WTO RELAVANCE: ECONOMY

WTO RELAVANCE: ECONOMY

NEWS: Is the World Trade Organization still relevant?

WHAT’S IN THE NEWS?

The WTO, once the guardian of global trade, is now facing a severe credibility crisis due to negotiation deadlocks, a collapsed dispute settlement system, and its failure to address modern trade challenges. India has pushed for reforms, defending food security and development interests while calling for restoration of fair, rules-based trade.

Context and Introduction to WTO

  • The World Trade Organization (WTO) was established in 1995 to oversee international trade rules, facilitate trade negotiations, and resolve disputes between countries.
  • In recent years, the WTO’s effectiveness has been severely questioned due to its failure in core functions: trade negotiations, dispute settlement, and monitoring compliance with trade rules.

India and the WTO

  • India is a founding member of the WTO and has actively engaged in all major negotiations, advocating for a development-oriented and inclusive trading system.
  • India promotes the interests of developing nations, emphasizing fair trade, food security, and preservation of domestic policy space in global agreements.

13th Ministerial Conference (MC13) of WTO (2024)

  • The WTO Ministerial Conference is the organization’s top decision-making body, meeting every two years.
  • MC13 was held in Abu Dhabi in February 2024, aiming to discuss key reforms and emerging trade challenges.
  • The conference ended in a deadlock, mainly due to disagreements over the public stockholding (PSH) programme for food security.
  • India strongly opposed the inclusion of non-trade issues such as gender and MSMEs into WTO negotiations, warning against trade fragmentation.
  • India also raised concerns over unilateral trade measures justified under environmental grounds, demanding adherence to fair and rules-based trade.

WTO's Support for India in Disputes

  • In 2016, the WTO ruled in favor of India in a dispute against the U.S., which had imposed anti-dumping duties on Indian steel exports.
  • In the solar panel case, although India initially faced an unfavorable ruling, the WTO allowed India to support renewable energy within certain conditions, offering partial relief.

Areas of Contention for India at WTO

  • India opposes the WTO’s agricultural subsidy cap (10% limit), citing the importance of Minimum Support Prices (MSP) for ensuring food security.
  • India resists any restrictions on its grain procurement programs, especially during discussions at MC13.
  • As a leader of groups like G33 and G77, India advocates for special safeguards for small farmers, equitable market access, and flexibility for developing countries.

G33 and G77 Coalitions

  • G33 is a coalition of developing countries at the WTO that advocates for special safeguard mechanisms and public stockholding for food security.
  • G77 is a broader coalition representing developing nations, focusing on promoting their collective economic interests within global trade talks.

The Appellate Body of WTO

  • Established in 1995 under the WTO Dispute Settlement Understanding (DSU) to handle appeals arising from panel rulings.
  • Composed of seven members with expertise in international trade law, serving renewable four-year terms.
  • The Appellate Body reviews only legal aspects of cases, not factual findings, and its rulings are binding unless rejected by consensus.
  • Since 2019, the Appellate Body has been non-functional due to the U.S. blocking new appointments, severely crippling the WTO's dispute resolution system.

India’s Reform Suggestions for WTO

  • India proposes more flexible decision-making while retaining consensus on sensitive topics like agriculture and intellectual property.
  • India champions Special and Differential Treatment (S&DT) for developing countries to protect their developmental priorities.
  • India stresses the urgent revival of the Dispute Settlement Mechanism (DSM) to restore credibility and trust in WTO rulings.

Understanding Trade Wars

  • A trade war involves countries imposing tariffs or trade barriers against each other in retaliation, escalating tensions and disrupting supply chains.
  • Example: The U.S.-China tariff war (started in 2018) saw both nations impose tariffs on hundreds of billions of dollars' worth of goods, destabilizing global trade flows.

WTO Mechanisms to Address Trade Wars

  • The WTO’s Dispute Settlement Mechanism (DSM) provides a formal process to resolve trade conflicts, though it has become less effective after the Appellate Body collapse.
  • Consultation processes aim to settle disputes before escalation, but they have limited success in fast-evolving trade wars (example: Chinese export restrictions).
  • Trade Policy Review Mechanism (TPRM) provides transparency but lacks enforcement powers to stop protectionist actions.

Achievements and Successes of WTO

  • The WTO has institutionalized foundational trade principles like Most-Favoured-Nation (MFN) and National Treatment, promoting fairness and predictability.
  • Through its DSM, the WTO has successfully resolved over 600 disputes since 1995, enhancing legal trust among member states.
  • Successive GATT and WTO rounds have drastically reduced global average tariffs, promoting market liberalization.
  • The Trade Facilitation Agreement (TFA) of 2013, aimed at reducing customs inefficiencies, could lower global trade costs by 14%.
  • The Information Technology Agreement (ITA) eliminated tariffs on tech products, fostering the growth of the global digital economy.

Recent Failures Highlighting WTO’s Crisis

  • MC13 deadlock revealed persistent North-South divides, particularly over agricultural subsidies and public stockholding rights.
  • The resurgence of protectionist policies by major economies (e.g., U.S. "reciprocal tariffs") erodes the liberal global trade order established post-World War II.

Challenges and Criticisms of the WTO

  • The Doha Development Round, launched in 2001 to prioritize developing countries’ concerns, has stagnated without meaningful results.
  • The paralysis of the Dispute Settlement System, especially the Appellate Body, has left trade disputes unresolved, weakening rule enforcement.
  • WTO’s trade monitoring functions suffer from transparency deficits, with many members not reporting trade measures accurately or timely (e.g., China’s mineral exports case).
  • The proliferation of bilateral and regional Free Trade Agreements (FTAs) undermines the multilateral, non-discriminatory system envisioned by WTO.
  • WTO rules are ill-equipped to handle China’s state-capitalist practices, such as massive industrial subsidies and surplus production.

Reasons for WTO’s Deteriorating Relevance

  • The erosion of the MFN principle due to preferential trade agreements and retaliatory tariffs weakens WTO’s core foundation.
  • Political sensitivities, particularly of developing countries like India on agricultural reforms, create gridlocks at negotiations.
  • Consensus-based decision-making, while inclusive, has become a bottleneck that blocks timely reforms and responses to new challenges.
  • The WTO has failed to adequately address emerging issues like digital trade, labor standards, and climate-related trade measures, making it less relevant to modern trade needs.

Reforms Needed to Revive WTO Effectiveness

  • Revamping the Dispute Settlement Mechanism (DSM) by addressing U.S. concerns and resuming judicial appointments to restore the system’s integrity.
  • Introducing flexible decision-making options such as plurilateral agreements or weighted voting for faster consensus on urgent issues.
  • Enhancing WTO oversight of FTAs to prevent fragmentation of global trade norms and ensure alignment with multilateral principles.
  • Incorporating contemporary trade issues like climate change, e-commerce, and sustainable development into the WTO agenda.
  • Bridging the developed-developing country divide by reforming subsidy rules and providing balanced support for food security and trade fairness.

Conclusion

  • Revitalizing the WTO demands deep structural reforms, inclusive participation, and adaptability to evolving global economic realities.
  • A stronger, fairer, and more resilient multilateral trading system is essential for addressing contemporary global trade challenges and ensuring equitable prosperity.

 

Source: https://www.thehindu.com/opinion/op-ed/is-the-world-trade-organization-still-relevant/article69488005.ece