MODULE 2 GLOBAL MARKETING ENVIRONMENT6.1 URUGUAY ROUND/WTO/UNCTAD

Entire world is one country for the business. Erasing political & national boundaries means Globalization. Globalization implies opening up the economy for foreign direct investment by liberalizing the rules & regulations by creating favorable & encouraging industrial climate.

Indian government globalized economy by announcing economic liberalization in 1991. Steps taken by government of India helped the country to integrate Indian economy with the rest of the global economy.

Infact the seeds for integrated global economy were sown as early as 1940s when the steps were taken to establish IMF, International Bank for Reconstruction & Development, GATT and the like. We shall now discuss briefly GATT & its transformation into WTO.

Negotiations were held in 1947 between US & 22 other countries in order to prevent the protectionism policies & to revive the economies from recession. Then GATT had its origin in 1947 at a conference in Geneva.

Objectives of GATT were: To raise standards of living. To ensure full employment & a large and a steadily

growing volume of real income & effective demand. To develop the full use of the resources of the world. To expand production & international trade.

The nature of the negotiation in the rounds during 1947 to 1960 was tariffs. The negotiations in other rounds included anti-dumping measures. In the round of 1986, the nature of the issues includes bringing agriculture & protection of intellectual property rights under GATT.

In the final round of GATT, negotiations covered a wide range of subjects like subsidies, safeguards, trade-related intellectual property rights (TRIPs), and trade-related investment measures (TRIMs) & trade

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services. An agreement regarding multilateral trading system was finally signed in Morocco in 1994. These measures were also called Dunkel Proposals, after the name of Mr. Arthur Dunkel, the then Director-General of GATT.

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6.2 URUGUAY ROUND/WTO/UNCTAD (CONTD)

Members of GATT expressed their political support to the outcome of the meeting by signing the final act in Morocco on 15 April 1994. According to Marrakech declaration, the results of the Uruguay round would “strengthen the word economy & lead to more trade, investment, employment & income growth throughout the world”.

In order to implement the final act of Uruguay Round of agreement by GATT, the WTO was established on 01.01.1995.

India is one of the (out of 104) founder members of WTO. GATT was not an organization but only a legal agreement., whereas WTO is designed to play the role of watchdog in the sphere of trade in goods, trade in services, foreign investment, intellectual property rights etc.,

WTO’s function as set out in Article III are:

WTO shall facilitate the implementation, administration & operation of the agreement.

WTO shall provide the forum for negotiations among its members concerning their multilateral trade-relations in matters dealt with under the agreement.

WTO shall administer the understanding on Rules & Procedures governing the settlement of disputes.

WTO shall administer the Trade Policy Review Mechanism with a view to achieving greater coherence in global economic policy-making.

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The WTO shall co-operate with the IMF & the International Bank for Reconstruction & Development & its affiliated agencies.

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6.3 HOW IS WTO DIFFERENT FROM GATT?

WTO is not a simple extension of GATT. On the contrary, it completely replaces its predecessor & has a very different character.

The principle differences are the following:

GATT was a set of rules, a multilateral agreement with no institutional foundation, only a small associated secretariat which had its origin in the attempt to establish an International Trade Organization in1940s.

WTO is a permanent institution with its secretariat. GATT was applied on a “provisional basis”, even if, after more than 40 years, governments chose to treat it as a non-permanent commitment.

The WTO commitments are full & permanent. GATT rules applied to trade in merchandise goods. In addition to goods, WTO covers trade-in-service & trade-related aspects of intellectual property.

While GATT was a multilateral instrument, by the 1980s, many new agreements had been added of selective nature. The agreements, which constitute WTO, are almost all multilateral & thus, involve

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commitment for entire membership.

The WTO dispute settlement system is faster, more automatic & thus much less susceptible to blockages than the old GATT system. The implementation of WTO dispute findings will also be more easily assured & committed.

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6.4 FUNCTIONS OF WTO

WTO administers 28 agreements contained in the Final Act & a number of plurilateral & government procurement through various councils & commitments.

WTO oversees the implementation of the significant tariff cut (averaging 40%) & also reduction of non-tariff measures agreed to in the trade negotiations.

WTO examines regularly the trade regimes of individual member countries. Thus it acts as a watchdog of international trade.

WTO provides the Dispute Settlement Court in order to adjudicate the trade disputes which could not be solved through bilateral talks between member countries.

WTO acts as a management consultant for world trade. The economists of the WTO observe the pulse of global economy & provide studies on the main trade issues.

Technical co-operation & training division is established in the WTO’s secretariat in order to help the developing countries in the implementation of Uruguay Round results.

Member countries can use WTO as a forum for continuous negotiation of exchange of trade barriers in the entire world.

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WTO co-operates with other international institutions like IMF, IBRD (World Bank) & ILO involved in global economy policy making.

WTO oversees the national trade policies of member governments.

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6.5 ORGANIZATION STRUCTURE OF THE WTO

The organization structure of the WTO is based on 4 hierarchical levels. The hierarchies from the top to bottom are as follows:

Ministerial Conference General Council Councils Committees & Management Bodies

Ministerial Conference: Is the highest hierarchical level in the organization structure. All the member countries of WTO are the representatives of the Ministerial Conference. It has the authority to make decisions on all matters relating to multilateral trade agreements.

General Council: Is the executive body of the WTO. General Council reports its decisions & activities to the Ministerial Conference. All the members of the WTO are also representatives of the General Council.

Councils: The third level in the hierarchy is Councils. There are three

Councils viz.,

Council for Trade in Goods: This supervises the implementation & functioning of all agreements relating to trade in goods.

Council for Trade in Services: Oversees the implementation of all the agreements relating to Trade in Service.

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Council for Trade-Related Aspects of Intellectual Rights: Oversees the implementation & functioning of all the agreements relating to this.

Committees & Management Bodies: Ministerial Conference constituted 3 committees --- Committee on Trade & Development, Committee on BOP and Committee on Budget, Finance & Administration.

Management Bodies: Plurilateral agreements of the WTO have their management bodies. These management bodies report to the General Council. Some of the plurilateral agreements having management bodies include civil aircraft, government procurement, dairy products etc.,

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6.6 WTO & ANTI-DUMPING MEASURES

In view of the negative effect of dumping, the importing country imposes anti-dumping measures like tariff-duty, import-quotas, import-embargo & voluntary export restraints.

Tariff Duty: Importing countries impose high rates of import-tariffs on dumping so that the price of the dumped goods would be either equal to or more than that of the domestic goods.

Import Quota: The importing countries in addition to tariff duty restrict the volume of imports, thus reducing quantities.

Import Embargo: The importing country bans the import of particular goods or all the goods from the dumping country. This is a retaliatory measure against dumping.

Voluntary Export Restraints: The exporting countries realizing the negative effects of dumping voluntarily come for bi-lateral agreements to avoid dumping.

WTO provides a clear & additional information & criteria for determining:

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The product that is dumped and The injury to an industry of the domestic country by the

dumped product

WTO also provides procedure to be followed in initiating & conducting anti-dumping investigations:

Rules for implementing the anti-dumping measures. Duration of anti-dumping measures. The clear roles for disputes settlement panels in settling the

disputes relating to anti-dumping actions taken by the member governments.

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6.7 WTO: THE THIRD PILLAR IN GLOBAL BUSINESS

WTO is now viewed as the third pillar of the global business ensuring that IMF providing short-term international finance & IBRD (International Bank for Reconstruction & Development) providing long-term finance.

The 3 main legal instruments of the WTO are 1) GATT along with associated agreements & jurisprudence, 2) General Agreement on Trade in Services (GATS) and 3) the Agreement on trade-related Intellectual Property Rights (TRIPs).

WTO paved the way for reduction of duties, tariffs, non-tariff barriers like quotas & controls. WTO enlarged the market access opportunities & provided efficient rules for undistorted competition among the world countries. These aspects would help the developing countries which have liberalized & globalized their economies to increase their exports. It is estimated that the increase in world income due to liberalization of global business in goods would range between $110 and $ 510 billion by 2005.

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WTO contributes to the strengthening the institutional framework for business relations among member countries.

Though it is expected that WTO would play a significant role in expanding the world trade, it is also cautioned that WTO has to face challenges. The WTO had to contend with a number of disputes during 1995-2000. The disputes were related to the appointment of WTO’s chief.

Constitution of WTO committee that will oversee the demise of Multi-Fiber arrangement in phases over next 7 years. In addition to this dispute over trade financial service caused havoc to WTO.

WTO is now established as an efficient institution for re-engineering and re-processing the world trade.

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6.8 WTO: MINISTERIAL MEETINGS OF THE WTO

First Ministerial Meeting of the WTO: It was held on 09 Dec 1996 at Singapore. 128 member

countries attended the meeting. The important highlights of the meeting were 1) Reaffirmation of the working of the ILO 2) Rejected the use of labor standards for projectionist purposes 3) Increased credibility of Dispute Settlement system 4) Helping the least developed countries 5) Trade-Related Investment Measures (TRIMs) to do continuous job 6) Negotiation on basic telecommunications to become a priority 7) Establishment of working group top examine the relationship between trade & investment and 8) Taking account of national policies.

Second Ministerial Meeting of the WTO: Was held on 18-20 May 1998 at Geneva. 132 members

attended this meeting. The important decisions reached were 1) Setting up of a mechanism to ensure a full & faithful implementation of existing multilateral agreements 2) Accepting open & transparent rule-based trading system.

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Third Ministerial Meeting of the WTO: Was held on 03 DEC 1999 at Seattle. This meeting was a

failure as the developing nations jointly protested against the lack of transparency & imposition of the views of the rich on the poor countries in the negotiations. 135 member countries attended this meeting.

Agendas for the next Round: The agenda for this meeting included 1) Reviewing the

implementation of the commitments of the Uruguay Round Agreements 2) To reduce tariff up to a level & not to increase the level in future 3) Developing countries to demand for modifications of industrial tariffs 4) Developing countries to raise concerns about greater access to technology for them in the context of TRIPs (Trade Related Intellectual Property Rights) 5) Trade facilitation & E-Commerce and 6) Environmental & Labor Standards

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6.9 WTO: INDIA AND WTO

Despite heated discussions & arguments, India was one of the 76 countries that became founder-members of WTO.

Benefits to India

India to obtain large benefits from exports of clothing, agriculture, forestry, fishery products, processed food & beverages,

India’s textile & clothing exports will increase. Reduction of subsidies/barriers will help India’s

agricultural exports. Rules relating to anti-dumping, subsidies, countervailing

measures, safeguards & dispute settlement will help India .

India has the market access to a number of advanced countries.

Disadvantages to India

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Protection of intellectual property rights (patents, copyrights, trademarks etc.,) have been made stringent

Introduction of products’ patents will lead to a hike in drug prices ofMNCs, which India can ill-afford.

MNCs will get control over our generic resources & as such the control over food production would be jeopardized.

Patenting has also been extended to a large area of micro-organisms.

Application of TRIM agreements undermines any plan of self-reliant growth based on local technology.

Service sector like Insurance, Banking, Telecom, Transportation is backward in India & inclusion of trade in service is detrimental to the interest of India.

India’s role in WTO

India has always been a part of Green Room (a closed affair) discussions & negotiations.

Several developing countries look to India for leadership. India will have lion’s share in the growing world economic

output consequent upon new round of trade liberalization. India is on its way to becoming the next economic

superpower.

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6.10 WTO: DIFFERENCES BETWEEN GATT AND WTO

GATT

It was a set of rules & multi-lateral agreements. It was designed with an attempt to establish

International Trade Organization. It was applied on a provisional-basis.

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Its rules were applicable to trade in merchandize goods

It was originally a multilateral instrument but plurilateral agreements were added at a later stage.

Its dispute settlement system was not faster & automatic.

WTO

It is a permanent institution. It was established to serve its own purpose. Its activities are full & permanent. Its rules are applicable to trade in merchandize,

services & in related aspects of intellectual property. Its agreements are almost multi-lateral. Its dispute settlement system was fast & automatic.

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6.11: ORGANIZATIONAL STRUCTURE OF WTO

Ministerial Conference

General Council

Director General

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Dispute Settlement Body Trade Policy Review Body Committees Committee on

Trade & Development

Secretariats of WTOCouncil on BOP Restrictions

Council on Budget, Finance & Admin

Councils

Council for Council for Related Aspects Trade in Services Trade of Intellectual Rights

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6.12: UNCTAD

The widening trade gap between the developed & developing countries, the general dissatisfaction of the developing countries with the GATT & the need for a new organization for international economic cooperation in the field of trade & aid, designed to reduce the trade gap of developing countries, encouraged the establishment of the United Nations Conference on Trade & Development (UNCTAD) in 1964 as a permanent organ of the UN general assembly.

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The UNCTAD was designed to serve as a forum in which trade-related development issues could be discussed & analyzed to lead to the negotiations of international understanding on issues that were in dispute.

The Conference, which is a plenary body of a large number of countries, meets normally at intervals of 4 years.

The principle functions of the UNCTAD are:

To promote international trade with a view to accelerating economic development.

To formulate principles of & policies on international trade & related problems of economic development.

To negotiate international trade agreements.

To make proposals for putting its principles & policies into effect.

The major activities of UNCTAD include research & support of negotiations for community agreements, technical elaboration of new trade activities designed to assist developing countries in the areas of trade & capital.

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6.13: UNCTAD (CONTD)

UNCTAD’s action program & priorities have been laid down in the various recommendations adopted by the first conference in 1964. These recommendations are based on the following principles:

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Every country has the sovereign right freely to dispose of its natural resources in the interest of the economic development & well-being of its own people & freely to trade with other countries.

Economic relations between countries, including trade relations, shall be based on respect for the principles of sovereign equality of states, self-determination of people & non-interference in the internal affairs of other countries.

There shall be no discrimination on the basis of differences in socio-economic systems & the adoption of various trading methods & trading policies shall be consistent with this principle.

Despite the debates & disagreements over the years, UNCTAD played a key role in the emergence of

The Generalized System of Preferences (GSP).

A maritime shipping code.

Special international programs to help the least developed countries.

International aid targets.

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