| PYQ Relevance: Q) What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? (UPSC CSE 2018) |
Mentor’s Comment: UPSC mains have always focused on topics like ‘WTO’ (2018) and ‘International Trading routes’ (2022).
An Allianz Trade survey found that 82% of exporters are optimistic about turnover growth in 2024, 73% are also concerned about geopolitical risks and protectionism, highlighting the need for trade policies that promote growth while ensuring inclusivity and equity among nations.
Today’s editorial likely critiques the current state of the World Trade Organization (WTO) by comparing it to its predecessor, the General Agreement on Tariffs and Trade (GATT). This content can be used to present ‘Trade issues’ and ‘Free movement regimes’ in Global politics in your mains answers.
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Let’s learn!
Why in the News?
The trend of rising protectionism, especially when Donald Trump promised to impose high tariffs on imports from countries like China, Canada, and Mexico.
- This shift raises concerns about increased consumer prices and disruptions in global supply chains, as countries focus more on supporting their domestic industries rather than cooperating internationally.
| About the General Agreement on Tariffs and Trade (GATT): The GATT is a foundational international treaty established in 1947 to promote global trade by reducing tariffs, quotas, and other trade barriers. Initially signed by 23 countries, GATT aimed to facilitate economic recovery after World War II, evolved through several negotiation rounds, and the key features included: • Non-Discrimination Principle: Member countries must apply tariffs equally to all members, ensuring fair trade practices. • Tariff Reductions: GATT successfully lowered average tariffs among member nations from over 20% to around 5%. • Trade Facilitation: It provided a framework for resolving trade disputes and encouraged multilateral negotiations to further reduce barriers. The Uruguay Round concluded with the Marrakesh Agreement in 1994, which established the WTO as a successor to GATT. The World Trade Organization (WTO) was established on January 1, 1995. By the time it transitioned into the WTO, GATT had become a crucial instrument for promoting global trade liberalization, covering approximately 90% of international trade. The Appellate Body was established in 1995 as part of the WTO under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). • Aim: It serves to hear appeals from reports issued by panels in disputes between WTO member countries, acting as a higher court for trade-related legal issues. • Structure and Composition: The Appellate Body consists of 7 members, each appointed for a 4-year term by the Dispute Settlement Body (DSB). • Members can be reappointed for additional terms. A Chairperson is elected annually among the members to oversee the Appellate Body’s operations. About the Recent WTO Conference: • The WTO for its 13th Ministerial Conference (MC13) in February 2024, raised critical issues such as dispute settlement reforms and the extension of the e-commerce moratorium. • This context highlights the need to reevaluate the WTO’s structure and effectiveness. |
How is the WTO experiencing a “GATT-ification?
- Existential Crisis: The WTO is set to miss its target of revitalizing a fully functional dispute settlement system by the end of 2024, with the Appellate Body (AB) remaining non-operational for over five years due to U.S. blockages in appointing members.
- The obstruction began during the Obama administration, escalated under Trump, and continues under Biden, reflecting a bipartisan consensus against the AB.
- Anticipations of a protectionist Trump 2.0 administration could further worsen the situation. Because, in 2018, he imposed a 25% tariff on various Chinese products, indicating a shift towards unilateral trade actions.
- The real issue extends beyond the AB’s functionality; it involves the WTO’s relevance in global trade.
- Challenges for Developing Nations: The informal nature of current discussions has hindered effective participation from many developing countries. India proposes transitioning discussions on reforms to formal WTO bodies to ensure inclusivity and representation from developing countries.
- Uncertain Future: The future of the WTO’s dispute settlement system remains uncertain as the deadline approaches, with ongoing debates about restoring functionality and addressing broader institutional challenges.
What is the present Unraveling of WTO Dynamics?
- China’s Rise: China’s rise over the past two decades has significantly changed the global trade landscape. The U.S. facilitated China’s accession to the WTO in 2001, hoping it would adopt free-market principles and dismantle state-led industrial policies.
- Expectations vs. Reality: Contrary to U.S. hopes, China did not dismantle its state-led policies and is perceived to have exploited the WTO system to its advantage. On the contrary, there is a belief in the U.S. that the WTO’s institutional controls limit its ability to address challenges posed by China.
- The U.S. aims, as stated by international lawyer Daniel C.K. Chow, to undermine the WTO system, including the Appellate Body (AB), to gain more freedom in addressing the Chinese threat.
- The U.S. can now implement trade remedial measures and develop industrial policies against China, even if they violate WTO laws, due to the lack of enforcement from the AB.
Conclusion: The term ‘GATT-ification’, coined by Prof. Vidigal, highlights the shift in the international trading order and emphasizes that current negotiations cannot obscure the reality. The reversal shift to GATT-era diplomacy signifies a significant change in how international trade is governed, moving away from established multilateral frameworks toward more fragmented approaches.
