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The World Trade Organization (WTO) is an organization that intends to


supervise and liberalize international trade. The organization officially commenced
on January 1, 1995 under the Marrakech Agreement, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. The
organization deals with regulation of trade between participating countries; it
provides a framework for negotiating and formalizing trade agreements, and a
dispute resolution process aimed at enforcing participants' adherence to WTO
agreements which are signed by representatives of member governments and
ratified by their parliaments. Most of the issues that the WTO focuses on derive
from previous trade negotiations, especially from the Uruguay Round (1986±
1994).

The organization is currently endeavoring to persist with a trade negotiation


called the Doha Development Agenda (or Doha Round), which was launched in
2001 to enhance equitable participation of poorer countries which represent a
majority of the world's population. However, the negotiation has been dogged by
"disagreement between exporters of agricultural bulk commodities and countries
with large numbers of subsistence farmers on the precise terms of a 'special
safeguard measure' to protect farmers from surges in imports. At this time, the
future of the Doha Round is uncertain."

The WTO has 153 members, representing more than 97% of total world trade and
30 observers, most seeking membership. The WTO is governed by a ministerial
conference, meeting every two years; a general council, which implements the
conference's policy decisions and is responsible for day-to-day administration; and
a director-general, who is appointed by the ministerial conference. The WTO's
headquarters is at the Centre William Rappard, Geneva, Switzerland.

OBJECTIVES OF WTO
(1)?ree trade i.e. trade without discrimination,
(2)? Growth of less developed countries,(LDCs),
(3)?Protection and preservation of environment,

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(4)?Ensure optimal utilisation of available world¶s resources expanding


production and trade.
(5)?Raising living standards of citizens of member nations and ensure full
employement, and
(6)?Settlement of trade disputes among member countries through consultation
and dispute settlement procedures.

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Functions of WTO :
1.? To promote trade without discrimination.
2.? To administer and implement the trade agreements signed under Uruaguay
round negotiations .It administers 29 agreements contained in the find Act of
the Uruaguay Round .
3.? To act as a forum for multilateral trade negotiations .
4.? To implement tariff cuts and reduction of non-tariff barriers by members
countries .
5.? To co-operate with other international institutions involved in global policy-
making .
6.? To act as watchdog of international trade and to regularly examine trade
policies and regimes of individual member nations.
7.? To assist developing countries in implementing uruaguay agreements
through a development division .
8.? To provide consultancy services to member countries .
9.? to examine foreign trade policies of member countries and to see that such
policies are as per the guidelines of WTO .
10.?To collect trade statistics of member countries.

|chievements of WTO :
WTO is operating as a global trade forum since 1995 . Negotiations are going
on among the member countries for agreements and also for achieving the basic
objectives of WTO. Unfortunately, the concrete achievements of WTO are few . A
brief reference to the following achievements is worth knowing :

1.? In December 1996 , WTO arrived at an Information Technology


Agreement (ITA) .The agreement was for the elimination of tariffs to zero
level on the rabidly growing world market in computer related products by
2000.
2.? In december 1997 , WTO members signed an agreement on financial
services . the purpose was to remove barriers relating to the expansion of
the banking , insurance and securities sector at global level .
3.? many member countries of WTO (including India) have liberalised their
EXIM policies . various quantitative restrictions ( QR¶s ) on exports and
imports are removed . This liberalization of policies was as per the GATT
agreements signed by the member countries in 1994 .

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WTO and Trade Liberalisation :


It is already noted that WTO is for free and fair trade at the global level . It is
not favorable to the policy of protection by member countries as protection policy
has harmful effects on economic growth and consumer protection . The objectives
of WTO are very clear in this regard . WTO is for free trade i.e trade without
discrimination . It is also for the protection and preservation of environment and
the growth of less developed countries (LDC¶s) . However , actual achievements of
WTO in this regard are not satisfactory . This is because WTO has made some
positive contribution in regard to its objectives . However , WTO has failed to
achieve the objective of ree trade . Even in present period, tariffs and non-tariff
restrictions are imposed by the countries for their protection . As a result , free
trade at the global level ( as an objective) is far away from WTO .Its efforts in this
regard are slow . With this limited speed , WTO will need many more years for
achieving its objective of free and fair global trade .

WTO has arranged many multilateral conferences for negotiations on issues


relating to trade barriers . As a result of negotiations , tariff rates are brought down
to certain extent . However , various restrictions on international trade exist even at
present . Developing countries are not in a position to remove all trade restrictions
due to their domestic problems and difficulties while rich and developed countries
are not liberal enough while removing trade restrictions . Developed and
developing countries have failed to introduce a time bound programme for removal
, of trade restrictions . This is the position even when negotiations are made over
the years . As a result , free trade remains a dream for all nations .

The progress towards trade liberalisations is limited partly because of the


outlook of the developed countries . These countries do not give serious attention
to the problems and difficulties of the poor and developing countries . Such efforts
are now opposed collectively by developing countries. As a result , the
negotiations are delayed . ortunately , the attitude of developed countries is
slowly changing and is becoming favouarable o developing countries . As a result ,
agreements on trade barriers , etc are to be finalised in the near future . This will
lead to favorable situation for trade liberalisation . Even globalisation process will
lead to trade liberalisation at the global level.

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L|TEST DEVELOPMENT |T WTO:-


WTO is operating as a global trading organization since 1995. However, its
positive contribution in the promotion of free and fair global trade is limited.
Experience has proved that it is favorable to rich and developed countries and it¶s
not fair to poor and developing countries. The functioning of WTO has created
many disputes and controversies. It is opposed by developed as well as developing
countries on various grounds.

WTO is dominated by rich and developed countries of Europe. Developing


countries (including SAARC countries) will have to take strong and united stand
on various WTO issues. Developing countries will be successful in protecting their
interests in multi-nationals negotiation only if they stand together. The develop
countries are flouting WTO discipline and are trying to thrust fresh negotiation on
developing countries even before implementation of the existing WTO agreement
.WTO may not achieve positive results if it is used by developed countries for their
benefits at the cost of poor and developing countries.

During the implementation of WTO agreements, India and other developing


countries have experienced certain imbalances and inequities in the WTO
agreements. It is noticed that some developed countries have not fulfilled their
obligations in letter and spirit of the WTO agreements. In addition , many of the
Special and Differential Treatment Clauses in favor of development countries in
various WTO agreements have remained unoperationalised. India and many other
like± minded members have highlighted these ³implementation related concerns´
in WTO negotiations.

At the ourth Ministerial Conference held at DOHA in November, 2001,


attempts by the united states and European union to bulldoze developing countries
to agree to a new round of negotiations received a major set back with several
developing nations joining India in opposing it during the plenary of WTO
ministerial conference. India was not all alone in opposing the new issues, nor was
India isolated at DOHA. In addition the firms stand taken by India and other
developing countries at the WTO meet at SEATTLE thwarted attempts by the

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developed countries to link trade negotiations with environment and labour


standards.

India¶s main objective at DOHA was to get the ³implementation issues´


addressed first. India strongly opposed to introduction of non-trade issues like
labour in the agenda. India was also not supportive of any trade restrictions in the
grab of showing concerns towards protection of ³Environment´.

In the Cancum Round (September 2003), developing countries represented


by India, Brazil, China etc. press for reduction and ultimately phasing out of
agriculture subsidies provided to farmers by the developed countries. The
developed countries wanted Singapore issues investment, competition,
transparency in government procurement and trade facilitation to be taken up for
negotiations. The ministerial meet was thus sharply divided. The developing
countries insisted that unless the issue of agricultural subsidies was resolved
satisfactorily, no new issues could be taken up. The main argument of the
developing countries for turning down the draft was that it did not commit the rich
countries to phase out their trade distorting farm subsidies within a time-frame.

In future, the WTO will not be able to take India and other developing
countries for granted. WTO will not be allowed to function as undemocratic, non-
transparent and anti-people organization. As a global trade organization, it must be
fair to all member countries and offer them the benefits global trade.

The Sixth Ministerial Conference of WTO was held at Hong Kong in


December, 2005. The participants in Hong Kong probably felt that there should be
no failure to this meet also. India and Brazil worked relentlessly to get some kind
of a deal for the developing countries. The conference proved that the developed
countries (USA and EU) could no longer take the developed countries. WTO will
make itself irrelevant and just a huge white elephant, if it fails to reorient its
processes to meet the growing aspirations and impatience of the developing
countries i.e. Third world.

The ministerial declaration of WTO at Hong Kong is a forward looking


document which offers benefits to developed, developing and LCDs. Phasing out
of export subsidies by the US and the European Union within eight years (2013),
promise of liberalizing trade in cotton and linking lower tariff for manufactured

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items for agricultural products are the important achievements of the Declaration.
On the issue of Non-Agricultural Market Access (NAMA) the US and the EU
managed to introduce liberalization on a large scale through the ³Swiss formula´
for tariff cuts. The developing countries and their farmers will have to wait at least
till 2010 to get some justice in prices for their products in the international market
as a result of cut in huge export subsidies at present given by the US and EU.

The Hong Kong declaration clearly indicates that the views of developing
countries are clearly reflected in it. This declaration suggests that the world¶s
economic architecture has changed and it is no longer possible for the developed
countries to push their agendas down the throats of the developing world.

CURRENT POSITION:

In the last week of July, 2008 WTO mini-ministerial talks held at WTO
headquarters in Geneva collapsed ultimately because the US and the EU were
unwilling to scrap huge subsidies they pay their farmers. The root cause was that
the rich countries cared too much about their own interests and too little about
those of developing nations. The lalks failed to bridge differences over adequate
measures to protect poor farmers in developing countries against import surges.

The US and EU have created an impression that they have made a huge
µsacrifice¶ by offering drastic cuts in their trade-distorting farm subsidies. However
the promise was simply an eyewish. These were merely paper cuts and behind this
smokescreen, both rich trading blocs had actually ensured provision to double their
trade ± distorting subsidies. or making these paper cuts the US and EU wanted the
developing countries to pay a corresponding price by way of providing more
market access in agriculture and industry. This is where the lalks broke. The lalks
may resume again. However, the breakthrough is possible only when there is a
clear and noteable change takes place in the approach and attitude of US and EU.

The seventh WTO Ministerial meeting was the first full Ministerial meeting
of the WTO. It was held in Geneva from November 30 ± December 3, 2009. While
the Conference was not intended as a negotiating forum, it provided a platform for
different groups to assess the direction of the negotiations. India and her coalition

  
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partners reiterated their commitment to upholding the development dimension and


the need to safeguard livelihood concerns, particularly of the poor, subsistence
farmer in their countries.

In brief, WTO negotiations are yet not going smoothly and peacefully. The
Doha round negotiations need to be concluded in a fair manner. Here, the approach
of developed countries is important. They have to make new initiatives for the
success of ongoing negotiations.

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MNCs |ND International Trade:


It is already noted that multinational not only participate in international
trade but also dominate global marketing activities. They get the benefits of their
superior position in global marketing. Their domination affects small countries and
small companies from developing countries. MNCs from the USA, Japan and
England etc. dominate the export marketing scene. MNCs have worldwide contacts
and conduct marketing operations efficiently and economically. More than 50
percent of world trade in manufactured goods in controlled by MNCs.

Major portion of world trade is handled by MNCs and TNCs. It is just not
possible to reduce domination of MNCs are bound to dominate global trade.
However, their unfair policies need to be regulated to the extent to play active role.
In addition, export organisations from different countries should try to become
more competitive in export marketing. This will reduce the importance of MNCs in
a gradual manner. Along with MNCs, developed countries also dominate
international trade. They do not give concessions, etc. to poor and developing
countries. Such counties even dominate world trade organisations such as WTO.
Even the trading blocs are not in a position to control the operations of MNCs.

MNCs play a positive role in promoting international trade. They are


favorable to free trade at global level. They also support removal of trade
restrictions even when such restrictions have limited effect on the operations of
MNCs. According to Peter Drucker, multinationalism and expanding world trades
are two sides of the same coin. This again suggests the contribution of MNCs in
promoting world trade. MNCs collect huge profits through their participation in
international trade. At the same time, they give the benefit of growing world trade
to all countries.

FDI |ND INTERN|TION|L TR|DE:


oreign capital is useful for rapid development of poor and developing
countries. Such countries welcome foreign capital on fair terms and also as per
their growth needs. oreign capital flows to developing counties in different forms
as noted below:

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(a)?oreign Direct Investment (DI).


(b)?oreign Collaborations.
(c)?Joint Ventures.
(d)?Inter-Government Loans.
(e)?Loans from international financial institutions such as World Bank, IM
and Asian Development Bank (ADB).
(f)?International/External Commercial Borrowings(ECBs).

It may be noted that flow of foreign capital has close links with the flow of
goods and services. In collaboration and joint ventures, financial
participations may be in different forms. In the case of foreign capital, such
funds are utilized for purchasing machinery or other services capital in any
form leads to promotion of international trade in terms of goods and
services. The inflow of foreign capital from developed to developing
countries leads to expansion of trade between developed and developing
countries. This also suggests that large-scale movement of funds lead to
expansion of international trade.

ME|NING OF FDI:
Broadly speaking, there are two forms in which the private capital may flow
to India. These are: (a) Direct foreign Investment (DFI) and (b) Portfolio
Investment.

DFI is one where the foreign investor establishes and does business in a
country i.e. India. In case of portfolio investment, the foreign funds flow in
terms of subscription to securities or investment is made through Euro
Issues, External Commercial Borrowings (ECBs) and Stock Market
Transactions, etc. DI represents investment made in India by setting up
branches, units or subsidiaries by the overseas bodies. DI is beneficial to
both ± the home country (here India) and the host country. The home
country gets fund transferred to the host country which benefited by getting
scarce materials, goods and technologies. It is necessary to have well
planned strategy to control and regulate the DI as it may affect the political

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and economic relations between the two countries i.e. India (home country)
and the host country i.e. USA, Germany or any other country making DI.

The policy of the government of India (GoI) towards DI by NRIs and
Overseas Corporate Bodies (OCBs) has been liberal and encouraging.
However, for certain sectors, ceilings of investment (upto 20 or 30 or 50%)
have been laid down. The RBI is empowered to sanction projects under the
automatic route for several items in which 100% foreign investment is
proposed by NRI and OCB. Investment in 100% EOUs and units in the
Export Processing Zones also comes under automatic route.

In order to facilitate/encourage DI in India, Foreign Investment


Promotion Board (FIPB) was constituted in 1996. It operates as a single
window agency for all matters relating to DI. IPB undertakes investment
promotion activities in India and abroad. It facilitates large-scale DI by
NRI/OCD in India. IPB helps in negotiation with foreign investors. It also
reviews policies relation to DI in India. These functions of IPB are
positive and useful for large scale inflow of DI to India.

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IMPORATNCE / ROLE O DI IN THE INLOW O OREIGN


CAPITAL.
oreign capital enters India in the form of foreign investments. Direct
foreign investments are major tool used for the inflow of foreign capital to India.
Previously, companies were formed in the developed countries with the specific
purpose of operating in India. In addition, companies from Advance Company
used to start their subsidiary offices or branches and affiliates in India. Alternately,
foreigners may subscribe to stock and debentures of companies in India (also
called portfolio investment). India has a long experience with DI¶s. In addition,
Indian companies issue securities in foreign countries. Such issues are called Euro
issues. Inflow of foreign capital takes place by this method also.

DI is moving in India in many sectors. This includes consumer durables,


fast moving consumer goods and financial services. Telecom, banking and
insurance are new sectors of Indian economy which are recently opened up for
DI¶s. Retail sector is equally attracted to foreigners for direct investments. The
government has revised DI caps to 100 % in airports, power trading, petroleum
marketing, captive mining and coal lignite brewing of portable alcohol.
Investments in these areas would no longer require the approval of the oreign
Investments Promotion Board (IPB).

The present UPA govt. is likely to make DI policy more liberal. Entry of
DI would be allowed in new sectors of the Indian economy. This is clearly visible
from the observation made in the economy survey 2008-09 (submitted to loksabha
on 2nd July 2009). The survey has advocated raising DI limit in insurance firms to
49% from 26 %, direct investments by foreigners in India stocks, and greater entry
of foreign banks .This suggest economy . However DI crowds out domestic
investments opportunities and hence certain conditions in the form of minimum
level of local content, expert commitment, technology transfer and compulsory
listing on the local stock exchanges are generally imposed on DI¶s.

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POSITION OF FDI IN INDI|:


The table given below shows FDI (approvals and inflows during
1991 to 2003).
Direct Foreign Investments |pprovals and Inflows.
YEAR Amount Approved Amount Inflow 2 as % of 1
(Rs. Crores) (Rs. Crores)
(1) (2)
1991 534 351 65.7
1992 3888 675 17.4
1993 8859 1,787 20.2
1994 14,187 3,289 23.2
1995 32,072 6,820 21.3
1996 36,147 10,389 28.7
1997 54,891 16,425 29.9
1998 30,814 13,340 43.3
1999 28,367 16,868 59.5
2000 37,039 19,342 52.2
2001 26,875 19,265 71.7
2002 11,140 21,286 191.1
2003 6,042 14,301 236.7
Total 2,90,854. 1,51,124 52.0

The above noted table shows that the total amount approved (under DI)
since 1991 to 2003 amounted to Rs.2,90,854 crores against just Rs.1,274 crores
approved during the previous decades (1981-90) actual flow as a proportion of
approvals were low till 1997 but the situation improved considerably thereafter .
With modifications and reforms policies, better infrastructure and a more vibrant
financial sector, DI inflows into India accelerated in 2005-06 and the same trend
continue in 2006-07 . Total direct foreign investments amounted to 8,961 (US$

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million) during 2005 ± 06 and increased to 22,079 (US$ million) during 2006-07.
DI inflows continued to be preponderantly of the equity variety. The DI is
mainly seen in certain sectors such as electrical equipments, service sector,
telecommunications, transportation, fuels, chemicals, food processing industries,
drugs and cement. oreign direct investments come from different countries but
mainly from Mauritius, USA, Japan, UK, Germany, and rance and so on. NRI¶s
accounted for 9.7% of total inflows during the period 1991 ± 2004. This
contribution of NRI¶s in the field of foreign direct investment is worth nothing.

The table given below shows country wise ± inflows of FDI in recent
years:
Foreign direct investments inflows (country wise)
2006-07 2005-06 2004-05 2003-04 2002-03

US $ Mn.

Mauritius. 3,780 1,363 820 381 534

USA. 706 346 469 297 268

Japan. 80 86 122 67 65

Germany. 116 45 143 69 103

South Korea. 68 61 13 22 15

Netherlands. 59 50 196 197 94

Total (incl. 9,307 3,359 2,320 1,462 1,658


others)
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It may be pointed out that certain countries such as china, Brazil and Mexico
have shown the better performance in DI. OUR share of DI is comparatively

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lower. This may partly due to current global recession. In spite of providing end
carpet treatment to foreign investors, India has not been able to benefit much from
DI.

India should encourage DI as we needed it for rapid economic growth,


development infrastructure sector and for promotion of experts. At the same time
too liberal policy in this regard is not desirable. India has to safeguard its interest
while welcoming DI on large scale . Recently RBI has allowed DI in Indian
banking sector , it is allowed upto 74%. The position is identical in insurance
sector. In these sectors , the basic objectives is to generate foreign capital,
technology transfer and professional expertise from foreign partners.

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