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[Sansad TV] Perspective: WTO Reforms

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The 12th Ministerial Conference of WTO is scheduled to take place in Geneva.

Context

  • The World Trade Organization (WTO) is the principal forum for setting the rules of international trade.
  • For the past two and a half decades, it has helped reduce barriers to trade in both goods and services and created a dispute resolution system that supporters say reduced the threat of trade wars.
  • However with negotiations on a comprehensive development agenda due to disagreements, the WTO is under considerable pressure to achieve meaningful results.

About World Trade Organization

  • 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.

Working Principles of the WTO

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of “trade policy.” Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

  1. Non-discrimination: It has two major components: the most favored nation (MFN) rule and the national treatment policy. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods.
  2. Reciprocity: It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets.  
  3. Binding and enforceable commitments: The tariff commitments made by WTO members in multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish “ceiling bindings”: a country can change its bindings, but only after negotiating with its trading partners.
  4. Transparency: The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO.
  5. Safety values: In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health

India and WTO

Ever since the inception of this organization, India has been an active participant in its affairs and policies and played a crucial role in raising the concerns and demands of developing countries.

  • Reforms Agent: India always worked towards a multilateral trading system that offers a fair, open, transparent and balanced level playing field in the interests of the developing and least developing countries.
  • Leadership: India’s role right from the inception of the institution has always been that of a leader of the South, trying to ensure that fair play is brought into a rule-based system of global trade. It has retained this role till now, given that many smaller developing countries rely on it.

Issues with WTO

(1) Persistent North-South divisions

  • WTO talks are mainly seen as a showdown between the North and the South.
  • This is particularly so with the growth in strength of the developing countries and their regional and continental groupings.

(2) Farm Subsidies

  • The tussle between developed and developing economies over farm subsidies also continues, with rich countries reserving the right to spend billions of dollars on supporting their farmers.
  • The livelihood issues raised by India, on the other hand, are considered only grudgingly, while the “peace” clause, allowing a 10 per cent subsidy on public stockholding of foodgrains, was extracted after many negotiations.

 (3) Developed vs. Developing Countries

  • Since the WTO allows countries to unilaterally classify themselves as “developing”, many countries have been happy to make use of this freedom. 
  • So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.

(4) Decision-making process

  • In WTO decision making is through consensus. This has translated into making the WTO decision making long and subject to external manipulation.
  • Most of the time political and ideological differences come in a way of reaching a consensus.

(5) Implementation problem

  • This relates basically to the difficulties that mainly developing countries face in meeting their obligations under the WTO agreements.
  • The two main areas that have affected implementation by developing countries have been the TRIPS and the Sanitary and Phytosanitary (SPS) measures agreements.

(6) Not all countries joined

  • With an increasingly global trading system, member countries do not operate in isolation and trade with WTO member countries only.
  • Not all world countries have joined it makes it a less effective organization.  Countries such as Iran, Iraq, Lebanon, Uzbekistan has not joined WTO yet.

(7) Strong influence of Corporate

  • The WTO essentially protects multinational corporations based in the North.
  • It is often accused to be acted as a tool of rich and powerful countries – notably the US, the EU, Japan and Canada.

(8) Protectionism Vs Free Trade

  • There is a trade war between US and China despite both being a member of WTO.
  • This negates the core non-discriminatory principle of WTO

(9) Dispute settlement mechanism

  • While WTO’s dispute settling mechanism allows aggrieved parties to file cases against member-states, some of the cases and issues have remained unresolved for a long time
  • The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism.
  • Further, the dispute resolution mechanism of the WTO, which can pass judgments on disputes, lacks the powers to enforce them as the enforcement of decisions is left to individual member states.

Criticisms of WTO

Although tariffs and other trade barriers have been significantly reduced thanks to GATT and WTO, the promise that free trade will accelerate economic growth, reduce poverty, and increase people’s incomes has been questioned by many critics.

Pro-rich: New countries actively reduce trade barriers only after becoming significantly rich.

Failure in poverty alleviation: Trade liberalization does not guarantee economic growth and certainly not poverty alleviation.

No mutual benefits: Critics also put forward the view that the benefits derived from WTO facilitated free trade are not shared equally.

Rich-poor countries rift: The gap between the rich and the poor continues to widen, especially in China and India, where economic inequality is growing even though economic growth is very high.

Competition: Trade liberalization that is too early without any prominent domestic barriers is feared to trap the developing economies in the primary sector, which often does not require skilled labor.

Way forward

  • There is need for the structural reform in the WTO functioning as multilateral trading system
  • Need of free trade is required more by developing countries like India than developed countries. So developing countries must work collaboratively to strengthen WTO.
  • Despite WTO being a democratic organization, there is a need to make it more effective in protecting the interests of small nations against stronger countries.
  • WTO needs to strengthen the dispute settlement mechanism as there are issues in appointment of judges in new appellate body
  • Lastly, WTO needs to enhance discussion mechanism by introducing wider consultations.
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Shivam Dwivedi
Shivam Dwivedi
6 months ago

🙏