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March 30, 2001
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How WTO regime will impact various industry sectors
How WTO regime will impact various industry sectors

George Iype

Part I: Indian industry braces for WTO regime

Under the new WTO regime, the Indian companies are preparing and designing new strategies for survival. Soon product patents will be introduced in the country.

Product patents did not exist in India. What we have had were "process patents" by which an identical product could be manufactured by another process. But the emergence of products patents will radically change the way companies do business.

No longer will companies be allowed to manufacture a similar product using a different process.

"The removal of quantitative restrictions and the imposition of the patents regime means that companies will be forced to compete. Companies will set new investments in research and development. Companies will also be forced to target niche markets and tailor their products according to the market requirements," says Ashutosh Verma, a legal expert in patents rules.

Verma points out that the implementation of WTO's Trade Related Intellectual Property Rights gives standard protection to copyrights, trade marks, layout designs and product rights.

But experts like Varma also warn that there are many possibilities that Indian exports could even be banned because of the product patents.

For instance, exports can be barred if the product in question violates patent rights in the importing country.

Traditional items like basmati rice will have to be patented. Automobile ancillaries will face product wrangles.

Software programmes and data applications will have to be protected under the patents law. Pharmaceutical companies will face a series of product patents issues.

But how will the removal of all import curbs and the beginning of the patents' regime affect various sectors of the Indian industry?

Here is the likely impact of the WTO rules on some crucial sectors in India.


The WTO agreement on agriculture provides for:

  • reduction of domestic subsidies,
  • reduction in export subsidies,
  • tariff reduction, and
  • bindings to provide market access.

Activists cry foul that Indian agriculture, already reeling under severe drought and fall in cash crop prices, will die once the import curbs are removed and free flow of food items are allowed into India.

"There is going to be 'madness' in the agriculture sector. Farmers will be hit hard by the WTO regime. What happens to our vegetable oils, rice, rubber, coconuts and fruits, if similar items can be imported cheaply from other countries," asks K Sundaran, a social activist espousing farmers causes in South India.

He says currently there is a massive distortion in the international trade in agriculture. Industrialised countries have been giving huge domestic subsidies to their agricultural sector that there is excessive production, import restrictions and dumping of agri-products in international markets.

But despite the concerns of farmers, many believe the WTO rules will not adversely affect the Indian agriculture as it is made out.

Developed nations have committed to the WTO that they would reduce subsidies and tariff. So then better overseas markets will be available for Indian agricultural products.

That will further improve the country's rural employment and safeguard the food security. Another advantage for India is that the subsidy reduction requirement under WTO is not applicable to the country. As per the WTO rules, countries having less than $1,000 per capita income annually do not fall under the subsidy reduction requirement.


India has one of the most efficient pharmaceutical industries in the world.

Pharmaceutical firms grew mainly thanks to the absence of patent protection of medical drugs in the country. For instance, Indian companies are now producing their own AIDS drugs, which are available cheaply, compared to the original products from foreign countries.

But the imposition of the new WTO rules will begin to threaten India's achievements in the pharmaceutical field. The Indian Patents Act, introduced in 1970, boosted Indian pharma companies. The Act allowed them to develop and patent alternative processes for products discovered and patented elsewhere.

According to the Indian Drug Manufacturers' Association, self-sufficiency in Indian pharmaceutical sector is more than 70 per cent.

"Worldwide, India is a country of very low prices for high-quality medicines," points out the IDMA president Nishchal H Israni.

But now the rules of the game in the pharmaceutical industry will change as India has committed to toe the WTO line on product patents. Product patent rules and Exclusive Marketing Rights (EMR) under the WTO could effect a paradigm shift in India's pharma majors.

As per the EMR provision, a product for which original patent was granted prior to 1995, is not fit for an EMR in the country. This has forced nine leading domestic pharma companies to form the Indian Pharmaceutical Alliance that has demanded a more transparent WTO regime for EMR grants.

How will the WTO rules affect 500,000 employees working in roughly 20,000 pharma firms in the country?

Well, many expect a spate of mergers, acquisitions and alliances in the domestic pharmaceutical industry in the coming years.

Information technology

Under the Information Technology Agreement singed under the WTO, Indian hardware and software companies can become major players in the value-added arena.

Availability of high-skilled of IT personnel and low cost of labour and operation will allow India to compete in the international market.

Textiles and clothing

The WTO agreement on textiles and clothing states that the Multi-Fibre Agreement (MFA) will eventually be eliminated. MFA at present groups the major importer countries -- the United States, Austria, Canada, the European Community, Finland and Norway -- who apply restrictions by way of quota.

Exporting countries like India are a part to the MFA. The phasing out of MFA will boost textile exports from India. It will also increase investment in textiles and joint ventures. But the risk is that as India opens up its market from next month, import of textiles and clothing will considerably increase from countries like China, the Unites States, Taiwan and Indonesia.

This will force many textile manufacturers to modernise their mills and improve quality.

Liquor companies

Indian liquor companies are anxious. Once the quantitative restrictions are removed on April 1, the import tariffs on bottle-in-origin liquor brands will vanish.

Currently the import tariff is pegged at 233 per cent. But as per the WTO regulations, the government will be forced to slash import duties on foreign liquor brands. This will considerably affect domestic liquor companies.

Domestic liquor companies have been urging the government to allow the present tax structure continue till 2003 and then reduce it in a phased manner to 150 per cent by the year 2006.

But multinational liquor companies like Seagram, Bacardi-Martini and UDV are in favour of lowering the import tariff along with the removal of quantitative restrictions.

An official in the UB Group, which controls 25 per cent of the liquor market in India, admits that the new WTO regime is a threat to the domestic industry.

"Our fear is that multi-national liquor firms will flood the Indian market with cheap, second-hand products once the import curbs are removed," he said.

So the liquor companies are not sitting cool. They are gearing up to meet the global challenge as Indian markets open up. They are busy charting new business plans to ensure that the local brands survive ultimately.

The services sector

As per the WTO rules, two obligations apply to all services. They are the Most Favoured Nation (MFN) treatment and transparency by way of publication of all laws and regulations.

Which in other words means that areas like banking, insurance, investment banking, health, and many other professional services that are opened up will be bound by the WTO commitments.

India will have to open up its services sector to other WTO member countries. The result: many overseas service providers will enter into the services sectors in the country, thereby reducing the chances of domestic enterprises.

But experts believe India need not be frightened of the WTO rules on services because the country at present has a distinct competitive advantage in many areas that include health, engineering construction, computer software and other professional services.

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Quantitative restrictions: Overview of rules

Design: Dominic Xavier



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