A BRIEF OVERVIEW OF THE PREVIOUS CLASS (05:02 PM)

BACKGROUND OF THE NITI AAYOG (05:05 PM)

• India adopted the USSR planning model and gave  impetus to the PSUs
• Also India adopted the Top-down approach, and one size fits approach
• After the 8th FYP, India adopted flexible and indicative planning. 
• Also India adopted the decentralized model, Market-led economy model, and Privatisation 
• NITI Aayog started the era of perspective planning, It used a Bottom-up approach, it is a think tank. 
• NITI aayog 
• The chairperson is the PM and the governing council consists of CMs of state and Lieutenant  governors of UTs
• Regional councils are set up to address specific issue. It comprises CMs of state and Lieutenant governors of UTs of the concerned region. 
• The whole staff of NITI Aayog is divided into two hubs-
• Knowledge and Innovation hub - it has 12-14 verticals that deal with different sectors and builds NITI's think tank capability. 
• Team India hub- It works as an interface between the central and state governments. 
• 

• NITI aayog	Planning commission
  It has no power to impose policy	It had some power to impose policy
  State governments play a proactive role in the decision making	Decisions were more centralized under the planning commission
  The bottom-up approach is followed	A top-down approach was followed
  It has provision for part-time members	No provision for part-time members
  It cannot allocate funds. This power remain with the finance ministry	It enjoyed some powers to allocate funds to ministries and state governments

• Question- Critically evaluate the success of five-year plans in addressing the planned economic development in India. (10 marks/ 150 words). 

WORLD TRADE ORGANISATION (05:31 PM)

• Framework the Topic 
• Prebish-singer hypothesis
• History of WTO [From GATT to WTO]
• Basic principles of the WTO
• Structure of WTO
• Different agreements under WTO [TRIPS, AoA, TRIMS, GATS, S&PS]
• Ministerial conference [Singapore, Doha, Bali, Nairobi, Geneva]
• WTO- is it biased against developing countries?

BACKGROUND OF WTO (05:36 PM)

• Capitalist thinkers like Adam Smith, and David Ricardo were promoting free trade and this free trade will benefit everyone. 
• No country is self-sufficient and each country has its own comparative advantage (Competitive advantage) [* Competitive advantage means someone is good in a particular sector]
• [* Comparative advantage- Developed countries are good at technology, LDCs are good at primary and agriculture-related sectors]. 
• Developed countries will produce the products at the least cost and will export them and the same will be done by the LDCs. 
• They were of the opinion of fewer trade barriers and free trade. 
• Why Free trade may not benefit everybody?
• Primary and agriculture-related products- When there is an increase or decrease in income the demand for the necessity of these goods will not change much. 
• Manufacturing and technology-related items- With the increase or decrease in income the demand for these goods increases. 
• A poor person spends 95% of their income on the consumption of basic goods. ΔD/ ΔP= will not change much. Inelastic
• For a rich person- ΔD/ ΔP will not change much 
• For the middle class- ΔD/ ΔP will change. Elastic [* When price changes the demand changes very fast]. 
• When developing and developed countries' income is increasing- 
• a) In developing countries the demand for technology and manufacturing products will increase
• b) In developed countries the demand for primary products will not increase that much. Even if the price decreases then also the demand does not change.  
• This hypothesis is called as Prebish-singer hypothesis
• WTO- Historical background
• The traditional theory of free trade proposed by Adam Smith stated that free trade should result in higher profits for all the nations engaged i.e. it is virtually impossible for any nation to produce all their consumption requirements themselves at the least possible cost. 
• A particular country will find it profitable in producing commodities with a comparative advantage.
• It should export such commodities and import other commodities on the basis of this economic principle. 
• Developed countries often argue to promote free trade through organizations like WTO. But the conclusions of the above theory can change when we look at empirical evidence with respect to LDCs. For most of the LDCs, their comparative advantage lies in producing agriculture and other related products such as cotton, coffee, rice, sugar, etc.
• It has been empirically proved that the income elasticity of demand is lower for these products. In contrast, income elasticity for manufacturing goods is higher. The result of these two effects leads to a decline in the relative price of primary products. This decline does not lead to a significant increase in demand (inelastic demand with respect to prices). 
• These 2 phenomena together will make the export earnings of LDCs highly unstable, thus making free trade harmful to them. The above finding is popularly known as the Prebish-Singer hypothesis. This finding is the issue of conflict between developed and developing countries on aspects related to international trade.
• Apart from this, developed countries are protecting their agricultural market by giving huge subsidies which are adversely affecting developing countries' markets.

EVOLUTION OF WTO (06:02 PM)

• The formation of WTO can be traced back to the economic situation immediately after the second world war.
• International economic cooperation was a necessity and to achieve this goal, a number of international organizations were suggested under the Bretton Woods conference. Apart from the formation of the World Bank and IMF, an organization called ITO (International trade organization) was also proposed to tackle trade barriers and other issues related to trade. 
• Although ITO was never formed due to a lack of consensus, another agreement called GATT (General Agreement on Trade and Tariffs) was signed by 23 countries in Geneva. GATT came into existence on 1st Jan 1948 and till the formation of WTO in 1995, GATT was the only multilateral agreement governing international trade.
• Totally 8 Multi trade negotiations (MTNs) were held under GATT and MTNs tried to tackle some of the basic issues related to international trade like Tariff and Non-tariff barriers. But within 40 years of operation GATT, its members felt that the system was inefficient to handle the problems of the globalizing world economy.
• These issues came to the forefront during the 8th Multi Trade Negotiations (MTN) of GATT in Uruguay.
• During the Uruguay round, talks took place on many new areas of the trading system like trade in services, IPRs, etc. Apart from the emergence of these issues differences also arose among member countries on issues like agricultural subsidies etc. To tackle this deadlock Sir Arthur Dunkel proposed the Dunkel Draft.
• On the basis of this draft, an Act was signed by 123 nations including India on April 15, 1994, at Marrakesh.
• As a result of the Marrakesh Agreement, WTO came into existence on 1st Jan 1995 with its HQ in Geneva.
• Currently, WTO comprises 164 members and the current head is Ngozi Okonjo-Iweala.

PRINCIPLES UNDER WTO (06:34 PM)

• A. Trade without discrimination
• Principle of National Treatment
• It means treating foreign and local goods equally. It only applies once a product, service, or item of intellectual property enters the domestic market.  
• Therefore, charging customs duty on imports is not a violation of the principle of national treatment even if the locally produced goods are not charged equal tax.
• Principle of the Most favoured nation (MFN)
• In international economic transactions, MFN is the status or level of treatment accorded by one state to another in international trade.
• The term means that the country which is the recipient of this treatment must nominally receive equal trade advantages as the MFN by the country granting such treatment.
• In a nutshell, MFN is a non-discriminatory trade policy as it ensures equal trading among all WTO members. Exceptions- Bilateral agreements, Regional groupings. 
• B. Principle of predictability of trade rules
• The multilateral trading system is an attempt by the governments to make the business environment stable and predictable.
• Under WTO, when countries agree to open their markets for foreign goods or services they bind their commitments.
• Principle of Fair Competition (07:25 PM)
• Though WTO is described as a free trade institution, the system allows limits or tariffs. Under certain circumstances, it also allows other forms of protection in spite of rules like non-discrimination.
• Fair competition aims to reduce dumping, predatory pricing, excessive non-tariff barriers, etc.
• Improved market access
• Lowering trade barriers is one of the most obvious means of encouraging trade.
• The barriers concerned include customs duties and measures such as import bans or quotas (Quantitative restrictions- that restrict the quantity selectively). Improved market access focuses on converting non-tariff barriers into tariffs and reducing tariff barriers progressively. 

SOME FACTS RELATED TO WTO (07:32 PM)

• Imposing high custom duty means following protectionist measures. Practising protectionism is against the principle of free trade and one can approach the WTO and file a complaint. 
• Export-related subsidies were given to Sugar to escape fair and remunerative prices given to sugarcane producers. But Brazil filed a complaint against this. 
• Anti-dumping duties can be levied against the produce when it is proven that the country is dumping the products. 
• If a country is forcing the companies to use the local content then also it is a violation of WTO principles. It is against the principle of national treatment. 
• Multi-brand retail (Under one platform, many brands are sold)- The government allowed FDI but then retail shops in Mumbai started protesting. 
• Since 2019, Dispute Settlement Body is not working properly. The appeal against this body can be filed in the appellate body. This appellate body is consisting of 7 judges. The USA started blocking the judge's appointment. 
• In WTO decision is taken based on consensus [* In IMF, to take any decision, 85% votes are required and the USA enjoys 17% votes thus enjoying the veto]
• Uruguay Rounds (1986-1994)- many issues were discussed
• a) Agreement on agriculture
• b) IPRs- Patents (20 years), Copyrights, Trademarks, Geographic indication, Trade secrets, Industrial designs. 
• c) GATS- general agreement on services
• d) TRIMS- Trade-related investment measures 
• Trade-related intellectual property rights 
• On one side we need to promote welfare and on the other side, we need to promote welfare (Innovation V/s welfare). [* Jonas salk did not patent the polio vaccine]
• A patent is a kind of incentive for innovation. 
• 1970- Patents Act of India allows the manufacturing of generic drugs. India allowed Process patents [* Only patenting the process/ methodology of the product, so reverse engineering was allowed ]
• This was not liked by the developed country. They were asking about the Product patent [* Irrespective of the method or process the same product can not be manufactured]
• Paris Convention was liberal in nature and it gave more priority to the national government, however, the USA did not agree to this and lobbied enough, and finally TRIPS came. Under TRIPS, process patents were converted to product patents. The USA also asked to expand the scope of IPR to include everything. 
• Special and differentiated treatment- It means developing countries will be given more time to implement the TRIPS [* Developed countries can implement it by the 2000s, Countries like India can implement by 2005, and LDCs like Bangladesh can implement it by 2016]. 
• India amended the Patent Act in 2005 to make it in line with the TRIPS provision. 
• India was also conscious of welfare. So it inserted a clause in the Indian Patents Act. [* Section 3(d) of the Patent Act discouraged the evergreening of the patents].
• India also came up with certain protections 
• a) Compulsory licensing-When there is an urgent public requirement then the government can temporarily override the patents and can issue the license to local manufacturers. [* Nexavar drug (cancer drug) created by Bayers company. Its price was very high so the government gave the license to a local manufacturer. Natco Pharma was given a license ]. During this period also, the royalty was paid to the original drug manufacturer. 
• India never misutilized this provision.  
• b) Parallel imports

TRIPS AGREEMENT (08:02 PM)

• It relates to the protection of IPRs and was negotiated during the Uruguay round. TRIPS came into existence as a result of intense lobbying of the USA supported by other developed countries. 
• Under TRIPS, IPR owners are granted exclusive rights to a variety of intangible assets such as works of art, innovation, etc. 
• The justification given for such rights is the monopoly profit that acts as an incentive for R&D. Prior to the TRIPS agreement IPR trade was governed by Paris Convention.
• Paris Convention was fairly liberal in giving the national government the right to decide on the subject matter of patents, Trademarks, etc. 

The Topic for the next class- The structure of WTO, Ministerial conferences.