World Trade Organization (WTO)

The World Trade Organization (WTO) is the global international organization dealing with the
rules of trade between nations. It  is an intergovernmental organization that is concerned with the
regulation of international trade between nations. officially commenced on 1 January 1995 under
the Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest
international economic organization in the world. The WTO deals with regulation of trade in
goods, services and intellectual property between participating countries.

Functions of WTO in international business

 To look after the administration of agreements signed at the Uruguay Round: In the
Uruguay Round, new agreements such as the General Agreement on Trade in Services
(GATS) and the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS) and Trade Related Investment Management System (TRIMS) were negotiated.
All the three major agreements along with their associate agreements now rest under the
umbrella organization, namely the WTO.
 WTO facilitates implementation, administration and smooth operations of trade
agreements between the countries.
 It provides a forum for the trade negotiations between its member countries.
 Settlements of disputes between the member countries through the established rules and
regulations.
 It cooperates with the IMF (International Monitory Fund) and World Bank in terms of
making cohesiveness in making global economic policies.
 To provide a global platform where member nations continuously negotiate the exchange.
 Examine foreign trade policies of the member nations, and to see that such policies are in
tune with WTO ‘s guidelines.
 Provide necessary consultancy to the member nations on the development in the world
economy.
 Role of WTO

 Resolving disputes
 Consultancy
 Helps to run smooth and fair operations: The main goal of WTO is to help the
countries involved in international trade to run their operations fairly and smoothly.
 Trade without discrimination: Under the WTO agreements, countries engage in
international trade cannot normally discriminate between their trading partners. Grant
someone a special favor such as a lower customs duty rate for one of their products that
practice is considered unfair so you have to do the same for all other WTO members.
 Lowering trade barriers through negotiation: Lowering trade barriers allows trade to
increase, which adds to increase national incomes and personal incomes. WTO tries to
minimize these barriers so as to enhance free trade.
 Promoting fair competition: Although WTO is described as a “free trade” institution,
but on the other hand it is also a system of rules and regulations for international trade to
promote fair competition.
 Stimulate economic growth and employment: WTO system motivates the member
countries to produce high quality goods by using latest technology and skilled labor.
These results in high profits for the Countries engaged in international trade which
ultimately improves their economy and creates new employment opportunities.

Implications/Role of WTO in Indian economy

The WTO has both favorable and non-favorable impact on the Indian economy.

A. FAVOURABLE IMPACT
1) Increase in export earnings:
General Agreement on Tariffs & Trade (GATT): Increase in export earnings can be
viewed from growth in merchandise exports and growth in-service exports:
 Growth in merchandise exports: The establishment of the WTO has increased
the exports of developing countries because of reduction in tariff and non-tariff trade
barriers.
  Growth in service exports: The WTO introduced the GATS (general Agreement on
Trade in Services) that proved beneficial for countries like India. Services exports
account for 40% of India's total exports of goods and services.  India's exports are mainly
in the IT and IT enabled sectors, Travel and Transport, and Financial sectors. 
2) Agricultural exports:
Agreement on Agriculture (AOA): Reduction of trade barriers and domestic subsidies
raise the price of agricultural products in international market, India hopes to benefit from this in
the form of higher export earnings from agriculture. This will benefit India because All major
agricultural development programs are exempted from the provision of WTO agreement.

3) Textiles and Clothing: Multi-Fiber Agreement (MFA): This agreement is

dismantled with effect from 1 January 2005. The result was removal of quantitative restrictions
on the textile imports in several European countries. As a consequence, a huge textile market is
opened up for developing countries textile industry as well as for other countries that have
competitive advantage in this area. The immediate impact is on the garment and textile
manufacturers and exporters. It will help the developing countries like India to increase the
export of textiles and clothing.

4) Foreign Direct Investment: Trade Related Investment Measures (TRIMS):

As per the TRIMs agreement, restrictions on foreign investment have been withdrawn by the
member nations of the WTO This has benefited developing countries by way of foreign direct
investment, euro equities and portfolio investment.

5) Agreement on Sanitary and Psyto-sanitary measures (SPM): This agreement

refers to restricting exports of a country if they do not comply with the international standards of
germs/bacteria etc… if the country suspects that allowing of such products inside the country
would result in spread of disease and pest, then there is every right given to the authorities to
block the imports.
Indian standards in this area are already mentioned and therefore there is no need to change the
law, but the problem is that of strictly implementing the laws. There is an urgent need to educate
the exporters regarding the changing scenario and standards at the international arena, and look
at the possible consequence and losses to be incurred if the stipulations are not followed.
Therefore, to meet the standards certain operational changes are required in the industries such as
food processing, marine food and other packed food that is being currently exported from India.

UNFAVOURABLE IMPACT
Trade Related Intellectual Property Rights (TRIPS): Protection of intellectual
property rights has been one of the major concerns of the WTO.As a member of the WTO, India
has to comply with the TRIPs standards. However, the agreement on TRIPs goes against the
Indian patent act, 1970. As a result, in India there was a requirement to change the patents act,
Trade and merchandise mark act and the copyright right act. Besides these main laws, other
related laws also required changes.

TRIPS negatively impact the following sectors of India economy:

Pharmaceutical sector: Indian pharmaceutical company only needed to develop and patient
a process to produce and sell the drugs. India companies were in a positions to sell quality drugs
with low cost in domestic as well as in foreign market but under the agreement of TRIPS,
product patents need to be granted which will benefit the MNCs and will increase the price of
medicines heavily. Many India companies may be closed or take over by large MNCs.
Agriculture: The agreement of TRIPS extends to agriculture through the patent of plant
varieties. Patenting of plant varieties may transfer all gains in hands of MNCs who will be in a
position to develop almost all new verities with the help of their large financial resources and
expertise.

Non-tariff barriers: Several countries have put trade barriers on non-tariff barriers.
This has affected the export from developing countries.
 Organizational structure
The General Council has the following subsidiary bodies which oversee committees in different
areas:

Council for Trade in Goods

There are eleven committees under the jurisdiction of the Goods Council each with a specific
job. All members of the WTO (World Trade Organization) join the committees. The body has its
own chairman and 10 members. The body also has several groups relating to textiles and
clothing.

Council for Trade-Related Aspects of Intellectual Property Rights

Information on intellectual property in the WTO (World Trade Organization), news and official
records of the performance of the TRIPS Council, and details of the WTO's work with other
international organizations in the field.

Council for Trade in Services

The Council for Trade in Services operates under the control of the General Council and is
responsible for overseeing the functioning of the General Agreement on Trade in Services. It is
open to all WTO (World Trade Organization) members, and can create subsidiary bodies as
required.

Trade Negotiations Committee

The Trade Negotiations Committee is the committee that deals with the current trade talks round.
As of June 2012 this committee was tasked with the Doha Development Round. The Service
Council has 3 subsidiary bodies, domestic regulations, financial services, GATS rules and
specific commitments. The council has several different committees, and working parties
working groups. There are committees on the following: Trade and Environment; Trade and
Development, Regional Trade Agreements, Balance of Payments Restrictions, Finance and
Administration and Budget. There are working groups on the following: Trade, Trade and
technology transfer, debt and finance.
Ministerial Conference
The highest decision-making body of the WTO (World Trade Organization) is the Ministerial
Conference, which generally meets every 2 years. It brings together all members of the WTO.
 In 1996, the inaugural ministerial conference was held in Singapore. Disagreements between
mostly developed and developing economies emerged during this conference over 4 issues which
were initiated by this conference, which led to them being collectively referred to as the
Singapore issues.

 In 1998 the 2nd ministerial conference was held in Geneva in Switzerland.

 In 1999 the 3rd conference in Seattle, Washington ended in failure, with massive
demonstrations and police and National Guard crowd-control efforts drawing worldwide
attention.

 In 2001 the 4th ministerial conference was held in Doha. The Doha Development Round was
launched at the conference. The conference also approved the joining of China, which became
the 143rd member to join.

 In 2003 the 5th ministerial conference was held in Mexico, Cancun, aiming at forging
agreement on the Doha round. An association of 22 southern states, the G20 developing nations,
resisted demands from the North for agreements on the so-called Singapore issues and called for
an end to agricultural subsidies within the EU and the US.

 In 2005, the 6th WTO (world Trade Organization) ministerial conference was held in 13 to 18
December 2005 in Hong Kong. It was considered very important if the 4-year-old Doha
Development Round negotiations were to move forward adequately to conclude the round in
2006. In this meeting, by the end of 2013, Nation agreed to phase out all their agricultural export
subsidies, and terminate any cotton export subsidies.

 On 26 May 2009, the WTO General Council, agreed to hold a 7th WTO (World Trade
Organization) ministerial conference session in Geneva from 30 November to 3rd December
2009.