WTO : PROVISIONS AND

ASSESSMENT

08 SA 125 : NIYATI MANNARI

08 SA 137 : V V S KARTHIK
08 SA 152 : NEIL PATEL
08 SA 153 : RITI NAIK
rum for international bargaining on lowering the barriers to trade to liberalise it as among countries. It has evolved a set of rules for the conduct of world trade. The organisation enfor

WTO and India’s foreign trade :

• Objectives and Provisions
The GAIT was launched at Geneva in 1948 by 23 countries, including India.
It was a part of efforts to reshape the world economy after the Great Depression
(1929-32) and the Second World War (1939-45). The GATT is comprised of a
trade pact among the member-countries (now more than a hundred) and an
organisation. It is basically a forum for international bargaining on lowering the
barriers to trade to liberalise it as among countries. It has evolved a set of rules
for the conduct of world trade. The organisation enforces and updates these rules.
Since its inception, it has held eight rounds of negotiations at several places, the
latest being the Uruguay Round, held at Uruguay. It lasted for seven years from
September 1986 to December 1993. While the GAIT negotiations cover trade in
manufactured commodities, the Dunkel Draft has much expanded the scope of
trade negotiations by including trade in services and agricultural products as also
other trade related matters. These together form the basis of the new WTO.
Advantages to the nation

• Free Trade
• The basic aim of the GAIT has been to make international trade free of all
barriers. In fact, its very inception was meant to remove the various restrictions
and controls which were introduced following the Great Depression and during
the Second World War. A similar aim characterised the Uruguay rounds of
negotiations and the Dunkel Draft.
• The gains. Free trade confers some obvious gains on the countries participating
in trade. These arise from increase in the world output/income, increase in world
trade, and increase in employment. There is also a gain for consumers in terms of
reduced prices which specialisation makes possible. However, the distribution of
gains among the participating countries need not be equal. This depends upon the
share of each country in the world trade. This, in turn, is influenced by the level
of development of the country and its growth rate. Nevertheless, there is every
possibility that each country, participating in trade, will benefit
Trade expansion

• Facilitating trade expansion. The GATT, right from its inception, has been instru­mental
in the rapid expansion of international trade. In the first place, it has been so because of
the large reductions in the barriers to free trade. The seven rounds of negotiations,
preceding the recent Uruguay round have, for example, achieved much success in this
sphere. Custom duties across the countries have, in the last 40 years or so, been cut from
about 40 per cent to an average of 5 per cent of the price of an imported product. Non-
tariff barriers such as quotas are banned except in special circumstances like an acute
balance of payments crisis. Further, these are required to be replaced by. tariffs.
• Secondly, trade has also expanded vastly through the promotion of multilateral trading
system, under the aegis of GA TT. This system allows balancing of trade through a third
country. For example, a country A, which has a deficit (imports being larger than exports)
with country B, can meet it by having a surplus (exports being larger than imports) with
country C. As against this, in a bilateral trade, country A in deficit with country B, will
have to balance it with country B only. It is almost akin to barter trade between two
traders. Thus, while multilateral trading system allows expansion of trade with no limit,
there are definite limits to the size of trade in bilateral trade.
Changing trade scenario
• Changing Trade Scenario
• The international trade from now on will no longer be the same as it has been
during the last more than 45 years since the inception of GATT in 1948. It is to
change much and for some important reasons.
• New orientation. The emerging trade-scenario has several new elements which
will influence international trade profoundly as also the domestic economies of the
trading countries. In the first place, the trade in agricultural goods and in services
is to be brought within the scope of negotiations with the aim of reducing/
eliminating barriers to trade in these sectors. These efforts are not restricted to the
replacement of non-tariff restrictions by tariffs, and a reduction in tariff-levels.
These go beyond the external sector and encompass the domestic policies in
important ways. It has, for example, been stipulated that in the case of countries,
(largely developing countries) whose imports in agricultural products are
insignificant, should import these products equivalent of 3 per cent of their
consumption, to be raised later to 5 per cent.
Reasons for change
• Major reasons. This new orientation to international trade has been brought about by several
powerful factors. One is the multinational corporations who control very large proportion of
international trade. The exports and imports of several countries are now in the nature of buying
and selling by the units/branches of these corporations located in several countries. Most of these
belong to the developed countries. These corporations have, through their governments, sought
these changes so that they could do more business and earn more profits.
• Another factor is the vast change that has taken place in the world economy. There are, for
example, the newly industrialised countries like Singapore, South Korea and Taiwan. Japan has
almost emerged as the front-rank country among the developed countries. In fact it has become the
most important competitor of the USA. Germany has become more powerful economically after the
merger of East Germany. The disintegra­tion of the erstwhile USSR has also opened up vast new
opportunities of trade. All these developments required more trade and trade without barriers for
further expansion of these economies.
• The trend towards market-led globalisation of economies is also an important factor in promoting
trade in more goods and in more services free of restrictions. In fact the basic premise of
globalisation is the economic integration of the countries participating in trade. This requires both
free and uniform conditions across the countries in respect of movements of goods, services and
foreign capital
Significant benefits
• Export-expansion. One type of benefit to India will flow from the expansion of
exports for several reasons. One, with restrictions on the import of agricultural
goods
reduced in developed countries, India will be able to expand its exports of
agricultural products in which it has tremendous comparative advantage, by virtue
of good and a very large variety of soils and cheap labour. Two, the agro-based
industries will also export much and earn much of foreign exchange as these are
little/nil import-intensive. Three, export-expansion will be further accelerated in
the context of barrier-less trade because of the recent liberalisation of the economy.
In fact something of the sort has already taken place. India is one among a very
few countries whose exports have, in recent years, gone up sharply, despite
recessionary conditions in the developed economies. Four, there will be
cheapening of imports (with less customs duties). A significant part of these
imports go to export as inputs. This will make exports more competitive price-
wise. Five, exports will also increase on account of export of some services.
Shortcomings
• Losing on comparative advantage. There are reasons to believe that we may
not be able to take full advantage of our comparative advantage. Three points
can be made in this regard. One concerns the trade in services. The Dunkel Draft
has included such services as banking, insurance, telecommunications etc. The
developed countries have a decisjve arlvantage..Qve.r.others in these services,
because of the use of most advanced technology and the economies of large
scale. India may also gain from the export of such services, but only to a limited
extent. The services in which India enjoys comparative advantage have not been
included. Three services are, for example, consultancy services, professional
skills, labour services etc. Second is about the Multi-Fibre Agree­ment (MFA).
India, like some other countries, enjoys comparative advantage in textiles and
clothing. The MFA, which provided for quota restrictions on the export of these
products, was to end in 1991. It has been given fresh lease till 2003. This will
restrict expansion of exports because of the limitations of quotas.