World Trade Organization (WTO)
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.
• It is an organization that intends to supervise and liberalize international trade
• Its HQ is situated in – Geneva, Switzerland
• Its Official languages are – English, French, Spanish
Evolution of WTO
• Bretton Woods’s conference wanted to make ITO (International Trade Org.) but USA did not ratify. Thus, GATT was born as a stop gap arrangement
• GATT (General Agreement on Trade & Tariffs) established aimed to reduce barriers to international trade
• Uruguay Round of Talks
• Service & Intellectual Property rights related topics included in the debate, 1993, everyone agreed on it
• Marrakesh treaty under Uruguay round of talks at Morocco
• All nations signed an agreement & WTO was established on Jan 1, 1995
• India is also one among the Founding member of WTO
• Supreme Decision Making body
• 160 members, Latest member → Yemen (Capital: Sanaa)
• Meets once every two years,
• Deliberates on trade agreements
• Appoints Director General
• Day to day Decision Making body
• Meets regularly at Geneva.
• Implements decision of ministerial conferences
• Has Representative from each member state.
• Has two bodies, with separate chairmen
• Dispute settlement body
• Trade policy review body
• Appointed by ministerial conference
• Has four years term.
• Heads Secretariat at Geneva
Important Terms before Understanding Functions of WTO
All countries want to protect domestic industries and prevent entry of foreign players. So, they create two types of barriers to International trade viz.
• Tariff Barriers → When Govt. puts heavy import duty / custom duty on Foreign Products which protects domestic players from competition from foreign players
• Non-Tariff barriers → When Domestic players are given subsidies / preference over the foreign players by Govt. for Ex.
• When Govt. is buying some Phones/ Xerox Machines, in the tender it’ll mention that only Domestic companies are allowed.
• Making polices in a way that it’s hard for foreign player to start factory / introduce his product in India
Key Functions of WTO
• Reduce above stated barriers to international trade – both tariff barriers and non-tariff barriers & Get the members enter into multilateral trade agreements.
• Provide forum for negotiation & dispute settlement for members, if agreements are violated.
• Ensure the developing countries benefit from world trade, especially the least Developed countries
• Cooperate with UN, World Bank and IMF for a global economic policy that improves livelihood, protects environment and promotes sustainable Development.
There are two Safety Protection Agreements with regards to Tariff & Non-Tariff Barriers
Non-food products Technical Barriers to Trade Agreement (TBT) →Based on Quality & Durability
Food Products Sanitary and Phytosanitary Measures Agreement (SPS) → Based on Hygiene & Quality
GATT – General Agreement on Trade & Tariffs
TBT – Barriers to Trade Agreement
SPS – Sanitary and Phytosanitary Measures Agreement
TRIMS – Agreement on Trade-Related Investment Measures
SCM -Agreement on Subsidies and Countervailing Measures
Agreement on Agriculture, WTO wants to
• Reduce import duty
• Reduce export subsidies
• Reduce Amber box subsides (Domestic subsidies)
- Agriculture R &D, Training programmes, Flood / Drought relief to farmers etc.
- Subsidies that don’t disrupt trade balance or cause minimum damage to trade balance
- WTO Limit → Nothing
- Amber type Subsidies that aim to limit production
- Subsidies that don’t increase with production
- For example subsidies linked with acreage or number of animals
- WTO Limit → Nothing
- Subsidies that disturb trade balance like subsidies on fertilizers, seeds, power and irrigation.
- By this, country’s product becomes cheaper than others, in the international market
- WTO Limit – De Minimus
Amber Box: De Minimus limits
• The minimal amounts of Amber box subsides permitted by WTO, even though they distort trade
• Calculated on the agriculture production of the given member state in 1986-88
• Limits – Developed ( 5%), Developing (10%), Least Developed (Exempted)
• In 1986: USA agriculture production was far ahead of India. So, their 5% De-Minimus quota will be far bigger than our 10% quota (in absolute figures).
• Input costs have skyrocketed in these decades. But, De-Minimus doesn’t consider inflation factor.
• So, if India has to limit its (Amber box) agro. Subsidies to a non-inflation adjusted 86’s production; we cannot continue the MSP (Minimum Support Price) to farmers or food security to poor.
• These subsidized food grain are meant for feeding the poor only, they do not distort international trade.
Bali summit and Peace clause (Indonesia)
Trade Facilitation Agreement To cut down the red tape in customs clearance
LDC Exports Exporters from Least developing countries, will get Duty free, quota free (DFQF) access to markets in foreign countries
Food stockholding Led to Peace clause
No member, can drag any developing country to Dispute settlement mechanism of WTO for violation of De-Minimus limits in AoA, Provided that the said developing country
• Is paying subsidies for staple food crops for public stockholding program & food security purpose.
• Is providing annual information of its food security Program to WTO.
Trade facilitation agreement (TFA)
• Member nations to publish a detailed list of procedure for import-export, fees, inspection rules, penalties etc.
• Minimize the proof documents and clearance required for customs clearance
• Provide electronic payment of fees, duties, taxes → Reduce red tapes and bureaucratic hassles in customs clearance
• Setup a single window mechanism to help trader submits all documents at a single point- preferably online.
• Provide faster customs clearance to perishable goods (Fruits, veggies, flowers).
• Give Advance ruling, as and wherever applicable.
• Trader should be notified immediately, if goods are detained at customs.
• LDC will get financial and technical help to comply with above rules.
• Benefits – Increase global GDP by $1 trillion (~Rs 60 lakh crore) + more jobs approx. 21 million
• Deadline – 2014, July, 31st But India refused + Agreement becomes effective from – 2015
India refused to sign Trade Facilitation agreement because –
• TFA maintains that it doesn’t diminish the rights & obligations of members under other agreements of WTO
• For example, under the Agreement on Agriculture (AoA) if a developing country is giving Amber box subsidies beyond 10% of its national agriculture production (base year 1986), then other members will be justified in putting trade sanction or WTO-complaint against the said country.
• Once India has signed TFA, the developed countries may stonewall their demands for a rational change in base year and ceiling limits on agro. Subsidies.
• Then India will have to cut down agro. Subsidies in MSP and food security programs, else they’ll put sanctions on us, soon as Peace-clause “temporary” deadline is over in 2017!
• And yet, we’ll have to keep giving them easy customs clearance because we signed the TFA!
Therefore, Government has decided to use TFA signature as a “Bargaining Chip” for a permanent solution of food subsidies issue.
India-US agreed to resolve differences over public stockholding for food security under WTO
As per the deal agreed between India and the US, the Peace Clause under Bali package will be allowed to continue in perpetuity and India’s food security programme will not be challenged under the WTO rules until a permanent solution to it is found.
• However, bilateral agreement between India and the US need an endorsement by 160 WTO members.
• The agreement will help pave the way for reaching a consensus on Bali Package of WTO and help implement far reaching reforms of custom rules under TFA.
• Further, it will help India continue its food security programme and food subsidy.