FOREIGN TRADE IN INDIA

WORLD TRADE ORGANIZATION

The World Trade Organization (WTO) is an intergovernmental organization which regulates international trade. 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.As an organization it
has vast powers and functions than what its predecessor GATT (General Agreement on Tariffs and Trade) had, the
objectives and goals of both being broadly the same. The World Trade Organization is a Multi-lateral organization
which facilitates the free flow of goods and services across the world and encourages fair trade among nations. The
result is that the global income increases due to increased trade and there is supposed to be overall enhancement in
the prosperity levels of the member nations.

Features of WTO
1. It is an international organization to promote multilateral trade.
2. It has replaced GATT.
3. It promotes free trade by removing tariff and non-tariff barriers in international trade.
4. It has fixed set of rules and regulations and it has a legal status. Its rules and regulations are mutually
designed and agreed upon by member nations.
5. Agreements agreed by member-countries are binding on all members of WTO and if any member does not
follow such agreements, then its complaint can be lodged with the Dispute Settlement Body of WTO.
6. It includes trade in goods, trade in services, protection of intellectual property right rights, foreign
investment etc.
7. Unlike International Monetary Fund (IMF) and the World Bank. WTO is not an agent of United Nations.
8. Unlike IMF and World Bank, there is no weighted voting (on the basis capital). Rather all the WTO members
have equal voting rights (One Country, One Vote).
9. WTO has large Secretariat and huge organizational set up.

Objectives of WTO
1. The primary aim of WTO is to implement the new world trade agreements.
2. To promote multilateral trade i.e. trade among many nations.
3. To promote free trade by abolishing tariff and non-tariff barriers.
4. To promote world trade in a manner that benefits every member country.
5. To ensure that developing countries get a better share in the advantages resulting from the expansion of
international trade corresponding to their development needs.
6. To remove all hurdles to an open world trading system and use world trade as an effective instrument to
boost economic growth.
7. To enhance competitiveness among all trading partners so as to benefit consumers.
8. To expand and utilize world resources in the most optimum manner.
9. To improve the level of living for the global population and speed up economic development of the member
nations.
10. To take special steps for the development of poorest nations.

Functions of WTO
1. Laying down code of conduct aiming at reducing tariff and non-tariff barriers in international trade.
2. Implementing WTO agreements and administering the international trade.
3. Cooperating with IMF and World Bank and its associates for establishing coordination in Global Trade Policy-
Making
4. Settling trade related disputes among member nations with help of its Dispute Settlement Body (DSB).
5. Reviewing trade related economic policies of member countries with the help of its Trade Policy Review
Body (TPRB).
6. Providing technical assistance and guidance related to management of foreign trade and fiscal policy to its
member nations.
7. Acting as form for trade liberalization.
Organizational Structure of WTO
World Trade Organization is a permanent trade organization having its own secretariat and huge organizational set
up. The headquarters of WTO are at Geneva in Switzerland. Organizational structure of WTO is headed by Ministerial
Conference which meets after every two years. General council a permanent organ of WTO works under the policy
framework of Ministerial Conference. General Council is assisted by Dispute Settlement Body (DSB) and Trade Policy
Review Body (TPRB). Under General Council, various Councils/Working Groups work. These are Council for Trade in
Goods, Council for TRIPs, Council for trade in services, Council for Trims, Trade Negotiations Committees and Working
Groups. The organizational structure of WTO is clear from the following chart.

Council for Trade in Goods: There are 11 committees under the jurisdiction of the Goods Council each with a
specific task. All members of the WTO participate in the committees. The Textiles Monitoring Body is separate from
the other committees but still under the jurisdiction of Goods Council. The body has its own chairman and only 10
members. The body also has several groups relating to textiles.
Council for Trade-Related Aspects of Intellectual Property Rights : Information on intellectual property in the
WTO, news and official records of the activities of the TRIPS Council, and details of the WTO's work with other
international organizations in the field.
Council for Trade in Services: The Council for Trade in Services operates under the guidance of the General Council
and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). It is open
to all WTO members, and can create subsidiary bodies as required.
Trade Negotiations Committee: The Trade Negotiations Committee (TNC) is the committee that deals with the
current trade talks round. The chair is WTO's director-general. As of June 2012 the committee was tasked with the
Doha Development Round

TRIMS and TRIPS: The WTO administers the implementation of a set of agreements, which include the General
Agreement on Tariffs and Trade, other agreements in the goods sector (e.g., agriculture, textiles, sanitary and
psycho-sanitary measures, Trade Related Investment Measures- TRIMs, anti-dumping, etc.), and in addition,
agreements in two other areas, viz., trade in services, and Trade Related Intellectual Property Rights (TRIPs), TRIPs
deals with the following IPRs
 Copyright and related rights;
 Patents, Trademarks, Geographical indications, including appellations of origin;
 Industrial designs, Integrated circuit layout-designs;
 Protection of undisclosed information, Control of anti-competitive practices in contractual
licenses
 Term of patents 20 years, Limited compulsory licensing, no license of right
 Almost all fields of technology patentable. Only area conclusively , excluded from patentability is plant
varieties; debate regarding some areas in agriculture and biotechnology, Very limited scope for
 governments to use patented inventions

TRIMS: Trade Related Investment Measures (TRIMs) are rules that apply to the domestic
regulations a country applies to foreign investors, often as part of an industrial policy. The agreement was
agreed upon by all members of the World Trade Organization. The agreement was concluded in 1994
and came into force in 1995

 The Agreement on Trade-Related Investment Measures TRIMs Agreement, one of the

Multilateral Agreements on Trade in Goods, prohibits trade-related investment measures, such
 as local content requirements, that are inconsistent with basic provisions of GATT 1994.
 The General Agreement on Trade in Services addresses foreign investment in services as one of
four modes of supply of services

IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY

The signing of WTO agreements will have far reaching effects not only on India’s foreign trade but also on its internal
economy. Although the ultimate goal of WTO is to free world trade in the interest of all nations of the world, yet in
reality the WTO agreements has benefitted the developed nations more as compared to developing ones. The
impact of WTO on India’s economy is staged as follows: –

I. Positive Impact / Benefits / Advantages / Gains from WTO:

The Positive impact of WTO on India’s economy can be viewed from the following points: –
1)Increase In Export Earnings: Estimates made by World Bank, Organization for Economic Co-operation and
Development (OECD) and the GATT Secretariat, shows that the income effects of the implementation of Uruguay
Round package will be an increase in traded merchandise goods. It is expected that India’s share in world exports
would improve.
2) Agricultural Exports: Reduction of trade barriers and domestic subsidies in agriculture is likely to raise
international prices of agricultural products. India hopes to benefit from this in form of higher export earnings from
agriculture. This seems to be possible because all major agriculture development programmes in India will be
exempted from the provisions of WTO Agreement.
3) Export Of Textiles And Clothing: With the phasing out of MFA (Multi – Fiber Arrangement), exports of textiles and
clothing will increase and this will be beneficial for India. The developed countries demanded a 15 year period of
phasing out of MFA, the developing countries, including India, insisted that it be done in 10 years. The Uruguay
Round accepted the demand of the latter. But the phasing out Schedule favours the developed countries because a
major portion of quota regime is going to be removed only in the tenth year, i.e. 2005. The removal of quotas will
benefit not only India but also every other country’.
4) Multilateral Rules And Disciplines: The Uruguay Round Agreement has strengthened Multilateral rules and
disciplines. The most important of these relate to anti – dumping, subsidies and countervailing measures, safeguards
and disputes settlement. This is likely to ensure greater security and predictability of the international trading system
and thus create a more favourable environment for India in the New World Economic Order.
5) Growth To Services Exports: Under GATS agreement, member nations have liberalized service sector. India would
benefit from this agreement. For e.g.- India’s services exports have increased from about 5 billion US $ in 1995 to 96
billion US $ in 2009-10. Software services accounted for about 45% of service exports.
6) Foreign Investment: India has withdrawn a number of measures against foreign investment, as per the
commitments made to WTO. As a result of this, foreign investment and FDI has increased over the years. A number
of initiatives have been taken to attract FDI in India between 2000 and 2002. In 2009-10, the net FDI in India was US
$ 18.8 billion.

II. Negative Impact / Problems / Disadvantages Of WTO Agreements on Indian Economy

1) TRIPs: The Agreement on TRIPs at Uruguay Round weighs heavily in favour of Multinational Corporations and
developed countries as they hold a very large number of patents. Agreement on TRIPs will work against India in
several ways and will lead to monopoly of patent holding MNCs. As a member of WTO, India has to comply with
standards of TRIPs.
The negative impact of agreement on TRIPs on Indian economy can be stated as follows:
a) Pharmaceutical Sector
Under the Patents Act, 1970, only process patents were granted to chemicals, drugs and medicines. This means an
Indian pharmaceutical company only needed to develop and patent a process to produce and sell that drug. This
proved beneficial to Indian pharmaceutical companies as they were in a position to sell quality medicines at low
prices both in domestic as well as in international markets. However, under the agreement on TRIPs, product patents
needs to be granted. This will benefit the MNCs and it is feared that they will increase the prices of medicines
heavily, keeping them out of reach of poor. Again many Indian pharmaceutical companies may be closed down or
taken over by large MNCs.
b) Agriculture
The Agreement on TRIPs extends to agriculture through the patenting of plant varieties. This may have serious
implications for Indian agriculture. Patenting of plant varieties may transfer all gains in the hands of MNCs who will
be in a position to develop almost all new varieties with the help of their huge financial resources and expertise.
c) Microorganisms
The Agreement on TRIPs also extends to Microorganisms as well. Research in micro – organisms is closely linked with
the development of agriculture, pharmaceuticals and industrial biotechnology. Patenting of micro – organisms will
again benefit large MNCs as they already have patents in several areas and will acquire more at a much faster rate.
2) TRIMs: Agreement on TRIMs provide for treatment of foreign investment on par with domestic investment. This
Agreement too weights in favour of developed countries. There are no provisions in Agreement to formulate
international rules for controlling restrictive business practices of foreign investors. In case of developing countries
like India, complying with Agreement on TRIMs would mean giving up any plan or strategy of self – reliant growth
based on locally available technology and resources.
3) GATS: One of the main features of Uruguay Round was the inclusion of trade in services in negotiations. This too
will go in favour of developed countries. Under GATS agreements, the member nations have to open up services
sector for foreign companies. The developing countries including India have opened up services sector in respect of
banking, insurance, communication, telecom, transport etc. to foreign firms. The domestic firms of developing
countries may find it difficult to compete with giant foreign firms due to lack of resources & professional skills.
4) Non – Tariff Barriers: Several countries have put up trade barriers and non – tariff barriers following the formation
of WTO. This has affected the exports from developing countries. The Union Commerce Ministry has identified 13
different non – tariff barriers put up by 16 countries against India. For eg. MFA (Multi – fiber arrangements) put by
USA and European Union is a major barrier for Indian textile exports.
5) Agreement On Agriculture (AOA): The AOA is biased in favour of developed countries. The issue of food security
to developing countries is not addressed adequately in AOA. The existence of global surpluses of food grains does
not imply that the poor countries can afford to buy. The dependence on necessary item like foodgrains would
adversely affect the Balance of Payment position.
6) Inequality Within The Structure Of WTO: There is inequality within the structure of WTO because the agreements
and amendments are in favour of developed countries. The member countries have to accept all WTO agreements
irrespective of their level of economic development.
7) LDC Exports: The 6th Ministerial Conference took place at Hong Kong in December 2005. In this Conference, it
was agreed that all developed country members and all developing countries declaring themselves in a position to
do so, will provide duty – free and quota – free market access on a lasting basis to all products originating from all
Least Developed Countries (LDC). India has agreed to this. Now India’s export will have to compete with cheap LDC
exports internationally. Not only this, the cheap LDC exports will come to Indian market and compete with
domestically produced goods.

India will face several problems in the process of complying with WTO agreements, but it can also reap benefits by
taking advantage of changing international business environment. For this it needs to develop and concentrate on its
areas of core competencies.