Impact of GATT and WTO on

Indian Foreign trade.

By group 5
GATT: Introduction
The General Agreement on Tariffs and
Trade(GATT) was established in 1948 in Geneva
to pursue the objective of free trade in order to
encourage growth and development.
The principal purpose of GATT was to ensure
commodity trade through the removal or
reduction of trade barriers. The first 7 rounds of
negotiations were conducted under GATT were
aimed at stimulating international trade through
reduction in tariff barriers and also by reduction in
non tariff restrictions on imports imposed by
member countries.
Hence it provided a useful forum for discussions
and negotiations on international trade.
Uruguay Round of negotiations: 8th
round of GATT
Started in Sept 1986 at a special session of
GATT contracting parties held at the
ministerial level. World trade had undergone
a structural level since 1948
The share of agriculture in world merchandise
had declined from 46% in 1950 to 13% in
1987. Simultaneously the contribution of
various other sectors to GDP of developed
countries had undergone a qualitative change
( rapidly increasing). It ranged between 50-
70% of the GDP in 1986. The share of
employment in the service sector was also
increasing.
Thus UR contained the mandate to have
negotiations in 15 areas. In part 1,
negotiations on Trade in goods were to be
conducted in 14 areas and in Part 2
negotiations on Trade in services were to
be conducted.
Certain new areas such as Trade Related
Aspects if Intellectual Property Rights
(TRIPs) and Trade Related Investment
(TRIMs).
Dunkels proposals.
UR and its implications on Indian
foreign trade:
Reduction in basic duty and export
subsidies: India promised to reduce the
basic duty by 30% which was to be
effected over a period of 6 years and was
to cover raw materials, intermediates and
capital goods. This did not include
agricultural products, petroleum products,
fertilizers and some non ferrous metals
like zinc and copper.
The GATT stipulates that anti dunping
proceedings will be terminated if the volume of
dumped imports from a particular country is less
than 1% of the domestic market.These clauses do
help India to protect its exports from anti dumping
investigations. It would have been favourable if
the figure of dumped imports as a share of
domestic market been more than 1%.
Regarding the prohibition of export subsidies
GATT agreement stipulates that countries like
India with per capita income less than $1000 are
exempt from the removal of such subsidies for
products where their share in world trade is less
than 3.25%.
 Indian Exports in 2001 Covered by
GATT agreement: (in US $Million)
Item World India India’s share
(%)
Rice 7530 631 8.4
Tea 2978 415 13.9
Spices 2440 252 10.3
Iron Ore 8758 321 3.7
Leather 24082 779 3.2
Manufactures
Gems and 56135 6242 11.1
Jewellery
Total 5555028 36258 0.66
Using this criterion, India’s share exceeds
in rice, tea, iron ore, leather manufactures,
gems and jewellery. All these items
account for 22.8 percent of the total
exports. This implies that 77% of the
exports aer not covered by GATT
agreement. Thus reduction of export
subsidies or their removal is not likely to
produce any disastrous effect on our
exports as alleged by many critics.
Effect of TRIPs
Supposed to have disastrous effect on our
economy more ecpecially in two vital
areas i.e.
(i) Pharmaceuticals: Scope of the new
patent regime.
(ii) Agriculture: Patent or patent like
protection in Agriculture.
- Patents Bill and Seeds Act (2004)
TRIMs and its impact:
Main features of TRIMs are:
 All restrictions on foreign capital/ investors/
companies should be scrapped.
 The foreign investor shall be given the same rights in
the matter of investment as a national investor.
 No restriction will be imposed on any area of
investment.
 Nor will there be any limitation on the extent of
foreign investment-even 100% foreign equity will be
permitted.
 Imports of raw materials and components will be
allowed freely.
 Foreign investors will not be obliged to use local
products and materials.
Export of part of the output will no longer
be mandatory.
Restrictions or repatriation of dividend,
interest and royalty will be eliminated.
There will be a complete exclusion of
provisions like phased manufacturing
programme which is intended to increase
the indegenous content in manufacture.
GATT on textile and clothing
Proposals to liberalize the trade of textiles
and clothings
The Act proposes to phase out MFA over
a 10 year period and to fully liberalize the
textile sector at the end of the ten year
period.
3 phases ( 16%, 17%, 18% liberalized)
Social Clause in GATT::
The US representative proposed under the
social clause to levy a countervailing duty
on imports from developing countries
aimed at offsetting the low labour costs
prevailing there.
They declared that this clause was
motivated by humanitarian concern so
that the developing countries adopt proper
standards of living for the workers and
pay them better wages.
Conclusion:
The consensus is that the UR has been a
game in which the more powerful nations
lay down their rules.
History of GATT reveals that whenever
newly industrialized nations have
challenged the competitive strength of the
developed countries , they have
immediately retaliated by imposing tariff
and non tariff barriers. They have now
enlarged it in the form of TRIPs and
TRIMs.
The social clause was also conceived with
the same intention of blunting the
competitive advantage of developing
nations.
The solution lies in the fact that
developing countries should take
advantage of multi lateral trade
organizations and show their combined
strength by closing their ranks, rather than
surrender their sovereignty one after
another.
WTO
 WTO
•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 goal is to help producers of goods and services,

exporters, and importers conduct their business.
 IMPLICATIONS FOR INDIA
 India does not stand to gain much by shouting for agriculture
reforms in developed countries because the overall tariff is lower in
those countries.
 India will have to tart major reforms in agriculture sector in India
to make Agriculture globally competitive.
 Same way it is questionable if India will be major beneficiary in
dismantling of quotas, which were available under MFA for market
access in US and some EU countries.
 It is likely that China, Germany, North African countries, Mexico
and such others may reap benefit in textiles and Clothing areas
unless India embarks upon major reforms in modernization and up
gradation of textile sector including apparels.
Agricultural sector
The provisions of W.T.O offered ample
opportunities to India to expand its export
market.
International price of agricultural
commodities have since then plummeted,
because of which domestic price turned
higher than international price, which made
India an attractive market for import of most
agricultural commodities.
This situation resulted in a wide spread
decline in agricultural export and had also
pressure on domestic value.
Contd…
The impact of W.T.O on agriculture was
severely felt by India as cheap imports have
frequently hit the Indian market, causing
shock waves among the agriculture
producers.
The changes in agricultural exports reveal
that during pre W.T.O period the increase
was significant and could not be sustained in
the post W.T.O period whereas imports
remarkable than post W.T.O period and the
rising export trend rose steadily.
PHARMA SECTOR
In Pharma-sector there is need for major
investments in R &D and mergers and
restructuring of companies to make them
world class to take advantage. India has
already amended patent Act and both product
and Process are now patented in India.
However, the large number of patents going
off in USA recently, gives the Indian Drug
companies windfall opportunities, if tapped
intelligently. Some companies in India have
organized themselves for this.
TELECOM SECTOR
 The General Agreement on Trade in Services (the
“GATS”) was one of the most important achievements
of the Uruguay Round of negotiations that led to the
creation of the World Trade Organization (the
“WTO”). In 2001, international trade in services
constituted approximately $1.450 trillion which
represents almost 20% of total global trade in goods
and services combined.
 Telecommunication services are important not just
because annual telecommunications revenues run into
hundreds of billions of dollars a year and a significant
proportion of global GDP but also because they enable
the supply of other types of services as well as the
production of goods.
PROBLEMS FACING INDIA
IN WTO AND
ITS IMPLEMENTATIONS
Predominance of developed nations in
negotiations extracting more benefits from
developing and least developed countries.
Resource and skill limitations of smaller
countries to understand and negotiate under
rules of various agreements under WTO.
Incompatibility of developed and developing
countries resource sizes thereby causing
distortions in implementing various
decisions.
 Contd…
 Non-tariff barriers being created by developed
nations.
 Dismantling of MFA (Multi Fiber Agreement)
and its likely impact on countries like India.
 Under TRIPS question of high cost of
Technology transfer, Bio Diversity protection,
protection of Traditional Knowledge and Folk
arts, protection of Bio Diversities and
geographical Indications of origin, for example
Basmati, Mysore Dosa or Champagne. The
protection has been given so far in wines and
spirits that suit US and European countries.
WHAT INDIA SHOULD DO?
The most important things for India to address are
speed up internal reforms in building up world-
class infrastructure like roads, ports and electricity
supply. India should also focus on original
knowledge generation in important fields like
Pharmaceutical molecules, textiles, IT high end
products, processed food, installation of cold
chain and agricultural logistics.
India's ranking in recent Global Competitiveness
report is not very encouraging due to
infrastructure problems, poor governance, poor
legal system and poor market access provided by
India.
India’s exports & imports before 1991
EXPORTS Growth Rate IMPORTS Growth Rate Trade
YEAR
% % Balance
1 2 3 4 5 6
1970-71 1535 8.6 1634 3.3 -99
1980-81 6711 4.6 12549 37.3 -5838
1981-82 7806 16.3 13608 8.4 -5802
1982-83 8803 12.8 14293 5.0 -5490
1983-84 9771 11.0 15831 10.8 -6060
1984-85 11744 20.2 17134 8.2 -5390
1985-86 10895 -7.2 19658 14.7 -8763
1986-87 12452 14.3 20096 2.2 -7644
1987-88 15674 25.9 22244 10.7 -6570
1988-89 20232 29.1 28235 26.9 -8003
1989-90 27658 36.7 35328 25.1 -7670
1990-91 32553 17.7 43198 22.3 -10645
Restrictions on foreign trade:-
 India was largely and intentionally isolated from the
world markets, to protect its fledging economy and to
achieve self-reliance.
 Foreign trade was subject to:-
import tariff
export taxes
quantitative restrictions
foreign direct investment was restricted by upper-limit
equity participation
restrictions on technology transfer
export obligations
government approvals (these approvals were needed for
nearly 60% of new FDI in the industrial sector).
 Conditions of Indian economy in 1991

Foreign currency reserves plummeted to

almost $1billion
Inflation was at a rate of 17%
High fiscal deficits
Foreign investors and NRI’s had lost
confidence in Indian Economy
Capital was flying out of economy
Defaulting of loans
IMPORTANT REFORM MEASURES
Major measures initiated were as follows:
Devaluation
Disinvestment
Dismantling of the industrial licensing
regime
Allowing foreign direct investment
Privatization
Removal of import restrictions
Reduction of the peak customs tariff
New financial sector reforms
THANK YOU