Backdrop

1944: Bretton Woods summit leads to birth of three institutions

Institution	Key idea
World bank	Cheap loans for development projects in third world
IMF	Balance of payment and Exchange rates
GATT General Agreement on Trade and Tariffs	To reduce barriers to international trade. Bretton Woods wanted to setup an international trade organization (ITO) but USA did not ratify. Thus, GATT was born as a stopgap arrangement. GATT Uruguay round of talks => Marrakesh Treaty’94=> World rade organization (WTO) born in 1995, India founding member.

Founded in 1995
Marrakesh, Morocco - All nations signed agreement & WTO was established

Secretariat

:

Geneva

, Switzerland

NOT UN
WTO is ‘member-driven’, with decisions taken by consensus among all member governments.

Structure

Ministerial Conference	Supreme Decision Making body Meets once every two years, (2013- Bali, 2015-Nairobi, 2017-Buenos Aires) Deliberates on trade agreements Appoints Director general for 4 years term.
General Council	Day to Day Decision Making body Meets regularly at Geneva. Implements decision of ministerial conferences Has representative from each member state. It has two bodies, with separate chairman Dispute settlement body Trade policy review body Below general council, there are Committees on individual agreements and annexes- Anti dumping, Subsidies & Countervailing measures (SCM) etc.
Director General	Appointed by ministerial conference Has four years term. Heads the Secretariat at Geneva

Mandate

Reduce barriers to international trade – both tariff barriers and non-tariff barriers. (Note: its only reduce but not remove)

Tariff barriers - Ex: Imposing an customs duty on foreign cars
Non-tariff barriers - Ex: Giving subsidies to domestic cars that will make them cheaper in foreign markets
However, to prevent poor quality products being imported to domestic markets, there are two provisions

Food Products - Sanitary and Phytosanitary Measures Agreement (SPS) - EU banned Indian Alphonso under this.
Non Food products - Technical Barriers to Trade Agreement (TBT)

Ensure the developing countries benefit from world trade, especially the Least Developed Countries
Get the members enter into multilateral trade agreements to achieve above objectives.
Provide forum for negotiation and dispute settlement for the members, if the agreements are violated.
Cooperate with UN, World and IMF for a global economic policy that improves livelihood, protects environment and promotes sustainable Development

WTO bodies

Dispute settlement body

To enforce the trade agreements and commitments made by individual member country
Once a complaint is filed, first, the parties a re allowed to sort the issue through mutual consultation
If that fails, formal adjudication by an expert panel.

Appellate Body AB

AB is a seven-member permanent organ that adjudicates appeals within the Dispute Settlement System
AB is seven-member permanent organ which require at least 3 members to function. Tenure of two of the body’s three members ended in December’19, leaving unable to issue rulings.
AB became ineffective due to blockage of any new appointments by USA since 2017
As the AB became ineffective, Multi-party Interim Appeal Arbitration Arrangement (MPIA) at WTO was mooted by EU, Canada Australia, China etc.

As WTO’s disp te settlement body has become dysfunctional, MPIA is mooted
It offers arbitration outside the Appellate Body upon mutual agreement of the parties
Final and binding
Agreement made by the EU, Australia, Brazil, Canada, China, Chile, etc.
India, US are not part of it

Trade policy review body

Periodically, WTO carries out audit/inspection/review of the trade policy of member states and gives them constructive feedback.

Agreements

These agreements talk about what is compulsory & what is non-compulsory for each nation and what will be the penalties if a nation doesn’t follow the agreements.
Every Agreement has an ‘Annex’- in that you’ll find the detailed sions & items included in the agreements.
The Secretariat of WTO keeps an eye on every nation – seeing wheth agreements are followed or not.

Goods

GATT General Agreement on Trade and Tariffs

Objective: Reduction of barriers to international trade
GATT was a set of rules and procedures relating to multilateral agreements of selective nature. There were separate agreements on separate issues, which were not binding on members. Any member could stay out of the agreement.
GATT dispute settlement system was dilatory and not binding on the parties to the dispute.

Agreement on Agriculture AoA

3 pillars

Pillar	What they want from member states?
1. Market access	Reduce import duties
2. Export competition	Reduce export subsidies
3. Domestic support	Reduce Amber box subsides

Box	subsidies
GREEN	Subsidies that don’t disrupt trade balance OR cause minimum damage to tra balance. Ex: Agriculture research-development, extension services, farmer training programs, pest-disease control program, flood/drought relief money paid to farmers etc. WTO Limit: Nothing. Governments can give as much as they want.
BLUE	Amber type Subsidies that aim to limit production. Subsidies that don’t increase with production. For example subsidies linke with acreage or number of animals. Very few countries use blue box- Iceland, Norway, Slovenia etc. WTO limit: Nothing.
AMBER OR Aggregate Measurement of Support	Subsidies that disturb trade balance like subsidies on fertilizers, seeds, power and irrigation. They distort trade balance because they encourage excessive production, therefore given country’s product becomes cheaper than others, i the international market. WTO limits: yes [De Minimus limits - 5% for Developed, 10% for developing and exemption for LDC] Aggregate measurement support Relevance to India Under Amber box, MSP(price support measures), input subsidy are common and as per AoA Amber box for developing countries, total subsidies under Amber box cannot exceed 10% of the total value of agricultural production. Hence shifting to DBT is better as there are no limits of DBT under AoA
Social & Development Box	Allows developing countries to provide some subsidies to agriculture under human development issues such as poverty, minimum social welfare, health support etc.( <5% of total agricultural output)
Special and Differential Treatment Box	Investment subsidies like tractors and pump sets to farmers Agricultural input services like fertilizers to farmers provided only to low income and resource poor producers (or poor farmers) in developing countries. Measures for diversification of narcotics crop in order to rehabilitate the farmers.

De Minimus

Minimal amounts of Amber box subsides permitted by WTO, even though they distort trade.
De minimus limits are calculated on the agriculture production of the given member state in 1986-88.

Developed country - 5% of agri production of 1986-88 can be given as subsidies
Developing Country - 10% of agri production of 1986-88 can be given as subsidies
Least Developed Country - Exempted

India opposed this base year and limits, because it’d make impossible to implement the food secu ity programs for the poor and MSP for the farmers. Therefore, as a measure of temporary relief, Bali summit enacted a “peace clause” for the

Peace Clause

Applicable only to developing countries
No member, can drag any developing country to Dispute settlement mechanism of WTO for violation of De-minimus limits in AoA
Provided that the said developing country

is paying subsidies for staple food crops, for public stockholding program, for food security purpose.
is providing annual information of its food security Program to WTO.

Permanent solution will be taken no later than 11th ministerial conference i.e. at December 2017

However, no agreement was made in 11th ministerial conference

In April 2020, for the first in the world, India invoked Peace clause for exceeding the ceiling on support it can offer farmers for rice

India informed WTO that it offered subsidies 11.46% of the value of production of rice and as it crossed 10 percent de-minimus limit, India invoked peace clause
India informed that as it is developing country and rice production not meant for commercial trade but for domestic food security and for needy people

Agreement on Textiles
Agreement on Anti-dumping

A Country cannot levy Anti-dumping duties on another country which was designated as Market Economy by host country
India does not designate China as Market Economy. Hence anti-dumping duties are levied

Information Technology Agreement

Hardware and software products that are listed will be exempted from Tariffs (zero tariffs)

Safety

Technical Barriers to Trade TBT

To prevent poor quality nonfood products.

Sanitary and Phytosanitary Measures Agreement (SPS Agreement)

It concerns the application of food safety, animal and plant health regulations
Countries set according to their own standards but they must be based on science and not arbitrarily

Ex: Europe banned import of Indian Alphonso.

They must be applied only to the extent necessary to protect human, animal, plant life/health

Trade Related Investment Measures TRIMS Agreement

Subsidies and Countervailing measures

(Non-Agro goods; For Agro goods, AoA applicable)

Green	No action can be taken on the subsidies which are considered under Green box
Amber	Can put countervailing duty on such items. Ambiguity. Hence often members go to (this i contentious- States use this to victimize others).
Red	Subsidies Banned (Ex: States giving subsidies to exports)
Special & Differential treatment	LDCs and Members with GNP < $1000 per year exempted from prohibition of subsidies to exports (means they can provide subsidies) Other developing countries have 8 year period to prohibit export subsidies

Countervailing measures include Countervailing Duty and anti-dumping duty
Countervailing duty cannot be levied if the Subsidies granted are found to be de minimis (i.e. of below limits, countervailing duty cannot be levied)

For developing countries, as less than 2% of the value of imports of the product.
For developed country, the de minimis is 1% of the import value of the product

NOTE: SCM agreement recognizes three categories of developing country Members

Least-developed Members (“LDCs”) <
Countries with GNP per capita < $1000 per year
Other developing countries

Trade Facilitation Agreement TFA

(most recent and big one 2013. Bali Summit)

Simplified faster, hassle free customs clearance mechanism - ease custom clearance norms
Under TFA, every member

Will have to publish a detailed list of procedure for import-export, fees, inspection rules, penalties etc.
Minimize the proof documents and clearance required for customs clearance and single window
Make all the information available on INTERNET to foreign traders, governments and interested parties
Provide electronic payment of fees, duties, taxes.
Trader should be notified immediately, if goods are detained at customs.
Provide faster customs clearance to perishable goods (Fruits, veggies, flowers).
Member must not ask foreign traders to compulsorily route their applications/fees via local customs brokers/middlemen.
Give Advance ruling, as and where applicable.
Need to setup an domestic national committee on trade facilitation

India stand

Initially opposed as it is used as bargaining chip to overcome subsidy limits on Agreement on Agriculture
However, ratified it in 2015 ministerial conference (Nairobi package)
National Committee on Trade Facilitation NCTF

Constituted as part of Trade Facilitation Agreement of WTO which India ratified
Should comply with the provisions of the TFA

Need 2/3rd members ratification
Proposed to be effective from 2015 but came into force from Feb 2017
TIR convention is different from TFA that TIR provisions for sealed vehicles and also Road transport

Services

GATS General Agreement on Trade in Services

To ensure that services import/export enjoys the same principles of free and fair trade, just like the trade in goods.

Movement of natural persons	Temporary visas for migrant workers for providing service. Does not deal with permanent visas
Airlines	Repair, Maintenance and reservation of seats
Telecom sector	Members should not discriminate foreign players

Four modes of supplying services

Mode 1	Cross border supply	To cover services flows from the territory of one Member into the territory of another Member	Ex: banking or architectural services transmitted via telecommunications or mail
Mode 2	Consumption abroad	Where a service consumer moves into another Member's territory to obtain a service	Ex: tourist or patient
Mode 3	Commercial presence	A service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member's territory to provide a service	Ex: Hotel chains
Mode 4	Presence of natural persons	Persons of one Member entering the territory of another Member to supply a service	Ex: Doctors, Teachers

Intellectual Property Rights

TRIPS Trade Related Intellectual Property Rights

TRIPS agreement protects seven categories of IPR

Copyrights, patents, trademarks, Geographical indicators, industrial designs, integrated circuit layout-designs, Trade secrets

It sets out the minimum standards of protection to be provided by each Member
Membership in the WTO includes an obligation to comply with the TRIPS Agreement.
TRIPS Flexibilities

TRIPS flexibilities are ‘ olicy spaces’ for countries to mitigate the impact of patents Flexibilities aim to permit developing and least-developed countries to use TRIPS-compatible norms to pursue

Their own public policies in specific fields (like pharmaceutical products/ biodiversity conservation)
OR establish macroeconomic conditions that support economic development

Major flexibilities are

Compulsory licensing : Enables competent Govt to license the use of patented invention to third party/Govt agency even without the consent of Patent holder
Parallel import Enables Govt to import patented product from another country even without consent of patent holder
Exemptions from patentability (may be as they have lack of novelty, inventive step etc.)
Limits on Data protection

During COVID-19, India asked G20 countries to work on an agreement that would enable countries to use the flexibilities under TRIPs.

TRIPS do not have any annexes
WTO issues GI tag which is respected by all countries. WIPO GI is not effective w.r.t WTO TRIPS GI

Plurilateral - not applicable to all members

Aircrafts
Procurement
Dairy
Meat

Current Functions/Operations

2013 Bali Summit/Package

Trade Facilitation Agreement TFA	To cut down the red tape in customs clearance
LDC exports	Exporters from Least developing countries, will get Duty free, Quota free (DFQF) access to markets in foreign countries.
Food stockholding	This lead to peace clause in Agreement on Agriculture

2015 Nairobi Summit/Package

Eliminate Export Subsidies	First World countries - Extended deadline Third world countries like India - Deadlines set Least Developed Countries - Far deadl ine
SSM Special Safeguard Mechanism	Though export subsidies eliminated, first world countries goods are cheaper because of its advanced production and technology. Hence to counter these cheaper import surges, special safeguard mechanism is proposed No concrete decision on benchmarks.
Least Developed Countries	Tweaked in Duty free, Quota free (DFQF) access to markets in foreign countries for exporters from Least developing countries Included Substantial transformation component(upto 75% of final value) to get DFQF. Ex: India sent apples to Kenya and Kenya selling same apples to US and getting DFQF is not correct. Hence Kenya if it adds more than 75% of value addition in Kenya itself, then it will get DFQF
Patent evergreen	Generally, patents are offered for some years. And some companies try to do small advancement in the existing patent and they made it renew again for extended years and this extension goes on forever All members of WTO will take strict actions to prevent ever greening of patents and by this affordable generic drugs ensured

2017 Buenos Aires Summit - WTO Ministerial Conference 11

Buenos Aires, Argentina
No declaration -members failed to agree to a ministerial declaration at the end
No outcome on public stockholding for food security purposes or on other agriculture issues

As per Agreement on Agriculture of WTO, a developing country's food subsidy bill should not breach the limit of 10 per cent of the value of production taking 1986-88 as base year
India and other developing countries have been seeking amendments in the formula to calculate the food subsidy cap and the base year, as this limit is insufficient to meet domestic food security challenges
As an interim measure, the WTO members at the Bali ministerial meeting in December 2013 had agreed to put in place a mechanism called the Peace Clause and committed to negotiate for a permanent solution at the 11th ministerial meeting at Buenos Aires
But no outcome in 11th ministerial meeting

Buenos Aires Declaration on Women and Trade

Provides a framework for WTO members to adopt ―gender responsive trade policies.the declaration seeks women’s economic empowerment by expeditiously removing barriers to trade.
Spearheaded by Iceland and Sierra Leone
India chose not to endorse this declaration as this is related to non-trade issues.

NOTE: 2019 Summit does not take place because of COVID

Proposal to include e-commerce, services and investment in WTO

E- commerce

In 2015, Internet penetration in the least-developed and low income countries was 12.6% and 9.4%, respectively while the global average is at 43%. Disparities in internet penetration
Hence with the introduction of e-commerce, the developed countries will be more beneficial

Investment

Focus on issues b/w investor and state in dispute resolution
Developing countries do not want to initiate disputes against them in international tribunals by investors

Trade Facilitation in Services TFS

India proposal for WTO for a global pact to boost services in trade
This will eases the norms including those relating to movement of foreign skilled workers/professionals across borders for short-term work.

Investor State Dispute Settlement ISDS mechanism

An idea put forth by EU and Canada at WTO on the sidelines of World Economic forum meeting
Contentious issue is that it permits companies to drag Govts to international arbitrations even without exhausting local remedies and can claim huge compensation citing losses for Govt policy changes

It is a neutral international arbitration procedure.
In this mechanism, the investor in another signatory state can seek compensation in a binding arbitration tribunal in case of violation of principles of investor support.

WTO reports/indexes/rankings

World Trade Outlook Indicator

Major trade disputes of India in WTO

Avian Influenza

US won, India wants time to implement

US imposed CVD Counter Vailing Duty on Indian Steel

India won, US wants time to implement

Solar subsidies provided under National Solar Mission

Domestic procurement clause
US Won
India filing counter cases against US state own programs

US challenged export subsidies provided by India under 5 sets of schemes

Nov 2019, US Won
India has time to implement or may tweak schemes
US allegation

India provides subsidies to exporters through 5 schemes which are violative of certain provisions of WTO’s Subsidies and Countervailing Measures (SCM) Agreement that prohibits subsidies that are contingent upon export performance.
5 schemes

Export-Oriented Units, Electronics Hardware Technology Park and Bio-Technology Park (EOU/EHTP/BTP)
Schemes o Export Promotion Capital Goods (EPCG) Scheme
Special Economic Zones (SEZ) Scheme
Duty-Free Imports for Exporters Scheme (DFIS)
Merchandise Exports from India Scheme (MEIS)

Provision in WTO SCM agreement: According to the Special and Differential Treatment (S&DT) provisions of Subsidies and Countervailing Measures agreement

When a memberâ s pe capita gross national income (GNI) exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to withdraw its export subsidies.

Other Aspects

Most Favoured Nation principle

In WTO, every nation is MFN- essentially means normal trade among member countries and doesn’t a k for special treatment to any country
If one country is granted a special favour, the same has to be done for all other WTO members

MES Market Economy Status

A country has to be given a market economy statu s under WTO if its supply, demand, pricing are market driven. In such cases, the country which was given by another country and it cannot impose anti-dumping duties against MES countries
In 2001, China entered WTO and was given 15 years to change its economy from Closed to Market
Domestic laws of a country has to determine giving MES status to any other country and if given, cannot impose anti-dumping duties
European union and US not willing to give MES to China to protect from cheap goods which India is also not interested since it laid anti-dumping duties
Reasons cited by India are:

Lack of transparency, subsidies, currency devaluation

Generalized System of Preferences GSP

It provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO),
GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.
US firms have approached the United States Trade Representative (USTR) against the price capping of stents by India Govt. with a request to either suspend or withdraw India benefits under Generalized System of Preferences (GSP).
India is provided certain exemptions by US under its GSP programme

Chemicals, gems and jewellery, engineering and textiles are among the Indian industrial sectors that benefit from the GSP.

Feb 2020, US officially designated developing and least developed countries for the purposes of implementing the countervailing measures provided by the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO
GSB Benefits to exports to US stand at 12% of total exports to US in 2018

Determination of criteria for designating Developing country status

Article IX.2 of the WTO agreement provides that the LDC status of a country in the WTO is based on such status being recognized by the UN. But the agreement does not mention any criterion to determine a ‘developing country’ statu
Countries self-designate them as Developing countries

US alleges that Countries self designate themselves as ‘developing country’ to take ad age of provisions like Article XVIII of GATT and other special and differential treatment (S&DT) provisions in the WTO agreements.
US proposal for criteria

Any country that meets one of the following criteria shall not be eligible for S&DT benefits

membership of, or seeking accession to OECD;
membership of G20;
share in world exports exceeding 0.5% or
classified as high income group by the World Bank

India status according to US proposal

India is a member of the G20
India share in world exports is around 1.7%

As per these criteria, India will not qualify as a developing country

India's argument that it is developing country because

India’s GDP per cap ta is very low
India has 36 crore people living in multidimensional poverty
Domestic subsidies provided to farmer are at meagre $227
India has a very low research and development capacity.

Subsidies

WTO SCM Agreement contains a definition of the term “subsidy”. <
The definition contains three basic elements:

(i) a financial contribution
(ii) by a government or any public body within the territory of a Member
(iii) which confers a benefit.
All three of these elements must be satisfied in order for a subsidy to exist.

In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member.

Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.

Developed and Developing country vis-a-vis WTO

Developed vs Developing definition in WTO
WTO does not lay down any specific criteria for making a distinction between a developed and a developing country member, unlike in the World Bank where per capita incomes are used to classify countries

NOTE:

Article IX.2 of the WTO agreement provides that the LDC status of a country in the WTO is based on such status being recognized by the UN.
But the agreement does not mention any criterion to determine a ‘developi country’ status
- Countries self-designate them as Developing countries. However, it is the preference giving country which decides the list of developing countries that will benefit from the preferences
- Advantage of being a developing country
- NOTE
Challenges
- Developing countries concerns
- Appellate Body became ineffective due to blockage of any new appointments by USA since 2017
Relevance of WTO
- Failure of the recent ministerial meeting at Buenos Aires indicates the decline of importance of WTO
- WTO has too ambitious agenda which sometimes backfires. Every other country wants to include "new issues (non-trade)" under WTO regime
- Major powers may no longer see any value in it as a forum for multilateral trade agreements, but they now use it to push for standalone deals as well as plurilateral deal