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Term paper [Final draft]
Globalization & Development
[GAD]
Term paper Topic- Developing countries and the multilateral
trading system
Submitted To- Prof. C Shambu Prasad
Submitted By- Nirbhay Kumar
u305029
PGPRM II
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Developing countries and the multilateral trading system
Introduction
I am analyzing the interaction between developing countries and the multilateral trading
system from the end of World War II to the present and in this context accesses the
achievements and the failures of the Uruguay Round (UR).
In doing so I trace the history of the General Agreement on Tariffs and Trade (GATT)
since its origin in 1947 and the failure soon thereafter to establish the International Trade
Organization (ITO) that would have subsumed it. This is followed by a discussion on the
extent to which the flaws of GATT have been rectified in the newly established World
Trade Organization.
A brief account of the UR agreement with a quantitative assessment of the benefits of
trade barrier reductions and a critical look at the agreements on the other issues is also
presented. The evolution of developing countries’ participation in the GATT and the
incorporation of concerns for development in the GATT articles are described in details.
The possible future linkages between trade policies and environmental & labor standards
as well as the dangers of these linkages are also addressed. Next the opportunities and the
threats that regionalism poses to a liberal global trading and investment order are
explored and the institutional reforms necessary for the integration of developing
countries into the global economy are discussed.
My work closes with an analysis of the impact that possible interactions between the
WTO, the IMF and the World Bank would have on developing countries. These
discussions provide a balanced & systematic assessment of the role of developing
countries in multilateral trading system. Developing countries are the losers at the world
trade organization ministerial conference. They have committed themselves to cuts in
both agricultural and industrial tariffs without getting anything substantial in return from
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the developed countries. It is clear by now that the so called “development round”
launched in Doha, in 2001 has been manipulated by the developed countries especially
the United States and the members of the European Union, to push for further trade
liberalization in developing countries while they continue to protect their economies
through high subsidies and non-tariff barriers. India’s prime interest in agriculture was to
ensure the protection of its small & marginal farmers from the onslaught of artificially
low priced imports or threats thereof.
A brief account on GATT:-
The General Agreement on Tariff and Trade (GATT) was established in 1948 in Geneva
to pursue the objective of free trade in order to encourage growth & development of all
member countries. The principal purpose of GATT was to ensure competition in
commodity trade through the removal or reduction of trade barriers. The first seven
rounds of negotiation conducted under GATT were aimed at stimulating international
trade through reduction in tariff barriers and also reduction in non-tariff restrictions on
imports imposed by member countries.
Uruguay Round:The 8th round of multi-lateral trade negotiations, popularly known as Uruguay Round
(since it was launched at Punta Del Este in Uruguay) was started in September 1986 at a
special session of GATT contracting parties held at ministerial level. World trade had
undergone a structural change during the four decades since the establishment of GATT
in 1948. The share of agriculture in world merchandise trade which was 46% in 1950 had
declined to 13% in 1987. The Uruguay Round (UR) contained the mandate to have
negotiations in 15 areas. In part I negotiations on trade in goods were to be conducted in
14 areas and in part II negotiations on trade in services were to be carried out.
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Part I (trade in goods) declaration in UR contained the following:1. Tariffs
2. Non-tariff measures
3. Tropical Products
4. Natural resource-based products
5. Textiles and clothing
6. Agriculture
7. GATT articles
8. Safeguards
9. MTN(Multilateral Trade Negotiations) agreements & arrangements
10. Subsidies and countervailing measures
11. Dispute settlement
12. Trade Related Aspects of Intellectual Property Rights(TRIPs)
13. Trade Related Investment Measures (TRIMs)
14. Functioning of the GATT systems(FOGS)
These negotiations were expected to be concluded in four years, but on account of
differences in participating countries on certain critical areas such as agriculture,
textiles, TRIPs and antidumping measures, agreement could not be reached. To break
this deadlock, Mr. Arthur Dunkel, then Director General of GATT compiled a very
detailed document, popularly known as Dunkel proposals and presented it before the
member countries as a compromise document.
The main features of the TRIMs text are:1. All restrictions on foreign capital/investors/companies should be scrapped.
2. The foreign investor shall be given the same rights in the matter of investment as
a national investor.
3. No restrictions will be imposed on any area of investment.
4. Nor will be there be any limitations on the extent of foreign investment – even
100% foreign equity will be permitted.
5. Imports of raw materials and components will be allowed freely.
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6. Foreign investor will not be obliged to use local products and materials.
7. Export of part of the output will no longer be mandatory.
8. Restrictions on repatriation of dividend, interest and royalty will be eliminated.
9. There will be a complete exclusion of provisions like phased manufacturing
programme which is intended to increase the indigenous content in manufacture.
Multilateralism vs. Bilateralism:-
There is no doubt that in a world of unequal partners, multilateralism is superior to
the bilateralism and if some concessions are to be extracted from strong partners
belonging to US and European community, then the combined strength of the
developing countries can exercise a stronger pull in their favor. The World Trade
Organization (WTO) as contained in the final act was established on 1st of January
1995 and India became a founder member of WTO by ratifying the WTO agreement
on 30 Dec. 1994. WTO has been wrying India to lower import duties, remove
controls on consumer goods imports, reduce quantitative restrictions etc. India was
maintaining quantitative restrictions in the form of quotas, import & export licenses
on 2,700 agricultural commodities, textile & industrial products. WTO agreements do
not discriminate on the basis of size of industries or enterprises.
SSI sector which accounts for 40% of manufacturing output; 50% of employment and
over 33% of exports provides principal source of employment accommodating 18
million persons.
Objectives of GATT:1. To provide equal opportunities to all countries in international market for trading
purpose without any favor.
2. To increase the effective demand for real income growth and goods.
3. To minimize tariffs and other restrictions on trade for ensuring mutual benefits
and to eliminate favors from international trade.
4. To provide amicable solution to the disputes related to international trade by
giving co-operation and advices to member countries.
5. To ensure a better living standards in the world as a whole.
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History of GATT & Their Different Rounds:-
ROUND
YEAR
VENUE
ISSUES
&
OUTCOMES
I
1947
Geneva(Switzerland) Signature on first
GATT agreement.
II
1949
Anesi(France)
Tariff reductions on
specific products.
III
1950-51
Torquay(England)
Tariff reductions on
specific products.
IV
1956
Geneva
----------------
V(Dillion Round)
1960-61
Geneva
Induction
of
European
community for the
first time & 20%
tariff reduction.
VI(Kennedy Round) 1964-67
Geneva
33 % reduction in
restrictions
on
manufactured
goods.
VII(Tokyo Round)
1973-79
Geneva
Non-tariff
restrictions, etc.
VIII(Uruguay
1986-93
Punta Del Este
Round)
Agriculture,
services,
TRIPs,
TRIMs
related
issues.
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The Future of Globalization
It is not just the narrow business of the Doha round (if narrow is a fit adjective for an
ambition to lift millions out of poverty, curb rich countries ruinous farm support and open
markets for countless goods & services) that is at stake. In the long run, the lack of
commitment to multi-lateral trade that sank the Doha round this week will also start to
corrode the trading system as a whole. Trade talks always seem to break down before
they succeed: the Uruguay round was supposed to be over in four years and dragged on
for a painful eight years.
Free Vs. Fair Trade:-
The benefits from free trade come more from imports than from exports. Imports of
cheaper or better goods give consumers more for their money and, through competition,
raise domestic productivity. Multilateral liberalization is a sort of jujitsu that uses
exporter’s determination to get into foreign markets to overwhelm domestic lobbies that
would sooner keep home markets closed. The trade diplomat’s incantation that to open
his market is a “concession” granted in exchange for an opening somewhere else is
economic non-sense spouted for domestic political purposes. But it is remarkably fruitful
nonsense because, within the World Trade Organization, any concession to one trade
partner is automatically extended to all members. This trick has helped the world enjoy
decades of prosperity. Doha added a fiction all of its own with the idea of a “development
round”, seen as a clever way of giving grubby trade some moral appeal. Bilateral deals
are complex and tend to be bad for poor countries.
In multilateral deals, poor countries can piggyback on powerful countries’ negotiating
clout; in bilateral deals, they are on their own. And the more bilateral deals are in place,
the harder it will be to pull off a multilateral one. Trade has been growing much faster
than global GDP. High commodity prices and robust growth mean the call for protection
is low.
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Conclusion
Whether or not GATT and then WTO has fulfilled the promise of free and fair trade for
all the member countries of the world is very difficult to say after going through the
related literature and the main book (by T.N. Srinivasan). Because, the main book has
given time series of development of WTO from GATT & related literature has given pros
and cons of multi-lateral trading system for developing countries. But to get the final
answer of this question, i.e. is GATT or WTO beneficial or harmful for developing
countries? Still remain unanswered or incomplete.
References
1. Indian Economy – Rudder Datt & K.P.M. Sundharam; S. Chand & Company
Ltd.; 2006.
2. Indian Economy – its development experience- S.K. Misra & V.K. Puri;
Himalaya Publishing House, 2004.
3. Developing countries and the multilateral trading system-From GATT to the
Uruguay Round and the future – T.N. Srinivasan; 1998.
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