Business Environment-Unit-VI FEB-2014

Indias Trade Policy: Policy changes and Issues- sector wise trade policies: recent developments-
GATT- WTO- agreements and implications.
Case :- Case ! Water Thie"# $%. Aswathappa# page no.&'(
What is Trade? Meaning
Trade refers to buying and selling of goods and services for money or money's worth. It involves
transfer or exchange of goods and services for money or money's worth. The manufacturers or
producer produces the goods, then moves on to the wholesaler, then to retailer and finally to the
ultimate consumer.
Indian Trade Policy
Laws related to the exchange of goods or services involved in international trade including taxes,
subsidies, and import/export regulations.
Sector wise Trade Policies: Recent Developments
Agricultural sector
The agricultural sector has remained relatively untouched by the reforms programmes except the
thrust given in the export-Import olicy !""!-!""#.$ome progress has also been made in terms
of the removal of%
&i' (ontrols on the inter-state movement of certain grains and
&ii' )dministered prices.*owever, controls on the export and import of certain products
reamain.the government of india has identified potential commodities in various states
and )ggricultural +xport ,ones &)+,' have been set up in order to promote exports.
Food Processing Sector
In the food processing sector, tariff reforms have resulted in the average duties being halved
since -../ &currently, ranging between -0 and !0 per cent'.Import licensing restrictions have
also been removes. The food processing sector has witnessed increased foreign investment,
wherein up to 0-and -"" per cent of participation is allowed automatically for foreigners and non
1resident Indians respectively
Mining and Petroleum Sector
India heavily depends on the import of petroleum. rices,until recently,were administered but the
government has recently placed an emphasis on increased oil exploration domestically to reduce
import dependence and is encouraging new explorations by offering investment incentivies li2e
tax holidays to companies.
3a4or policy changes since -..- include automatic permission for foreign e5uity
participation in the mining activity of -/ minerals.*owever, the 6oreign Investment romotion
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7oard&6I7' must approve foreign e5uity participation in case of over 0" per cent share of
participation.
Manufacturing Sector
8eforms have been implemented in the manufacturing sector, including
&i' 8eductions in average tariff rates.
&ii' 8emoval of import licensing restrictions,
&iii' 8elaxations in compulsory industrial licensing, and
&iv' Liberali9ation of foreign investment policies.
The rules governing foreign investment have also been considerably simplified with an enlarged
list of industries, including the automobile sector.
Services Sector
$ervices sector contributes more than 0": of India;s national income. Its overall growth has
been fueled by rapid expansion of activities in the area of finance, information technology,
commerce and tourism. The software, 7< &Business process outsourcing) P!"
#no$ledge process outsourcing) sectors have contributed to the growth of the Indian
economy in the recent past.
India has large pool of well 5ualified professionals capable of providing services abroad.=)T$
&=eneral agreement on Trade in $ervices' 8ecogni9es >3ovements of natural persons? as one of
the modes for supply of services. *owever, the commitments shown by the developed countries
have very little to offer to the developing countries.
GATT!T" Agreements and Implications#
Introduction to GATT
$igned in -.@#, the =eneral )greement on Trade and Tariffs &=)TT' was enacted to reduce the
number of tariffs and trade barriers and to promote international trade. Ander the =)TT, the
member countries have engaged in trade negotiations on a variety of issues. 7etween -.BC and
-..@, the Aruguay 8ound negotiations included the areas of tariffs, services and intellectual
property. The Aruguay 8ound concluded with numerous agreements to reduce trade barriers and
institute more enforceable world trade rules. <ne of the ma4or results of the $ruguay Round
was the creation of the Dorld Trade <rgani9ation &DT<', which officially began operations on
Eanuary -, -..0. The DT< is a multilateral organi9ation with the mandate to establish
enforceable trade rules, to act as a dispute settlement body and to provide a forum for further
negotiations on reducing trade barriers.
&=)TT' is a multilateral agreement regulating international trade. Its purpose is the Fsubstantial
reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal
and mutually advantageous basis. It was negotiated during the AG (onference on Trade and
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Business Environment-Unit-VI FEB-2014
+mployment and was the outcome of the failure of negotiating governments to create the
International Trade <rgani9ation &IT<'. =)TT was signed in -.@# and lasted until -../, w%en it
was replaced &y t%e !orld Trade "rgani'ation in ())*. The original =)TT text &=)TT
-.@#' is still in effect under the DT< framewor2, sub4ect to the modifications of =)TT -..@
H The =eneral )greement on Tariffs and Trade &=)TT' was first signed in -.@#.
Das designed
To provide an international forum
That encouraged free trade between member states
7y regulating and reducing tariffs on traded goods
roviding a common mechanism for resolving trade disputes.
"&+ectives of GATT
The =)TT's main ob4ective was the Reduction of Barriers to International Trade
H This was achieved through the 8eduction of
Tariff barriers
Iuantitative 8estrictions
$ubsidies on trade through a series of agreements
!T" ",-R GATT
It came into existence on -
st
Eanuary -..0.
The original intention was to create a third institution to handle the trade side of the
international economic cooperation, 4oining the two >7retton Doods? institutions, the
International 3onetary 6und and the Dorld 7an2.
)ll was not going well under the =)TT and with the world trade becoming more and
more complex, =)TT was not able to deal with it. 6or instance, in agriculture, loopholes
in the multilateral system were heavily exploited, and efforts at liberali9ing agricultural
trade met with little success.
Some of the important functions and o&'ectives of ()! are*"
Functions of !T"
The former =)TT was not really an organi9ationJ it was merely a legal arrangement. <n the
other hand, the DT< is a new international organi9ation set up as a permanent body. It is
designed to play the role of a watchdog in the spheres of trade in goods, trade in services, foreign
investment, intellectual property rights, etc. )rticle III has set out the following five functions of
DT<J
&i' The DT< shall facilitate the implementation, administration and operation and further the
ob4ectives of this )greement and of the 3ultilateral Trade )greements.
&ii' The DT< shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the )greement in the )nnexes to this
)greement.
&iii' The DT< shall administer the Anderstanding on 8ules and rocedures =overning the
$ettlement of Kisputes.
&iv' The DT< shall administer Trade olicy 8eview 3echanism.
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&v' Dith a view to achieving greater coherence in global economic policy ma2ing, the DT< shall
cooperate, as appropriate, with the International Monetary Fund &I36' and with the
International .an2 for Reconstruction and Development &I78K' and its affiliated agencies.
"&+ectives of !T"
Important ob4ectives of DT< are mentioned below%
&i' To implement the new world trade system as visuali9ed in the )greementJ
&ii' To promote Dorld Trade in a manner that benefits every countryJ
&iii' To ensure that developing countries secure a better balance in the sharing of the advantages
resulting from the expansion of international trade corresponding to their developmental needsJ
&iv' To demolish all hurdles to an open world trading system and usher in international economic
renaissance because the world trade is an effective instrument to foster economic growthJ
&v' To enhance competitiveness among all trading partners so as to benefit consumers and help in
global integrationJ
&vi' To increase the level of production and productivity with a view to ensuring level of
employment in the worldJ
&vii' To expand and utili9e world resources to the bestJ
&viii' To improve the level of living for the global population and speed up economic
development of the member nations.
India/s role in !T"
Founder mem&er - India is a founder member of the =eneral )greement on Tariffs and
Trade &=)TT' -.@# and its successor, the Dorld Trade <rgani9ation &DT<', which came
into effect on -.-..0 after the conclusion of the Aruguay 8ound &A8' of 3ultilateral
Trade Gegotiations.
Sta&ility and Predicta&ility - 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 -@. other
nations which now comprise the DT<.
MF0 most-favored-nation- India also automatically avails of 36G and national
treatment for its exports to all DT< members. )ccording to the DT< $ecretariat 8eport,
along with the policy statement by the =overnment of India, India is expected to snatch
most of the business deals that are presently catering the developed nations which
includes ma4or service based industries li2e telecom, financial services, infrastructure
services such as transport and power.
The increase in availability and reduction in tariffs has prompted many developed
nations to go for business with India especially in IT industry. If the trend continues then
by !"!0, India is expected to cater to the software and services demands of ma4or giants
of the business world. )naly9ing the present relationship with the promising economic
growth of India, one can be sure that India is going to en4oy a very candid and bright
relationship with DT< and associated member nations by !"!0.
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