DEPARTMENT OF COMMERCE AND BUSINESS STUDIES
JAMIA MILLIA ISLAMIA
ASSIGNMENT
BUSINESS ENVIRONMENT
TOPIC- Implications of WTO for Indian Business.
Submitted To-
Dr. Sabiha Khan
Dept. of Commerce & Business Studies
Submitted By-
Md. Shahzada Ahmad
B. Com (hons) 4th Sem
18BCM026
WHAT IS WORLD TRADE ORGANISATION
(WTO)
The World Trade Organization (WTO) is an intergovernmental
organization that is concerned with the regulation of international trade between
nations. The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the
largest international economic organization in the world.
World Trade Organization (WTO), international organization established to
supervise and liberalize world trade. The WTO is the successor to the General
Agreement on Tariffs and Trade (GATT), which was created in 1947 in the
expectation that it would soon be replaced by a specialized agency of the United
Nations (UN) to be called the International Trade Organization (ITO). Although
the ITO never materialized, the GATT proved remarkably successful in
liberalizing world trade over the next five decades. By the late 1980s there were
calls for a stronger multilateral organization to monitor trade and resolve trade
disputes. Following the completion of the Uruguay Round (1986–94) of
multilateral trade negotiations, the WTO began operations on January 1, 1995.
The WTO is essentially an alternative dispute or mediation entity that
upholds the international rules of trade among nations. The organization
provides a platform that allows member governments to negotiate and
resolve trade issues with other members. The WTO’s main focus is to provide
open lines of communication concerning trade between its members.
IMPLICATIONS OF WTO ON INDIAN
ECONOMY
Introduction
India is one of the prominent members of WTO and is largely seen as leader of
developing and under developed world. At WTO, decisions are taken by consensus.
So, there is bleak possibility that anything severely unfavourable to India’s interest
can be unilaterally imposed. India stands to gain from different issues being
negotiated in the forum provided it engages with different interest groups
constructively, while safeguarding its developmental concerns. In absence of such a
body we stand to lose a platform through which we can mobilize opinion of
likeminded countries against selfish designs of west. Thanks to vast resources of
developed countries they can easily win smaller countries to their side. WTO
provides a forum for such developing countries to unite and pressurize developed
countries to make trade sweeter for poor countries. Accordingly, India remains
committed to various developmental issues such as Doha Development Agenda,
Special Safeguard Mechanism, Permanent solution of issue of public stock holding
etc. Apart from this, Dispute Resolution Mechanism of WTO is highly efficient.
Chronological list of cases in WTO can be accessed here. Countries drag their trading
partner to this body when action of one country is perceived to be unfair and
violative of any WTO agreement, by other country.
Positive implications:
Increase in Export Earnings:
Increase in Export Earnings can be experienced through the growth in
Merchandise exports and growth in Service exports.
1. Growth In Merchandise Exports: The activation of The WTO has enhanced the
exports of the Developing Countries due to its impact on the tariff and non-tariff
trade barriers, reducing them as a result of its intervention. India’s merchandise
exports have increased from 32 Billion USD (1995) to 185 Billion USD (2008-09).
2. Growth In Service Exports: For countries like India the WTO established the
General Agreement on Trade In Services (GATS). India’s Service Exports
increased from 5 Billion USD (1995) to 102 Billion USD (2008-09).
Agricultural Exports: Curbing of trade barriers and domestic subsidies elevated
the cost of agricultural products in the international market.
Textile and Clothing: The dissolution of MFA (Multi-Fibre Arrangements) has
largely benefited the textiles sector as the quotas limiting its trade are now
eradicated. As a result, developing countries like India can have unhindered
export of textile and clothing.
Foreign Direct Investment: In accordance with the agreement on TRIMs (Trade
Related Investment Measures) which lay down the rules that restrict the
preference of domestic firms and thus allow foreign firms to operate more easily
in international markets, have compelled the member nations to withdraw the
restrictions on foreign investment. Thus, harmonizing the dominance of local and
foreign firms and companies. In 2008-9, the net foreign direct investment in
India was 35 Billion US Dollars.
Negative Impacts:
TRIPS: Protection of intellectual property rights has been one of the major
concerns of the WTO.As a member of the WTO, India has to comply with the
TRIPs standards.
However, the agreement on TRIPs goes against the Indian patent act, 1970, in the
following ways:
1. Pharmaceutical Sector: Under the Indian Patent Act 1970, only process patents
are granted to chemical, drugs, and medicines. Thus, a company can legally
manufacture once it has the respective product patent.
The companies could sell good quality products at low prices. But, according to
the TRIPs agreement, product patents will also be granted which will raise the
prices of the products as a result the product in now not within the reach of the
poor people, fortunately most drugs manufactured in India are off-patents so
people will be less affected.
2. Agriculture: The TRIPs agreement covers agriculture as well so the Indian
agriculture will also be affected considerably. Since a large majority of the Indian
Population depends on agriculture for their livelihood, these developments will
have serious consequences.
3. Micro-Organisms: Under the TRIPs patenting has been extended to micro-
organisms as well. This will largely benefit the MNCs but not developing nations
like India.
TRIMs: Under the agreement on TRIMs the developed nations are favoured as
there are no rules in the agreement to formulate international trade practices by
foreign investors. Also, by complying with the agreement TRIMs we will
contradict our objective of self-reliant growth based on locally available
technology and resources.
GATS: The General Agreement on Trade in Services (GATS) favours the
developed nations more than the developing nations. The service sector in India
will now have to compete with gigantic foreign firms. Moreover, since foreign
firms are allowed to transfer their profits, dividends and royalties to their present
companies they will offer a foreign exchange burden to the Indian Economy.
LDC Exports: Many member nations have agreed to allow duty-free and quota-
free market access to all products originating from Least Developed Countries
(LDC). India will now have to face the problem of competition arising due to
other cheap LDC exports internationally. Even more troublesome is the fact that
the LDC exports will also come to Indian markets and therefore provide
competition to the locally produced goods.
Conclusion
India has to continue its effort to prevent issues of developmental importance to be
side-lined. Until this is done WTO cannot impinge upon sovereignty of India. India
has already marked red line in sectors such as agriculture by making it clear than
there is no scope of compromise on its positions. West has relentlessly tried to
project India as rigid and uncompromising negotiator. However, these attributes are
better suited to U.S. and other developed countries. They have been backtracking on
various commitments under Doha Development Round and desperately trying to
bring in new issues including Singapore issues. These issues are prejudicial to
interests of majority of countries and vast majority of population. Consequently,
majority of countries stand with India after failure of every meet. India needs to
upscale its diplomatic capability. In recent Nairobi meet, it was seen that while
developed countries spoke in unison, there was no such unity in developing
countries. Brazil, a prominent member of WTO, has already broken away from
G20/33 group and has aligned itself close to position held by developed countries;
thanks to its globally competitive agricultural sector. India made a serious effort last
year at India- Africa summit to arrive at common agenda for WTO and was largely
successful. However, there needs to be larger combined effort in bringing on the
common platform of developing nations in all continents. U.S. has been already
doing it for several years and that’s partly why it remains most assertive and subtle
power in any negotiation.
