The World Trade Organization (WTO) & the global trading system are encountering some critical challenges in connection with unilateral measures & counter measures by a few members, impasse in crucial areas of negotiations & deadlocks in the process of appointing members of the Appellate Body for dispute settlement mechanism of the WTO. All these challenges demand for a discussion between the members for bringing in reforms within the WTO, with the aim of bridging the lacuna in the rules & procedures of WTO. India being a strong supporter of the multilateral trading system is in favour of having reforms within WTO provided that the whole process is inclusive & addresses every concern related to development of developing & least developing countries.
WTO was established in 1995 after replacing the General Agreement on Tariffs and Trade (GATT). A large remit was given to it for the purpose of overseeing the rules of world trade and also the authority of punishing those countries that opt to violate its rules. The members of WTO were bound to adopt non-discriminatory trade practices which propound a level playing field for each & every business. However, the organization was given the blame of not able to carry out this basic task of overseeing an efficient conduct of multilateral trade negotiations.
Amid trade tension between the US & its major partners of trading such as the European Union, China, Canada among others, WTO is facing severe threat of losing its relevance. President Donald Trump has been trying hard to narrow down the trade deficit of his country with rest of the world, mainly with China. By trade deficit we mean the amount by which the value of imports into a country exceeds the value of its exports to other countries. US is of the opinion that sops which are offered to exporters of India work against the American Companies’ interest that hinders them from matching the price of subsidised Indian goods. The US had dragged India to WTO in March last year for failing to curb export subsidies which it vindicates to provide an unfair benefit to exporters of India. However, though US had mentioned about India, it is not only India but several other countries have also tried favouring their domestic companies. And because of this, the trade deficit of America worsened.
India along with a few other low-income nations having income per-capita below $1000 had been earlier permitted by the WTO to offer subsidies on export. They were permitted to impose tariffs & quotas on goods & services for the purpose of limiting imports & promoting domestic producers who otherwise may get adversely affected due to imports which are cheap or having superior quality.However, in 2013 India had broken past this threshold. Exports henceforth are encouraged by the Indian Government through SEZ (Special Economic Zone) & schemes such as MEIS (Merchandise Exports from India Scheme), which provide tax cuts to exporters.
The rise in trade tensions among the nations has raised several questions on the purpose & relevance of WTO. Politicians have used this international trade organization as a forum to voice & defend the requirements of multiple special interest groups. For instance, Indian politicians have been on protecting our farmers’ interest through minimum support price. Other than India, many western countries have also showed their keenness of protecting their farmers & industries by heavy use of subsidies. Unless these subsidies are used, the production & distribution of goods throughout the world would have to be determined based on market forces. Several times it has been argued that a bureaucratic organisation such as WTO may not be able to fulfil the ideal of unfettered free trade among the nations which would be capable of immensely improving the global living standard. They instead argue that a bureaucracy like it is likely to get captured by special interest groups whose demands are likely to harm the free market.
There is no certainty on the future of WTO as the world tends to slip into a trade war. The foundation of WTO had been shaken number of times in the last few years for various reasons. The WTO faced its first set back in 2015 with the failure of Doha. The programme’s failure subverted the credibility of the multilateral trading system & also pushed the developing countries in peril.
Second, ever since the WTO was established, only a handful of multilateral trade negotiations were successfully concluded. As a result, its members could not reach a consensus on key issues such as food security, agricultural subsidies, intellectual property rights, banning subsidies against illegal fishing & trade in services apart from others.
Third, even after having decade long discussions, countries were unable to find out a concrete solution over issues such as e-commerce. After being frustrated with the pace of development in the WTO, an informal discussion over this topic was initiated by 76 member nations. The developing countries such as India, South Africa and others were held responsible behind this impasse by the developed nations.
Fourth, US threat of pulling itself out of WTO is another major shake. On the very first day of being the President, Donald Trump withdrew the US from the Trans-Pacific Partnership Agreement claiming that US had been exploited by its trading partners. The US unilaterally levied tariffs on the industrialised world instead of involving WTO into these disputes. Moreover, US discontent over the dispute settlement mechanism of WTO & its denial for appointing judges to the appellate body has resulted in uncertainty over its future. It is necessary that judges be appointed by the end of December 2019 so that dispute settlement body can remain operational.
Too Early to Conclude
Donald Trump’s criticism against WTO is opined by several think tanks as a new front in the trade war against China. He had earlier designated China as a “currency manipulator” as it had allowed Yuan to depreciate against Dollar. Both the US as well as China have been imposing steep tariffs on imports from one another since the beginning of the previous year. The developing country status of China at WTO provides another opportunity to the Trump administration to attack China. As the developing nations are likely to stand together against any efforts to cease them from preserving their domestic economic interest, therefore it unlikely that global trade rules are going to experience drastic reforms in near future.
WTO’s inability to rein in global trade tensions has given rise to several questions over its relevance at present times. There has been a deadlock on the issue of selecting members of appellate body of the WTO. The robust dispute settlement mechanism which ensures that members do no breach the agreed global trade rules and has the authority to give judgements on disputes lacks enforcing power as enforcement of decisions are left in the hands of individual members countries. WTO was initially envisaged as a global institution for promoting free trade but has currently deteriorated into a forum where every government fiercely try to preserve their narrow interests.
India has engaged itself with several members of WTO to determine the future of WTO. India has co-sponsored a proposal with the EU (European Union) & other members on the issue of dispute settlement mechanism for tackling various challenges. Among various other things, the proposal seeks to address different imperative issues of timelines, the process of appointing members to the Appellate Body, their tenure & other conditions for making the Dispute Settlement Mechanism & Appellate Body work more effectively & efficiently.
It will take some time to change the WTO. Based on our national interest, India must take a well considered stand on every issues relating to trade. India must revisit Agreements such as Trade in Services Agreement or Information Technology Agreement and look at ways of leveraging its enormous strength in the service sectors. The present scenario is much favourable for India to streamline & fine-tune its priorities in global trade. Instead of boycotting talks over framing of rules (e.g. Issues relating to e-commerce), India should join the talks and oppose it when and where necessary. Having an unremarkable 2.1% global trade, India would be better off with WTO’s “one nation one vote” framework than denying from participating in talks at all.