16
World Trade Organization and Indian Economy
Archana S. Mathur
16.1 Introduction
India was one of the members of the General Agreement on Tariffs and Trade since 1948. India became one of the founding members of the World Trade Organization (WTO) since its inception in 1995, after signing of the Marrakesh Agreement. At present there are 153 members of the WTO. The aim is to participate in the WTO rule-based system, with greater stability, transparency and predictability in the governance of the international trade.
A number of agreements were signed with the objective to remove the trade distortions and promote free trade. Apart from the General Agreement on Tariffs and Trade 1995, 10 other agreements pertaining to trade in goods were signed. These included—Agreement on Agriculture (AoA), Agreement on the Application of Sanitary and Phyto-Sanitary Measures, Agreement on Textiles and Clothing, Agreement on Technical Barriers to Trade, Agreement on Trade-Related Investment Measures (TRIMS), Agreement on Rules of Origin, Agreement on Pre-shipment Inspection, Agreement on Import Licensing Procedures, Agreement on Subsidies and Countervailing Measures and Agreement on Safeguards.
The Council for Trade in Goods of the WTO oversees the functioning of these agreements. In addition, the Council for Trade in Services oversees the General Agreement on Trade in Services (GATS), while the Agreement on Trade-Related Intellectual Property Rights (TRIPS) is looked after by the the Council for TRIPS. There is a regular system of the Trade Policy Review Mechanism by the WTO and also an Understanding on Settlement of Disputes.
These agreements are a set of rules that are required to be followed by the member countries, while formulating the international trade policies in goods and services. The aim has been to provide for transparency in all the activities, and provide opportunities for consultation among the members within a competitive environment. Overall, the policy is to reduce the tariffs and do away with the non-tariff measures, except in specific conditions by a prescribed procedure. Specific concessions have been made for some of the poorest, developing countries. The various agreements have been integrated into a common framework, and all the disputes are to be settled through the disputes settlement process, to ensure protection of rights and the discharge of obligations by the member countries. A relaxation has been made for trade among certain member countries, which accord concessions to the selected developing countries under the Generalized System of Preferences (GSP), which could be based on the geographically adjacent countries or else for specific security reasons, etc.
It is important to note that emerging from continued discussions in various multilateral fora, the developmental issues along with the trade-related issues are being increasingly focused on the international level. Poverty concerns of the developing countries along with the development and trade policies are also being given due cognizance. A need has been felt for the integration of trade policies with the development strategies, increasing support to the areas of finance and debt relief. The present negotiating strategy is based on the decisions taken at the Doha Ministerial. In addition, the aim is to promote the stabilizing role of WTO in the current global economic environment. The Seventh Ministerial Conference was held at Geneva in November 2009, where many members reaffirmed their commitments to conclude the Doha round in 2010 although no major decisions were taken.
India’s main concern has been to speed up the implementation of various agreements and to undo the imbalances and inequities present in some of the WTO agreements. The developing countries have been making an effort to ensure an average balance of reciprocity in the negotiations, besides seeking the special and differential treatment in the implementation requirements, on various issues related to their needs.
16.2 Tariffs and Quantitative Restrictions
All countries have a right to impose tariff or customs duty at the time of import. Under the WTO, tariff rates are to be fixed by the member countries on different products as per their respective national policies. However, they have an obligation on the highest level of tariffs that can be imposed on products, called the bound rates. These duty rates on products were fixed by the member countries through consultations and negotiations. The rates are required to be published, so as to clearly inform other members and the other interested parties. The tariff is to be applied uniformly for a particular product coming from the different member countries, according to the Most Favoured Nation (MFN) principle.
The amounts of tariff reductions towards the bound rate over the years were related to base levels in the member countries. The base rate differed according to whether or not a particular tariff line had bound level of tariffs prior to the Uruguay Round. For those particular tariff lines which had a binding before the Uruguay Round, the rate of that tariff binding was the base rate. For the tariff lines which were unbounded, the base rate of tariffs differed for agriculture and industry. The base rate for the industrial products, was the rate prevalent on 1 January 1990, and included all the duties and charges on the imports. For agriculture, the base rate was either the rate which a ceiling binding rate was applied, or else if the tariff was bound at a level below the applied tariff, the rate had to be reduced over a specified time period to the level of the bound rate of duty.
A provision has been made for safeguard, from applying quantitative restrictions on the imports on raising tariffs above the bound rate of duty, as an exception to meet temporary situations in the member countries. This could arise in case there is a threat of serious injury in terms of excessive imports, and an adverse effect on the domestic market along with changes in its production, productivity, employment, capacity utilization, etc. These safeguard measures could be in the form of the increased tariff or imposition of additional similar charges, or even in the form of the quantitative restrictions for a prescribed period.
16.3 Agreement on Agriculture
The AoA, aims to have an equitable reform programme for trade in agriculture amongst the member countries, also taking into consideration some non-trade concerns including the food security. It is recognized, that agriculture is a way of life in most of the developing economies. It contributes significantly to the overall GDP of these countries, and employs a large proportion of the workforce. A rapid growth of agriculture in these economies is essential for the food security as well as for the alleviation of poverty.
Food security is defined by the FAO as ‘the physical economic access for all people at times, for enough food for an active, healthy life with the non-risk of losing such access, and as such is directly connected with livelihood in the developing countries’. In this background, the commitments made under AoA are expected to ensure, that food security interests of the developing countries are primary, in relation to the disciplines of the market access and domestic support.
The AoA contains provisions in three broad areas of trade and agriculture policies: the market access, the export subsidies and the domestic support. The market access for the agriculture products is governed by a ‘tariffs only’ regime. This means that the non-tariff barriers such as the quantitative restrictions on the imports (i.e., quotas, import restrictions through permits, import licensing etc.), as were in existence prior to the agreement, were to be replaced by tariffs on the imports to prove the same level of protection, and then were to be followed by a progressive reduction of the tariff levels. India had bound its tariffs at 100 per cent for the primary products, 150 per cent for the processed agricultural products, and 300 per cent for the edible oils, except for certain items (comprising about 119 tariff lines), which were historically bound at a lower level in the earlier negotiations. At present, the average total tariff on the agricultural items is 31.8 per cent as on 2010–11.
The domestic support measures, according to the agreement, are meant to identify the acceptable measures of support to the farmers, and curtailing the unacceptable trade distorting support to the farmers. The domestic support could be in the form of the product-specific and the non-product-specific domestic support. The product-specific support is related to the Aggregate Measure of Support (AMS), given to the farmers, in the form of subsidies for fertilizers, seeds, pesticides, credit, electricity, etc. The AMS is calculated for each product receiving the market support, and is based on the prices prevailing in the base period 1986–88. Several categories of subsidies have been exempted from AMS calculations, such as for the research programmes, pests and disease control, training services, the extension and advisory services, the marketing and promotional services, and the infrastructure development. Apart from this, the so-called ‘green box’ areas of support, the support under ‘the blue box’ in the form of payments for the production limiting programmes, and the decoupled income support was exempted. These measures largely benefitted the developed countries, where the levels of the domestic agricultural support have been very high. In India, the domestic support is well within the permissible levels.
The export subsidies of the kind listed in the AoA, which attract reduction commitments, are not extended in India. Also, the developing countries are free to provide certain subsidies, such as subsidizing of the export marketing costs, the internal and international transport, and the freight charges etc. India is making use of these subsidies, in certain schemes of agricultural and processed food products, the export development authority, especially for facilitating the export of horticulture products.
16.3.1 Areas of Concern
There are a number of issues under the AoA, which are considered against the interests of the developing countries like India. The‘Green Box’ subsidies, the exports subsidies, which are exempted from the reduction commitments, have been found leading to distortions in trade. Similarly, the support packages by the developed countries under the production limiting programmes for retirement of the producer, as well as resources employed for the production of marketable surplus in the past, is trade distortionary, but is still beyond the purview of the subsidy discipline.
It has been suggested, on the basis of the experience of the implementation of the AoA, that the agreement legitimized the various trade distorting practices of the developed countries in their favour. Despite fulfilling their so called reduction commitments, the total support being given to agriculture in the OECD countries, has gone up from $308 billion in the year 1988 to $383.74 billion in the year 2009, which is equal to 0.93 per cent of their GDP.
There are problems relating to the distortions emerging from the inequity in the domestic subsidy discipline, due to different base positions. The developed countries, which are heavily subsidizing countries, are allowed to retain up to 80 per cent of their subsidies, while the developing countries can subsidize their farmers not more than 10 per cent of the total value of the agriculture production. The domestic support by the developed countries needs to be reduced substantially in the absolute terms.
The domestic support measures, relaxed for the purpose of food security and PDS are allowed only in relation to the international market price and to the targeted population. This is a problem for countries like India, with a high percentage of poor population and also dependent on the agriculture, where purchase of the agricultural products at the international market price is not possible without adverse consequences. These countries need enough flexibility to take care of their food security, rural employment and livelihood concerns.
India has also argued that the low income developing countries, such as ours, need to address the market access and the domestic support discipline, such that their food requirements are basically met from the domestic sources. The volatile international market can get transmitted to the domestic economy, and seriously affect the prices of the food grains and the food entitlement of the poor.
The other issue of concern relates to the implementation of tariff reductions on the agricultural commodities. The peak tariff on the agricultural commodities in countries like US, Canada, EU, Japan, Korea and the Cairns group, continues to prevail at very high rates. A study conducted by the WTO with the United Nations Conference on Trade and Development (UNCTAD) (1977), has observed that one-fifth of the peak tariffs of the USA, a quarter of those of the EU, about 30 per cent of Japan, and about one-seventh of those of Canada, exceed 30 per cent. It further reports that the most important areas for the developing countries face the highest tariff rates, and include the major agricultural staple foods, cereals, meat, sugar, milk, butter and cheese, as well as tobacco products and cotton. In fact, the study suggests that the tariff wedges will continue to be significantly high on account of the tariff escalation, which is a major factor preventing the developing countries, from diversifying and increasing their share of the processed agricultural exports.
Also, there is the issue of market access by the agricultural exporters of the developing countries that are restricted on the grounds of the phyto-sanitary regulations in the developed countries. It is important that the scientific phyto-sanitary standards are established at the international level, so as to prevent the protectionist measures by the developed countries on this plea.
Some of these concerns have been given due cognizance at the Doha Ministerial Meet, and continued the negotiations at the WTO. There is a commitment for the comprehensive negotiations for improvement in the market access for the developing countries, along with phasing out of all the forms of export subsidies, and reduction of the domestic support being given by the developed countries. The development needs of countries like India, including the food security and the rural development, have been taken note of. There have been continued negotiations, and effort is on to arrive at generally acceptable formulae, for the tariff reductions and domestic support, with special treatment for the developing countries.
16.4 Non-Agriculture Goods Market Access (NAMA)
The issues of the market access for the non-agricultural goods have been taken up at the WTO under a separate committee. In the Uruguay round, India did not undertake the tariff commitments in respect to all the non-agricultural goods, and only 69 per cent of the tariff lines were covered. Within this, India committed the mineral and basic products at 25 per cent bound rates, and manufactures at 40 per cent, while the consumer goods were not bound.
Substantial changes have since been attempted. At the Doha round, it was decided to reduce, or as appropriate, eliminate the tariffs, including the reduction or elimination of the tariff peaks, the high tariffs, and the tariff escalation, as well as the non-tariff barriers, in particular on the products of export interest, to the developing countries. It was decided that the product coverage shall be comprehensive, and without prior exclusions. The negotiations would take fully into account, the special needs and interests of the developing and the least-developed countries’ participants, and including less than full reciprocity in the reduction commitments.
16.4.1 Areas of Concern
Developing countries like India have higher industrial tariffs compared to the developed countries. The average bound tariff rates, as agreed in the Uruguay round in US, was 3.2 per cent and EU 3.9 per cent, Japan 2.3 per cent, while it is 34.3 per cent in India. The applied tariff for the non-agricultural products in the US is 3.7 per cent, EU 4.0 per cent, Japan 2.7 per cent. India has reduced the average non-agricultural tariffs to 10 per cent in 2010–11 from around 60 per cent in 1994–95. There is a continued pressure to reduce the tariff rates in India and the other developing countries.
Negotiations have been going on to decide the formula for the tariff reductions, and the Uruguay Round formula has found greatest acceptance, broadly with special and different treatment for the developing countries. There is an effort to simultaneously reduce the tariff peaks and tariff escalation, whereby countries impose higher tariffs on the items of successive higher levels of processing. This affects the developing countries’ market access to some of the high end products into the developed countries.
At the same time, India and other developing countries have emphasized the importance of the customs duties as a source of revenue for the development needs. Moreover, the industrial sector faces a number of constraints, and hence some protection to certain crucial industrial sectors is considered warranted. Simultaneously, certain small scale industries like the textiles and the readymade garments, jute and coir, leather and products that are important to the source of employment and income, to a large workforce need treatment. There has been an effort to increase the market access of these products in the world market.
16.5 Trade-Related Intellectual Property Rights (TRIPs)
The agreement on the TRIPs, was introduced in the WTO agreements, and includes a protection through the exclusive rights, to provide returns for the undertaking innovation. At the same time, a balance is ensured between the interest of the innovator on one hand, and the users on the other. It is supposed to contribute to the promotion of technological innovation, and also dissemination to the mutual advantage of the producers and users of the knowledge, and to promote social and economic welfare.
The agreement covers the copyrights, the trademarks, the geographical indications, the industrial designs, the patents, the layout designs of the integrated circuits, and the undisclosed information. The implementation of the TRIPs is through the prescribed laws and regulations, and the members are obliged to ensure that their laws commit effective action against any infringement.
16.5.1 Issues of Concern
The developing countries like India, which are invariably technology seekers, face difficulties in their commercial dealings with the technology holders in the developed countries. Apart from the market imperfections, these developing countries have an inadequate experience and skill, in finalizing the appropriate legal arrangements for the acquisition of technology. Technology transfers of crucial scientific developments to the third world have been constrained, due to the protection given by the intellectual property rights in the developed world.
The declaration on the TRIPs agreement and the public health recognizes the gravity of the public health problems afflicting the developing countries. The emphasis has been on ensuring the accessibility of pharmaceuticals and medical treatments used to treat the pandemics such as HIV/AIDS, Malaria, TB, etc., in accordance with the international law. This is relevant for the countries where the per capita income is low and the per capita expenditure on health abysmally small. The Doha Declaration made a categorical statement on the TRIPs, and the public health, and emphasized the rights of the WTO members to protect public health, and to promote access to medicines for all.
One way of increasing the access to medicines in the poor countries, is through differential pricing of drugs in the developed and developing countries. Some major companies are already pricing their products in such a manner. However, more widespread and sustainable differential pricing can be made feasible, provided a right legal, technical and political environment is secured. The most important aspect is to recognize the importance of respecting the balance found in the negotiations of the TRIPs Agreement, and the rights of the developing countries to use the flexibility in it, in regard to the compulsory licensing and the parallel imports to respond to health concerns. The TRIPs Agreement is also not against segmenting of the markets through the prohibitions of parallel imports. However, adequate provision has to be made for the enhanced R&D efforts in the developing countries like India.
The Traditional Medicine (TM) plays a crucial role in healthcare, and serves the health needs of a vast majority of people in the developing countries. An access to the modern healthcare services and medicine may be limited in the developing countries. TM thus becomes the only affordable treatment available to the poor people and in the remote communities. The protection of TM under the Intellectual Property Rights (IPRs) raises some issues, the most important being the extent to which it is feasible to protect the existing IPR system. Certain aspects of the TM may be covered by the patents or the other IPRs. There have been many proposals to develop the sui generis systems of protection. Such proposals are based on the logic that if the innovators in the formal system of innovation, receive a compensation through the IPRs, the holders of traditional knowledge should be similarly treated.
The grant of patents on the non-original innovations (particularly those linked to traditional medicines), which are based on what is already a part of the traditional knowledge of the developing world, have been causing a great concern to the developing world. They are concerned about the grant of patents for the non-original inventions, in the traditional knowledge systems of the developing world. At the international level, there is a significant degree of support for opposing the grant of patents on the non-original inventions. In fact, a mechanism has been proposed for the disclosure of the source of origin of the biological material used in the invention, and obtaining the consent of the country of origin.
At the same time, a dissemination of knowledge, along with the patent rights for the seed diversity, is crucial for the developing countries like India, where such a large population is dependent on agriculture for their livelihood. The Doha Ministerial Declaration took cognizance of the compatibility between the TRIPs and the convention on biodiversity, during its review of the TRIPs agreement.
16.6 Trade-Related Investment Measures and the Singapore Issues
The agreement on TRIMS mainly applies to the trade of goods that takes place via the Transnational Corporations (TNCs). The agreement aimed to protect the conditions applied by an enterprize, like the purchase or use of the products of domestic origin, volume or value of products, and minimum percentage of the local production, purchase or use of the imported products, the export conditions, etc. Similarly, restrictions imposed by the host countries on the foreign investment were also brought under the purview of this agreement. The TRIMs do not cover the foreign equity participation in the industries, and the issues of channelizing of the investment to particular areas. The agreement does not cover restrictions by the government, using export performance requirements. The government is expected to have similar trade policies, for the foreign and the domestic companies.
The developing countries invite TNCs to augment availability of the capital and technology. The ‘performance clauses’ had been added to check their effectiveness. This had led to a conflict, as an appropriate code of conduct for the TNCs and the host countries had not been arrived at. However, it has been felt that the developing countries may not be in a position to direct their operations to critical areas requiring technological and financial support, without adversely affecting the foreign exchange flows. The importance of FDI in the developing countries cannot be undermined, but the selectivity of the investment flows continues to be relevant, as may be learnt from the foreign investment policy of China, vis-à-vis the policies of some of the African and even Latin-American countries.
Four new ‘Singapore’ issues are related to the Multilateral Agreement on Investment, the Competition Policy, the Trade Facilitation and the Transparency in the government procurement. There has been a considerable progress in working out an implementation of the latter two. The Organization for Economic Cooperation and Development, introduced the Multilateral Agreement on Investment (MAI) to provide better opportunities for investment by the TNCs, although there was no consensus on the issues.
16.6.1 Issues of Concern
This agreement has important implications for the development objectives that the host country may want to address, while inviting the foreign investment and negotiating the multilateral agreement. The developing countries feel the need for selective and judicious intervention of the government, to support the domestic industry and technology creation, so as to ensure a level playing field for the domestic enterprises. These developing countries also employ an appropriate mix of the incentives and the performance requirements for foreign investment, to achieve the specific developmental objectives. The responsibilities of the MNCs need to be addressed, and also prevent the imposition of the trade restrictive clauses on their subsidiaries.
The proposed MAI sought to adopt a comprehensive asset-based definition of investment, as opposed to the enterprises-based one i.e., it covered all forms of the assets. Thus, investment would not only cover the equity capital, but also the portfolio investment, the debt capital, the monetary and financial transactions, and every form of tangible and intangible assets, including the intellectual property rights, licences and authorizations. It was this wide definition of ‘investment’ that had been contested. The other major issue of concern under the MAI was regarding the performance requirements and the investment incentives. The proposed treaty aimed to go far beyond the restrictions on the performance requirements, under the TRIMs agreement of the WTO. It was the ranging implications of the proposed agreement that were contested.
Similarly, the issues relating to the trade and competition have wide ranging implications. The working group had been concentrating on the principles of transparency, the non-discrimination and procedural fairness and the provisions for the hardcore cartels. The issue of the anti-competitive pricing by the TNCs, and that of the mobility and tradability of the factors of production like labor, was taken up, as it related to the clarification of the core principles, including the transparency, non-discrimination and procedural fairness, and provisions on the cartels. It was recognized, that the strengthening of the international competition law needs to be preceded by the strengthening of the domestic competition law and regulatory framework. India and many other developing countries contested such an agreement.
As far as the proposed changes in the issues of the ‘government procurement’ is concerned, it was felt that a greater transparency in the assessment of the alternative investments in a fair manner, would greatly enhance the efficiency and help the development in the developing countries. While analyzing the productivity of investment, the leakages or corruption has been identified as a retarding factor in the development process. The Doha Declaration, focusing on the transparency in the government procurement, seems to be backed by this consideration.
However, differences remained on several key elements, including the scope and coverage of a transparent agreement. The developing countries have been concerned, that this may lead to an extension of the market access issues. In India, the government procurement procedures are in accordance with the technical specifications, following the reasonably standardized and transparent procedures. It is felt that the developed countries should be prevented from using the transparency principle as a means of securing market access in the developing countries, on the grounds of social and development needs. On the other hand, most of the developing countries are still not in a position to avail a greater access in the developed countries.
The trade facilitation came on the work programme, to undertake the exploratory and analytical work, drawing on the work of the other relevant international organizations, on the simplification of the trade procedures, in order to assess the scope for the WTO rules in this area. Most of the trade facilitation proposals were related to the customs procedures, while some were also related to the transport, payment, insurance and other financial requirements. The agreement is expected to modernize and standardize the customs procedures and facilitate the movement and clearance of goods. As the transaction cost in the Indian exports are quite significant, it is essential to implement reforms in these areas on an urgent basis. This would help our export promotion efforts, once the improved procedures are established.
16.7 Trade and Environment and Related Issues
In line with the increased international concern for issues relating to the preservation of the global environment, the Multilateral Environment Agreements (MEA) are being brought in as a part of the agreements on the international trade. A harmonized code of conduct is being introduced to achieve universal conservation of the environment, as per the global standards. As a part of the Doha Declaration, it has been mandated to have negotiations on the limited aspects of trade and environment, viz., relating to the WTO rules and trade obligations, the procedures for exchange of information between MEA and WTO, and the reduction/elimination of the tariff and non-tariff barriers to the environmental goods and services. There has been an effort at drawing up a list of environmental goods, in consultation with the stakeholders, although no consensus has yet been achieved.
The MEA addresses the protection of human, animal and plant life. Here, all the governmental and the non-governmental bodies that set standards, are required to abide by the ‘Code of Goods Practice for the Preparation, Adoption and Application of Standards’, which states, that the national standards must be based on the international norms. An exception is made where the international standards are ‘ineffective’ or ‘inappropriate’, or, where the national standards are used to pursue ‘protection of human health or safety, animal or plant life or health, or the environment’. It is suggested that exceptions to the international standards must be least trade-restrictive, and must be supported by the available scientific and technical information.
Additionally, the agreement aims to establish the universal risk assessment criteria in setting the pesticide residue levels and other health standards found in the environmental laws. The proposed criteria require that the standards for risks to human health be offset by balancing the economic benefits of the harmful activity. The agreement has implications for maintaining appropriate labor standards, including child labor in the developing countries. The set of minimum standards proposed include the freedom of association, collective bargaining, the prohibition of forced labor, the elimination of exploitative child labor and non-discrimination. Here the terms ‘unfair’, ‘exploitation’, and ‘forced’, are not precisely defined, but reflect the basic human rights and standards to stimulate the economic development in the interest of all the workers and countries.
While formulating the global standards, the recognition of an important distinction between the environmental problems that are basically domestic, as against those that are inherently international in nature, is also relevant. The latter involves physical spillovers across the national borders. It is these intrinsic environmental problems which are related to trade through the operations of the transnational production activities. In order to handle these issues, need has been felt for neutralizing the environmental externalities through the use of appropriate taxes, subsidies and transfers.
The agreement on technical barriers to trade accords protection to the developing countries against the prescriptions on the technical regulations for the products which could sometimes work as unreasonable barriers to trade. The basic principles prescribe, that the regulations should not be more trade restrictive than necessary, to fulfill the l egitimate objectives of the government, based on security, health or environment. The regulations are prescribed in terms of the performance of the product, rather than the design or the descriptive characteristics, and are to be non-discriminatory among the members. The agreement encourages the adoption of the international standards. It also requires a high degree of transparency in the preparation and administration of the technical regulations and standards in the industrialized countries.
16.7.1 Issues of Concern
It has been felt that trade is basically aimed at exploiting the markets, whereas preservation of the environment is traditionally outside its purview. The need was felt for an objective harmonization, and a search for compatibility between the interests of the trading system and the environmental protection. Although, steps were taken to harmonize the crosscountry intra-industry environmental standards, these are being questioned. A particular country’s preferred environmental choices and solutions, (say by setting up the appropriate pollution standards and taxes), could be very different from that of another country. There are differences in the endowments and technology across the countries, and this would continue to be an evolving process. There would be different costs of pollution abatement, relative to the income and the consumption levels. Forcing the poor country to spend as much on abatement to improve its trade prospects, could reduce its welfare substantially. There is a continuous need to encourage and promote improved standards, provided the developed countries do not use this as an alibi for increased the market access of certain ‘environment improving’ engineering items in the poorer countries on one hand, and restricting the ‘polluting’ items on the other.
It has been felt that no universal agreement on the minimum labor standards can be outlined from the fact, that the prevailing labor standards in a particular society are lower than those of another, thereby implying, that the former is engaging in ‘unfair’ practices, or is exploiting its labor. There is a difference in the values, which leads to differences in the labor standards. Also, the consumers indicate their preferences through the market, and thus change the prevailing labor standards in their country. Using the labor conditions in the developing countries to impose the trade restrictions is considered unfair and somewhat harsh. It is felt that this does not call for imposing the protectionist measures/trade sanctions, by the developed countries. The application of the sanitary and phyto-sanitary measures by the developed countries, will create a strict and environment friendly regime, having far reaching impact on the trade of developing countries like India.
The transparency requirement on the grounds of market access, accords the right to the developed countries to be able to intervene in various operations and regulations in the developing countries. In case a new technical regulation is introduced by a member country, a public notice is required to be issued, and cognizance taken of the comments offered by the other members. A code of good practice for the preparation, adoption and application of standards, has been suggested to the member countries, and the measures are drafted in a way to protect their trade interests.
16.8 General Agreement on Trade in Services
The GATS are the first set of multilateral legally enforceable rules, covering the international trade in services. It covers trade in services in terms of the cross border international telephony, tourism, education, banking, legal advice, communication, insurance, maritime shipping, energy services, wholesale and retail trade, commercial aviation and the transportation of goods, the provision of financial information, the banking and security services apart from the others.
The GATS covers all services based on a positive list, and the aim is to progressively liberalize the trade in services, within the existing architecture of the GATS. The member countries are required to schedule specific commitments under the agreements. The objective of the GATS negotiations is to achieve progressively higher levels of liberalization, so as to promote economic growth amongst the trading partners and the development of the developing countries. The overall balance of the rights and obligations has been emphasized through market access, to promote the interest of all the participants. The participation of the developing countries in trade and services has been given a special priority. The focus has been on the sectors and modes of supply of export interest to the developing countries.
The Council for Trade in Services (CTS) carries out an assessment of the trade in services, in the overall terms and on the sectoral basis, with reference to the objectives of the GATS. The services negotiations are conducted in special sessions of the CTS, which in turn is required to report to the General Council on a regular basis. Specific schedules of commitments by the individual member countries have been drawn out which form the basis for the negotiations. Appropriate flexibility has been provided for the developing country members for opening fewer sectors, liberalize fewer types of transactions, progressively extending the market access, in line with their development situation.
The sectors inscribed in the individual schedules, are required to be accorded to the services and service suppliers such, that the treatment is no less favourable than when accorded to its own, like the services and service suppliers, i.e., the schedules are subjected to a ‘national treatment’. India has indicated a schedule of specific commitments whereby the limitations on the market access and national treatment is outlined. These relate to the professional services, the computer and related services, the R&D services, the communication services, the audio-visual services, energy, construction and the related engineering services, the financial services, trade and other business services.
The Doha Declaration took cognizance of the proposals on various sectors, including the movement of the natural persons. Negotiations have been carried out between member countries on the commitments. The committees are to decide on the scope for further liberalization of these services. The Committee on Professional Services has taken measures to ensure that the qualification, requirement and the procedures, the technical standards and the licensing requirements do not constitute unnecessary barriers to the trade.
16.8.1 Issues of Concern
It is the implementation of some of these issues, which are of concern to the developing countries like India. Movement of the natural persons has been restricted by many of the developed countries. India has the advantage in the movement of the professional and computer services, as it has a large reservoir of highly skilled and experienced professionals like lawyers, chartered accountants, cost accountants, company secretaries, computer- and electronics-based scientists/technicians, information technology/communications, scientists/ 6technicians, engineers, architects, health workers, tourism, etc.
The barriers to the high level of movement have constrained expansion of trade in the technical and the non-technical services from India. The requirement of the CTS to undertake constant consultation and cooperation with the UN, and its specialized agencies has been limited. Further, the GATS is silent on the issue of down-market unskilled workers, like the construction workers going abroad. There is a need to negotiate the trade of these services for such workers going abroad. There is some scope for promoting greater up-market skills for higher earnings. Further, the standardization and harmonization of the requisite qualification and experience of the workers moving to the developed countries is called for. The requirements of the local competency or local certification (e.g. medical boards) should not be used as the non-tariff barriers.
On the domestic front, the use of the international standards needs to be further encouraged. There is a need to improve the level of our professional institutions, so as to raise it to the international standards. In addition, it may be mentioned that a demographic shift has been observed in the developed countries, where the ratio of the working population has witnessed a decline; therefore, the supply of skilled manpower/services form the developing countries to the developed countries, may be negotiated suitably. Another step needed is supplying more information to the service providers in the foreign markets, with a view to exploiting the emerging opportunities. The data and information on the services is very important for both the WTO negotiations and tapping the export potential for services.
16.9 Concluding Observations on WTO Issues
It may thus be seen that during the implementation of the WTO agreements in the last few years, India has experienced certain imbalances and inequities in the WTO agreements. It is found that some of the developed countries have not fulfilled their obligations in letter and spirit of the WTO agreements, and many of the special and differential treatment clauses, in favour of the developing countries, added in the various WTO agreements, have remained in-operational.
Under the AoA, the market access of goods from the developing countries is constrained by the high tariff in the developed countries on the items of interest to these countries. The high domestic support and export subsidies in the developed countries make goods from the less resource-rich, developing countries uncompetitive in the global market. As far as the non-agricultural goods are concerned, similarly, the tariff escalation continues to be an issue.
Extending the scope of the investment regime in the WTO beyond the Trade Related Investment Measures was not appropriate. A multilateral framework cannot guarantee an increase in the FDI inflows, although it threatens to adversely affect the quality of the inflows. There are also other asymmetries present, as the WTO does not address the responsibilities of the corporations, which often impose trade restrictive clauses on their subsidiaries. While there is an effort to remove all constraints on the movement of the capital, barriers on the movement of the natural persons from the developing countries continue to exist.
The WTO has not been able to ensure the abolition of the non-trade barriers being imposed on the labor and environmental considerations, including the linkage in certain GSP schemes, to these issues.
At the Geneva Ministerial Summit in 2009, it was observed that there was a complete divergence of the interest on a number of issues, particularly in the AoA, and certain aspects of the Non-Agricultural Market Issues (NAMA). The developed countries were reluctant to reduce the heavy subsidies given to their farmers, while the developing countries were expected to provide a greater market access through drastic tariff reductions. The developing countries, that face unfair competition in the world market, were not in a position to agree to substantial reductions in the agricultural and the non-agricultural tariffs, without commensurate reductions in the domestic and export subsidies on the part of the developed countries. The relaxations of requirements under the Special and Differential treatment (S&D) were found inadequate by the developing countries. It is quite evident that a defensive position in the WTO negotiations is no longer appropriate. India will have to continue to take a more proactive and aggressive position, on the issues of concern to the developing countries.
16.10 Impact of WTO on India’s Tariff and Trade
Since, India has been one of the founding members of the WTO the Government has taken several steps to implement the commitments made under some of the agreements. The average bound duty rates agreed in the Uruguay round was 29 per cent, while the applied average total duty rate was 64 per cent in 1994–95. The overall average total duty for all the commodities has come down to 13.1 per cent in 2010–11, with a peak rate of 10 per cent.
The bound rate of duty on the agricultural items was committed at 0 to 300 per cent in the Uruguay round. The average applied total custom duty rate is 31.8 per cent in 2010–11, for the agriculture sector. The higher duty rates have been maintained for a few items including coffee, tea, alcoholic beverages, sugar items, raisins, where the duty ranges between 100–150 per cent in 2010–11.The non agricultural goods with over 100 per cent duty, are motor cars and motor cycles. More than 80 per cent items have customs duty of less than 10 per cent in 2010–11.
With substantial reductions in the customs tariff, there has been an increase in the imports and also the exports. The imports increased from US $35.9 billion in 1994–95 to US $299.5 billion in 2009–10, and the exports have increased from US $26.9 billion to US $182.2 billion during the same period. The imports to GDP ratio has increased to 22.75 per cent and the exports to GDP ratio to 13.83 per cent, in 2009–10 from 12.3 per cent and 9.2 per cent respectively in 1994–95.
There has been a considerable spurt in the industrial activity during this period, and the exports have been more competitive in the global market. There has been a shift in the composition of the exports, with an increase in the exports of the manufacturing goods, and within that the engineering goods including machinery and instruments, transport equipments, electronic goods and manufactures of metals contributed 20 per cent of the total export earnings in 2008–09. The contribution of the primary goods to the export earnings, has come down substantially, and now constitutes 9.1 per cent from the agriculture and allied products, 4.2 per cent from the ores and minerals, 1.9 per cent from leather and manufactures and handicrafts constituting 0.2 per cent in 2008–09.
There has been a marked step up in the exports of services to US $93.79 billion in 2009–10, and the commercial services constitute 2.70 per cent of the world’s total exports, while the merchandise exports constitute 1.21 per cent. Apart from the large availability of the skilled manpower and professionals in the country, this has been achieved through concerted liberalization, tax concessions and duty concessions for the purchase and import of the capital goods and equipments by these industries.
There has been an overall step up in the foreign investment inflows to the country. The foreign investment increased to US $52 billion in 2009–10. The FDI increased to US $19.7 billion, while the portfolio investments to US $32.3 billion in 2009–10. During this period, the foreign exchange reserves have reached over US $273 billion (June, 2010). An overall GNP increased by an average of 7.25 per cent during the decade, as against an average growth rate of 4.3 per cent during the previous decade. Most of the increase in this growth has been contributed by the growth in the manufacturing and services sectors.