WTO and India

Explained: WTO’s dispute settlements mechanism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : India and its outstanding issues with WTO

The World Trade Organization’s (WTO’s) dispute settlement mechanism is on the brink of collapsing.Of the three members currently on the seven-member body, the terms of two end today.

Issues with the WTO Appellate Body

  • The Appellate Body, set up in 1995, is the standing committee that presides over appeals against judgments passed in trade-related disputes brought by WTO members.
  • Over the last couple of years, the membership of the body has declined to three persons instead of the required seven.
  • US has blocked the appointments of new members, and the reappointments of members who had completed their four-year tenures.
  • It believes the WTO is biased against it, and has criticised it for being “unfair”.
  • Over 20 developing countries met in New Delhi in the summer to discuss ways to prevent the WTO’s dispute resolution system from collapsing all together. Their efforts have not produced the desired results.

Why in news?

  • This dispute settlement mechanism of WTO requires at least three members to function.
  • But with no members, world trade is about to enter a phase in which there will be no official resolution for many international disputes — potentially creating the circumstances for a free-for-all.
  • It could also signal the demise of the 24-year-old WTO itself.

How has the shortage of members impacted the working of the Appellate Body?

  • The three members have been proceeding on all appeals filed since October 1, 2018.
  • India has been impacted directly as a result of this situation.
  • In February 2019, the body said it would be unable to staff an appeal in a dispute between Japan and India over certain safeguard measures that India had imposed on imports of iron and steel products.
  • The panel had found that India had acted “inconsistently” with some WTO agreements.
  • Though India had notified the Dispute Settlement Body of its decision to appeal certain issues of law and legal interpretations in December 2018.
  • While the US is directly involved in more disputes than other WTO member countries, several countries — including India — enter disputes as third parties.

Trump being Trump: Yet again

  • Trump sees the WTO — which seeks to ensure equal treatment for all its members — as standing in the way of “America First”, tying its hands when it tries to protect American workers or seeks to effectively employ the advantages of being the world’s most powerful economy.
  • Trump supporters believe the WTO has encouraged China — helping it to strengthen its economy at the cost of other nations including the US, while doing nothing about the unfair trade practices that it uses widely.

What lies ahead?

  • The WTO’s dispute settlement procedure is seen as being vital to ensuring smooth international trade flows. The Appellate Body has so far issued 152 reports.
  • The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.
  • There is now great uncertainty over the dispute settlement process.
  • Once the body becomes non-functional, countries may be compelled to implement rulings by the panel even if they feel that gross errors have been committed.
  • A country which refuse to comply with the order of the panel on the ground that it has no avenue for appeal may run the risk of facing arbitration proceedings initiated by the other party in dispute.

Implications for India

  • This does not bode well for India, which is facing a rising number of dispute cases, especially on agricultural products.
  • In the last few months alone, four cases have been brought to the WTO against India’s alleged support measures for its sugar and sugarcane producers.

Back2Basics

The WTO

  • The WTO is an intergovernmental organization that is concerned with the regulation of international trade between nations.
  • The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994.
  • It replaced the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
  • It is the largest international economic organization in the world.

Functions of WTO

  • The WTO deals with regulation of trade in goods, services and intellectual property between participating countries.
  • It provides a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.
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