Context: 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.
- 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 paralysed.
- 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 U.S. reproaches the appellate body for judicial overreach and exceeding its assigned institutional mandate.
- One major problem that the U.S. identifies is that the appellate body, contrary to the text of the WTO’s dispute settlement understanding (DSU), has been creating binding precedents through its decisions.
Issues Under WTO negotiation:
- Plurilateral and Multilateral Agreement: Multilateral Agreements are adopted through consensus among all member countries. These agreements are applicable to all members and may include special and differential treatment for poor and developing economies. Examples of multilateral agreements include AoA, GATS, and TRIPS.
- Plurilateral agreements, on the other hand, are voluntary agreements between a limited number of WTO member countries. The provisions of these agreements are not applicable to all members. Examples of plurilateral agreements under the WTO include Trade in civil aircraft, Government Procurement, Bovine meat, and Dairy products.
- Plurilateral vs. Multilateral Agreements: While multilateral agreements consider the special needs and interests of poor and developing countries, the consensus-driven nature of multilateral negotiations often leads to delays. This has sparked a debate between developed and developing countries on the nature of trade negotiations under the WTO. Developing countries, led by India, oppose plurilateral agreements and advocate for the continuation of the multilateral framework.
- Defunct Dispute Settlement Body: Sanctioned strength of Appellate Body (AB) of WTO’s Dispute Settlement Mechanism is seven members and these members are appointed through consensus among the member countries.
- US Blocking Appointment :The quorum required to decide on disputes is three judges. The US government believes that AB is biased against it and has criticized it for being “unfair”. Consequently, US has so far been blocking appointment of members to the Appellate Body (AB) and it is left with only one judge which is below the quorum of three judges needed to hear appeals.
Reasons for WTO Crumbling:
- Changing world order: The unipolar world order represented by institutions like the WTO, which favoured the West, is facing challenges due to the rise of developing countries like India and China. Developed countries resort to protectionist policies in trade wars, such as the one between the USA and China, and disputes like the solar dispute between India and the USA.
- Process loopholes: The negotiation process, while appearing democratic, lacks transparency in ministerial consensus. Green room discussions exclude the majority of countries, favouring developed countries. Consensus-based decision-making is a root cause of slow reform.
- Discriminatory agreements: Some agreements signed under the WTO are considered discriminatory and exclusionary in functioning. For example, the Doha Development Agenda has yet to provide a solution for domestic subsidies.
- Flouting TRIPS: Developed countries accuse developing countries of flouting TRIPS, while the latter highlight public health concerns and practices like evergreening of patents by developed country companies.
- Dispute Resolution: The costly and lengthy dispute resolution mechanism is mostly used by developed countries, making developing countries victims of the process.
Importance of WTO:
- WTO regulates 98% of global trade flows and has reduced the average value of tariffs by 85% since 1942.
- Trade as a share of GDP has grown from 24% in 1960 to 60% in 2015, fuelling economic growth, creating jobs, and increasing household incomes worldwide.
- WTO’s rules-based system brings openness, transparency, and stability to international trade.
- Trade acts as a powerful tool for inclusive growth by reducing poverty and opening opportunities for small firms, women, farmers, and fishermen.
- Plurilateral Negotiations: The WTO should transition to plurilateral negotiations, allowing like-minded countries to discuss specific issues and form rules accordingly.
- Services: As services occupy two-thirds of global GDP, efforts should be made to establish a global trade policy that addresses higher barriers compared to goods. GATS should be more open and transparent.
- Consultation Committee: Countries should consider varying levels of development and form a consultation committee to address concerns effectively.
- Agriculture Agreements: Agreements on agriculture should be restructured to cater to the concerns of developing countries.
- Collective Bargaining: Like-minded countries such as the G33 African community should increase their collective bargaining power to demand favourable provisions in agreements related to agriculture, services, and intellectual property rights.
- Mindset Change: The USA and EU should recognize the larger role played by the WTO in their growth and the maintenance of an open system.