CHAPTER

65
WTO Dev WTO and Developing Countries
INTRODUCTION
The Uruguay Round of GATT negotiations concluded on April 15, 1994 at Marrakesh, Morocco. India, alongwith 123 Ministers besides the EC countries signed the Final Act incorporating the Eighth round of multilateral trade negotiations. The Final Act consists of : (1) the WTO Agreement which covers the formation of the organisation and the rules governing its working; and (2) the Ministerial decisions and declarations which contain the important agreements covering trade in goods, services, intellectual property and plurilateral trade. They also contain the dispute settlement rules and trade policy review system. The WTO Agreement is in fact the Uruguay Round agreements whereby the original GATT is now a part of the WTO Agreement which came into force from January 1, 1995.

THE WTO
The WTO is the successor to the GATT. The GATT was a forum where the member countries met from time to time to discuss and solve world trade problems. But the WTO is a properly established permanent world trade organisation. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It includes : (1) the GATT,

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as modified by the Uruguay Round; (2) all agreements and arrangements concluded under the GATT; and (3) the complete results of the Uruguay Round. There were 77 member countries of the WTO on January 1, 1995. Now there are 151 members. India is one of the founder members.

ITS OBJECTIVES
In its Preamble, the Agreement establishing the WTO lays down the following objectives of the WTO: 1. Its relations in the field of trade and economic endeavour shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and effective demand, and expanding the production and trade in goods and services. 2. To allow for the optimal use of the worlds resources in accordance with the objectives of sustainable development, seeking both (a) to protect and preserve the environment, and (b) to enhance the means for doing so in a manner consistent with respective needs and concerns at different levels of economic development. 3. To make positive efforts designed to ensure that developing countries, especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development. 4. To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations. 5. To develop an integrated, more viable and durable multilateral trading system encompassing the GATT, the results of past liberalisation efforts, and all the results of the Uruguay Round of multilateral trade negotiations. 6. To ensure linkages between trade policies, environmental policies and sustainable development.

ITS FUNCTIONS
The following are the functions of the WTO:
1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements. 2. It provides the framework for the implementation, administration and operation of the Plurilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in dairy products and bovine meat. 3. It provides the forum for negotiations among its members concerning their multilateral trade relations in matters relating to the agreements and framework for the implemenation of the results of such negotiations, as decided by the Ministerial Conference. 4. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement. 5. It co-operates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making.

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WTO AGREEMENT
The Agreement establishing the WTO consists of the following which embody the results of the Uruguay Round of the Multilateral Trade Negotiations:
1. 2. 3. 4. 5. 6. Multilateral Agreements on Trade in Goods : GATT Rules 1994. General Agreements on Trade in Services. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Understanding on Rules and Procedures governing the Settlement of Disputes. Plurilateral Trade Agreements. Trade Policy Review Mechanism.

WTO AND DEVELOPING COUNTRIES

The first Ministerial Meeting of the WTO was held at Suntec City in December 1996 at Singapore. The ministers of member countries adopted a consensus declaration reaffirming their faith in the multilateral trading system as the means to promote free world trade. In the declaration, they renewed their commitment to : (1) a fair, equitable and more open rule-based system; (2) progressive liberalisation and elimination of tariff and non-tariff barriers to trade in goods; (3) progressive liberalisation of trade in services; (4) rejection of all forms of protectionism; (5) elimination of discriminatory treatment in international trade relations; (6) integration of developing and least developed countries and economies in transition into the multilateral system; and (7) the maximum possible level of transparency. The Ministers discussed some new issues of trade such as competition policy, labour standards, multilateral investment agreement and government procurement. In their declaration, they rejected the use of labour standards for protectionist purpose, agreed to establish separate working groups to examine the relationship between trade and investment, to study issues pertaining to the interaction between trade and competition, including anti-competitive practices, and to conduct a study on transparency in government procurement practices. They admitted that progress in negotiations on liberalising world markets in financial services, maritime services and basic telecommunications had been unsatisfactory which would be completed by the end of 1997. The only positive side of the Meeting was the launching of the Information Technology Agreement signed by 28 countries which aims at slashing tariffs on items of information technology to zero by the year 2000. The first Ministerial Meeting was severely criticised for the manner in which its decisions were arrived at. There was a facade of consensus because most developing countries were marginalised in the decision-making process. The second Ministerial Conference was held at Geneva where the developed nations made a commitment to reduce subsidies and trade distorting support in agriculture. Provision was made for special safeguard mechanism for the developing world and the concept of food security for them was accepted. The Conference also approved the Information Technology Agreement. The third, Ministerial Conference was held at Seattle (US) in November-December 1999. The Conference was marred by many controversies between the developed and developing countries. A large number of member countries emphasised on a new round of negotiations, called the Millennium Round, covering a wide range of subjects like investment issues, competition policy, transparency in government procurement, trade facilitations, trade and

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labour standards, trade and environment, industrial tariff reduction, etc. The inclusion of non-trade issues like labour standards in the WTO agenda was vehemently opposed by the developing countries. The Conference failed due to large disagreements among the groups of developed and developing countries on certain disputed issues like textiles, agriculture and anti-dumping. As no concensus based conclusions could be reached on most of the issues, the Conference failed to kick off a new round of trade talks. THE DOHA ROUND The fourth round of trade negotiations under the WTO kicked off at Doha (Qatar) in November 2001. At the Conference, labour standards were removed from the core agenta of WTO. The main agenda of the Conference was to reduce global trade bariers covering agriculture, industrial goods and services largely for the benefit of developing and poor nations. But the Doha Development Round of trade talks slumped into dead lock with a dead line of 1 January 2005. At the fifth Conference held at Cancun (Mexico) in September 2003, nothing specific came out of the negotiations. The meet failed because of disagreement on farm subsidies. This was followed by a July 2004 meeting of WTO members to identify critical issues of international trade that formed the basis for negotiations at the next meet at Hongkong in December 2005. At the WTO meet held at Hongkong in December 2005, 110 developing countries emerged as a powerful group against US, EU and other developed nations to fight for common interests of both the least developed and deveoping countries. Consequently, negotiations on the Doha Round collapsed in July 2006. Since then negotiations have been going on at Geneva to arrive at a concensus on the latest draft texts on four main issues relating to Agriculture. Nonagricultureal Market Access (NAMA), Services and Rules. These issues are : 1. Trade in Agriculture. Developed Countries subidise their agriculture more than developing countries. Farm subsidies are of two types : first, financial subsidies that support farmers to keep their domestic prices low compared with international prices. Second, export subsidies to encourage sales of farm produce abroad. Lower prices make their farm products more attractive in the global markets and make it difficult for developing countries to compete with them. The developing countries wanted farm export subsidies to be phased out and domestic subsidies on farm products to be reduced. But US and EU refused to do so without equivalent access in manufacturing markets in developing countries. Developing countries like India and Brazil were willing to do so but not before US and EU cut their subsidies. India, on its part, argued that she had already cut specific tariffs from 55 per cent to zero. Brazil had to some extent also cut specific tarifs on cotton, sugar, soyabean, etc. Finally, both EU and US agreed to phase out all export subsidies by 2013, and phaseout 80 per cent of the subsidies by 2010. To protect their farmers from a surge of cheap imports from developed countries, developing countries demanded special permission not to cut import duties on certain products on which a large number of marginal and small farmers depended. They also sought special safeguards to raise import duties on select products if their imports surge beyond a certain level. Regarding the concensus on agriculture, there are still large number of issues on which there are disagreement while others are within known bounds or sequare brackets, and are still to be decided. For example, greater market access to the markets of developed countries for the goods of the developing countries and the issue of non-tariff barriers to agricultural trade,

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including phyto-sanitary conditions, and environmental issues. 2. Non-Agricultural Market Access (NAMA). Under NAMA, both developed and developing countries were to agree on a formula in order to reduce tariffs on such industrial goods as auto, consumer electronics, textiles, footwear, etc. The developed countries suggested the Swiss Formula which required the highest duty cuts in items with the highest tariff. This favoured the developed countries who viewed the rapidly growing middle class in developing countries as a profitable market for their industrial products. The developing countries did not agreee to the Swiss Formula which was modified with lesser duty cuts. Still there was no concensus and the trade talks were suspended in July 2006. 3. Trade in Services. Trade in services is growing very fast and is the most competitive globally. WTO provides for four modes for trade in services. The first is cross-border services negotiations. Developing countries like India have not been able to get a binding commitment under this. The Hong Kong Declaration talks of only guidance and not of any specific guidelines. The second mode is a plurilateral route to open markets for services. In this route, a few countries having common interests negtotiate at a multilateral level to open their services sector. The third mode is the request and the fourth is the offer route. In the former route, countries make individual requests and in the latter route, they offer the services of their professionals. The last requires an economic test for the movement of professionals to other counries. The Hong Kong Declaration eased the need for this test. On the objection of some developing countries, the plurilateral route clause had been diluted. The Doha Round after July 2006. After the suspension of Doha Round talks in July 2006, the Secretariat of WTO prepared three new draft negotiating texts and released them in February 2008. The trade ministers of India, Brazil, US, EU, Japan and Australia met in New Delhi in April 2008 to review and discuss the latest draft texts on the three main issues holding up the progress in the Doha Round negotiations. The US accepted WTO proposals on farm subsidy cuts as a basis for negotiations. Until now, US had refused to accept a ceiling below $23 billion a year, whereas the WTO compromise proposal suggested a limit of $ 12.8 to $16.2 billion a year on its farm subsidies. The main concern of developing nations is on Special Products and Special Safeguard Mechanism (SSM) for agricultural products. The Special Products are designed to allow developing countries to impose higher duties on their vulnerable products that affect the livelihoods of subsistence farmers and the food security of a nation, while SSM is designed to protect farmers from sudden import surges and price falls by applying an additional safeguard duty over and above the bound rate. The draft text proposed to allow member states to raise import duties only if the world prices are lower than domestic prices by over 30%. A price trigger of 30% was unacceptable to developing countries who suggested the price trigger at between 5% and 10%. Alongside, there were parallel proposals for cuts in import tariffs in a range of 19% to 23% on industrial goods by 28 developing counries. But India and Brazil refused to go below 30% in order to protect their industrial growth. So far as the new draft on NAMA was concerned, it was rejected by India and other developing countries. The text tried to use divided and rule policy among developing countries. It proposed a special set of rules for such countries as South Africa, Venezuela and Mexico that went against India and China. There are two variables around which the negotiations had been going on. The first is the coefficients which mean the degree to which a country can reduce tariffs. A lower coefficient implies a higher cut in tariffs. The second is the flexibilities which mean the number of products being traded and the time frame over which the tariff cut will be done. The developing

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countries headed by India, sought flexibility to keep Special Products out of the duty cuts because such a flexibility will benefit them. These are agricultural products guided by indicators based on the criteria of food securtiy, livelihood security and rural development. By keeping, Special Products out of tariff reduction would help farmers in developing countries in protecting their important crops from unfair global competition. The new draft suggested sliding scale which envisaged a trade-off not within the flexibilities themselves to protect sensitive sectors but between the coefficients and flexibilities. This meant that if a country required higher flexibility to safeguard its sensitive sectors, it would have to resort to a larger tariff reduction. Another new suggestion was to use the average percentage cuts instead of the mandatory cut in peak tariffs and high tariffs on export products of developing countries. But developing countries believe that such a proposal would allow the developed countries to have high tariffs on the exports of the developing countries. Thus the revised draft and suggestions of WTO are not likely to be accepted by the developing countries because they want tariff peaks on products of their interest to come down which the developed countries are reluctant to negotiate at the Doha Round. The new text on services trade required WTO members to make commitments to maintain current levels of market access and to create new market access. However, there are minor differences over the trade in services between the developed and developing countries. The developing countries want increased market openings for their professionals in developed countries and the rationalisation of Rules text. Conclusion. So far the Doha Round of trade negotiations have stalled with developing countries criticising farm subsidies in the developed countries and the developed countries arguing for lower tariff barriers for their industrial products and services and developing countries for their agricultural products. The trade talks held in Geneva collapsed on 30 July 2008 after India and other developing countries insisted that there should be enough scope to protect subsistence farmers and small industries from being submerged by a flood of cheap imports from the US and the EU.