WTO: A Single Undertaking for a Prosperous India – A Response to Protectionist

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Are Some WTO Agreements “Exploitative”?

The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Trade-Related Investment Measures (TRIMS), both part of the single undertaking outlined in Annex 1A of the Marrakesh Agreement have many a times been termed as “exploitative”. The principal concern lies with TRIPS, which, they argue, has led to an unwarranted and disproportionate rise in India’s royalty expenditure: from less than $1 billion in the 1990s to over $17 billion annually (though the exact figure remains unverified).

Royalty payments refer to the charges for authorized use of IP, including patents, trademarks, copyrights, industrial designs, and even creative prototypes like books, software, and films. These payments are often made between Indian subsidiaries and foreign parent companies.

India adopted the TRIPS Agreement upon joining the WTO in 1995, though a 10-year transition period (January 1, 1995, and December 31, 2004) was granted to developing countries. As a result, key reforms—like allowing product patents for generic drugs under the Patents Act, 1970—came into effect only in 2005. India also chose not to offer patent protection for inventions predating 1995, invoking a “grandfather clause” (Section 11A(7) of the Patents Act, 1970). This approach allowed India to avoid a sudden and potentially disruptive shift in its patent system, giving existing industries and innovators time to adapt. Such measures highlight the inbuilt flexibility in TRIPS, which had allowed for a transition period and acknowledged the existing market for generics, while still requiring the generic producers to pay a reasonable royalty to the patent holder. 

According to IMF/World Bank data, India’s royalty payments stood at just $72.6 million in 1995, rising to $611 million by 2005, and approximately $14.35 billion by 2023. While it’s correct to note that royalty payments have increased from 0.03% to 0.29% of GDP (adjusted to 2015 USD), this trend mirrors other emerging economies like China, Brazil, and Indonesia. Moreover, royalty payments have often grown faster than GDP since the 1990s, though multiple factors, not just TRIPS, explain this spike.

Figure 1- The data is compiled from the World Bank Website. 

Importantly, these payments should not be viewed in isolation. In most cases, they are a return on foreign investment made by multinational corporations such as Maruti Suzuki, Samsung India, and Honda Motors. Royalty payments are often preferred over dividends because they qualify as deductible business expenses under Indian tax laws [CIT v. EKL Appliances Ltd., 2012]. This partly explains the rise in such payments, particularly after the Reserve Bank of India removed all restrictions in 2008.

TRIPS may also have improved foreign direct investment (FDI) inflows into the country. A Parliamentary Standing Committee report (2021) noted that a 1% improvement in IP protection correlates with a 6.8% increase in FDI from copyright, 2.8% from patents, and 3.8% from trademarks. The real issue may not be TRIPS itself, but the lack of domestic R&D investment by Indian firms, which continues to make them reliant on foreign IP. The solution lies not in rolling back IP laws, but in strengthening them to encourage investments in R&D and brand building.

Health-related concerns, however, remain more nuanced and require further study. While it is true that research suggests that TRIPS-mandated patent protections could lead to higher healthcare costs. Yet, India still boasts some of the world’s lowest medicine prices, and its pharmaceutical sector has maintained a CAGR of 9.43% over the past nine years. Moreover, TRIPS includes safeguards—such as compulsory licensing and parallel importation, enabling member states to act in the interest of public health, as reaffirmed in the Doha Declaration (2001).

Has the WTO Helped India’s Economy?

WTO has been criticised by many as an effective body which has tied India’s hand in trade negotiations, and caused a ballooning rise in trade deficit without providing significant material benefits. While the criticisms of WTO and its functioning are many and legitimate. This section aims to analyse the net economic impact of India’s decision of joining the trade body, and highlight some policy tools that India has too often employed (within the WTO system) to ensure protection of key interests. 

India’s accession to the WTO in 1995 aligned with broader economic liberalisation that began in the early 1990s. By committing to reduce tariffs, dismantle non-tariff barriers, and open up the services sector, India aimed not only to integrate into the global economy but also to institutionalize domestic reform.

According to a 2023 report by the National Stock Exchange, India’s share in global merchandise exports rose from 0.6% in 1995 to 1.8% in 2023. Its share in global services exports more than doubled—from 2% in 2005 to 4.3% in 2023. Overall, India now accounts for 2.4% of total world exports.

While the trade deficit increased reaching $78.1 billion in FY24, liberalised trade has helped contain inflation by giving consumers access to better and cheaper goods. Private consumption, which makes up nearly 60% of India’s GDP, has been significantly boosted as a result.

Interestingly, as per the WTO website, India has been one of the most active participants in the WTO Dispute Settlement Mechanism (DSM), it has initiated 24 cases and has been a respondent in 32 cases. It has also been part of 183 cases with a third party, thus, allowing it to play an instrumental role in putting forth its views on relevant and controversial trade topics, and guide rule making in such areas. Further, while there is no doubt that India has lost important cases, as the ORF research paper notes, “they have, in turn, enabled India to increase its human and institutional capacity, enhance involvement of industry stakeholders and strengthen preparation of cases before the WTO.”

Notably, it was due to a WTO panel ruling (India – Import Restrictions, DS149) that India phased out licensing restrictions on consumer goods—catalyzing a decade of high growth, with GDP rising by over 7-8% annually. Economist Lant Pritchett attributes a $1 trillion gain in national income during 1993–2002 to this acceleration.

India’s average weighted tariff rate has declined sharply, from 23.6% in 1996 to 12% in 2024, while its WTO tariff bindings remain significantly higher (36% for non-agricultural goods and 113% for agricultural goods), giving policymakers enough flexibility to navigate global trade shocks and adjust imports by significantly adjusting the tariff rates upwards to protect select sectors.

Furthermore, India has actively used WTO-compliant trade remedies, including anti-dumping and safeguard measures. Furthermore, despite having only a 2.8% share of global trade, India is a consistent user of trade remedies provided under WTO agreements (such as GATT, Anti-dumping Agreement, and Agreement on Safeguards). In fact, in 2023 India had 143 anti-dumping measures in force (the 2^nd highest in the world). Thus, to argue that WTO does not provide India with policy space to deal with dumping from unfriendly economies is remarkably disingenuous.

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Can we selectively withdraw from WTO & are FTAs the right way forward? 

Many commentators have argued for selective withdrawal from WTO agreements and a shift toward bilateral free trade agreements (FTAs), particularly with blocs like the European Union. However, this is legally unviable. The Marrakesh Agreement, which India ratified, treats WTO membership as a single undertaking (Article II:2)—meaning that withdrawal from any part necessitates exiting the entire system. Doing so would strip India of the Most Favoured Nation (MFN) and National Treatment benefits, exposing its exports to discriminatory tariffs and barriers.

Moreover, it is a misconception that India wields a stronger bargaining position in bilateral negotiations with developed countries. The government’s willingness to finalize a trade deal with the Trump administration at any cost underscores our vulnerability. TRIPS provisions—such as product patents—were largely inserted at the behest of developed economies, and FTAs with them are unlikely to offer more favorable terms. Notably, the European Union is pushing for even more stringent commitments on IP fronts (TRIPS+), opening up India’s service sector, along with the liberalised access to India’s $500 billion public procurement market, something India has now resisted. 

India has gained far more leverage by acting as a representative of the Global South within the WTO, evident in its leadership during negotiations like the Fisheries Subsidies Agreement. Therefore, while India may look to pivot in a new direction to adjust to the changing global trade order, abandoning multilateralism will weaken its global standing.

Conclusion

The WTO system is not without its flaws, but dismissing it as exploitative ignores the significant gains India has made through multilateral engagement. Rather than seeking an exit, India should focus on leveraging its position within the system, enhancing domestic R&D, and pushing for reforms that reflect the interests of developing nations. As the global trade order evolves, India's best path forward lies not in retreat, but in leadership.

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By Aditya Kaushik

Aditya Kaushik has completed his law degree from NLU Jodhpur.