To The ministry of commerce of the Government of

To
present the context of the relationship of India with WTO it could be said that
India has been a founding member of the WTO when it was started long way back
in 1970 s and besides this fact India has always been in favour of multilateral
trading with the other countries of the world. In order to achieve the gains
from WTO the government of India has announced the Export-Import policy
1992-1997 to liberalize trade and boost domestic manufacturing sector. The
ministry of commerce of the Government of India expects that by WTO India would
benefit by creating 10 million additional jobs annually and India’s market
share in world exports would improve.

So what is actually WTO and its
relevant policies?

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The World Trade Organization abbreviated as WTO is
an organization which is managed by the collaborative efforts of different
governments that regulates international trade. The WTO was officially
established on 1 January 1995 under the Marrakesh Agreement, signed by a
community of 123 nations on 15 April 1994. It is enumerated amongst the largest
international economic organization in the world and also WTO deals with
regulation of trade in goods, services and intellectual property between the
participating countries by providing them with a sound framework for
negotiating the trade agreements and a dispute resolution process aimed at
enforcing participants’ adherence to WTO agreements, which are signed by
representatives of the member governments and verified properly by their parliaments.
Most of the issues that the WTO focuses on derive from previous trade
negotiations, revolving around the Uruguay Round held from the span of 1986 to
1994.

The WTO has many roles to perform under different
circumstances. A global system of trade rules are very well operated by this
body and it even acts as a forum for negotiating trade agreements, it settles
various trade disputes between its members and it supports the needs of
developing countries. The consequence is that, the number of free trade
agreements between governments of the different nations from both the ends have
increased substantially. During July 2012, many negotiation groups in the WTO
system for the current agricultural trade negotiation which is in the condition
of a halt or no progress.  With the advent of
advanced technology, would be obtained at low cost and besides this because of
wide arrangement for resolving trade disputes under WTO, India would be in a
better position to get quick redressal of the trade disputes, if they exist.
The scope of creating more job would be expanded. The Indian exporters have
deficient market information, this can be removed by the help of WTO and
country can get wider market information, and eventually due to increasing competition
and exposure the competitive edge and productivity of Indian industry will
improve. The most significant
decisions are made either by the respected ministers who have a meeting schedule
of meeting once in two years  or by their
ambassadors or delegates who have a regular meetings in the city of Geneva
 A number of simple, fundamental principles
form the foundation of the multilateral trading system. The primary purpose of
the WTO is to open trade for the benefit of all.

A
Federation of Indian Chamber of Commerce and Industry (FICCI) Task Force reports
(March 1996) on WTO, rightly observed that in changing scenario there is no
alternative to Indian industry but to gear up itself to raise the efficiency
and competitiveness, so that India is able to meet the competition in both, the
domestic and external markets. By, this, under certain areas like agricultural
and allied exports, textiles and trade in services India can meet not only the
challenges and will be able to exploit opportunities successfully when
developed countries will co-operate to share the fruits of growth and openness
in the new world trade order.

 

The
main perspectives based on which the Indian economy has been affected by the
WTO policy rests on the fact that there will be a reduction in the subsidies to
Indian trade along with a slight increase in the India’s share of agricultural
earnings in the near future. In addition to the above mentioned points the WTO
policy has also provoked multilateral trade relations between India and the
other countries of the world globally. The Tariff lines and the quantitative
restrictions have also been increased and bound by means of this WTO policy.

 

About
67 per cent of its tariff lines were bound. For non-agriculture goods, with a
few exceptions ceiling bindings of 40 per cent and 25 per cent on intermediate
goods have been undertaken. The phase of reduction is extended to the year,
2005.The most significant impact of the WTO policy in the Indian financial system
comprises mainly of the following points:

 

1)     Severe impact on Indian
Agriculture: This sector has been the most drastically
affected by the advent of the WTO policy on the Indian financial system. There
are several sectors of the Indian agriculture which have been significantly
impacted by this policy. These sectors could be listed as below:

a)     Imposition of Import
Duties. There were many commodities which were
exempted from this import duty including fishery forestry rubber and many
others were also a part of it whereas all the other commodities are a part of
it.

 

b)     Economic Support.  This can be further classified as Amber Box Subsidies
Blue Box Subsidies and Green Box Subsidies. They play a very important role in
securing the rights of the farmers and helping them in every possible way. In
addition to the above mentioned subsidies there are product and non-product
subsidies as well which lead to the overall development of the economy and the
country of course.

 

c)     Export
Subsidies They have
hampered the overall progress of the nation as the agricultural exports do not
receive any subsidies in the country but if they do then the overall problem
shall be solved to a great extent by the economy of the country. The government
of the country could provide incentives to agricultural items for exports. In
addition to the above mentioned points, the other countries give a
huge and great amount of subsidies for export of agricultural commodities. The
EU (UK, France, Germany etc.) countries give an average 265 per cent of export
subsidy, Brazil 60 per cent. Thailand 40 per cent, Pakistan 30 per cent this
has created a critical situation in the agricultural economy of India. Besides,
imposition of import duties is neglected, QRs have been withdrawn, no direct
export subsidy is given to the exporters of agricultural commodities. On this
background India has to oppose such hike in export subsidies in the forthcoming
Agricultural Round. Concurrently, some amount of export subsidies has to be
designated to some important agricultural commodities.

 

 

 

 

The
graph below shows a pictorial representation of how the agricultural products
have been impacted by the advent of the WTO policy.

 

        

 

2)     Provision of Patents:
The giving of patents by the Government of the country for all the micro
biological processes and microorganisms are supposed to undergo patents except
the researcher’s farmers and the Government. The bill for passing the patents
has been passed to the Joint Parliamentary Committee but not yet implemented
and it supports the farmers the traditional right to save share a variety of
crops under this Act and the necessary patents. So the WTO policy has played a
significant role in the provision of patents to all the countrymen and has
accelerated the overall economic progress of the country. Nut there are many
reasons which are hampering the patents to be provided by the government of
the country as a part of the effect of the WTO policy on the Indian Financial System.
They are as follows:

a)     The
fee is very high around 75000/-

b)     Salesmanship
and marketing is pretty difficult to do.

c)     There
is no competitiveness in the process.

d)     The
farmers are not providing any training in the patenting process.

e)     Has
led to ignorance and illiteracy.

f)      The
overall structure of the event is also not well organized by the governing
authorities.

 

3)     Effect on the minor
forest produce: The WTO policy has also severely impacted
the overall produce of the forests in the country and has even affected the tribal
to a great extent consequently affected the Indian economy as well. The WTO
policy has enabled the tribal to carry out the transaction with the buyers on a
fair and square terms and basis so as to get the best output. This has been one
of the most significant changes of the WTO policy on the Indian Financial
System and has been a boon to the tribal of the country to a great extent. It
has even increased the per capita of the forest produce over the years and has
enhanced the overall GDP of the country. The overall productivity of the nation
has been enhanced with an increase in the minor forest produce in the country.
The increased exploitation of the tribal at the hands of the market forces has
also been reduced by the advent of the WTO policy introduced and its after
effects on the Indian economy. So all in all the minor forest products have
seen a rise in their produce with the introduction of this policy in the Indian
Financial System.

 

4)     Textile and Clothing Sector:
This sector has been very deeply affected by the WTO policy introduction in the
Indian economy and this sector has motivated the concept of Multi Fiber
Agreement between the nations so as to enhance the trade relationships between
the countries. The textile industries announce a policy quota every year to be collected
from the exporters over a given span of time and as per a certain base year.
The WTO agreement pertaining to textiles and clothing states that the Multi-Fiber
Agreement (MFA) eventually be eliminated MFA at present groups the major
countries like United States, Austria, Canada, the European Community, Finland
and Norway who imposed/ apply restrictions by way of quota. Exporting countries
like India is a part to the MFA. The phasing out of MFA will boost textile from
India. It will also bring about an increase in the investment in textiles and
joint ventures, but the risk is that when India opens-up its market, the import
of textiles and clothing there will be a considerable increase from countries
like China, the United States, Taiwan and Indonesia. The consequences will force
many textile manufacturers to either modernize their mills and improve quality
of textiles or phase out. Another threat is that the rich countries are trying
to bring child labour, environmental issues in the picture to contradict the
MEN treatment to WTO member countries because India strengthen its areas of comparative
advantage in textiles and clothing.

 

 

The graph above clearly
explains the effect of the WTO policy on the Indian Financial System and its
component of the Textile industry.

 

There is not even a
single country in this world which is self-sufficient. Therefore, it needs to
trade with others and establish sound economic as well as trade relationships. Economy
was protected from external competition due to licensing system and high level
of tariff. In early 1990’s with the birth of World Trade Organization (WTO)
India started the process of liberalization of trade. WTO’s objective is to
ensure new open world trading system to benefit consumers. The Most Favoured
Nation clause of WTO was in clash with the Multi Fiber Agreement, which placed
quantitative restrictions on textile exporting countries. Hence Multi Fiber
Agreement was gradually phased out by December 31, 2004. The inclusion of Multi
Fiber Agreement (MFA) was expected to result in an increase in the growth of
output, efficiency, productivity and competitiveness of the textile sector. The
impact of abolition of MFA is studied with regard to export of yarn, fabric,
and garments during MFA and Post MFA period. It has been concluded from the
observations that the export of textile intermediates (i.e. yarn and fabric)
and textiles and clothing have increased to a great extent after the abolition
of MFA.

 

Besides the above
mentioned points, there are numerous other factors and significant impacts of
the WTO policy which have revolutionized the Financial structure of the Indian
economy to a great extent. They could be enumerated as below:

 

Effect on General
Agreement on Trade in Services: The service sector today is one of the most
growing areas of service and has very bright prospects in the future.
Traditionally, apart from financial, communication and tourism new parts of
service sector such as environment, education and counselling are emerging
service sector which has led to a world boom in respect of services which can
be seen from the data sets of these service sector areas. These data could be
shaped into a graph in the following manner:

 

 

Impact
on the field of Education: India has to pay serious
attention to GATS agreements as applicable to education services, identify
opportunities and competitiveness in various sub-sectors and negotiate
commitments accordingly, there is vast potentialities in all levels of
education, i.e. primary, secondary, higher education, distant education testing
services, education materials, on-line courses, editions of books and sale of
education CDs etc. It also involves the services generated by movement of
students and teachers for the sake of education. The actual presence of
educational service providers each as university or its service brands will
also generate services. It must be understood that GATS does not make mandatory
for member countries to open up all segments of education. Based on perspectives,
gains, specific segments can be opened up in phased manner.

 

Banking Services-
The banking service sector forms an extremely part of the reform sector and it
has even garnered momentum particularly during the current account
convertibility in 1994-95, foreign direct investment (FDI) and portfolio
capital flows began to predominance over often form of capital inflows. India
is also looking for ways of improving competitive conditions in domestic
financial sector to raise efficiency by attracting more foreign capital
inflows, particularly more long-term equity investment. The Banking sector in
India currently suffer from a number of weaknesses such as higher costs, poor
management, trade unions pressure, political interference and unprofitable
branches. A likely benefit from joining a binding multilateral regime would be
to loosen the banking sector from grip of powerful interest group. The WTO recognizes
four different modes of supply through which trade in financial services can
occur establishes a branch or subsidiary in the territory of any nearby country
and supplies financial services, fourth, ‘movement of natural persons’- in
which financial services are supplied to a nearby territory or country mainly
to facilitate trade relations between them. The entry will lead to improvement
in our banking sector, efficiency through reduction in profitability, lower
overheads expenses and interest margin for domestic banks. It would bring a
variety of new financial product, better risk management techniques, state of
the art technology and better regulations and supervision. It would put
pressure on domestic supervisory staff to augment their quality and size of
services. There would be erosion of franchise value of domestic market. Less
finance will be available to disadvantageous segments of economy including
farmers and small firms. Quick dominance over domestic banking market, and
acquisition of domestic banking institution by foreign banks. Ultimately leads
to concentrated ownership of foreign banks on our banking sector. Keeping in
view the negative and positive impact of foreign banks’ entry in domestic
market, we must undertake internal reforms in our banking sector and upgrade
them with technological and managerial advancements, although there are
apprehensions regarding FDI in financial sector as we do not have
convertibility on capital account.

 

 

Cross Border Movement of
Labour: The concept of globalization has set in
motion in forces, which are creating a huge set of demand for labour mobility
across borders as developing institutions on supply side to meet this demand. The movement of labour
from countries where there is
a labour surplus to countries where there is an extreme scarcity of labour. The
WTO has overlooked this issue as this can be beneficial for developing countries. There is a potential conflict
between laws of nations that restrict
the movement of labour across the borders and economics of
globalization that induces the movement of labour across border. So there must
be some equivalent of WTO concept of ‘national treatment’ for migrant labourers.
The issues regarding legal migration, exploitation of foreign workers, their
conditions of employment, worker’s remittances, work permits, employment
benefits and appropriate safeguards measures are to be framed. In WTO rules for
service sectors, two obligations are applied to all services. These are the
Most Favoured Nation (MFN) treatment from service suppliers of one country must
be extended to service suppliers of another countries and transparency by way
of publication of all news and regulations. It means that the services like
banking, insurance, investment banking, health and other professional services
that are opened up will be bound by the WTO commitments. As a result, India
needs to open up new avenues in order to trade with the other countries of the
world and this will result to entry of overseas service providers into the
service sectors in the country which might check the growth of domestic
enterprises. The GATS agreements has the potential to open up all aspect of a
national economy to foreign competition. There are several income generating
services include brokerage, communications, no merchandise insurance, leasing
and rental equipment, technical and professional services. Today the most
encompassing and growing area of activity is services sector. Traditionally we
have been thinking all these services but the present development has crossed
these boundaries. Nascent and emerging areas studies environmental, educational
and counselling services are also part of this emerging sector. We have opened
our economy in service sector. The main objects are as follows:

1.
For increasing economic performance.

2.
For development.

3.
For consumer savings.

4.
For faster innovation.

5.
For greater transparency and predictability.

6.
For Technology transfer.

7.
For better growth of employment.

So this has been the most
significant impact of the WTO policy in the Indian financial system and how it
has affected the overall progress of the nation over the period of time.