WTO - INTERNATIONAL
News: Restoring the World Trade Organization’s crown jewel
What's in the news?
● In June 2022, the member-countries of the World Trade Organization (WTO) managed to hammer out a face-saving deal — India played a vital role — at the Geneva ministerial conference, thereby keeping faith in trade multilateralism alive.
Key takeaways:
● An important part was resurrecting the WTO’s dispute settlement system (DSS), also called WTO’s ‘crown jewel’, by 2024.
● Since 2019, the WTO’s two-tiered DSS remains paralyzed. The appellate body, which is the second tier of the WTO’s DSS that hears appeals from WTO panels, is non-functional because the United States, single-handedly, has blocked the appointment of its members.
● The appellate body, from 1995-2019, has upheld the international rule of law by holding powerful countries such as the U.S. and the European Union accountable for international law breaches.
● However, the appellate body has become a victim of its success. Its one-time supporter, the U.S., has become its most acerbic critic.
World Trade Organization:
● The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade.
Backdrop:
● The WTO came into being in 1995.
● It is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
Headquarters: Geneva, Switzerland
Established by: Uruguay Round Negotiations (1986-94)
Membership:
● The WTO has 164 members, accounting for 98% of world trade and 25 observer states.
Structure:
● Decisions are made by consensus through the majority votes of the entire membership.
● The WTO’s top-level decision-making body is the Ministerial Conference, which meets usually every two years.
● Below this is the General Council (normally ambassadors or heads of delegation based in Geneva but sometimes officials sent from a member’s government) which meets several times a year in the Geneva headquarters.
● The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.
● At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council.
Functions:
● To ensure that trade flows as smoothly, predictably and freely as possible.
● Administering WTO trade agreements.
● Acting as a forum for trade negotiations.
● Settling trade disputes.
● Reviewing national trade policies.
● Building the trade capacity of developing economies Cooperating with other international organizations.
Principles of the WTO Agreements:
● Principle of MFN (Most-Favored-Nation) Treatment
● Principle of National Treatment
● Principle of General Prohibition of Quantitative Restrictions
● Principle regarding Tariffs as Legitimate Measures for the Protection of Domestic Industries
Some Important WTO Agreements:
Uruguay Round negotiations (1986- 94):
● The Uruguay Round created new rules for class dealing with trade in services and intellectual property and new procedures for dispute settlement.
● Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations.
Agreement on Goods:
● The Marrakesh Agreement, for implementation of Uruguay negotiations and establishment of the WTO, and its annexes (including the updated GATT) has become the WTO’s umbrella agreement dealing with specific sectors relating to goods and with specific issues such as product standards, subsidies and actions taken against dumping.
● Agreement on Agriculture (AOA) (Came into force in 1995)
● Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures (Came into force in 1995)
● Agreement on Trade-Related Investment Measures (TRIMs) (Came into force in 1995)
● Trade Facilitation Agreement (TFA) (Came into force in 2017)
Agreement on Services:
● General Agreement on Trade in Services (GATS) - (Came into force in 1995)
Agreement on Intellectual property:
● The WTO’s Intellectual Property Agreement (TRIPS) contains rules for trade in ideas and creativity.
● Came into force in 1995.
● The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs and undisclosed information such as trade secrets – “intellectual property” – should be protected when trade is involved.
Issues with WTO:
1. Persistent North-South divisions:
● WTO talks are mainly seen as a showdown between the North and the South.
● This is particularly so with the growth in strength of the developing countries and their regional and continental groupings.
2. Farm Subsidies:
● The tussle between developed and developing economies over farm subsidies also continues, with rich countries reserving the right to spend billions of dollars on supporting their farmers.
● The livelihood issues raised by India, on the other hand, are considered only grudgingly, while the “peace” clause, allowing a 10 percent subsidy on public stockholding of foodgrains, was extracted after many negotiations.
3. Developed vs. Developing Countries:
● Since the WTO allows countries to unilaterally classify themselves as “developing”, many countries have been happy to make use of this freedom.
● So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.
4. Decision-making process:
● In WTO decision-making is through consensus. This has translated into making the WTO decision-making long and subject to external manipulation.
● Most of the time political and ideological differences come in a way of reaching a consensus.
5. Implementation problem:
● This relates basically to the difficulties that mainly developing countries face in meeting their obligations under the WTO agreements.
● The two main areas that have affected implementation by developing countries have been the TRIPS and the Sanitary and Phytosanitary (SPS) measures agreements.
6. Not universal:
● With an increasingly global trading system, member countries do not operate in isolation and trade with WTO member countries only.
● Not all world countries have joined it, making it a less effective organization.
● Countries such as Iran, Iraq, Lebanon, and Uzbekistan have not joined the WTO yet.
7. Strong influence of Corporate:
● The WTO essentially protects multinational corporations based in the North.
● It is often accused of being a tool of rich and powerful countries – notably the US, the EU, Japan, and Canada.
8. Protectionism vs Free Trade:
● There is a trade war between the US and China despite both being members of WTO.
● This negates the core non-discriminatory principle of the WTO.
9. Dispute settlement mechanism:
● While WTO’s dispute settling mechanism allows aggrieved parties to file cases against member-states, some of the cases and issues have remained unresolved for a long time
● The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism.
● Further, the dispute resolution mechanism of the WTO, which can pass judgments on disputes, lacks the powers to enforce them as the enforcement of decisions is left to individual member states.
Criticisms of WTO
Although tariffs and other trade barriers have been significantly reduced thanks to GATT and WTO, the promise that free trade will accelerate economic growth, reduce poverty, and increase people’s incomes has been questioned by many critics.
1. Pro-rich:
● New countries actively reduce trade barriers only after becoming significantly rich. Each of the 164 members has their own protectionist agendas.
2. Western-Hijack:
● The general perception is that dominant economic powers like the United States and Europe have hijacked the system.
3. Failure in poverty alleviation:
● Trade liberalization does not guarantee economic growth and certainly not poverty alleviation.
4. No mutual benefits:
● Critics also put forward the view that the benefits derived from WTO facilitated free trade are not shared equally.
5. Rich-poor countries rift:
● The gap between the rich and the poor continues to widen, especially in China and India, where economic inequality is growing even though economic growth is very high.
6. Competition:
● Trade liberalization that is too early without any prominent domestic barriers is feared to trap the developing economies in the primary sector, which often does not require skilled labor.
WAY FORWARD:
● Decision-making within the organization based on rational and non-partisan principles.
● Streamline reforms related to its dispute settlement system.
● Implement development-oriented policies in an effective manner.
● Facilitate global trade liberalization in agriculture and textiles.
● Encourage NGOs to become an important part of world trade governance.
● Devise ways to increase staff and resources to ensure effective regulation.
● Despite the WTO being a democratic organization, there is a need to make it more effective in protecting the interests of small nations against stronger countries.
● WTO needs to strengthen the dispute settlement mechanism as there are issues in the appointment of judges in the new appellate body
● The WTO needs to enhance the discussion mechanism by introducing wider consultations.