WTO and India – Peace Clause, Major WTO Agreements, Role of India in WTO

By BYJU'S Exam Prep

Updated on: November 14th, 2023

The World Trade Organization was founded in 1995 as an institution. The General Agreement on Trade and Tariffs (GATT), which has been in effect since 1946, was replaced by WTO. An important topic for the civil services examination is WTO and India and its participation in numerous foreign organizations.

WTO is an extremely significant intergovernmental organization that deals with trade and business on a global scale. The WTO now has 164 member nations. It guarantees profitable trade for both nations and ensures their peaceful and productive relations. Let us discuss in detail WTO and India and other facts pertaining to this.

WTO and India

WTO in India establishes the laws governing international trade. When drafting international agreements, the WTO aims to give the interests of the developing world more consideration. On 1 January 1995, India became a part of WTO.

  • As a WTO member, India is subject to several significant agreements, including the Agreement on Subsidies and Countervailing Measures, GATS, SPS, TRIPS, TRIMS, Agreement on Agriculture, and the Agreement on Textiles.
  • India maintained its firm position in the WTO negotiations, striving for a fair, transparent, and balanced trading system that serves the interests of developing nations.
  • India has changed drastically in how it views the multilateral trading system. India still supports developing and under-developed nations, but it has maintained its positions on many different issues.

What Is World Trade Organisation?

World Trade Organization (WTO) is an intergovernmental body that controls and promotes global trade. Governments use the United Nations System to create, amend, and enforce the laws that regulate international trade with effective cooperation. The headquarters of WTO is in Geneva, Switzerland.

  • According to the 1994 Marrakesh Agreement, it began operating formally on 1 January 1995, taking the place of the 1948-established General Agreement on Tariffs and Trade (GATT).
  • The WTO provides a framework for trade agreements that typically aim to lower or abolish tariffs, quotas, and other limitations, facilitating trade in commodities, services, and intellectual property among participating nations.

Importance of WTO in India

The World Trade Organization is a global organization that was founded on 1 January 1995, with the goal of assisting its members in raising their quality of living, generating jobs, and bettering people’s lives through trade. It establishes international trade norms and regulations and ensures they are correctly implemented to prevent injury and violence. WTO performs the following functions.

  • Administration of the WTO trade agreement
  • Provide a platform for trade negotiations
  • Settling commercial issues
  • Keeping an eye on national trade policies
  • Aiding emerging nations with training and technical assistance
  • It permits open discussion among its members about commerce

Major WTO Agreements and their Implications For India

WTO aims to give the interests of the global south more consideration when international agreements are being drafted. Additional considerations have been made, including those related to intellectual property under the Trade-Related Aspects of Intellectual Property (TRIPS) agreement, services under the General Agreement on Trade in Services (GATS), and investments under the Trade Related Investment Measures agreement (TRIMS). Check out the points highlighting the points pertaining to the WTO and India.

General Agreement on Trade in Services (GATS)

The creation of a reliable set of international trade standards, the nondiscrimination principle, the promotion of economic activity by clear policy commitments, and the gradual liberalization of trade were the inspirations behind GATS.

Under GATS, service-related negotiations are divided into four forms:

  • The delivery of services across international borders without the movement of living beings. Services like KPO or LPO are a few examples of business process outsourcing (BPO). India can work toward mode 1 liberalization by making use of its vast human resource base and vibrant IT industry.
  • A country providing a consumer in another country with a service, like telecommunications.
  • Foreign investment is made possible by commercial presence, which comprises services provided by a service provider from another country on the property of any other country.
  • A company offering facilities through the presence of natural beings in the territory of another country can be a company that sends its engineers to work on-site in the US, Europe, or Australia.

Agreement on subsidies and countervailing measures (SCM)

The term “subsidy” is defined in the SCM Agreement as a monetary contribution made by a government or other public entity inside the territory of a member that gives a benefit. The SCM Agreement disciplines are only applicable to 4 “particular” subsidies.

  • Enterprise Specificity: A nation’s government targets one or more particular businesses for subsidies.
  • Sector Specificity: The government targets one or more industries for subsidies.
  • Regional Specificity: Governments subsidize producers in specific regions of their territories.
  • Prohibited Subsidies: A government uses native inputs to subsidize export goods or products.

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The World Trade Organization (WTO) is in charge of enforcing the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), a global agreement that establishes minimum requirements for numerous IP regulations that apply to nationals of other WTO Members. After the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994, it was negotiated.

As part of the Doha Development Agenda, TRIPS was improved in 2003 to benefit developing nations by allowing compulsory licensing in some circumstances. However, the existing strict terms of patents permitted by TRIPS continue to bother the United States and Europe.

Trade-Related Investment Measures Agreement (TRIMS)

According to the Agreement on Trade-Related Investment Measures (TRIMS), certain investment measures may hinder and obstruct trade. It adds that any measure that discriminates against foreign products or results in quantitative limits is prohibited, as both go against fundamental WTO principles.

The Agreement includes a list of TRIMS that are not permitted, such as local content restrictions. The United States has brought India before the WTO over the latter’s stipulation of Domestic Content Requirements in connection with the purchase of Solar Energy cells and equipment.

Agreement on Textiles & Clothing (ATC)

As a short-term solution, the Multifibre Arrangement and Agreement on Textiles and Clothing (MFA) was launched in 1974 to help industrialized nations adapt to imports from the developing world. Because textile manufacturing is labor-intensive and labor costs are cheap, developing nations and nations without welfare states enjoy a distinct edge.

Sanitary and Phyto-Sanitary Measure

One of the outcomes of the Uruguay Round of negotiations, this agreement became operative on January 1, 1995, when the World Trade Organization was established. The Agreement lays out the fundamental guidelines for standards of animal and plant health, as well as food safety.

It enables nations to establish their own standards. However, it also states that laws must be grounded in science. They should only be used as much as is required to safeguard human, animal, or plant life or health. Additionally, they shouldn’t unfairly or arbitrarily discriminate across nations where the same or similar criteria are in effect.

Agreement on Agriculture (AOA)

The 1994 WTO agreement on agriculture aims to eliminate trade restrictions, support open access to markets, and integrate world markets. The agreement is extremely complex and controversial; it is frequently criticized as a weapon used by industrialized countries to take advantage of developing ones. Some of its components are still the subject of negotiations. The three pillars on which AOA depends are as follows.

  • Domestic Support: It refers to direct, product-specific subsidies like guaranteed Minimum Prices and Input Subsidies. Subsidies are divided into three categories under this: Green Box, Blue Box, and Amber Box.
  • Market Access: In order to promote free trade, tariffs set by individual nations (such as customs duties) must be gradually reduced. Additionally, it mandated that non-tariff barriers be eliminated and replaced with tariff duties.
  • Export Subsidy: These can take the shape of a subsidy on agricultural inputs, making exports less expensive, or they can be other export incentives like the waiver of import duties, etc. These may lead to the dumping of heavily subsidized (and inexpensive) goods in another nation. This could harm the domestic crops of another nation.

Impact of WTO in India

The best tool of any developing nation is trade, and those who utilize it wisely bring prosperity and wealth to their nation. India, a developing country, does as well. India is a predominantly agricultural nation, and because it sells agricultural goods around the world, a large portion of its GDP is derived from agriculture. If used properly, trading may significantly contribute to the development of any country even though it also has negative effects. So let’s examine the positive and negative effects of the WTO on India.

Advantages and Disadvantages of WTO in India

The World Trade Organization is a global organization that handles the laws and regulations governing international trade. This organization has assisted numerous nations in developing through commerce. Additionally, it aided India in becoming a developed nation and continues to do so.

The economy of a country is significantly impacted by trade, a component of globalization. It also has drawbacks, but they are outweighed by the advantages. Therefore, the WTO appears to India to be a life-improving organization. Let us check the advantages and disadvantages of India joining WTO.

Advantages of India Joining WTO

India is a developing nation with a sizable population and a big landmass. Because of this, it requires more money to feed its population. India excels in agriculture because of its favorable geographic conditions for growing crops. Thus, they can feed their own population and sell edible goods without importing other goods. India, one of the founding members of the WTO, has a particularly favorable impact on it because it has a perfect balance of imports and exports. The following are the advantages of the World Trade Organization in India’s development:

  • Due to WTO, India’s export competitiveness has increased
  • The reduced tariff has made it easier to integrate into the world economy
  • Transferring and exchanging technology and ideas has helped India grow and flourish
  • Market access results in a decrease in expenses and turnaround time
  • The WTO improved trade dispute resolution by providing a clear and organized process

Disadvantages of WTO in India

Every positive effect of WTO in India has a corresponding drawback. Even after all of its benefits, the WTO has yet affected India in the following ways:

  • The Indian Patents Act was violated by the TRIPs agreement (1970).
  • Drug prices increased as a result of MNCs’ adoption of product patents in India, leaving the poor with no generic alternatives.
  • The expansion of intellectual property rights to agriculture has had a negative impact on India and its research institutions.
  • The MFN (most preferred nations) rule served China’s dumping invasion of the Indian market and was damaging to India’s interests.
  • India’s service industries lag behind those in industrialized nations in terms of development.

Peace Clause

The “Peace Clause” is the term used by trade negotiators to refer to Article 13 of the Agriculture Agreement of the World Trade Organization. According to Article 13, a WTO member’s domestic support policies and export subsidies that are permitted by the terms of the Agreement on Agriculture cannot be objected to by other WTO members on the basis that they violate the terms of another WTO agreement.

On 1 January 2004, the Peace Clause became invalid. Therefore, poor countries and countries that support free trade in agricultural goods, like the Cairns Group, are now able to use the WTO dispute settlement process to contest, in particular, U.S. and EU export subsidies on agricultural goods.

India and WTO Issues

India is one of the prominent members of WTO and is widely regarded as the world’s largest developing and underdeveloped nation. Decisions are made by consensus at the WTO. So it’s unlikely that something that would be extremely undesirable to India and WTO interests could be enforced independently. As long as it interacts with various interest groups in a constructive manner while protecting its developmental interests, India stands to benefit from the discussions taking place in the forum.

The WTO offers a platform for these developing nations to come together and exert pressure on developed nations to make trade more advantageous for underdeveloped nations. India continues to be devoted to several developmental concerns, including the Doha Development Agenda, the Special Safeguard Mechanism, the Permanent Solution of the Public Stock Holding Issue, and others.

WTO and India UPSC

Understanding the concept of WTO and India is important for candidates preparing for the upcoming UPSC exam. Having an in-depth knowledge of the topic will lead tge candidates towards the path of attaining proficiency. Candidates can expect questions on WTO and India in both prelims and mains exam. It is an important topic for international relations and current affairs.

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