UNIT 15 INTERNATIONAL TRADE

RELATIONS

Structure

15.2 Bilateral Trade Rclatio~is

15.3 Multilateral Trading System
15.3.1 Advantages of Free Trade
15.3.2 Disadvantages of Free Trade
15.3.3 hgumenls for I'rotection
15.3.4 Iustruments of Ploteclion .
15,4 Geiieral Agreement on Trade and T'uilTs ( G A n )
15.4.1 Ol!jectives oS GATT
15.4.2 Itole oS GATT
15.5 World Trade Orgallisation (WTO)
15.5.1 Functic?ns of tl~eWTO
15.5.2 WTO Agreements
15.5.3 Evaluation
15.6 Let Us Sum Up
15.7 Key Words
15.8 Aiiswers to Check Your Progrcss

15.0 OBJECTIVES
ACter studyilig Lllis tuiil, you should be able lo:
9 explain [he concept oS bilaleral lrade reladons
9 disti~iguishbetweon bilateral lrade relalions and 1l1ulLil;ltcral trade rclalions
@ point oul Lhe relalive merits 2nd de~lleritsof bilateral Lrade rclalioiis and lilullilaleral
I Lrade relalions
e descrihe Qe structure of' WTO
E @ distinguish betweell the GATT and lhe WTO.
#:"

5 1 INTRODUCTION -- - - -- - - -

As we i~pproachthe end of the lweulielh cenlur-y 'cxporl-led-growth' as a stralegy of rapid

econoinic growth has acquired universal acceptance. All Ihe nations, hig and small, cue
to meet the global needs. he it the prinlary co~ilmoditicsor
orienting their eco~io~llies
maiiuSacmred goods. Likewise, services too arc hci~igevolvcd and organised to mcel thc
glohal needs.
WiUl this realisation dawning on the iialio~mthat exporls hold the key to rapid ccoliol~lic
growlh he uumhcr of players 011 the intcniational Lrndc scclie is continuously ii~creasing.
. The i~~lcrrialionaltrade sceiie is a fiercely co~ilpctil~ve
world. Evcty player trics LO
undercul tbc other, Every possiblc tcchiiiq~~e is e~llploycdLo culLivaLe markct. l'or onc's
1' o\v~lnprod~~cl.
Wih so llially scllcrs Siercely fighting Ior coiisurncr's dollars, it is only neccssiry tliat
ICxtcrni~ISector sonle roles a i d regulations are stipulated. Each country lays down such rules and
crncl Ecnnoirric Rcfttrnrs regulations for its doinestic producers. Bul ils writ runs only within its physical
bom~daries. Beyoild thcse, il callnot regulate the activities aiid behaviour of others, in the
given situation, where the interests of producers and consunlers cut across different nations,
regions iu,d continents, it is liecessxy that a set of rules and regulations are evolved that
apply to all of I.hem. This is possible only when nations cooperate among themselves, they
may reach agreenlents that provide a set of rules that would he binding on them all alike.
Such agreenle1lt.s inay be reached at belween two countries or a large number of countries.
111e former ;re known as bilatel-a1 agreements while the latter me known as multilateral
ilgreements. Such agreements for111 the basis of what is h o w n as the international trade
accord. Such an accord is presently embedded in what is known as the World Trade
Organisativ~l(WTO).

15.2 BILATERAL TRADE RELKrJONS

Two nations may get iuro some agreement alllolig the~liselvesin regard to illechanism of
trade. Such an agreement may siipulate the type and volume of cach of the goods to be
exported and imported hy each of tht: contracting parties. They inay also stipulate the
stage-wisk ti~lleframe for die contract.
More generally trade agreenleiits also involve 1) couilter trade, 2) payilients agreement and
3) swing credit.
1. Counter Trade is a for111 of barter trade. The two i~atio~ls ~llaydecide upon the
volu~neof goods h a t would be exported and inlported during a specified period. The
countries may also decide lip011 the prices of each af the goods to be traded in. The
volulnes of ilii'ferent goods to he traded may he so tixed that the net trade would be in
balancc. Goods would havc lo he paid for the goods by both the trading nations.
2. Payments agreement iliay stipulate the currency in which the trade u;uisactions have
to he accouiltetl for. The currency may be that of one of the collllacti~igparties or it
nlay h e one of Ihe h u d currellcies that ate internationally accepted as a lilediull~of
excliangc. The agreelllent illily also provide for the nlechanis~lito b e adopted if the
bilateral trade is 1101 in .halalice.
3. Swing credit is provided for when the trade hetween the two contracli~lgparties is not
in balance. The country with a deficit in its trade nmy b e permitted to carry it in the
next accou~itiiigcycle. As long as Lhe ageenlent provides for Ihe swing credit the
trading nations are under no immediate pressure to balance the trade. Of course, in
the lo& run all tracle is lo he hillanced hy paying for the deficits, either, by net
exports or in terms ol' a nlutually agreed upon foreign currency.
Bilateral trade has becn used as a mechanisn~to promote trade between nations. It is even
now one of the common devices. But bilateral mechanisill has ils inherent limitations.
One, hilateral olechanism is not an efficicnt way ol'utilisation of a country's resources.
The theoretical basis of trade between two countries is the idea of coinpatative advantage.
A country expolts Llie commodity or conlillodi1ie.s in which ~t has a conlparative advantage
over its trading parliier. Similarly, it imports those con~inoditiesin whicli the trading
partner has a connlparative advantage. In a hililtera1 trade illechanisin, comparative
advalitage coines to be linlited as between two uations only. This nlay happen that country
'A' may he one of the 111ost inefficient producers ol' a coillmodily on thc global scene, but
by lnatter of thc fact that it has a conlparative advantage over country B, trade between the
two countries will takc place. Since the producers in the two coulitries are in a position to
firid a nlarket i'or their respective products there is 110 suffic~entinducenlent for the111 to
iinprove their efficiency. Lack of' efficiency results in less-lhan-optin~umuse of resources.
A rnultilalcral trading system prevents this wastcf~tlLrse of resources.
Two, it follows fro111 the above that the volume of trade will te~idto grow less and be
slow under a bilateral system, T l ~ cdo~ncsticproducers in both the coulllries will tune
theillselves only to the require~llentsof the trad~ng pxtner. Possibly bolh of thein may be
inef'ficic~~t
producers ill the glohal perspective. They will fail to cultivate illarkets ontside
the agreetileiit areas. Hence. given that the absence of competilion does not spur them to
adopt any innovatiolis to iillprovc their efficie~icy,they may Pail to take adva~ltageof !he
expanding global markcts.
 Check Your I'rogress A International Trotlo Relations I

1. What do you mean by bilateral trade relations?

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2. Explain the meaning of following terms :
i) Counter bade
ii) Payments agreement
iii) Swing credit

15.3 MULTILATERAL TRADING SYSTEM

Multilateral trading system is one in which a large number of nations interact with each
other, More generally, a multilater~ltrading system is like a large free market with
physical bomldaries reinoved as far as the trans~ctionsin and movement of goods are
concerned. Goods flow freely between nations. Goods produced in country A compete
freely for the consumer's dollars with the goods produced in any other country globally.
There are no barricrs on the flow of goods.
Apparently, the model of free trade is based on the assuinption that all the nations have a
glohal view of the use of resources. Free trade among nations assures that the available
resources are put to their best possible use.

15.3.1 Advantages of Free 'kade

The advantslgcs of free trade between large number of nations can be summerised as
follows:
i) There are static gains from free trade. The static gains are those which accrue
from international specialisation according to the doctrine of comparative
! advantage.
ii) l11ere tue dynamic gains from free trade. The dynanlic gains are those which
result from the impact of trade on production possibilities at large. Economies
of scale, international investnlcnt and the trailsnlission of technical knowledge
pi , would be exmples of dynamic gains.
In addi~ion,free. trade can provide a vent for surplus commodities, which brings olherwise
unemployed resources into employment, and also enables countries to purchase goods from
abroad, which can be important for two reasons. The jirst is that if there are no domestic
suhslitutes, the ability to import can relieve domestic bottlenecks in production. The
second is lhnt imports inay simply be more productive than domestic resources.

15.3.2 Disadvantages of Free Trade

The doctrii~eof free trade is not a very useful concept to enlploy in the context of
dcvelopiiig countries which are in the process of riipid struct~iralchange and which are
col~cernedmore with long-term development than with short-term efficiency. The doctrille
of free trade over looks many development considerations.
i) it ignores the balance-of-payments effects of free trade and the effect of free
trade on the terms of trade. If the demand for different commodities grows at
r Uxtcmrd Sector
Economic K e f o n ~ ~ a
;111cl
different rates owing to differences in their ptice and income elasticity of
de~nand,free trade will work to the benefit of some countries and to the relative
detriment of others.
ii) free trade could lead to excessive specialisation on a narrow range of products,
putting the economy at the mercy of outside influences. The possibility of
severe balance-of-payments instability resulting form specialisation may be
damaging to.development.
iii) export growth of some activities has relatively little secondary impact on other
activities. The free-trade doctrine overlooks the secondary repercussion of the
pattern of trade.
In view o'f the above difficulties associated with free trade, many countries, including
developed and developing for their own reasons, have bee.n placing harriers on the free
flow of goods and services. These barriers are often called by the narr~eof protection,

15.3.3 Arguments for Protection

We can summarise h e arguments for protection as follows:
First, there is a category of purely economic argunlents that comprise all those arguments
for protection as a means of increasing real output or income above what it would
otherwise be. These include:
i) the infant argument, to allow industries to reap their optimum size in ternzs of
ninimum average cost of production;
ii) the existence of external economies in production, where the social cost of
production is less than the private cost;
iii) distortioi~in the labour market, which nuke the social cost of using labour less
than thc private cost; and
iv) inlernatiollal distortioiis which cause the domestic rate of transformation between
goods to diverge from the foreign rate of transformation due, for ex'mple, to
monopoly power in international trade. .This argument for protection is often
referred to as the optimum tariff argument.
Secondly, there is a category of n~n-economic-arguments for protection which comprise
arguments for protection for its own sake rather than to increase output or income above
what it would otherwise be. For example, industrialisation at any price, or self-sufficiency
for strategic rcasons, would be arguments of this type.

153.4 Instruments of Protection

Different instn~mentsof protection are employed by countries. These can bc broadly
classified in two groups, viz. 1) Tariffs, and 2) Non-tariff harriers.
1) Tariffs: Tariffs are the most colnmon instrument of commercial policy, Tariffs
are essentially the taxes or duties imposed 011 the imported or exported goods. .
Import duties are more comnlon than export duties, so much so that tariffs are
often identified with import duties. Tariffs are aimed at altering !he import price
(or the export price) so as to regulate the volume of imports (or of exports).
Thdr aim is to alter the volunle of imports from a position where they would
otherwise be, if the trade was free from tariff restrictions.
Whatever the motivcs behind tariff impositiori or increase, their effect is
necessarily one of creating trade distortions. Tariffs raise the prices of imported
goods, and by making imported goods more expens!% they hope to a)
discourage donleslic consumers for consuming foreign goods, and b) encourage
consumptiou and production of the donlestically produced import replacement
substitutes. Tiuiffs would, therefore, distort the world comparative advalltage
patter11 hy discouraging efficient prod~lction(in the rest of the world) and
e~xouragingincft?cient production (in the hollle country). Similarly, tariffs lead
to a fall in the vol~iil~eof international trttde, preventing the countries from
obtai~~ing gains froin wade (i.e, the gains urising pattly out of exchange and .
partly froin specialisation adding up to total gains from trade).
 Tariff barriers increase the economic distailce hetwceii ~iations,and to that extent International Trade Relntlons
create obstacles to trade far beyond the distance created by natural geogaphical
scpdratlon hetween countries. The effects ol" Lariffs are identical with those of
transport costs insofar as both raise inlport (or export) prices of internationally
Lradcd goods and services.
2 'visible' barriers to trade. tkc non-
Non-tariff barriers: while tariffs constit~~le
tariff barriers, by contrast, constitute the hiddcn or 'invisible' barriers to trade.
In more recent years, these non-tarifl" barriers have come into greater prominence
than Lhe coiiventional tariff barriers. The lion-tariff barriers mainly include direct
reslrictio~~s(the so-called quotas), monetary restrictions, and technical and
administrative regulalions.
Quanlitative restrictions, or quotas, arc imposed with a view to reduce the .
quantity of inlports (or exports) to a limited size. 'Kc effect of cluotas are more
severe than those which are created by tariffs. Import quotz,c are more cornmoll
than export quotas. The world has witnessed severe inlport quotas of tlle
nlandatory Lype (by the imporling countries) as well as the so-called 'volunlay
restraints' on the exports (01 the exporliug countries). In h e case of voluntary
restraint countries put voluntary restraints on their exports. There is not much
difference belween the mandalory iil-iporl quotas and voluntary export restraints,
except thal Lhe latter are more refined while the former are more crude. Their
effect on trade is the same, viz, trade-restrictions and trade-distortion, causing
misallocation of world resources and reducing global welfare.
Monetary restrictions are another form of non-tariff barriers. Even though there
are no Lariffs or no quota restrictions 011 the volume of imports, a country can
lnlpose foreign exchange controls to acconlplish precisely the sane effects of
limiting the volume of imports. The importer needs foreign exchange to import
foreign goods, and the government of the cou~~lry can deny Lhe use of foreign
C X C ~ ~ U for
I ~ Ccertain types of inlports or for goods imported from certain
countries. By exercising such controls over the use of foreign exchange (hey
ire called exchange controls) the governinenl of the country can restrict the
volume of trade. Exchange coiltrols are quite widespread, particularly in the
poor couiltries which experience severe shortage of foreign exchange.
llle third forin of non-tariff barriers includes administrative and technical
regulations. They include custom restrictions on bringing goods that do not meet
the safety and health regulations in the country. In addition, there are
adlni~iislrativeregulations as opposed to regulalions based on ostensible technical
Bounds (of health, safcty, etc,). They include regulations with regard to
labelling, packaging, custoln formalities and endless coluillns to be filled in
several forlns by the one who is importing goods, etc. Very often, Lhere is
administrative delay, red-tape and corn~ptioiiin customs clearing. All of these
could be so ru~noyi~~g and fi-uslrating that the polential importers get thoroughly
disgusted, and in h e end, they give LIP the idea of importing any thing at all,
All ol" then1 constitute hidden barriers to free nlovement of goods and services
between the countries. Their effecl is the same as that of tariffs or any other
instru~nentof trade reslrictions.
Fiudly, thcre are goverument procuremenl policies, or stale trading praclices,
which are common to many nations. These policies involve giving preferences
to doillcstic producers for government procurement. In accepting public tenders,
government givc prefcrence to the local tenders rather than the foreign tenders.
Additionally, many governnlents practice policies of granting production
s~~bsidies, tax concessions and other fiscal and monetary incentives to encourage
export expansion or iinport substih~tioii. They may not he directly aimed at
red~~cing or distorting the trade volurne or pattern or direction, but, in effect, they
aillouiit to the same.
All of these measures, hesides several other dozcns, constitute the so-c Jled
'hidden' non-tariff obstacles to international trade. They are all man-made; and
the human action has not been snlficient in the direction of trying to reduce the
ecanonlic distance which these artificial barriers have created and enlarged over
il 55
I<x~ernnlsector' the past several years.
r ~ l i t Econn~,\ic
l Rctom~u r

. Check Your Progress R

1. State thk advantages and disadvantages of free trade.

2. What &e the main arguments in favour of protection?

3. What are the major instruments of protection?

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4. Fill in the blanks:

i) The static gains from free made accrue from international .........................
ii) Free trade can provide a vent for ..........................commodities.
iii) ..........................are essentially the taxes or duties imposed on the imported or
exported goods.
iv) Tariffs encourage the consumption and production of the domestically produced
. ' ' import replacenlent .
v) Monetary restrictions are a form of ..........................barriers.

15.4 GENERAL AGREEMENT ON TRADE AND TARIFFS

(GATT)
The world trade had badly suffered on account of the restrictive trade practices adopted by
the different countries during the World War 11. Countries were keen to set a new system
, of world trade where dangerous protective practices could be avoi&d and the world
comnlunity may have the benefits of free trade.
The General Agreement on Trade and Tariffs (GA?T) was concluded in Havana in 1947
after a series of negotiations between the participating countries. The membership of the
G A n as on April, 1995, was 121 which together account for about 90 per cent of world
trade.

15.4.1 Objectives of GATT

The main objective of the GAlT is explained in the preamble of the Agreement which reads
as follows; ''Their relations in the field of the trade and economic eildeavour should be conducted
with a view to raising standard of living ensuring full employment and a large and steadily
56 growing volume of real i!~come and effective denland, developing the full use of the resources
of Ihe world and expanding the production and exchange of goods, and promoting the progressive
developme~ltof the economies of all the Contractillg Parties".
I11 short, the GA'IT aims at expanding the volume of international trade, production,
e~nploymentand making full utilisation of world resources for raising s t a h a r d of living of
the world cornillunity as a whole.
Thc membcr-countries have entered illto agreements in respect of the following:
i) The pri~lcipleof 'most favoured nations' has bee11 adopted. This means that any
concession which a country nlay give to any of the ~ilemberswodd, with certain
exception, be auton~aticallygive11 Lo olher member-countries as well.
ii) Protection to domestic industries should not be given on h e basis of quantitative
restrictions such as quota, exchange controls, etc. Only Lariffs should be
imposed to protect the donlestic industries.
iii) The contracting parties should sort out their differences hy utilising the good
offices of the GATT. They the~llselvesshould no[ adopt or initiate retaliatory
action against each other.
iv) All the nlcniber-countries should jointly try Lo expand world trade along with
healthy lines.

15.4.2 Role of GATT

Although the plans lo establish an hlternatioual Trade Organisation (WTO) after World War
11 fililed and the GATT came into existence,only by virtue of Protocol of Provisional
Application. Tlie contract~~al rights and ohligations of menihcrs embodied in the General
Apreement have provided il suhstantial degree of order iu world trade relations. GATT
nlonibers have benefited from neutral Ibrum ilild set off rules ro which national authorities
could resort: if needed, to fortify themselves against pressures from do~ilesticprotectionist
lohhies.

15.5 WORLD TRADE ORGANISATION (WTO)

Tlre lutcrntltional Trade Organistltion (ITO) origintllly. was proposed to be set up along
with ttre World Bank and the IMF on the reconliileudatioiis of the Brctton Woods
Confcrcuce, 1944. But as Lhe 1TO could not he set up the US, UK and a few other
countries set up an interim organisatioil in 1947 about trude named GATT. The GATT was
biased in favour of the developcd countries and was called informally as Lhe 'rich men's
cluh'. The developiug countries insisted on sctti~igup oC the ITO; the move cwile to he
opposed by the US. To solve the issue the UN appointed a Committee in 1963; the
Commitlee recon~mendedils possible alternative a via media, United Nations Conference '
on Trade and Development (UNCTAD). The UNCTAD could manage to get some
concessions Sor the developinp countries. more important among which was the General
Sclienic Ibr Trade Rclcrences (GSTP). GATT was also madc progressively more liheral,
Tllc U n ~ g ~ ~Round
n y ol' GATT sought to expand the scope of the orgai~~sntion hy ~uclndiiig
se~viccs.iuvestmcnt and, intellectual properly rights. Ille Uruguay Round proposals rvcrc
;~ccclltcdhy all [lie nlenlhers of the GATT 111 M u c h 1994.
Uruy~~a):
1'112 Ror~~rtl
;~grcelncntprri\:idcil l'or tllc setling 1.113 01' tlic Wort11 l'riitli.
Org;11114,11iii1l
!\\'TO). The, WTO st;rrlcrl I'onct~oninylio111 li111~1i1ry i, 1995,

15.5.1 Fu~lctionsof the WTO

i) , 11 ;~ilmin~stcrs, through vmious councils .lnd co1n1n11l.c~~. Ihc 2S ilgI.CCI1ICtii.s

, conti~i~lc(I
i n Llie finill act 01' tlic Uruyuay ltl)i11it101' Worltl Truclc t:llks plus ;I
n~ln,hcrol' plurililte~.i~l iyrcemcnls. j,uzlu~lingt1lo.s~oa govcr~nlilelit.~lrocur~.mclll.

....
I ; I t is ;I \~!irlchdopol' intcr~ra~ional
W;ltlc. regularly csamlnltlg thc kradc ri.gl111cs o l
indivillual inc1iihcr.s.
 iv) Members are required t.o notify in detail various trade measures and statistics,
which are nlaintained by the WTO in a large data base.

V) It provides several coliciliaiibli mechanisms for arriving at an amicable solution

to trade coiiflicts anlong members.
vi) Trade disputes that cannot be solved tkdough bilateral talks are adjudicated under
the WTO dispute settlement 'coilrt'.
vii) Panel of illdependent experts are established to examine disputes in the light of
WTO n ~ l e sand provide ruling. The tougher, streamlined procedure ensures
equal treatlllent for all trading partriers and encourages members to abide by their
obligations.
viii) The WTO is a management col~sultalilfor world trade. Its econolnists keep a
close watcli on the pulse of the global economy and provide studies on the main
iss~leof the day.
ix) The WTO secretariat assists developing co~mlriesin implementing LJruguay
Round res~lltsthrough a newly established development division uid a
strengthened lechliical cooperation and t r a i ~ i i ~division.
~g
x) The WTO is a forum where countries continuously negotiate Ihe exchtuige of
trade concessions to trade reslrictions all over he world. The WTO already has
substantial agenda for further iiegotiat,~onsin inany areas, iiotably certairl services
sectors.
The agreenlerit esliablishing WTO reiterates the objectives of GATT:
a) Raising staildard of living and incomes, ensuring fill1 employment, expanding
prodl~ctionand trade, optilllill use of world's resources, at the sune.tinle
extending the objectives to services and making them more precise.
b) Introduces the idca of sustainable development in relation to the optimal use of
wc>rldYsresources, zuid the ueed to protect and preserve the environment III a
manner consistent with the varions levels of national economic development.
C) Recognises the need lor positive effort designed to cnsure that developing
co~mtries,especially the least developed ones, secure a better sharc of growth in
in ternatioilal trade.
The WTO will continue the decision making practice followed under the GATT. Decision
will be t'dcen by a lnaiority of' votes cast on the basis of one country, one vole.

15.5.2 WTO Agreemeats

A. WTO Agreements Covering Trade in Goods
1. GATT 1994; The corilerstone of trade relations is h e area of goods. Differeiltld
and more favourahle treatment to under developed countries (UDCs) and to less
developed countries (LDCs) is permitted under h e 1979 Enabling Clause with
respect to tariffs in the context of the General Scheme of Preferences (GSP) aud
non-lariff Incasures, ilotwithstai~dingthe Most Fdvoured Nation (MFN) clauses,
and with respect to regional or glohal arrangements concluded by UDCs.
2. Trade Rclatcd Illvestmelit Measures (TRIMS)are required to be notified and
elinlinated within a transition period of two years (developed comltries), or five
(developing countries). A further extension Inany be requested by
developing and least-developed countries. The Agreement of Safeguards
prohibits the use of 'grey-arca measures', such as vol~~nlary restraints or orderly
lnarketing arrangements; such measures are to be notified and eliminated.
U

3. Agreeme~lton Tcxtiles ;ind Clo~llingprovides for the eventual elimination of the

Multi-Fibre Arraigc~i~ent(MFA) after a ten-year transition period. In place since
1973, the MFA currently groups eight inlporters; of these, Austria, Canada, the
Enropean Connnunity. Finland, Norway the United States apply restrictions
ulidcr the MFA, while Japan and Switzerlal~ddo not. The other participants in
58
 the MFA are exporters (mainly UDCs), whose exports or part of their exports h~ternrtionnlTrade Relatio~w
covered by the MFA ;Ire subject to bilaterally agreed quantitative restraints or
unilaterally sponsored restraints on imports, typically applies at the product level
.but in some cases to various aggregates as well.
1 B. Trade in Services
The General Agreement on Trade in Services (GATS) is the first multilateral
agreement on trade that has as its objective the progressive liberalisation of trade in all
service sectors and the supply of services in all forms.
C. Other Issues
The WTO reached at an Information Technology Agreement (ITA) 'in mid-December
1996 meeting at Singapore. It seeks to eliminate tariffs on the rapidly growing $ 600
billion world market in computer-related products. Other issues on which the
deliberatioiis are being carried out at WTO are: (1) Multilateral Agreement on
Investments (MAI); the MA1 aims to give MNCs the right to establish any business in
any coulltry without being discriminated against hy virtue of being foreign MNCs. It
would also give member states the right to settle any dispute arising out of non-
conlpliance with the MA1 at the WTO. (2) Core labour standards; these provide that
wages and working conditions must prevail. (3) Trade and environment, and (4)
Government procurement policies that should aim at weeding out corruption at
governmental level.
These issues were originally discussed at the.Umguay Round. But these were given
up in face of strong opposition from the developing countries including India and have
since been revived at the Sillgapore Convention.

15.5.3 Evaluation
The WTO is different from and an inlprovement over the GATT in tlie following respects:
i) The WTO will be more global in its membership.
ii) The WTO has introduced conlmercial activities into the multilateral trading
system.
iii) GATT provisions in case of disputes were time-consuming, GATT could levy
penalties only through unanimous decision, which were virtually impossible.
Under WTO,.unanirnous decisions are no longer desired; all disputes are to be
settled within 18 months.
iv) WTO has one-country one-vote principle, unlike in the World Bank and IMF
where the economic strength of rich countries translates into a voting n~a.jority.
WTO is expected to contribute to a necessary strengthening of the global trading system,
with stronger procedure for settling disputes, a mechanism for reviewing country's trade
policies, and greater irivolvement of ministers in decision-making.
WTO is likely to generate global income gains of up to $ 200 billion a year. In co-
t , operation with the World Bank and the l&IF, the WTO is likely to be a very powerful
' ?
body.
However, wiLh the new Trade Related Intellectual Property Rights (TRIPS), TRIMS,
General Agreement on Trade in Services (GATS) and GATT conditionalities embodied in
the WTO, the clout of the MNCs is likely to increase enormously. Smaller developing
countries in particular will become a plaything of the MNCs. A few bigger developing
c13u1ntrieslike China, India, Brazil, etc., with large home market and large protected base
for production for export to the neighbouring regions may get a somewhat better deal from
the MNCs. But that would also depend upon the strength and integrity of their
'.averments, their capacity to mobilise the support of other concerneh governments,
lmplement firmly anti-monopoly aid restrictive practices md laws and promote competition
between the MNCs from different counlries as well as national corporations.
 Check Your Progress C
What is GATT?

................................................................................................................................................
................................................................................................................................................
2. Briefly mention the functions of WTO.
................................................................................................................................................
................................................................................................................................................

3. Explain how WTO is different from G A P ?

4. State whether the followiilg statements are Tnie or False.

i) According to GATT, protection to domestic induslries should be given on the
basis of quantitative restrictions.
ii) GATT was biased in favour of the developed countries.
iii) WTO provides several coliciliatio~lmechanisms for solving trade conflicts among
ineil~bers.
iv) The WTO will not continue the decision nulcing practice followed under the
GATT.
17) GATS is the first lu~lltilateralagreenlent whose objective is the progressive
liheralisatiotl of trade in all service sectors.
vi) The WTO has introduced co~llnlercialactivities into the multilateral trading
systcm.

15.6 LETUS SUMUP .

Foreign trade has universally come to be accepted e an instrument of econonlic growth.
Multiple expansioll in Lhe flow of goods has m d e il imperative that barriers on the flow
of goods has made i l 1lupcr;ltive thal barriers on the free flow of goods are removed. I11
recogllition of his need. bilareral 2nd multilateral xr~ulgernentshave been evolved. These
have sought to protecr the interests of trading nations. GATT and more recent WTO me
examples of international !r-;lde i ~ c c ~ r d .

15.7 KEY WORDS

nilatera1 Trade Relations: Trade linlrted to belween two countries.
Multilateral Trade Relations: Flow of goods hetween il nulizber of nations
Counter Trade: Exchal~geof' goods for goods bctween two nations.
)Tree Trade: A situa~ion\(.here 11o restrictions are placed on tl~eflow of poods between
nxions
Protectio~l:A siillai!r!n rrl which hzrricrs are placed on Lhc flow ol' goods and services.
 Tariffs: Imposition of customs duties on imports bf goods from other countries. International Trade Relntionr
'
I

Non-tariff Barriers: Restriclior~splaced on the flow of goods from abroad.

15.8 ANSWERS TO CHECK YOUR PROGRESS

B. 4. il specialisation, ii) surplus, iii) tariffs, iv) substitutes, v) non-taxiff
C. 4. i) False, ii) True, iii) True, iv) False, v) True, vi) Tnle.

15.9 TERMINAL QUESTIONS

1. Explain the concept of bilateral trade relations. Distinguish between bilateral trade
relations and multilateral trade relations.
2. Point out the advantages and disadvantages of free trade.
3. Discuss in detail the tariffs and non-tariff barriers.
4. What axe the objectives of GATT? Briefly describe the role of GAIT.
5. Write an elaborate note on the functions of WTO.
6. The WTO is different from and an improvenlent over GAm, How? Explain.

Note: These questions will help you to understand the Unit better. Try to write
answers for them, but do not send your answers to the University. These are
for' your practice only.