Photo: Alamy
Photo: Alamy

Opinion | The World Trade Organization could still prove itself effective

The US must review its position and engage with the global community to design an effective dispute settlement mechanism

US President Donald Trump has accused developing countries, particularly China and India, of unfairly benefitting from their “developing country" status under the World Trade Organization (WTO) regime which permits such countries special and differential treatment (or SDT in WTO parlance). This lets developing countries, including the two Asian nations, adhere to less onerous norms such as longer periods of compliance, without violating the WTO rulebook. Other than where it is spelt out clearly, similar leeway could also be enjoyed on permissible “best endeavour" grounds. On the other hand, paradoxically, the US and other rich countries have always enjoyed enforceable SDTs in the agreements on textiles and clothing, and also agriculture. It took 10 years for the agreement on textiles—which allotted export quotas to developing countries—to come to an end in 2005. However, subsidies given in the West to rich farmers continue to operate unabashedly. Strikingly, this means that every cow in the West gets a dollar per day as subsidy, while the poor in India are just about earning a dollar per day.

The tragedy with the textiles and clothing agreement was that it was used as a trade-off with the deal on intellectual property rights, or IPR (trade-related aspects of intellectual property rights, or TRIPs). The latter continues to function, ironically, with the rich extracting huge amounts through IPRs from the poor world. The trade-off did not adequately benefit countries exporting apparel. But then, it is too late now to cry over the spilt milk.

Perhaps Trump is not aware of this history or does not wish to acknowledge it. What he does know is that the WTO dispute settlement system has tended to favour developing countries. The US has lost most of the disputes raised against it. Therefore, Trump’s first attack was on the dispute settlement system, which he has sought to neutralize by not allowing the appointment of new members on the appellate body.

By attacking China, with whom it has a running trade war, the US is telling the world that the system needs to be reformed. Though the US has a special relationship with India, which includes containing China, it would not want to appear partisan by not placing India in its trade sights as well. On trade policy, Trump is a revisionist, having reworked the North American Free Trade Agreement and dropped the US’s commitment to the Trans Pacific Partnership, as he mistakenly believes that the huge trade deficit it runs is harmful to the US economy.

Thus, Trump also wishes to discredit the WTO regime and push for its reset in favour of the US. Irrespective of their tone or tenor, some concerns raised by the US are valid. The international community has failed to ensure that global trade benefits all and that subsidies help the poor, particularly those who are adversely impacted.

Irrespective of their status, all countries house their share of the poor and not-so-poor. Over the years, the rules of the multilateral trading system have evolved with the objective of reducing barriers to free trade in a manner that its benefits are spread across communities and protections are accorded to weaker sections. However, for farms in the West, different standards have been adopted.

Despite the shrinking contribution of agriculture to the US gross domestic product, it has been pointed out that the per-farmer subsidy in the US is 70 times that of China, 176 times that of Brazil and 267 times that of India. This is not to suggest that India and other developing countries do not need to look inward at their own respective subsidy regimes. While India is not a poor country, it is home to more than 600 million poor people, many of whom need state-support to lead a decent life. However, this does not take away the fact that the Indian state also needs support in continuously reviewing and fine-tuning its efforts to reduce poverty by implementing necessary bold and structural reforms to empower the poor to overcome poverty.

The issue of limited compliance by various countries with notification obligations under different WTO agreements also needs to be viewed in this light. Despite acknowledging immense benefits of transparency, several countries are unable to comply with these requirements because of limited capacity. The WTO should design and implement capacity building programmes for developing countries to help them comply.

The role of an impartial, operational and effective dispute settlement mechanism at the WTO cannot be understated in ensuring a predictable, transparent and enforceable trading environment. The US has held back appointments of members of the WTO appellate body. It is playing a waiting game and has shown an extreme lack of interest in engaging with the international community so far. In the words of Henry Kissinger, this desire of one power to achieve absolute security means absolute insecurity for all others.

Such an approach often results in the infringement of other countries’ policy space. The US must review its position and engage with the global community to design an effective dispute settlement mechanism.

Unilateral efforts, such as those proposed by the US, and its threat of leaving the WTO, are likely to do more harm than good, particularly to the intended beneficiaries of such actions. Nevertheless, an opportunity has been created by the US and it must be seized by the global community to adopt a nuanced approach towards reforming the WTO.

Amol Kulkarni, director (research) of CUTS, contributed to this article

Pradeep S. Mehta is secretary general of CUTS International and member, Board of Trade, government of India

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