WORLD TRADE ORGANIZATION (WTO), RELATIONS WITH

WORLD TRADE ORGANIZATION (WTO), RELATIONS WITH India is one of the twenty-three original contracting parties to the General Agreement on Tariffs and Trade (GATT). It thus automatically became a member of the World Trade Organization (WTO), which replaced GATT on 1 January 1995, following the completion of the Uruguay Round of negotiations in 1994.

India has been an active participant in all rounds of GATT negotiations, notwithstanding its declining share in world trade through most of the post–World War II period. In the post-WTO era, India continues to be an important voice in discussions to launch a new round of multilateral trade negotiations. The thrust of India's position has been to ensure a fair distribution of rights and obligations between developed and developing countries and to address the developmental concerns of poor countries. Its negotiating strategy has, however, evolved with its overall trade and development strategy and policy orientation. Its earlier strategy was largely defensive, in line with its import substitution policies. But the initiation of economic reforms following the balance of payments crisis of 1991 altered India's views on the opportunities, benefits, and threats of engaging in the multilateral trading system and has led to the adoption of a more forward-looking negotiating strategy.

GATT and India: The Pre–Uruguay Round Years

India played an important role in international trade negotiations under the auspices of GATT. Time and again it played the role of a leader and spokesperson for developing countries, along with Brazil. For instance, as early as 1963, India initiated an action program to expand exports by less developed countries to the developed countries. This program called for a standstill on all new tariff and nontariff barriers, the elimination of all GATT illegal Quantitative Restrictions (QRs), the removal of all duties on tropical primary products, and a schedule for reducing and eliminating tariffs on semi-processed and processed products. But often such efforts bore little success.

However, India's overall approach to the multilateral trading system during the pre–Uruguay Round period was ambivalent and protectionist. It was driven by an ideology of import substitution and foreign exchange conservation and was underpinned by its belief in a new international economic order. India was an advocate of special and differential treatment to developing countries and unilateral concessions by developed countries. This defensive approach was evident in the continued high levels of tariff and nontariff protection in India, despite successive rounds of GATT negotiations. In 1990 India's import weighted average tariff rate stood at 87 percent, its unweighted average tariff at 128 percent, and its highest tariff rate at 355 percent, much higher than rates in other developing countries. In addition, 65 percent of all its imports and 90 percent of its manufacturing imports were subject to nontariff barriers in 1990. Moreover, India repeatedly invoked GATT Article 19(B), which permitted the maintenance of QRs for balance of payments reasons. Agriculture and textiles, which were two major sectors of export interest to India, remained outside GATT agreements. Concessions given under special and differential treatment arrangements like the Generalized System of Preferences were heavily qualified, discriminatory, and often nonsubstantive. Overall, India viewed GATT as an international forum to address asymmetries in the balance of economic power between developed and developing countries rather than a forum to liberalize its trade policies and integrate with global trade.

The Uruguay Round of Negotiations

The Uruguay Round of negotiations introduced textiles and agriculture as well as several new issues like intellectual property rights, services, and trade-related investment measures into the multilateral trading system. India, along with Brazil, led a group of developing countries against the inclusion of these new issues. It feared that industrialized countries would make commitments in textiles and agriculture subject to developing country concessions in such areas. However, India eventually had to agree to negotiate on these new issues as part of the Uruguay Round.

India made far more substantive commitments to reduce tariff and nontariff barriers on merchandise trade under the Uruguay Round than in all earlier rounds. Its relatively more liberal approach in this round was made possible by the far-reaching trade reforms introduced in the country beginning in 1991. In its Uruguay Round commitments, India increased the percentage of bound tariff lines for all products from a mere 6 percent in the pre–Uruguay Round period to 67 percent following the Uruguay Round. It bound its tariffs on 62 percent of all nonagricultural tariff lines, which included a large number of important products like iron and steel, chemicals, and machinery. It further committed to reduce its bound rate on all industrial products by 40 percent, from an import weighted average tariff rate of 71.4 percent to 32.4 percent, and committed to reduce tariffs on 2,701 industrial product lines. In agriculture, India bound 81.4 percent of its agricultural imports from the rest of the world. However, India remained largely defensive in the agricultural sector owing to food security and livelihood concerns. The bindings in agriculture were set at very high levels, at rates of 100 percent for primary products, 150 percent for processed products, and 300 percent for edible oils. Moreover, some tariffs that had been bound at zero before the Uruguay Round were renegotiated and were set at higher levels to afford a greater degree of protection to sensitive products. Inclusive of industrial and nonindustrial products, India offered to reduce its basic duty by roughly 30 percent. The duty reductions were to be made over a period of six years.

India has thus far adhered to its tariff binding and reduction commitments. It brought down its applied import-weighted average tariff rate on industrial products from 54 percent in the pre–Uruguay Round period to 33 percent in 1996–1997, further to 30.3 percent in 1998, and to 29 percent in 2001–2002 and most recently to around 20 percent. It has reduced its applied tariffs for a large number of industrial products and has brought them close to their bound levels. However, in agriculture, tariff reductions have been less substantive, with the difference between bound and applied rates remaining at more than 50 percent for 656 out of 673 tariff lines as late as 2000. The slower pace of trade liberalization in this sector has been due to concerns about potential adverse effects on rural employment, livelihoods, and food security.

India also made substantive commitments to reduce nontariff protection in the Uruguay Round. It agreed to phase out QRs on all goods except for some 600 items or product lines for security reasons. As per the Agreement on Agriculture, it also committed to tariff its nontariff barriers on agricultural imports. But due to concerns about the potential adverse impact on domestic producers and on the balance of payments, India took recourse to GATT Article 18:B to maintain QRs on some products. The latter was, however, ruled inconsistent with India's WTO obligations following a dispute filed against India by the United States in 1996, and India had to agree to phase out all its QRs (on 1,429 product lines) by 31 March 2001, earlier than originally scheduled. In line with the WTO decision, India removed QRs on 714 items by 1 April 2000 and the rest by 1 April 2001, covering both bound and unbound products.

Under the General Agreement on Trade in Services (GATS), India's approach was highly conservative. It scheduled only a few services for negotiations and did not table important services, such as energy and distribution services, where there is great interest on the part of developed countries to enter the Indian market. Even within the scheduled sectors, India's market access and national treatment commitments were very limited in scope and more restrictive than prevailing policies. The revised offers made by India in January 2004 as part of the ongoing GATS negotiations are not substantively different and remain subject to numerous restrictions. Today, the wedge between India's GATS commitments and existing policies is even greater, given the considerable autonomous liberalization undertaken in the 1990s in many of India's service sectors. India's main market access interest within services has been the movement of service suppliers; India wants to secure increased and predictable market access for the temporary movement of its service providers and was earlier influential in developing the GATS annex on this mode of supply. More recently, India has been pushing for secure market access for the cross-border supply of services, a mode which covers trade in services through business process outsourcing, which is of growing interest to India. It has formed developing country coalitions and presented bold proposals on both these GATS modes of supply.

The issue of intellectual property rights and the resulting agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) aroused much debate in India. While the agreement had no major implications for India in the area of copyrights, trademarks, and designs, as domestic legislation in the latter areas were already in conformity with the TRIPs agreement, in the area of patents India had several concerns. The foremost concern was about the likely impact of amendments in domestic patent legislation due to the TRIPs agreement (given differences between the two in terms of coverage, duration, working of patents, and compulsory licensing provisions) on the Indian pharmaceutical sector and on public health and equity objectives. It was feared that the introduction of product patents for pharmaceuticals (as opposed to process patents, which was the case in India) would lead to higher drug prices and benefit developed country pharmaceutical firms at the expense of domestic generic drug manufacturers in developing countries. Moreover, in the Indian view, there was no convincing link between stronger intellectual property rights legislation and innovation, investment, technology transfer, and quality. A second concern was that patent protection to plant varieties and microorganisms under the TRIPs agreement would lead to "bio-piracy" and plundering of the ecological wealth of developing countries like India as well as monopoly over seed and fertilizer trade and production by Western multinationals. The fear was that such protection would ultimately raise input prices for developing country agricultural producers, would limit their ability to indigenize to suit local conditions, and could potentially have adverse environmental effects.

Notwithstanding such concerns and much domestic opposition, India has taken steps to bring its domestic legislation into conformity with the TRIPs agreement. India's Patents Act of 1970 has undergone three amendments, the latest being at the end of 2004. The main changes include the extension of patent protection to a period of twenty years for all inventions, the specification of a list of nonpatentable innovations, including seeds, plants, species, traditional knowledge, and other items for which innovations may not classify as inventions, clarification of what constitutes the working of patents, conditions for the grant of compulsory license, including on grounds of national and public health emergencies, and introduction of product patents. India has also introduced the Protection of Plant Variety and Farmer's Right Act as a sui generis system for protecting plant and animal life. However, the basic concerns and debates over the TRIPs agreement continue in India, and have also shaped India's position on this agreement in the post–Uruguay Round discussions.

According to various studies, India was expected to be among the main developing-country beneficiaries of the Uruguay Round agreement, mainly due to the elimination of nontariff barriers. The coverage ratio for nontariff barriers on Organization for Economic Cooperation and Development (OECD) countries' imports from India was estimated to decline from 29.4 percent to 5.1 percent across all products. The bulk of this reduction was due to improved market access in textiles and clothing and agriculture, following the phasing out of the Multi Fibre Agreement (MFA) by 2005 and the elimination of nontariff barriers in agriculture. Quantitative exercises indicated an increase in exports of .3 percent of the value of India's 1992 exports due to liberalization of agricultural trade and of 7.4 percent due to elimination of the MFA. The gains were not as significant in other areas. For instance, committed tariff reductions averaged a mere 2.4 percent and affected only 5 percent of all merchandise exports by India to OECD countries. In the area of services, the gains were limited, given the lack of substantive commitments by all countries in India's main area of export interest, namely, movement of service suppliers. Any gains were, however, finally contingent on the implementation of commitments by the developed countries and on India's ability to capitalize on the improved market access opportunities by introducing domestic structural and policy reforms to remove supply-side constraints and compete more effectively in world trade.

Post–Uruguay Round Developments

In the various Ministerial Conferences that have taken place since the Uruguay Round, India's focus has been on three issues. These are: the implementation of the Uruguay Round commitments in agriculture and textiles to ensure that the gains promised to developing countries in that round are realized; ensuring greater sensitivity to equity and developmental concerns of developing countries in the context of TRIPs; and preventing further widening of the WTO mandate. In the course of these Ministerials, India has also been very influential in shaping the outcome of discussions and the introduction of new frameworks and proposals.

In agriculture, India has pushed strongly for the implementation of subsidy reduction commitments made in the Uruguay Round by the developed countries. In preparation for the Cancún Ministerial in September 2003, India was instrumental in forming a new alliance of developing countries (G-22), including important developing countries like Brazil, South Africa, China, and Egypt, which rejected the framework on agriculture that was put forward by the European Union and the United States just prior to the Cancún meetings. The collapse of the talks at Cancún was in large part due to the G-22's insistence on implementation issues in agriculture. India was a key player in this coalition, fostering unity among the group despite the divergent interests of its member countries and despite divisive tactics by the developed countries to fragment the coalition. It also helped in framing an alternative proposal by the developing countries on agriculture and garnered the support of the smaller and poorer developing country coalition, the G-90 grouping.

In the July 2004 discussions in Geneva to develop a framework agreement, India again played a leading role within the G-22 alliance. It pushed for provisions such as safeguard measures, the adoption of less than full reciprocity in tariff reductions, exemptions from de minimis subsidy reductions for resource-constrained farmers in poor countries, and explicit recognition in the framework on agriculture of the food security, livelihood, and rural and social development concerns of developing countries. India was also one of the members of a new group that emerged during the July 2004 discussions, the Five Interested Parties Group (including Brazil, the United States, the European Union, and Australia), which consisted of countries with both offensive and defensive interests in agriculture. India played an important role within this group in helping forge a last-minute consensus on the July framework agreement, particularly in the context of agriculture, thus keeping the Doha Round alive.

India has also voiced implementation concerns in textiles. It criticized the fact that during the 1995–2005 transition period of this agreement, developed countries had phased out quotas on textile and clothing products which did not face binding quotas and that over 95 percent of India's textile and clothing trade would remain unintegrated until the final year of transition. Moreover, India also voiced concerns about unilateral changes introduced by certain importing countries on rules of origin, repeated antidumping investigations on India's textile exports, and selective liberalization of quotas under preferential bilateral arrangements, which further eroded any market access gains realized in this sector by India. It pushed successfully for the scheduled elimination of the MFA on 1 January 2005. Its textile and clothing exports are expected to grow significantly in the post-MFA regime.

There has also been some concern in India with regard to the nonagricultural market access negotiations. Although India has not opposed these discussions, it has expressed concerns about the formula that will be adopted for reductions in industrial tariffs from the Uruguay Round levels. It has opposed proposals for larger reductions on industrial products that are subject to higher tariffs, and proposals for zero duties on selected products. This opposition stems from concerns about possible adverse effects on certain emerging manufacturing sectors and on labor-intensive small-scale industries, with implications for employment and poverty. India has also lobbied for credit to be given to developing countries for autonomous liberalization in recognition of the fact that significant reductions in applied tariffs have been undertaken unilaterally by many developing countries since the Uruguay Round in the context of trade reforms.

With the backing of developing countries like South Africa and Brazil, India has argued the need to interpret and implement the TRIPs agreement in a manner that gives member countries the right to protect public health and promote acccess to medicines for all. India lobbied actively to introduce flexibility provisions under the TRIPs agreement in the area of public health and medicines and was finally successful in realizing the Declaration on TRIPs and Public Health at the Doha talks. This declaration gives members the right to grant compulsory licenses, to determine the grounds on which to grant these licenses, and to determine what constitutes a national health emergency. Before the Cancún Ministerial, India, along with the United States, Brazil, South Africa, and Kenya, also succeeded in introducing a provision under the TRIPs agreement that would allow developing countries to import generics from earmarked countries in case of public health emergencies. This was seen as a major victory for developing countries and their generic manufacturers, although how such a provision will operate in practice and its implications for the Indian pharmaceutical industry are not yet clear.

India has also made two other demands in the post–Uruguay Round discussions on TRIPs. The first is to extend geographic indicators to products other than wines and spirits in view of India's export interests in products like basmati rice. The second is to introduce restrictions on the misappropriation of biological and genetic resources and traditional knowledge from developing countries. However, its primary focus under TRIPs has been the issue of affordable access to medicines and equity in public health.

India differs from the major developed countries concerning the scope of future WTO negotiations. It has insisted that the scope of WTO negotiations be restricted to the built-in agenda of the Uruguay Round and the implementation of commitments made in the previous round. It strongly opposed the inclusion of labor and environmental standards and the four Singapore issues of investment, competition policy, transparency in government procurement, and trade facilitation under the WTO framework. As part of the G-22 alliance, it was instrumental in the dropping of three of the four Singapore issues as part of the July 2004 framework agreement.

Future Strategies and Policy Directions

India's approach to the WTO negotiations has been largely issue- and cause-based and very much driven by coalition dynamics and alliances, often at the expense of its own strategic interests. On several occasions, India's firm public stand on issues has attracted criticism from developed country negotiators and the media. For instance, it was widely blamed for "scuttling" the launch of a new round at Doha, and was termed by one observer as the "fallen hero of a lost third world cause" (Panagariya).

Overall, critics contend that India has often espoused the cause of developing countries at the expense of its own interests in WTO negotiations. In future WTO negotiations, India needs to adopt a more strategic approach. It must dovetail its negotiating strategy into its overall economic liberalization and trade reform program. It needs to use its multilateral engagement in the WTO to facilitate meaningful policy reform, such as by ensuring that domestic opening generates payoffs in terms of increased market access abroad. The latter would also enhance India's credibility as a bargainer. Given the extent of trade liberalization and market opening that has occurred in India since the Uruguay Round, India needs to solidify these policies through multilateral commitments to lock in its reforms and to signal the credibility of its policy orientation.

Rupa Chanda

See alsoBrazil–India Relations ; Economic Reforms of 1991 ; Intellectual Property Rights ; Trade Liberalization since 1991

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