Introduction

The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade. The organization officially commenced on 1 January 1995
under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1948. The organization deals with regulation of trade between
participating countries; it provides a framework for negotiating and formalizing trade
agreements, and a dispute resolution process aimed at enforcing participants' adherence to
WTO agreements, which are signed by representatives of member governments and ratified
by their parliaments. Most of the issues that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (19861994).
The organization is attempting to complete negotiations on the Doha Development Round,
which was launched in 2001 with an explicit focus on addressing the needs of developing
countries. As of June 2012, the future of the Doha Round remained uncertain: the work
programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and
the round is still incomplete. The conflict between free trade on industrial goods and services
but retention of protectionism on farm subsidies to domestic agricultural sector (requested by
developed countries) and the substantiation of the international liberalization of fair trade on
agricultural products (requested by developing countries) remain the major obstacles. These
points of contention have hindered any progress to launch new WTO negotiations beyond the
Doha Development Round. As a result of this impasse, there has been an increasing number
of bilateral free trade agreements signed As of July 2012, there were various negotiation
groups in the WTO system for the current agricultural trade negotiation which is in the
condition of stalemate.
WTO's current Director-General is Roberto Azevdo, who leads a staff of over 600 people in
Geneva, Switzerland.

Difference between GATT and WTO

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating
international trade. It was created in 1948 and lasted until 1993. World Trade Organization
(WTO) was formed as a replacement for GATT in 1995 with the purpose of supervising and
liberalizing international trade. WTO has a more permanent structure compared to GATT.
WTO also monitors trade in services and trade-related aspects of intellectual property rights,
in addition to trade in goods.
There are various bodies or agreements that have been made around the world in order to
maintain peace and justice among the different countries. The main purpose of such bodies is
to regulate talks, trade and other rules and regulations among the different countries of the
World. The most popular bodies are the United Nations and the World Trade Organization.
Though there are a few similarities between the GATT and the WTO, they are distinctly
different from each other.
The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating
international trade. It was created in 1948 with a purpose of substantial reduction of tariffs
and other trade barriers and the elimination of preferences, on a reciprocal and mutually
advantageous basis. It was originally placed under the ITO (International Trade
Organization), which was supported by the United Nations (UN). When the ITO failed to
ratify, GATT evolved into the World Trade Organization (WTO). There a few major flaws in
the GATT structure such as not enough enforcing power, which led to many disputes among
the members. Also, the rules and regulations that were created under GATT were temporary
in nature. World Trade Organization (WTO) was formed as a replacement for GATT in 1995
with the purpose of supervising and liberalizing international trade. The organization deals
with regulation of trade between participating countries, it also provides a framework for
negotiations and formalizations of trade agreements. It is also responsible for enforcing trade
laws, agreements and resolving disputes. The WTO was created with the purpose of being a
stronger and having a more permanent framework compared to the previous GATT. It also
monitors trade in services and trade-related aspects of intellectual property rights, in addition
to trade in goods. The WTO has a total of 157 member countries.

IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY :The signing of WTO agreements will have far reaching effects not only on Indias
foreign trade but also on its internal economy. Although the ultimate goal of WTO is to free
world trade in the interest of all nations of the world, yet in reality the WTO agreements has
benefitted the developed nations more as compared to developing ones. The impact of WTO
on Indias economy is staged as follows :I. Positive Impact Benefits Advantages Gains from WTO :The Positive impact of WTO on India's economy can be viewed from the following
points:1) Increase In Export Earnings :Estimates made by World Bank, Organisation for Economic Co-operation and
Development (OECD) and the GATT Secretariat, shows that the income effects of the
implementation of Uruguay Round package will be an increase in traded merchandise goods.
It is expected that Indias share in world exports would improve.
2) Agricultural Exports :Reduction of trade barriers and domestic subsidies in agriculture is likely to raise
international prices of agricultural products. India hopes to benefit from this in form of higher
export earnings from agriculture. This seems to be possible because all major agriculture
development programmes in India will be exempted from the provisions of WTO Agreement.
3) Export Of Textiles And Clothing :With the phasing out of MFA (Multi - Fibre Arrangement), exports of textiles and
clothing will increase and this will be beneficial for India. The developed countries demanded
a 15 year period of phasing out of MFA, the developing countries, including India, insisted
that it be done in 10 years. The Uruguay Round accepted the demand of the latter. But the
phasing out Schedule favours the developed countries because a major portion of quota

regime is going to be removed only in the tenth year, i.e. 2005. The removal of quotas will
benefit not only India but also every other country'.
4) Multilateral Rules And Disciplines :The Uruguay Round Agreement has strengthened Multilateral rules and disciplines.
The most important of these relate to anti - dumping, subsidies and countervailing measures,
safeguards and disputes settlement. This is likely to ensure greater security and predictability
of the international trading system and thus create a more favourable environment for India in
the New World Economic Order.
5) Growth To Services Exports :Under GATS agreement, member nations have liberalised service sector. India would
benefit from this agreement. For Eg:- Indias services exports have increased from about 5
billion US $ in 1995 to 96 billion US $ in 2009-10. Software services accounted for about
45% of service exports.
6) Foreign Investment :India has withdrawn a number of measures against foreign investment, as er the
commitments made to WTO. As a result of this, foreign investment and FDI has increased
over the years. A number of initiatives has been taken to attract FDI in India between 2000
and 2002. In 2009-10, the net FDI in India was US $ 18.8 billion.
II. Negative Impact / Problems I Disadvantages Of WTO Agreements on Indian
Economy :1) TRIPs :The Agreement on TRIPs at Uruguay Round weights heavily in favour of
Multinational Corporations and developed countries as they hold a very large number of
patents. Agreement on TRIPs will work against India in several ways and will lead to
rponopoly of patent holding MNCs. As a member of WTO, India has to comply with
standards of TRIPs.
The negative impact of agreement on TRIPs on Indian economy can be stated
asfollows
a) Pharmaceutical Sector :4

Under the Patents Act, 1970, only process patents were granted to chemicals, drugs
and medicines. This means an Indian pharmaceutical company only needed to develop and
patent a process to produce and sell that drug. This proved beneficial to Indian
pharmaceutical companies as they were in a position to sell quality medicines at low prices
both in domestic as well as in international markets. However, under the agreement on
TRIPs, product patents needs to be granted. This will benefit the MNCs and it is feared that
they will increase the prices of medicines heavily, keeping them out of reach of poor. Again
many Indian pharmaceutical companies may be closed down or taken over by large MNCs.
b) Agriculture :The Agreement on TRIPs extends to agriculture through the patenting of plant
varieties. This may have serious implications for Indian agriculture. Patenting of plant
varieties may transfer all gains in the hands of MNCs who will be in a position to develop
almost all new varieties with the help of their huge financial resources and expertise.
c) Microorganisms :The Agreement on TRIPs also extends to Microorganisms as well. Research in micro
- organisms is closely linked with the development of agriculture, pharmaceuticals and
industrial biotechnology. Patenting of micro - organisms will again benefit large MNCs as
they already have patents in several areas and will acquire more at a much faster rate.
2) TRIMs :Agreement on TRIMs provide for treatment of foreign investment on par with
domestic investment. This Agreement too weights in favour of developed countries. There are
no provisions in Agreement to formulate international rules for controlling restrictive
business practices of foreign investors. Jn case of developing countries like India, complying
with Agreement on TRIMs would mean giving up any plan or strategy of self - reliant growth
based on locally available technology and resources.
3) GATS :One of the main features of Uruguay Round was the inclusion of trade in services in
negotiations. This too will go in favour of developed countries. Under GATS agreements, the
member nations have to openup services sector for foreign companies. The developing
countries including India have opened up services sector in respect of banking, insurance,
communication, telecom, transport etc. to foreign firms. The domestic firms of developing
5

countries may find it difficult to compete with giant foreign firms due to lack of resources &
professional skills.
4) Non - Tariff Barriers :Several countries have put up trade barriers and non - tariff barriers following the
formation of WTO. This has affected the exports from developing countries. The Union
Commerce Ministry has identified 13 different non - tariff barriers put up by 16 countries
against India. For eg. MFA (Multi - fibre arrangements) put by USA and European Union is a
major barrier for Indian textile exports.
5) Agreement On Agriculture (AOA)
The AOA is biased in favour of developed countries. The issue of food security to
developing countries is not addressed adequately in AOA. The existence of global surpluses
of food grains does not imply that the poor countries can afford to buy. The dependence on
necessary item like foodgrains would adversely affect the Balance of Payment position.
6) Inequality Within The Structure Of WTO
There is inequality within the structure of WTO because the agreements and
amendments are in favour of developed countries. The member countries have to accept all
WTO agreements irrespective of their level of economic development.
7) LDC Exports
The 6th Ministerial Conference took place at Hong Kong in December 2005. In this
Conference, it was agreed that all developed country members and all developing countries
declaring themselves in a position to do so, will provide duty - free and quota - free market
access on a lasting basis to all products originating from all Least Developed Countries
(LDC). India has agreed to this. Now India's export will have to compete with cheap LDC
exports internationally. Not only this, the cheap LDC exports will come to Indian market and
compete with domestically produced goods.
India will face several problems in the process of complying with WTO agreements,
but it can also reap benefits by taking advantage of changing international business
environment. For this it needs to develop and concentrate on its areas of core competenci

The case for open trade

The economic case for an open trading system based on multilaterally agreed rules is
simple enough and rests largely on commercial common sense. But it is also supported
by evidence: the experience of world trade and economic growth since the Second
World War. Tariffs on industrial products have fallen steeply and now average less than
5% in industrial countries. During the first 25 years after the war, world economic
growth averaged about 5% per year, a high rate that was partly the result of lower trade
barriers. World trade grew even faster, averaging about 8% during the period.
The data show a definite statistical link between freer trade and economic growth.
Economic theory points to strong reasons for the link. All countries, including the
poorest, have assets human, industrial, natural, financial which they can employ
to produce goods and services for their domestic markets or to compete overseas.
Economics tells us that we can benefit when these goods and services are traded.
Simply put, the principle of comparative advantage says that countries prosper first
by taking advantage of their assets in order to concentrate on what they can produce
best, and then by trading these products for products that other countries produce best.
In other words, liberal trade policies policies that allow the unrestricted flow of
goods and services sharpen competition, motivate innovation and breed success.
They multiply the rewards that result from producing the best products, with the
best design, at the best price. But success in trade is not static. The ability to compete well in
particular products can shift from company to company when the market changes or new
technologies make cheaper and better products possible. Producers are encouraged to adapt
gradually and in a relatively painless way. They can focus on new products, find a new
niche in their current area or expand into new areas. Experience shows that competitiveness
can also shift between whole countries. A country that may have enjoyed an advantage
because of lower labour costs or because it had good supplies of some natural resources,
could also become uncompetitive in some goods or services as its economy develops.
However, with the stimulus of an open economy, the country can move on to become
competitive in some other goods or services. This is normally a gradual process.

WTO And India

The eight round of GATT negotiations started in 1986 at Uruguay, under the
chairmanship of Arthur Dunkel. One of the important features of the Uruguay round was
transforming GATT into a permanent watchdog named as WTO (World Trade
Organization) in 1995 with a status equal to IMF and World Bank. The preamble of
WTO states that, there is a need for positive efforts to ensure that developing countries
and especially the least developed among them, secure a share in the growth of
international trade commensurate with the needs of their economic development. It also
categorically states that, the developing countries will be benefited from the increased
exports and better treatment with respect to measures taken by the other WTO member.
The new World Trade Organization (WTO) which replaces the General Agreement on
Tariffs and Trade (GATT) has com members including India. The major agreements under
WTO regimes are TRIPS (Trade Related Intellectual Property Rights), TRIMS (Trade
Related Investment Measures),GATS (General Agreement and trade and services), Dispute
Settlement and Monitoring of Trade Policies. India has adopted the policy of most favored
nation (MFN) to all its trading partners. As a member of WTO, India is committed to ensure
that the sector in which the developing countries enjoy a comparative advantage are
adequeqately opened up to international trade. India is also committed to ensure that the
special and differential treatment provisions for developing countries under different WTO
agreements are translated intspecific enforceable dispensations. Currently, India has adopted
WTO norms in these sector likes Agriculture, Trade and Industry, Intellectual property and
services (WTO:Report on Indias trade policies Review, May 2002).Consequent upon WTO
Arrangement, it was expected that Indias export and its GDPe into effect from Jan 1st 1995
with about 85 founding members including India. The major agreements under WTO regimes
are TRIPS (TradeRelated Intellectual Property Rights), TRIMS (Trade Related Investment
Measures),GATS (General Agreement and trade and services), Dispute Settlement and
Monitoringof Trade Policies.

Objective of the Study

The objective of the study is to examine the growth performance of GDP of Indian
economy as well as Indian export, considering the impact of major structural change, if
any, after 1991 due to introduction of Structural Adjustment Programmes and WTO
Arrangement in 1995.

World Trade Organization and Indian Economy

The World Trade Organization is playing an important role for administering the new global
trade rules in the following ways:1. Trade Agreement:- The WTO administers, through various councils and committees ,the
28 agreements contained in the final act of the Uruguay Round, plus a number of plurilateral
agreements, including one government procurement.
2. Tariffs Rules:- The WTO also oversees the implementation of significant tariff cuts
(averaging 40 percent) and reduction of non-tariff measures agreed to in the trade
negotiations.
3. Trade Watch Dog:- The WTO is a watchdog of international Trade, regularly examining
the trade regimes of individual members .In its various bodies, members flag proposed or
draft measures by others that can trade conflicts. Members are also required to notify in detail
various trade measures and statistics which are maintained by the WTO in a large data base.
4. Various Conciliation Norms:- The WTO provides several conciliation mechanisms for
finding an amicable solution to trade conflicts that can arise among members.
5. Trade Disputability Settlement :- Trade disputes that cannot be solved through bilateral
talks are adjudicated under the WTO Dispute Settlement Court Panels of Independent expert
are established to examine disputed in the light of WHO rules and provide rulings .This
tougher streamlined procedure ensures equal treatment for all training patterns and
encourages members to live up to their obligations.
6. WTO is consultant body:- The WTO is a management consultant for world trade. Its
economists keep a close watch on the pulse of the global economy and provide studies on the
main trade issues of implementation or Uruguay Round results through a newly established
Development division and strengthened technical co-operation and training division.
10

Checks Of Trade Barriers:- The WTO will be forum where countries continuously
negotiate exchange of barriers all over the world. And the WTO already has a substantial
agenda for further negotiations in many areas.
The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade. The organization officially commenced on January 1,1995
under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1948. The organization deals with regulation of trade between
participating countries. it provides a framework for negotiating and formalizing trade
agreements, and a dispute resolution process aimed at enforcing participants adherence to
WTO agreements which are signed by representative of member governments and ratified by
their parliaments.[4][5] Most of the issue that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (1986-1994).
The organization is currently endeavoring to persist with a trade negotiation called the Doha
Development Agenda (or Doha Round), Which was launched in 2001 to enhance equitable
participation of poorer countries which represent a majority of the worlds 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.
It can be expected that the WTO is different from and an improvement upon GATT, on the
ground that firstly, the WTO will be more global in its membership than the GATT. Its
perspective membership is already around 150 countries and territories with many other
considering accession.

11

Dispute Settlement Mechanism of WTO

The WTO presently offers a far more powerful mechanism in order to resolve disputes over
trade, arising out of growing competition for markets among the members. Under the present
situation facing frequent quarrels and disputes among the trading partners a trade-dispute
settlement mechanism is very much required. WTO in now changed with the responsibility to
provide such mechanism.
A recent report of WTO observed that developing countries are emerging more as active user
of the multilateral dispute-settlement mechanism than the developed nations. Such a move
has been notice of more so in the World Trade Organization than the General Agreement on
tariffs and Trade. On March 5, 1996, the Dispute Settlement Body (DSB) established two
panels at the request of Philippines and Costa Rica. The DSB decision raised the number of
active panels in WTO to four, with three of them involving developing country complainants.
The first WTO dispute, which had been settled bilaterally, involved two developing countries
Singapore and Malaysia. An in depth analysis shows that in contrast, the vast majority of
dispute-settlement cases in GATT were between developed countries.
Improvements in the WTOs dispute-settlement procedure over those of GATT have
facilitated the lodging of formal complaints for all members.
These improvements include:a) Near automatically of establishment of panels and adoption of their reports and
b) Precise deadlines for every step of the panel process.
At present the WTO is making an all-out effort to evolve a consensus on controversial and
key issue like inclusion of social clause on trade agenda. The Director General of Genevabased WTO, MNr. Renato Ruggiero says that immediate challenge is to build a consensus on
the subject of trade and labor standards in order to avoid this becoming a divisive issue.
The new WTO agreement extends the amount of Government procurement opened to
international by 10 times compared to the earlier agreement. However ,it remains only a
pluri-lateral agreement with limited membership.

12

IMPORTANCE OF INDIAN AGRICULTURE

Agriculture forms the backbone of the Indian economy. This sector contributes to the Indian
economy in a variety of ways:

It provides direct employment to 65% of working people in the country and

contributes about 29% of GDP of the country. In advanced nations like the US,
agriculture accounts for a mere 2% of GDP, and employs 4% of the total labour force.
The position is similar in other advanced countries. For example, agriculture
contributed 2% of GDP in France with 6% share in labour force; in Germany the
contribution of agriculture to GDP was 1% with 3% share in labour force. The
corresponding figures for UK were 2% and 3% (World Bank 2000).

Agriculture also provides the foodgrains to feed the large population of the country.

Indian agriculture is an important source of supply of raw materials to industries in

the country.

Agriculture contributes a sizeable share in Indias exports.

Besides, it provides fodder for the large cattle population.

Being the largest source of employment and income to millions of people, it provides
a vast market for our industrial products.

The country has made significant improvements in agricultural production, but the
achievements have been mainly confined to a few areas. The major challenges for our
agriculture system would always be increasing production and productivity to ensure food
security for the rising population. Meeting this challenge means also ensuring food security
and a better standard of living for the rural people. Indias performance in agriculture affects
overall rural development and the extent of rural poverty. Therefore, the performance of the
economy is crucially dependent upon that of agriculture.

13

WTO AGREEMENT ON AGRICULTURE

For the first time, agriculture was brought under the world trading system in the Uruguay
Round of negotiations, which concluded in Marrakesh in April 1994. The Agreement on
Agriculture (AoA) was one of the many agreements that were negotiated during the Uruguay
Round. Most assessments of the agreement hail it as a historic shift in the way it establishes
new multilateral rules governing market access, domestic support and export subsidies for
agriculture. In terms of future trade liberalization, its most important provisions may be those
requiring the elimination of Quantitative Trade Restrictions and their conversion to sound
tariffs. These sound tariffs, even though extremely high, can provide a starting point for
future negotiations of tariff reduction.
The AoA has three basic clauses:
A. Market Access commitment requires conversion of all non-tariff barriers into equivalent
tariff barriers. Ordinary tariffs including those resulting from tariffication of non-tariff
barriers are to be reduced by an average of 36% with minimum rate of reduction of 15% for
each tariff item over a 6-year period. Developing countries are required to reduce tariffs by
24% in 10 years. Developing countries that were maintaining Quantitative Restrictions due to
Balance of Payments problems were allowed to offer ceiling bindings instead of tariffication.
It was also been stipulated that minimum access equal to 3% of domestic consumption in
1986-88 should be established by the year 1995 rising to 5% at the end of the implementation
period.
B. Domestic Support to agriculture was also to be reduced considerably in countries where
the aggregate measure of support exceeded the level specified in the member schedule. The
limit for developed and developing countries was fixed at 5% and 10% of the total value of
agricultural output respectively. There are three categories of support measures that are not
subject to reduction under the agreement, they are:
i. Green Box Measures: Policies that have minimum impact on the patterns of production
and flow of trade.
ii. Blue Box Measures: These measures include direct payment to the farmers for production
limiting programme and are relevant only from the point of view of the developed countries.
iii. Amber Box Measures: These are the most important measures from the point of view of
14

producers in developing countries.

The AoA demands commitment to reduce support to be achieved by first quantifying, and
then progressively reducing domestic support, i.e. the Aggregate Measure of Support (AMS).
C. Export Subsidies are also to be reduced. The Agreement contains provisions regarding
members commitment to reduce export subsidies. Developed countries are required to
reduce their export subsidy expenditure by 36 per cent and volume by 21 per cent in six
years, in equal installments from 1986-1990 levels. For developing countries the
corresponding cuts are 24 per cent and 14 per cent in equal annual installments spread over
ten years. The least developed countries are not subject to any reduction commitments.

15

IMPLICATIONS OF AoA FOR INDIAN AGRICULTURE

The repercussions of the WTO Agreement and the removal of Quantitative Restrictions on
imports are quite alarming. The fall in the prices of agricultural goods and dumping of cheap
agriculture commodities from other countries is causing harm to the welfare of Indian
farmers. Developed countries have imposed heavy tariffs to minimize imports, whereas in
India tariffs are low. Due to this, various commodities are being dumped in India. The US is
dumping five primary farm commodities in global markets in clear violation of WTO
Agriculture rules. It is exporting corn, soybean, wheat, rice and cotton at prices far below
their production cost in an effort to wipe out global competition.
The continuation of high domestic support to agriculture in developed countries is a cause of
concern as they encourage overproduction in these countries leading to low levels of
international prices of agricultural products. At the same time the rich industrialized countries
continue to subsidize farmers by giving them direct payments which are exempt from any
reductions requirement and which essentially are cash handouts contingent on making
adjustments in production. These payments are neither affordable nor helpful in a developing
country. The result is that the industrialized countries continue to dominate world trade in
agriculture while preventing India and other developing countries from achieving selfsufficiency in food production.
The AoAs requirement to reduce domestic support will prevent the Indian government from
providing the necessary support to farmers to compensate for shortage or overabundance
caused by climatic fluctuations in market prices or any other factors. In fact subsidies are
essential for Indian agriculture as 65 per cent of people are directly or indirectly dependent
upon agriculture. It is no longer the question of mere economics because the social and
political implications of developments in agriculture cannot be ignored.
The domestic support provision also affects Indias food security. The Agreement exempts
governmental expenditures relating to public stockholding for food security purposes from
reduction requirement if the operation of such a programme is transparent and follows
officially published objective criteria. This automatically subjects these programmes to
external scrutiny. A developing country may acquire and release foodstuffs at administered
16

prices; however, the difference between the international market price and the administered
price will be included in the calculation of AMS. Therefore, the public stockholding system
will be subject to reduction requirements if the AMS exceeds the de minimis level.
The export commitment requirements, in turn, prevent India from providing subsidies to
industry that are necessary for it to expand its share of world export markets. This limitation
will also adversely affect the future of Indian agriculture.
The reduction in custom duties and non-tariff barriers as well as guaranteed minimum market
share for imports will force Indian farmers to compete against large Transnational
Corporations which have excessive financial power resulting from their oligopolistic control
over world food markets. Indian farmers cannot compete on equal terms against the
enormous financial and technological clout of the transnational giants of the rich countries,
particularly when custom duties and other import barriers are reduced, and these companies
are guaranteed a share of Indian market. Compliance with market access requirements will
devastate domestic food production and India will become dependent on foreign foodgrains.
To conclude, it is feared that the Agreement is not favorable to India due to the following
reasons:
i. The country will be compelled to import at least 3% of the domestic demand for
agricultural products.
ii. The government will be forced to reduce subsidies to farmers.
iii. The Public Distribution System and Public Procurement System will have to be
abandoned.

17

CHALLENGES TO INDIAN AGRICULTURE

The challenges before Indian agriculture are immense. India is not where it should have been
in the world market for agricultural products despite being one of the top producers. The
country needs to put greater emphasis on cultivation of international varieties. Until India
takes some steps in this direction, it will continue to produce more only to earn less. The
major challenges for Indian agriculture system would always be increasing production and
productivity to ensure food security for the raising population.
Rigid quality control is a major challenge for Indian agriculture. The global agricultural
market is influenced to a great extent by the quality of products, especially when exporting to
developed nations. Indian agricultural exports have to face tough competition, which is a
matter of serious concern. The right type of technology for growing and processing must be
adopted so that there is good quality production at lower costs, which in turn will reduce the
prices and place India in a better position to compete globally. Indian producers produce
agricultural goods at competitive prices. Yet low global prices resulting from subsidies by the
developed nations mainly the European Union and United States, deprives India of any
advantage on the price front. The US is exporting wheat at prices 40 per cent lower than
production costs. In the case of soybean, the price difference has been increasing steadily
over the last four years and is currently at 30 per cent while for maize it is 25-30 per cent. In
2001, cotton was being sold in the international markets at a price 57 per cent lower than its
production cost, while the price difference for rice has stabilized at 20 per cent. As a result of
these prices, the US is the worlds largest exporter of wheat, corn, cotton and soybean, and
the second largest in rice.
While agricultural trade liberalization was justified on the grounds that Northern agricultural
markets would open to India, Indias exports to Europe have actually declined from 13 to 6
per cent. This is because the North still maintains high subsidies and trade barriers. The WTO
regime has become a challenge because it has shown that agriculture trade liberalization has
become a unidirectional phenomenon that opens markets in the South for Northern business
corporations but closes markets in the North for trade from South. Such trade will destroy
livelihood opportunities for resource-poor farming families and agricultural labour.
Global forces are now playing an important role in determination of cropping patterns,
18

investment levels, price structures, quality of production and level of international trade.
Indian farmers are facing multiple challenges. Firstly, they are being asked to provide a
greater variety of better quality products at lower cost, and in a safer manner than ever
demanded before. Secondly, they are being asked to produce this abundance on a shrinking
natural resources base that is often subject to government regulations.
As far as India is concerned there are some danger signals. Population growth rate and higher
per capita income suggest that demand for foodgrains is growing. But there are doubts about
the supply response. In terms of acreage, area under foodgrains has not increased. Yield
growth rates of food grains are also stagnating in most parts of the country. The productivity
of soil has also started declining. The underground water table in most Indian states is getting
rapidly depleted. Based on these facts, various studies have pointed out that India will be a
net importer of rice in the near future.
In such a competitive environment, India should be prepared to meet the challenges that are
detrimental to the interests of her people.

19

SUGGESTIONS
The farmers have felt the heat of WTO and the challenges posed by international competitors
in the last three years. Cases of suicides by farmers have been reported from many States.
Agricultural prices are drastically falling. Farmers have been kept out of market by the
pricing policies pursued by the government in terms of the minimum support prices of food
grains and the issue prices in Public Distribution System. Apart from seeking better deals
from WTO so as to support domestic measures adopted for poverty alleviation and rural
employment, policy measures need to be taken to strengthen the agricultural sector to
safeguard the interests of the farming community.
Listed below are some suggestions to meet the challenges facing Indian agriculture
a. There is a need to formulate a consistent policy for exports of agricultural products and
processed products in which the country has a comparative advantage.
b. Anti-dumping safeguard measures must be evoked in time to control imports of
agricultural products, if so warrants.
c. Agriculture Research and Extension should be revamped so as to meet the challenges.
d. Crop rotation system should be promoted to increase the fertility of the soil and improve
the cash flow of the farming community.
e. More investment in latest technology and rural infrastructure especially in irrigation system
so as to utilize fully the already available irrigation potential.
f. Provide better incentives to farmers to increase the farm productivity and quality standards.
g. Ensure adequate credit support and crop insurance to the farmers.
h. To reduce the cost of production by cultivation of hybrids and adopting integrated pest
management strategies.
i. Emphasis should be laid on imparting training to the farmers on increasing productivity and
reducing cost.
j. Areas having potential for production of different agricultural commodities should be
earmarked and their production and marketing should be encouraged there.
k. Special incentives should be given for encouraging export-oriented production with a view
to improving market access for Indian agricultural products in world markets.

20

Domestic support: some you can, some you cant

The main complaint about policies which support domestic prices, or subsidize production
in some other way, is that they encourage over-production. This squeezes out
imports or leads to export subsidies and low-priced dumping on world markets. The
Agriculture Agreement distinguishes between support programmes that stimulate
production directly, and those that are considered to have no direct effect.
Domestic policies that do have a direct effect on production and trade have to be cut
back. WTO members calculated how much support of this kind they were providing
per year for the agricultural sector (using calculations known as total aggregatemeasurement
of support or Total AMS) in the base years of 198688. Developedcountries agreed to
reduce these figures by 20% over six years starting in 1995.Developing countries agreed to
make 13% cuts over 10 years. Least-developed countriesdo not need to make any cuts. (This
category of domestic support is sometimescalled the amber box, a reference to the amber
colour of traffic lights, whichmeans slow down.)
Measures with minimal impact on trade can be used freely they are in a green
box (green as in traffic lights). They include government services such as
research, disease control, infrastructure and food security. They also include payments
made directly to farmers that do not stimulate production, such as certainforms of direct
income support, assistance to help farmers restructure agriculture,and direct payments under
environmental and regional assistance programmes.

21

Imperfect Competition
Almost all the studies that calculate the welfare gains and its distribution in
developingcountries, make an implicit assumption that the international agricultural markets
are perfectly competitive. Increase in the terms of trade for the developing countries, as
envisaged by the agricultural reforms process, are based on the assumption that in a perfectly
competitive world pass through of improved terms-of-trade to the farmers will be complete.
However, in all likelihood this may not happen. Circumstantial evidence suggests that the
international agricultural markets are imperfectly competitive in structure. As reported by Gill
and Barr (1996), Table 2 shows that agricultural exports are dominated by a few large
multinational companies and trading agencies. Empirical studies also suggest that
multinational firms enjoy a certain degree of market power in the agricultural export markets
(e.g. Deodhar and Sheldon; 1995, 1996). Thus, there may be many countries importing and
exporting agricultural commodities in the international market, but what matters is the market
structure and performance of each of these export markets. What trade liberalization achieves
is the removal of tariff and non-tariff barriers to trade. It does not guarantee perfectly
competitive market structure Characterized as few buyers and few sellers of
agricultural products, the multinational firms and trading agencies enjoy a unique position as
oligopolists-cum-oligopsonists in the international agricultural markets. Economic theory
would tellus that in the export market these oligopolists would charge a price higher than
marginal cost, and,while sourcing the products from the developing countries, these
oligopsonists will pay a price muchlower than what they would have paid under perfectly
competitive conditions.es.

22

Multinational Market Share in Agricultural Export Markets*

---------------------------------------------------------------------------------------------------------------Commodity
World Exports ($ million)
Market Share of 3-6 multinationals
---------------------------------------------------------------------------------------------------Wheat
Sugar
Coffee
Rice
Tea
Bananas
Cotton
Jute

17, 851
10, 636
9, 636
3, 613
1, 844
1, 324
6, 567
135

85-90
60
85-90
70
80
70-75
85-90
85-90

In fact, one does not see a consistent increase in the spot export prices of agricultural
commodities. Despite the implementation of the reforms, there have been fluctuations in the
spot export prices of agricultural exports. Table 3 shows that from 1994-95 till 1997 export
prices of cereals, coffee, agricultural raw materials, food, beverages and tobacco have been
fluctuating. The percentage increase in the prices of oilseeds, oils, fats and meals has
suddenly dropped in 1997.This should not, however, come as a surprise as the international
markets are very thin. Exogenous supply shocks (over-production or shortage) in countries
like India, can cause sharp fluctuations in export prices as the markets are inherently thin.
However, these are facts of life, and, therefore, in the re-negotiation process, India may want
to emphasise these points and bargain for concessions somewhere else. If agricultural prices
are not expected to rise, higher reduction commitments by the developed countries in various
forms of price and non-price support could be suggested

Percent Change in Export Prices of Agricultural Commodities, 1994-97*

---------------------------------------------------------------------------------------------------------------Commodity
1995
1996
1997 (Jan-June)
---------------------------------------------------------------------------------------------------------------Food, beverages & tobacco 6
6
-4
Cereals
17
20
-26
Oilseeds, oils, meal etc.
8
11
2
Coffee
2
-24
39
Agricultural raw materials

-4

-3

----------------------------------------------------------------------------------------------------------------

23

WTO and environmental agreements: how are they related?

How do the WTO trading system and green trade measures relate to each other?
What is the relationship between the WTO agreements and various international
environmental agreements and conventions.
There are about 200 international agreements (outside the WTO) dealing with various
environmental issues currently in force. They are called multilateral environmental
agreements (MEAs).
About 20 of these include provisions that can affect trade: for example they ban
trade in certain products, or allow countries to restrict trade in certain circumstances.
Among them are the Montreal Protocol for the protection of the ozone
layer, the Basel Convention on the trade or transportation of hazardous waste across
international borders, and the Convention on International Trade in Endangered
Species (CITES).
Briefly, the WTOs committee says the basic WTO principles of non-discrimination
and transparency do not conflict with trade measures needed to protect the environment,
including actions taken under the environmental agreements. It also notes that clauses in the
agreements on goods, services and intellectual property allow governments to give priority to
their domestic environmental policies. The WTOs committee says the most effective way to
deal with international environmental problems is through the environmental agreements. It
says this approach complements the WTOs work in seeking internationally agreed solutions
for trade problems. In other words, using the provisions of an international environmental
agreement is better than one country trying on its own to change other countries
environmental policies (see shrimp-turtle and dolphin-tuna case studies).
The committee notes that actions taken to protect the environment and having an
impact on trade can play an important role in some environmental agreements, particularly
when trade is a direct cause of the environmental problems. But it also points out that trade
restrictions are not the only actions that can be taken, and they are not necessarily the most
effective. Alternatives include: helping countries acquire environmentally-friendly
technology, giving them financial assistance, providing training, etc.

24

Disputes: where should they be handled?

Suppose a trade dispute arises because a country has taken action on trade (for
example imposed a tax or restricted imports) under an environmental agreement
outside the WTO and another country objects. Should the dispute be handled under
the WTO or under the other agreement? The Trade and Environment Committee
says that if a dispute arises over a trade action taken under an environmental agreement,
and if both sides to the dispute have signed that agreement, then they should
try to use the environmental agreement to settle the dispute. But if one side in the
dispute has not signed the environment agreement, then the WTO would provide
the only possible forum for settling the dispute. The preference for handling disputes
under the environmental agreements does not mean environmental issues
would be ignored in WTO disputes. The WTO agreements allow panels examining
a dispute to seek expert advice on environmental issues.

25

Functions and Objectives Of WTO

The former GATT was not really an organisation; it was merely a legal arrangement. On the
other hand, the WTO is a new international organisation set up as a permanent body. It is
designed to play the role of a watchdog in the spheres of trade in goods, trade in services,
foreign investment, intellectual property rights, etc. Article III has set out the following five
functions of WTO;
(i) The WTO shall facilitate the implementation, administration and operation and further the
objectives of this Agreement and of the Multilateral Trade Agreements, and shall also provide
the frame work for the implementation, administration and operation of the plurilateral Trade
Agreements.
(ii) The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to this
Agreement.
(iii) The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.
(iv) The WTO shall administer Trade Policy Review Mechanism.
(v) With a view to achieving greater coherence in global economic policy making, the WTO
shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the
International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.

26

Objectives of WTO
Important objectives of WTO are mentioned below:
(i) To implement the new world trade system as visualised in the Agreement;
(ii) To promote World Trade in a manner that benefits every country;
(iii) To ensure that developing countries secure a better balance in the sharing of the
advantages resulting from the expansion of international trade corresponding to their
developmental needs;
(iv) To demolish all hurdles to an open world trading system and usher in international
economic renaissance because the world trade is an effective instrument to foster economic
growth;
(v) To enhance competitiveness among all trading partners so as to benefit consumers and
help in global integration;
(vi) To increase the level of production and productivity with a view to ensuring level of
employment in the world;
(vii) To expand and utilize world resources to the best;
(viii) To improve the level of living for the global population and speed up economic
development of the member nations.

27

In Relation To MARKET ACCESS:

With the objective of reducing current distortions in rights and obligations and reducing
the current severe imbalance caused by the domestic support and export subsidies of the
developed countries in various forms, the developing countries may take direct import
control measures, e.g., quantitative restrictions, on imports of agricultural products from
the developed countries, until the domestic support of all types (including those included
in paragraphs 5 to 13 of Annex 2 to the Agreement on Agriculture and Article 6.5 of the
Agreement on Agriculture, i.e., the Green Box and Blue Box subsidies) and export
subsidies in all forms in the developed countries are eliminated.

Das suggests that the route of quantitative restrictions be taken here as the alternative
route of countervailing duty will be inadequate in this case. Countervailing duty is
generally meant to provide defence against specific and occasional cases of subsidies,
whereas the developing countries are faced with a structural problem of widespread use
of subsidies in agriculture in the developed countries. Besides, proving injury is an
essential condition for imposing countervailing duty and it will be extremely difficult to
prove injury to domestic production in agriculture on the basis of the usual norms, since
the production is generally highly dispersed throughout the country. This route for relief
will be too cumbersome to be of any practical utility.

With regard to special and differential treatment for developing countries:

--- For the purposes of ensuring food security, it may be necessary to protect domestic
producers from imports. Accordingly, the modalities should clearly lay down that a
developing country: (a) can take direct import control measures in respect of food products;
(b) shall not be required to lower its bound tariffs on food products; (c) when it finds that the
bound tariff on a particular food product is not adequate to protect its domestic production of
that product, may raise the bound tariff after entering into consultations with the countries
having principal supplying interest. It need not pay compensation in such cases.

--- For the purposes of facilitating rural development, especially to protect the small
farmers in the developing countries, the modalities should clearly lay down that a developing
28

country: (a) may take direct import control measures, e.g., quantitative restrictions on the
import of agricultural products; (b) shall not be required to lower its bound tariffs on
agricultural products;

(c) if it perceives that the current bound level of tariff on an

agricultural product is not adequate to protect the small farmers, may enter into consultations
with the countries having the principal supplying interest and increase the bound tariff. It
need not pay compensation in such cases.

--- On general tariff reduction: The proposal of Das is that developed countries shall be
required to have a maximum tariff on any product, shall reduce the average tariff by a
specified percentage over five years, and reduce each tariff level by a minimum rate.
Developing countries should be allowed a much higher maximum tariff and lowerreduction
rates for those products not covered under the food security and rural development
provisions. Moreover, a developing country, even if not covered by the exceptions relating
to food security and rural development, shall have the option of excluding some specific
products from the obligation of tariff reduction.
--- On special safeguard (SSG) : A country can take special safeguard measures in
agriculture without proving injury or threat of injury to domestic production. The special
safeguard is relevant in agriculture as the general safeguard provisions may be very difficult
to use. The existence of injury or threat of injury to domestic production, as is required for
applying the general safeguard, may be difficult and cumbersome to prove in the agriculture
sector in developing countries, due to the highly dispersed nature of the farms in developing
countries. However, SSG is generally available to only the developed countries as only the
countries that converted their non-tariff measures to equivalent tariffs can use the SSG and
only very few developing countries qualify. It is ironic and unfair that those distorting trade
through non-tariff measures were given the right to SSG whereas those that did not distort
trade were denied this advantage.
The modalities should correct this situation, by laying down that the developing countries that
have been denied SSG in agriculture will now have the right to take special safeguard
measures. Also, the presently complex criteria for triggering the SSG should be simplified
for the developing countries. For example, a developing country may take SSG if the import
level in a given year exceeds a specified percentage of the average of the previous three
years import. Similarly, for the price trigger, it may be prescribed that a developing country
29

may take SSG if the price of the product falls below a specified percentage of the previous
years average price.
In Relation To DOMESTIC SUPPORT:

To correct the imbalance under which developed countries that have high subsidies can
continue using them (with only some reduction) while developing countries that had no or
low subsidies are prohibited from using them or raising their level, and to rectify the AoA
loophole allowing Green Box subsidies (Annex 2) not to be disciplined, Das proposes the
following be part of the modalities:

(a) The domestic support listed in paragraphs 5 to 13 of Annex 2 to the AoA (Green Box
subsidies) and those listed in Article 6.5 (Blue Box subsidies) must be treated similar to the
existing reducible subsidies and must be subjected to the discipline of reduction and
elimination as in the case of reducible subsidies.

(b) All subsidies in the developed countries, including the ones currently included in the
Green Box and Blue Box, shall be eliminated by a specified period. To fulfill the target of
elimination, the developed countries shall reduce their domestic support, including those in
the Green Box and Blue Box, by a specified percentage per year

(c) There shall be no immunity to the domestic support from counteraction through the
dispute settlement route or through the countervailing duty route.

(d) There shall be a presumption that the subsidy on an agriculture product exceeding 5 per
cent of production in a developed country causes serious prejudice to other countries,
including injury to their domestic production.

30

With regard to S&D treatment for developing countries:

--- For the purpose of ensuring food security, the following modalities should be proposed:
(a) to facilitate domestic production of food products for domestic consumption, developing
countries may provide subsidies for domestic production of food products for domestic
consumption. Such subsidies shall not be subjected to the dispute settlement process or
countervailing duty process.

(b) To ensure that the facility is used only for domestic production for domestic consumption
and not for export, this facility will be available to a developing country in respect of food
products which had not been exported or exported only within a de minimis limit (.per cent
of production) in the previous three years.

--- For the purpose of facilitating rural development, the following modalities should be
proposed: In pursuance of the objective of protecting small farmers, the developing countries
may provide subsidies to small farmers. Such subsidies shall not be subjected to the dispute
settlement process or countervailing duty process. The definition of small farmers will be
worked out in the context of the socio-economic conditions of a developing country.

In Relation To EXPORT SUBSIDIES:

Developed countries were expected to reduce the budgetary outlay and export quantity for
their export subsidies by certain percentages in six years, and developing countries by a
slightly lower rate in 10 years. Very few developing countries were using export subsidies
and thus they did not give a commitment schedule and cannot introduce export subsidies in
future. Ironically and unfairly, the developed countries are entitled to continue using export
subsidies to a substantial extent, whereas the developing countries are prohibited from
providing such subsidies.
Although there are other measures with similar effects as export subsidies in artificially
boosting exports, e.g., export credit, export credit guarantee and export insurance, there is no
commitment in the AoA to reduce these. Thus, a developed country can reduce its export
31

subsidies according to its commitment but increase export credit at the same time. Hence, like
domestic support, there is an escape route here too for effectively circumventing the
obligation of reducing export subsidies.
The developing countries do not have adequate financial resources to provide export
subsidies or export credit or similar other facilities. Hence they cannot use these exportenhancing facilities even if they are allowed to do so. This feature adds to the imbalance and
inequity in the system of export subsidies. It needs to be corrected.

With the objective of correcting inequity and imbalance, the following modalities are
proposed:

(a) Export subsidies, including export credit, export credit guarantee and

export insurance, must be eliminated immediately, say within one year, i.e., not later
than...

(b) All countries shall notify their current export credit, export credit guarantee

and export insurance programmes and measures to the WTO Secretariat, so that the
obligation of elimination is monitored effectively.

With regard to S&D treatment for developing countries, the following modality is
proposed:

In order that the exporters and export producers in the developing countries

are enabled to overcome their structural handicaps, the developing countries may provide
export subsidies, specially for adoption of higher technology and adaptation to product
and process standards as well as for compensating for various handicaps, e.g., those in
financing, guarantees and insurance, in respect of the export production and export. There
shall be a ceiling on the export subsidy on a product of per cent of the export price.

32

Conclusion
Indias economic reforms of 1991 were supposed to introduce a package of better
incentives for export promotion. Similarly the WTO Arrangements of 1995 was also
aimed at to simplify the world trade and rectify the prevailing trade barriers among the
nations. The actual scenario is some thing else, Indias GDP, its components and export
have decreased in terms of per annum growth after the economic reform of 1991, again it
has declined after 1995 when WTO arrangements were introduced. In view of the facts
that Indian exports and GDP in terms per annum growth has declined during the period
1991-92 to 1994-95 and during the period 1995-96 to 2004-05, there is an urgent need to
reconsider about Indian export strategies in order to augment the growth of Indian
exports in future. It is essential because if we have to attain the target of 8 percent per
annum growth in GDP during the Tenth Five-Year Plan, we need substantial export
earning in the future.
The decline in Indias export continued unabated later on after introduction of WTO
Arrangement in 1995. The decline in Indias exports during the post WTO regime may be
attributed due to various restrictions imposed by various countries on Indian exports. This
is certainly against the sprit of WTO. In this connection, it is significant to observe that
Indias export as well as Indias GDP have declined quickly during the post WTO era.
This is because of fact that while developed nation are not reducing subsidies on their
farm products and at the same time they are arguing for reduction in subsidy on farm
products for developing nations including India which has ultimately reduced the degree
of competitiveness of Indian farm products in the international market. This partial trade
policy as introduced by the developed nations deliberately which is hampering the
economic interest of the developing nations has ultimately resulted in failure of the
Cancun Summit [EPW (2003), Sukumar Murlidharan (2003), Walden Bello (2003)].

33

Reference list:
WTO (1995): The Results of the Uruguay Round of Multilateral Trade Negotiations - The
Legal Texts, http://www.wto.org/wto/legal/
WTO (1997): Annual Report, 1997, pp. 12 and 51, Geneva: World Trade Organisation.
Yotopoulos, P. and L.J. Lau (1974): "On Modelling and the Agricultural Sector in Developing
Countries," Journal of Development Economics, Vol. 1.

34