World Trade Organisation (WTO)

World Trade Organisation (WTO)

 

Basics and Background:
  • WTO is an international organization set up in 1995 by replacing the General Agreement on Trade and Tariffs (GATT) under the Marrakesh Agreement.
  • It is the only global international organization dealing with the international Trade between nations.
  • Its HQ is located in Geneva, Switzerland.
  • Currently, WTO has 164 members and India is a founding member of WTO.
  • Currently, the head (Director-General) of WTO is Roberto Azevedo.

 

Objective:
  • To formulate and implement rules for international trade.
  • To provide a platform for negotiating and monitoring further trade liberalization.
  • To provide a platform for the settlement of disputes.
  • Providing assistance to the developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.
  • To cooperate with the other major economic institutions (like UN, World Bank, IMF etc.) involved in global economic management.

 

Principles of WTO:
  • Non-Discrimination
  • Most Favored Nation- All nations should be treated equally. No one country can grant any other member country any special favour. For example, if one country lower tariff to one country then it has to be lowered to all other member countries.
  • National Treatment- Same treatment to all products, either local or foreigners. Fair and equal treatment is given to local as well as the products imported from other countries.
  • Reciprocity- Lowering of import duties and other trade barriers in return for similar concessions from another country.
  • Predictability through Binding and enforceable commitments- To make the business environment stable and predictable.
  • Transparency- The WTO members need to publish their trade regulations and to notify changes in trade policies to the WTO.
  • Encouraging Development and Economic Reforms – All efforts are made by the WTO system to contribute to development.

 

Important Trades Agreements of WTO:
  • Agreement on Agriculture (AoA),
  • Agreement on TRIPS (Trade-Related Aspects of Intellectual Property Rights),
  • Agreement on the Application of Sanitary and Phytosanitary Measures (SPS),
  • Agreement on Technical Barriers to Trade (TBT),
  • Agreement on Trade-Related Investment Measures (TRIMS),
  • General Agreement on Trade in Services (GATS) etc.

 

Agreement on Agriculture (AoA):
  • It was negotiated during the Uruguay Round of the GATT and was concluded with the establishment of the WTO in 1995.
  • Through AoA, WTO aims at reforming trade in agriculture with a fair and market-driven system.
  • The Agreement allows governments to support their rural economies, but only allowed those policies that cause less trade “distortions”.
  • This agreement has fixed commitments from all member states on the following three agricultural supply chain system:-
  • Improving Market access– This can be done by removing various trade barriers by the member states. By fixing the tariffs and progressively promoting free trade among member states which will ultimately lead to an increase in market access.
  • Domestic Subsidies- It basically motivates for the reduction in domestic subsidies that distorts free trade and fair prices.  This is based on the premise that not all subsidies distort trade to the same extent. Under this agreement, Subsidies can be categorized into the following three boxes –
Green Box All those subsidies that do not distort trade or causes minimal distortion, comes under the green box. E.g. All government services such as research, disease control, and infrastructure and food security. Also, all those subsidies are given to the farmers that directly do not affect international trade also comes under the green box.
Amber Box All kinds of domestic subsidies or support that can distort production and trade (with some exceptions) fall into the Amber Box. The measures to support prices come under this box. The exception is the provision that accepts subsidies upto 5% of agricultural production for developed countries, 10% for developing countries.
Blue Box All those Amber Box subsidies which tend to limit the production comes under Blue Box. This can be increased without limit as long as subsidies are linked to production-limiting programs.
Export subsidies: All those subsidies that make the export of agricultural products cheaper are called export subsidies. These are basically presumed to have trade-distorting effects. This agreement prohibits the use of export subsidies by the member states for agriculture products.

 

MOST FAVOURED NATION

  • Most Favoured Nation is a treatment accorded to a trade partner to ensure non-discriminatory trade between two countries vis-a-vis other trade partners.
  • The importance of MFN is shown in the fact that it is the first clause in the General Agreement on Tariffs and Trade (GATT). Under WTO rules, a member country cannot discriminate between its trade partners. If a special status is granted to a trade partner, it must be extended to all members of the WTO.

 

The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council):
  • It monitors implementationof the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement).
  • It provides a forum in which WTO Members can consult on intellectual property matters, and carries out the specific responsibilities assigned to the Council in the TRIPS Agreement.
  • The TRIPS Agreement:
    • Sets the minimum standards of protectionfor copyrights and related rights, trademarks, geographical indications (GIs), industrial designs, patents, integrated circuit layout designs, and undisclosed information.
    • Establishes minimum standards for the enforcementof intellectual property rights (IPRs) through civil actions for infringement, actions at the border,
    • At least in regard to copyright piracyand trademark counterfeiting, in criminal actions.

 

Ministerial Conferences (MC):

 

MC Place Year Details
MC1 Singapore 1996 Ministers of finance, trade, foreign, and agriculture from more than 120 countries participated and the following issues were in discussion:

  • trade and investment
  • trade facilitation
  • transparency in government procurement
  • trade and competition

These are known as the Singapore Issues.

MC2 Geneva, Switzerland 1998
  • Discussions on the implementation of Singapore Issues.
  • Further discussions for the next round related to Export subsidies, market access, etc.
MC3 Seattle, USA 1999
  • The Uruguay Round was discussed.
  • Further discussions on agricultural and services mandated at the last Ministerial.
  • The Ministerial Conference ended without a conclusion though.
MC4 Doha, Qatar 2001 The Doha Round was discussed.
MC5 Cancún, Mexico 2003 Discussions on the progress of the Doha Development Agenda and other negotiations from the last Ministerial.
MC6 Hong Kong 2005
  • Discussions on aiming to conclude the Doha Round by 2006.
  • Adoption of the ‘Swiss Formula’ to cut down tariffs on non-agricultural goods (NAMA) by both developed and developing countries with different coefficients.
MC7 Geneva, Switzerland 2009
  • This meeting didn’t revolve around the Doha Round.
  • Ministers discussed various other ideas for further development.
  • The theme of MC7 was ‘The WTO, the Multilateral Trading System and the Current Global Economic Environment’
MC8 Geneva, Switzerland 2011
  • Discussions on multiple topics for least developed nations and trade policy reviews.
  • WTO approved Montenegro, Russian Federation, and Samoa accessions.
  • Doha Round was discussed to make the mandate more effective, operational, and precise.
MC9 Bali, Indonesia 2013 The ‘Bali Package’ was adopted by the WTO that aimed at the following points:

  • Boosting trade in the least developed countries (LDCs)
  • Higher food security provisions for developing countries
  • Streamlining trade
  • The Bali Package is a selection of issues from the broader Doha Round negotiations.

Yemen became a part of WTO.

MC10 Nairobi, Kenya 2015 Discussion on agriculture, cotton, and issues of LDCs.

The Nairobi Package was adopted by WTO that delivered beneficial commitments to WTO’s poorest members.

MC11 Buenos Aires, Argentina 2017 Discussions on e-commerce duties, fisheries subsidies, and other commitments to negotiations in all sectors.
MC12 Nur-Sultan, Kazakhstan 2020 The WTO members have agreed that the organization’s Twelfth Ministerial Conference (MC12) will take place in June 2020 in Kazakhstan, which joined the WTO in 2015.

 

Doha Declaration:

The Doha Declaration is the November 2001 declaration that came out of the 4th Ministerial Conference of the WTO, that took place in Doha, Qatar.

  • This declaration gives the mandate for negotiations on an array of topics including issues concerning the implementation of the previous agreements.
  • This is called the Doha Declaration on the TRIPS Agreement and Public Health.
  • There were disagreements between developed and developing countries.
  • The major bones of contention were agriculture, non-tariff trade barriers, industrial tariffs, services, and trade remedies.
  • The Bali Ministerial Declaration was achieved in 2013 which is the first agreement under the Doha Round, and also the first unanimous agreement under WTO.

 

USA and India at WTO:
  • India has won a major trade dispute against the US at the World Trade Organization (WTO),with a dispute settlement panel.
  • India had claimed that the Domestic Content Requirements and subsidiesinstituted by the governments of the eight states of the US in the energy sector violated several provisions of the Trade-Related Investment Measures (TRIMs) Agreement and Subsidies and Countervailing Measures Agreement.
  • India brought this dispute to the WTO in 2016.
  • The same year, the US had won a case at WTO against India’s solar power policies, claiming that policies had resulted in a 90% reduction of U.S. solar exports to India.
  • The panel pronounced that subsidies and mandatory local content requirements instituted by eight American states (Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota) breached global trade rules.
  • The panel found that all the US state measures at issue are inconsistent with GATT 1994 (Article III-National Treatment)because they provide an advantage for the use of domestic products, which amounts to less favourable treatment for similar imported products.

 

WTO’s Appellate Body
  • The Appellate Body, set up in 1995, is a standing committee of seven membersthat presides over appeals against judgments passed in trade-related disputes brought by WTO members.
  • Countries involved in a dispute over measures purported to break a WTO agreement or obligation can approach the Appellate Body if they feel the report of the panel set up to examine the issue needs to be reviewed on points of law. Existing evidence is not re-examined; legal interpretations are reviewed.
  • The Appellate Body can uphold, modify, or reverse the legal findings of the panel that heard the dispute. Countries on either or both sides of the dispute can appeal.
  • The WTO’s dispute settlement procedure is seen as being vital to ensuring smooth international trade flows.
  • The Appellate Body has so far issued 152 reports. The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.

 

WTO Appellate Body on Shaky Ground
  • Over the last two years, the membership of the body has dwindled to just three persons instead of the required seven.
  • The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years, and the backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.
  • With the Appellate Body unable to review new applications, there is already great uncertainty over the WTO’s dispute settlement process.
  • If the body is declared non-functional, countries may be compelled to implement rulings by the panel even if they feel that gross errors have been committed.
  • Should such a country refuse to comply with the order of the panel on the ground that it has no avenue for appeal, it will run the risk of facing arbitration proceedings initiated by the other party in the dispute.

 

USA has crippled functioning the WTO:
  • The smooth and effective functioning of the Appellate Body, which is regarded as the jewel in the crown, has posed hurdles to the U.S. for adopting unilateral measures.
  • Several U.S. provisions for imposing countervailing and anti-dumping measures were found to be inconsistent with core provisions of the WTO agreements.
  • Finally, the U.S. chose to spike the Appellate Body by resorting to starving funds for its functioning as well as blocking the selection process for filling six vacancies.
  • Consequently, the Appellate Body is left with only one member, who will not be able to deliver any rulings on the pending trade disputes.
  • A minimum of three members are required to adjudicate any dispute.

 

India’s Role:
  • As the U.S. loses interest in multilateralism in trade, India should actively try to arrest the organisation’s slide
  • India should be more actively engaged to make the WTO a more equitable organisation.
  • India needs to work on persuading all members of the WTO to return to the table and negotiate on issues like agriculture, industrial tariffs, and services.
  • India’s positions have much in common with the African nations’ stand; we have to build bridges with Africa.
  • India needed to quickly forge a larger alliance to counter the moves that are against India’s interests.
  • India’s journey towards achieving 5 Trillion Dollar Economy is not possible without expansion of our basket of global trade.

 

Dispute Panels against India:
  • Recently, the Dispute Settlement Body(DSB) of the World Trade Organisation (WTO) has set up two dispute settlement panels targeting import duties imposed by India on a number of Information and Communication Technology (ICT) products including mobile phones.
  • It was done on the request of Japan and Taiwan,taking up the number of panels constituted to examine the same tariff-related issue to three.
  • In June 2020, the European Union(EU) had a panel established against India on the same issue.
  • The panels would determine whether India’s customs duties on imports of certain ICT products infringe the WTO’s norms or not.
  • The panels have been set up to decide on 20% customs duty levied by India on mobile phones and some other ICT products.

 

India’s Stand:
  • India managed to block Japan’s first request for a panel on the grounds that the complaint undermined India’s sovereignty.
  • India alsorejected the EU’s suggestion of agreeing to one consolidated panel combining complaints from all three of them and saving time and resources.
  • India argued that all three complainants are seeking to get the country to take on commitments under the Information Technology Agreement-II (ITA-II) which it never agreed to.

 

India’s trade concerns and WTO:
  • Tariff on Steel and Aluminum– Recently the USA govt imposed 10% tariff on aluminum and 25% tariff on steel against various trade partners. India wants that it should be removed or it will raise the issue in WTO.
  • Export Subsidy Issue– Recently USA dragged India to WTO and raised concern on the export subsidy regime provided to the Indian companies in the form of SEZ, MEIS, EPCG, etc. USA argues that as India’s Per Capita Income has increased from $ 1000, India can’t use the export subsidy regime as per the ASCM.
  • Agricultural subsidies – The present quota of subsidies is based on the price levels of 1986-88. Presently the minimum support price (MSP) concept which provides subsidies to the farmers in India falls under the Amber box. It can directly affect India’s food security program. India wants that it should be at the current price level and the amber box concept should be done away with. However, through a ‘peace clause’ agreed to during the Bali conference allows India to carry on with its PDS program as of now. But the developed member states are not taking any steps for permanent solution of this problem.
  • Special and Differential Treatment (SDT) – During Doha round, member states agreed to provide favourable treatment to developing nations. However, developed countries are denying the emerging economies such as India and China as unworthy of this provision.
  • Issues related to intellectual property rights – The issues of compulsory licensing of medicines have been resolved through TRIPS. However, the developed nations are trying to push for TRIPS+

 

Challenges:
  • Dispute settlement casescontinue to be filed for the time being and are being litigated. A civil dialogue over trade issues persists.
  • Technical functioning is now wholly inadequateto meet the major challenges to the strategic relevance of the WTO in the 21st century. In critical areas, the organisation has neither responded, nor adapted, nor delivered.
  • Dimensions of its structures and functions are fragile, creaking, and failing in parts.
  • Functioning of state enterprises engaging in commercial activities is interfering with and distorting the operative assumption of the General Agreement on Tariffs and Trade (GATT)/WTOthat international trade is to be conducted, principally, by private sector operators in response to conditions of supply and demand through price in a market economy.
  • Many WTO members bear responsibility for the use of trade-distorting domestic subsidies. Agricultural and industrial subsidies have caused blockages in the system and prompted protectionist reactions in a number of WTO members.
  • Blockage and deadlock in the Appellate Body stage of the WTO dispute settlement system triggered the present crisis.
  • The WTO lost the critical balance between the organisation as an institution established to support, consolidate, and bind economic reform to counter damaging protectionism, on the one hand, and the organisation as an institution for litigation-based dispute settlement, on the other hand.
  • For years now, the multilateral system for the settlement of trade dispute has been under intense scrutiny and constant criticism. 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.
  • Growing protectionism: Over the past two years, governments have introduced trade restrictions covering a substantial amount of international trade — affecting $800 billion in global imports in the past year alone. WTO has been less affective in addressing them, including US China trade war. This raised questions over WTO’s credibility.
  • WTO has played a very limited role in helping address other global issues related to trade, such as food security, climate change and global trade imbalances.
  • Doha Development Round focused on reducing important trade barriers in sectors, such as agriculture, industrial goods and services. However, after a decade of talks, it still remains to be concluded.

 

Way Forward:
  • A vibrant WTO cannot accommodate conflicting economic models of market versus state. All WTO members will have to accept the operative assumption of a rules-based order steered by a market economy, the private sector, and competition.
  • Launch negotiations to address the intertwined issues of agricultural subsidies and market access, while recognising that food security concerns will not disappear.
  • A credible trading system requires a dispute settlement system that is accepted by all.
  • Launch serious negotiations to restore the balance, and it must be done in an open-ended plurilateral manner that cannot be blocked by those who do not want to move ahead.
  • GATT/WTO rules in a number of areas are outdated. New rules are requiredto keep pace with changes in the market and technology. Rules and disciplines on topics ranging from trade-distorting industrial subsidies to digital trade require updates.
  • A reaffirmed commitment to the rules-based liberal market order with a development dimension must be the foundational starting point.