IMPACT OF THE WTO AGREEMENTS ON INDIAN ECONOMY

Submitted To: Mr. K. Rajendra Kumar Lecturer in Economics NALSAR University of Law, Hyderabad

Subject: Economics-II

Submitted By: Anjaneya Das 2008-11 IInd Year- IVth Semester

National Academy of Legal Studies and Research (NALSAR) University of Law, Hyderabad

TABLE OF CONTENTS CHAPTER-I: INTRODUCTION...................................................................................................1 1.1 Introduction to project work.................................................................................................1 1.2 Objectives..............................................................................................................................1 1.3 Hypothesis.............................................................................................................................1 1.4 Research Methodology.........................................................................................................1 CHAPTER-II: THE WTO AGREEMENTS..................................................................................3 2.1 Introduction to the WTO......................................................................................................3 2.2 Agreement on Agriculture....................................................................................................3 2.2 TRIPS Agreement.................................................................................................................5 2.3 General Agreement on Trade in Services (GATS)..............................................................7 CHAPTER-III: IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY.......................9 3.1 WTO Agreements and Indian Economy..............................................................................9 3.1.1 India's Position and a general critique of the AOA.......................................................9 3.1.2 Impact of TRIPS Agreement.........................................................................................9 3.1.3 Impact of GATS..........................................................................................................11 CHAPTER-IV: CONCLUSION AND EVALUATION OF THE RESEARCHER...................13 4.1 What India should press for................................................................................................13 4.2 Future of WTO and India...................................................................................................13 BIBLIOGRAPHY............................................................................................................................i

CHAPTER-I: INTRODUCTION 1.1 Introduction to project work The project deals with the impact of the WTO agreements (Agreement on Agriculture, TRIPS Agreement, GATS) on the Indian economy. The researcher will first lay down the essentials of all 3 agreements, and how they are expected to function. Then, the researcher shall proceed to show how partial compliance with these agreements has affected the Indian economy, and how full compliance with the present form of the WTO agreements will have a negative effect on the Indian economy. 1.2 Objectives The researcher shall begin with an exposition of the WTO Agreements, and what are the measures they entail. The researcher shall then proceed to draw the links between these agreements and the Indian economy, by focussing on the impact that these agreements have had, or may have, on the Indian economy. Finally, the researcher shall propose certain changes that India should demand, in order to make the WTO agreements beneficial to the Indian economy. 1.3 Hypothesis The researcher wishes to prove that: Full compliance with present WTO Agreements is negative for the Indian economy. 1.4 Research Methodology As the project assigned to the researcher was a research study of the impact of the WTO Agreements on the Indian Economy, the case study and analytical form of research was most appropriate. Primary sources, such as books and reports, as well as secondary sources, such as articles from JSTOR and Hein Online, have been referred to at the NALSAR library. With no part of this project being plagiarised, it is asserted that this project is an original work of the researcher. All sources have been aptly cited.

1.3 Chapterisation

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The project is divided into 4 chapters. The first chapter is an Introduction to the project while the second chapter deals with an exploration into the WTO agreements. The third Chapter shall deal with the impact of these agreements on Indian Economy while the fourth chapter shall be the conclusion and evaluation of the researcher.

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CHAPTER-II: THE WTO AGREEMENTS 2.1 Introduction to the WTO The World Trade Organization (WTO) is an international organization designed by its founders 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 1947. The World Trade Organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalising 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 endeavouring 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. 2.2 Agreement on Agriculture The Agreement on Agriculture (hereinafter AOA) was negotiated during the Uruguay Round and signed in 1994 at Marrakesh by 120 countries. The AOA directly deals with agriculture, and Article 14 of this agreement binds members to the Agreement on the Application of Sanitary and Phytosanitary Measures.1 The final act was signed in April 1994, and with this

R. Thamarajakshi, Doha Declaration and Agriculture in Developing Countries, Economic and Political Weekly, Vol. 37, No. 1 (Jan. 5-11, 2002), pp. 23-27.

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the old General Agreement on Tariffs and Trade (GATT) was replaced by the new multilateral trade organisation i.e. WTO. Objectives of AOA: To establish a fair and market-oriented agricultural trading system. A reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines. To provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets.2 Features of AOA3: 1. Market Access: On market access, the Agreement has two basic elements: (i) Tariffication of all non-tariff barriers: non-tariff barriers such as quantitative restrictions and export and import licensing etc. are to be replaced by tariffs to provide the same level of protection. (ii) Minimum level for imports: of agricultural products by member countries as a share of domestic consumption. Countries are required to maintain current levels (1986-88) of access for each individual product. 2. Domestic support: Provisions of the Agreement regarding domestic support have two main objectives first to identify acceptable measures that support farmers and second, to deny unacceptable, trade distorting support to the farmers. These provisions are aimed largely at the developed countries where the levels of domestic agricultural support have risen to extremely high levels in recent decades. 3. Export subsidies: The Agreement on Agriculture lists several types of subsidies to which reduction commitments apply. However, such subsidies are virtually non-existent in India as exporters of agricultural commodities do not get direct subsidy. Although the AOA acknowledged the need for Special and Differential for developing countries, these are reflected only as differences in phasing and percentage reduction. The differential in the mandated order and period in respect of reduction in tariffs between developed and developing countries is illusory in as much as (i) developed countries had protected their agriculture substantially and reached peak levels of tariff before the Uruguay Round so that even after a 36 per cent reduction, their rates are absolutely and relatively very
2 3

Ibid. BHAGIRATH LAL DAS, THE WTO AGREEMENTS: DEFICIENCIES, IMBALANCES AND REQUIRED CHANGES 62-66 (1998).

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high, (ii) AOA did not mandate reductions in absolute terms but only in relative terms, and (iii) requirement of mandatory reductions being on an unweighted basis enabled developed countries to lower the higher tariffs on products of export interest to developing countries by only the minimum level of around 15 per cent and make substantial reductions in items of not so much trade relevance to the latter. Also, with the provision of 'green, blue and amber boxes' and reduction commitments fixed on relative basis, it has been left to the ingenuity of the advanced countries to perpetuate, if not increase, domestic support to their agriculture. An appreciable increase in expenditure under the Green Box in 1997-98 over the base period has taken place in major developed countries. Certain countries have also taken undue advantage by including the quantum of Blue Box support in their initial base period calculations of Aggregate Measure of Support (AMS),as in subsequent years there were no reduction commitments for this category. Such countries thus got unintended benefit. The disparity in AMS is perpetuated by the provision in AOA which allows developed countries to retain 80 per cent of their base level AMS whereas the developing countries are faced with the de minimis level of 10 per cent of the value of their agricultural production. Export subsidies constitute the most trade distorting practice and it is the developed countries which account for major portion of these subsidies. All these had in effect acted as barriers to free trade on a scale uncommon in merchandise trade. The AOA has been structured ab initio in a way as not to be able to increase market access to developing economies.4 2.2 TRIPS Agreement The Agreement on Trade Related Aspects of Intellectual Property Rights (hereinafter TRIPS) is an international agreement introduced by the WTO, and negotiated at the end of the Uruguay Round of the GATT in 1994, that sets down minimum standards for many forms of IP regulation as applied to nationals of other WTO Members. TRIPS requires the nations to provide for the following forms of IPRs:5
4

copyright rights, including the rights of performers, producers of sound recordings and broadcasting organizations geographical indications, including appellations of origin industrial designs

Jennifer Clapp, WTO Agricultural Trade Battles and Food Aid, Third World Quarterly, Vol. 25, No. 8 (2004), pp. 1439-1452; Pravesh Sharma, Agricultural Reforms: Some Unaddressed Issues, Economic and Political Weekly, Vol. 36, No. 29 (Jul. 21-27, 2001), pp. 2795-2796. 5 J. Michael Finger, The WTO's Special Burden on Less Developed Countries, 19 (3) CATO J. 425, 429 (2000) (http://www.cato.org/pubs/journal/cj19n3/cj19n3-9.pdf; last accessed on 27th March 2010).

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integrated circuit layout-designs patents monopolies for the developers of new plant varieties trademarks trade dress and undisclosed or confidential information

TRIPS further lays down enforcement procedures, remedies, and dispute resolution procedures. Protection and enforcement of all IPRs shall meet the objectives to contribute to the amelioration of technological innovation and to the transfer and wide availability of technology, to the dual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. The TRIPS agreement introduced IP law into the international trading system for the first time being the most comprehensive international agreement on IP, overruling the earlier Paris Convention of 1970.6 The developing countries exhibited concern about the fact that developed countries were insisting on an overtly narrow reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration. The WTO imposes the following obligations on nations ratifying the TRIPS agreement in order to protect and strengthen IPRs:7 1. In certain cases, require a party to produce specific evidence. 2. Issue an injunction ordering a party to desist from an infringement of an IPR. 3. Order the infringer of an IPR to pay damages to the IPR holder. 4. Destroy or otherwise dispose of goods which have been the subject of infringement, without any compensation. 5. Indemnify the defendant by payment of compensation for wrongful proceedings.

6 7

http://en.wikipedia.org/TRIPS_Agreement (last accessed on 27th March 2010). BHAGIRATH LAL DAS, THE WORLD TRADE ORGANISATION: AN INTRODUCTION TO THE FRAMEWORK TRADE 389 (1999).

OF

INTERNATIONAL

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6. Take interim or provisional measures to prevent an infringement or to preserve relevant evidence with regard to the alleged infringement. 7. Conduct criminal proceedings and award penalties in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. 2.3 General Agreement on Trade in Services (GATS) GATT 1947 was concerned almost exclusively with rules on trade in goods. The Uruguay Round's banner achievements were in expanding the scope of the GATT-WTO system to include non-goods sectors, liberalizing trade in several advanced sectors, and setting the WTO Members on a course to further liberalization agreements on advanced-sector trade. With the successful conclusion of the General Agreement on Trade in Services and the TRIPS Agreement, the negotiators broke new ground by introducing core GATT disciplines to trade in services and providing effective protection of intellectual property rights. Followon WTO negotiations also have produced agreements on trade in information technology products, telecommunications, and financial services. The service sector has overtaken manufacturing as the most important part of developed countries' economies. Service industries account for 61 percent of gross domestic product ("GDP") and over one-half of employment in developed countries. The ratio of world merchandise trade to services trade was four to one in 1995. The WTO estimates that world trade in services exceeds $4 trillion annually. Thus, developed countries enjoy a comparative advantage in the more capital-intensive and highly-skilled service industries, such as telecommunications and financial services.8 Developing countries, on the other hand, were unreceptive to the proposal to add services trade to the Uruguay Round agenda. Behind the leadership of India and Brazil, they were opposed to putting services trade on the Uruguay Round agenda at all. To the extent they enjoy any comparative advantage in this sector, it is in the labour-intensive construction industry. But restrictive immigration and labour laws historically have prevented trade in such services. More importantly, developed countries showed no interest in changing these trade-restrictive immigration laws. Ultimately, services trade was added to the Uruguay Round agenda. After resolving some preliminary issues (e.g., the definition and quantification of services trade), the General

BHAGIRATH LAL DAS, AN INTRODUCTION TO THE WTO AGREEMENTS 107-110 (1998); Kevin C. Kennedy, The GATT-WTO System at Fifty, 16 WIS. J. INT'L. L. 421, 484-485 (1998).

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Agreement on Trade in Services was successfully concluded. It was, however, one of the last agenda items to be wrapped up during the negotiations. The GATS is the first multilateral agreement covering trade and investment in the services sector. It is divided into seven parts, consisting of twenty-nine articles and eight annexes. The bricks and mortar of the GATS are built on three pillars. First, the GATS framework agreement prescribes core principles and basic obligations governing trade in services that are applicable to all WTO Members.9

RAJ BHALA, INTERNATIONAL TRADE LAW: CASES AND MATERIALS 285 (1996).

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CHAPTER-III: IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY 3.1 WTO Agreements and Indian Economy 3.1.1 India's Position and a general critique of the AOA India had called for a 'food security box' and a 'Development Box' to be placed alongside the Green Box. The argument that trade liberalisation would organise international production of food grains in an optimal way and help deliver cheap food to the poor in the developing countries is hypothetical; it is not just a question of securing food to the poor but doing so with a certain immediacy which requires national governments to be totally in charge of the task. Given the known constraints of late-comers in the development process, any international attempt as the AOA should have been tuned from the point of view of developing economies. Since world trade in agriculture is fraught with complexities given the wide disparities among countries in almost all aspects of agriculture, AOA could have taken up the limited problem of disciplining world trade, and on the basis of experience with implementation, modified the measures; it could have been an iterative process. Instead, AOA assumed a finality, apart from covering non-trade issues, inasmuch as some developed countries have taken the position that it is the implementation that can be reviewed and not the terms of AOA.10 3.1.2 Impact of TRIPS Agreement Impact on Law in developing nations The TRIPS Agreement specifies a phased schedule of implementation of the agreement according to the level of development of the member countries. The developed countries were provided one year to bring their national legislation in tune with provisions of TRIPS Accord, viz, by January 1, 1996. Developing member countries had four more years to implement the provisions of the agreement, i e, by January 1, 2000. An additional period of five years was provided to developing countries that did not provide for product patents in certain areas such as food, pharmaceuticals and chemicals, etc, as on January 1, 1995 to provide for these patents. However, all these countries (viz, those not providing product patents as on January 1, 1995) were obliged to provide a means for the acceptance of applications for product patent by January 1, 1995 which could be examined according to the criteria when the legislation providing for product patents was in place. In the transition
10

G.S. Bhalla, Indian Agriculture in the WTO Context, in 4 WTO AGREEMENTS 84 (Anwarul Huda ed., 2002).

AND INDIAN

AGRICULTURE 81, 81-

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period, exclusive marketing rights (EMRs) are to be granted for a period of five years from the date of obtaining marketing approval in the country or until a product patent is granted or rejected, whichever period is shorter. Therefore, the transition period provided to developing countries for introducing product patents has been nullified by requiring them to provide EMRs to all applicants for product patents which are in effect recognition of product patents even before they have been examined under the country's laws for their eligibility for grant of patents.11

Empirical Analysis by Scholars In the past, there have been very few studies examining the direct relationship between intellectual property protection and economic development in the setting of the developing countries. Older studies demonstrate that increased protection of intellectual property rights does not necessarily affect the transfer of technology in developing countries. For example, a United Nations study did not find a correlation between developing countries with strong intellectual property protection and increased foreign direct investment. Countries with the highest levels of foreign direct investment, such as Argentina, Brazil, China, and Thailand, have the lowest levels of intellectual property protection. On the other hand, countries with high levels of intellectual property protection, such as Nigeria, have not attracted higher levels of foreign direct investment than other similarly situated countries.12 With the increasing academic and policy-oriented interest in intellectual property protection, several new measures and studies concerning the effect of higher levels of intellectual property protection on economic development and growth have emerged. Numerous studies have been conducted to determine the effects of strengthening the protection of intellectual property rights through the TRIPs Agreement on economic growth, foreign direct investment, and technology transfer. The empirical data gathered in these new studies comes from either surveys of investors or from econometric works evaluating the impact of the TRIPs Agreements on developing countries. These newer studies show a positive correlation

11

Nagesh Kumar, India, Paris Convention and TRIPS, Economic and Political Weekly, Vol. 33, No. 36/37 (Sep. 5-18, 1998), pp. 2334-2335. 12 ROBERT M. SHERWOOD, INTELLECTUAL PROPERTY AND ECONOMIC DEVELOPMENT 75 (1990).

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between stronger intellectual property protection and increased foreign trade and foreign direct investment.13 Impact on India Under the TRIPS Agreement, India will have to provide for product patents in food, pharmaceuticals, and chemicals. The term of protection must be 20 years from the date of filing uniformly across all patents. The Indian Patents Act provides for a 14-year term for all patents and seven years in the case of pharmaceutical and chemical process patents. Hence Indian patent law will have to be amended on this issue as well. There are a number of other finer changes necessary, for instance, concerning the reversal of burden of proof, among others. There are also some differences in respect of the conditions under which a compulsory licence could be issued by the government; for instance, importing is considered as working under TRIPS regime and a compulsory licence cannot be issued as long as the patent holder is importing the patented product in the country. Hence the patents under TRIPS regime could be used to secure import monopolies by patentees.14 The TRIPS Agreement has two major negative connotations in the Indian context: 1. The access to basic generic drugs will be effectively blocked if all the obligations of the TRIPS agreement are complied with. 2. The access to technology will be effectively denied due to extremely stringent compliance measures prescribed by the TRIPS agreement. 3.1.3 Impact of GATS Health Sector The GATS will have a great impact on the health services provided in India. With liberalisation, various changes have been seen. Healthcare companies from the First World nations have established hospitals and pharmaceutical production sites in India, thus enabling the Indian consumer to have access to advanced healthcare. At the same time, it has allowed for 'medical tourism' in India, with foreigners entering India in order to receive inexpensive treatment. Educational Sector
13

See Frederick M. Abbott, The WTO TRIPs Agreement and Global Economic Development, 72 CHI. KENT L. REV. 382, 390 (1996). 14 Jayashree Wattal, Implementing the TRIPS Agreement: Policy Options open for India, Economic and Political Weekly, Vol. 32, No. 39 (Sep. 27 - Oct. 3, 1997), pp. 2461-2468; Suman Sahai, TRIPS Review: Basic Rights Must Be Restored, Economic and Political Weekly, Vol. 36, No. 31 (Aug. 4-10, 2001), pp. 2918-2919.

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The greatest impact of GATS would be felt on the educational services sector in India. Various scholars have opined that liberalisation in the educational services sector would lead to greater access to first world quality education at minimal expense, coupled with an incentive to the domestic sector to perform better to rise to the standards of the foreign institutions.15 However, an equal critique levelled is that the foreign institutions would make it a purely money-making enterprise, without any inclination to provide quality education.16

15

Rohini Sahni and Sumita Kale, GATS and Higher Education: Some Reflections, Economic and Political Weekly, Vol. 39, No. 21 (May 22-28, 2004), pp. 2174-2180. 16 Vijender Sharma, Commercialisation of Higher Education in India, Social Scientist, Vol. 33, No. 9/10, Debating Education (Sep. - Oct., 2005), pp. 65-74.

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CHAPTER-IV: CONCLUSION AND EVALUATION OF THE RESEARCHER 4.1 What India should press for In the present WTO framework, it has been suggested by scholars that India should press for the following17: 1. Agricultural Industry: Given India's actual and potential comparative advantage in agriculture, and the policy regime, which for the most part taxes rather than protects the sector, there is good reason for a change in India's negotiating position. Defensiveness could cede to active advocacy of global free trade in agriculture. India should go ahead and support full liberalisation of international agricultural markets. 2. Services: Although the most serious challenges are domestic, India should be open to multilateral disciplines on services liberalisation. This openness could serve as the basis for creating credible negotiating linkages through a formula approach, trading domestic liberalization for increased mobility of individual service providers. At the same time, India should press for strengthened multilateral disciplines on domestic regulations under the GATS to address implicit barriers posed by technical regulations, qualification, and licensing requirements. 3. TRIPS: India should change its intellectual property regulations to ensure that TRIPS benefits can be withdrawn in the event of noncompliance by partners with commitments that impact India's exports. It should further seek to clarify WTO dispute-settlement procedures to prevent the within sector retaliation rule from becoming an obstacle to such action. Domestically, it should institute workable systems for protecting intellectual property in order to credibly seek their replication internationally. 4.2 Future of WTO and India India, as a member of the WTO, has amended its economic barriers and intellectual property laws to accommodate WTO-compliance measures. These changes have been touted as positive, and an equal section of scholars have deemed them negative. However, with liberalisation in India, it is evident that there is growth in GDP and a variety of goods and services are now available to the average Indian consumer. While not disregarding development and North-South issues, the researcher submits that the WTO Agreements will have a mixed impact on the Indian economy i.e. positive for those capable of consumption of foreign goods and services and negative for those relying on state subsidy in terms of food grains and other resources.
17

Aaditya Mattoo and Arvind Subramanian, India and the Multilateral trading system post-Doha: Defensive or Proactive?, in INDIA AND THE WTO 327, 359-360 (Aaditya Mattoo and Robert Stern eds., 2005).

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BIBLIOGRAPHY Articles

Aaditya Mattoo and Arvind Subramanian, India and the Multilateral trading system post-Doha: Defensive or Proactive? Frederick M. Abbott, The WTO TRIPs Agreement and Global Economic Development, 72 CHI. KENT L. REV. 382. G.S. Bhalla, Indian Agriculture in the WTO Context. J. Michael Finger, The WTO's Special Burden on Less Developed Countries, 19 (3) CATO J. 425, 429 (2000). Jayashree Wattal, Implementing the TRIPS Agreement: Policy Options open for India, Economic and Political Weekly, Vol. 32, No. 39 (Sep. 27 - Oct. 3, 1997). Jennifer Clapp, WTO Agricultural Trade Battles and Food Aid, Third World Quarterly, Vol. 25, No. 8 (2004). Kevin C. Kennedy, The GATT-WTO System at Fifty, 16 WIS. J. INT'L. L. 421. Nagesh Kumar, India, Paris Convention and TRIPS, Economic and Political Weekly, Vol. 33, No. 36/37 (Sep. 5-18, 1998). Pravesh Sharma, Agricultural Reforms: Some Unaddressed Issues, Economic and Political Weekly, Vol. 36, No. 29 (Jul. 21-27, 2001). R. Thamarajakshi, Doha Declaration and Agriculture in Developing Countries, Economic and Political Weekly, Vol. 37, No. 1 (Jan. 5-11, 2002). Rohini Sahni and Sumita Kale, GATS and Higher Education: Some Reflections, Economic and Political Weekly, Vol. 39, No. 21 (May 22-28, 2004). Suman Sahai, TRIPS Review: Basic Rights Must Be Restored, Economic and Political Weekly, Vol. 36, No. 31 (Aug. 4-10, 2001). Vijender Sharma, Commercialisation of Higher Education in India, Social Scientist, Vol. 33, No. 9/10, Debating Education (Sep. - Oct., 2005).

Books

4 WTO AGREEMENTS AND INDIAN AGRICULTURE (Anwarul Huda ed., 2002). BHAGIRATH LAL DAS, AN INTRODUCTION TO THE WTO AGREEMENTS (1998). BHAGIRATH LAL DAS, THE WORLD TRADE ORGANISATION: AN INTRODUCTION
FRAMEWORK OF INTERNATIONAL TO THE

TRADE (1999).

INDIA AND THE WTO (Aaditya Mattoo and Robert Stern eds., 2005). RAJ BHALA, INTERNATIONAL TRADE LAW: CASES AND MATERIALS (1996). ROBERT M. SHERWOOD, INTELLECTUAL PROPERTY AND ECONOMIC DEVELOPMENT 75 (1990). -i-

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