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Posted at: Sep 13, 2018, 12:45 AM; last updated: Sep 13, 2018, 12:55 AM (IST)

WTO needs to reform itself, not shut down

Jayshree Sengupta

Jayshree Sengupta
If the WTO shuts down, big players like China, the EU and Japan will rule the roost without legal restraints. Smaller countries will resort to protectionism which will reduce their volume of trade and income. The WTO must have fair rules of trade for developing countries that do not interfere with their domestic policies.
WTO needs to reform itself, not shut down
Defiant: Trump has been openly flouting WTO rules.

Jayshree Sengupta
Senior fellow, Observer Research Foundation

For more than a year, President Trump has been flouting WTO rules openly and is threatening to impose another round of punishing tariffs on $200 billion worth of Chinese goods, including electronics and houseware. He has already imposed tariffs on $50 billion worth of Chinese goods. He has called the WTO a 'disaster' and threatened to pull out of it unless it shapes up. 

Born in 1995, the World Trade Organisation is located on lakeside Geneva. The WTO, along with the IMF and World Bank, has predominantly represented the interests of the developed world and its predecessor GATT (General Agreement on Trade and Tariffs), established in 1948, conducted negotiations that went on for years (1986-94) under the Uruguay Round for tariff reduction and opening up of world trade, aimed specially at prying open developing countries' markets. The WTO can be credited with conducting rule-based trade which all its 164 members have to abide by. 

India is a member and in return for tariff reduction and reduction of trade barriers like the quantitative restrictions through quotas, India and other developing countries could access the rich countries' markets. But non-tariff barriers remained for India's agricultural exports to the developed countries in the form of sanitary measures that insist on abiding by certain standards of health and hygiene, and inspection. 

China was admitted to the WTO amidst controversy in 2001. Ever since its entry, surprisingly, China beat the western developed nations at their own game and made huge inroads at entering their markets without making its own trading system more open or transparent. The western world became flooded with Chinese imports. Today, the US has a $375 billion trade deficit with China.

The US has been trying to straighten out 'trade distortions' caused by developing countries by filing suits against them at the WTO's Dispute Settlement Body. Trump doesn't think China and India qualify as developing countries, but the US does! He wants to have bilateral trade deals and recently boasted that India has been calling him for a trade deal. The US and 11 other countries have complained to the WTO regarding India's export subsidies. Trump is angry that the WTO's dispute settlement mechanism has not been favouring the US in many trade disputes.

WTO weakened

In any case, during the last decade, the WTO has been considerably weakened as there has been a huge growth in bilateral treaties among nations and also mega trade deals like the Trans Pacific Partnership and the RCEP involving 16 countries. Trump has pulled out of the TPP already. But WTO's dispute settlement mechanism has remained active. There are seven judges in the Appellate Body of the WTO that decides on trade disputes and at least three judges are required to take a decision. But Trump has blocked the appointment of new judges to replace the retiring ones. By end of next year, the body will be left with less than three judges, which may stop its functioning.

Not much gain for India

India has not gained much from being in the WTO and resisted opening up its agricultural sector because of millions of small and marginal farmers who would not be able to withstand competition from abroad. India has faced flak in the past about its agricultural subsidies which are far lower than the subsidies the US, Canada and the EU give to their farmers. But their subsidies are supposed to be direct cash subsidies and are allowed under the WTO's ‘Green Box’. Most of the subsidies India gives to farmers (MSP, fertiliser) come under ‘Amber Box’ and there is pressure to make them ‘Green Box’-compliable. India has had problems with the way the WTO calculates the MSP for Indian farmers. 

India has also had problem with its food stockholding programme to maintain its food security. But the US has blocked a permanent solution to the problem. China and India have opposed the huge agricultural subsidies that the western nations give to their farmers.

 China has had more problems with the US than India. China has been accused of dumping goods as it supplies them at rates below the cost of production to the US. China is able to do so because it has no realistic cost accounting. The state-controlled financial system enables it to have low cost of finance and its infrastructure is heavily subsidised. It puts China at a great advantage over all countries, including India. India has filed many suits against China at the WTO and in many cases it has been allowed to impose retaliatory tariffs.

India has had problems at the WTO with the EU because under its General Agreement on Trade in Services, temporary workers from India should be allowed to move freely within Europe, especially under Mode 4 (rule), but they are not. In the area of Intellectual property rights under the Trade Related Intellectual Property Rights (TRIPS) agreement, India has been on the defensive at the WTO and the US has had many spats with the Indian industry for not observing IPR rules.

The issues that the developing countries wanted sorted out were to be settled under the WTO's Doha Round which has been stalled since 2008. It is only now when the US has also gone against its inefficient functioning that its existence is threatened. 

If the WTO shuts down, big players like China, the EU and Japan will rule the roost without legal restraints. Smaller countries will resort to protectionism which will reduce their volume of trade and income. The WTO has to reform itself, as Trump has proposed, and have fair rules of trade for developing countries that do not interfere with their domestic policies.


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