- The World Trade Organisation is a global international organisation that promotes and manages free and smooth trade among all its members.
- It was established in 1995, after taking over General Agreement on Tariffs and Trade (GATT), which came into force in 1948. GATT was focused only on trade while WTO is wider as it includes services and intellectual property issues also.
- The supreme decision-making body of the WTO is the ministerial conference which meets generally every two years.
- Every WTO member receives Most Favored Nation and National Treatment status from every other member which ensures non-discriminatory treatment to all; and National Treatmente. treating foreigners and locals equally.
Relevance of WTO:
- Administers signed agreements: It administers existing multilateral trade agreements, for example Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
- Settles disputes and prevents trade wars: It settles disputes among its members through its Dispute Settlement Mechanism.
- Manages new negotiations:It serves as a platform and manager for negotiations on new global trade agreements like Doha Round.
- Rules-based multilateral trading system: WTO ensures that global trade is based on universal rules suited to and accepted across the world
- Stimulates global growth: By removing trade barriers it provides more markets to world’s resources thus stimulating global growth.
- A global arbitrator:WTO functions as an arbitrator between warring countries and aims at building commonality in policies and practices.
- Predictability and transparency: WTO ensure predictability in trade prospects and trade-related regulations through its binding provisions and ensures transparency in trade practices.
- Promotes standardization: WTO and its members set standards of trade in goods, services and IP governance which reduces gaps between the quality produced and quality in demand.
- Consensus based voting: Two-thirds of WTO members are developing countries and agreements within the WTO need the approval of all members to proceed.
- Supports least developed and developing countries: WTO membership gives smaller countries immediate access to developed markets at lower tariff rate.
- Preserves member’s autonomy: WTO allows members to enter into preferential trade agreements and free trade agreements to ensure better coordinationamong selected members.
Structural and other basic challenges faced by WTO:
- Competing Vision: “WTO 1.0” which incorporates special and differential treatment to developing countries stands in contrast to “WTO 2.0”, propagated by developed countries which argue that WTO rules should be regularly updated as per changing needs and excludes special treatment to developing countries.
- Consensus based voting:WTO failed to build consensus among developed and developing countries on important issues like agriculture, services trade and distorting subsidies by developed nations, as corroborated by the stalemate in Doha talks.Developed countries like US are pushing for changing the voting process in WTO from consensus to majority vote as developing countries block proposals against their interests in the present consensus-based system which gives equal vote to all.
- Regional (RTAs) and bilateral agreements: Regional and bilateral trade agreements like Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership (TTIP) undermine the relevance of WTO.
- Ineffective enforcement powers: WTO is inadequate in checking unfair labor practices in other countries like China which violates basic workers’ rights to lower the cost of its exports and rising protectionism.
- Undemocratic appointments: US undemocratically blocked judges from other countries like Mauritius, to be appointed to WTO appellate body, which has the final say in upholding or reversing WTO rulings, reducing the strength to three which is minimum requirement for adjudicating a case.
- Capture over Least Developing Countries (LDC) markets: WTO aims at linking domestic and global value chains (GVCs) but developing countries face problem of remodeling, up-skilling and adapting their industries quickly which leads to capture of their markets by cheap products of exporting countries. Dutch disease.
Peripheral challenges faced by WTO:
- Rules undermined: The unilateral tariffs threatened by the U.S. and China on each other, in their ensuing trade war, don’t adhere to the WTO’s established procedures thus undermining its credibility.
- Loopholes exploited: WTO law permits members to take any action they consider necessary to defend “essential national security interests”, which is regularly exploited by members like US imposed unusually high tariffs on steel and aluminium using this ground recently.
- High tariffs continue: Tariffs on some items, like textiles, clothing, and fish and fish products, continue to be exceptionally high in some countries which affect exports from developing countries.
- Intellectual property: TRIPS is a subject of criticism as developing countries want stricter patent rules like pharmaceutical patents while developing countries expect lenient provisions which allow generics.
- Tariff wars including steel, aluminium, sanitary and phyto-sanitary issues: WTO is incompetent in checking transient tariff boundaries set up by countries to pursue protectionist policy and is frequently mired in legal disputes arising out of tariff wars.
Above issues warrant reorientation of WTO structure, functions and powers and in this regard following suggestions would find merit:
- Reforming the voting process: Majority of negotiations are usually blocked by dissenting countries, hence:
- Guidelines should spell out clear criteria for when a country may use its veto power
- Veto usage needs to be weighed against the interests of all, and in light of the WTO’s mandate.
- Independent panel as arbiter: An independent panel could play the role of arbiter, evaluating the competing claims and helping to overcome the political deadlock.
- Appointment process:The appointment process to dispute settlement body should be made independent of political control.
- Plurilateral negotiations:Plurilateral negotiations should be promoted as they offer prospect of building “coalitions of the willing” i.e. likeminded members come together to deliberate a specific issue which is easier and faster to negotiate than multilateral accord like passage of Trade Facilitation Agreement in 2013.
- Solving national security issues at political level:To reduce abuse of national-security exemption to justify trade restrictions, the national security concerns should be solved at the political level, rather than at WTO, as it requires conversation at the highest political level.
- Penalising powers: WTO should be conferred with penalizing powers to curb willful non-compliance.
- Dispute settlement reform:Expanding the Appellate Body panel from seven to nine judges, redefining membership of the Appellate Body from part-time to full-time, and allotting more resources to the Appellate Body Secretariat.
- Decision-making reform: Taking cue from IMF, negotiations at WTO could be streamlined by delegating most discussions to an executive board of the 20 or so largest trading nations, with the most existential questions reserved for treatment by the full WTO membership.
- Using other platforms for reform talks: Since WTO is afflicted with distrust a good start to acknowledge and address the problem of reform is to use platforms like G20 which have the advantage of limited and effective global membership.
- Increasing transparency: WTO members should proactively disclose their subsidies to develop trust and transparency among WTO members.
- Providing consensual pathways:WTO 2.0 is built incrementally, by providing consensual pathways between it and WTO 1.0 by fixing some contentious issues first like the agriculture problem.
India’s concerns with the WTO and issues challenged at the WTO:
- Agreement on Agriculture:
- It is based on three pillars domestic support, market access, and export subsidies.
- Developed countries consider India’s MSP support to farmers, public stockholding of grains and its PDS distribution to be ‘market distorting subsidies’ and want their removal.
- But India demands amendment of AoA for continuation of these measures as a permanent solution to its food security problem beyond Peace Clause and for all G33 members.
- Peace clause, passed in Bali summit 2013,allowed subsidies beyond WTO limits set in AoA without legal implications until 2017 after which permanent solution would be found.
- Domestic Content Requirement in Solar Panel: US challengedIndia’s ‘domestic content requirement’ in procurement of Solar cells/panels for its solar programme in WTO as it violated several core provisions on national treatment provisions. WTO ruled in US’ favor following which India committed to implement the Dispute Settlement Body’s recommendations.
- Visa problem and duty hikes on steel and aluminium: India has taken up the U.S. visa issues i.e. increase in visa processing fees, high rejection rates and other difficulties faced by the Indian services companies; and imposition of import duties on steel and aluminium exports from India in the Dispute Settlement Body of WTO.
- Intellectual property issue: As part of Doha Round, developing countries secured a favor in TRIPS which allowed compulsory licensing of patents in certain circumstances like pharma products. US wants removal of compulsory licensing and expects a liberal IPR regime which allows evergreening of patents.
- Sanitary and phyto-sanitary (SPS) issue: India lost a case to US at the WTO when the latter resisted India’s step to block agricultural inputs from US citing SPS issues.
- Elimination of cotton subsidies:
- Presently export subsidies on cotton can be provided by only a few developed countries, excluding India, who had been giving such subsidies since Uruguay Round. .
- India demands quick elimination of cotton export subsidies which will make cotton industry in developing countries more competitive.
New Issues at WTO:
- Agreement on Investment Facilitation:Aims atcloser international cooperation for creating a more transparent, efficient, and predictable environment for facilitating cross-border investment by developing a multilateral framework tosecure investment protection and resolve costly investor–state litigation issues.
- E-commerce negotiations: India wants flexibility to impose customs duties on electronic transmissions as well as for granting preferential treatment to digital products created within India, which is opposed by developed nations which want zero customs duties on e-commerce.
- Agreement to end fisheries subsidies: India opposed the ending of fisheries subsidies to protect low-income and resource-poor fishermen.India had proposed special and differential treatment for its artisanal fishermen which would allowit to continue to supply fuel subsidy for fishing till the Exclusive Economic Zone.
- Agreement on Gender Issues:
- It seeks to discuss identification of barriers that limit women’s participation in trade, financial inclusion and access to trade financing, enhancement of women entrepreneurs’ participation in public procurement markets, and the inclusion of women-led businesses, in particular MSMEs, in value chains.
- But India opposed this declaration as it is anattempt to bring into the WTO issues, such as, trade financing, global value chain and government procurement through the gender window.
- Market access to MSMEs: India is opposed to the declaration which supports more market access to MSMEs as this could lead to back-door entry for many issues that it has been resisting, such as, e-commerce and investment facilitation.
- Trade facilitation agreement on services (TFS): Based on TFA on goods, India proposes to expedite TFS to allow easier movement of skilled workers between countries.
- Information Technology Agreement:
- India is a signatory to the Information Technology Agreement ( ITA-1).
- Countries like USA, EU and Japan have proposed increasing the coverage of IT products on which customs duty would be zero (ITA 2).
- India has stood against this proposal as it would expose its IT industry to undue pressures of competition and would only benefit countries like China and US etc.
More than 40 per cent of India’s economy is exposed to international trade. If India wants to achieve a double-digit growth over a sustained period and create jobs, its external trade has to grow at more than 15 per cent a year. Hence India is aptly placed to lead the reform process of WTO.