World Trade Organisation
It is vital that the WTO should be strengthened so that no single country could dominate and take advantage for its own benefit of the problems other countries are facing. The World Trade Organisation that came into existence seems to have been quietly achieving some progress. Twenty-nine members (including Brazil, India and Japan), who had doubt, earlier decided in July this year, to offer concessions with the sole aim of saving the cause of multilateralism and free trade. Many commitments have been made so far, which could result in trade in services operating under conditions of a modicum of security and predictability. This is particularly important for overseas in-vestment by companies specialising in financial services. These do not please every country, and one can indeed foresee protracted negotiations and tough bargaining. Even so, the World Trade Organisation should be considered on the whole a necessary institution for bringing a certain amount of order in a fast changing international economic scenario.
It is vital this organisation should be strengthened so that no single country could dominate and take advantage for its own benefit of the problems other countries are facing. It is necessary for the less developed countries to realise that they cannot tolerate the injustice meted out to them in the past by the rich and powerful countries, by a kind of reverse trade discrimination. As a result of the end of the Cold War, it is no longer possible to gain advantage from the East-West confrontation. The new name of the game is quid pro quo. The best bet is to see that injustice and unequal treatment are not forced on them. The WTO, if it works well, may just ensure that.
If we look at the misty origins of this organisation at the end of the Second World War, we realise that it was opposed not by the less developed countries but by the most economically powerful nation. The U.S. Department of Senate proposed, sometime in 1946, that international cooperation should be sought in areas such as commercial policy, tariffs, preferences, quotas, licensing systems, restrictive business practices, as well as an International Trade Organisation to administer such agreements. These proposals were discussed in a series of international conferences on trade and employment that met in London (1946), Geneva (1947) and Havana (1948). The 50 or so countries signed a Charter for the International Trade Organisation to come into effect upon ratification by the member countries. It was the U.S. Congress which had earlier been enthusiastic about the Bretton Woods proposals that refused to ratify the ITO proposal, and the matter ended there.
Though the ITO did not see the light of day, the spirit of multilateralism and free trade survived through the General Agreement on Tariffs and Trade. Until the beginning of the Uruguay Round of discussions, GATT achieved a measure of success—though not to everyone’s satisfaction—in reducing trade barriers for industrial goods, encouraging non-disseminator trade barriers, and effecting dispute settlement mechanisms through consultations and arbitration. The Uruguay Round added to the discussions—what was until then tendentious—issues relating to the reduction of trade barriers and subsidies in agriculture, as well as to extend free trade in services and intellectual property. The end of this round saw the birth of the WTO.
The key players in international finance movements are the national governments and the corporations. The Government’s desire is to win elections to remain in power, and the businesses want profit. Different governments have different fiscal, monetary and trade policies, and often they are inconsistent. This makes changes in national currency values inevitable. Business fortunes are made if the firms are able to forecast such changes in the values of national currencies. But politicians do not like changes in currency values, because if they fall unduly and to the extent that the country depends upon imported commodities, it causes prices to rise.
The International Monetary Fund played a crucial part in keeping the exchange rates somewhat steady for almost quarter of a century, but the Bretton Woods vision of an international monetary system collapsed by the early 1970s. Whereas earlier the big business could not make much profit by dealing in currency values, thanks to the overseeing of the international monetary system by the IMF, it now found numerous avenues to make enormous profits through the movement of currency across national borders A lot of these transactions is the result of the world of finance managers of large firms. They borrow or sell currencies if they anticipate a fall in there and lend or buy when a rise in value is expected. Often such foreign exchange transactions are made as a hedge against exchange and interest rate risks, by spreading their liabilities across currencies. In recent times, the use of derivatives has offered the finance wizards of the MNCs and international banks, powerful instruments to make bets on the future. This very volatility and speculation leads national governments to add to this foreign exchange turnover, by their action to defend their currencies.
Another fact has also to be borne in mind. While the politics of money and credit is national, the vast developments in information technology has made the national market for currency, bonds, shares and other paper, truly international. Most of these markets are only in computer networks and they can neither be territorially defined nor effectively controlled.
This enormous expansion in international financial movements has considerably overshadowed the growth in the volume of World trade output. It is estimated that a mere five per cent of the global turnover of foreign exchange is used for facilitating international trade in goods. The International Monetary Fund itself has categorically declared that “exchange rate volatility hinders international trade and investment.” But can an individual nation avoid such exchange rate fluctuations? Yes, it can, provided the internal market for money is kept isolated from the rest of the World. Short of total control of all movements and cumbersome foreign regulations, such total isolation of national market of money and credit is well nigh impossible. If attempted, it shuts out the undoubted benefits of as well, in addition to closing many lucrative foreign outlets for domestic goods.
Such autarkic policies invariably invite reprisals from other trading nations. The resultant decrease in a nation’s overseas trade will be inimical to the less developed countries. with tough micro-economic policies pursued recently in developed countries, and the consequent hiking of interest rates, developing nations will have to depend in future on their own savings for growth. Under these conditions, attracting foreign capitals is a difficult but nevertheless necessary option. But this, in turn, presupposes thriving export markets in the future. Given these, there is only one kind of adjustment possible, i.e., harmonisation of the national economic policies through consultation and negotiation. The aim of such harmonisation is to reduce the competitive advantages or disadvantages faced by firms in all countries. One advantage of being part of a multilateral world organisation is that, strong countries cannot easily bully weak countries into taking action that could be patently unfair, which is possible under the bilateral economic relationships.
To say that the WTO is important is not to claim that mere membership will confer all the available benefits. Every country must work hard on the negotiating table to get the best by resolute bargaining on the basis of knowledge as well as a fierce determination, to protect the national interests. It would appear that Indian negotiators in the various GATT rounds have not been as vigilant as they should have been. Not infrequently, subtle offers of cushy jobs in world organisations help the individual Indian negotiator to be liberal to the other side.
They have allowed themselves all too often to be talked into agreeing to conditions that were not favourable to us. Just one notorious example will do. India decided unexpectedly in April 1989 to depart from its previously held (and correct) position that norm setting negotiations for the intellectual property right should not be held under GATT. There is hardly any doubt that India unnecessarily buckled under the U.S. threat to put in the Super 301 category. Our negotiators gave in, but still India was put in the Special 301 (Patent) watchlist.
One can only hope that our politicians and bureaucrats will not sell us down the drain in the future but effectively use the WTO to protect India’s national interests.
