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The rise and fall of the WTO

As the U.S. loses interest in multilateralism in trade, India should actively try to arrest the organisation’s slide

C. Rammanohar Reddy
DECEMBER 26, 2017 00:15 IST


Less than 25 years after the World Trade Organisation (WTO) was created, its future as a body overseeing multilateral trade rules is in doubt. The failure of the recent ministerial meeting at Buenos Aires is only symptomatic of a decline in its importance.

Too ambitious?

When the WTO was born in 1995, replacing the General Agreement on Tariffs and Trade (GATT), it was given a large remit overseeing the rules for world trade. It was also given powers to punish countries which violated these rules. Yet, in what must be an unusual development in the history of international institutions, the WTO has been felled by the weight of the extraordinary ambitions placed on it. As a consequence, since the late 2000s, the organisation has been unable to carry out its basic task of overseeing a successful conduct of multilateral trade negotiations. The rise and decline has happened quickly.

In the early 1990s, global corporations pushed the major trading powers of the time — the U.S., the European Union (EU), Japan and Canada — for a GATT agreement that would vastly increase access for their products in foreign markets. They succeeded with the 1994 Marrakesh agreement which was supposed to be a grand bargain. The “farm subsidisers” of the U.S. and EU agreed to bring agriculture under GATT rules. In exchange, the developing countries had to pay up front by reducing import duties on manufacture, opening their markets to services, and agreeing to strict protection of intellectual property rights. The Marrakesh agreement also created the new Dispute Settlement Body (DSB) to adjudicate on trade disputes. All this would be overseen by the new WTO.

Under the DSB, the decision of a WTO panel could be rejected only by “a negative consensus” (i.e. all member-countries present had to turn down the ruling). A final verdict in favour of a complainant country entitled it to impose penalties on the other country. And under the principle of cross-retaliation, these penalties, when authorised, could be imposed on exports from a sector different from where the dispute was located. This hurt the smaller countries and was to the advantage of the bigger ones.

The new ability of the DSB to enforce decisions seemed too good to not take advantage of. For a brief while in the mid/late 1990s, the WTO seemed to be just the kind of “super” international organisation that the major powers wanted. If all trade and non-trade issues could be brought under one body which had the powers necessary for enforcement, there would be no place to hide for any country. There was pressure to bring many more “new” non-trade issues under the WTO. If the U.S. wanted labour and environment standards included, the EU wanted foreign investment, competition and government procurement.

Over-reach, however, sometimes can have the opposite of the intended outcomes.

The developing countries, which had realised that they had been had in the Marrakesh agreement, were far more active in the WTO from the late 1990s. Through a combination of the formation of strategic alliances and simply refusing to say “yes”, they began to win some battles.

The China factor

The entry of China into the WTO in 2001 also changed the picture. China used its newly acquired ‘most favoured nation’ status to the hilt. It expanded exports manifold to the EU and the U.S. Indeed, an influential body of opinion holds China’s export success as responsible for the hollowing out of U.S. manufacturing.

On its part, the U.S. soon realised that it was not the master of all it surveyed. Conflicts with the EU, a DSB that did not always oblige, and the more assertive developing country bloc (for a while led by Brazil and India) saw the hopes for a “super” WTO gradually evaporate.

Still, in 2001, Brussels allied with Washington to successfully push for fresh trade negotiations even before the 1994 agreement had been digested. A new round with the Doha Development Agenda (DDA), covering old and new issues, was launched in the Qatar capital in 2001. However, by refusing to make any honest concessions over the years, the U.S., aided by a willing WTO secretariat, more or less killed the DDA in the late 2000s. This intransigence showed that the WTO and its major member-countries remained as insensitive as before to the concerns of the majority of the membership. The U.S. and EU have since even sought to formally scrap the DDA.

The major powers now cherry-pick trade issues. Thus, in 2014, trade facilitation (covering customs rules and procedures) was taken out of the DDA and a stand-alone agreement was signed, because the U.S. and the EU were interested in it. This virtually destroyed the principle of reciprocity under which each country wanting to obtain gains in specific areas makes concessions in others.

On the whole, the U.S. and the EU have been losing interest in multilateralism in trade. The U.S. has even begun to undermine the very elements of the WTO that it had pushed through in the early 1990s. It now refuses to implement some DSB decisions. Most recently, it has taken decisions on DSB appointments which will in effect bring adjudication to a halt.

This does not mean major powers have no use for the WTO. They may no longer see any value in it as a forum for multilateral trade agreements, but they now use it to push for stand-alone deals as well as plurilateral deals (agreements involving a few and not all members of the WTO). At Buenos Aires, proposals were made for the WTO to take up “new issues” such as e-commerce, investment facilitation and trade and gender. These are all outside the DDA and of interest only to a select membership.

Need for multilateralism

No one should be happy about the turn of events. All countries need mutually agreed discipline on market access, customs duties, etc. Regionalism cannot be an alternative. Regional trade groups have succeeded in some places and they have not elsewhere. India’s own experience with bilateral trade agreements has not always been good. Bilateral and regional treaties also open the door to the stricter “WTO plus” conditions in select areas like patents.

The world therefore benefits from a multilateral trade body – though a fairer one than the WTO of the 1990s. To give just one example, India is on a better wicket with its food procurement and public stock holding policies protected within the WTO than with having to negotiate separate deals with major farm exporters like the U.S., Canada, Australia and Brazil. Still, one cannot take multilateralism in trade for granted. At the extreme, one cannot rule out a collapse of the WTO engineered by the Trump administration. The consequences are unimaginable even if they do not lead to trade wars as happened in the 1930s.

India should be more actively engaged in how to arrest the slide and then make the WTO a more equitable organisation. Commerce Minister Suresh Prabhu has said that India will soon convene a mini ministerial to discuss “new issues” for the WTO. Such fancy talk will not get us anywhere. India needs to work on persuading all members of the WTO to return to the table and negotiate on bread-and-butter issues like agriculture, industrial tariffs, and services. At this point, India and most of the world have everything to lose and nothing to gain from first a hollowing out and then a selective use of the WTO.

C. Rammanohar Reddy is the author of ‘Demonetisation and Black Money’

http://www.thehindu.com/opinion/op-ed/the-rise-and-fall-of-the-wto/article22277345.ece
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EDITORIAL
Stalemate at WTO: On U.S. obstructionism
DECEMBER 16, 2017 00:02 IST
UPDATED: DECEMBER 16, 2017 00:26 IST
U.S. obstructionism has worsened the developed-developing countries divide
The 11th biennial ministerial conference of the World Trade Organisation ended in a stalemate, with countries divided along industrial and developing lines. India is seeing the outcome as a partial success; none of its “offensive” interests were achieved, but its “defensive” interests remain protected. While India’s push to ensure a consensus around a ‘permanent solution’ to the public stockpiling of food for food security purposes was thwarted by the U.S., the “peace clause”, under which countries would not lodge complaints against developing country subsidies to meet their food security needs, remained in place. The failure of industrial countries to fast-track e-commerce talks, and commitments that reductions in fishing subsidies would not be discussed at least until the next ministerial in 2019, are being seen by India as points in its favour. The rift between advanced economies and the rest was apparent. Industrial countries have been keen on moving the agenda forward from development, which was the stated focus of the Doha Round that began in 2001. Developing countries want Doha Round commitments to be fulfilled before topics of interest to the West — such as e-commerce and market access for small enterprises — are discussed. The U.S. has said it wants to clarify its understanding of “development”, and contended that members were using it to gain exemptions from rules, and that some of the richest countries (presumably in absolute and not per capita GDP terms) were claiming this status. It also issued a joint statement with the European Union and Japan, aimed primarily at China, on trade-distorting practices such as over-capacity and mandatory technology transfer policies, while India and China submitted a proposal to end the trade-distorting farm subsidies of Western nations.

President Donald Trump’s disdain for multilateral forums and agreements, which he sees as opportunities for countries to take advantage of America, was reflected in Buenos Aires. U.S. Trade Representative Robert Lighthizer left before the conference concluded, leaving a leadership vacuum that his EU counterpart, Cecilia Malmström, unsuccessfully tried to fill. In fact, since Mr. Trump assumed office, the administration has blocked the reappointment of judges to the appellate body of the WTO, despite the U.S. being a frequent user of the dispute resolution mechanism. India rightly argued that while its GDP may be growing, the country has hundreds of millions living in poverty and without food security. While India can, and must, develop a multi-pronged approach to end hunger, it is correct to seek clarifications that its sovereign right to provide subsidies for food security is not compromised by the WTO. What has become clear in Buenos Aires is that India cannot rely on the Trump administration for support on crucial trade issues at multilateral forums.
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ECONOMY
Need to clarify ‘development’ within WTO: US
Arun S
BUENOS AIRES ,  DECEMBER 12, 2017 06:59 IST
UPDATED: DECEMBER 12, 2017 08:17 IST

The US indirectly attacks countries, including India and China, which are batting for improvement of trading prospects of developing countries at WTO talks
In a veiled attack against countries, including India and China, batting for the improvement of trading prospects of the developing world, the U.S. has said there was a need to clarify the understanding of ‘development’ within the context of the World Trade Organisation (WTO).

In his opening Plenary Statement at the meeting of the WTO’s highest decision-making body being held here, the U.S. Trade Representative (USTR) Robert Lighthizer said, “we need to clarify our understanding of development within the WTO. We cannot sustain a situation in which new rules can only apply to the few, and that others will be given a pass in the name of self-proclaimed development status.”

This development comes in the backdrop of Commerce Minister Suresh Prabhu saying at the Plenary session of the ongoing WTO’s Ministerial Conference that while “the expansion of global trade is our vision in the WTO,” the outcome of the expansion of global trade must be development.

Mr. Lighthizer, in his remarks, said, “There is something wrong, in our view, when five of the six richest countries in the world presently claim developing country status. Indeed, we should all be troubled that so many (WTO) Members appear to believe that they would be better off with exemptions to the rules. If in the opinion of a vast majority of Members playing by current WTO rules makes it harder to achieve economic growth, then clearly serious reflection is needed.”

According to the (U.S) Central Intelligence Agency, China had topped the list of economies by Gross Domestic Product (purchasing power parity), followed by the European Union and the U.S. (2016 figures). India was ranked fourth, while Brazil and Indonesia (in the developing country category) were eighth and ninth respectively.

India demands differential treatment for developing countries

In his statement, Mr. Prabhu had said, “We are increasingly seeing that the discourse on development at the WTO is sought to be deflected by specious arguments based on aggregate GDP figures. While in India we are proud of our GDP and growth rates of recent years,... we cannot ignore that India is home to more than 600 million poor people.” The minister added that, therefore, “we (India) are legitimate demandeurs for special and differential treatment for developing countries.”

Mr. Prabhu further said, “India calls upon the WTO membership to re-endorse the centrality of development (the agenda to improve the trading prospects of developing nations) in WTO negotiations without creating new sub-categories of countries.”

Mr. Lighthizer said it was impossible to negotiate new rules when many of the current ones are not being followed. “This is why the US is leading a discussion on the need to correct the sad performance of many (WTO) Members in notifications and transparency. Some Members are intentionally circumventing these obligations, and addressing these lapses will remain a top U.S. priority.”

India has already made it clear that it will not accept a “permanent solution” to the issue of public stockholding for food security purposes with onerous conditions including notification and transparency requirements that are difficult to comply with, and in turn making it tough for the (Indian) government or other developing countries to meet the food security needs of their people.

The USTR said the U.S. believes that much can and should be done at the WTO to help make markets more efficient. Indirectly criticising countries like China and to some extent India that have several Public Sector Units, the US trade official said, “We are interested in revitalizing the standing bodies to ensure they are focused on new challenges, such as chronic overcapacity and the influence of state-owned enterprises.”

WTO is becoming litigation-centered organisation: US

Responding to criticism that the US, by blocking the re-appointment of judges to the WTO’s Appellate Body (AB), was undermining the WTO’s Dispute Settlement Mechanism (DSM), Mr. Lighthizer said, “many are concerned that the WTO is losing its essential focus on negotiation and becoming a litigation-centered organisation. Too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table.” He added that, “We have to ask ourselves whether this is good for the institution and whether the current litigation structure makes sense.”

According to the Centre for WTO Studies at the Indian Institute of Foreign Trade, however, the U.S. had refused to support re-appointment of the then AB Member from South Korea on the grounds that it “will not support any individual with a record of restricting trade agreement rights or expanding trade agreement obligations.” It added that, “having been one of the biggest users and beneficiaries of the DSM, the U.S was now causing a serious impediment to its functioning. “

On other issues, Mr. Lighthizer said the US was “working closely with many Members in committee and elsewhere to address real-world problems such as Sanitary and Phytosanitary (SPS) barriers (relating to measures taken to protect human, plant and animal life or health).”

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