Trade Agreements and Its Impact on the Indian Economy



India is a democratic and political country with a well streamlined administrative structure, and an already existing mixed economy, with a rich experience of private sector operations. Also available in India is a vast stock of skilled manpower and entrepreneurial class, a reasonably good basic infrastructure and a good track record of fulfilling past international obligations.

The present bout of economic reforms in India started in the eighties, mark both a continuity and a break with India’s post-independence development strategy. India’s strategy for development was largely influenced by :

o The cynicism of policy makers regarding any possible help from the rest of the world by way of investments, transfer of technology and trade and

o Reservation regarding ability of market forces to bring about of their own, an optimum allocation of resources, thus balancing the country’s two main objectives – ‘growth’ & ‘equity’.

o The External world is not necessarily an unfriendly one, especially after the present day technological changes and changes in the political – economic relations between nations.

o The domestic economy has now reached a threshold where for better utilization of resources the benefits of the market forces can be harnessed, by proper market friendly macro and micro economic policies helping both in higher growth and more equity.

Since 1997, and especially after 1985-86 the Government has embarked upon a series of economic reforms leading towards liberalization and deregulation. The world trade in commercial services amounts to US$ 1440 billion in the year 2001 which is 23% of goods trade. In India it accounted to 49% of GDP in 2000-01 with Agriculture 27% and Manufacturing 23% of GDP.

Since Feb 2000, negotiations are on the go in WTO to expand & ‘fine tune’ the GATS. The negotiations have aroused concerns worldwide. A growing number of local governments, trade unions, NGO’s are criticizing GATS and call for a halt on the negotiations.


The General Agreement on Trade in Services came into existence as a result of the Uruguay Round of negotiations and entered into force on 1st January 1995 with the establishment of WTO. The aim of GATS is to gradually remove all barriers of trade in services. The agreement covers services as diverse as banking, education, healthcare, tourism or transport. The main idea is to open up these services to international competition, allowing for profits. The multi lateral legal instruments resulting from the Uruguay Round were treated as single undertaking . India also signed all the agreements under the single undertaking rule and GATS is a part of this whole package.

Prior to the Uruguay Round, services were considered to offer less potential for trade expansion than goods, thanks to existence of technical, institutional and regulatory barriers. However, the development of new transmission technologies facilitating the supply of services (e.g. satellite communication, electronic banking, tele – education), the opening of monopolies in many countries and gradual liberalization of hitherto regulated sectors like transport, banking and insurance combined with changes in consumer preferences, enhanced the “tradeability” of services.These developments increased international services flows and created a similar need for multilateral disciplines- as in the area of goods.

The GATS covers all internationally traded services with two exceptions : services provide to the public in the exercise of governmental authority and in the Air transport sector, traffic rights and all services directly related to the exercise of traffic rights. It recognizes the right of Members to regulate the supply of services in pursuit of their own national policy objectives.


Most people’s eyes glaze with boredom at the mention of GATT ( General Agreement on Trade and Tariffs), the international organization that has sought for four decades to promote freer world trade. If at all it sparks some emotion it tends to be in politically minded souls who see the Uruguay Round of GATT as a forum where rich countries try to force unpleasant things on the poor.

Economic Growth

But subsequently economic growth skyrocketed. Prof Agnus Madison estimated that in 16 developed countries, income per head went up 730 percent and labour productivity by 1200 percent between 1970 to 1980. There were many reasons for this of which one stands out – their exports increased by 96,500 percent. That is a mind boggling figure, and puts in perspective the importance of trade in improving living standards. Countries have increasingly moved away from self-sufficiency to inter-dependence and been rewarded with prosperity unthinkable in preceding millennia.

Grave Disappointment in Some Areas:

The establishment of the WTO and the entry into force of the agreements under its auspices have visited considerable iniquities upon the developing countries . Rife with imbalances and deficiencies, the WTO agreements and the manner of their implementation have hardly benefited the Third World Nations but have instead littered their development path with imposing obstacles.

Amid this panorama of inequity, the major developed countries are pushing for the launch of fresh negotiations that could result in new WTO rules which add to the already onerous obligations of the developing countries and further undermine their developments prospects. This paper calls on developing countries to resist these pressures wholeheartedly and insist instead that the myriad asymmetries in the existing agreements be remedied. This in turn, demands that they shed their previous passive stance and forge coordinated and consolidated positions within the WTO, for only with proactive cooperation the countries of the South can advance their interests in the multi lateral trade.

Ongoing Process of Constraining Market Access

There is sudden awareness about GATS especially after the recent collapse of world talks in Cancun and it has emerged into a very big public crisis. But behind the headline- hitting turmoil trade negotiators are quietly and determinedly getting on with negotiating what rich countries and big business see as the biggest world trade prize of all – the GATS.

The current negotiations aimed at massively expanding the General Agreement on Trade in Services have attracted growing concern. Around the world grassroots movements, local governments, trade unions and a growing number of developing country governments have raised objections to these negotiations. The objections are based on:

GATS rules will have an universal access to basic services such as education, healthcare and water which are non-profit institutions and this will affect the poor

Conflicts between GATS approach and the essential right of current and future governments to regulate companies in areas such as tourism, retail, telecommunications and broadcasting. And once GATS rules are agreed for a particular service they are effectively irreversible.

Failure to undertake a comprehensive assessment of the impact of GATS

expansion before the talks continue.

Negotiations shrouded in secrecy

It is a threat to democracy

It is a threat to public services

It is being driven by Multinational corporations

It is irreversible

It restricts the government regulations

Aims at privatization of the companies


Multinational norms need to be established.

A mechanism to attend to specific problems being faced by developing countries

To ensure complete equity and fairness in recognition matters.

To establish multilateral norms to facilitate Mutual Recognition Agreements (MRAs) among Member countries



o Facing the Facts: A Guide to the GATS Debate

Scott Sinclair and Jim Grieshaber-Otto, Canadian Centre for Policy Alternatives. April 2002


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