The Indian government is actively making more and more bilateral trade agreements, mainly with our neighbouring countries except China. These countries are one’s we share our port with or even our borders. Even developing countries are a part of this free trade agreement.
The Government has signed limited trade agreements with Sri Lanka and Denmark plus variety of preferential trade agreements (tariff concession schemes) with countries/blocs.
Currently, bilateral FTA negotiations are happening with Australia, the GCC, Bangladesh, Canada, Colombia, Israel, New Zealand, Uruguay, Venezuela and Mauritius. Further down the road , the govt is in various stages of considering talks with Indonesia, Malaysia, Japan, Korea, Egypt, SACU (Southern African Customs Union), Russia and Hong Kong.
The unrest among nations with China during the Covid-19 pandemic has given a preferential edge to India for improving its relations in terms of trade and business. However, there has been many protests and disagreements regarding the trade policies. This unrest is triggered by lack of awareness and lack of transparency to the citizens of the state . Hence let’s dive into the straightforward understanding of International trade relations of nations and also the role of WTO- world trade organisation.
let’s start with the introduction of bilateral and multilateral trade laws.
A trade agreement is a contract agreement or pact between two or more nations that outlines how they will work together to ensure a mutual benefit in the field of trade and investment. Such trade agreements may involve cooperation in the field of R&D. The lowering of import duties to be levied on the other partner’s exports. Guaranteeing any investments made by the partners in the home market. Cooperation on the tax front etc.
a bilateral trade agreement as the name suggests is an agreement between two nations. while a multilateral trade agreement involves more than two nations.
let’s now discuss the general agreement on trade and tariffs.
the general agreement on trade in tariffs or GATT was originally created by the Bretton Woods conference as part of a larger plan for economic recovery after World War 2. the GATT’s main purpose was to reduce barriers to global trade. this was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of different agreements. I don’t want to give anyone the false impression that tariffs are out of control. in fact, average tariffs on traded Goods are lower than they were at any point in the 20th century.
let me give you a little background first. in the 1920s when Herbert Hoover was running for office he made a campaign promise to US farmers to protect them from foreign competition if he was elected to office. once he was elected he needed legislative support to get a bill moving through. getting started wasn’t so bad. legislators from farming states are more than happy to sponsor such a bill. but that wasn’t enough votes to actually get it passed.
so what do you do if you’re seeking support for farming protection bill from people who care nothing about farming? what if for example you’re approaching representative from Detroit. how do you make the proposed bill more interesting? add a line or two about protecting automakers perhaps and so it went a little something for car makers, furniture producers, textile manufacturers.
in the end the Smoot-Hawley Tariff bill entailed protection for over 20,000 US products now other countries in the world weren’t sitting idly by. as Smoot-Hawley was making its rounds they were to say the least rather unhappy at the prospect of restrictions on so many of their own products. in an attempt to stop the U.S. other countries threatened to impose restrictions of their own. if Smoot-Hawley passed some countries like Canada – wrote up their own protectionist legislation while others simply said that they would boycott US products.
Nonetheless in 1929 the Smoot-Hawley bill became law. The first shot in a global trade war between 1929 and 1932. The total volume of world trade fell from a total value about 3 billion to only 1 billion making Smoot-Hawley one of the major contributing factors to the Great Depression. Europe was soon embroiled in World War two with the U.S. to follow.
After the war countries around the world agreed that perhaps the trade brawl had been a mistake. That ought not to be repeated and many of them sat down in formed an agreement to begin scaling back the tariff restrictions. This was the birth of the general agreement on tariffs and trade or GATT. At their highest around 1930 the average level of tariffs on traded goods was at about 70 percent, nearly doubling the prices.
Unimportance with the first full round of GATT in 1947 tariffs were reduced to about 40 percent and then reduced further with each subsequent round by 1993. GATT was in its ninth round and tariffs were down to about two to three percent average on traded goods. Here’s the thing though just because governments have agreed to cut tariffs does this mean that the weak domestic industries stop wanting protection. No.
So if you sign an agreement that says your country won’t use tariffs does this necessarily mean that no protection will be used. No. In fact, with the decline in tariffs came an increase in quotas. So then gap began to address quotas. With the decline in quotas came an increase in the use of voluntary export restraints or other non-tariff barriers and additions like health and safety restrictions.
Take a look at the duration of each round. Do you notice that each round gets longer and longer? That’s because once it gets harder and harder to trim the cost to the most contentious products usually agriculture kept getting put on the back burner and lastly what would go around was the first to try to deal with the trade restrictions placed on services.
The birth of World Trade Organization from GATT’s ashes:
The old GATT was gone. It evolved into the World Trade Organization or WTO. The WTO is meant to serve as a place for trade dispute mediation. If one country has a complaint about another country’s trade policy that complaint can be heard by the WTO.
Here’s an interesting titbit, from The Economist magazine as of 2009 the US was the single most challenged country i.e. the country that has had the most complaints lodged against it for unfair trade policies. However, we are also the single largest complaining nation the US has lodged more complaints against other countries than any other single nation.
the role of GATT in integrating developing countries into an open multilateral trading system is also of major consequence. The increasing participation of developing countries in the GATT trading system and the pragmatic support provided to them through the flexible application of certain rules help developing countries to both expand and diversify their trade. It could now be said that a great number of these countries have already become full partners in this system as can be witnessed by their active participation in the Uruguay round.
The challenges that we face are therefore enormous. The only way back from the globalization in the world economy would be through economic depression and eventual chaos. we therefore have no choice but to move forward in doing so. However, we must be sure to preserve to the highest extent possible the spirit and tradition of the GATT which to a large extent was the key to its success.
World Trade Organisation and its member nations:
The World Trade Organization or WTO is a global organization that establishes rules for global trade through consensus among its member states. It also resolves disputes between the members which are all signatories to its set of trade agreements. The WTO states that its aims are to increase global trade by promoting lower trade barriers and providing a platform for the negotiation of trade and to their business principles of the trading system.
The WTO discussions should follow these fundamental principles of trading. A trading system should be free of discrimination in the sense that one country cannot privilege a particular trading partner above others within the system.
Nor can it discriminate against foreign products and services a trading system should tend toward more freedom that is toward fewer trade barriers tariffs and non-tariff barriers. A trading system should be predictable with foreign companies and governments reassured the trade barriers will not be raised arbitrarily and that markets will remain open. A trading system should tend toward greater competition subjects of WTO.
Agriculture services and non-agriculture intellectual property rights role of WTO and globalization WTO plays an important role in the principle of trade without discrimination in the free market trade. Most favoured nation or Member nations treating other people equally under the WTO agreements countries cannot normally discriminate between their trading partners, grant someone a special favour such as a lower customs duty rate for one of their products.
And we have to do the same for all other WTO members national treatment treating foreigners and locals equally imported and locally produced. Goods should be treated equally at least after the foreign goods have entered the market free trade.
The disparity among countries and trade:
Gradually through negotiation lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties or tariffs and measures such as import bans or quotas that restrict quantities selectively predictability through binding and transparency with stability and predictability investment is encouraged.
Jobs are created and consumers can fully enjoy the benefits of competition choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable. Half the world’s population live in poverty. These 2.8 billion people worldwide who are living on less than $2 a day could work themselves out of poverty if trade was free.
However, trade is unfair. Take the country of Kenya for example, in the 1970s- Kenya’s future looked bright with a growing economy and an industry starting to thrive. However, in the 1980s for the return of aid from rich countries, strict liberalisation was enforced.
The government had to reduce support for its farmers, cut tariffs and deregulate markets and yet when Kenya wanted entry into the WTO in the 1990s through the liberalization was expected cheap often subsidized goods from richer countries flooded the markets. From shoes and sugar to steel the result has been fatal for Kenya’s young industries and they’re vulnerable.
Didn’t stand a chance in competition with rich powerful companies and countries moving to the 21st century. Kenya now faces the future with devastated industries. Mass unemployment in a generation without education.
More Kenyans live in poverty now than they did in the 1970s. Fewer children go to school fewer children are vaccinated and more children die around the world. Many artisans and producers of products such as cotton, cocoa, coffee, tea and hand crafts are marginalised due to the regulations put in place by large Western governments.
This happens because more than 99% of world trade is conducted by the West – rich governments and large companies in corporations including the World Trading Organization and the world banking organizations. They control the way trade is conducted through agreements and rules that they have created to protect their own interests. Not only do these impose trade regulations, allow cheap products to be dumped on poor countries- fledging markets they charge high taxes on imported goods.
so poor countries can only afford to export raw materials like cocoa and cotton. that is the rich who turn these into more valuable products and reap the rewards. Kenya is not alone. poor countries only account for 0.4% of global trade. this makes them powerless to fight back. trade rules need to change. the rules need to allow the 2.8 billion people living on less than $2 a day the chance to work themselves out of poverty.
let’s now understand the WTO dispute settlement
Understanding the WTO’s procedure for resolving trade quarrels under the dispute settlement understanding is vital for enforcing the rules and therefore for ensuring the trade flows smoothly. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
The people behind these agreements are the member governments themselves. The agreements are the outcome of negotiations among members. Ultimate responsibility for settling disputes also lies with member governments through the dispute settlement body.
First the complaining party requests formal consultations with the other WTO member country or countries involved in the dispute. All such requests for formal consultations must be notified to the WTO’s dispute settlement body or DSP which consists of representatives from all WTO member countries and administers the rules and procedures governing the dispute settlement process.
The consultation period can last up to 60 days. If the consultations fail to resolve the problem the complaining party can then request that the DSB establish a panel of experts to adjudicate the merits of the case. Panellists are normally selected in consultation with the parties to the dispute. If the parties cannot agree on panellists the WTO will appoint them. The panel selection process can take up to 45 days. The GATT dispute settlement system evolved as an increasingly rule-oriented judicial system for resolving global trade disputes.
Its effectiveness however was greatly constrained by several weaknesses. in addition to the veto that led to increasing frustration among GATT member countries with respect to its application. The dispute settlement system survived however because of the long term commitment of its members to maintaining the GATT framework the principle shortcomings of the GATT dispute settlement system are- it did not specify clear objectives and procedures such that settlements relied upon the creation of ad-hoc processes and ambiguity concerning the role of consensus leading to the blocking of adverse decisions.
The frameworks of the free trade agreements:
The most comprehensive empirical analysis of the performance of the GATT settlement system is the review undertaken of all GATT disputes between 1948 and 1989. This study found that in spite of the shortcomings of the GATT dispute settlement procedures identified the system resolved 88% of valid complaints submitted measured by full or partial compliance.
Amid concerns about the GATT systems increasing in effectiveness after 1980 compliance was still 81%. Even though this period covers more than half of the total number of GATT complaints. Made the structure of patent law in various countries has been the subject of discipline-specific debate.
Although new issues arise and some changes are made to the law, many of the arguments remain both unchanged and unresolved in the United States.
One major difference is in priority claim which determines entitlement to patent protection in disputed cases. The manner in which the free trade system has practiced in Europe and japan diverges from the free trade system as practiced in the united states.
It is often seen as providing protection for the first to file an application versus protection for the first to conceive of the invention. This division into two categories however is overly simplistic for example both japan and Germany have free trade systems but the practice of each country is noticeably different.
Hence, bilateral trade agreements as the name suggest is an agreement between two nations. while a multilateral trade agreement involves more than two nations the general agreement on tariffs and trade or GATT was originally created by the Bretton Woods comforts as part of a larger plan for economic recovery after World War two.
The GATT’s main purpose was to reduce barriers to global trade the role of GATT in integrating developing countries into an open multilateral trading system is also of major consequence the WTO’s procedure for resolving trade quarrels under the dispute settlement. understanding is vital for enforcing the rules and therefore for ensuring the trade flows smoothly. Finally, the consultation period can last up to 60 days if the consultations fail to resolve the problem the complaining party can then request that there be establish a panel of experts to adjudicate the merits of the case.