce his
product in India
o Intentionally setting the Quality standards so high that certain players can’t sell their products
here.
- Here no tariff (=tax/money) is involved but still there is a barrier for foreign players. That’s why its
Nations would put heavy custom duties on foriegn items. (to protect the domestic / Swadeshi
When there is less competition - products will be expansive & customer won't have much choice. for
Example….. compare-
o prices of Mobiles in 1999, with current prices!
o features of current mobiles with 1999 (was there any MP3, radio,Camera, Color Screen etc
features, if yes- how expensive was it!)
o talk-time plans (in 1999 it was about 7 Rs./minute + incoming wasn't free, now its around 50
Paisa / minute + Free incoming/)
Today we have this fun, because of globalization + import of foreign products & Govt. doesn't put high custom /
import tax on it. (no high tarrif barriers)
So, The Primary objective of WTO is to remove the tarrif barriers / Custom duties. = integrate all nations in
international economy.
For this, WTO will consult with all member-nations, and will make legally binding agreements.
Why agreements?
- there are total 19 Agreements in WTO, but most imp. are 3. (i'll explain it later in this article.)
- these agreements talk about what is compulsory & what is non-compulsory for each nation.
- And what will be the penalties if a nation doesn't follow these agreements.
- Every Agreement has an 'Annex'- in that you'll find the detailed provisions & items included in the
agreements.
- The Secretariat of WTO keeps an eye on every nation – seeing whether agreements are followed or
not.
But there will be some bad-nations who won't play by the rules & try to cheat such agreements. So second
Now lets see the 3 most imp agreements of WTO. See this chart
Like I said ago, they’ve annexes which provide operation details about how to implement these agreements. ( only TRIPS
doesn’t have any annex)
Annex
#1 Annex : GATT
Now another mimp annex of GATT is, SCM = subsidies & counter veiling measures (=the Red, Green & Amber
list) – see this chart-
Apart from this, shipment inspection and anti-dumping are also included in GATT annex.
But TRIPS is very imp agreement in today’s world full of technologies-so lets see what’s it about t.
world market.
there are certain items whose actual price can't be counted based on 'physical material used in it' (e.g.
Books are not sold based on number of pages/ cost of paper but content & fame of author.) so we
can't apply GATT (which is for physical goods ) and Book is not a 'service' either (so can't apply GATS)
Research & Development.(R&D)
o here, if the patent / copyright wasn't protected, then inventors will not invest in R&D.& then
world will be deprived of better products.
Time limit
it came in force from 1st January 1995. and according to its provision
Developed nations have to make such laws within 1 year.
developing nations (like India) have to make such laws within 5 years.
Least Developing countries (like Zimbabway/ Somalia) were given time limit upto 11 years (=2006) ,
but now the time is extended upto 2016 for pharmaceutical patent laws.
Apart from above 3 agreements (GATT, GATS, TRIPS) other 3 imp agreements are-(see this diagram)
What is the Use of these agreements? / What are the trading principles in WTO?
Without Discrimination
MFN = Most favored nation
In WTO, every nation is MFN
So, if India grants a special favor to one nation – India will have to give that special favor to all member-
nations of WTO.
India will have to treat locals & foreign players equally. (e.g. you can’t have a system like Local
businessman’s file will be cleared first or local man will be given preference in contract / tenders / 3G
frequency allocation.)
d. But there are strict conditions in WTO, before you can do above things.
i. *Dumping =China intentionally sends extremely cheap toys in india, so Indian toy makers
collapse and toy market in India is captured by China.
ii. ** Products dangerous to health like China’s milk powder which had melamine.
2. Quota
3. subsidies
4. non-tariff barriers* (explained later.)
5. red tape
6. Artificially propped up exchange rates
a. like China intentionally keeps the value of Yuan low, so Americans will find it cheap to buy from
China compared to other nations.)
Predictability
When there are legally binding agreements between member nations of WTO- it means, even after change
in Govt. (BJP / Congress / whatever) – the Indian policy of international trades won’t alter very much.
This gives confidence of foreign investors because of
Promise of stability (=Ceilings on customs tariffs.)
binding commitments (WTO keeps an eye on each nation – so Govt. can’t cheat. And if you cheat- you’ll
have to pay fines.)
And foreign investment helps the domestic economy as well.
Fair compitition
WTO agreements prevent unfair dumping, subsidies, government procurement
Economic Reforms
to implement WTO Agreements, the 3rd world nations have to change their policies. = reform
(remember the pre-LPG Era - quota,licence,inspctor raj)
- Everything in GATT used to work in a manner that'd suit the rich nations.
4. GATT talked only about goods (physical products) . WTO talks about services (phone lines, BPO) &
Intellectual property rights, along with those goods.
5. The working of WTO is more transparent.
6. In WTO, every nation has one vote only. Unlike IMF where rich nations have more voting powers.
first lets see what positive things happened then we talk of Doha Rounds and finally about What's India's problem in
Doha rounds.
4. India won multilateral dispute settlement against such powerful economies as USA
5. because of TRIPS, India had to adopt international standards in Intellectual property rights.=
6. ↑ flow of Foreign investment & technology.
7. (because Foreigners established research labs/ manufacturing units in India & started selling their
products here.)
8. Textiles boom (because MFA = Multilateral Fiber Agreement was scrapped under WTO's
ATC=Agreement on Texttile clothings.) otherwise previously UK and other nation had put quantitative
limits on Indian Cotton's Entry in their market.
DOHA
what is DOHA?
Doha is capital city of a small nation called Qatar.
this entire package is called 'Doha round of talks.' aka "DDA = Doha Development agenda."
Fifth Ministerial Conference was held in Cancun, Mexico in September 2003.
3. Fisheries subsidies =they harm environment, by encouraging too many fishermen to chase insufficient
fish
the Doha conference failed because it ended with out any consensus.
Members were divided on competition policy & transparency in Govt. procurements.
First world blames India to be the main villain for failure of Doha talks.
then India can put tariff barrier (= increase import duty on American Corn) so that prices become high
again.
otherwise, no one would by Indian Corn, and our farmers will starve.
United States arguing that the threshold had been set too low.
(e.g. if it was decided that if price fall to 5 Rs. / kg corn, then India could do this. but US wants that
India shouldn't be allowed to act, unless price of corn falls very low, something like 50 paisa / kg.!)
Like I said ago, more mobile companies are good. Because it increases employment. (you can be a
representative of some mobile co. or if you’ve retail store, you can sell pre-paid cards etc. or you can start your
own mobile repair shop and so on…)
But same is not true about agriculture sector, since 70% of India’s population depends on one way or another
with the agriculture sector. So if cheap foreign items are allowed, then it’ll create huge problem for their
employment. Its easy for each American farmer to produce tonnes of grain (and sell his produce cheap),
because every farmer has huge farms, latest machinery, fertilizers & great seeds+ continuous water supply +
However the problem of food-price inflation should also be taken into account. (= read editorials, you’ll face
such topics in mains / essay.)
remove the inter-state tariff disparities. “We want India to get rid of its taxes on wines and spirits in different
states to allow easier access to European wines, failing which we will approach the WTO again,"
Criticism of WTO
Mostly comes from environment activities.
1. WTO promotes industries, MNC (Multi-national corporations)
a. But these MNCs sometimes are involved in bad things. Eg. They pay huge bribes to Burma’s
military regime for operating the gas lines, nickel mines etc. and employ forced laborers in it.
2. The infrastructure boom because of WTO (more foreign companies making factories in India) – leads to
habitat / bio-diversity loss & pollution etc.
3. Its hard to put barriers on imported items, thus the domestic industries face tough competition which
sometimes ruins them. (e.g. its not possible for Indian Toy maker to compete with Chinese toys in retail
price.) and yet not much the Indian Govt. can do. If they put some ban on it, then China will go to WTO,
Britishers would only buy locally made cloths from Manchester. This sort of ‘protectionism’ in old times (almost
upto 1995) = their companies made lot of profit during that era & had lot profit invested in Research and
technology, so currently their products will be technically and in quality far superior than ours. So even if there
is no barrier today, British people will buy their product and not ours. This argument runs on the same line like
of climate change. America allowed its factories to pollute the atmosphere and thus became a developed
nation but now, it wants the developing nations to stop polluting the world & cut their emissions!
1944
Bretton Woods conference,
they wanted to make ITO (International Trade Org.) but it didn’t happen.
1947:
GATT (General Agreement on Trade & Tariffs) established
1986
Uruguay Round of Talks
Service & Intellectual Property rights related topics included in the debate
1993, everyone agreed on it
2004
- 148 nations are members of WTO, covering 94% of international trade