7 PM | WTO struggling to stay relevant | 22nd July, 2019

Context: WTO logjam and its impact on world economy.

  • Established in 1995 and based in Geneva, Switzerland, the World Trade Organization (WTO) is the successor to the General Agreement on Tariffs and Trade (GATT), an organization founded in 1948 whose rules created the modern multilateral trading system.
  • The WTO is responsible for overseeing the rules of international trade. It facilitates trade negotiations among its members, which have increased from 123 in 1994 to 164 in 2018
  • WTO decision-making happens at the Ministerial Conference, generally held every two years. There have been eleven such ministerials since the inaugural conference in Singapore in 1996. With a few exceptions, agreements reached at these conferences are made by consensus, meaning that all members must agree, and decisions are binding.

USA and WTO issues related to trade:

  • Due to growing trade deficit ($ 378.6 billion in 2018) of USA to China. To reduce the deficit USA started to impose tariffs on china. U.S. tariffs on $200 billion in Chinese imports were recently increased to 25% from 10%.
  • Trump also said the U.S. would begin the process of applying the 25% tariff to another $325 billion in imports that have been left alone so far.
  • To justify these actions, USA using the rule of General Agreement on Tariffs and Trade (GATT)-Article XXI. Under this article WTO/GATT rules cannot prevent a country from taking any action if it considers necessary for the protection of its essential security interests.
  • Along with using article-XXI, USA and its administration maintains that the WTO is incapable of dealing with trade disputes between nations. USA also starts accusing WTO dispute settlement system of “judicial overreach”.
  • Since 2017, USA has been blocking appointment of members to WTO dispute appellant board. This has serious ramifications for the WTO dispute settlement system and countries loose starting trust on World trade order.

WTO and dispute settlement mechanism:

  • There are two main ways to settle a dispute once a complaint has been filed in the WTO:
    • The parties find a mutually agreed solution, particularly during the phase of bilateral consultations;
    • Through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by the Dispute Settlement Board.
  • If consultation fails, then the disputing nation goes to dispute settlement board. There are three main stages to the WTO dispute settlement process.
    • consultations between the parties;
    • adjudication by panels and, if applicable, by the Appellate Body
    • The implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.
  • According to WTO system, Appellate Body (AB) should have 7 members who are appointed by consensus among WTO members. Any appeal from the WTO dispute panel must be heard by three out of 7 members. These 7 members are appointed for 4 year term.
  • Once an Appellate Body member finishes his/her term, a new member is required to appoint to keep the strength of the Appellate Board at seven.
  • Presently there are only 3 members left in the AB and if no new members are appointed, then by December 2019 there will be only one member left. This will make the AB dysfunctional and will jeopardize the settlement mechanism.

WTO Dispute settlement system and its impact on India and World:

  • Skepticism: least developed countries (LDC) and developing countries skeptical towards from the starting days of WTO establishment and onwards its negotiations (DOHA round talks). Present crisis in WTO dispute settlement board further aggravates the situation.
  • Financial crisis: the world economy in general, developing countries and LDCs in particular are still struggling to recover from the 2008 financial crisis contagion effects. With the looming crisis in WTO, world economy is not in a position to face another crisis.
  • Trade growth: least developed countries consists of 2/3rd members of WTO. And their growth was increased due to increase in exports and imports to developed countries. If we look at the growth of Africa, the total Africa’s world merchandise trade has increased, signifying the importance of trade for Africa and the world – exports increased by 51 percent between 2009 and 2011 and imports increasing by 36 percent during the same period. WTO logjam will send this LDCs into dark ages again
  • India and its trade: Indian government aiming to double the share of its exports in world trade from 1.5% to 3%. But rising tariff war between USA and China and European Union put Indian exports growth on doldrums.
  • Public stock holdings: India is home to more than 190 million people who are hunger and nearly 280 million people who live below poverty line. To provide food security to this people government of India implemented food security act in 2013. With the implementation of act India is going to breach the 10% limits of subsidy.
  • With this breach other nations will drag the India to dispute settlement body, without appellant body India will going to face the charges.

Measures to overcome WTO impasse:

  • Taking a lead to break the impasse, India is hosting a two-day informal meeting of 50 WTO members here which would deliberate upon ways to create a positive atmosphere for carrying forward the mandate of the global trade organization. India is expected to press for removal of protectionist measures and promotion of free trade as it would benefit all the WTO member countries.
  • Consensus: developing countries has the right to grow like developed countries. Developed countries are in advanced stage in growth and they need to help the LDCs and emerging and developing economies by opening up their economies and to help WTO to implement the Special and differential treatment (S& DT) provisions. Developing countries slowly and gradually open their economies to developed countries.

Way forward: As the burns of global financial crisis on world economy are still healing and developed countries and developing countries are not in a stage to afford another crisis.  therefore the need to reform the negotiating process that has proved to be dysfunctional and allow it to take into account not only the concerns of the big powers and emerging powers but developing countries concerns if WTO negotiations are to move forward.

Source:https://www.thehindubusinessline.com/opinion/wto-struggling-to-stay relevant/article28627776.ece.

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