Why in news?
Presently, IMF, World Bank and WTO has called for reforms in multilateral trading System in order to tackle ongoing trade war between China and US, stalemate at 11th Ministerial Conference of WTO, USA’s consideration of withdrawal from WTO.
WTO and its evolution
Organizational Structure of WTO
• Ministerial Conference - It Includes all members, meets once in 2 year and the 11th Ministerial Conference was held in Argentina)
• General Council – It acts a Dispute Settlement
Body and Trade Policy Review Body.
• WTO i.e. World Trade Organization was set up under Marrakesh Treaty (1994) as a result of Uruguay Round (1986-
1994).
• WTO as an organization was expected to play larger role for improved living standards, employment generation, trade expansion with increasing share for developing countries and overall sustainable development. Trade liberalization was seen as means for achieving the above- mentioned objectives.
• Basic principles of trade liberalizations that were to be followed were:
o Non-discrimination–
Countries will not
discriminate one from another. It had be achieved through Most Favored Nations status i.e. neutral trading relations and National treatment to non- domestic producers.
o Reciprocity– The concessions conferred by countries had to be mutual.
Brewing Discontent
• A democratic inclusive WTO however, started showing signs of discontent. The issues came to surface in the very first Singapore Ministerial (1996).
11 www.visionias.in ©Vision IAS
• Singapore issues spilled over to Seattle, Cancún and finally to Doha Ministerial. The recent trade war between
US and China where US is increasing import tariffs is a symptom of the larger rot.
Reasons for Crumbling Of WTO
• Changing world order: The unipolar world under US was represented through institutions like WTO. Trade during this phase became rule based in nature which favored the west. But this unipolar world order is facing structural changes with rise of developing countries and their increasing share in world trade. This is perceived by US and EU as unfavorable whom they have attacked by resorting to policies of protectionism. E.g. China via trade war, Solar panel case against India in Dispute Settlement Body.
• Process Loopholes: The negotiation process prime facie seems democratic but Ministerial Conferences are accused of being opaque and overly technical. The green room meetings prohibit participation of majority of countries. It has proven to be disproportionately advantageous to developed countries. Moreover, consensus- based rule making has become a root cause in stagnation in reforms.
• Nature of agreements: Agreements signed under WTO are alleged to be discriminatory and exclusionary in functioning. DDA (Doha Development Agenda has still not been able to provide permanent solution to subsidies under domestic support. WTO do not have any agreement to deal with digital enabled trade i.e. e- commerce.
o Allegations are leveled by developed countries against developing of flouting TRIPS. They oppose generic
medicines, compulsory license and import substitution. On the other hand, developing countries cite public health concerns and level allegations of ever-greening against pharmaceutical companies.
• Dispute Resolution: The dispute resolution mechanism is costly and lengthy. It is majorly resorted to by developed countries and developing countries are victims to the mechanism. There is politicization of the Appellate Body appointment and reappointment process. E.g. solar panel dispute was adjudged in favor of US is a case in point.
Why WTO Should Survive?
• Amidst all these challenges that WTO faces, we cannot deny the role it has played in integrating and opening the world trade.
• WTO regulates 98% of global trade flows. The average value of tariffs has reduced by 85% since 1942. Tariff reduction along with technological advances have driven extra-ordinary expansion of global trade.
• Trade as a share of GDP has grown from 24% in 1960 to 60% in 2015. Expansion of trade has fueled economic growth, created jobs and increased household incomes around the world.
• An ever-deepening rules-based system—notably under the GATT and WTO—brought more openness, transparency, and stability.
• Trade act as a powerful force too for inclusive Growth, by lowering poverty and by opening opportunities for small firms, women, farmers as well as fishermen.
• As nations’ economies have become more and more inter-dependent, breakdown of a trade organization will be major blow to international trade order.
Reforms suggested by EU
1. Proposals for future rule-making activities in WTO
• EU has proposed to create incentives for WTO members to fully comply with their subsidy notification obligations so as to bring more transparency in industrial subsidies provided by Member States. This will help in better implementation of SCM (Subsidies and Countervailing Measures) Agreement.
• It has been further proposed to make rules for better capturing of market- distorting support provided to State owned Enterprises (SOEs) so that they can’t escape SCM mechanism.
• It has also proposed rules to address discriminatory practices and barriers to foreign investment in services and technology transfer especially in view of behind the border ‘forced technology transfer’.
2. Proposals for a new approach to flexibilities in the context of development objectives
• As per EU, the WTO system remains blocked due to antiquated approach to flexibilities which allows 2/3rd of the membership, including some of the world’s most rapid, largest and dynamic economies (China, India, Brazil etc.) to claim special and differential treatment.
• While acknowledging the need for flexible treatment to LDCs, it has sought other Members to move away from blanket exemptions to a needs-driven and evidence-based approach to ensure Special and Differential Treatment to be as targeted as possible.
3. Proposals to strengthen procedural aspects of the WTOs rule making activities
• Flexible Multilateralism- Members interested in pursuing a certain issue which is not yet ready for full multilateral consensus, should be able to advance an issue and reach an agreement if its benefits are made available to all members as MFN.
• Role of WTO Secretariat should be strengthened in support of various negotiations as well as implementation and monitoring functions.
• These principles are implemented through Ministerial Conferences, taking consensus-based decisions based on ‘one country one vote which demonstrates democratic structure and processes of WTO.
• Also, a dispute resolutions mechanism provides protection against arbitrariness. The raison d’être of WTO lies in its rule based binding commitment, retreating from which poses greater risks, a scenario unfavorable to member states.
Way Forward
WTO should reflect the Global structural change
• Plurilateral trade negotiations- As WTO is a member led organization, all countries i.e. developing and developed have to join hands to improve its structure and processes. WTO should move to Plurilateral negotiations where like-minded countries can come forward to discuss issues specific to them and form rules with respect to the common issue.
• Trade agreements –Today trade has become digital technology enabled and there is urgent need to form agreement regarding e- commerce. Open and regulated electronic commerce that is considerate of national governments sovereignty and security is the need of the hour.
• Services today form a bulk of trade i.e. two third of global GDP, yet global trade policy lags behind in services facing higher barriers than goods. To rectify these, GATS has to become more open and transparent. It has to address monopolistic practices, financial regulations and irregular immigration.
• Trade related policies for inclusiveness-
12 www.visionias.in ©Vision IAS
o All member countries need to understand different levels of development of different countries. On the basis of this, a consultation committee has to be formed. The negotiation meetings have to be more open, transparent and inclusive.
o The agreements on agriculture should be restructured to address concerns of developing countries and
Least developed countries.
o E-commerce should benefit the SMEs and women entrepreneurs for the development of rural economy.
o Social security laws, skill upgradation, flexible mobility of workers within the international agreements will
impart more stability and sustainability to the multilateral trading system.
• Collective Bargain Like Minded Groups like G-33, African community has to increase their collective bargain in order to demand favorable provision in agreements on agriculture, services, intellectual property etc. The dispute mechanism should become more powerful and member driven.
• Change in the mindset of developed countries - Developed countries like US and EU have to be convinced of the larger role WTO played in their growth and maintenance of open trade system. The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions. The developed nations have to realize this truth.
Presently, IMF, World Bank and WTO has called for reforms in multilateral trading System in order to tackle ongoing trade war between China and US, stalemate at 11th Ministerial Conference of WTO, USA’s consideration of withdrawal from WTO.
WTO and its evolution
Organizational Structure of WTO
• Ministerial Conference - It Includes all members, meets once in 2 year and the 11th Ministerial Conference was held in Argentina)
• General Council – It acts a Dispute Settlement
Body and Trade Policy Review Body.
• WTO i.e. World Trade Organization was set up under Marrakesh Treaty (1994) as a result of Uruguay Round (1986-
1994).
• WTO as an organization was expected to play larger role for improved living standards, employment generation, trade expansion with increasing share for developing countries and overall sustainable development. Trade liberalization was seen as means for achieving the above- mentioned objectives.
• Basic principles of trade liberalizations that were to be followed were:
o Non-discrimination–
Countries will not
discriminate one from another. It had be achieved through Most Favored Nations status i.e. neutral trading relations and National treatment to non- domestic producers.
o Reciprocity– The concessions conferred by countries had to be mutual.
Brewing Discontent
• A democratic inclusive WTO however, started showing signs of discontent. The issues came to surface in the very first Singapore Ministerial (1996).
11 www.visionias.in ©Vision IAS
• Singapore issues spilled over to Seattle, Cancún and finally to Doha Ministerial. The recent trade war between
US and China where US is increasing import tariffs is a symptom of the larger rot.
Reasons for Crumbling Of WTO
• Changing world order: The unipolar world under US was represented through institutions like WTO. Trade during this phase became rule based in nature which favored the west. But this unipolar world order is facing structural changes with rise of developing countries and their increasing share in world trade. This is perceived by US and EU as unfavorable whom they have attacked by resorting to policies of protectionism. E.g. China via trade war, Solar panel case against India in Dispute Settlement Body.
• Process Loopholes: The negotiation process prime facie seems democratic but Ministerial Conferences are accused of being opaque and overly technical. The green room meetings prohibit participation of majority of countries. It has proven to be disproportionately advantageous to developed countries. Moreover, consensus- based rule making has become a root cause in stagnation in reforms.
• Nature of agreements: Agreements signed under WTO are alleged to be discriminatory and exclusionary in functioning. DDA (Doha Development Agenda has still not been able to provide permanent solution to subsidies under domestic support. WTO do not have any agreement to deal with digital enabled trade i.e. e- commerce.
o Allegations are leveled by developed countries against developing of flouting TRIPS. They oppose generic
medicines, compulsory license and import substitution. On the other hand, developing countries cite public health concerns and level allegations of ever-greening against pharmaceutical companies.
• Dispute Resolution: The dispute resolution mechanism is costly and lengthy. It is majorly resorted to by developed countries and developing countries are victims to the mechanism. There is politicization of the Appellate Body appointment and reappointment process. E.g. solar panel dispute was adjudged in favor of US is a case in point.
Why WTO Should Survive?
• Amidst all these challenges that WTO faces, we cannot deny the role it has played in integrating and opening the world trade.
• WTO regulates 98% of global trade flows. The average value of tariffs has reduced by 85% since 1942. Tariff reduction along with technological advances have driven extra-ordinary expansion of global trade.
• Trade as a share of GDP has grown from 24% in 1960 to 60% in 2015. Expansion of trade has fueled economic growth, created jobs and increased household incomes around the world.
• An ever-deepening rules-based system—notably under the GATT and WTO—brought more openness, transparency, and stability.
• Trade act as a powerful force too for inclusive Growth, by lowering poverty and by opening opportunities for small firms, women, farmers as well as fishermen.
• As nations’ economies have become more and more inter-dependent, breakdown of a trade organization will be major blow to international trade order.
Reforms suggested by EU
1. Proposals for future rule-making activities in WTO
• EU has proposed to create incentives for WTO members to fully comply with their subsidy notification obligations so as to bring more transparency in industrial subsidies provided by Member States. This will help in better implementation of SCM (Subsidies and Countervailing Measures) Agreement.
• It has been further proposed to make rules for better capturing of market- distorting support provided to State owned Enterprises (SOEs) so that they can’t escape SCM mechanism.
• It has also proposed rules to address discriminatory practices and barriers to foreign investment in services and technology transfer especially in view of behind the border ‘forced technology transfer’.
2. Proposals for a new approach to flexibilities in the context of development objectives
• As per EU, the WTO system remains blocked due to antiquated approach to flexibilities which allows 2/3rd of the membership, including some of the world’s most rapid, largest and dynamic economies (China, India, Brazil etc.) to claim special and differential treatment.
• While acknowledging the need for flexible treatment to LDCs, it has sought other Members to move away from blanket exemptions to a needs-driven and evidence-based approach to ensure Special and Differential Treatment to be as targeted as possible.
3. Proposals to strengthen procedural aspects of the WTOs rule making activities
• Flexible Multilateralism- Members interested in pursuing a certain issue which is not yet ready for full multilateral consensus, should be able to advance an issue and reach an agreement if its benefits are made available to all members as MFN.
• Role of WTO Secretariat should be strengthened in support of various negotiations as well as implementation and monitoring functions.
• These principles are implemented through Ministerial Conferences, taking consensus-based decisions based on ‘one country one vote which demonstrates democratic structure and processes of WTO.
• Also, a dispute resolutions mechanism provides protection against arbitrariness. The raison d’être of WTO lies in its rule based binding commitment, retreating from which poses greater risks, a scenario unfavorable to member states.
Way Forward
WTO should reflect the Global structural change
• Plurilateral trade negotiations- As WTO is a member led organization, all countries i.e. developing and developed have to join hands to improve its structure and processes. WTO should move to Plurilateral negotiations where like-minded countries can come forward to discuss issues specific to them and form rules with respect to the common issue.
• Trade agreements –Today trade has become digital technology enabled and there is urgent need to form agreement regarding e- commerce. Open and regulated electronic commerce that is considerate of national governments sovereignty and security is the need of the hour.
• Services today form a bulk of trade i.e. two third of global GDP, yet global trade policy lags behind in services facing higher barriers than goods. To rectify these, GATS has to become more open and transparent. It has to address monopolistic practices, financial regulations and irregular immigration.
• Trade related policies for inclusiveness-
12 www.visionias.in ©Vision IAS
o All member countries need to understand different levels of development of different countries. On the basis of this, a consultation committee has to be formed. The negotiation meetings have to be more open, transparent and inclusive.
o The agreements on agriculture should be restructured to address concerns of developing countries and
Least developed countries.
o E-commerce should benefit the SMEs and women entrepreneurs for the development of rural economy.
o Social security laws, skill upgradation, flexible mobility of workers within the international agreements will
impart more stability and sustainability to the multilateral trading system.
• Collective Bargain Like Minded Groups like G-33, African community has to increase their collective bargain in order to demand favorable provision in agreements on agriculture, services, intellectual property etc. The dispute mechanism should become more powerful and member driven.
• Change in the mindset of developed countries - Developed countries like US and EU have to be convinced of the larger role WTO played in their growth and maintenance of open trade system. The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions. The developed nations have to realize this truth.
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