World Trade

Organization (WTO):
Principles, Agreements,
and Indian Economy

SHYAM SUNDER
 Introduction
st
Since 1 January, 1995, WTO is managing the
rules of the multilateral trading system under which
a nation can trade with most of the other nations
without entering into a bilateral treaty

• WTO is successor of General Agreement on

Tariffs and Trade (GATT) which provided rules for
multilateral trading since 1948.

• GATT, through it different rounds of negotiations,

evolved these rules. But, these rules mainly dealt
with trade in goods only and could not cover other
evolving features overtime like trade in services and
trade in IPRs
 The Uruguay Round (1986-1994)
• It was the last round of GATT talks where the
limitations of GATT discussed in detail.

• In 1994, when the round ended, it brought an end

to the existence of GATT and replaced it with WTO
under the Marrakesh Treaty, 1994.

•Most important agreements on WTO like that

related to agriculture and Intellectual Property Rights
(IPRs) were also framed during this round.

•Developed countries play crucial role in framing

these agreements even if many developing
countries and LDCs were signatories.
 Principles of WTO
1. Free Trade, particularly through decline in Tariff
and Non-Tariff Barriers (NTBs) to trade.
• Tariff barriers impact trade through taxes like
custom duties while NTBs are barriers other than
taxes like quota or quantitative restrictions.

2. Fair Trade: It ensures fair competition among the

WTO members by minimizing unfair trade practices
like dumping and exports-subsidies.

3. Predictable Trade Rules i.e. rules related to

increase in tariffs or NTBs should not be changed
arbitrarily
4. Trade Without Discrimination
• This principle involves two requirements:
(i) Most-Favoured Nation (MFN): It means that a
trade concession granted by a WTO member to
the other member (e.g. through a lower custom
duty) should be extended to all WTO members.
• Some exceptions to MFN principles are the goods
being traded in the free trade agreements in a
region or when goods from some developing or
underdeveloped countries are given special access.

(ii) National Treatment: It requires equal treatment of

the imported goods with the domestically produced
goods in the domestic market.
• Such a treatment should ideally be extended to
services and IPRs also.
Developed, Developing &Least Developed Countries
• WTO does not define the developed & developing countries.

•In World Bank classification, developed countries are the ones

with higher per capita income (at least 20, 000 USD in 2021),
highly industrialized, & having high HDI values.

•Least Developed Countries (LDCs) have per capita income

less than 1025 USD, with lower HDI values & face some
economic vulnerability in terms of overdependence on some
agricultural production and exports

• Developing countries are placed in between these two

extreme classification. Even if per capita income of the
developing countries are higher than LDCs, these countries
often are highly dependent on agriculture, particularly in terms
of employment.
Conflict between Developed & Developing Countries in WTO
• A major source of conflict arises due to difference in their
exportable goods. While developed countries’ comparative
advantage lies mainly in industrial goods, developing & LDCs
expertise in agricultural goods.

• While free trade brings more advantages to industrial goods

exports due to higher price & income elasticities of demand, the
agricultural exports lack these benefits.
•To make matters worse, some developed countries like U.S &
E.U countries highly subsidize their agriculture.

•Developed countries often demand lower tariff & NTBs from

developing & LDCs, mainly for their industrial exports. Developed
countries also expect strict protection of intellectual property &
liberal investment climate in other countries.

•Thus, free trade benefits developed countries more than

developing & LDCs.
WTO Agreements
• Some important agreements of WTO are:
1. Agreement on Agriculture

2. Agreements on Trade Related IPRs (TRIPs)

3. Agreement on Trade Related Investment

Measures (TRIMs)

4. General Agreement on Trade in Services

5. Agreement on Sanitary and Phytosanitary

Measures
Agreement on Agriculture, 1995
•Agricultural Trade brought under rules of multilateral
trading system for the first time

• Purpose: Liberalisation of agricultural trade for benefit of

WTO members, particularly developing countries having
comparative advantage in agriculture

• 3 important clauses of AOA:

1. Improvement in Market Access:
• Removal of Non-tariff Barriers and their conversion
into equivalent tariff barriers (Tariffication Process)
• Bound or Maximum Tariff to be reduced

2. Export Competition
• Reduction in Budgetary expenditure on Export
promotion like Export subsidies
• Reduction in quantity of subsidised exports
3. Reduction of Domestic Subsidies
•Classification of Domestic Subsidies in 3 Boxes:
1. Green Box
• Non-trade distorting subsidies like agricultural research,
training etc. not related to Price-support
• Exempted from any reduction commitments
2. Blue Box
• Subsidies related to production-limiting programmes, not
related to production or prices
• Also exempted from reduction commitments
3. Amber Box
• Trade-distorting subsidies quantified as Aggregate
Measures of Support (AMS)
• AMS includes Product-Specific Support i.e. government
paying higher price than market price to producers and
Non-Product Specific support like input subsidies
• De-Minimis Support
•Refers to total value of AMS that does not exceed
5% of value of total agricultural production for
developed countries & 10% of value of total
agricultural production for developing countries
•WTO members not required to reduce AMS if
given below De-minimis level
• If AMS is more than such level and is not linked
to Third World development then the following
reduction commitments were applied:
Developed Countries (20% over 6 years)
Developing Countries (13.3% over 10 years)
• Indian Agriculture and WTO: Market Access
• India has removed all Non-Tariff Barriers by 2001 but Tariff
Barriers exist.
•Developed countries have criticised India for higher tariffs,
but their own tariffs(particularly in EU & Japan) in selected
product groups are higher than that of India
•Also, despite higher bound tariff in India, the applied tariff is
generally lower.
•India justifies higher tariff on account of not having access
to Special Safeguard Mechanism (SSM)
•Under SSM, a country facing significant increase in imports
of an agricultural good is allowed to increase tariff on that
good temporarily, so that there is no immediate negative
impact on the welfare of the farmers
• In Uruguay Round, SSM facility was made available only to
those countries which completed tariffication by 1994 &
India, being new to LPG Reforms could not do it
• Despite India being promised SSM facility in Hong Kong
Ministerial (2005) & Nairobi Ministerial (2015), it has not
been legally made available.
Subsidies Reduction under WTO
• India was giving minimal export & domestic subsidies in
1995 while developed countries like US & EU were giving
these in very high amounts
•India expected that once these countries reduce
subsidies, it will become more competitive in agricultural
exports along with less dependent on imports thereby
benefitting the Indian farmers
• But by Doha Ministerial, 2001, either developed
countries did not decrease subsidies or started
converting the Amber Box subsidies into Green Box
• This did not allow Indian Agriculture to benefit
•In Doha, US also linked such reductions to Non-
Agricultural Market Access (NAMA) issue.
•Under this, US agrees to reduce subsidies only if
developing countries decrease their tariffs on Non-
agricultural products like Industrial goods or goods in
forestry, fisheries etc.
Bali Ministerial, 2013 and Food Security Issue
• When WTO talks resumed in 9th WTO Ministerial almost
after a decade of conflict, US has challenged the MSP
related subsidy given by India.
•US claims that although Public Stockholding
Programmes for food security is part of Green Box, for this
the grains stocks should be acquired & distributed at market
prices. Since, India gives subsidy both to the farmers while
procuring grains (MSP) and to consumers under PDS, it
violates WTO principle
•Indian Claims: 1. Subsidies being criticised by US being
given for Food Security & not for distorting trade
2. These subsidies still below De-Minimis level & can legally
be continued by India
3. India should be allowed to give subsidies till a Permanent
Solution to subsidies issue is found. India refers to the
correction of subsidy formula where MSP related subsidies
are calculated through a external reference price for grains
with base year of 1986-88. Thus, such outdated price
inflates Indian subsidy
Food Security & Trade Facilitation Agreement
• WTO Director General had offered a Peace Clause at Bali to
resolve conflict on subsidies according to which India could have
continued with subsidies till 11th Ministerial and the issue to be
renegotiated then.
•India rejected Peace Clause demanding continuation of
subsidies without timeline.
•Finally Indian demand was met but only when India threatened
not to sign Trade Facilitation Agreement (TFA) proposed by
Developed countries unless Food Security demand is met
•Under TFA, developed countries have demanded that there
should be harmonization of custom rules and procedures across
all WTO members.
•Although it appears quite fair and it is claimed that it would
benefit all countries with higher volume of trade, its initial benefits
are primarily for developed countries with maximum trade share
• As India has signed TFA, now it is expected to cut red tapism in
its custom rules. India will also have to invest heavily in trade
infrastructure even if benefits would come over longer time-period
 Agreement on Trade Related Intellectual Property
Rights (IPRs) or TRIPs Agreement, 1995
•IPRs refer to legal protection given for certain time period
for some original work done in different fields.
•The justification for such protection is to encourage such
works in future & also allow the innovators to recover their
cost through the monopoly profits earned through protection.
• Trade related IPRs refer to conferring such protection even
in other countries when such goods or services associated
with IPRs are traded.
• Even before TRIPs agreement, such protection was
ensured for IPRs like Patents and Trade Marks through Paris
Convention, 1883 and for Copyrights through Berne
Convention, 1886.
• These conventions were relatively liberal and gave enough
flexibility to the importing countries
• TRIPs is different because (1) it has increased number of
IPRs to be protected &(2) Made IPR protection stricter
List of IPRs before TRIPs
1. Patents: It refers to protection given to some
original and significant innovation done in the field
of science & technology. Under TRIPs, it is given
for 20 years time period. e.g. Medicine patents
2. Utility Models: Similar to patents but given for
less significant innovation than patents. Protection
period is less than that of patents (7-10 years)
3. Industrial Designs: Protection given to certain
products for their unique external appearance
4. Trade Marks: This IPR links a product uniquely
with a producer through a sign, logo, phrase etc.
5. Copyrights & Related Rights: Copyright
protection is given to original works in the field of
art, literature etc. Related right is protection given
for less original works in similar fields.
TRIPs: (1) Additional IPRs
6. Geographical Indications: Similar to Trade Marks in concept,
but in GIs, a product is uniquely associated with a
geographical territory or a community
7. Trade Secrets: This IPR is associated with protection of
confidential business information like those related to a unique
program, or software etc. of a company
8. Layout designs of Integrated Circuits

TRIPs: (2) More Stringent Protection of IPRs

• Under TRIPs, more stringent IPR protection has mainly been
visible through shift from Process Patents regime to Product
Patents regime for drugs and medicines
• Under Process Patents regime before TRIPs, the process of
drug manufacturing could have been patented. This gave
flexibility to other pharmaceutical companies without patents to
manufacture same drug with a different process.
•This benefitted Indian Pharma Companies also who devised
alternate processes to manufacture cheaper medicines, both
for domestic purposes and for exports to LDCs
 Product Patents under TRIPs & Public Health
• With Product Patent requirement for drugs under TRIPs, the
flexibilities to the pharma companies are lost
• In Doha Ministerial, 2001, the issue related to conflict between TRIPs
& Public Health was also raised
• Under this, product patents of drugs can severely impact the
affordable access to crucial drugs to poorer population needing them
most, mainly in LDCs.
• Even in original TRIPs Agreement, an exception to product patents
was allowed under Compulsory Licensing (CL). Under CL the
government of a WTO member country can allow their domestic
pharmaceutical companies to manufacture a patented drug if that is
needed for some crucial purposes like affordable public health
requirements. But, CL was allowed only for domestic use of drugs not
for export purposes
• In Doha, developing and LDCs were demanding to change CL rules
in order to allow the drugs for exports also as many LDCs in need of
some crucial drugs were not having capability to manufacture them.
TRIPs & Public Health: Post-Doha Ministerial
• Initially developed countries opposed any changes to be made in
TRIPs but after increasing pressure, finally drugs produced under
CL were allowed to be exported as well.
• But, despite such changes, its implementation has remained
challenging. India wanted to have domestic production of an anti-
cancer drug, Nexavar that has been patented by Bayer, claiming
that its cost for the cancer patients is exorbitant.
• Despite being the first demand for CL made by India in two
decades, the move under criticism by countries like US which
claimed it to be weakening IPR protection.
• Finally NATCO produced generic version of Nexavar.
•India was given 10 years time period (till 2005) to comply to TRIPs
& it has been successfully done by India by making necessary
changes in Patents and Copyrights Acts. Even CL was allowed
under TRIPs both for domestic use & exports.
• Despite, TRIPs compliance, developing countries like India have
come under criticism for being poor implementers of IPR protection.
TRIPs-Plus Provisions
• Apart from CL issue, the pharmaceutical companies of the
developed countries are trying to find loopholes in the existing
TRIPs agreement.
• Most common example of that is Evergreening, a strategy under
which such companies which already has a patent protection on a
drug and the patent is nearing towards expiry, make some
marginal changes in the drug & apply for patent again. Such
sequential patenting strategy is violation of TRIPs.
• Supreme Court of India was hearing such case for another anti-
cancer drug Glivec, for which patent demand was made by
Novartis. Novartis already had a patent protection on similar drug
and wanted to get another extension with some minor changes
• Finally, SC rejected the demand claiming that a marginal
innovation can not be given patent protection.
•These examples of putting pressure on developing countries for
more stringent IPR protection regime than TRIPs, are called
TRIPs-Plus Provisions
• Till now Indian official stand has been that although India
complies to TRIPs but against TRIPs-Plus Provisions
General Agreement on Trade in Services (GATS)
• First agreement on multilateral trade in services. It divides tradable
services in to 4 modes on the basis of requirement of commercial or
physical presence of service provider from the exporting country
1. Mode 1 or Cross-Border Supply: These are services which can
be exported without need of commercial or physical presence of
service provider in the other country. e.g. IT, BPO Services, Air
Services etc.
2. Mode 2 or Consumption Abroad: Similar to Mode 1 as no
presence of service provider needed in other country, but here
the service consumer of the importing country has to consume it
in the exporting country. e.g. Tourism
3. Mode 3 or Commercial Presence: To export these services, at
least commercial presence of service provider is needed through
offices etc. e.g. Banking, Telecommunications
4. Mode 4 or Presence of Natural Persons: These services can
not be exported unless the service providers physically cross the
border to provide services. e.g. Skilled professionals like
engineers, doctors etc. providing services to other countries
GATS: Features- 1. General Obligations
• GATS should cover all 4 modes of tradable services
•MFN principle should also be applied to all modes of services
• Some exceptions to MFN are preferential trade agreements signed
bilaterally or in group for some time

2. Market Access Commitment & National Treatment

• Individual WTO members are also required to give market access &
NT to other members in specific services sectors
•These specific sectors will be decided through negotiations

GATS: 2. Implementation
• Since 1995, works related to establish disciplines in domestic
regulation of services had started i.e. the requirements which foreign
service suppliers have to meet to operate in market
• In 2000 &2001, MFN exempted services were discussed along with
emphasis on autonomous liberalization
• But implementation in terms of increasing coverage of liberalized
services has been limited. Still, only some Mode 3 services have been
liberalized leaving most of other services outside purview of GATS
 Trade Facilitation Agreement in Services: A Proposal
• In October 2016, India has proposed a new set of measures to
liberalize services trade on lines of TFA in goods
• The agreement proposes to include all 4 modes of services, but it is
not about seeking additional market access. Rather, it aims to make
existing market access more meaningful
• For Mode 3, it suggests streamlining the setting up of business
through a “single window”.
• For Mode 4, it suggests simplifying work permit & visa procedures &
ensuring that measures relating to taxation, fees & social security
contributions do not unfairly disadvantage foreign services suppliers
• Other suggestions include enhancing cooperation among authorities,
facilitating cross-border data flows, special & differential treatment for
developing countries
• The proposal has drawn a mixed response. Major industrialized
members like EU, Canada, Switzerland, Australia & New Zealand have
favoured it with some clarifications but US has been neutral
• But, many developing countries like South Africa & LDCs are still
doubtful if such agreement would impose burdensome commitments
on them
E-Commerce and WTO
• E-commerce includes production, distribution, marketing,
buying & selling of goods & services both within the business
community (B2B) & from business to consumers (B2C) by
electronic means, domestically & internationally.
• Its classification in WTO is difficult as it involves both trade in
goods & services. If it is linked to services, it can come under
GATS, otherwise under old provisions of GATT.
• E-commerce entered WTO in 1998, when members agreed
not to impose import duties on a narrow degree of e-commerce
i.e. digital transmissions. This is a temporary moratorium, which
is extended every two years. It was extended last time in 10th
Ministerial at Nairobi.
• In 11th Ministerial, 2017, developed countries have demanded
further liberalization of e-commerce related trade like to convert
temporary moratorium in to permanent one and expand
coverage of e-commerce beyond digital transmissions
 E-Commerce and WTO: Implications for India
• Although it is claimed that Indian industries will benefit from such
liberalization, there are many criticisms as well
• A permanent moratorium may result in higher revenue leakages from
India as digital transactions are increasing but most of e-commerce
services still controlled by foreign operators. If it is extended to goods,
such leakages can increase
• Apart from consumers, India’s domestic industries may also have
limited benefits. e.g. for MSMEs to benefit from it, India needs to build
up world-class soft infrastructure like internet & hard infrastructure like
speedier & cheaper handling of small consignments, legal framework,
taxation & administration etc.
• Market structure of e-commerce sector will make gains from its
liberalization limited to a few countries. Global e-commerce is driven by
China & US. Top 3 e-retailers worldwide (Amazon, JD & Apple)
capture more than 60% of market & for India such share is even higher
•Thus, liberalizing e-commerce trade is primarily going to benefit a few
countries & a few big companies & will also restrict government role in
such services needed for welfare of weaker sections of society.
Sanitary & Phytosanitary (SPS) Measures Agreement
• It sets out basic rules for food safety and animal & plant health
standards. Sanitary measures are linked to human & animal
health while phytosanitary measures are linked to plant health
• SPS measures are applied (a) to protect human or animal life
from risks arising from additives, contaminants, toxins or disease-
causing organisms in their food
(b) to protect human life from plant- or animal-carried diseases
(c) to protect animal or plant life from pests, diseases, or disease-
causing organisms
(d) to prevent or limit other damage to a country from entry,
establishment or spread of pests
• It allows countries to set their own standards, but such
regulations must be based on science.
• Members encouraged to use international standards where they
exist. Higher standards are allowed if there is appropriate
scientific justification & is consistent and not arbitrary
 Technical Barriers to Trade (TBT) Agreement
• TBT can be understood in relation to SPS. Under SPS if an
exporting country can demonstrate that the measures that it
applies to its exports achieve the same level of health protection
as in the importing country, then the importing country is
expected to accept the exporting country’s standards & methods
• But having too many different standards may discourage
producers & exporters & act as a barrier to trade
• TBT tries to ensure that regulations, standards, testing &
certification procedures, except those covered under SPS, do
not create unnecessary obstacles
• TBT measures can include pharmaceutical restrictions,
labelling requirements in food items, cigarettes etc., quality &
packaging restrictions in food items
•TBT committee is expected to collect & share information
related to changing regulations etc. so that exporters are aware
of the required standards &regulations
Agreement on Trade Related Investment Measures (TRIMs)
• The agreement recognizes that certain investment measures
can restrict & distort trade & thus should be prohibited
• Some of these prohibited TRIMs under agreement are:
(1) Local Content Requirements which requires particular levels
of local procurement by a foreign enterprise
(2) Trade Balancing Requirements which limits a foreign
company’s imports or set targets for exports by such
companies
• Developing countries & LDCs were given more time-period to
prohibit these measures than developed countries