Q. Explain the role of WTO in the context of Indian economy. [64 BPSC/2019]

Q. Explain the role of WTO in the context of Indian economy. [64 BPSC/2019] ©crackingcivilservices.com
Ans:

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
The WTO has 164 members (including European Union) and about a two-thirds of them are developing countries. It was officially commenced on 1 January 1995 under the Marrakesh Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.

WTO aims to increase international trade by slashing trade barrier and providing a platform for the negotiation of trade and related issues. Basically, it set up a rule based multilateral trading system to liberalise the regime and boost world trade.

Guiding principles of WTO are:

• Most favoured-nation: treating all countries equally i.e Non-discrimination and rule-based trading system.
• National treatment: treating foreigners and locals equally.
• Freer trade: reductions in tariffs and removal of non-tariff barriers. International trade should be free as much as possible.
• Less developed countries should receive preferential terms of trade.

Unlike other organizations like World bank and the IMF where there is weighted voting, WTO has a ‘one country-one vote’ system making it relatively democratic. Decisions are taken by consensus.

WTO liberalises International trade and steps up the total output which in turn promotes standards of living for all participants sooner or later. Further, it also has impact at the policy level. After signing and ratifying the WTO agreements like Agreement on Agriculture, Agreement on TRIPS, India has to align its domestic economic policies with these agreements. Otherwise it leads to disputes ate WTO.

The role of WTO in the context of Indian economy can be seen in diverse way:

• Positive role played by WTO:
  • Rule based trading system
  • India’s participation in an increasingly rule based system in the governance of international trade is to ensure more stability and predictability, which ultimately would lead to more trade and prosperity.
  • Impartial trade dispute settlement process
  • Definitive schedule for trade liberalisation with special protection so as to calibrate alignment with global economy
  • Opportunity to throw up MNCs in the Pharma sector.
  • Services exports account for 40% of India’s total exports of goods and services. The contribution of Services to India’s GDP is more than 55%.
    • India has an obvious interest in the liberalisation of services trade and wants commercially meaningful access to be provided by the developed countries.
    • Since the Uruguay Round, India has autonomously liberalised its Services trade regime across the board.
  • Opportunity to step up agri exports as Indian agriculture reforms yield results and USA and EU reduce their subsidies.
  • The globalization process that WTO ensures is the course chosen by India as a part of the economic reforms launched in 1991.
  • It is a multilateral trade body with 164 members and so can set the pace for globalization to benefit all
  • Most Favoured Nation (MEN) treatment is given to all members within the body by one another. MFN essentiafly means normal trade anong member countries. India also got the MFN status in the 164 member body.
  • The one country one vote system-of decision making makes WTO-a democratic body where rich do not command greater voting weightage.
  • Dispute settlement process is rule based and transparent
  • India has advantage in the services seetor and will benefit from its opening up
  • Lower tariffs, introduced gradually and the right pace, will make Indian economy competitive
  • Reduction of subsidies on agriculture by the developed countries will help India tap its agricultural potential to capture global markets
  • India has developing country status.
    • In the WTO, developing countries are entitled to ‘special and differential treatment’ set out in its rules. Special and differential treatment (S&DT) is given to all developing members due to the uneven level of development between developed and developing Members. It safeguards them from harsh policies and treaties with better off nations which might favor the rich countries.
    • Under the Generalized System of Preferences (GSP) developed countries offer non-reciprocal preferential treatment (such as zero or low duties on imports) to products originating in developing countries.
      • Indian exporter benefit by way of reduced tariff or duty free entry of eligible Indian products.
      • This tariff preference helps new exporters to penetrate a market and established exported to increase their market share.
  • Imposition of safeguard duty is allowed to restrain international trade in order to protect a certain home industry from foreign competition. e.g. Anti-dumping duty and countervailing duty.
    • For example, India has imposed anti-dumping duty on various Chinese products like stainless steel, float glass etc.
• The opponents has cited following points highlighting negative role played by WTO.
  • While globalization is welcome, its pace must be set by the sovereign government
  • The agreement on TRIPS works against affordable medicines
  • Multinational corporations influence the agreements and their working in WTO to their advantage
  • Farmers may lose their livelihood as agriculture is compulsorily thrown open to imports at lower import duties
  • Rich countries are not following their treaty obligations and reduce agricultural subsidies and tariffs
  • The dispute settlement process gives the impression of being fair and transparent but works against poor countries as there is no way of enforcing the verdict of the dispute settlement body.
  • Fulfilling commitments under WTO agreements which require legal and administrative reforms,
  • The shrinking of policy space because of the global commitments
  • Adaptation and mitigation policies to contain the adverse effects of globalisation
  • Capacity-building to articulate concerns and trade-offs during the negotiations,
  • As a result of the self-selection process, there is a competition among member to get the developing country status. It is visible that several advanced countries have also taken developing country status. It limits the relevance of S&DT.
  • Developed countries have been putting pressure on inclusion of non-trade issues such as labour standards, environmental protection, human rights, rules on investment, competition policy in the WTO agreements.
    • India is against any inclusion of non-trade issues that are directed in the long run at enforcing protectionist measures (based on non-trade issues, the developed countries like USA and European Union are trying to ban the imports of some goods like textile, processed food etc.), particularly against developing countries.
  • Recently, WTO set up dispute panel at the request of Japan and Taiwan targeting the import duties imposed by India on mobile phones and some other ICT products.
    • India increased its import duties to 20%, which countries consider violative of WTO’s Information Technology Agreement (ITA) signed by India.
  • The domestic content requirement imposed under India’s national solar programme was challenged by U.S. at WTO which was ruled in favour of U.S. WTO termed it as being in violation of the global trading rules.
  • World Trade Organisation (WTO) panel found that the domestic content requirement imposed under India’s national solar programme is inconsistent with its treaty obligations under the global trading regime. It has affected the domestic manufacturing of solar panel.

In 2001, the WTO membership launched the “Doha Development Agenda” – a massive attempt to update trading rules. The participating countries spent years trying and failing to reach an agreement. Further recent trend of protectionism and Trade war has limited the role played by WTO. Appellate Body under dispute settlement mechanism has become ineffective since 2017 due to blockage of any new appointments by USA. It further limits the efficacy of WTO.

Since the WTO is consensus-based, reaching an agreement on reforms among all 164 members is extremely difficult. One possibility moving forward could be a plurilateral agreement with a group of like-minded countries on a new set of rules that serve as an addendum (supplement) to the broader WTO. ©crackingcivilservices.com

The role of WTO in future is very crucial to preserve global liberalised economic system evolved since the end of the 2^nd World War. It is right time when countries like USA giving threat to withdraw from WTO making it dysfunctional, India and other emerging economies like Brazil, South Africa etc can provide a strong base for strong WTO with saving interests of developing countries.