The World Trade Organization (WTO), which was formally established on January 1, 1995, represents the most powerful of the multilateral institutions that are responsible for the global economic management. The WTO derives its strength from the manner in which its members are bound by a multilaterally agreed set of rules covering almost all spheres of economic activity that they must comply with, except under certain specifically defined circumstances. The WTO is thus involved in rule making in areas that go beyond the narrowly conceived confines of international trade. This character of the WTO makes it stand apart from the World Bank or the IMF, which have a degree of control over their members as far as broad policy parameters are concerned.

The basic approach of the GATT was to reduce market distortions in international trade. This was to be achieved by gradually decreasing the levels of tariffs and other non-tariff barriers. One of the features of the GATT was that although developing countries were Contracting Parties, they were not expected to reduce their tariffs or other non-tariff barriers as their developed country trading partners did. This was known as the principle of non-reciprocity.

The agreements concluded at the end of the Uruguay Round negotiations can be divided into five categories. These are:
(i) Agreements that relate to specific sectors in the area of goods, viz., agriculture and textiles and clothing,
(ii) Agreement on the trade in services, the General Agreement on Trade in Services (GATS)
(iii) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs)
(iv) Agreement on Trade Related Aspects of Investment Measures (TRIMs) and
(v) Set of rules that would ensure non-discrimination in trade. The last mentioned has been the core of the GATT since it came into existence in 1947.

The Uruguay Round Agreements reflected in the functioning of the WTO, have far reaching implications for the Indian economy and this arises from their two key features. The first is the push towards greater openness of the economy through a lowering of tariffs and removal of non-tariff barriers. The second is the easing of government regulations, which have been seen as being market distorting.

The changes in policies that the functioning of the WTO would necessitate in India would affect the small and medium enterprises (SMEs) to a considerable extent. These enterprises would have to face competition from the foreign companies in the domestic market, which would be the highest challenge. At the same time, the SMEs in India would have to look for the spaces that are available in the emerging policy regime to build competition strengths.

One of the instruments that the SMEs have to protect their interests should the enterprises selling their products in the Indian market use unfair means like predatory pricing is to use the provision of anti-dumping. Dumping is seen to have taken place if the exporting enterprise sell the products at prices that are less than the cost of production or if the exporting enterprises or the price of the dumped product in the domestic market is more than the price in the international market.

Obtaining remedies under the anti-dumping provisions are, however, not very easy. This is because a detailed investigation on a complaint of dumping has to be gone through before the remedies can be provided. There are three steps that are involved in any investigation. The first is the complaint regarding dumping, in which the onus is on the complaining entity to provide all the information to support the case. The second step is that the complainant has to prove that there is material injury that was caused because of dumping. And, finally, the complainant has to conclusively establish the causal link between the acts of dumping and injury. The steps involved in obtaining remedies under the anti-dumping provisions clearly shows that the enterprises have to be well armed with all the necessary information in order to be successful. This is an area where the SMEs are often found to be under prepared at the very best. There is need for the SMEs to develop an extensive commercial information base with which they can protect their interests should any threat arising from dumping arises.

The use of subsidies is generally discouraged by the WTO. Although the use of most subsidies is not allowed, exceptions have been made in case of the developing country members. However, the use of subsidies can attract use of countervailing duties by the countries, which may feel threatened by the use of these subsidies. This, in other words, implies that the subsidies cannot be put to any significant used by the developing countries to gain advantage in the market.

There is, however, one form of subsidy whose use has not been put under many restrictions. Subsidies can be granted for R&D projects in which government support can be 75 per cent of the total project cost. This, in other words, implies that government support for technology upgradation can be availed to a considerable extent. The WTO thus appears to be giving a clear message. The regime would not support rent-seeking activities that are ordinarily supported by most types of subsidies. It would, on the other hand allow subsidies to be granted for activities that promote efficiency in the market.

One of the Uruguay Round Agreements that would affect SMEs in a large number of sectors is the Agreement on Trade Related Investment Measures (TRIMs). The Agreement on TRIMs does not allow use of policies aimed at increasing the local content in enterprises. These policies are considered as being affecting the investment decisions, besides affecting the normal flow of trade. By the same argument, policies that seek to balance foreign exchange transactions of enterprises through the imposition of export obligations are considered to be TRIMs inconsistent.

The local content regulations, used extensively by Indian policy makers in the past, had led to the development of a vast range of ancillary units. These units had provided critical linkages in the economy whose utility cannot be underestimated. It is these sectors that face uncertainties in the emerging policy regime in the country.

A few of the Agreements have significant sectoral implications. The Agreement on Sanitary and Phytosanitary Measures (SPS) seeks to formalise multilaterally accepted standards for animal and plant health. Setting standards for food products would be one of the main tasks before the WTO in this regard. The direct implication of imposing such standards would be felt by the domestic firms engaged in the production of marine products and other agro- processing sector. This sector has been seen as one, which has enormous export potential. Imposition of stringent standards by the WTO could appear an impediment as Indian industry seeks new markets, particularly in the developed world.
 
In yet another area where the standards would create problems for the existence of the SMEs is in case of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). The Agreement on TRIPs sets high standards of protection of intellectual property rights. In the area of patents, the strong system of patents would threaten the existence of large number of SMEs who have been producing drugs that are under patent in other countries, taking advantage of the weak patent law in India.