World Trade Organisation Notes for UPSC

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World Trade Organisation

World Trade Organisation UPSC

Introduction

  • WTO along with Brettonwoods insts forms the “Architectonic edifice” of LIEO.
  • It Deals with rules of trade b/w nations—to ensure smooth, predictable & free flow of trade
  • Est in 1995, as a successor of GATT.

Philosophy behind WTO

  • Embodiment of Neo-liberalism (Washington Consensus) to est LIEO— Aims at Promotion of Free trade / Liberalisation of world trade for-
    • Promoting peace & prosperity–>Interdependences–> Richard Cobden, Thomas Friedman’s Golden Archer theory
    • Immanuel kant said “Universal hospitality” is essential for “Perpetual peace” in IP
    • Development–> As world trade is based on Ricardo’s theory of “Comparitive advantage”, so –More profits / Win-win situation for all.

Need for est WTO in place of GATT

  1. GATT dealt only with trade in Non-agri goods, but by 1980’s Agri goods became imp component of external trade.
  2. Trade in services increased exponentially + new areas of trade like IPRs emerged
  3. After C.W– Due to “SAP” & “Shock therepy”– No. of countries participating in external trade became too large.
  4. After C.W– American Hegemony– so WTO est as a component of “Hegemonic stability theory”

Thus, an Inst framework needed to comprehensive Governance of global trade.

  • So, Uruguay Round of talks (1986-94) concluded with Marakkash agreement based on “Dunkel-Draft”– led to est of WTO.

Aims & Objectives of WTO

  • To est Rule of law in Intl trade– Est Rule based global trading system
  • Ensure free & fair trade + maintain T/P & Predictibility
  • Peaceful settlement of Intl trade disputes
  • Development of Devg countries

Principles Governing WTO Agreements (SP-NOT)

  • Non Discrimination–> MFN status & National treatment
  • Openness– Reducing Tarrif & Non Tarrif barriers.
  • T/P & Predictibility
  • Special & Differential treatment

Evolution of WTO

  • 1st Ministerial (1996- Singapore)– Resulted in adoption of “Singapore issues” (proposed by Devd countries)– opposed by Devg
    1. Trade facilitation
    2. Govt procurement
    3. Trade & investment
    4. Competition policy 
  • 3rd Ministerial (1999- Seattle)– By this time Devg became disillusioned, as WTO policies resulted into–
    1. Disproportionately favoured Devd > Devg–> Devg didn’t get expected benefits + Dev of Under-dev.
    2. Huge Inter-state & intra-state disparities
    3. Devd although ↓ tarrifs but they erects many non-tarrif barriers (SPS, TBT)– so Devg lacks real market access.
    4. Politics of “Boxes of subsidy”–> Food insecurity
    5. Devg says they lack sufficient expertise to comprehend technicalities of Trade laws

Hence Global civil society protests in Seattle that WTO Meeting couln’t took place.

  • 4th Ministerial (2001- Doha)– In Response of huge protests– Devd realised that WTO shd address Developmental concerns– So
    • Adoption of Doha Dev agenda— Considered as Victory of Devg + Devd accepted it to show Global solidarity against Terrorism (After 9/11)
  • 9th Ministerial (2013- Bali)– Adoption of “Bali Package”–
    • Agreement on Trade facilitation
    • Emergence of “Peace clause”–Till permanent solution reached on Public stockholding on Food security, Devg can give any amount of subsidy for their food prog.
  • 10th Ministerial (2015- Nairobi)– Resulted into “Nairobi Package”–
    • Peace clause extended
    • Decision to eliminate subsidies on Agri exports– Devd to comply immedietely (By 2016) & Devg given relaxed deadline (By 2018)
    • Special safeguard mechanism
  • 11th Ministerial (2017- Buenos Aires)– No conclusive agrrement (No Joint declaration) as– Devd proposed new agreement on e-commerce while Devg insisted on first finishing negotiations on DDA– Thus virtually peace clause extended for indefinite period.
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North-South Debate in WTO

Agricultural Negotiations (AoA)- Most contested & Most politicised + it is a major issue in DDA

Negotiations r on 3 pillers–

  1. Market access
  2. Export subsidies
  3. Domestic support

Importance of Agriculture for Developing countries

  • “In devd Agri is just a matter of commerce, but in Devg it is a way of life”
  • Mainstay of their economy + major source of FOREX
  • Very small size of Per capita landholding while very large in Devd, In Devg- Subsistance farming but In Devd- Commercial
  • In Devg- Around 70% Pop depends on Agri & 30% is GDP share but in Devd- 4% pop & 3% GDP share
  • S-E Dev, Poverty alleviation & Food security

Issues related to Market access-

  • Deals with ↓ tarrif & Non tarrif barriers– Devg continues to maintain high tarrifs & Devd although ↓ tarrifs but they imposes Non tarrifs (SPS, TBT) & Anti dumping duties w/o T/P– so Devg not able to increase thier exports.
  • Lack of consensus on 2 issues– 
  1. Special safeguard mechanism– Lack on consensus on point at which Devg can resort to this– Devg like India r very defensive, but Devd like US says it must be used only in case of substantial import surge
  2. Special Product- Devg can keep some products out of liberalisation having links with rural dev, employ & livelihood-No consensus on No. of items

Issues related to Export subsidies–

Resolved under “Nairobi Package”

Issues related to Domestic supports–

  • Most controversial as Devd maintains huge subsidies but many restrictions r placed on Devg– Thus WTO policies adversely impacted Agri, Food security– so Agri is stagnating, Farm suicides ↑, Malnutrition ↑
  • Avg subsidies per farmer in India- $49, EU- $1068, USA- $7253
  • 3 “Boxes” of subsidies– Blue, Green & Amber (Trade Distorting as they r production enhancing– so limitations imposed based on Specail & Differential treatment called as “de-minimis”– 5% of total value of agri produce for Devd & 10% for devg)
  • Values of produce is computed at base price b/w 1986 & 1988

Contentions (Devg’s arguments)

  1. Actual amount of subsidies given by Devd > Devg
  2. Devg (like India) has to introduce FSA for their malnourished pop– for that Remunerative price to be given to farmers– hence their limit will be breached & other countries can impose CVD.
  3. Devd has played with “Boxes” & channelised their subsidies from Amber to green box but Devg lacked expertise so they could not understand technicalities of agreement.

How WTO policies impacted Food security in Devg countries?

  • Exposed their farmers to fluctuations in Global market + Subsidies ↓
  • Govt cannot release food even when they r getting rotten

Deceitfulness of Developed world

  • They have surplus produce– so want to export their cheap food grains to Devg
  • Purposefully kept subsidy bind at 1986-88 base price
  • Manipulates price of Agri produce through Share market

Groups involved in Agri negotiations

  • C-4 (Mali, Chad, Bukrina faso, Benin)
  • G-20 (negotiating export subsidy)
  • G-33 (negotiating public stockholding)

India’s proposals

  1. Change base price level to level that can take into A/C inflation in Food items.
  2. Keep public stockholding prog for food security in Green box
  3. End the boxes & maintain one.

But Devd countries not agreeing to this.

Negotiations on NAMA–

  • Devd ↓ tarrifs but imposes Non tarrif barriers, while Devg r reluctant to ↓ tarrifs as custom duties r major source of revenue for them
  • Main parties in dispute r US & China– US accuses china of Dumping & China accuses US for imposing CVD in Non T/P manner
  • TFA was expected to solve this.

Debate on new issues-

  • IPR
  • Subsidies on fisheries
  • e-commerce– opposed by Devg due to security issues + can harms MSMEs.
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WTO & Developing countries

-ves

  • Equal voting rights not benfitted them, as Devd uses potential bargaining tools like “Green Room Diplomacy”
  • DSM is too costly– Devg cannot afford to use it, some Devg countried r even closing their offices in Geneva
  • -ve impact on Food security
  • Devd continues to be Protectionist
  • Rules of the game r not Fair

+ves- Still WTO’s success is in favour of Devg, if they r able to maintain Solidarity

  • WTO is more democratic (Equal voting rights for all + Consensus based decisions) unlike WB & IMFf which have weighted voting.
  • WTO agreements r based on Principle of Special & Differential treatment
  • WTO provides “Aid for trade” to Devg– Can be used in Capacity building.
  • Multilateralism is in favour of Smaller Devg countries, as they cannot get better bargain in Bilateral framework
  • M.L very imp for India as there r very limited chances of success of SAFTA– so only through WTO India can get favourable trade env w/o being bargained by smaller neighbours.

Achievements of WTO

  • Global Facilitation of Trade—By building binding rules, reducing barriers, Resolving trade disputes, TFA
  • Improved Economic Growth—Since 1995, value of world trade has nearly quadrupled
  • Increased Global Value Chains
  • Upliftment of Poor Countries
  • Global trade rules: Decisions in the WTO are typically taken by consensus among all members and they are ratified by members’ parliaments. This leads to a more prosperous, peaceful and accountable economic world.

Current issues in WTO—

Facing make or break moment—Backlash Against Glbl, free trade & M.L (Crisis of Legitimacy)

  • Faced challenges from very inception–Initial apprehensions raised by Devg but present crisis comes from Devd world especially USA—
    • US approach emerges from China’s unfair trade practices–China’s State Capitalism
    • US senator—Josh Hawley—suggested US to abandon WTO—As it led to job loss in US
    • Major controversy is lack of agreed definition Devd & Devg country.
  • Sharp division in interests (Diff Negotiating positions) of Global north & south has marginalised WTO.
    • DDA is at the core of divide as it is favourable for Devg but Devd r working to jettison it in favour of a new agenda– e-commerce, investment facilitation, MSMEs
    • Lack of agreement on public stockholding & subsidy regime
    • West wants inclusion of issues like IPR, e-commerce, , investment facilitation, labour laws etc—staunchly opposed by Devg world
  • Great power rivalries– US & China
  • Side stepping WTO—Bilateral, regional & mega-regional deals—TPP, RCEP, AU-FTA.
    • Recent G20 Osaka summit witnessed Devd countries supporting Japan’s attempt at legitimizing informal plurilateral negotiation on digital trade.
  • Growing protectionism—Trade war—WTO remained a moot spectatore—? WTO’s credibility.
  • Institutional Issues—AB is dysfunctional +DSM in the state of deadlock.
  • Limited success in major issues—Food security, Global trade imbalances + since 2001 Doha talks- no substantial outcomes
  • COVID-19 Impact & its global economic fallout

Why US is strangulating Appellate Body by Starving funds + blocking App process to AB?

  • China’s growing assertiveness is reason for U.S.’s hard posturing–> China has largely benefited from Rules-based WTO & now it is distorting the rules
  • US criticises it for “overreaching” or judicial activism.
  • Its smooth functioning posed hurdles to US’ Protectionist & unilateral measures 

While US is currently Most noticeable disruptor, authoritarian countries like China r also actively contesting underpinnings of M.L order.

Way forward for WTO

G20 Riyadh Summit recog “Riyadh initiative on future of WTO” for reforming M.L trading system–

  • Launch a new ‘SDG round of trade negotiations’
    • Has potential to get full consensus of all WTO members
    • It will provide much-needed endorsement for free trade
    • It will be successful in co-opting Devg & LDCs who r disillusioned with abandonment of DDA
    • With anti-globalisation forces on rise, it will demonstrate link b/w trade & Dev that will help WTO members in achieving SDGs
    • Will help WTO achieve Marrakesh objectives— Raising Stds of living, ensuring full employment, Economic dev of all. 
    • It could also help resuscitate a moribund WTO.
  • Appellate body reform– As it is the lynchpin of DSM, which is the ‘jewel’ in WTO’s crown.
  • Recalibrating Special & Differential treatments– Devg & Devd status shd be not based on ‘self-election’ but on objective criteria. ex- link it with MPI
  • Restoring WTO dispute settlement mechanism + Stitch fair rules in larger interest of all nations & thwart unfair trade practices of a few.
  • Need for Collaboration in Post COVID world—Ensuring Supply Chains are robust
  • In 2019 , India proposed a concept paper asking for overhauling WTO with “Development centricism” + India cautioned that WTO reforms should be premised on Principles of inclusivity, equity and not to widen the existing asymmetries.
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Conclusion

India should actively lead the voice of 3rd world in WTO to est its leadership + work with mid-size trading economies with a strong interest in preserving openness

FUTURE PROSPECTS FOR WTO IN WAKE OF CHANGE IN US ADM

  • Against Trump’s “America first”, Biden’s Affirmed commitment to M.L, free & fair trade by rejoining Paris Accord.– Hence Chances of revival of M.L & WTO, as it is imp for US Hegemony
  • But there r compelling Geo-political imperitives like US-China rivalry (Thucydides Trap) + Discontent within American polity towards globalisation + huge uncertainities created by Covid-19– so no gurantee.
  • MARK LINSCOTT–Although there may not be radical departure altogether from Trump adm, but Biden Adm will take more constructive stance on M.L issues in WTO & more likely to pursue remedies in WTO.

Doha Development Agenda

  • Doha round was launched at MC4
  • Known as DDA as it accorded priority to Dev over Trade + it sought to address Devg’s concerns in 3 areas– Domestic support, Market access, export subsidies
  • DDA decided to be adopted in framework of “Single Undertaking”– Nothing is accepted till everything is accepted.

Mandate for the negotiations– 

  • Agriculture–More market access, eliminate export subsidies, ↓ distorting subsidies support.
  • Dealing with Dev concerns of Devg– Food security & rural dev.
  • NAMA– ↓ or eliminate tariffs & non-tariff barriers, particularily on products of export interest to Devg countries.
  • Services– Improve market access & strengthen the rules.
  • Trade facilitation
  • Improve DSM  .

2015 Ministerial Conference Nairobi, Kenya (MC10) focused on a selected number of issues that are part of DDA– Agreement reached on following DDA issues:

  • Stopping use of subsidies unfairly supporting Agri exports
  • Ensuring that food aid for Devg countries is given in a way which does not distort local markets
  • Simplify conditions for exporters in Devg + Increase opp for their businesses from the poorest countries to provide services in the WTO’s 164 member countries

Why DDA failed so far

  • Agri has always been bugbear in WTO negotiations
  • Devd never interested, they actually wants to collapse of Doha talks
  • Global south is unable to put a joint front against global north & get swayed by individual dealings with US & EU—Need for global south to come together, rather than dealing through fragmented regional trade blocks.