Commercial Environment - Free Essay Example

INTRODUCTION   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  WTO founder members (January 1, 1995)  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  WTO subsequent members Formation January 1, 1995 Headquarters Centre William Rappard, Geneva, Switzerland Membership 153 member states Official  languages English, French, Spanish Director-General Pascal Lamy Budget 189 million Swiss francs (approx. 182 million USD) in 2009. Ever since the WTO came into existence on January 1, 1995 , Indian economy has witnessed a tremendous change. Some people believe that the WTO agreements would affect only those who are in international trade ; those producing and selling domestically will remain unaffected. This is only an illusion. Those in international trade have engaged in other sectors , shocks are soon to follow. In one word, all categories of economic functionaries and all sectors of the economy are going to feel the pinch of the WTO economic regime, in varying from and content ; WTO is as much important to farmers , scientists , singers and writers as to industrialists , traders or sundary service providers. Given WTOs enormous significance to our economic existence , the Indian Economic Association considered it advisable to institute WTO and the Indian Economy as one of the four themes for the 83rd conference. The present volume is based on 23 papers submitted for the conference under this theme. After seven years of protracted negotiations called Uruguay Round of Table Negotiations a new rule based tradi ng system with a new apex body , the World Trade Organization (WTO) , equipped with the authority of enforcing the commitments , rules and norms of discipline came into existence on January 1 , 1995. This Uruguay Round of Trade Negotiations was unique in several respects. It covered many new areas such as Agriculture , Textiles , Technology , Intellectual Property Rights (IPRs) , Trade Related Investment , Services , etc. The new institution WTO is equipped with legal authority and provisions for enforcement of the rules and the disciplines of the new trading system. Some of the positive achievements of the Uruguay Round Of Trade Negotiations , that have been incorporated in the final Act and the WTO framework , need to be explicitly recognized. Over the past several years , many countries , which were vocal advocates of free trade and free play of market forces , had been adopting. Before the WTO came , until 1994, international trade in merchandise was guided by the rules a nd provisions of the General Agreement on Tariffs and Trade (GATT). WHAT IS WTO? The World Trade Organization (WTO) is a global organization dealing with rules of trade between nations, who are members of the organization. Its main function is to ensure that trade flows smoothly and freely . Decisions in the WTO are normally taken by consenus among all member countries and they are ratified by members parliaments of senates. However in trade off on decisions , gains may be unequal at times. Conflict over trade is focus is on interpreting agreements and commitments , ensuring countries trade policies conform with them. At the heart of the system multilateral trading system are the WTOs agreements , negotiated and signed by most nations participating in global trade. These agreements are the legal ground rules for international commerce. They are in essence contracts , guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybodys benefit. It came in 1995. This makes it one of the youngest of international organizations . WHY WTO ? WTO was established to deal with three major counts namely Trade Related Aspects of Investment Measures (TRIMs) , Trade Related Aspects of Intellectual Property Rights (TRIPs) , and trade in services . the other services which the WTO was also supposed to perform are as under: To facilitate the implementation , administration and operations of multilateral and plurilateral trade agreements. To arrange the forum for deliberations for the member nations in regard to their multilateral trade relations in issues dealt with under the agreements. To provide a framework for implementing of the results arising out of the deliberations which took place at Ministerial Conference Level. To manage the created understanding on rules and procedures governing the settlement of disputes (DSU). To manage effectively and efficiently the trade policy review mechanism (TRIM). To create more coherence in respect of global economic policymaking , it would cooperate with the IMF and th e World Bank and its affiliated Organisation. INDIA AND WTO INDIA HEADING FOR WTO It was not a sudden development or a hasty choice that brought India to the WTOs fold. An objective assessment of the circumstances into which the Indian economy had landed itself in the late seventies or the early eighties , would convince us that India could no more adhere to the inward looking economic strategy of the past. By the time the Uruguay Round concluded in 1994 , India was well prepared to join the WTO family ; all preludes were already in position. INDIAN ECONOMY IN RECENT YEARS. The impact that WTO membership would make on the Indian economy is an issue of paramount national importance. It is a little pre mature to make a judgement , at this stage , essentially because things have just evolving. A neat picture will emerge well after all agreement are implemented world wide , net of neutralizations and modifications that might come off because of the voices being raised by the developing economies, including India , and the countervailing strategies to be unleashed by the vested trade interests. Moreover , India herself has yet to complete the last bit of the opening up on April 1 , 2001. Furthermore , this is hardly the stage at which we can scientifically delineate the effect of a particular agreement , or a specific aspect for the same , on the concerned sector , free of other interconnections. Hence the best we can do is to make some conjectures on the basis of what has been going on in the recent past. Indeed , this is our only analytical cho ice , since the kind of economic regime that may emerge in the next few years would only be re affirmations , and a gradual extension , of the globalization and trade liberalization policies set afloat during the second half of the 1990s when WTO came. IMPACT OF WTO ON INDIAN ECONOMY The principal mandate of the WTO is to promote an open equitable and non discriminatory multilateral trading system . Richardos principle of comparative advantage guides the WTOs concept of equitable trade. The WTOs emphases is on competitive efficiency and economies. The WTO started work on January 1 , 1995 on the basis of the agreement signed by 125 nations at Marrakesh in April 1994.According to the WTO , the members themselves decides on the rules governing their trade relations , and periodically enter into rounds of negotiations aimed at further opening up of markets and reforming the agreements. The WTO as expected to play a crucial role in implementing the new World Trade System visualized in the Uruguay IMPACT OF DIFFERENT BUSINESSES ON INDIA BY WTO AGRICULTURE Agriculture is the oldest culture in human civilization. The later day spin off is barter , trade , commerce and industry. Originally , trade was free as it was logically bound by territorial restrictions imposed by limitations of communication. Flow of good and availability of services faced obstruction at the border when the state of nature changed to culminate into political society married to the idea of national sovereignty. World Trade Organization (WTO) is the principal institution of free trade. AREAS OF REFORM IN AGRICULTURE The main elements of reform to be undertaken as set out in the agreement on agriculture (AOA) touch and concern three areas of policy: Market access Domestic support , and Export subsidies INDIAN AGRICULTURE SCENE Valibility of Indian agriculture in the new setting of international trade need not be viewed in isolation only in terms of the prospects for commodity wise benefit under the provisions of the WTO although an agricultural commodity. The fortunes of Indian agriculture which now accounts for around 30 percent of GDP is inseparably linked with the rest of the economy and as such impact of macroeconomic reforms on the terms of trade for agriculture , private investment and its ability to access modern technology and inputs for diversifying agricultural output in a cost effective manner cannot be ignored . it is now acknowledged that full fledged macroeconomic reforms launched since the early 1990s have improved the incentive framework for Agriculture terms of trade now a agricultural sector, through still adverse were progressively improving. Consequently , private investment in agriculture has risen significantly in the post reform . The strategic objectives in the process were to ensure : Expansion of production base Raising productivity of the existing crops Alternative sources of livelihood Protection from risks and uncertainities Alternative cropping pattern in place of tobacco plantation. IMPACTS ON INDIAN AGRICULTURE BY WTO ARE: All non tariff barriers are to b replaced and tariffs will have to be replaced by 26 percent by developing countries. Reductions in tariffs are required to be implemented over a period of 10 years by developing nations from January 1 ,1995. The removal of important restrictions according to WTO norms will lead to a rise in Indian imports but will however adversely affect domestic producers of agricultural commodities. The reduction in subsidies may adversely impact agriculture and import of quality patented goods and will also result in high cost to Indian farmers. India will have to speed up the process of awarding patents to all agricultural products during the implementation period , that is 1995 2004 , various facilities are required there. Countries with closed farm markets will have to import at least three percent of domestic consumption products, rising to five percent over a period of six years. SMALL SCALE INDUSTRIES Impact on small scale industries by WTO: No single agreement of WTO directly dealing with the SSIs. Tariffs were reduced and dismantling of non tariff barriers. Under this scenario Indian SSIs would not only face competition from MNCs but large Indian companies also. The government removed Quantitative Restrictions on 714 items and remaining 715 items have been removed from Quantitative Restrictions by 31st March 2001. The removal of QR will practically affect all segments of the small scale sector. The textile industry of Gujarat as well as the weaving and spinning co operatives in South India will face stiff competition due to imports from china , korea and Thailand . Any and every kind of fabric can be sold locally after paying custom duties averaging at 35 percent. Textile items are now freely importable. Dumping of goods were there . TEXTILE AND CLOTHING The textiles and clothing sector has been protected by developed countries since the 1960s through quantitative restrictions imposed on exports of the third world. Normally in Such a situation , the developed countries should have resorted to some precautionary action under the provisions of Article XIX of GAT 1994 to restrain the imports. There had been a Short Term Agreement and a Long Term Agreement covering textiles and clothing a comprehensive agreement in this sector was worked out in 1973. Its coverage was expanded to include fibers other than cotton , wool and synthetic fibers. This was also popularly known as Multi Fibre Agreement. FOOD PROCESSING INDUSTRY Impact of WTO on Food Processing Industry are: There is no disputing the fact that food processing industry is a primitive stage in India. Following are the impacts of WTO on this industry: Because of inadequate storage facilities farmers usually do not get a good price for their produce since there are not enough processing units. Lack of liberalization of rules to encourage investment in these areas. Food safety and security will continue to be an important plank for restoration of WTO standards and regulation of WTO standards and regulation for food security. Less development in food processing PHARMACEUTICAL INDUSTRY Impact on this industry by WTO are: All quantitative restrictions on pharmaceutical products are to be removed latest by the year 2002. Free trade in medicines were there worldwide. Indias share in the world pharmaceutical market was just 1.5 percent , which is likely to rise to 2.4 percent by 2005. The impact was that there is no industry with its market share greater than 6 percent. Mergers increases and acquisitions in the Indian Pharmaceutical Industry , as worldwide corporate RD centers undergo a consolidation phase. Exports are increased as a result of the WTO accord. Deductions limit for expenses by pharmaceutical and biotechnology companies raises from 125 percent to 150 percent. MARKET ACCESS IN INDIA Rates of import tariffs in India are quite high, which had had its impact on development of the trade and industry. The indirect taxes contribute a major proportion of the revenue of the Union Government . Any reduction in the rates of import duties will have its impact on the central kitty unless suitably augmented by other resources. The domestic producers in India have several disadvantages as compared to manufacturers in the world markets, such as higher cost of capital and power, low productivity of labour. There is a lack of efficient infrastructural support. Competition among unequals would generate distortions.. Competition is not fair between unequals. OPPORTUNITIES PROVIDED BY WTO Opportunities provided by WTO to india are: Indias service exports could get a boost , the potential for which is available in the form of technically qualified personnel . India will gain from reduced import tariff by industrially developed countries , as some countries have agreed to harmonize tariffs and bring down the average tariffs on India goods. The removal of quotas under A multifiber agreement will help Indias textiles and garment export to increase . MFN status, which ensures favourable treatment in the administration of tariffs, is particularly useful for developing countries like India whose economic leverage in world trade is limited. RECOMMENDATIONS Both the external as well as the internal balances should be there in a business for the overall development of the economy. India may have to accelerate the pace of economic reforms, financial liberalization, liberalization policy on FDI and higher investment on infrastructure aimed at making the domestic Industry Internationally Competitive. Commercial and corporate farms may need to be encouraged. On the trade front , a roadmap must be drawn and strategic action be initiated to raise its share in world exports to at least two percent over the next five years. Need based changes must be introduced in land ceiling Act, to enable farmers to make their small holdings economically sustainable and viable.