India & the World Trade Organization

India is a founder member of the General Agreement on

Tariffs and Trade (GATT) 1947 and its successor, the
World Trade Organization (WTO), which came into effect
on 1.1.95 after the conclusion of the Uruguay Round (UR)
of Multilateral Trade Negotiations. 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 for itself and the 134 other nations which
now comprise the WTO. India also automatically avails
of MFN and national treatment for its exports to all WTO
Members.

Ministerial Conferences of WTO

The first Ministerial Conference held in 1996 in Singapore

saw the commencement of pressures to enlarge the
agenda of WTO. Pressures were generated to introduce
new Agreements on Investment, Competition Policy,
Transparency in Government Procurement and Trade
Facilitation. The concept of Core Labor Standards was
also sought to be introduced. India and the developing
countries, who were already under the burden of fulfilling
the commitments undertaken through the Uruguay Round
Agreements, and who also perceived many of the new
issues to be non-trade issues, resisted the introduction of
these new subjects into WTO. They were partly
successful. The Singapore Ministerial Conference (SMC)
set up open ended Work Program to study the
relationship between Trade and Investment; Trade and
Competition Policy; to conduct a study on Transparency
in Government Procurement practices; and do analytical
work on simplification of trade procedures (Trade
Facilitation). Most importantly the SMC clearly declared
on the Trade- Labor linkage as follows:

"We reject the use of labor standards for

protectionist purposes, and agree that the
comparative advantage of countries, particularly low-
wage developing countries, must in no way be put
into question. In this regard we note that the WTO
and ILO Secretariat will continue their existing
collaboration".

The Second Ministerial Conference of WTO, held at

Geneva in May 1998, established a process to prepare
for the Third Ministerial Conference and to submit
recommendations regarding the WTO's future work
program, which would enable Members to take decisions
at the Third Ministerial Conference at Seattle.

The Geneva Ministerial Conference (GMC) Declaration

had identified the following issues for the General
Council's work, paragraphs 9(a) to 9(b) of the
Declaration:

(a)

i. Issues, including those brought forward by

Members, relating to implementation of
existing agreements and decisions;

ii. The negotiations already mandated at

Marrakesh (Agriculture and Services) and to
ensure that such negotiations begin on
schedule;

iii. Mandated reviews already provided for under

other existing agreements and decisions
taken at Marrakesh;

(b) Recommendations concerning other possible future

work on the basis of the work program initiated at
Singapore Ministerial Conference consisting of:

i. Trade and Investment;

ii. Trade and Competition Policy;

iii. Transparency in Government Procurement;

iv. Trade Facilitation.

(c) Recommendations on the follow-up to the High-Level

Meeting on Least-Developed countries;

(d) Recommendations arising from consideration of other

matters proposed and agreed to by Members concerning
their multilateral trade relations.

The 3rd Ministerial Conference held in Seattle during 30th

November-3rd December, 1999 was being looked up by
many, specially in the developing countries, as a
launching pad for a comprehensive round of negotiations.

In the preparatory process in the General Council of the

WTO (September 1998 to September 1999), new issues
which were proposed for the negotiating agenda by some
Members under paragraph 9(d) are as follows:

a) Industrial Tariffs
 b) (b) Global Electronic Commerce

c) (c) Trade and Labour Standards

d) Trade and Environment

e) Coherence in the interaction of WTO and other

international organizations.

Outcome of the Seattle Ministerial Conference of

WTO

The Indian delegation to the Third Ministerial Conference

of the WTO was led by the Union Minister of Commerce
& Industry, Mr. Murasoli Maran. The delegation also
included Members of Parliament, senior officials from
different Ministries and representatives from the apex
Chambers of commerce and industry.

The Seattle Conference attracted wide attention because

of proposals by some countries to press for the launching
of a comprehensive round of negotiations covering
subjects as wide ranging as labour issues, coherence in
global economic architecture, agriculture etc. Even before
the commencement of the Conference there were
widespread protests and demonstrations in Seattle by a
number of anti-WTO groups ranging from environmental
activists to labour unions. The inaugural session which
was to be held in the forenoon of 30th November, 1999
had to be abandoned because of disturbances. The
plenary which was to start in the afternoon on the same
day had to be held under heavy police protection.

The Chairmen of various Working Groups tried to narrow

down the differences in their respective groups with a
view to arriving at a consensus in the draft Ministerial text
that had been transmitted from the Geneva preparatory
process. However, in view of the wide divergence of
views, no group could present draft texts for inclusion in
the Ministerial declaration acceptable to all the members.

As there was no prospect of reaching a conclusion on a

large number of issues, it was decided after consultation
among key members that it would not be practicable to
adopt any Ministerial declaration. The Chairperson of the
Conference made only a brief statement on 3rd
December followed by brief reports by the Chairmen of
the various groups. The Chairperson observed that
divergences of opinion remained that would take time to
be narrowed down. It was therefore, decided to suspend
the work of the Seattle Ministerial Conference.

While the above constituted the overall outcome, the

deliberations and consultations which took place on
several of the important issues are briefly outlined below
subject-wise (these positions are indicative and not
definitive since a number of delegations, including
ourselves, made it clear that nothing was agreed until
everything was agreed).

(a) Implementation issues : A good deal of discussions

took place on this subject in Seattle, further to the
extensive consultations held in Geneva earlier. The
Working Group Chairman (Canada) came up with a
final proposal (similar to what was mooted by the
Secretariat) that meant a few immediate decisions at
Seattle and establishment of a special mechanism to
examine and make recommendations within one
year, and in any case by the Fourth Ministerial
Session, on other implementation issues. The
Chairman's text also proposed negotiations in respect
of Anti-Dumping and Subsidies Agreements. While
India and most other countries were prepared to go
along with the Chairman's text, the US had
reservations and was opposed to any negotiations on
anti-dumping and subsidies and could, at the most,
agree to a few (not all) of the issues raised by the
Committee on Anti-Dumping and Subsidies
respectively. No consensus could, therefore, emerge.

(b) Agriculture : Mandated negotiations have to

commence on 1.1.2000 on Agriculture. In the run-up
to Seattle,however, the Cairns Group of countries
supported by US sought to secure a more rigorous
negotiating mandate that would speed up elimination/
reduction of their export/domestic subsidies. EC,
Japan, Norway etc., resisted this to the very end.
While EC appeared to display some flexibility on this
issue, Japan put up stiff opposition on further inroads
into elimination of domestic subsidies.As for India,
our concerns relating to food security were
adequately reflected.

(c) Services: No substantive negotiation took place in

Seattle as there was hardly any divergence of views
on the draft text which adequately takes into account
India's concerns.

(d) Investment and Competition Policy : India,

Malaysia, Hong Kong, China and Pakistan proposed
the continuation of the study process launched at
Singapore. EC and others stubbornly argued that
they wanted negotiations to be launched right away.
Given this, the talks broke off but a 'bridge proposal'
which aimed at carrying forward the study process to
prepare for negotiations to be launched by the Fourth
Ministerial Conference began to take shape. While
 India, Malaysia, Hong Kong, China and Pakistan
continued to oppose even the "bridge proposal", a
number of other developing countries (including
countries such as Zimbabwe, Sri Lanka and Egypt)
showed inclination to agree to launch negotiations or
to agree to the compromise proposal.

(e) Market Access for non-agricultural items : There

was virtually no opposition for the launching of
negotiations in this area except that a number of
developing countries including ourselves pointed out
the priority that we attached to the implementation
issues and made it clear that agreeing to any text on
this issue depended on progress in other areas. The
text which evolved during the Green Room
consultations left open the modalities to be followed
for the tariff reduction exercise although the APEC
countries wanted a specific reference to their
Accelerated Tariff Liberalisation (ATL) initiative. EU
wanted a common tariff reduction method to be
adopted for all countries while certain others
preferred a formula approach to be the main
methodology. While our concerns were largely met in
the draft text, the US insisted on avoiding any
reference to peak-tariffs saying it was a politically
sensitive issue. Several developing countries,
including us, however, firmly opposed the substitution
of 'peak tariffs' by any other phraseology. This matter
still needs to be resolved.

(f) Transparency in Government Procurement : There

were broadly three proposals on this subject at the
Seattle Ministerial. First, that the Working Group
should continue its work until the fourth Ministerial
session. India and number of developing countries
supported this proposal. Second, that the Seattle
Ministerial should mandate commencement of
negotiations based on the elements that had formed
the basis of discussion in the Working Group with the
objective of concluding an Agreement at the latest by
the Fourth Ministerial session. A number of
developed and developing countries such as Brazil
and South Africa supported this proposal. Third, that
the Ministers adopt at Seattle an Agreement on
Transparency in Government Procurement based on
the formulation proposed by the United States and
the European Communities. After further discussions
in the open-ended Seattle Working Group on
Singapore issues and other issues, its Chairman
gave his understanding that there was virtual
consensus among Members present on the second
proposal. He noted that India was the only Member
present that stated that it could not join such a
consensus and urged India to reconsider its position.
 India had stated that it could only support further work
in the Working Group aimed at arriving at a
consensus on the elements of a Transparency
agreement.

(g) Trade and Environment : Developed countries,

particularly EU, were very keen on negotiations on
environment related issues to accommodate
concerns of their civil society. They wanted
environmental considerations integrated throughout
the negotiations in the new Round ('mainstreaming')
which will also dilute the focussed mandate of the
Committee on Trade and Environment (CTE ) to that
extent. USA was further keen that Members right to
set high environmental standards was not
undermined by trade rules. US and CAIRNS Group
countries also called for the removal of
environmentally damaging subsidies such as
agricultural subsidies and fishery subsidies that
contributed to over capacity. Developing countries
sought adjustments in the TRIPS Agreement for
preservation of biological diversity and reward for
traditional knowledge. The proposal to mainstream
environment and dilute the role of CTE and the US
proposal regarding environmental standards were
opposed by some developing countries including
India while there was considerable support for
removal of environment- related subsidies. The
TRIPS related proposals were supported by some,
but there was no consensus.

(h) Intellectual Property : Many members were willing

to complete the negotiations on the establishment of
a multilateral system of notification and registration of
geographical indications for wines and possibly
spirits, while there was an emerging consensus for an
early decision on the ongoing discussions on
inclusion of other products for the higher level of
protection as has been provided to wines under Art
23 of TRIPS. Other work programmes proposed to be
launched at Seattle included a proposal to make
recommendations to the Fourth Ministerial
Conference on the scope for protection for traditional
knowledge and folkfore under the TRIPS Agreement,
and review of Article 71.1, including enhancing the
Agreement to respond to its objectives and principles
as well as new developments elsewhere, and of
Article 27.3(b) relating to life forms and plant
varieties.

(i) Other issues : There were a few other issues which

were less controversial. Subjects belonging to this
category included E-commerce and trade facilitation.
A proposal to set up a working group on transfer of
 Technology, supported by India also found wide
support but was opposed by USA, while EC and
some others preferred discussions on this issue
within the Committee on Trade and Development. On
the other hand, the proposed Working Group on Bio-
technology, pursued by USA was hardly discussed
because of strong opposition from many members,
including India.

(j) Regarding transparency in the functioning of WTO,

US and EU were keen for some kind of mechanism
whereby civil society could participate in the WTO
functioning, inter alia, through amicus curiae briefs in
the trade dispute settlement mechanism. But this was
sharply opposed by India and many other developing
countries.

The Road Ahead

As earlier stated, no consensus could emerge as a result

of the divergences that persisted on various issues and
the Seattle Conference had to be suspended. For the
present, it can only be said that the mandated
negotiations in agriculture and services and mandated
reviews would commence as scheduled from January
2000. The Ministerial Conference may resume its work
only after the Director General of WTO has been able to
consult with delegations and recommend its reconvening
after making sure that the next time around there will be
greater degree of consensus. In his statement after the
Conference, Director General Moore said that it was "vital
to maintain and consolidate what has already been
achieved". However, there is no final agreed Conference
document which records the progress already achieved.

Moves are already afoot to reconvene the Ministerial

meeting. The European Union is in particular keen that
this is quickly achieved with the launch of a
comprehensive round of negotiations. The DG of WTO is
also stated to be of the view that the Ministerial meeting
should resume early. We have informed all those who
have approached us that the contentious issues like
labour standards should be off the table and further there
should be narrowing down of differences on all issues
before any attempt is made to reconvene the Ministerial
meeting. The developments in the next few months are
beings watched.

Environmental concerns are already built into the existing

Agreements and there is also a Committee on Trade and
Environment. Our objection is not to environmental
standards per se but the possibility of misuse of
environmental standards for protectionist purposes. We
are opposing the enlargement of the mandate of the
Committee on Trade and Environment and to what is
called the mainstreaming of environment in all the
agreements. US is very keen that they should have the
right to lay down higher level of environmental standards
in a non-discriminatory manner. It appears that many of
the countries may agree to higher standards of
environmental protection measures being implemented
by any country so long as they are non-discriminatory
and are not used for protectionist purposes.

On the issue of labour standards, however, there is

considerable opposition to its inclusion in the agenda
from many countries. A view point being advocated is that
there should be no objection to a direction by WTO to ILO
to make a study as it will not amount to giving negotiating
mandate and that the developing countries can always
say no to negotiations even at a subsequent stage. Even
this, limited scope, if agreed to, is however, not without
some risk. We are therefore carefully monitoring these
and other developments while seeking to actively
mobilise the support of like minded countries in all
possible fora on issues of concern and interest to us.

POST SEATTLE SCENARIO

India is taking advantage of this 'time out' to

consolidate its position on issues of its interest in the
WTO. Three pronged efforts have been launched which
are as follows:

(a) On the one hand, India has continued to highlight

the areas of its concern at important bilateral and
multilateral meetings, which have been as follows :

In his meeting with the Director General WTO on 12th

January 2000 at New Delhi Commerce and Industry
Minister emphasised that globalisation has caused
uneven growth, increasing the disparities between the
richest and the poorest. This has to be addressed, inter
alia, by addressing the implementation problems in
existing Agreements and operationalising the special and
differential clauses in favour of developing countries. A
consensus could be reached only if the more
controversial issues, such as non-trade related issues,
could be eliminated from WTO.

In his statement at UNCTAD-X (Bangkok 13th

February 2000), the Minister highlighted that
"International rule making must ....permit flexibility and
autonomy to developing countries to pursue their material
development strategies on the basis of needs and
aspirations of their people." He registered a strong protest
on the part of the developing countries as to how issues
extraneous to trade, such as labour standards, are
sought to be put on the negotiating agenda, while, on the
other hand issues such as the cross border movement of
persons, a matter of great interest to developing countries
is resisted by developed countries. On the margins of the
UNCTAD Conference at Bangkok, he had also used this
opportunity to have bilateral and plurilateral meetings with
a view to evolve common stand on important WTO
issues.

The UNCTAD Plan of Action has taken on board

some of the important concerns of developing
countries on implementation issues by inter alia
recognising that "in the course of implementation of the
WTO Agreements, most developing countries consider
that certain imbalances and asymmetries exist" and that
"these problems need to be addressed urgently so as to
ensure that the multilateral trading system results in
mutual benefits for all countries." India was also able to
moderate the wording on global coherence as much as
"coherence" has been diluted to "cooperation" in the
critical portions of the UNCTAD-X Declaration and Plan of
Action. India feels that strengthened 'coherence' between
WTO and the UN organizations may lead to increased
cross conditionalities which may narrow down our policy
options for development. Thus our success in diluting the
coherence brief in UNCTAD is significant.

(b) Under the second track of post-Seattle follow up

Government has held consultations to appraise the
situation arising out of the failure of the Seattle
Ministerial Conference to reach consensus on major
issues. A meeting of the Advisory Committee on
International Trade was convened on February 3,
2000 to apprise the Committee of the important
developments at and immediately after Seattle and seek
the Committee's advice on the way forward. The gist of
the Committee's advice to Government has been to ask
Government to review the implementation issues and
prioritise those which are of core interest; to ensure that
our implementation demands are properly attuned to our
autonomous programme of domestic economic
liberalisation; to evolve a suitable response to a situation
where even some of the developing countries are willing
to accept some watered down version of a group on trade
and labour in association with the WTO; and evolve our
stand on environment so that we don't appear to be
against protection of environment; to give adequate
publicity to our positive record of adherence to ILO
conventions and ongoing efforts for implementation of
core labour standards; and to formulate a national
consensus on biotechnology etc.
(c)The third strand of our post-Seattle approach has
been to participate actively in the meetings of the
General Council of the WTO and its subsidiary bodies
to continue to emphasise the areas of our concern. India
has participated actively in the General Council meetings
held post-Seattle on 17th December, 1999 and on 2nd,
7th and 29th February, 2000.

http://www.indianembassy.org/policy/WTO/overview.html

WTO Issues and India's Concerns

Statement made by Ramakrishna Hegde, Union Minister of Commerce, at the Second
Ministerial Conference of the WTO in Geneva – May18 - 20, 1998

It is an occasion of rare privilege and honour for me to be present at the Second Ministerial
Conference of the World Trade Organisation (WTO), as it coincides with the 50th Anniversary of
the General Agreement on Tariffs and Trade (GATT). We have come a long way since GATT was
initially established in 1947. During the last 50 years, we have striven progressively to lower
barriers to trade all over the world. We have negotiated long and hard and we have endeavoured
to understand and accommodate the interests of all countries and groups of countries. The
Uruguay Round Agreements represent a major step forward in our efforts. The establishment of
the WTO has created a forum for continuous negotiations to reconcile the sometimes conflicting
interests of trading partners.

India is proud to have been a founder Member both of GATT and of WTO. Over the years, our
negotiators have played a prominent role in shaping the contours of the multilateral trading
system as it exists today. We have contributed significantly to the successful conclusion of all
trade negotiations. We have helped in various ways to reconcile seemingly irreconcilable
positions. We have participated effectively in the formulation of all major trade agreements. Since
the formation of WTO, our delegation has been active at all times in all deliberations and we have
played a part in bringing difficult negotiations to a satisfactory conclusion.

The multilateral trading system, which the WTO administers, represents a balance of concessions
which, if implemented in letter and spirit, could bring about orderliness, transparency and
predictability in global trade. The principle of most-favoured nation treatment of all Member
countries by each country, more free trade through reduction of tariffs and progressive removal of
non-tariff barriers, elimination of trade distorting measures, including subsidies, systems of rules
to serve as guidelines for national legislation to bring about uniformity in laws and regulations
everywhere and simplification of border measures are some of the gains of the system.

The 50th Anniversary of GATT should be an occasion for introspection and reflection on what the
system stands for, its objectives and its shortcomings. We have to be clear in our mind regarding
the manner in which we are going to take the system forward and how we are going to strengthen
it. We have to set at rest apprehensions regarding the lack of fairness of the system. For the
system to be strong and effective, all Member countries must be assured that they have an equal
and effective role to play in its evolution and that their concerns will be viewed with understanding
and a spirit of mutual accommodation.

In order to make WTO an effective multilateral body, which serves the objectives for which it was
set up, it is necessary to go back to the basic principles. The Uruguay Round negotiators had
stated their intentions quite clearly in the Preamble to the Marrakesh Agreement establishing the
WTO. They recognised "that their relations in the field of trade and economic endeavour should
be conducted with a view to raising standards of living, ensuring full employment and a large and
steadily growing volume of real income and effective demand, and expanding the production of
and trade in goods and services, while allowing for the optimal use of the world's resources in
accordance with the objective of sustainable development, seeking both to protect and preserve
the environment and to enhance the means for doing so in a manner consistent with their
respective needs and concerns at different levels of economic development. They recognised
also "that there is need for positive efforts designed to ensure that developing countries, and
especially the least developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development".

It is very clear that the intention of the negotiators was to use trade as an instrument for
development, to raise standards of living, expand production, keeping in view, particularly, the
needs of developing countries and least-developed countries. The WTO must never lose sight of
this basic principle. Every act of implementation and of negotiation, every legal decision, has to
be viewed in this context. Trade, as an instrument for development, should be the cornerstone of
all our deliberations, decisions and actions. Besides, the system should be seen to be equitable
and fair. It must be used in such a manner that the letter and spirit of the Agreements is fully
observed. The WTO Members must mutually support and encourage each other to achieve the
final goal. It must be recognised that all Members should assume a negotiating rather than an
adversarial posture. It should also be recognised that different economies have different features
and structures, different problems, different cultures. The pace of change must be carefully
calibrated to take into account such differences. All Members should guard against unilateral
action that cuts at the root of multilateralism.

Developing countries have generally been apprehensive in particular about the implementation of
special and differential treatment provisions in various Uruguay Round Agreements. Full benefits
of these provisions have not accrued to the developing countries, as clear guidelines have not
been laid down on how these are to be implemented. A case in point is Article 15 of the Anti-
Dumping Agreement, which explicitly says that "special regard must be given by developed
country Members to the special situation of developing country Members" in applying such
measures and that "constructive remedies provided for by this Agreement shall be explored
before applying anti- dumping duties where they would affect the essential interests of developing
country Members". In actual practice, we have faced situations in which our products have been
subjected to repeated anti-dumping actions and levy of provisional duties, creating an
atmosphere of uncertainty and instability in the market, thus resulting in closure of smaller units
and unemployment. Another example is Article XVIII:B of GATT which provides for a special
dispensation for developing countries in the institution and maintenance of quantitative
restrictions on imports. This Article clearly lays down that quantitative restrictions may be
imposed and maintained by a developing country "to ensure a level of reserves adequate for the
implementation of its programme of economic development". However, in actual practice we find
that the development dimension is totally ignored while assessing the adequacy or otherwise of
foreign exchange reserves, with the result that there is no distinction between Articles XII and
XVIII. All developing countries are firmly of the view that development has to be brought back to
the centre stage of WTO activities, as was intended by the Uruguay Round negotiators.

Another issue of deep concern is the trend towards unilateral action by certain developed
countries in total disregard of provisions laid down in the Uruguay Round Agreements. We are
forced, at great expense and considerable difficulty, to take such issues to the dispute settlement
mechanism. Distinguished delegates are aware that developing countries and least-developed
countries have to battle against resource constraints and shortage of skills and expertise in these
areas. Such unilateral action, I have no hesitation to say, bring to disrepute the entire multilateral
trading system which we have struggled to build over the years. This would necessarily slow
down the impetus for reform in all developing countries.

There has also been an increasing trend in the recent past in favour of regionalism. While
regional economic groupings have resulted in increased trade among countries in the region,
there is inherent danger of discrimination against third countries. Article XXIV of GATT specifically
recognises regional arrangements as an exception to the multilateral system. While we recognise
the positive effect of regional groupings that are consistent with the principles of the multilateral
trading system and also the special needs of developing countries as enunciated in the Enabling
Clause, we fear that the proliferation of such arrangements may weaken the framework of the
system. The rules relating to such regional arrangements need to be clear and precise and
should ensure that market access for third countries is not denied or reduced. Otherwise, we will,
over the years, have a situation where the multilateral system becomes largely irrelevant.

The implementation aspects of the Uruguay Round Agrements need to be given special attention.
We have been articulating from time to time our concerns regarding the implementation of the
Agreement on Textiles and Clothing. At the Singapore Conference, we had drawn the attention of
Members to the adverse impact on our exports of actions taken under this Agreement, such as
the series of transitional safeguard measures, which were subsequently found to be inconsistent
even with the provisions of the Agreement. We have taken careful note of the First Major Review
of the Agreement conducted by the Council for Trade in Goods earlier this year. It is a matter of
deep concern to us to note that, in spite of the provisions negotiated by us to ensure a
commercially meaningful phasing out of restrictions maintained under the MFA regime, the review
confirmed that the bulk of restrictions would get integrated into the GATT 1994 only at the end of
the transition period. This is indeed a serious matter, considering that the Members resisting
progressive liberalisation of trade in this sector are demanding from countries like India faster and
more "broad- based" liberalisation in other sectors. Obviously, in this context, we must see a
symmetry of concessions as far as trade liberalisation is concerned. I have referred elsewhere in
my address to the pernicious effect of the use of anti-dumping measures by a major trading
partner on our textile and clothing exports. In the context of the Agreement on Textiles and
Clothing, the use of anti-dumping measures on textile and clothing exports which are already
under a quota regime, is a clear case of protectionism and needs to be deplored in the strongest
terms. We are glad that Members have decided to entrust the Council for Trade in Goods with the
task of keeping the implementation of the ATC under regular review. We reaffirm our commitment
to fulfil this mandate given to the Council, especially in the process we would be initiating with
respect to evaluating the overall implementation of WTO Agreements. I would like to emphasise
that the textiles and clothing sector is an extremely significant part of our own economy
accounting for 20% of national industrial output and providing means of living to 30 million people.
Any restriction of market access for our exports of textiles and clothing products would, therefore,
have very serious implications for us in terms of income and employment and jeopardise the very
credibility of the multilateral trading system.

The Agreement on Agriculture will come up for review in the year 2000. We will then have an
opportunity to have a fresh look at this area, keeping in view the development perspective and
the needs of developing countries. There still remain a number of inequities as far as the
implementation of the Agreement is concerned. For instance, while the majority of developing
countries are prohibited from providing export subsidies, the developed countries are permitted to
resort to such subsidies provided their budgetary outlays are within their reduction commitment.
This is obviously unfair in the sense that countries which have been distorting the market in the
past can continue to maintain subsidy regimes, while others are prohibited from using such
measures in the future. This Agreement is based on the rationale of open international trade in
the agricultural sector. It presupposes the supremacy of an open price based system, thereby
implying that a country should import agricultural products if they are produced cheaper
elsewhere. India and certain other developing countries have been stressing the need for the
multilateral trading system to recognise the importance of food security. A country may not have
the resources to buy agricultural products from international markets even if they are easily
available. Moreover, a very large percentage of the rural population in such countries is
dependent on agriculture and any measure that has an effect on employment in this sector needs
to be carefully examined. It is necessary also to have a close look at the shortcomings in
minimum market access provisions, which are circumvented in many ways in the actual process
of implementation by various ingenious methods such as aggregation of tariff lines into product
groups. The exemptions given for direct payments to farmers and deficiency payments from the
ambit of reduction commitments in respect of production subsidies also need to be carefully
studied. There is also the issue of the possible negative effects of the reform programme on
least-developed and net-food-importing developing countries which has not been effectively
addressed as yet, despite a Ministerial Decision during the Uruguay Round negotiations.

The General Agreement on Trade in Services will also be reviewed in the year 2000. We would
hope that developing countries will be able to achieve substantial improvement in market access
during the negotiations. While there has been great focus on movement of goods and capital,
particularly from markets in the developed world to developing countries, hardly any attention has
been paid to market access to professionals from developing countries, our engineers, our
doctors, our technicians. The fear expressed in the developed countries that there will be transfer
of job opportunities from the North to the South pays scant regard to the fact that the free inflow
of goods and services into developing countries can likewise lead to displacement of industry,
unemployment, decline in effective demand, fall in incomes and the deprivation of the globally
under privileged. We are concerned that the comparative advantage of our professionals is not
allowed to be exploited in full measure, while, at the same time, there is unabating pressure on us
to open markets to goods and services in which the developed world has a decisively
comparative advantage.

Protectionist measures adopted by developed countries in various ways restrict market access for
goods and services produced in developing countries. An analysis of India's external trade
reveals that the sixteen countries or territories to which four fifths of our exports are directed,
maintain eight major categories of non-tariff barriers restricting our market access. These include
restrictive import policy regimes, standards, testing, labelling and certification measures which are
set at unrealistic levels for developing countries or are scientifically unjustified, export subsidies,
barriers on movement of services, unfavourable government procurement regimes, barriers to
investment and other barriers including anti-dumping measures and countervailing measures. In
the area of standards in particular, developing countries suffer both at the stage of standard
setting in international bodies and in actual implementation. Article 12 of the Agreement on
Technical Barriers to Trade and Article 10 of the Agreement on Sanitary and Phytosanitary
measures needs to be implemented in letter and in spirit.

Similar imbalances are seen in the TRIPs Agreement. Although Article 65 of the TRIPs
Agreement contemplates a transition period of ten years for India as a developing country to
introduce product patent protection in areas of technology not so protected in its territory as on 1
January 1995, such as pharmaceuticals and agri-chemicals, the obligation under Article 70.9 to
grant exclusive marketing rights for patents at any time after the entry into force of the WTO
Agreement effectively neutralises this transition period available to us. In the realm of
geographical indications, the additional protection available to wines and spirits is not applicable
to the region specific products of developing countries. The current debate in India on the
Basmati rice issue, involving the passing off type of activity indulged in by certain foreign
enterprises with regard to this kind of rice which is associated with certain regions of India, has
focussed attention on the need for higher protection for products other than wines and spirits
under Article 23 of the TRIPs Agreement.
Indeed, the issue of development of proprietary patents by enterprises based on the traditional
knowledge of indigenous communities, nurtured through generations, without obtaining prior
informed consent or without coming to any agreement on benefit sharing, have been viewed as
iniquitous practices by countries such as India, which are storehouses of such indigenous
knowledge. A situation, where indigenous biotechnology, developed over the ages in countries
such as India, is being used without any flow back of benefits from patentees to original
developers calls for amendments in the TRIPs Agreement. The imbalances in the TRIPs
Agreement and its tilt against the holders of indigenous know-how, mainly based in developing
countries, misaligns it with another major international agreement, namely, the Convention on
Biodiversity.

Moreover, where Multilateral Environmental Agreements, such as the Montreal Protocol or the
Framework Convention on Climate Change set time bound targets for adherence to certain
environmental standards, there also has to be provision for transfer of environmentally sound
technologies and processes on fair and reasonable terms to developing countries built into the
TRIPs Agreement. The same mechanism of transfer of technology on reasonable terms will have
to be available where developed countries lay down difficult mandatory national standards.
Resources for compensating individual exporters for transfer of technology at non- commercial
rates could easily be found from the funds presently used for providing subsidies and support
measures to producers in developed countries.

Thus, the agenda before us is heavy. The shortcomings of the Uruguay Round Agreements and
problems in their implementation have come to light in increasing measure. These shortcomings
have necessarily to be addressed in a fair and objective manner and solutions found through
negotiations in a spirit of mutual understanding. Developed countries, with far greater experience
in global trade and a strong information infrastructure, are in a much better position to exploit
market access opportunities provided by the Uruguay Round Agreements and to use them to
their advantage. It is for this reason that developing countries have been resisting the move to
widen the area of activity of the WTO. The developing countries are still at a preliminary stage in
understanding the Agreements, implementing them as they can, absorbing their full implications
and meeting the onerous notification requirements. We consider that attention should be
focussed on implementation issues and the issues relating to the built-in agenda rather than take
up new issues at the present moment. Faith in the multilateral trading system will increase
manifold if people perceive that it is sensitive to their needs and concerns.

We are, however, deeply committed to the success of the multilateral trading system. We believe
that the WTO and the multilateral trading system must be effective instruments for serving the
needs of the weakest section of the society in all parts of the world. No single pattern, no single
package of measures can be considered to be universally applicable. We would be deluding
ourselves by thinking that a single remedy can be applied across the board. What we should
strive to achieve is the amelioration of the living conditions of all people, particularly the poorest.
In the words of Mahatma Gandhi, "I do not believe in the 'greatest good of the greatest number',
nor can I agree that might is right. For human beings, the object in view should be the good of all,
with the weak being served first". On this, the 50th Anniversary of GATT, let us resolve to forge
ahead in a spirit of mutual accommodation and goodwill, keeping in perspective at all times the
needs of the poorest, the most underprivileged amongst us.

http://www.indianembassy.org/policy/WTO/wto_index.htm

WTO
The World Trade Organization is an international organization which was
created for the liberalization of international trade. The World Trade
Organization came into existence on January 1st, 1995 and it is the
successor to General Agreement on Trade and Tariffs (GATT). The World
trade organization deals with the rules of trade between nations at a global
level. WTO is responsible for implementing new trade agreements. All the
member countries of WTO have to follow the trade agreement as decided
by the WTO.

Structure of the WTO:

Following is the structure of WTO.

Highest Level: Ministerial

Conference
The Ministerial Conference is the
top most body of the WTO, which meets in every two years. It brings
together all the members of WTO.

Second Level: General Council

The General Counsel of the WTO is the highest level decision making
body in Geneva, which meets regularly to carry out the functions of WTO.

Third Level: Councils for Trade

The Workings of GATT, which covers international trade in goods, are the
responsibility of the Council of Trade.

Fourth Level: Subsidiary Bodies

There are subsidiary bodies under the various councils dealing with
specific subjects such as agriculture, subsidies, market access etc.

Benefits Of WTO

• It helps promote peace and prosperity across the globe.

• Disputes are settled amicably.
• Rules bring about greater discipline in trade negotiations, thereby
reducing inequalities to a large extent.
• Free trade reduces the cost of living and increases household
income.
• Companies have greater access to markets and consumers have
wider range of products to choose from.
• Good governance accelerates economic growth

India and WTO

India is one of the founding members of WTO along with 134 other
countries. India's participation in an increasingly rule based system in
governance of International trade, would ultimately lead to better prosperity
for the nation. Various trade disputes of India with other nations have been
settled through WTO. India has also played an important part in the
effective formulation of major trade policies. By being a member of WTO
several countries are now trading with India, thus giving a boost to
production, employment, standard of living and an opportunity to maximize
the use of the world resources.
http://www.tradechakra.com/indian-economy/india-wto.html

India: June 2002

Indian reform contributes to growth: reforms need
See also: to continue to achieve high growth and reduce
poverty back to top
> Second press release
> Chairperson’s concluding
remarks The Indian economy has grown rapidly over the past decade,
with real GDP growth averaging some 6% annually, in part due
to the continued structural reform, including trade
liberalization, according to a WTO Secretariat report on the
trade policies and practices of India.

Social indicators, such as poverty and infant mortality have also

improved during the last ten years. In order to achieve further
significant reductions in poverty, India is currently targeting
higher real GDP growth of between 7% and 9% (compared with
5.4% expected for 2001/02); to meet this goal, it will be
important, as stressed by the authorities, to continue, and even
accelerate, the reform process and increase competition in the
economy.

The WTO Secretariat report, along with the policy statement by

the Government of India, will serve as a basis for the third
Trade Policy Review (TPR) of India by the Trade Policy Review
Body of the WTO on 19 and 21 June 2002.

Recognizing the important linkages between trade and

economic growth, the Government has simplified the tariff,
eliminated quantitative restrictions on imports, and reduced
export restrictions. It plans to further simplify and reduce the
tariff. However, the level of protection through the tariff
remains relatively high and the anti-export bias inherent in
imports and other constraints still remains. To help counteract
this anti-export bias, export promotion measures have gained in
importance. The Government has recently announced a further
increase in these measures and plans to continue reforms of the
tariff and other taxes.

Tariff and tax reform are also crucial to address the problem of
high fiscal deficits, which have continue to grow despite efforts
to reduce public spending. Moreover, with the customs tariff
accounting for some 30% of net government tax revenue,
further reform of the tariff may depend on major tax reform.

The report notes that the authorities are firm in their view that
improving the economic growth rate requires further structural
reform. As restrictions on trade and competition have been
reduced, constraints associated with infrastructure and
regulatory bottlenecks have become increasingly evident and
need to be addressed urgently both through regulatory reform
and through increased investment. Despite further
liberalization of the FDI regime, India’s record in attracting
investment remains disappointing, with FDI accounting for some
1% of GDP. The government has also taken various steps to
improve enforcement of intellectual property rights which
should help to attract FDI.

A major development since the previous Review was the

removal of all import restrictions maintained for balance-of-
payments reasons. Thus, the customs tariff has become the
main form of border protection. There have been significant
recent efforts to rationalize the tariff, but, with numerous
exemptions based on end-use, it remains complex and applied
tariffs, which averaged some 32% in 2001/02, remains relatively
high. As a result of additional bindings taken by India in the
WTO, the share of tariff lines that are bound has increased
since the previous Review, from 67% to 72%. The average (final)
bound rate is 50.6%, higher than the applied MFN rate; this gap
provided ample scope for applied rates to be raised recently on
a few agricultural products.

While import licensing and tariff restrictions are generally

declining, there appears to have been an increase in other
border measures such as anti-dumping, with some 250 cases
initiated since 1995. Internal reforms have concentrated on
improving efficiency and competition in the economy. Thus,
while industrial policy remains important, its scope seems to
have been reduced significantly. In addition, since the previous
review, there has been a reduction in the number of activities
reserved for the public sector and for the small scale industry.
The need for increased competition is being addressed by
gradually reducing the degree of direct government
involvement in economic activities, including through a
programme to restructure and privatize state-owned
companies. The privatization programme has thus far had
limited success and must also be stepped up to address the
fiscal deficit. In addition, price controls, currently maintained
on several products including fertilizers, petroleum products
and in agriculture, add to the fiscal burden of subsidies.
(implicit and explicit subsidies were estimated at some 14,5 %
of GDP in the mid-1990s).

Policy in the agriculture sector has been guided by domestic

supply and self-sufficiency considerations. Thus, the sector is
shielded through import and export controls, including tariffs,
state trading, export restrictions and, until recently, import
restrictions. The result of this policy has been a substantial
increase in stocks to unsustainable levels and the costs
associated with maintaining these stocks.

In services, significant reforms have been pursued since the

previous Review, especially in telecommunications, financial
services and, to some extent, in infrastructure services, such as
power and transport. Liberalization of telecommunication
services has resulted in an increase in availability and a
reduction in tariffs. The reduction in telecommunication tariffs
is also likely to benefit the software sector, one of the major
success stories in recent years.

Efforts have also been made to address transportation and

power shortages although with mixed results. Electricity, in
particular, remains in short supply and constrained by the loss
making state electricity boards (SEBs).

The report concludes that India’s economic reform programme

resulted in strong economic growth throughout the 1990s. The
recent slowdown, although partly due to the overall slowdown
in the world economy, also demonstrates the necessity of
continuing these reform efforts. In particular, difficult decisions
are required to redress the fiscal imbalance, by reducing
subsidies, completing the process of tariff and tax reform, and
stepping-up privatization of state-owned enterprises.

Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO

agreements, in which member countries’ trade and related
policies are examined and evaluated at regular intervals.
Significant developments which may have an impact on the
global trading system are also monitored. For each review, two
documents are prepared: a policy statement by the government
of the member under review, and a detailed report written
independently by the WTO Secretariat. These two documents
are then discussed by the WTO’s full membership in the Trade
Policy Review Body (TPRB). These documents and the
proceedings of the TPRB’s meetings are published shortly
afterwards. Since 1995, when the WTO came into force,
services and trade-related aspects of intellectual property
rights have also been covered.

For this review, the WTO’s Secretariat report, together with a

policy statement prepared by the Government of India, will be
discussed by the Trade Policy Review Body on 19 and 21 June
2002. The Secretariat report covers the development of all
aspects of India’s trade policies, including domestic laws and
regulations, the institutional framework, trade policies and
practices by measure, and developments in selected sectors.

Attached to this press release are the Summary Observations of

the Secretariat report and parts of the government policy
statement. The Secretariat and the government reports are
available under the country name in the full list of trade policy
reviews. These two documents and the minutes of the TPRB’s
discussion and the Chairman’s summing up, will be published in
hardback in due course and will be available from the
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211
Geneva 21.

Since December 1989, the following reports have been

completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria
(1992), Bahrain (2000) Bangladesh (1992 and 2000), Benin (1997), Bolivia (1993 and
1999), Botswana (1998), Brazil (1992, 1996 and 2000), Brunei Darussalam (2001),
Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992, 1994, 1996,
1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995
and 2001), Côte d’Ivoire (1995), Cyprus (1997), the Czech Republic (1996 and 2001),
the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the
European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland
(1992), Gabon (2001), Ghana (1992 and 2001), Guatemala (2002), Guinea (1999),
Haiti (2002), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland
(1994 and 2000), India (1993, 1998 and 2002), Indonesia (1991, 1994 and 1998), Israel
(1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya
(1993 and 2000), Korea, Rep. of (1992, 1996 and 2001), Lesotho (1998), Macao (1994
and 2001), Madagascar (2001), Malaysia (1993, 1997 and 2001), Malawi (2002), Mali
(1998), Mauritius (1995 and 2001), Mexico (1993, 1997 and 2002), Morocco (1989 and
1996), Mozambique (2001), New Zealand (1990 and 1996), Namibia (1998), Nicaragua
(1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), OECS (2001),
Pakistan (1995 and 2002), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and
2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania (1992 and
1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995 and
2001), Slovenia (2002), the Solomon Islands (1998), South Africa (1993 and 1998), Sri
Lanka (1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991, 1996
and 2000 (jointly with Liechtenstein)), Tanzania (2000), Thailand (1991, 1995 and
1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and
1998), the United States (1989, 1992, 1994, 1996, 1999 and 2001), Uganda (1995 and
2001), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe
(1994).

The Secretariat’s report: summary back to top

TRADE POLICY REVIEW BODY: INDIA

Report by the Secretariat — Summary Observations

The Indian economy has grown rapidly over the past decade,
with real GDP growth averaging some 6% annually. Despite
external shocks, such as the Asian economic crisis and
fluctuations in petroleum prices, which resulted in a slowdown
to 4.8% in 1997/98, the economy recovered to grow at over 6%
during the two subsequent years. Social indicators, such as
poverty and infant mortality have also improved during the last
ten years. Higher growth during this period is, in part, due to
continued structural reform, including trade liberalization,
leading to efficiency gains. In order to achieve further
significant reductions in poverty, India is currently targeting
higher real GDP growth of between 7% and 9% (compared with
5.4% expected for 2001/02); to meet this goal it will be
important, as stressed by the authorities, to continue, and even
accelerate, the reform process and increase competition in the
economy.

Recognizing the important linkages between trade and

economic growth, the Government has simplified the tariff,
eliminated quantitative restrictions on imports, and reduced
export restrictions. It plans to further simplify and reduce the
tariff. To help counteract the anti-export bias, inherent in
import and other constraints, export promotion measures have
gained in importance. The Government has recently announced
a further increase in these measures and pledged to reduce
export restrictions. The policy has also suggested the creation
and strengthening of enclaves such as export processing and
special economic zones, which would "immunize" exporters
from the constraints affecting the rest of the economy, such as
infrastructure and administrative problems. The Government
estimates that annual export growth of almost 12% is required
in order to raise India’s share of world trade from its present
level of 0.67% to a target of 1% by 2007.

The authorities are firm in their view that improving the

economic growth rate requires further structural reform. As
restrictions on trade and competition have been reduced,
constraints associated with infrastructure and regulatory
bottlenecks have become increasingly evident. Investment also
appears to have been deterred by high real rates of interest,
which are in part due to government borrowing to finance its
fiscal deficit, which remains high. The Central Government
deficit has risen from 4.2% in 1995/96 to some 5.7% in 2001/02.
This is compounded by the states’ fiscal deficits; it is estimated
that the combined central and state fiscal deficit was over 10%
of GDP in 2000/01.

In order to redress the fiscal imbalance, steps are being taken

to rein in expenditure and to improve tax collection. One
recent measure is the introduction in Parliament of the Fiscal
Responsibility and Budget Management (FRBM) Bill; the Bill aims
to reduce the deficit by at least 0.5% per year with a view to
reaching a deficit of not more than 2% of GDP by 2005/2006.
Expenditure reductions are also being pursued, notably through
reform of the food subsidy (public distribution system) and
administered prices for petroleum. Steps are also being taken
to reduce government stakes in state-owned enterprises, which
remain a drain on government resources and a cause of
inefficiency. To improve the revenue base, attempts are being
made to reform the internal tax system. However, these
attempts have met with limited success, especially with respect
to state taxes. Moreover, with customs revenue still a relatively
high share of fiscal receipts, further planned reductions in
tariffs will probably require reform of the tax system.

There have been no major changes in India’s trade and

investment policy formulation since its previous Review in 1998.
Trade policies are formulated and implemented by the Ministry
of Commerce and Industry in consultation with other relevant
ministries. In this, it is assisted by several autonomous bodies
based in the Ministry as well as through regular consultations
with trade and industry groups. Advice is also solicited from
other government bodies such as the Prime Minister’s Council
on Trade and Industry and the ostensibly autonomous Tariff
Commission, based in the Department of Industrial Policy and
Promotion (Ministry of Commerce and Industry), as well as
independent ad hoc groups appointed by the Government from
time to time. In addition, the Planning Commission, in
preparing goals for India’s Five Year Plans, sets up task forces
to examine trade and related policies.

India provides at least MFN treatment to all WTO Members. It

has been a strong advocate of multilateral, rather than
regional, trade initiatives and is party to few regional trading
agreements. Efforts are nevertheless being made to strengthen
regional agreements to which it is party, such as the South
Asian Association for Regional Cooperation (SAARC) and the
Bangkok Agreement. Under the South Asian Preferential Trade
Agreement (SAPTA), the members of the SAARC have completed
three rounds of trade negotiations and expect to complete the
SAPTA in 2002. In addition, India maintains bilateral trade
agreements with several of its neighbours, including Bangladesh
and Nepal; under a free-trade agreement with Sri Lanka, in
effect since 1 March 2000, India grants duty-free access for over
1,000 tariff lines and a 50% margin of preference for the rest of
the tariff, except for a negative list. Negotiations to conclude
bilateral trade agreements with several other trading partners
are presently under way.

India’s foreign direct investment (FDI) policy has been

liberalized since its previous Review. Investment is not only
allowed in a greater number of sectors, but a larger number of
sectors than before are eligible for automatic investment
procedures, involving registration with the Reserve Bank;
permission from the Government is still required for investment
in some sectors, while foreign investment is not permitted in a
few sensitive sectors. Despite liberalization, India’s record in
attracting investment remains disappointing, with FDI
accounting for some 1% of GDP; and there appears to be no
significant improvement in FDI inflows since the last Review,
suggesting perhaps that the policy and infrastructural
environment are still constraints.

Since the previous Trade Policy Review of India, trade and

related reforms have been pursued although more gradually
than during the early 1990s. However, a major change since the
early 1990s appears to be the acceptance of the need for
continued reforms in order to raise economic growth and
reduce poverty. In this context, barriers to trade have been
reduced and internal structural reform has been pursued.

A major development since the previous Review was the

removal of all import restrictions maintained for balance-of-
payments reasons. As a result, the customs tariff has become
the main form of border protection. There have been significant
recent efforts to rationalize the tariff, but with numerous
exemptions based on end-use, it remains complex. Tariffs are
relatively high, but the average applied MFN rate fell from
35.3% to 32.3% between 1997/98 and 2001/02 and is expected
to fall further, to 29% in 2002/03, as the “peak” rate of tariff is
reduced from 35% to 30%. The tariff shows substantial
escalation in some sectors, especially for paper and printing,
textiles and clothing, and food, beverages and tobacco. The
Government announced recently that it intends to simplify and
lower the tariff to two tiers by 2004/05; 10% for raw materials,
intermediates and components, and 20% for final products. In
addition to the tariff, importers must pay additional and special
duties on a number of products.

As a result of additional bindings taken by India in the WTO, the

share of tariff lines that are bound has increased since the
previous Review, from 67% to 72%; new bindings were made
primarily in textiles and clothing; India also renegotiated
bindings in some agricultural items. The average (final) bound
rate is 50.6%, higher than the applied MFN rate; this gap
provided ample scope for applied rates to be raised recently on
a few agricultural products.

While import licensing and tariff restrictions are generally

declining, there appears to have been an increase in other
import measures. India has become one of the major users of
anti-dumping measures, with some 250 cases initiated since
1995. Certain imports, such as automobiles and natural rubber,
may enter only through specified ports. Similar restrictions
relating to entry through certain ports have been removed on
300 sensitive items previously subject to import restrictions;
imports of these products continue to be monitored.

As part of its policy to encourage exports, the Government is

planning to confine export restrictions to a few sensitive items,
as announced by the Export and Import Policy 2002-2007.
Export and import prohibitions are maintained mainly for health
and security reasons.

Internal reforms have concentrated on improving efficiency and

competition in the economy. Thus, while industrial policy
remains important, its scope seems to have been reduced
significantly. Compulsory licensing now appears to be required
mainly for environmental, safety, and strategic reasons. In
addition, since the previous Review, the number of activities
reserved for the public sector has been reduced from six to
three and the number of sectors reserved for the small-scale
industry has been reduced from 821 to 799; another 50 items
are expected to be removed from the list of items reserved for
the small-scale sector. Price controls are maintained on several
products, including fertilizers, petroleum products, and some
agricultural products; some of these, including on petroleum
and fertilizers, are gradually being phased out.

The need for increased competition is being addressed by

gradually reducing the degree of direct government
involvement in economic activities, including through a
programme to privatize state-owned companies. State-owned
companies, which were used to implement industrial and
development goals, are a drain on government resources.
Attempts have been made since the early 1990s to restructure
those that are loss-making and, in some instances, to privatize
them, although, until recently, the privatization programme has
met with limited success; annual targets are not often met. The
Government has redefined its privatization strategy recently
and is willing to privatize all non-strategic companies; in
strategic companies, including those involved in the arms and
ammunition, defence, atomic energy and railway transport
sectors, the Government will reduce its equity to 26%, or lower
in some cases.
Efforts are also under way to modernize India’s laws dealing
with competition and industrial “sickness”, while new measures
have been taken to strengthen corporate governance. A new
Competition Bill, which would replace the current Monopolies
and Restrictive Trade Practices (MRTP) Act, is currently being
examined in Parliament. The Bill aims, inter alia, to check the
abuse of dominant positions and establish procedures dealing
with mergers and acquisitions. When enacted, the Bill will also
establish a new Competition Commission. Amendments were
also made in 1999 and 2000 to the Companies Act, to improve
corporate governance.

In view of the need to curb the fiscal deficit, tax reforms are
being pursued. Complexities in the excise tariff structure have
gradually been reduced, with a view to moving to a standard
rate of 16% and ultimately to a value-added tax system.
However, attempts to convert the state sales tax into a value-
added tax have had less success; this has been postponed twice
since the original deadline of 1 April 2001. Efforts are also being
made to reduce explicit subsidies, which account for some 1.2%
of GDP in 2001/02 (explicit and implicit subsidies, however, are
likely to be considerably higher, estimated at some 14.5% of
GDP at the time of the previous Review of India).

Since its previous Review, India has introduced amending laws

on intellectual property rights, including for trade marks, and
industrial designs; legislation to amend the Patents Act and on
Biological Diversity is currently in Parliament. Steps are being
taken to educate the public on the importance of compliance
with intellectual property rights laws, although enforcement
seems relatively weak.

Policy in the agriculture sector has been guided by domestic

supply and self-sufficiency considerations. Thus, the sector is
shielded through import and export controls, including tariffs,
state trading, export restrictions and, until recently, import
restrictions. With the removal of import restrictions, tariffs on
several agricultural products have been raised; as a result, the
overall average MFN tariff for agriculture has risen from 35% in
1997/98 to 41% in 2001/02, but is expected to fall to around
37.5% in 2002/03 with the passage of the Budget for 2002/03.
To encourage exports of agricultural products, the Government
has set up agricultural export processing zones.

Internally, despite some recent reforms, the sector remains

subject to a wide range of price and distribution controls. Price
controls are maintained for staples to ensure remunerative
prices for farmers. The Government also procures and
subsidizes the sale of certain commodities through the public
distribution system (PDS), which is targeted at low-income
families. The products currently supplied through the PDS
include wheat, rice, sugar, and edible oils. Over the years the
PDS has become more targeted, while procurement by
Government agencies has continued to increase (in part due to
a rise in minimum support prices). The result has been a
substantial increase in stocks, which greatly exceed the levels
considered necessary to ensure food security, and in the costs
associated with maintaining these stocks. Short-term measures,
such as selling excess grain below economic cost, have been
undertaken, but longer-term policy changes would seem
necessary.

In manufacturing, which is dominated by textiles and clothing,

there has been a decline in the use of industrial policy,
including industrial licensing and small-scale-sector
reservations. In addition, the removal of import restrictions in
2001 has further opened the market to international
competition. Tariffs remain high, averaging 32.5% in 2001/02.

Textiles and clothing accounts for around 30% of India’s total

merchandise exports. Exports go mainly to the European Union
and the United States, both of which maintain restrictions
under the Agreement on Textiles and Clothing (ATC). In
preparation for the removal of such restrictions, and to improve
the sector’s competitiveness, a number of measures have been
taken recently. These include removal of some textiles and
clothing products from the list of items reserved for the small-
scale sector, and removal of foreign equity restrictions (with a
small number of exceptions). The new Textile Policy also
acknowledges the need to restructure, or close down, non-
viable units, while ensuring adequate compensation for
displaced workers.

Significant reforms have been pursued since the previous

Review, especially in telecommunications, financial services
and, to some extent, in infrastructure services, such as power
and transport. Liberalization in the telecommunications sector
began in the early 1990s, with licences being issued to private
investors for cellular telephone services. Since then, private
investment has been allowed in all telecommunication services.
The resulting increased competition from private service
providers, as well as efforts by the regulator to rationalize
tariffs and reduce cross-subsidization between local and
international rates, has contributed to a significant
improvement in India’s telecommunications service network
and to a reduction in tariffs.

The reduction in telecommunication tariffs is likely to benefit

the software sector, one of the major success stories in recent
years. This success is in part due to India’s abundant supply of
relatively high-skilled and low-cost labour; compared with other
sectors, software has also been relatively free of barriers to
trade and investment. The Government does, however, provide
support to the sector, including through tax and tariff
exemptions, and software technology parks. Recognizing the
linkages between software and telecommunications, the
Government recently merged the Ministries of Information
Technology and Communications and has introduced a new
Communications Convergence Bill in Parliament.

The banking sector has been subject to gradual reform since the
early 1990s. The most recent developments include measures to
reduce the level of non-performing loans, especially in public-
sector banks, and to restructure three public-sector banks. The
Reserve Bank of India, which regulates the banking sector has
also strengthened prudential requirements, including raising
minimum capital and capital adequacy ratios. Supervision of
banking and non-bank financial companies is based on both on-
site and off-site monitoring on a regular basis. Key challenges
continue to be the high level of non-performing loans and the
restructuring of weaker public-sector banks. The insurance
industry has recently been opened to competition from the
private sector and new licences have been issued to private
companies; foreign equity is restricted to 26% of the total. The
role of the regulator, the Insurance Regulatory and
Development Authority (IRDA), has been enhanced.

Infrastructure remains a major constraint on economic activity

in India. Major shortages in the supply of electricity have
resulted in the use of captive generation. The main suppliers of
electricity, the state electricity boards (SEBs), have run losses,
estimated in 2000 at around 1% of GDP, partly as a result of
subsidized tariffs to the agriculture sector. Recent reforms have
concentrated on addressing the issue of cross-subsidization of
tariffs, through the establishment of regulators and reform of
the SEBs; in addition, foreign investment restrictions in
transmission were removed. In transportation services, the
current Railway Budget has revised the tariff structure,
reducing the cross-subsidy between freight and passenger
transport; investment by the private sector has also been
allowed. The private sector has also been encouraged to invest
in the development and operation of national highways.

India’s economic reform programme resulted in strong

economic growth throughout the 1990s despite external shocks.
The recent slowdown, although partly due to the overall
slowdown in the world economy, also demonstrates the
necessity of continuing these reform efforts. In its recent
annual Economic Survey, the Indian Government acknowledges
the importance of "providing the right environment" for Indian
industry to compete internationally and to raise annual real
economic growth rates. The approach paper for the Tenth Five
Year Plan (2002-2007) argues that the scope for efficiency
improvement is large, but can only be realized if “policies are
adopted which ensure such improvement”.

While the process of dismantling some of India’s complex

system of trade and domestic controls has already yielded
considerable results, there is a need for domestic structural
reforms to be deepened and completed. In particular, difficult
decisions are required to redress the fiscal imbalance, by
reducing subsidies, completing the process of tariff and tax
reform, and stepping-up privatization of state-owned
enterprises. A reduced fiscal deficit is also likely to improve the
investment climate and free resources for private and public
investment, particularly in infrastructure services, which have
become a major bottleneck to economic growth. Important
steps have already been taken recently, including the
introduction in Parliament of legislation on competition policy,
changes in the Companies Act, and a decision to introduce
changes in labour laws. Continued efforts to open the economy
to international competition are likely to result in higher
economic growth and a further rise in per capita incomes.

Government report back to top

TRADE POLICY REVIEW BODY: INDIA

Report by the Government — Part 18

Impediments to the growth of India’s international trade

New tariff barriers faced by Indian products in various overseas

markets are severely constraining our exports. These barriers
may broadly be enumerated as: (i) restrictive import policy
regimes (import charges other than customs tariff, quantitative
restrictions, import licensing, custom barriers); (ii) standards,
testing, labelling and certification (including phytosanitary
standards), which are set at unrealistic high levels for
developing countries or are scientifically unjustified; (iii) export
subsidies (including agricultural export subsidies, preferential
export financing schemes etc.); (iv) barriers on services (visible
and invisible barriers restricting movements of service
providers, etc.); (v) government procurement regimes; and (vi)
other barriers including anti-dumping and countervailing
measures.

Quantitative restrictions, especially in the textiles area, are

one of the most important of the non-tariff barriers affecting
India’s trade. The major trading partners of India have not
made any industrial adjustment nor have accorded any
meaningful access to developing countries like India. The
integration programme implemented by the importing countries
has not been in line with the spirit of the Agreement on Textiles
and Clothing (ATC), though it may have conformed to the
narrow technical and legal requirements of the Agreement. In
the first stage starting from 1 January 1995, major restraining
countries integrated no product under restraint for India; and in
the second and third stages, integration of restraint products
has been negligible. The result is that even in the tenth year of
the transition period, more than 95% of India’s apparel and yarn
trade would remain un-integrated with some of its major
trading partners. Further, the integration schedules have a
greater concentration of low value added products. It is, thus
obvious that the major importing countries have continued to
back load the integration process and the bulk of integration
would take place only at the conclusion of the transition period.

Another problem in the area of textiles exports is unilateral

changes introduced by certain trading partners in their rules of
origin. These changes have adversely affected exports of
textiles and India’s rights under the ATC including the full
utilization of quota. Repeated anti-dumping investigations on
the textile products like cotton fabrics and cotton bedlinen, in
which India enjoys a measure of comparative advantage, had a
debilitating effect on the Indian textile industry and exports.
The export of textile products has also been affected because
of ban on use of Azo dyes.

Another area of concern regarding market access for textile

trade is an increasing tendency to enter into bilateral pacts for
conferring selective liberalization of quotas. The tariff
preferences have also been extended bilaterally, which are
otherwise meant to be provided to all developing countries on a
non-reciprocal basis. There is also a growing regionalization of
textile trade on account of formation of Free Trade Areas and
Preferential Trading Arrangements. It is estimated that 59% of
world trade in textiles is presently taking place under RTAs.
Such localization of world textile trade is adversely affecting
India’s textile trade.

In a number of other product sectors of export interest to India,

market access has been affected by several non-tariff measures
(NTMs). In the agricultural product sector, there are barriers to
export of mangoes and other fruit on account of insistence of
some of our major trading partners to use only the Vapour Heat
Treatment (VHT) procedure. In the floriculture sector, there
are certain plant quarantine procedures in some importing
countries including zero tolerance for some insects and pests,
which affect our market access. The export of Indian milk
product is affected on account of certain conditions like proof
of absence of TSE/Scrapie in India insisted upon by some
trading partners. There is continuing ban on import of Indian
meat by some countries even though India has been free from
rinderpest for the last three years and the same has been
published in the OIE bulletin released from Paris. There are
different regulations on use of pesticides and pesticides
residues by various importing countries, which has affected
market access of Indian products like grapes, egg products,
gherkins, honey, meat products, milk products, tea, and spices.
Non-harmonization of regulations for approval of exporting
units of Indian egg products and non-approval of Indian egg
processing establishments by one of our major trading partner is
 another market access barrier. In the leather products sector,
Indian exporters face NTMs like chemical and dye content of
leather, other standards (like different shoe size standards,
more than appropriate stringent standards for flex testing,
tearing strength, colour fastness and flammability testing),
packaging and labelling requirements (like insistence on use of
recyclable card boxes for packing footwear, at times insistence
on reshipping the packaging material back to the point of
origin), violation of MFN and national treatment (for instance
testing, double certification and standards compliance may not
be mandatory or as strict for local manufacturers or for some
other exporting countries), visa restrictions and other import
bans (like ban on use of Nickel in footwear, ban on use of colour
pigments with additive base). Unreasonable social security
requirements and visa restrictions enforced by some of our
major trading partners have affected the growth of our
software exports. The requirement of assembly of bicycles
according to the security and safety norms of a trading partner
in a discriminatory manner and need for a certificate of
compliance by an authorized organization has severely affected
market access of Indian bicycles to that country. The
illustrative examples of NTMs given in this paragraph indicate
the significant financial and time costs, which have adversely
impacted on the market access for Indian goods and services.

World Trade Organization (WTO) & India

Guest Column by Hari Sud

India’s Commerce Minister Kamal Nath walked out of WTO meet in Geneva on June 30,
2006 and returned home. It was a well-orchestrated policy to let the West (all the leading
industrialized nations) know that India and other developing countries (LDCs) are no
longer a push over. The sticking point at this time has been the huge farm subsidies,
which the West provides to its farming sector. Massive farm subsidies undercut the
competitors and prevent the rest of the world from enjoying benefits of trade. This
impasse will persist until the West works harder to level the playing field and help
liberalize the trade. Geneva meet has ended. Both the developed countries as well as the
LDCs (through a group called G-20) are internally busy to consolidate their respective
position before the next ministerial meet. Failure to reach a deal by yearend will prevent
the US and the EU, enjoying greater benefits of trade liberalization. Their industrial
products, which is the other side of the trade off on farm subsidy cut, will continue to
face import restrictions in the LDCs.

What is WTO?

It is a 149-member organization with Pascal Lamay as its head. It represents all the
trading nations of the world, who import-export goods & services. Created on Jan1, 1995,
it was considered the biggest reform in trade since WWII. Its predecessor, GATT
(General Agreement on Tariff & Trade), had a tumultuous 47 years history. GATT made
a beginning in 1948, and provided a framework for trade expansion vis-à-vis removing
barriers on free movement of goods and services. It provided platform for 8 trade
negotiations in its checkered history until 1994, the last trade negotiations the Uruguay
Round, resulted in the creation of WTO. In each of these ‘Rounds’ (high level
negotiations), the West, mostly Europe, Japan and North America negotiated trade deals
with themselves in mind. The developing world including India, China, most of Africa
and Latin America were forgotten as backward and without any clout. For Example, the
Kennedy Round of 1963 quadrupled the world trade. At that time India and China had
not emerged and hence did not figure in the world trade talks. Tokyo Round of 1973-79
quadrupled the already quadrupled world trade in last 25 years. In each case tariffs and
trade distorting subsidies were progressively reduced on industrial goods & services. The
West enjoyed unprecedented prosperity. US & Japan were the biggest gainers, followed
by the all the nations of the Europe. Poor countries stayed poor. Nobody spoke on their
behalf, and they had no clout to make their presence felt. There are simple reasons for
that. First, the poor countries had no money to compete in the international market with
quality goods, second subsidies provided by the nations to encourage development after
WWII made their products much cheaper. Hence a die was cast for poor to stay poor. In
1982, China burst on the international trade scene. In 2002, India became an upcoming
star for the world to take note. Hence a new trade body was needed to regulate and
encourage trade. Hence at the Uruguay Round, a decision was taken to set up a new body
(WTO) to manage the growing trade.

Special Mention of Doha Round

Doha Round deserves special attention, as it is the first trade related conference after
GATT was re-incarnated into WTO. At a ministerial conference in Doha, Qatar, WTO
member countries, 149 in all, agreed to launch new trade negotiations. This time it was
different, India and China had emerged on the scene as major trading nations. Also the
developing world was not going to sit around idly and watch as the West implement trade
policies favoring them-selves. In short, developing countries made it clear that unless the
developed world allowed them greater access to their markets, there will be no changes to
the multilateral trading framework. A bunch of nations (G-20) spearheaded this policy
with India & Brazil as its leaders. The G-20s approached the negotiations with the
developed world with three main areas of unhappiness:
 • Discriminatory tariffs on goods and services between developed world and the
developing world as against tariffs they use between themselves. This prevented a
level playing field for all the developing nations of the world.
• Farm subsidies, which the developed world gives to its farmers, distort the cost
structure. Agricultural production in EU & USA is heavily subsidized. These
subsidies have been in place for decades. Major beneficiaries of these subsidies
are US corporate farmers, and French farm and processing sector in the EU. With
these subsidies in place the developing world loses its advantage. Additionally
farm imports from developing world are under heavy tariff, which effectively
keeps these products out.
• A major irritant in the trade policies have been the textile exports. Quota system
effectively killed any cotton textile business from prospering in the developing
world. Luckily, the EU & US relented on these policies. As of last year this policy
has been disbanded.

Doha Round discussions began with this background. WTO intentions were good except
these could not be translated into concrete policies. These irritants have resulted in the
deadlock in negotiations. Brazil the most efficient agricultural products producer has
concentrated its energies during Doha Ministerial discussions on reduction in farm
subsidies in EU and US. India & Pakistan are concentrating on textiles and farm produce.
Additional trade concessions on service sector have also been sought by India. The
service sector is the key to India’s future as an economic power.

The Current Impasse and the Looming Time Table of 2006

The trade discussions take long-long time to make even a small headway. Ministers, who
discuss at the meetings, revert back & forth on their position as their home governments
like or dislike progress at the talks. The current inconclusive talks in Geneva were the
continuance of earlier talks in Hong Kong. The latter were also inconclusive. Politically
developing countries are unlikely to accept any formula on their industrial tariffs, without
corresponding cuts by the developed countries in subsidies and tariffs. Anything less will
be a political suicide for any political system in a democratic country. But there is a
deadline looming. The present US President has been empowered by the US Congress to
finish trade negotiations by middle of 2007 and present them with a trade deal, for an up
or down vote. This fast track mechanism has actually simplified trade negotiation process
with the world’s biggest trading nation i.e. US. In order for that to happen, virtually all
trade discussions have to be completed by end of 2006. This deadline is driving all the
current hectic activity. US being the most powerful of all the trading nations and with its
currency as the basis of trade deal settlement is in the driver’s seat.

Agriculture is at the heart of this round of talks. Consider these few statistics:
Agricultural trade is about $800 Billion worth worldwide. It is about 9% of the world
total trade. Unfortunately it is the most protected sector. EU is the largest trader in
agricultural products including internal trade between member countries. It exports $350
Billion worth of agricultural products (including internal trade) and imports about $380
Billion. US are distant second with $80 Billion in agricultural exports. The sticking point
is amount of subsidies and tariffs to be cut by both EU & US. G-20 has urged EU to cut
54% of its tariffs on agricultural products and US to slash 75% of its agricultural
subsidies. These are unacceptable to the EU & US. In return they have offered 39%
reduction in tariffs and 53% reduction in subsidies.

The above gap, in what the developing countries want and what the developed countries
have offered has not changed one bit in last six months of negotiations, hence the angry
walk out by the India’s Commerce Minister from the Geneva discussion. Although the
Western media heralded it as an astringent Indian attitude yet the truth is otherwise.

If no deal is reached and the US Congress deadline passes then this missed opportunity
will not herald an end of the world trading system. Trade will continue as before. But its
expansion may not be as dramatic as one would hope. Next opportunity may not arise for
a decade or so. At that time, another ‘Round’ of discussions will be initiated and US
Congress may empower its president to give another opportunity to negotiate a fast rack
trade treaty.

Success or Failure of these Talks

In macro terms, India’s Commerce Minister laid out the impact of these talks on India.
He said that success would mean that India could hope to boost its growth from about 8%
to 10-11% in five years. Failure could take away a percentage or two from its growth.
Hence stakes for India are very high. Similar benefits will accrue for Brazil, Pakistan, and
South Africa. Other smaller nations will enjoy benefits in varying degrees. For the
developed world of EU, and US, there will be a great satisfaction with the opening up of
the markets, which hitherto have been closed. Industrial activity in Europe & US will
multiply. As the developing world exports more, they will import more of West’s
industrial goods & services. Hence, benefits to both groupings are huge. World trade
could see a multifold expansion in twenty years.

World Bank has estimated that freeing trade of all barriers & subsidies, about 320 million
people, living on $2 a day will be lifted out of the poverty line in about ten years. Other
analysts have put a higher figure of 440 million. With that kind of possibilities, success at
these negotiations is of great importance. Although, next ministerial discussions of WTO
have not been scheduled yet both sides are busy re-evaluating their position. Soon they
will meet again with upcoming deadline in mind. In any trade talks progress is slow. In
these talks, the fundamentals have already been sorted out. It is the details, which are a
contentious issue. Soon these will be sorted out too.

Challenges Within the EU Community, which are hindering Trade Talks

EU Commissioner holds the mandate to negotiate on behalf of the 25 member nations,

but its hands are tied. The Common Agricultural Policy (CAP) of EU and its reform may
present a big hurdle. EU also knows that in order to get a better access for its industrial
goods, they have to give up something. None of the member nations are willing to give
up anything. Hence it may cause split on national lines. France, a major agricultural
products producer would veto any deal, which contains a significant subsidy cut. On the
other hand Briton and Germany would prefer reduced tariffs worldwide for their
industrial products. In short, there is unlikely be a deal in the agricultural sector without
French being on board. They are unlikely to be onboard without private incentives to
them from within the EU. So far nothing has happened. EU commissioner is shuttling
between capitals looking for an opening to break the impasse. He has not succeeded so
far.

Is failure of Trade talks an Option?

If the talks fail, credibility of WTO will at stake. Nobody will take it seriously anymore.
Bilateral trade agreements between nations will proliferate. This will circumvent the
whole concept of multi-lateral trade co-operation. A huge market opening opportunity
will be missed and all that have been accomplished in prior discussions may or may not
be salvaged. In the absence of a global instrument, trade dispute resolution may also
suffer. Worst impact will be on the developing countries. Their chances of progress will
be curtailed. All the above will reflect poorly on WTO.

Let us hope that these talks succeed. It is in the greater interest of developed and the
developing countries that this impasse is broken. Next such opportunity may be a decade
away. At that time new realities will have to be taken into consideration. Some of the
developing countries like India & China may ask for bigger piece of action. The West
again may refuse and impasse may continue. By then WTO will be irrelevant and would
have to be re-incarnated into something else. In the preceding years bilateral trade
agreements will take the place of multi-lateral agreements. These bilateral agreements
will be harder to circumvent, should any time in future WTO agreement is negotiated.

http://www.southasiaanalysis.org/%5Cpapers19%5Cpaper1879.html

Slide 16:The World Trade Organization is an international organization

which was created for the liberalization of international trade. The World
Trade Organization came into existence on January 1st, 1995 and it is the
successor to General Agreement on Trade and Tariffs (GATT). The World
trade organization deals with the rules of trade between nations at a global
level. WTO is responsible for implementing new trade agreements. All the
member countries of WTO have to follow the trade agreement as decided
by the WTO.

Slide 17:Highest Level: Ministerial ConferenceThe Ministerial Conference

is the top most body of the WTO, which meets in every two years. It brings
together all the members of WTO. Structure of the WTO:
Slide 18:Second Level: General CouncilThe General Counsel of the WTO
is the highest level decision making body in Geneva, which meets regularly
to carry out the functions of WTO. Third Level: Councils for TradeThe
Workings of GATT, which covers international trade in goods, are the
responsibility of the Council of Trade. Fourth Level: Subsidiary
BodiesThere are subsidiary bodies under the various councils dealing with
specific subjects such as agriculture, subsidies, market access etc.

Slide 19:Benefits Of WTO 1 It helps promote peace and prosperity across

the globe. 2 Disputes are settled amicably. 3 Rules bring about greater
discipline in trade negotiations, thereby reducing inequalities to a large
extent. 4 Free trade reduces the cost of living and increases household
income. 5 Companies have greater access to markets and consumers
have wider range of products to choose from. 6 Good governance
accelerates economic growth

Slide 20:India and WTOIndia is one of the founding members of WTO

along with 134 other countries. India's participation in an increasingly rule
based system in governance of International trade, would ultimately lead to
better prosperity for the nation. Various trade disputes of India with other
nations have been settled through WTO. India has also played an
important part in the effective formulation of major trade policies. By being
a member of WTO several countries are now trading with India, thus giving
a boost to production, employment, standard of living and an opportunity to
maximize the use of the world resources