WTO and India

WTO and India

WTO & Related issues

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : Paper 3- Challenges facing WTO

Context

Created in 1995, during the heyday of neoliberalism, the World Trade Organization (WTO) became a shining example of triumphant free-market capitalism. Now, the WTO is facing a serious existential crisis.

Challenges facing WTO

1) Disfunctional appellate body

  • The United States, which played a pivotal role in establishing the WTO, seems to have lost interest in it.
  • The feeling in the US is that the WTO hasn’t served the American national interest by failing to stem China’s rise and regularly indicting the U.S. in several trade disputes.
  • The continuation of the U.S. policy on the WTO is most evident in the sustained crippling of the Appellate Body (AB).
  • Three out of seven AB members serve on any one case.
  • However, since December 2019, the AB has stopped functioning due to rising vacancies.
  • Countries now have an easy option not to comply with the WTO panel decisions by appealing into the void.
  • If no solution is found soon, the WTO’s rules-based order will start crumbling.

2) Public stockholding for food security purposes

  • No solution has been found to the public stockholding for food security purposes despite a clear mandate to do so in the 2015 Nairobi ministerial meeting.
  • This is of paramount concern for countries like India that use Minimum Support Price (MSP)-backed mechanisms to procure foodgrains.
  • With rising prices and the need to do higher procurement to support farmers and provide food to the poor at subsidised prices, India might breach the cap.
  •  Although countries have agreed that legal suits will not be brought if countries breach the cap (the so-called ‘peace clause’), it is imperative to find a permanent solution such as not counting MSP-provided budgetary support as trade-distorting.

3) Disagreement on TRIPS waiver for Covid-19

  • The WTO member countries continue to disagree on the need of waiving the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement for COVID-19 related medical products.
  • It was exactly a year back when India and South Africa proposed a TRIPS waiver to overcome intellectual property (IP)-related obstacles in increasing accessibility of COVID-19 medical products, including vaccines.

4)  Regulating irrational subsidies provided for fishing

  • Irrational subsidies provided for fishing that has led to the overexploitation of marine resources by countries like China, which is the largest catcher and exporter of fish.
  • The WTO is close to signing a deal on regulating irrational subsidies
  • This agreement should strike a balance between conserving ocean resources and the livelihood concerns of millions of small and marginal fishermen in countries like India.

5) Fragmentation of global governance due to plurilateral trade agreements

  • The gridlock at the WTO has led to the emergence of mega plurilateral trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) agreement.
  • These mega plurilateral agreements not only fragment the global governance on international trade but also push the multilateral order to the margin, converting the WTO to what some call an “institutional zombie”.

Conclusion

Notwithstanding its flaws, the WTO is the only forum where developing countries like India, not party to any mega plurilateral trade agreements, can push for evolving an inclusive global trading order that responds to the systemic imbalances of extant globalisation. What is at stake is the future of trade multilateralism and not just an institution, in which India has a huge interest.

UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

WTO and India

What is Agreement on Agriculture (AoA)?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO, Agreement on Agriculture

Mains level : Read the attached story

The Agreement on Agriculture at the WTO is riddled with deep imbalances, which favour the developed countries and have tilted the rules against many developing countries, a Union Minister has said.

Agreement on Agriculture

  • The AoA is an international treaty of the World Trade Organization.
  • It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.

Three pillars of AoA

The Agreement on Agriculture consists of three pillars—domestic support, market access, and export subsidies.

(1) Domestic support

  • AoA divides domestic support into two categories: trade-distorting and non-trade-distorting (or minimally trade-distorting).
  • It the classification of subsidies by “boxes” depending on consequences of production and trade:
  1. Amber (most directly linked to production levels)
  2. Blue (production-limiting programs that still distort trade)
  3. Green (minimal distortion)

(2) Market access

  • Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members.
  • The 1995 AoA consists of tariff reductions of:
  1. 36% average reduction – developed countries – with a minimum of 15% per-tariff line reduction in next six years.
  2. 24% average reduction – developing countries – with a minimum of 10% per-tariff line reduction in next ten years.
  • Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs—a process called tariffication—or “bind” their tariffs, creating a ceiling that could not be increased in future.

(3) Export subsidies

  • The AoA required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years.
  • For developing countries, the agreement required cuts were 24% (by value) and 14% (by volume) over ten years.

Criticism of AoA

  • AoA has been criticized for reducing tariff protections for small farmers, a key source of income in developing countries, while simultaneously allowing rich countries to continue subsidizing agriculture at home.
  • In 2017 India and China jointly submitted a proposal to the WTO calling for the elimination – by developed countries – of the most trade-distorting form of farm subsidies,
  • They are known in WTO parlance as Aggregate Measurement of Support (AMS) or ‘Amber Box’ support as a prerequisite for consideration of other reforms in domestic support negotiations.

UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

WTO and India

Unpacking the resiliency of global trade

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Global trade in the post-COVID-19 world

Context

Past experiences suggest there is hope for global trade recovery in the post-COVID-19 world.

Impact of pandemic on the global and Indian economy

  • In the last year, the devastating impact of COVID-19 pandemic has shrunk the world economy by 4.4% and global trade by 5.3%.
  • Job losses in the world have been estimated to be to the tune of 75 million.
  • India’s GDP contracted by 7.3% according to the National Statistical Office.
  • About 10 million jobs were lost in India according to the Centre for Monitoring Indian Economy Pvt. Ltd.
  • Around the world, countries have responded to pandemic-induced shortages with protectionist reactions and nationalist aspirations.
  • Such a response has the potential to disrupt complex cross-border supply chains.

How economic shocks in the past laid foundation for institutional changes

  • The Second World War was responsible for the creation of the Bretton Woods Institutions such as World Bank and International Monetary Fund (IMF) and International Trade Organisation (ITO) were created to help rebuild the shattered post-war economy.
  •  The General Agreement on Tariffs and Trade (GATT) was negotiated in 1947 as a means to reducing barriers to international trade.
  • The oil shocks of the 1970s led to the establishment of the International Energy Agency (IEA) in 1974 and went on to create awareness on the need for global energy security.
  • The financial crisis of 2008 led to the G20 Leaders Summit, an elevation from the G20 Finance Ministers forum in 1999.
  • Increase in global trade: As a result of these developments global trade increased from a mere $60.80 billion in 1950 to $2,049 billion in 1980; $6,452 billion in 2000; $19,014 billion in 2019.

Changes in the global trade in post-Covid world

  • Financial buffers due to stimulus package: Stimulus packages and forced savings in several countries in the last year have created financial buffers.
  • Resilient supply chain: Global supply chains are expected to be resilient to help revive manufacturing with lower production costs, induce investments and promote technology transfers.
  • Anti-dumping measures at WTO: In a post COVID-19 world, members of the World Trade Organization are expected to make rules to discipline errant nations that are known to dumping goods and erecting trade barriers through multilateral rules.
  • Deeper economic integration through trade arrangements: Mutually beneficial trade arrangements that seek deeper economic integration will be entered into at the bilateral and regional levels.
  • Dominance of technology: Countries that harness technology are expected to dominate international trade in future with a transformational impact on the global economy.
  •  Businesses will aim to harness data for innovation to remain ahead of the curve in a post-COVID-19 world.

Way forward for India

  • The projections of the International Monetary Fund for India’s economic growth ahead are positive and in line with the general trends world-wide.
  • Focus on value-added manufacturing: Building an ecosystem that incentivises value-added manufacturing and technology-induced finished products should form a part of our long-term strategy.
  • Production Linked Incentive Scheme (PLI) schemes, if carefully nurtured, could lead the industry on that path.
  • Support MSMEs: Supporting MSMEs with cheaper input costs, including raw material and intermediate goods would help sustain them with job creation at the local level.
  •  Developing a synergistic relationship between the big industry and MSMEs is at the core of a successful Atmanirbhar Bharat.
  • Skill upgradation: Skills upgradation to global standards should form a part of India’s strategy in a post-COVID-19 world.

Conclusion

The patterns in the past leave much hope for optimism for global trade in the post-COVID-19 crisis in the collective belief that international trade is vital for development and prosperity.

WTO and India

[pib] Authorised Economic Operators

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Authorised Economic Operators

Mains level : Not Much

Central Board of Indirect Taxes & Customs (CBIC) has inaugurated the online filing of Authorised Economic Operators (AEO) T2 and T3 applications.

Who are Authorised Economic Operators?

  • The AEO concept is one of the main building blocks within the WCO SAFE Framework of Standards (SAFE).
  • The latter is part of the future international Customs model set out to support secure trade.
  • The growth of global trade and increasing security threats to the international movement of goods have forced customs administrations to shift their focus more and more to securing the international trade flow and away from the traditional task of collecting customs duties.
  • Recognizing these developments, the World Customs Organization, drafted the WCO Framework of Standards to Secure and Facilitate global trade (SAFE).
  • In the framework, several standards are included that can assist Customs administrations in meeting these new challenges.
  • Developing an Authorized Economic Operator programme is a core part of SAFE.

AEOs in India

  • AEO is a voluntary programme.
  • It enables Indian Customs to enhance and streamline cargo security through close cooperation with the principal stakeholders of the international supply chain viz. importers, exporters, logistics providers, custodians or terminal operators, customs brokers and warehouse operators.

Back2Basics: World Customs Organization (WCO)

  • WCO is an intergovernmental organization headquartered in Brussels, Belgium.
  • The WCO is noted for its work in areas covering international trade facilitation, customs enforcement activities, combating counterfeiting in support of Intellectual Property Rights (IPR), drugs enforcement, illegal weapons trading, integrity promotion, and delivering the sustainable capacity building to assist with customs reforms and modernization.
  • The WCO represents 179 Customs administrations that collectively process approximately 98% of world trade.
  • As the global centre of Customs expertise, the WCO has the tools and expertise to assist implementation of all legal, policy, procedural, technological, and human resource aspects related to trade facilitation.
  • The WCO maintains the international Harmonized System (HS) goods nomenclature and administers the technical aspects of the World Trade Organization (WTO) Agreements on Customs Valuation and Rules of Origin.

WTO and India

India invokes peace clause again as rice subsidies exceed 10% cap

India has invoked the peace clause at the World Trade Organization (WTO), for the second time, for exceeding the 10 per cent ceiling on support it offered its rice farmers.

  • India had earlier invoked the clause for 2018-19, when it became the first country to do so.
  • India informed the WTO that the value of its rice production in 2019-20 was $46.07 billion while it gave subsidies worth $6.31 billion, or 13.7 per cent as against the permitted 10 per cent.

What is Peace Clause?

  • The peace clause protects India’s food procurement programmes against action from WTO members in case the subsidy ceilings – 10 per cent of the value of food production in the case of India and other developing countries – are breached.

What does India told to WTO?

  • India’s breach of commitment for rice arises from support provided in pursuance of public stockholding programmes for food security purposeswhich were in existence as on the date of the Bali Ministerial Decision on Public Stockholding for Food Security Purposes.
  • India said that under its public stockholding programmes for food security purposes, rice, wheat, coarse cereals and pulses, among others, are acquired and released in order to meet the domestic food security needs of the country’s poor and vulnerable population, and “not to impede commercial trade or food security of others. For these reasons only the breach of the de minimis limits for rice is covered by the peace clause.
    Government does not undertake exports on a commercial basis from public stockholdings. Additionally, open market sales of food grains from public stockholding are made provided the buyer gives an undertaking of not exporting from such purchase.
  • The peace clause can’t be challenged and because of this flexibility, distribution of food grains to the poor can be done for free which is crucial during the pandemic.
  • India ensures food security through the minimum support price (MSP) programme, and Public Distribution System and National Food Security Act, 2013.

Subsidies of WTO:

  • In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).
  • In agriculture, things are, as usual, more complicated.
    • The Agriculture Agreement has no red box.
    • Domestic support exceeding the reduction commitment levels in the amber box is prohibited
    • There is a blue box for subsidies that are tied to programmes that limit production.
  • There are also exemptions for developing countries (sometimes called an “S&D box” or “development box”, including provisions in Article 6.2 of the Agreement).

Amber Box:

  • Nearly all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes.
  • These include measures to support prices, or subsidies directly related to production quantities.
  • These supports are subject to limits: “de minimis” minimal supports are allowed (generally 5% of agricultural production for developed countries, 10% for developing countries); 32 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies.
  • The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support”.

Blue Box:

  • This is the “amber box with conditions” — conditions designed to reduce distortion.
  • Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production (details set out in Paragraph 5 of Article 6 of the Agriculture Agreement).
  • At present there are no limits on spending on blue box subsidies.

Green box:

  • The green box is defined in Annex 2 of the Agriculture Agreement.
  • In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion.
  • They have to be government-funded (not by charging consumers higher prices) and must not involve price support.
  • They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to current production levels or prices. They also include environmental protection and regional development programmes.
  • Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria set out in Annex 2.

WTO and India

India seeks TRIPS waiver for Vaccines

Note4Students

From UPSC perspective, the following things are important :

Prelims level : TRIPS Agreement

Mains level : TRIPS regulations

India and South Africa have jointly moved a proposal at the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) council for a waiver to help more countries get access to medicines and vaccines during the pandemic.

Q.WTO and multilateralism is dying in the face of a greater reliance on plurilateral and bilateral trade pacts. Discuss. (250W)

What is the TRIPS Agreement?

  • The TRIPS is an international legal agreement between all the member nations of the World Trade Organization (WTO).
  • It establishes minimum standards for the regulation by national governments of different forms of intellectual property (IP) as applied to nationals of other WTO member nations.
  • Its agreement was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990 and is administered by the WTO.
  • The TRIPS agreement introduced intellectual property law into the multilateral trading system for the first time and remains the most comprehensive multilateral agreement on intellectual property to date.

Why did India move such a proposal?

  • TRIPS waiver would deal with the question of equity along with global growth and livelihoods.
  • It is not only that we are coming in the way of life but it is very simple economics, asserted India’s ambassador.
  • For a commercial business of $30-40 billion of annual vaccine output of a few companies, we are coming in the way of $6-7 trillion of global GDP output in one year.

Premise behind it

  • In 2001, developing countries, concerned that developed countries were insisting on an overly narrow reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration.
  • The Doha declaration is a WTO statement that clarifies the scope of TRIPS, stating for example that TRIPS can and should be interpreted in light of the goal “to promote access to medicines for all.”

Global response for the move

  • Fifty-seven WTO members have backed the proposal brought out by India.
  • But the EU, U.S., Japan and Canada have opposed the idea stressing the importance of intellectual property for innovation.

WTO and India

Trade Policy Review of India at the WTO

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade Policy Review (TPR)

Mains level : WTO and India

India’s seventh Trade Policy Review (TPR) has begun at the World Trade Organization in Geneva.

Q.In the wake of the global economic fallout of the COVID-19 pandemic, discuss the challenges ahead of WTO.

Trade Policy Review (TPR)

  • The TPR is an important mechanism under the WTO’s monitoring function and involves a comprehensive peer-review of the Member’s national trade policies.
  • India’s last TPR took place in 2015.

Why need a TPR?

  • To increase the transparency and understanding of countries’ trade policies and practices, through regular monitoring
  • To improve the quality of public and intergovernmental debate on the issues
  • To enable a multilateral assessment of the effects of policies on the world trading system

India’s progress

  • Since previous TPR, India has worked diligently to reform and transform the entire economic eco-system to meet the socio-economic aspirations of a billion-plus Indians.
  • The introduction of the GST, the IBC, labour sector reforms, an enabling and investor-friendly FDI Policy, and various national programmes like Make in India, Digital India, Startup India and Skill were the path-breakers.
  • The improvement in the economic and business environment, on account of the wide-ranging reforms, has enabled India to better its position in the World Bank’s Doing Business ranking from 142 in 2015 to 63 in 2019.
  • This improvement is also endorsed by investors who continue to view India as a desirable investment destination even during the testing time of the pandemic.
  • In 2019-20, India received highest ever FDI inflow of USD 74.39 billion.

A note of caution

  • India’s trade policy remained largely unchanged since the previous review.
  • India continues to rely on trade policy instruments such as the tariff, export taxes, minimum import prices, import and export restrictions, and licensing, WTO said.
  • These are used to manage domestic demand and supply requirements, protect the economy from wide domestic price fluctuations, and ensure conservation and proper utilization of natural resources.
  • As a result, frequent changes are made to tariff rates and other trade policy instruments, which create uncertainty for traders.

WTO and India

The many challenges for WTO

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : WTO

The next Director-General of the organization will have to navigate through a slew of thorny issues in WTO.

WTO to lead by a woman for the first time

  • For the first time in its 25-year history, the World Trade Organization (WTO) will be led by a woman.
  • The D-G’s job will require perseverance and outstanding negotiating skills for balancing the diverse and varied interests of the 164 member countries, and especially, for reconciling competing for multilateral and national visions, for the organization to work efficiently.
  • The next D-G will have to grapple with the global economic fallout of the COVID-19 pandemic and work towards carrying out reforms of the multilateral trading system for reviving the world economy.
  • On all these issues, her non-partisan role will be watched carefully.

Practice Question: In the wake of the global economic fallout of the COVID-19 pandemic, discuss the challenges ahead of WTO.

Tussle between developed and developing countries

  • The current impasse in the WTO negotiations has led member countries to believe in the necessity of carrying out urgent reforms, which is likely to throw up some difficult choices for developing countries like India.
  • At the core of the divide within the WTO is the Doha Development Agenda, which the developed countries sought to move in favour of a new agenda that includes, amongst others, e-commerce, investment facilitation, MSMEs and gender.
  • Salvaging the ‘development’-centric agenda is critical for a large number of developing countries as they essentially see trade as a catalyst of development.
  • Restoring the WTO dispute settlement mechanism, especially the revival of its Appellate body, is also crucial for the organization’s efficient functioning.

Definition of ‘Developing Country’ – a contentious issue

  • The push for a change in the definition of “developing country” under the principle of special and differential treatment (S&DT), aimed at upgrading certain developing countries, will deeply affect the status of emerging economies such as India, China, South Africa, Turkey, Egypt, etc.
  • The assumption that some countries have benefited immensely from the WTO rules since its formation in 1995 is flawed, at least in the case of India. And even if there may be no consensus of views on measuring ‘development’, India will remain a developing country no matter which parameter is used.
  • The way out for India could be to negotiate a longer phase-out period or an acceptable formula based on development indices, etc.

Fisheries subsidies negotiations

  • Among the current negotiations at the WTO, the fisheries subsidies negotiations command the highest attention.
  • India can lead the way in finding a landing zone by urging others to settle for the lowest common denominator while seeking permanent protection for traditional and artisanal farmers who are at the subsistence level of survival.
  • The danger lies in seeking larger carve-outs, which could result in developed countries ploughing precious fisheries resources in international waters.

Lessons from COVID-19

  • The COVID-19 crisis has revealed the urgent and enduring need for international cooperation and collaboration, as no country can fight the pandemic alone.
  • The D-G can help mitigate the effects of the pandemic by giving clear directions on ensuring that supply chains remain free and open, recommending a standard harmonized system with classification for vaccines, and by the removal of import/export restrictions.
  • Voluntary sharing and pooling of Intellectual Property Rights (IPR) is required for any global effort to tackle the pandemic, but with the fear of vaccine nationalism looming large, several countries are seeking to secure the future supply of leading COVID-19 vaccines.
  • India’sreiteration that its vaccine production and delivery capacity will help the whole of humanity will require the D-G to play a responsible role in removing barriers to intellectual property and securing a legal framework within the WTO TRIPS Agreement.
  • This can be done by lending salience to the effective interpretation of Articles 8 and 31 of the Agreement, that allow compulsory licensing and agreement of a patent without the authorization of its owner under certain conditions.

Way Forward

  • The consensus-based decision-making in the WTO, which makes dissension by even one member stop the process in its track, gives developing countries some heft and influence at par with developed countries.
  • The D-G would need to tread cautiously on this front, as some will allude to the successful implementation of the Trade Facilitation Agreement in 2017 that allowed member countries to make commitments in a phased manner in accordance with their domestic preparedness.
  • Most imminently, the next D-G will need to build trust among its members that the WTO needs greater engagement by all countries, to stitch fair rules in the larger interest of all nations and thwart unfair trade practices of a few.

WTO and India

Shift in the US trade politics and opportunities for India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : Paper 3- Changes in trade politics in the US and opportunities for India.

The article focuses on the changes in the US trade politics fueled by the corona pandemic. Also there has been a growing demand for abandoning the WTO. So, amid this shift in the US politics, what are the opportunities for India at the global level?

What went wrong with the WTO: The US point of view

  • Latest opposition to the WTO was expressed in a forceful article by a US senator, Josh Hawley.
  • In his opinion, corona pandemic expresses the hard truth about the modern global economy: it weakens American workers and empowers China’s rise.
  • So, what went wrong?
  • Capital and goods moved across borders easier than before but so did jobs. And too many jobs left America’s borders for elsewhere.
  • As factories closed, workers suffered, from small towns to the urban core.
  • So, he wants US to abandon the WTO.

Rise of trade politics in the US

  • Under Trump, the Republican Party has turned from the champion to a critic of free trade.
  • The Democratic Party, which embraced globalisation since the early 1990s, has seen the erosion of working-class support.
  • Elections this year could reveal if the shifting alignments on trade are now cast in stone or if anti-trade sentiment in America is deep and wide.

What alternatives are suggested by the senator?

  • In replacing the WTO, Hawley suggests the following two measures-
  • 1) The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty.
  • 2) This, in turn, involves building a new network of trusted friends and partners to resist Chinese economic imperialism.

How this matters for India?

  • India will have to take a fresh look at the global economy battered by the coronavirus.
  • India should pay close attention to Hawley’s theme on working with “trusted friends and partners” to restructure international trade.
  • Hawley is not alone in articulating this view.
  • Reuters reported from Washington that the Trump Administration is “turbocharging” an initiative to rearrange the global supply chains currently centered on China.
  • This rearrangement of the global supply chain offers an opportunity for India to lead the future global supply chains.

Consider the question, “Critically analyse the opportunities presented to India by the changes in trade politics in the US”.

Conclusion

Hobbled as it was by shaky political coalitions and preoccupied by multiple domestic challenges, India in the mid-1990s struggled to cope with the profound changes in the global economic order. As the world trade system arrives at a contingent moment a quarter of a century later, India is hopefully better prepared.

WTO and India

Global crisis and opportunities for India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2-Challenges to the globalisation due to covid pandemic, apportunities for India

Multilateralism has been on the decline for some time now.  The corona pandemic has acted like a catalyst to heightene this crisis. China’s role in weaponising the interdependence of multilateralism would have far-reaching consequences to the world as we know it. Yet, the crisis presents India with some unique opportunities. What are these opportunities? How can we save multilateralism? or do we even need to? These questions and such other issues are discussed in the article.

The basic Idea

  • Multilateralism has its benefits like to reduce the further spread of the virus, to develop effective medical treatments, and to curtail the worst effects of the inevitable recession- cooperation among nations will be necessary.
  • But the very foundation of multilateralism is shaking today. Hence, the need of the hour is a meaningful fix.
  • The US faces multiple internal challenges like the divisive Presidential election in November and China is facing a global crisis of credibility.
  • Thus, India is uniquely positioned to help resuscitate multilateralism.
  • New Delhi can assume leadership in strengthening constructive transnational cooperation.
  • India may also help China: Through mediation to temper what is increasingly seen as Beijing’s unilateralist revisionism; revive the promise of the gradual socialisation of China into the international system; and its acceptance of the norms and rules that regulate the principal multilateral institutions.

So, when did the crisis of multilateralism start?

  • The malaise that afflicts multilateralism is not new.
  • 1) The paralysis of all three functions of the World Trade Organization (WTO) — negotiation, dispute settlement, and transparency — was one sign of that deep-rooted malaise.
  • 2) The severely dented credibility of the World Health Organization (WHO) is just another more recent indicator.
  • The pandemic has heightened the crisis of multilateralism, not created it.
  • Pandemic has highlighted the misuse of international institutions (like WHO) and multilateralism is incapable of dealing with it.

Weaponisation of the global supply chain by China

  • Post-war multilateral system was based on the idea of peace and prosperity.
  • It was expected that economic inter-mingling among various countries would lead to peace.
  • Most of the countries of were democratic and countries with a different system of governance were not part of this system.
  • Our multinational institutions were not designed to handle the situation in which one country starts misusing its dominant position in interdependence (ex. global supply chains).
  • The misuse of existing loopholes within the existing rules by China to gain an unfair advantage in trade relations was already attracting critique in the last years.
  • China has been accused of forced technology requirements, intellectual property rights violations, and subsidies.
  • But the pandemic has provided us with some even more alarming illustrations of how damaging the weaponisation of global supply chains can be.

Examples of China weaponising interdependence

  • When India complained that test kits imported from China were faulty, China slammed it for “irresponsible” behaviour.
  • When Australia indicated that it would conduct an independent investigation of China’s early handling of the epidemic, China threatened it with economic consequences.
  • Several actors, including the EU and India, were alarmed at the prospects of predatory takeovers of their companies by China.

Against this background, repeated calls by heads of governments and international organisations urging countries to remain committed to multilateralism ring hollow.

So, what are remedies to save multilateralism?

  • 1. Policies with renewed commitment
  • There is the need for reassurance and policies that reflect a renewed commitment to the raison d’étre of multilateralism.
  • A “retreating” United States must demonstrate that it remains committed to strengthening global supply chains.
  • Global supply chains must be based on the promise of ensuring global stability and the attendant promise of peace and prosperity.
  • 2. Strategic separation of value chains
  • There is an urgent need for some strategic decoupling, handled smartly in cooperation with other like-minded countries.
  • It will undoubtedly cause considerable disruption to existing global value chains.
  • We will be less prosperous. But we will also be more secure.
  • 3. Closer integration with some distancing from others
  • A multilateralism that recognises the need for decoupling will necessitate closer cooperation with some and distancing from others.
  • Membership of such renewed multilateral institutions would not be universal.
  • Rather, one would limit deep integration to countries with which one shares values — such as pluralism, democracy, liberalism, animal welfare rights, and more.

Opportunities for India

  • India is a country whose pluralism, democracy and liberalism have often been underestimated by the West.
  • As some constituencies in the West seek a gradual decoupling from China, they would be well served to look toward India.
  • To make use of the opportunities, for itself and for the provision of certain global public goods, India’s cooperation with like-minded actors will be key.
  • India could work closely with the Alliance for Multilateralism, an initiative launched by Germany and France, to shape both the alliance itself and the reform agenda at large.
  • Working together with a group of countries from the developed and developing countries could further amplify India’s voice.
  • China may recover faster than most economically, and its military might remains intact, its image as a reliable partner has suffered a huge dent.
  • India could lead a coalition to bridge the deficit of trust between China and the rest of the world.

Consider the following question “Covid pandemic has been acting as a catalyst in precipitating the fall of global order and multilateralism. At the same time, we are well aware of the utility of the multilateralism. Examine the opportunities that falling global order provides for India in restoring it in the new form.”

Conclusion

The disruption in the global order provides India with a unique opportunity. One the one hand it has to steer the gradual decoupling with China and on the other hand, it has the opportunity to lead the coalition to bridge trust deficit with China. India should not squander these opportunities.

 

WTO and India

Between nationalism and globalism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Is the globalisation past its peak? what will be the impact of corona crisis on the globalisation?

Context

Although all world leaders have acknowledged the global imperative in dealing with the virus, they have put the nation first without much consideration to the collective action.

The middle path between extreme globalisation and hyper-nationalism

  • ‘Nation first’ approach: Although all world leaders have acknowledged the global imperative in dealing with the virus, they have put the nation first. Are all nations now for themselves? Not so fast.
  • Sovereignty is certainly back. Solidarity is under stress, but not dead. The drift is towards a middle path between extreme globalism and hyper-nationalism.
  • The last few decades have seen the growing awareness of “global problems” like climate change and the need for “global solutions”.
  • Lack of collective action: The corona pandemic certainly adds to that consciousness. But as in the case of climate change, collective action is not easy to come by.

Closing of the borders and the idea of a “borderless world”

  • One of the first steps most governments took during the current crisis was to shut down their borders.
  • The idea of a “borderless world” had gained much acceptance in recent years but is now under serious questioning.
  • For example, how the US, Canada and Europe are outbidding each other in buying medical material from China.
  • They are ready to pay a hefty premium if Chinese suppliers break from an earlier commitment.
  • Nations banning medicines: Meanwhile, many nations, including India, have banned the export of much-needed medicines and equipment to combat the virus.
  • Washington, which initially criticised other countries for limiting exports of essential drugs, has had no option but to go down that path as the toll from coronavirus rose rapidly.
  • Donald Trump is angry with 3M, one of the leading American producers of masks, for exporting to other nations at a time of huge domestic shortfall.
  • The US ban on exports of medical supplies came just days after the G-20 affirmed that its member states “will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders”.

Globalisation and related ideas under stress

  • A testing time for two ideas: The problem is not that governments are being hypocritical. They are simply trapped in a crisis that is testing two important assumptions that guided the world in the last three decades.
  • One is that globalisation, with its long and transborder supply chains, generates prosperity through economic efficiency.
  • The second was that economic globalisation based on the dispersal of production will serve the interests of all nations.

Opposition to globalisation in the West

  • The new objections to economic globalisation are not coming from the traditional champions of sovereignty in the East and the South, but the West.
  • It was North America and Europe that had preached the virtues of unhindered economic
  • They also championed the idea of globalism that will transcend national sovereignty in terms of both institutions and values.
  • New converts to nationalism and sovereignty began to appear in the West well before corona crisis.
  • Brexit to take control own borders: Britain walked out of the European Union claiming the need to “take back control” of its borders.
  • Storming the White House against all predictions in 2016, Trump has sought to push Washington away from the trinity of America’s post-war political commitments-to open borders, free trade, and multilateralism.
  • Globalisation and corona crisis: For Trump and his team, the corona crisis is confirmation of the dangers of excessive globalisation.
  • This argument is finding some resonance in Europe.
  • Addressing workers at a factory that makes masks in France, President Emmanuel Macron echoed the same feelings.

Arguments against globalisation

  • An argument against efficiency: The efficiency argument of the globalists has been countered in the West by many who say societies are not merely economic units; they are also political and social communities.
  • The disadvantage to working people: While expansive globalisation has helped generate super-profits for the capital, it has put the working people at an increasing disadvantage.
  • Uneven distribution of benefits: The uneven distribution of the benefits from the dispersal of production and free movement of labour has undermined political support for economic globalisation in the West.
  • Role of China: Reinforcing this downward trend is the belief that China is misusing global economic interdependence for unilateral political advantage.
  • There were indeed strategic consequences to China’s emergence as the world’s factory.
  • After all, China is not a passive territory; it is an ancient civilisation with ambitions of its own.

Future of globalisation and the role of China

  • The peak of expansive globalisation is over: While economic interdependence among nations can’t be eliminated, we might be past the peak of expansive globalisation and hyper-connectivity.
  • Many countries are likely to move to the diversification of external production, short supply chains and stockpiles of essential materials to limit vulnerability during times of crises.
  • China-West relations may change: The palpable anger against China in the US and beyond, for keeping the world in the dark about the spread of the coronavirus, has been magnified by Beijing’s “mask diplomacy” and political triumphalism after it got in control of the situation in Wuhan.
  • This anger is bound to translate into long-term changes in the relations between China and the West and some rearrangement of multilateral mechanisms.

Conclusion

Out of this restructuring new international coalitions are likely to emerge. Even as world leaders put their own respective nations first, they will also explore new forms of solidarity. Like the instinct for self-preservation, solidarity too is part of human nature.

WTO and India

 [op-ed snap] How to protect trade in a tug of war between nations

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Cause of the emergence of trade disputes and how can emerging economies negotiate the deals

Context

Developing countries have argued for decades that the rules governing international trade are profoundly unfair. But similar complaints are now emanating from the developed countries that established most of those rules.

Why are developed countries complaining now?

  • Competition: A simple but inadequate explanation is “competition.”
    • Turning tide: In the 1960s and 1970s, industrialized countries focused on opening foreign markets for their goods and set the rules accordingly.
    • Since then, the tide has turned.
  • Left behind communities in developed countries
    • Cheap labour-an advantage: One reason why emerging-market producers are competitive is that they pay workers less.
    • Job creation in services by developed countries: To replace lost manufacturing jobs, developed economies have been creating jobs in services.
    • Not everyone has moved to the service sector job: Unfortunately, not everyone in developed countries has been able to move to good service jobs.
    • Efforts by the left-behind bring back the manufacturing job: The left-behind former manufacturing communities have a voice in the capital city now, and it wants to bring back manufacturing.
    • Yet this explanation, too, is incomplete. The ongoing US-China trade war is not about manufacturing, it is about services.
  • Services a reason behind US-China dispute: Much of the US dispute with China is not about manufacturing. It is about services.
  • Emerging market competition increasing in services: Although eight of the top ten service exporters are developed countries, emerging-market competition is increasing.
    • New services related rules: This increased competition from emerging markets is prompting a major push by advanced-economy firms to enact new service-related trade rules.
    • An opportunity to protect the developed country producers: The new rules will ensure continued open borders for services. But it will also be an opportunity to protect the advantages of dominant developed-country producers.

Trade disputes- The combined effects of the two factors

  • There are no easy trade deals anymore.
    • Two conflicting factors: In sum, two factors have increased the uneasiness over international trade and investment arrangements.
    • First-Left behind community: Ordinary people in left-behind communities in developed countries are no longer willing to accept existing arrangements.
    • They want to be heard, and they want their interests protected
    • Second-emerging economy demanding access to service sector: At the same time, emerging-economy elites want a share of the global market for services and are no longer willing to cede ground there. So, there is no easy trade deal anymore.
  • Trade disputes-exercise in power politics
    • High tariffs and ram tactics: Threats of sky-high tariffs to close off markets, for example, and battering-ram tactics to force “fairer” rules on the weaker party.
    • The important difference from the past: One important difference is that the public in emerging markets is more democratically engaged than in the past.
    • Short timed victory: Any success that rich countries have in setting onerous rules for others today could prove pyrrhic.
    • No consensus on the rules: For one thing, it is unclear that there is a consensus on those rules even within developed countries. For example- rules to regulate social media.

Way forward

How should developed countries respond to domestic pressures to make trade fairer?

  • Demand lower tariffs from developed countries: For starters, it is reasonable to demand that developing countries lower tariffs steadily to an internationally acceptable norm.
  • Challenge the discriminatory barriers: Discriminatory non-tariff barriers or subsidies that favour their producers excessively should be challenged at the World Trade Organization.
  • Go for less intrusive treaties: To go much beyond these measures—to attempt to impose one’s preferences on unions, regulation of online platforms, and duration of patents on other countries—will further undermine the consensus for trade.
    • Less intrusive trade agreements today may do more for the trade tomorrow

WTO and India

[op-ed of the day] Delhi-Davos disconnect-India must find ways to take advantage of new opportunities

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Trade war, Globalization and effects on Indian economy.

Context

Given its increased heft in the global economic order, India ought to be at the leading edge of the current debate of the future of capitalism.

The emergence of “stakeholder capitalism”

  • Interests of all shareholder: Klaus Schwab, who founded the World Economic Forum 50 years ago, wants capitalists to look beyond their shareholders and consider the interests of all the stakeholders.
    • Long overdue debate: Some hope that the debate on stakeholder capitalism is a long-overdue recognition of the capitalist excesses of recent decades.
  • Generating value for customers: Last August, the Business Roundtable in the US, which brings together some of the top American corporates, said American companies must now generate value for customers.
    • Invest in their employees.
    • Deal fairly with suppliers and support the communities in which they operate even as they service their shareholders.
  • Scepticism over “interests of all shareholders”: Sceptics say that this is a nice way of saying the right things, repackaging old ideas on corporate social responsibility and creating illusions about reforming capitalism.
    • Cynics insist that it will be business as usual for the world’s capitalists.
    • Reflection of deeper crisis: Beyond this divide between optimists and pessimists, the discourse on “stakeholder capitalism” is a reflection of the deeper crisis afflicting the global economy today.

Three major challenges according to WEF

  • In its annual survey on global risks, the WEF has identified many challenges. Three of them stand out.
  • First Challenge: Polarised politics
    • In the US Trump is unlikely to be defensive.
    • While the dominant sentiments see Trump as the very embodiment of nationalism and populism that are polarising politics around the world.
    • Others point to the structural conditions that have bred these forces.
    • America’s working-class whose wages haven’t risen in decades, whose jobs are less secure than ever rallied behind Trump.
    • Politics in the US: Much the same happened in the British elections last year.
    • Tory leader Boris Johnson won a sweeping mandate by breaking into the working-class strongholds of the Labour Party.
  • Second Challenge: Trade war
    • Trump had a long record of denouncing free trade.
    • Many had hoped that Trump will moderate his anti-globalist rhetoric once in office.
    • Attack on a core principle of globalisation: Trump has taken a pickaxe to the core principles of the globalised economic order – free trade, open borders and multilateralism.
    • Renegotiating the treaties: The US has renegotiated a 25-year old trade agreement with America’s neighbours, Canada and Mexico.
    • The threat of all-out-trade war with China: Trump’s threat of an all-out trade war with China over the last couple of years has led to an interim agreement.
    • The agreement commits Beijing to reduce its trade surplus with the US by importing more.
    • The trade deficit of the US with EU: At Davos, Trump is expected to turn his ire on the EU, which has a near $200 billion trade surplus with the US.
  • Third challenge: Technology
    • War in technology domain: The trade wars among the world’s major capitalist centres is accentuated by the technological revolution, especially in the digital domain.
    • Need for coordination: The Davos report on global risks argues that the realisation of the full potential of new technologies depends on unprecedented coordination among all stakeholders.
    • Digital fragmentation: What is emerging instead is “digital fragmentation” marked by the extension of geopolitical and geo-economic rivalries into the new domain.
    • Digital issues have come to the front and centre of American arguments with Europe.

Conclusion

  • India must find ways to take advantage of the new opportunities from the unfolding rearrangement of the global capitalist system.

 

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.

WTO and India

WTO rules against India’s export subsidies

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : India and WTO


  • The WTO’s dispute settlement panel ruled that India’s export subsidy schemes, including the provision for special economic zones, violated core provisions of global trade norms.

A recap of India’s dispute with the US

  • Last year, the US had taken India to the WTO’s over the issue of export subsidy schemes, claiming that they were hurting American companies.
  • The US alleged that some subsidy programmes run by the Indian government were giving undue advantage to Indian businesses.
  • The Trump administration filed a case against India citing a violation of the SCM Agreement as India’s gross national product per capita was over $1,000.
  • While the government had earlier said that it would phase out the aged export subsidy programmes, no such scrapping has occurred.
  • It has also come to light that India is already working on rolling out new schemes to replace the old programmes.

Recent WTO ruling

  • Upholding US’s complaints in the case WTO panel rejected India’s claims that it was exempted from the prohibition on export subsidies.
  • India had made claims under the special and differential treatment provisions of the WTO’s Agreement on Subsidies & Countervailing Measures (SCM).
  • The panel further ruled that India is not entitled to provide subsidies depending on export performance and said it’s per capita gross national product crossed $1,000 per annum.

What does it mean?

  • It is worth noting that under Article 3.1 of the WTO’s SCM agreement, all developing countries with gross per capita of $1,000 per annum for three consecutive years are required to stop all export incentives.
  • The US had earlier accused India of giving prohibited subsidies to Indian steel producers, pharmaceuticals, chemicals, information technology, textiles and apparel.
  • While the panel ruled in favour of US and urged India to withdraw the subsidies without delay.
  • While the panel upheld most of the claims made by the US, it rejected some points pertaining to a subset of exemptions from customs duties and an exemption from excise duties.

Impact of the ruling

  • Some of the schemes that will be affected by the WTO’s ruling include Merchandise Exports from India Scheme (MEIS), export-oriented units (EOU) scheme.
  • It will hamper some sector-specific schemes, including Electronics Hardware Technology Parks (EHTP) scheme and Bio-Technology Parks (BTP) scheme, Export Promotion Capital Goods (EPCG) scheme; and duty-free imports for Exporters Scheme.
  • Under the various schemes, domestic companies are currently receiving billions in subsidies on an annual basis.
  • Withdrawing the subsidies may have a significant effect on the performance of such companies.

What lies ahead?

  • The WTO dispute settlement panel has asked India to withdraw the concerned export subsidy schemes within a time period of 90 days from the adoption of the report.
  • It also asked India to withdraw prohibited subsidies under the EOU/EHTP/BTP schemes, EPCG and MEIS, within a period of 120 days and SEZ scheme within 180 days.
  • India has a month to appeal against the WTO’s order.
  • However, India has the right to challenge the ruling before the appellate body of the WTO dispute settlement mechanism with regards to export subsidy schemes.

WTO and India

Explained: Is the WTO becoming a new battlefront?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : WTO and its relevance

Context

  • S. President Trump earlier this month attacked the World Trade Organization (WTO) for allowing countries such as India and China to engage in unfair trade practices that affect American economic interests.
  • While addressing a gathering he took issue with the “developing country” status enjoyed by India and China at the WTO.
  • He argued that these countries are not developing economies, as they claim to be, but instead grown economies that do not deserve any preferential trade treatment from the WTO over developed countries such as the U.S.

The “developing country” status

  • The “developing country” status allows a member of the WTO to seek temporary exception from the commitments under various multilateral trade agreements ratified by the organisation.
  • It was introduced during the initial days of the WTO as a mechanism to offer some respite to poor countries while they try to adjust to a new global trade order marked by lower barriers to trade.
  • Countries such as India and China, while seeking exception from various WTO agreements, have argued that their economic backwardness should be considered when it comes to the timeline of implementation of these agreements.
  • The issue of farm subsidies, for instance, is one over which rich and poor countries have had major disagreements.

Granting of the status

  • The WTO does not formally classify any of its members as a developing country.
  • Individual countries are allowed to unilaterally classify themselves as developing economies.
  • So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.
  • Since the WTO allows countries to unilaterally classify themselves as “developing”, many countries have been happy to make use of this freedom.
  • Even many developed economies such as Singapore and Hong Kong which have per capita income levels higher than the U.S., have made use of the provision to classify themselves as growing economies.

How do countries such as India and China benefit from the special status?

  • The WTO was envisaged as an international trade body to help foster more trading in goods and services between nations by lowering various barriers to trade such as tariffs, subsidies and quotas.
  • Towards this end, several trade agreements have been ratified over the years under the WTO.
  • Developing countries such as India and China, however, as earlier mentioned, can seek to delay the implementation of these WTO agreements owing to their disadvantaged economic status.
  • They can continue to impose tariffs and quotas on goods and services in order to limit imports and promote domestic producers who may otherwise be affected adversely by imports that are lower in price or better in quality.
  • India, for instance, subsidises agriculture heavily in the name of food security in order to protect its farmers.
  • While local producers may be protected by protectionist barriers such as tariffs, consumers in India and China will have limited access to foreign goods.

Is the U.S. justified in criticizing the WTO?

  • While the “developing country” status was supposed to help poor countries ease gradually into a more globalised world economy, it has had other unintended effects.
  • Further, countries such as China justify that while their per capita income level has increased many-fold over the last few decades, these are still far below that of high income levels in countries such as the U.S.
  • Thus, Mr. Trump may have a prima facie case in urging the WTO to address the issue of how countries arbitrarily classify themselves as “developing” to justify raising trade barriers.

Who are at loss with ‘developing’ status?

  • This is not to say that WTO rules always work to the advantage of developing countries alone.
  • Developed countries such as the U.S. have tried to force poorer countries to impose stringent labour safety and other regulations that are already widely prevalent in the West.
  • These regulations can increase the cost of production in developing countries and make them globally uncompetitive.
  • Developing countries further view the introduction of labour issues into trade agreements as beyond the scope of the WTO, which is primarily supposed to be an organisation dealing with trade.

Status not a big indicator

  • Many economists also oppose the fundamental argument of poorer countries that low per capita income levels justify their decision to raise trade barriers.
  • They argue that free trade benefits all countries irrespective of their income levels.
  • In fact, they argue that protectionist trade barriers impede the transition of developing economies to higher income levels.
  • The developing country status may thus simply be a false pretext to justify protectionism.

Targeting China

  • Trump’s criticism of the WTO is seen by many as the opening of a new front in his trade war against China.
  • Earlier, he had termed China as a “currency manipulator” for allowing the yuan to depreciate against the dollar.
  • China and the U.S. have also been slapping steep tariffs on imports from each other since early last year.
  • China’s developing country status at the WTO gives Trump yet another opportunity to attack China.

Conclusion

  • Since developing countries are likely to oppose any efforts to stop them from protecting their domestic economic interests, global trade rules are unlikely to experience any drastic reform any time soon.
  • The inability of the WTO to rein in global trade tensions has raised questions about its relevance in today’s world.
  • This is particularly so given that global tariff rates over the years have dropped more due to bilateral trade agreements rather than due to multilateral trade agreements brokered at the WTO.
  • 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.
  • While initially envisaged as a global body to promote free trade, the WTO has now deteriorated into a forum where competing governments fiercely try to protect their narrow interests.

Back2Basics

Everything that you should know about the World Trade Organization (WTO)

WTO and India

[op-ed snap] The World Trade Organization could still prove itself effective

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : WTO - developing country status

CONTEXT

US as accused developing countries such as China and India of unfairly benefitting from their “developing country” status under the WTO regime.

Background

  1. The regime permits countries with special and differential treatment. 
  2. It also let developing countries adhere to less onerous norms such as longer periods of compliance, without violating the WTO rulebook.

Why the US took this stand?

  1. WTO dispute settlement system has favoured developing countries. The US has lost most of the disputes raised against it.
  2. Trump recently attacked the US’ dispute settlement system by not allowing the appointment of new members on the appellate body.
  3. The US already has a running trade war with China.
  4. So far, Trump had adopted revisionist policies on trade by pulling out of TPP, forcing changes in the NAFTA, etc.,

Problems with US’ stand

  1. The US and other rich countries have always enjoyed SDTs in agreements on textiles and clothing, and also agriculture.  Even today, the subsidies given in the West to rich farmers continue to operate unabashedly.
  2. Despite the shrinking contribution of agriculture to the US GDP, it has been pointed out that the per-farmer subsidy in the US is 70 times that of China, 176 times that of Brazil and 267 times that of India. 
  3. The textiles and clothing agreement was used as a trade-off with the deal on intellectual property rights. The latter continues to function but the trade-off did not adequately benefit countries exporting apparel. 

Need for a change in country status at the WTO

  1. The international community has failed to ensure that global trade benefits all and that subsidies help the poor.
  2. Irrespective of their status, all countries house their share of the poor and not-so-poor.
  3. Rules of the multilateral trading system have evolved with the objective of reducing barriers to free trade in a manner that its benefits are spread across communities and protections are accorded to weaker sections. For farms in the West, different standards have been adopted.

Way ahead

  1. India is home to more than 600 million poor people.  It needs to continuously review and fine-tune its efforts to reduce poverty by implementing necessary bold and structural reforms to empower the poor to overcome poverty.
  2. There is a need for an impartial, operational and effective dispute settlement mechanism at the WTO. 
  3. The US must review its position and engage with the global community to design an effective dispute settlement mechanism.

CONCLUSION

Unilateral efforts, such as those proposed by the US, and its threat of leaving the WTO, are likely to do more harm than good, particularly to the intended beneficiaries of such actions. However, an opportunity has been created by the US and it must be seized by the global community to adopt a nuanced approach towards reforming the WTO.

WTO and India

[op-ed snap] WTO may still emerge as the lynchpin of global trade governance

CONTEXT

India and China are stripped of the “developing nations” status.

Background

  1. Trump has reiterated that India and China have benefited immensely by misusing the developing country tag. 
  2. He blamed the WTO for this lapse and reiterated his threat to leave the institution.

Background of various countries

  1. China: The growing economic and military might presents the Chinese an opportunity 
  2. US: It fears to lose the mantle of the world’s preeminent power after three decades of unchecked hegemony.
  3. Chinese rise and US fears are straining their bilateral trade and causing collateral damage to the institution.

Nature of contemporary trade

  1. Structural transformation – Since the WTO came into being in 1995, the world has witnessed massive structural changes.
  2. 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%.
  3. 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.
  4. 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.
  5. 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

  1. WTO regulates more than 98% of global trade flows among its members.
  2. It also monitors the implementation of free trade agreements.
  3. It produces research on global trade and economic policy.
  4. It serves as a forum for settling trade disputes between nations.

Assessing WTO

  1. 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.
  2. 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. 
  3. 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.
  4. 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.

WTO and India

[op-ed snap] Trade rhetoric: On U.S.’s WTO pullout threat

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : WTO : US. Problem of developing countries

CONTEXT

U.S. President threatened to pull the U.S. out of the WTO if it fails to treat the U.S. fairly. He blamed it for allowing too many countries to claim the status of a “developing country”.

Background

  1. In a memo to the U.S. Trade Representative, it was pointed out that nearly two-thirds of the 164 WTO members classified themselves as developing countries and many rich economies claiming to be “growing” rather than “grown” economies.
  2. India and China were targeted in particular for “taking advantage” of the U.S. by classifying themselves as “developing countries” at the WTO. 
  3. The status of a developing country allows countries to seek partial exemptions from the WTO’s rules for free and fair trade between countries. 
  4. It allows countries like China and India to impose higher tariffs on imports from other countries and also offer more subsidies to local producers in order to protect their domestic interests.
  5. Developed countries find this to be unfair on their producers who are put at a relative disadvantage.
  6. Countries like China have argued that their developing country status is justified given their low per capita income.

Positive

  1. The “developing country” status that gives substantial benefits to countries that want to protect their domestic interests has skewed global trade over the years in favor of certain countries.

Problem

  1. The US is using this pretext to justify further trade barriers against China and other countries. 
  2. This is also used to justify retaliatory tariffs against these countries to boost the “America First” approach.

WTO and India

[op-ed snap] A thumbs down to unilateralism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : US trade practices are against WTO rules.

CONTEXT

Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner. As a result of these developments, India has become the Trump administration’s most significant target after China.

Some background

The Office of the United States Trade Representative (USTR) and the United States International Trade Commission (USITC) — have “investigated” India’s trade policies, the conclusions of which have been used by the administration to demand changes in policies that would benefit American businesses.

Propriety and procedures

  •  It is important to mention here that all of India’s trade-related policies (which include intellectual property rights that were investigated and questioned in the two USITC reports were done under the cover of the U.S.’s domestic laws.
  • This is tantamount to unilateralism, the response to which should be an unequivocal “no” in this age of multilateralism.
  •  Propriety and global trade rules demanded that the concerns of American businesses about India’s policies had to be addressed within the WTO through consultations among the members.

Flawed step

  • The fact that the U.S. is not approaching the WTO to challenge India’s trade and investment policies that American businesses find detrimental to their interests implies the following:
  • India’s largest trade partner is acting in defiance of agreed rules to target India’s WTO-consistent policies.
  • Take, for instance, India’s high tariffs which have left Mr. Trump greatly perturbed.
  • These tariffs were agreed to in the Uruguay Round negotiations in consultation with all members of the organisation.
  • Moreover, in the period since, India has lowered tariffs on many agricultural and industrial products.
  • Contrast this with the U.S.’s position wherein it continues to defend its high levels of agricultural subsidies which are used for lowering commodity prices to levels at which no other country can have access to its domestic market.
  • Thus, the U.S. does not need tariffs to protect its agriculture; it uses subsidies, instead.
  • The WTO also informs us that the U.S. also uses very high tariffs on tobacco (350%), peanut (164%) and some dairy products (118%).

Conclusion

  • The India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy, and to achieve this goal, the administration is stepping beyond legitimate means.
  • This discord defies Mr. Pompeo’s simplistic formulation that “great friends are bound to have disagreements”.
  • In fact, the basis of the discord lies in the way the U.S. has been targeting India’s policies, disregarding the rule of law.

Way Forward

  • Early resolution of this discord seems difficult as the U.S. has decided to undermine the WTO’s dispute settlement mechanism and walk down the path of unilateralism instead.
  • Under these circumstances, the Government of India would have focus on two fronts: to remain engaged with its largest trade partner and to also engage actively with the global community to make the U.S. understand the imperatives of a rules-based trading system.

WTO and India

WTO moratorium on e-commerce customs duties

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : WTO moratoruim on E-commerce

  • India and South Africa have asked the WTO to revisit the issues related with moratorium on customs duties on e-commerce trade, which is expiring in December this year.

WTO moratorium

  • Since about 75 countries, led by developed country members, have launched pluri-lateral talks on e-commerce at the WTO.
  • It is a good time for developing countries to discuss common concerns related to e-commerce.
  • The member countries will brainstorm on straightforward matters such as whether binding rules on e-commerce could result in concrete gains for poorer countries.
  • In addition, nuanced issues, such as the possibility of developing nations influencing the outcome of negotiations, will also be explored.

Why scrap WTO moratorium?

  • The existing industries and tariffs play an important role in protecting infant domestic industries from more established overseas competitors until they have attained competitiveness and economies of scale.
  • According to industry experts, India wants an end to the moratorium and imposition of import duties to protect domestic industry and revenue.
  • Since 1998, the moratorium is being extended time and again for two years.
  • The potential tariff revenue loss to developing countries is estimated at $10 billion.
  • The moratorium will negatively impact the efforts of many developing countries, which are laggards as far as digital industrialization is concerned, to industrialize digitally.

Impacting digital industry

  • Customs duty-free imports of digital products may also hinder the growth of the infant digital industry in developing countries.
  • This will also negatively impact digital industrialization, local employment creation and erode trade competitiveness of small and medium enterprises (SMEs) in developing countries.

WTO and India

[op-ed snap] Talking fair trade in Delhi

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WTO

Mains level : Issues to be discussed in Delhi Mini Ministerial meeting

CONTEXT

India will host the second mini-ministerial meet of the World Trade Organisation (WTO), on May 13-14, 2019. To discuss the interests of developing and least developed countries in global trade, this informal meet will also focus on the accusation by the U.S. that these economies benefit from exemptions meant for the poorer nations.

US’s Stern attitude

  • The U.S. has refused a reduction in subsidies and also pulled back on its commitment to find a perennial solution to public stockholding
    .
  • In fact, the deadlock left many trade analysts wondering whether this was the beginning of the end for the WTO.

Issues Up for discussion

  • The issues under discussion will relate to protectionist measures, digital trade, fisheries, subsidies, environmental goods, standardisation and implementation of sanitary and phytosanitary measures, and other matters ripe for negotiation and agreement, mainly investment facilitation.
  • From a plurilateral approach toward multilateralism, members may also ensure the sanctity and ‘drivability’ of the WTO.

Issues of concerns

 

1.Agricultural Subsidies

  • Disagreement – The disagreements between developed countries (the European Union and the U.S.) and developing countries (Malaysia, Brazil and India) to discipline the farm regime in their favour continue, thereby threatening the WTO’s comprehensive development agenda.
  • Support by developed countries to Farms – The expectations of developing countries from trade also get belied due to sizeable support by the developed nations to their farmers in a situation of market failure and other uncertainties.
  • OECD’s estimate – The Organisation for Economic Cooperation and Development estimates the quantum of subsidies by developed nations to vary from $300 to $325 billion annually, which is much higher than that estimated for developing countries.
  • This has become a bone of contention in trade talks as farm lobbies in the U.S., Europe and Japan have steadily exercised political clout to influence officials and lawmakers to continue giving subsidies to farmers.

2.Non-Tariff measures

Measure by developed countries – Another point of concern is that developed countries design and implement stringent non-tariff measures (NTMs) which exacerbate the problems faced by poor countries that are willing to export.

The high cost of trading – NTMs significantly add to the cost of trading.

Asymmetry among exporters – However, the costs of acquiescence with many NTMs are asymmetrical across exporters because compliance depends on production facilities, technical know-how and infrastructure — factors that are usually inadequate in developing economies.

No gain from comparative advantage – These countries are, therefore, unable to compete in international markets and hardly gain from sectors with comparative advantage such as agriculture, textiles and apparels.

The goal of developing countries

  • India, in particular, seeks amendment of laws on unilateral action by members on trade issues and a resolution of the WTO’s dispute settlement system.
  • The expectation is that the meeting may lead to policy guidance on issues such as global norms to protect traditional knowledge from patenting by corporates, protection through subsidies, e-commerce, food security and continuation of special and differential treatment to poor economies.

Past negotiations

 1. The 10th Ministerial Conference (Nairobi, December 2015)

  • It laid emphasis on agriculture trade. But it was a setback to most agrarian economies, including India and in Africa, when developed countries directly challenged their models of food security designed for the poor.
  •  In what has become an increasingly politicised environment, members with wide and divergent interests have simply halted the process and refused to negotiate in good faith across a spectrum of issues’.

2.Buenos Aires

  •  Developed nations created alliances to prepare the ground to push nascent issues such as investment facilitation, rules for e-commerce, gender equality and subsidy on fisheries, while most developing nations were unable to fulfil or implement rudimentary dictums.
  • It was agreed to ‘establish a work programme to examine global e-commerce, with a focus on the relationship between e-commerce and existing agreements.
  • It generated a sizeable debate on the fringes of the conference as many accredited NGOs opposed it and raised concerns that it was a push by dominant global players.

Hopes from Delhi Meeting

  •  The time is opportune for developing countries to voice their concerns and push for a stable and transparent environment for multilateral trade.
  • India must do its homework to focus on the unresolved issues and address the newer ones which are of interest to developed nations, mainly investment facilitation.
  • The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters
Subscribe
Notify of
19 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments