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Context

An international organization, WTO deals with global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. In this week’s episode, we demystify the World Trade Organisation. Why was it formed, what does it do, and what is India’s role at the WTO? How do India and the WTO lock horns quite often?

About World Trade Organization (WTO)

The WTO is an intergovernmental organization that is concerned with the regulation of international trade between nations.
The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994.
It replaced the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
It is the largest international economic organization in the world.

Functions of WTO

The WTO deals with the regulation of trade in goods, services and intellectual property between participating countries.
It provides a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.

Working Principles of the WTO

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of “trade policy.” Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

Non-discrimination: It has two major components: the most favored nation (MFN) rule and the national treatment policy. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods.
Reciprocity: It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets.
Binding and enforceable commitments: The tariff commitments made by WTO members in multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish “ceiling bindings”: a country can change its bindings, but only after negotiating with its trading partners.
Transparency: The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO.
Safety values: In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health

What is the WTO’s Ministerial Conference?

The MC is at the very top of WTO’s organizational chart.
It meets once every two years and can take decisions on all matters under any multilateral trade agreement.
Unlike other organizations, such as the International Monetary Fund or World Bank, WTO does not delegate power to a board of directors or an organizational chief.
All decisions at the WTO are made collectively and through consensus among member countries at varied councils and committees.
This year’s conference took place in Geneva, Switzerland.

Recent conference- MC12: “Geneva Package”

The conference has secured key agreements on

Relaxing patent regulations to achieve global vaccine equity
Ensuring food security
According to subsidies to the fisheries sector
Continuing moratoriums relevant to e-commerce

Together they constitute what WTO Director-General is referred to as the “Geneva Package.”
India saw some successes at the MC12 with respect to the above-mentioned sectors.

Major debates at the MC12

(1) Agriculture

India is a significant contributor to the World Food Programme (WFP).
India had earlier stated that it had never imposed export restrictions for procurement under the programme.
It put forth that a blanket exemption could constrain its work in ensuring food security back home.
In such a situation, it would have to keep its WFP commitments irrespective of its domestic needs.
Negotiators could not reach agreements on issues such as permissible public stockholding threshold for domestic food security, domestic support to agriculture, cotton, and market access.

(2) Fisheries

India successfully managed to carve out an agreement on ELIMINATING subsidies to those engaged in illegal, unreported and unregulated fishing.
The only exception for continuing subsidies for the overfished stock is when they are deemed essential to rebuild them to a biologically sustainable level.
Overfishing refers to exploiting fishes at a pace faster than they could replenish themselves — currently standing at 34% as per the UN Food and Agriculture Organization (FAO).
Declining fish stocks threaten to worsen poverty and endanger communities that rely on aquatic creatures for their livelihood and food security.
Further, the agreements hold that there would be no limitation on subsidies by developing or least-developed countries for fishing within their exclusive economic zones (EEZ).

(3) Patent relaxations

Member countries agreed on authorizing the use of a patent for producing COVID-19 vaccines by a member country, without the consent of the rights holder.
Further, it asks member countries to waive requirements, including export restrictions, set forth by WTO regulations to supply domestic markets and member countries with any number of vaccines.
The agreement, however, comes too little, too late for economically poorer countries.

India and the WTO

Ever since the inception of this organization, India has been an active participant in its affairs and policies and played a crucial role in raising the concerns and demands of developing countries.

Reforms Agent: India always worked towards a multilateral trading system that offers a fair, open, transparent and balanced level playing field in the interests of the developing and least developing countries.
Leadership: India’s role right from the inception of the institution has always been that of a leader of the South, trying to ensure that fair play is brought into a rule-based system of global trade. It has retained this role till now, given that many smaller developing countries rely on it.

Issues with WTO

(1) Persistent North-South divisions

WTO talks are mainly seen as a showdown between the North and the South.
This is particularly so with the growth in strength of the developing countries and their regional and continental groupings.

(2) Farm Subsidies

The tussle between developed and developing economies over farm subsidies also continues, with rich countries reserving the right to spend billions of dollars on supporting their farmers.
The livelihood issues raised by India, on the other hand, are considered only grudgingly, while the “peace” clause, allowing a 10 percent subsidy on public stockholding of foodgrains, was extracted after many negotiations.

(3) Developed vs. Developing Countries

Since the WTO allows countries to unilaterally classify themselves as “developing”, many countries have been happy to make use of this freedom.
So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.

(4) Decision-making process

In WTO decision-making is through consensus. This has translated into making the WTO decision-making long and subject to external manipulation.
Most of the time political and ideological differences come in a way of reaching a consensus.

(5) Implementation problem

This relates basically to the difficulties that mainly developing countries face in meeting their obligations under the WTO agreements.
The two main areas that have affected implementation by developing countries have been the TRIPS and the Sanitary and Phytosanitary (SPS) measures agreements.

(6) Not all countries joined

With an increasingly global trading system, member countries do not operate in isolation and trade with WTO member countries only.
Not all world countries have joined it makes it a less effective organization. Countries such as Iran, Iraq, Lebanon, and Uzbekistan has not joined WTO yet.

(7) Strong influence of Corporate

The WTO essentially protects multinational corporations based in the North.
It is often accused to be acted as a tool of rich and powerful countries – notably the US, the EU, Japan, and Canada.

(8) Protectionism Vs Free Trade

There is a trade war between US and China despite both being a member of WTO.
This negates the core non-discriminatory principle of the WTO

(9) Dispute settlement mechanism

While WTO’s dispute settling mechanism allows aggrieved parties to file cases against member-states, some of the cases and issues have remained unresolved for a long time
The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism.
Further, the dispute resolution mechanism of the WTO, which can pass judgments on disputes, lacks the powers to enforce them as the enforcement of decisions is left to individual member states.

Criticisms of WTO

Although tariffs and other trade barriers have been significantly reduced thanks to GATT and WTO, the promise that free trade will accelerate economic growth, reduce poverty, and increase people’s incomes has been questioned by many critics.

Pro-rich: New countries actively reduce trade barriers only after becoming significantly rich. Each of the 164 members has their own protectionist agendas.
Western-Hijack: The general perception is that dominant economic powers like the United States and Europe have hijacked the system.
Failure in poverty alleviation: Trade liberalization does not guarantee economic growth and certainly not poverty alleviation.
No mutual benefits: Critics also put forward the view that the benefits derived from WTO facilitated free trade are not shared equally.
Rich-poor countries’ rift: The gap between the rich and the poor continues to widen, especially in China and India, where economic inequality is growing even though economic growth is very high.
Competition: Trade liberalization that is too early without any prominent domestic barriers is feared to trap the developing economies in the primary sector, which often does not require skilled labor.

A matter of perception

The developing countries do not believe that the WTO works for their benefit.
The WTO activities seem like wastage of taxpayer’s money. They only hold expensive conferences at exotic locations each year. There is no outcome from these conferences.
It is often accused that the WTO is turning into an inefficient and useless international bureaucracy.
Governments use it as a forum to bestow economic benefits on their allies and penalties on their political rivals.

The success of the WTO

The WTO is the world’s only international organization that supervises 95% of the world’s global trade.
The WTO has not only enhanced the value and quantity of trade but has also helped in eradicating trade and non-trade barriers.
WTO has also broadened the trade governance scope to trade in investment, services and intellectual property.
It has expanded the agenda by including developmental policies which further helped in the settlement of disputes and improved monitoring by introducing the Trade Policy Review and the World Trade Report.
WTO also encouraged sustainable trade developments. As trade expands in volume, in the numbers of products traded, and in the numbers of countries and companies trading, there is a greater chance that disputes will arise.
The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime. The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller countries more voice.
The WTO is still the single most effective international agency after the United Nation.

Way forward

Currently, the WTO trumps all other international agreements. To sum it up, there is no real consensus on the success or failure of WTO.
However, there is a need for structural reform in the WTO functioning as a multilateral trading system. They can be summed up as:
Decision-making within the organization based on rational and non-partisan principles
Streamline reforms related to its dispute settlement system.
Implement development-oriented policies in an effective manner.
Facilitate global trade liberalization in agriculture and textiles.
Encourage NGOs to become an important part of world trade governance.
Devise ways to increase staff and resources to ensure effective regulation.
Despite WTO being a democratic organization, there is a need to make it more effective in protecting the interests of small nations against stronger countries.
WTO needs to strengthen the dispute settlement mechanism as there are issues in the appointment of judges in the new appellate body
Lastly, WTO needs to enhance the discussion mechanism by introducing wider consultations.