The World Trade Organization (WTO)

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.

The WTO has many roles: it operates a global system of trade rules, it acts as a forum for negotiating trade agreements, it settles trade disputes between its members and it supports the needs of developing countries.

Birth of WTO

The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since the end of the Second World War. Whereas the GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property. The birth of the WTO also created new procedures for the settlement of disputes

The WTO General Council

The General Council is the WTO’s highest-level decision-making body in Geneva, meeting regularly to carry out the functions of the WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years.

Ministerial Conference

The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.

DOHA ROUND

Aim to achieve major reform of international trading system through introduction of lower trade barriers and revised trade rules. The work program covers about 20 areas of trade.
The Round is also known as Doha Development Agenda as a fundamental objective is to improve the trading prospects of developing countries.

IMPORTANT DECLARATIONS UNDER DOHA ROUND

Declaration on the TRIPS agreement and public health – It reaffirmed flexibility of TRIPS member states in circumventing patent rights for better access to essential medicines. It was an important step in prioritizing public health over intellectual property rights “in certain situations.
Implementation related Issues – “Implementation” is short-hand for problems raised particularly by developing countries about the implementation of the current WTO Agreements, i.e., the agreements arising from the Uruguay Round negotiations.
Agriculture – Members committed themselves to comprehensive negotiations aimed at substantial improvements in market access, reduction of all forms of export subsidies and substantial reductions in trade-distorting domestic support. Members also agreed that special and differential treatment (S&DT) for developing countries will be an integral part of all elements of negotiations to enable developing countries to effectively take account of their development needs, including food security and rural development.
Special and Differential treatment – Members agreed that provisions for S&DT are an integral part of the WTO agreements and determined that these provisions be reviewed with a view to strengthening them and making them more precise, effective and operational.
Non – Agricultural Market Access – Relates to trade negotiations on non-agricultural or industrial products. In the NAMA negotiations, WTO Members discuss the terms or modalities for reducing or eliminating customs tariff and non-tariff barriers on trade in industrial products. At Doha had agreed on the reduction or elimination of tariff peaks, high tariffs and tariff escalation on NAMA products. However, it remains inconclusive due to lack of consensus.

FAILURE OF DOHA ROUND

After Two decades the Doha Round of WTO is yet to achieve its goals.
Before 2003 Cancun ministerial, G20 was formed which included major developing Agri-producing countries. Thus, the developing countries tried to push for agriculture issues which were not accepted by US and developed countries.
Talks failed in 2008 on the issue of Special Safeguard Mechanism (SSM) in Agriculture. Developing countries want that they should be allowed to raise tariffs temporarily to deal with import surges or price falls.
Bali Ministerial 2003 (Trade Facilitation agreement) was passed which was implemented in 2017. This agreement fulfils fundamental objective of cutting down red tape, expediting the movement, release and clearance of goods. It also reflects in full the S&DT applicable for developing and least-developed countries.
Agriculture remained an unresolved issue at Bali 2013.
Public stockholding issue: At Uruguay Round, Public stockholding limit was fixed at, subsidies (difference between administered price (MSP in India) and market price) being no more than 10% of the value of production of the commodity. fixed external reference price was based on 1986-88 rates and there was no provision for inflation
India with support of G33 coalition of countries wanted to move public stockholding to Green Box Subsidies (Permissible subsidies) to ensure Food Security under the National Food Security Act 2013. Developed countries opposed it.
In the end, compromise was that there would be a peace clause — India and others who avail of public stockholding will not be dragged to dispute settlement until a permanent solution is found.
This accompanied with the US’s insistence on the definition of developing countries.
Failure of appointments to appellate body because US blocked the appointments.

ISSUES UNDER THE WTO NEGOTIATIONS

Plurilateral and Multilateral Agreement: Multilateral Agreements are adopted through consensus among all the member countries. The provisions of the multilateral agreements are applicable to all the member countries. Further, such agreements may decide to incorporate special and differential treatment for the benefit of poor and developing economies. Most WTO agreements such as AoA, GATS, TRIPS etc. are multilateral agreements which the member countries are obliged to follow.
Plurilateral agreement is an agreement between limited number of WTO member countries wherein the countries would be given the choice to agree to new rules on a voluntary basis. In other words, the provisions of plurilateral agreement would not be applicable to all the member countries. Examples of Plurilateral agreements under WTO include Trade in civil aircraft; Government Procurement; Bovine meat; Dairy products.
Plurilateral Vs. Multilateral Agreements: Since the multilateral agreements are consensus driven, normally the trade negotiations under multilateral framework tend to be slow paced and lead to unnecessary delay. However, the good aspect about the multilateral agreements is that they consider the special needs and interests of poor and developing countries. In this regard, the debate has arisen between the developed and developing countries with respect to the nature of trade negotiations under the WTO.
The developed countries have put forward four plurilateral agreements in the areas of e-commerce, investment facilitation, MSME and gender. However, developing countries led by India have staunchly opposed the plurilateral agreement and instead pushed forward for the continuation of multilateral framework under WTO.

DEFINITION OF DEVELOPING COUNTRY UNDER WTO

Background: There are no WTO definitions of “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries. However, other members can challenge the decision of a member to make use of provisions available to developing countries. The Developing countries enjoy special and differential provisions such as longer time periods for implementing agreements and commitments.
USA’s Opposition: US has been demanding reform in Developing Country status. US believes that even some developed economies such as South Korea, China, Hong Kong, Kuwait, Singapore, UAE etc. have been claiming the status of developing country. US has also questioned India’s status of developing country in the WTO.

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.

BREAKDOWN IN WTO DISPUTE

SETTLEMENT MECHANISM

The WTO appellate body has become defunct after USA consistently blocked the appointment of Judges to the appellate body. The break down in the dispute settlement mechanism is a huge blow to the role of WTO which is facing the threat of trade war and rising protectionist policies of developed economies.

UNDERSTANDING DISPUTE SETTLEMENT MECHANISM

Settling disputes is the responsibility of the Dispute Settlement Body (DSB) which consists of all WTO members.
First stage: Consultation (up to 60 days) to settle the trade disputes through conciliation.
Second stage (up to 1 year): Failure of consultations leads to formation of Dispute Panel by the DSB. The report of the panel can be rejected only through consensus among the members of the DSB.
Appeal Stage: Either side can appeal a panel’s ruling. Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body. The members of the Appellate Body have four-year terms. The appeal can uphold, modify or reverse the panel’s legal findings and conclusions. The Dispute Settlement Body has to accept or reject the appeals report and rejection is only possible by consensus.

PRESENT CONTROVERSY

Sanctioned strength of Appellate Body is 7 members and members are appointed through consensus among member countries. The AB must have quorum of three judges to hear a particular case.
US Government believes that AB is biased against it and has criticised it for being “unfair”. Consequently, US has so far been blocking appointment of members to the Appellate Body (AB).
Since December 10, 2019, AB has been left with only 1 Judge and quorum required to hear a case is minimum 3 judges. Hence, WTO appellate body has become dysfunctional.

AGREEMENT ON AGRICULTURE

Agreement on Agriculture (AoA) aims to facilitate international trade in agricultural goods by putting a cap on the agricultural subsidies given by the member countries. This agreement stands on 3 pillars viz. Domestic Support, Market Access, and Export Subsidies.
Current Issues with the AoA

To implement National Food Security Act (NFSA), Government is required to procure more food grains by announcing MSP. Because of this, Government would be required to declare subsidies over and above the limit specified under AoA. The developed countries were challenging this such as USA, which wanted India to stick to subsidy limit imposed under AoA.

At the Bali ministerial conference in December 2013, India secured a “peace clause”. Under it, if India breaches the 10% limit on subsidy under AoA, other member countries will not take legal action under the WTO dispute settlement mechanism.
Further, in 2014, India forced developed countries to clarify that the peace clause will continue indefinitely until a permanent solution is found. Presently, India has been demanding a permanent solution on Public Stockholding to implement National Food Security Act.

INDIA’S ARGUMENT AGAINST SUBSIDIES UNDER AoA

The percentage limit on the Subsidies is quite deceptive. In terms of absolute value, the developed economies have been providing subsidies far higher than India.
The limit on the subsidy does not factor in the Inflation. It is calculated as the value of production in 1986-88. Since then, the prices of agricultural commodities have increased.
Under the Green Box Subsidies, direct income support to the farmers (not linked to specific product) is allowed. This has been misused by countries such as USA. The direct cash transfers to the farmers in USA account for almost 50% of its agricultural value production.
Procurement of the Commodities under MSP regime is not for boosting agricultural exports, rather it is for meeting food security needs of Indian Citizens. Hence, procurement of commodities for ensuring food security should not be included in the Amber Box, rather it should be included in the Green Box.
Hence, India must address the historical imbalances and ensure a rule-based, fair and equitable international trade through AoA.