India and China are stripped of the “developing nations” status.
- Trump has reiterated that India and China have benefited immensely by misusing the developing country tag.
- He blamed the WTO for this lapse and reiterated his threat to leave the institution.
Background of various countries
- China: The growing economic and military might presents the Chinese an opportunity
- US: It fears to lose the mantle of the world’s preeminent power after three decades of unchecked hegemony.
- Chinese rise and US fears are straining their bilateral trade and causing collateral damage to the institution.
Nature of contemporary trade
- Structural transformation – Since the WTO came into being in 1995, the world has witnessed massive structural changes.
- Technologies- New technologies have transformed the way we live, communicate, and trade. In 1995, less than 0.8% of the world’s population used the internet; in June 2019 it was around 57%.
- Complex production chains – Communication technologies and containerization lowered costs and boosted volumes of components of the trade. This allowed production chains to become increasingly international and also complex. An iPhone has about 14 main components that are manufactured by 7-8 multinational companies in more than 40 countries.
- Increased trade volumes – Overall trade in goods has nearly quadrupled since 1995. Growth in trade has exceeded growth in world GDP and has been associated with improved standards of living.
- Reduced tariffs – WTO members’ import tariffs have declined by an average of 15%. Over half of world trade is now tariff-free.
What WTO does
- WTO regulates more than 98% of global trade flows among its members.
- It also monitors the implementation of free trade agreements.
- It produces research on global trade and economic policy.
- It serves as a forum for settling trade disputes between nations.
- An alternate way to look at the WTO’s success to see the damage in trade value has helped avert. One estimate puts the value of avoided trade wars at $340 billion per year.
- The US had earlier used Super-301 legislation to designate specific countries as unfair traders and threatened them with higher tariffs unless they fell in line. Countries such as India and Brazil refused to negotiate under threat of US sanctions.
- A measure is defined as unilateral if it is imposed by a country without invoking the WTO dispute settlement procedures or other multilateral international rules and procedures. Unilateral measures are inconsistent with the letter and the spirit of multilateralism. Article 23 of the Dispute Settlement Understanding prohibits members from doing so.
- Dispute Settlement in the WTO has become dysfunctional and appeals to the appellate body are taking longer than the prescribed 90 days.
The multilateral process needs to be strengthened and it cannot happen until the strongest member is vested in it. WTO may still emerge as the lynchpin of global trade governance.