WTO and India
Settling trade disputes through ‘litigotiation’
Note4Students
From UPSC perspective, the following things are important :
Prelims level: About WTO
Mains level: Trade disputes; India and USA at the WTO
Why in the News?
In March, India and the U.S. settled their last lingering WTO poultry dispute, marking the end of seven trade disputes resolved since Prime Minister Modi’s U.S. visit.
What is ‘Litigotiation’?
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Trade dispute on poultry products between India and USA at the WTO
- Indian Scenario: India had prohibited the import of various agricultural products from the US because of concerns related to Avian Influenza.
- U.S. argued: The U.S. challenged India’s import restrictions on poultry products, which were imposed due to concerns about avian influenza (bird flu) potentially transmitting to humans.
- It argued that India deviated from internationally recognized standards that were set by the World Organization for Animal Health (formerly OIE) and failed to provide scientific justifications for its measures, violating the WTO’s Sanitary and Phytosanitary (SPS) Agreement.
- The dispute was initiated by the U.S. in 2012 and remained unresolved for over a decade, making it the oldest of the seven trade disputes between India and the U.S. In 2015, India lost a long-pending dispute over poultry imports from the US at the WTO.
- The recent settlement allowed India to avoid a yearly $450 million claim.
- In exchange, India agreed to reduce tariffs on select U.S. products such as cranberries, blueberries, frozen turkey, and premium frozen duck meat, marking a significant diplomatic breakthrough.
What are the standards set by the World Organization for Animal Health?
- The Terrestrial Animal Health Code
- First published in 1968, provides standards for the improvement of terrestrial animal health and welfare and veterinary public health worldwide.
- These standards should be used by Veterinary Services to set up measures for the early detection, reporting, and control of pathogenic agents, including zoonotic agents, and preventing their spread.
- The Aquatic Animal Health Code
- Introduced in 1995, provides standards for the improvement of aquatic animal health and welfare worldwide.
- These standards should be used by Aquatic Animal Health Services to set up measures for the prevention, early detection, reporting, and control of pathogenic agents in aquatic animals (amphibians, crustaceans, fish, and mollusks).
- Implementation of the recommendations in the Aquatic Code ensures the safety of international trade in aquatic animals and aquatic animal products.
About WTO:The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade among its member nations. It was established in 1995 and has 164 member countries, representing over 98% of global trade and global GDP. |
Conclusion: The India-U.S. settlement underscores the power of diplomatic negotiations in resolving complex trade disputes, fostering stronger bilateral ties, and promoting a more stable and cooperative international trade environment.
Mains PYQ:
Q WTO is an important international institution where decisions taken affect countries in a profound manner. What is the mandate of WTO and how binding are their decisions? Critically analyse India’s stand on the latest round of talks on Food security. (UPSC IAS/2014)
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WTO and India
India fighting pressure at WTO to allow ‘plurilateral pact’ on investment facilitation
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Plurilateral Agreement/Pact and WTO
Mains level: India's Strong Stand against the IFD at WTO MC13;
Why in the News?
An official stated on Tuesday that India opposes a China-led proposal on investment facilitation at the WTO, arguing that it is a ‘non-trade’ issue beyond the global trade body’s mandate.
About Plurilateral Agreement/Pact:
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What is the China-led Investment Facilitation for Development Agreement (IFD)?
- The IIFD Agreement is a proposed pact by China, with support from other countries, to streamline and facilitate foreign investment.
- The main objectives of the IFD Agreement include:
- Enhancing transparency of investment measures.
- Streamlining and speeding up investment-related authorization procedures.
- Promoting international cooperation, information sharing, and exchange of best practices.
- Encouraging sustainable investment practices.
- The proponents of the IFD argue that it would bring benefits to all WTO members, especially developing and least-developed countries, by creating a more predictable and transparent investment climate.
India’s Strong Stand against the IFD at WTO MC13
India has taken a firm stance against the inclusion of the IFD Agreement in the WTO framework for several reasons:
- Investment is Not a Trade Issue: India argues that investment does not fall within the traditional purview of the WTO, which primarily focuses on trade issues. It points out that past Ministerial decisions have explicitly kept investment outside the WTO’s scope.
- Sovereignty Concerns: A significant concern for India is the potential impact on its policy space. The IFD Agreement includes provisions that would require the government to consult with investors on policy matters, which India fears could undermine its ability to make sovereign decisions.
- Lack of Consensus: India, along with South Africa, has highlighted the absence of a unanimous consensus among WTO members regarding the inclusion of the IFD as a plurilateral agreement. They argue that without exclusive consensus, it should not be brought onto the formal agenda.
- Policy Autonomy: India is wary that the IFD Agreement’s requirements could constrain its autonomy in regulating investments to align with national development priorities and strategies.
- Procedural Concerns: India contends that the issue should not have been part of the MC13 agenda and instead, should be discussed at the General Council, given the divisive nature of the proposal among WTO members.
Conclusion: India’s opposition to the IFD Agreement at the WTO stems from a combination of concerns about preserving national sovereignty, adhering to established WTO boundaries regarding trade versus investment issues, and ensuring that any significant changes in the WTO framework are backed by broad-based consensus.
Mains PYQ:
Q The broader aims and objectives of WTO are to manage and promote international trade in the era of globalisation. But the Doha round of negotiations seems doomed due to differences between the developed and the developing countries.” Discuss in the Indian perspective. (UPSC IAS/2016)
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WTO and India
India pursues Lowering Cost of Cross Border Remittances at WTO
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Cost of Remittances, Remittances Inflows, WTO
Mains level: NA
What is the news-
- India is strongly pursuing its proposal for lowering the cost of cross-border remittances, which it presented at the WTO’s 13th Ministerial Conference in Abu Dhabi last month.
- It has now requested the WTO’s general council (GC) to initiate a work program to make recommendations for reducing remittance costs.
Why discuss this?
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What is Cost of Remittances?
- Remittances are financial transfers sent by migrant workers to their families or relatives in their home countries.
- The cost of remittances refers to the expenses incurred by individuals or businesses when sending money from one location to another, typically across international borders.
- The cost components of cross-border payments can include:
- Bank fees,
- Intermediary fees,
- Compliance fees,
- Operational costs, and
- FX (foreign exchange) rate margin
- Innovative technologies like DeFi payment rails are emerging to reduce the total cost of payments for cross-border transactions.
About World Trade Organization (WTO)
| Details | |
| Establishment | 1995, replacing GATT |
| Objective | To regulate international trade |
| Headquarters | Geneva, Switzerland |
| Members |
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| Objectives |
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| Principles |
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| Important Trade Agreements |
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| WTO Agreement on Agriculture (AoA) |
Subsidies Types:
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| Most Favoured Nation Clause |
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PYQ:
Q.The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and Peace Clause’ appear in the news frequently in the context of the affairs of the: (2015)
- Food and Agriculture Organization
- United Nations Framework Conference on Climate Change
- World Trade Organization
- United Nations Environment Programme
Q.Which of the following constitute Capital Account? (2013)
- Foreign Loans
- Foreign Direct Investment
- Private Remittances
- Portfolio Investment
Select the correct answer using the codes given below.
- 1, 2 and 3
- 1, 2 and 4
- 2, 3 and 4
- 1, 3 and 4
Practice MCQ:
Consider the following statements:
- India is the highest recipient of remittances globally.
- UAE is the largest source of remittances to India.
- The current cost of remittances meets the SDG target.
How many of the given statements is/are correct?
- One
- Two
- Three
- None
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WTO and India
WTO’s 13th Ministerial Conference: A Path Forward for Global Trade
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MC13, WTO
Mains level: Read the attached story
In the news
- The 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) convened in Abu Dhabi, UAE, from February 26 to March 2, drawing participation from 166 member countries.
- The conference culminated in the adoption of a ministerial declaration outlining a reform agenda to bolster the WTO’s role in regulating global trade and facilitating seamless cross-border commerce.
About World Trade Organization (WTO)
| Details | |
| Establishment | 1995, replacing GATT |
| Objective | To regulate international trade |
| Headquarters | Geneva, Switzerland |
| Members |
|
| Objectives |
|
| Principles |
|
| Important Trade Agreements |
|
| WTO Agreement on Agriculture (AoA) |
Subsidies Types:
|
| Most Favoured Nation Clause |
|
Key Decisions at MC13
- Dispute Settlement System: Member countries reaffirmed their commitment to establishing a fully functional dispute settlement system by 2024.
- Special and Differential Treatment (S&DT): Emphasis was placed on enhancing the utilization of S&DT provisions to support the development objectives of developing and least developed countries (LDCs).
Challenges to Multilateral Trading Order
- Rising Protectionism: Developed economies, amid growing domestic pressures, have exhibited a propensity towards protectionist policies, challenging the prevailing globalized trade paradigm.
- Supply Chain Disruptions: Ongoing conflicts and sanctions have disrupted global supply chains, necessitating a reassessment of trade norms to ensure resilience and efficiency.
- Development Disparities: Concerns persist regarding the equitable treatment of nations, with attention directed towards mitigating disparities between richer nations and LDCs.
India’s Approach
- Public Stockholding (PSH) Programme: India advocated for a resolution concerning the PSH program, crucial for ensuring food security. The program enables the procurement and distribution of essential food grains to millions of beneficiaries at subsidized rates.
- Fisheries Subsidies: India proposed measures to regulate fisheries subsidies, advocating for support to poor fishermen within national waters while curbing subsidies for industrial fishing in international waters.
- E-commerce Customs Duties: India pressed for the removal of the moratorium on customs duties for cross-border e-commerce, citing the need to safeguard revenue generation in the digital trade landscape.
Outcomes
- Agriculture: MC13 witnessed the formulation of a text addressing agricultural issues, marking a significant milestone after decades of negotiations.
- Fisheries: Progress towards consensus on fisheries regulations was noted, with expectations of finalization by mid-year.
- E-commerce Duties: Despite efforts, the exemption from customs duties for e-commerce transactions was extended for an additional two years, disappointing several developing economies.
Conclusion
- The outcomes of MC13 underscore the imperative for collaborative efforts to address pressing challenges in global trade.
- While strides were made in certain areas such as agriculture and fisheries, unresolved issues surrounding e-commerce and development disparities persist.
- As nations navigate the evolving trade landscape, sustained dialogue and concerted action are essential to foster inclusive and sustainable economic growth worldwide.
Try this PYQ from CSE Prelims 2015:
The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and Peace Clause’ appear in the news frequently in the context of the affairs of the:
(a) Food and Agriculture Organization
(b) United Nations Framework Conference on Climate Change
(c) World Trade Organization
(d) United Nations Environment Programme
Post your response here.
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WTO and India
How to restore WTO’s authority
Central Idea:
The ongoing crisis in the World Trade Organisation’s (WTO) dispute settlement mechanism (DSM), particularly the paralysis of the appellate body (AB) due to the US blocking the appointment of new members, poses a significant challenge to the multilateral trading regime. Developing countries like India are pushing for the restoration of the AB to its original form, but alternative options are being considered due to the US’s reluctance.
Key Highlights:
- The DSM, particularly the AB, is crucial for ensuring compliance with WTO rulings and maintaining a rules-based global trading system.
- The US has blocked the appointment of new AB members since 2019, rendering it ineffective and undermining the enforcement of WTO rulings.
- Developing countries, led by India, are advocating for the restoration of the AB to its original form to ensure fairness and predictability in dispute resolution.
- Alternative options include joining interim arrangements led by the European Union or proposing a diluted AB with limited powers, but these may compromise the effectiveness of the DSM.
- Scholars propose a compromise solution where countries can opt out of the AB’s jurisdiction, allowing its restoration while accommodating the US’s concerns.
Key Challenges:
- The deadlock caused by the US’s opposition to the AB’s functioning has led to a crisis in the DSM, undermining the WTO’s authority.
- Developing countries face the challenge of balancing their desire for a fully functioning AB with the need to accommodate the US’s concerns to maintain consensus within the WTO.
- Alternative solutions, such as interim arrangements or diluted AB proposals, may lack the necessary enforceability or compromise the integrity of the DSM.
Key Terms:
- World Trade Organisation (WTO)
- Dispute Settlement Mechanism (DSM)
- Appellate Body (AB)
- Interim Appeal Arbitration Arrangement (MPIA)
- International Court of Justice (ICJ)
Key Phrases:
- “Crisis in the dispute settlement mechanism”
- “Paralysis of the appellate body”
- “Developing countries’ advocacy”
- “Alternative options”
- “Compromise solution”
Key Quotes:
- “The WTO’s DSM — its crown jewel — comprises a binding two-tiered process with a panel and an appellate body (AB).”
- “Consequently, countries have found an easy way to avoid complying with the WTO panel rulings. They appeal into the void, thereby rendering the WTO toothless.”
- “A fully functional dispute settlement, with the checks and balances that the appellate body provides, is the best bet for the developing world.”
- “India and other developing countries should continue striving for the ideal solution: The restoration of the AB in the form it existed till 2019.”
Key Statements:
- “The ongoing crisis in the dispute settlement mechanism (DSM) poses a significant challenge to the multilateral trading regime.”
- “Developing countries are pushing for the restoration of the AB to its original form to ensure fairness and predictability in dispute resolution.”
- “Alternative options may compromise the effectiveness of the DSM and undermine the enforcement of WTO rulings.”
Way Forward:
- Advocate for Restoration: Developing countries should continue advocating for the restoration of the AB to its original form, emphasizing its importance for ensuring fairness and predictability in the global trading system.
- Explore Compromise Solutions: Consider compromise solutions, such as allowing countries to opt out of the AB’s jurisdiction, to accommodate the concerns of key stakeholders like the US while maintaining the integrity of the DSM.
- Strengthen Interim Arrangements: If necessary, explore joining interim arrangements led by entities like the European Union to provide temporary solutions while working towards a more permanent resolution within the WTO framework.
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WTO and India
At World Economic Forum, how India made a mark
Note4Students
From UPSC perspective, the following things are important :
Prelims level: UN World Investment Report:
Mains level: India's notable economic growth, showcased at Davos 2024
Central Idea:
India’s notable economic growth, showcased at Davos 2024, positions it as a global player addressing challenges such as geopolitical incidents, climate change, and technology risks. The country’s achievements in technology-driven governance, active participation in global discussions, and emphasis on socioeconomic aspects contribute to its recognition as a resilient and influential economy.
Key Highlights:
- Technology-driven Governance: India’s effective use of technology for governance solutions at scale is highlighted, especially in the context of Artificial Intelligence (AI).
- Global Participation: India actively engages in global discussions, particularly on socioeconomic issues, reflecting its role as a responsible and influential partner in the world.
- Women Empowerment: Davos discussions spotlight Indian women’s substantial contribution to the economy, managing businesses worth $37 billion annually. Advocacy for financial institution investments in women-owned businesses is emphasized.
- Energy Transition: Amidst the focus on climate change, challenges related to energy transition are discussed, with attention to the importance of non-disruptive processes and policy strategies.
- Equitable Growth: India’s growth trajectory is highlighted as equitable, encompassing infrastructure development, gender inclusivity, and addressing the needs of disadvantaged sections through social security measures.
- Global Recognition: Moody’s recognizes India as a “pocket of resilience” in the face of global economic challenges, acknowledging the country’s stability and receiving attention across economic, social, and political dimensions.
- Favorable Investment Destination: India is presented as a favored destination for global investments, with the government’s mission to achieve developed status by 2047.
Key Challenges:
- Geopolitical Incidents: India’s integration into the global economy makes it susceptible to geopolitical incidents, requiring a responsible approach to maintain trust.
- Energy Transition Challenges: Balancing import dependence on fossil fuels with the need for sustainable alternatives poses challenges in India’s energy transition.
- Inflation Risk: Sticky inflation globally poses a risk to India’s growth trajectory, requiring vigilant economic management.
Key Terms/Phrases:
- AI Leadership: India’s leadership role in adopting and leveraging AI for business solutions.
- Women’s Self-Employment: The substantial contribution of Indian women, managing businesses with credit from financial institutions.
- Green Hydrogen: Highlighting alternative energy sources, like green hydrogen, to address energy transition challenges.
Key Quotes:
- “India can appear as a ‘pocket of resilience’ amid the risk of sticky inflation affecting the growth trajectory of the global economy.” – Moody’s Investors Service
- “India’s economic prowess consistently outshone several large economies, showcasing a robust growth trajectory.”
Key Examples/References:
- UN World Investment Report: Recognizing India as a favored destination for global investments.
- Moody’s Investors Service: Acknowledges India’s resilience in the face of global economic challenges.
Key Facts/Data:
- Indian Women’s Contribution: Ninety million women are self-employed, managing businesses worth $37 billion annually.
- Government’s Mission: Prime Minister’s goal to propel India into developed status by 2047.
Critical Analysis:
- Equitable Growth: The focus on growth reaching every part of the country is critical for inclusive development.
- Global Recognition: Recognition at the global level highlights India’s role in shaping the world’s economic, social, and political landscape.
Way Forward:
- Continued Reforms: India should maintain a proactive approach to governance and reforms, especially in technology adoption and energy transition.
- Global Collaboration: Strengthening collaborations with global partners ensures a more sustainable and inclusive future.
- Inclusive Policies: Continued emphasis on gender inclusivity and social security measures contributes to a more equitable growth trajectory.
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WTO and India
Global dispute settlement, India and appellate review
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO and Appellate Review Mechanisms
Mains level: WTO's Dispute Settlement Crisis, ISDS and India's stand on Appellate Review Mechanisms
What’s the news?
- The recently concluded G-20 Declaration, among its many commitments, reiterated the need to pursue reform of the World Trade Organization (WTO).
Central idea
- Reforming international dispute settlement mechanisms is imperative for global trade and investment stability. The G-20 Declaration emphasizes WTO reform by 2024, yet uncertainties persist in the dispute resolution process, given ongoing US opposition.
WTO’s Dispute Settlement System: A Crisis Since 2019
- The WTO’s dispute settlement system, known for its two-tier panel cum appellate body structure, has been in turmoil since 2019 when the United States blocked the appointment of appellate body members.
- Despite being hailed as the crown jewel of the WTO, this system is currently hamstrung, jeopardizing its ability to issue coherent and predictable rulings.
- The G-20’s commitment to improving this system is commendable, but uncertainties persist, especially due to the U.S.’s reluctance towards an appellate review process.
What is Investor-State Dispute Settlement (ISDS)?
- ISDS is a mechanism used to resolve disputes between foreign investors and host countries’ governments in the context of international investment agreements.
- It is a ubiquitous component of bilateral investment treaties (BITs).
- The ISDS today is the principal means to settle international investment law disputes.
- As of January 1, 2023, 1,257 ISDS cases have been initiated. India has had a chequered history with ISDS, with five adverse awards: four in favor and several pending claims.
The Role of Appellate Review in International Trade Law
- An appellate review process is essential at the international level, just as it is in national courts. It acts as a crucial check on the interpretation and application of the law, ensuring consistency.
- The absence of such a mechanism can lead to inconsistencies and incoherent decisions, as seen in international investment law through ISDS.
UNCITRAL’s Working Group III
- Discussions are ongoing at the United Nations Commission on International Trade Law (UNCITRAL) regarding ISDS reforms and the creation of an appellate review mechanism.
- Key issues include the form of the mechanism, review standards, timeframes, and decision effects. These discussions hold the promise of addressing the current deficiencies in ISDS.
Benefits of an appellate review mechanism
- Error Correction: Appellate review corrects legal mistakes in WTO and ISDS decisions, ensuring the accurate application of rules.
- Consistency and Confidence: It maintains a uniform interpretation of trade and investment laws, promoting stability and predictability. A functional appellate body boosts trust in the WTO, encouraging nations to resolve trade disputes peacefully.
- Harmonization and Stability: ISDS appellate review aligns diverse treaty interpretations, reducing legal disparities. It also fosters investor-state predictability, attracts investments, and promotes economic growth.
- Reducing Uncertainty: Appellate review clarifies investment treaty rights and obligations, reducing ambiguity.
- Credibility: Its presence enhances ISDS credibility, making it more appealing for states and investors.
- Rule-Based Order: Supporting appellate review aligns with India’s aim for a rule-based global system, fostering international cooperation.
India’s Position on Appellate Review Mechanisms
- Support for Appellate Review in ISDS:
- Although India has not officially articulated its stance, there is a presumption that India is supportive of the idea of an appellate review mechanism in ISDS.
- This presumption is based on the presence of Article 29 in India’s model Bilateral Investment Treaty (BIT), which appears to endorse the concept of appellate review.
- Alignment with India’s interests:
- India is concerned about the inconsistency and incoherence that currently characterize the ISDS system.
- Supporting an appellate review mechanism is seen as a means to address these concerns and promote greater stability and predictability in international investment law.
- Relevance to Ongoing Negotiations:
- India will likely need to take a formal position on this issue during ongoing investment treaty negotiations with the European Union (EU).
- The EU is advocating for the establishment of an appellate review mechanism for investment disputes, and India’s stance will be crucial in shaping the outcome of these negotiations.
- Quest for a Rule-Based Global Order:
- India’s broader objective is to establish a rule-based global order in international trade and investment. Supporting an appellate review mechanism, both in ISDS and within the World Trade Organization (WTO), is seen as a way to achieve this goal.
- Moreover, India should also advocate for the restoration of the WTO appellate body to ensure a fully functioning dispute settlement system at the WTO.
Conclusion
- The G-20’s commitment to revitalizing the WTO’s dispute settlement system and the ongoing discussions on establishing an appellate review mechanism in ISDS are steps in the right direction. India, as a proponent of a rule-based global order, should actively support these reforms to ensure greater confidence among states and investors in international trade and investment law.
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WTO and India
WTO Reforms: Empowering Developing Countries to Uphold Trade Multilateralism
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO and related facts
Mains level: Transparency gaps and challenges withing WTO, Need for reforms and way ahead
Central Idea
- The recently concluded G20 working group meeting on trade and investment placed significant emphasis on the imperative task of reforming the World Trade Organization (WTO). While this issue has long been on the global agenda, it is crucial to consider the broader global context.
What is Special and Differential Treatment (SDT) Principle Enshrined in WTO Agreements?
- SDT principle is a fundamental aspect of the WTO agreements.
- It recognizes the differences in development levels among member countries and aims to provide special rights and treatment to developing countries.
- The principle acknowledges that developing nations face unique challenges and constraints in participating effectively in the global trading system.
Key Elements of SDT
- Longer Transition Periods: Developing countries are granted extended timeframes to implement certain obligations and adjust their domestic policies to comply with WTO rules. This allows them to accommodate their unique circumstances and developmental needs.
- Differential Tariff Reductions: Developing countries may be granted more lenient tariff reduction commitments compared to developed countries. They have the flexibility to reduce tariffs on a selective basis and protect certain sensitive sectors.
- Special Safeguard Measures: Developing countries can employ special safeguard mechanisms to protect domestic industries from import surges or market disruptions caused by increased competition. These measures allow temporary deviations from WTO commitments to mitigate adverse effects on vulnerable sectors.
- Technical Assistance and Capacity Building: Developed countries and international organizations provide technical assistance and capacity-building support to help developing nations enhance their trade-related infrastructure, institutions, and human resources. This assistance aims to strengthen their ability to effectively participate in global trade.
- Preferential Treatment in Regional and Bilateral Agreements: Developing countries are often offered preferential trade agreements or schemes by developed countries, granting them favorable market access and trade preferences. These agreements help stimulate export growth and promote economic development.
- Flexibility in Intellectual Property Rights (IPR): Developing countries may have more relaxed obligations related to intellectual property rights, allowing them to adopt measures that protect public health, promote access to affordable medicines, and support domestic innovation.
- Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) Measures: Developing countries may receive technical assistance to comply with TBT and SPS measures, which include regulations related to product standards, labeling, and food safety. This support facilitates their participation in global trade by addressing capacity constraints.
- Special and Differential Treatment Monitoring: The WTO has established mechanisms to monitor and review the implementation of SDT provisions. This ensures that developing countries’ concerns are addressed and that they receive the support they are entitled to under the SDT principle
The Appellate Body Crisis Within the WTO
- Blocking Appointments: The United States has blocked the appointment of new members to the Appellate Body since 2017, preventing it from functioning effectively. This has led to a significant reduction in the number of active members, impeding the body’s ability to hear and resolve trade disputes.
- Depletion of Membership: Due to the lack of appointments, the Appellate Body’s membership has dropped below the minimum required number to constitute a quorum. As a result, pending and future appeals have been left unresolved, leading to a growing backlog of cases.
- Paralysis of Dispute Settlement: The inability of the Appellate Body to hear and decide on trade disputes has resulted in a paralysis of the WTO’s dispute settlement system. Member countries have limited options for resolving disputes, potentially leading to increased trade tensions and the risk of unilateral actions without proper adjudication.
- Concerns Raised by the United States: The US has expressed concerns about the Appellate Body’s perceived overreach, its interpretation of WTO rules, and what it sees as judicial activism. It has called for reforms to address these issues before approving new appointments.
- Implications for the Multilateral Trading System: The absence of a functioning Appellate Body undermines the credibility and effectiveness of the WTO’s dispute settlement system. It raises concerns about the stability of the multilateral trading system and the enforceability of WTO rules.
- Discussions on Reform: WTO members have engaged in discussions to address the concerns raised by the US and find a way to restore the functionality of the Appellate Body. Various proposals and ideas have been put forward to reform the body while ensuring transparency, accountability, and adherence to WTO rules.
- Alternative Dispute Settlement Mechanisms: In light of the Appellate Body crisis, some countries have explored alternative mechanisms for resolving trade disputes. Bilateral or plurilateral agreements and arbitration panels are being considered as possible alternatives to the WTO’s traditional dispute settlement process.
What is Plurilateralism and Multilateral Governance?
- Plurilateralism refers to the approach of negotiating agreements among a subset of countries within the broader framework of multilateralism. In other words, it involves a group of countries voluntarily coming together to establish rules and commitments on specific issues, even if not all WTO members participate.
- Multilateral governance, on the other hand, refers to the process of managing and governing global issues through the participation and collaboration of multiple countries within a multilateral framework. It aims to ensure inclusive decision-making, transparency, and adherence to established rules and principles.
The Relationship Between Plurilateralism and Multilateral Governance
- Plurilateralism as a Complement to Multilateralism: Plurilateral agreements are often seen as a complement to multilateralism. They allow a subset of countries with a common interest or objective to move forward and establish rules or commitments that might be difficult to achieve at the multilateral level due to diverse positions and interests of all WTO members. Plurilateral agreements can serve as building blocks and help facilitate progress within the multilateral trading system.
- Multilateral Governance of Plurilateral Agreements: While plurilateral agreements involve a smaller group of countries, it is important to ensure that they are governed within a multilateral framework. Multilateral governance ensures that the principles of non-discrimination, transparency, and inclusivity are upheld in the negotiation and implementation of plurilateral agreements. It ensures that the outcomes of these agreements are integrated into the broader WTO rulebook and apply equally to all members.
- Inclusivity and Trust in Multilateral Governance: Multilateral governance plays a crucial role in addressing the trust deficit between developed and developing countries. In the context of plurilateral agreements, it is essential to ensure that non-participating members are not forced into agreements they are unwilling to join. Multilateral governance should uphold inclusivity, respect the rights of non-participants, and create mechanisms to bridge the trust gap between countries with varying levels of development and interests.
- Coherence and Consistency with Multilateral Rules: Plurilateral agreements must align with the existing multilateral rules and principles of the WTO. They should not undermine the core principles of non-discrimination, most-favored-nation treatment, and transparency that underpin the multilateral trading system. Multilateral governance ensures that plurilateral agreements are coherent with and contribute to the overall objectives of the WTO.
Facts for prelims
What is the WTO’s Ministerial Conference?
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The transparency gap within the WTO
- Notification Requirements: WTO member countries are obligated to notify all their laws, regulations, and measures that affect trade to ensure transparency. However, compliance with this obligation has been lacking, leading to a transparency gap. Many countries fail to provide timely and comprehensive notifications, hindering the ability of other members to stay informed about trade-related measures and potential impacts.
- Incomplete or Inaccurate Notifications: Even when notifications are provided, they may be incomplete or inaccurate, further widening the transparency gap. This lack of comprehensive information makes it challenging for other members to assess the potential trade implications of new measures or to effectively engage in consultations and negotiations.
- Lack of Timeliness: Delays in providing notifications contribute to the transparency gap. However, significant delays in notifications limit the ability of other members to respond promptly or seek clarification, undermining the transparency and predictability of the WTO system.
- Lack of Clarity and Understandability: Notifications can sometimes lack clarity, making it difficult for other members to fully comprehend the scope and implications of trade-related measures. Clear and understandable notifications are essential for promoting transparency and facilitating effective engagement among WTO members.
- Compliance Monitoring and Enforcement: The monitoring and enforcement of notification requirements remain weak within the WTO system. The lack of robust mechanisms to ensure compliance with notification obligations hampers efforts to address the transparency gap.
- Capacity Constraints: Some developing countries face capacity constraints in fulfilling their notification obligations effectively. Limited resources and technical expertise may hinder their ability to provide comprehensive and timely notifications.
- Accessibility of Notifications: The accessibility and availability of notifications can also contribute to the transparency gap. Ensuring that notifications are easily accessible to all members, including developing countries, through user-friendly platforms and language accessibility measures can help improve transparency within the WTO.
Way Forward
- Strong Leadership and Engagement: Member countries, particularly middle powers like India, Indonesia, Brazil, and South Africa, should take a leadership role in driving the WTO reform agenda. They can actively engage in discussions, negotiations, and consensus-building to push for meaningful reforms that reflect the interests and concerns of developing countries.
- Strengthening Special and Differential Treatment (SDT): Developing countries should advocate for stronger SDT provisions within the WTO. Developing countries should resist any attempts to weaken SDT provisions under the guise of reform and emphasize the importance of addressing asymmetries in the global trading system.
- Revitalizing the Appellate Body: Member countries, apart from the United States, should explore ways to either persuade the US to change its position or find alternative mechanisms to ensure the effective functioning of the Appellate Body. Reestablishing a fully operational Appellate Body is crucial for maintaining a robust and reliable dispute settlement mechanism within the WTO.
- Balancing Plurilateral and Multilateral Approaches: While plurilateral agreements can offer opportunities for progress on specific issues, it is important to strike a balance with multilateralism. Plurilateral negotiations should be conducted within a framework that upholds multilateral governance principles, ensuring inclusivity, transparency, and consistency with broader WTO rules. Forced participation should be avoided, and efforts should be made to bridge the trust deficit between developed and developing countries.
- Transparency and Compliance: Member countries should prioritize enhancing transparency and compliance with notification requirements. Timely, accurate, and comprehensive notifications of trade-related measures are essential for promoting predictability and understanding among WTO members.
- Inclusive Decision-Making: Decision-making processes within the WTO should be more inclusive, giving developing countries a meaningful voice and ensuring their concerns are taken into account.
- Technical Assistance and Capacity Building: Developed countries should provide technical assistance and capacity-building support to help developing countries strengthen their institutional and human resources to effectively participate in the global trading system.
- Renewed Commitment to Multilateralism: Member countries should reaffirm their commitment to the principles of multilateralism, including non-discrimination, transparency, and cooperation. Emphasizing the importance of the rules-based multilateral trading system and collective problem-solving can help rebuild trust and foster a conducive environment for constructive engagement and negotiations.
Conclusion
- Trade multilateralism, though facing challenges, remains crucial for countries like India. As the current G20 Presidency holder, India should collaborate with other nations to drive the agenda for WTO reforms, focusing on making trade multilateralism more inclusive. By strengthening SDT provisions, revitalizing the appellate body, promoting multilateral governance for plurilateral agreements, and enhancing transparency, developing countries can empower themselves to safeguard their interests and ensure a fair and balanced global trading system.
Also read:
| WTO panel rules against India in IT tariffs dispute |
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WTO and India
Duty-Free Quota Free (DFQF) Scheme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Duty-Free Quota Free (DFQF) Scheme
Mains level: WTO
Central Idea
- India offers a duty-free quota-free (DFQF) scheme to least developed countries (LDCs) under the World Trade Organisation (WTO).
- A report by the LDC Group reveals that about 85% of the products offered by India remain unutilised under the DFQF scheme.
World Trade Organisation (WTO) |
|
| Establishment | The WTO was established on January 1, 1995, following the Uruguay Round of Negotiations conducted from 1986 to 1994. |
| Nature | The WTO is the only global international organization dedicated to regulating trade rules between nations. |
| Successor to GATT | It is the successor to the General Agreement on Tariffs and Trade (GATT), which was in place from 1948 to 1994. |
| Objectives | To facilitate the smooth, predictable, and unrestricted flow of international trade. |
| Working Principles | Based on the principles of MFN and national treatment, ensuring equal and non-discriminatory treatment. |
| Member-Driven Organization | Governed by its member governments, and decisions are made through consensus among these members. |
| Special and Differential Treatment for Developing Countries | The WTO provides specific flexibilities and rights to least developed countries (LDCs) and developing nations. |
DFQF Scheme
- The DFQF access for LDCs was initially decided at the WTO Hong Kong Ministerial Meeting in 2005.
- India became the first developing country to extend this facility to LDCs in 2008, providing preferential market access on 85% of its total tariff lines.
- The scheme was expanded in 2014, offering preferential market access on about 98.2% of India’s tariff lines to LDCs.
Issues highlighted by WTO
(1) Tariff Line Utilisation Data
- WTO data from 2020 indicates that 85% of the tariff lines offered by India under the DFQF scheme show zero utilisation rate.
- China’s utilisation rate for similar tariff lines is 64%, with only 8% of the lines showing a utilisation rate above 95%.
- Utilisation rates for beneficiary LDCs vary significantly, with Guinea and Bangladesh having low rates (8% and 0% respectively), while Benin reports the highest utilisation rate of 98%.
(2) Non-Preferential Tariff Route
- Similar to China, significant amounts of LDC exports enter India under the non-preferential (most favoured nation) tariff route, despite being covered by the Indian preference scheme.
- The report highlights the importance of preference margins, indicating potential duty savings.
- For example, fixed vegetable oil exported from Bangladesh to India has a preference margin of 77.5 percentage points, implying a potential $74 million duty savings if the preference scheme were utilized.
Challenges and Barriers
- The report suggests that the low utilisation of the preference scheme by LDCs is not due to exporter awareness but rather existing barriers that hinder the effective use of preferences.
- The specific barriers preventing LDCs from fully utilizing the scheme are not mentioned in the article.
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WTO and India
Carbon Border Adjustment Mechanism (CBAM): Balancing Trade and Environment
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ETS, CBAM and FTA's
Mains level: Carbon Border Adjustment Mechanism and associated concerns
Central Idea
- The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) has raised concerns in India due to its potential impact on the country’s carbon-intensive exports to the EU. While India has criticized CBAM as protectionist and discriminatory, the debate highlights the delicate relationship between trade and environmental considerations.
Understanding The Carbon Border Adjustment Mechanism (CBAM)
- CBAM is a key climate law introduced by the European Union (EU). It is designed to address the issue of carbon leakage and create a level playing field for EU industries by imposing carbon-related costs on certain imported products.
- In 2005, the EU implemented the Emissions Trading System (ETS), a market-based mechanism aimed at reducing greenhouse gas (GHG) emissions.
- Under the ETS, industries within the EU are allocated allowances for their GHG emissions, which can be traded among themselves.
- However, the EU is concerned that imported products may not account for embedded emissions due to less stringent environmental policies in exporting countries.
- This disparity could put EU industries at a competitive disadvantage and potentially lead to carbon leakage, where European firms relocate to countries with less strict emission norms.
- To address these concerns, the CBAM imposes carbon-related costs on imports of specific carbon-intensive products. The products currently included are cement, iron and steel, electricity, fertilizers, aluminium, and hydrogen.
- The CBAM requires importers to pay a price linked to the average emissions cost under the EU’s ETS. If the imported products have already paid an explicit carbon price in their country of origin, a reduction can be claimed.
Advantages of CBAM in addressing climate-related challenges
- Addressing Carbon Leakage: CBAM helps address the issue of carbon leakage, which occurs when domestic industries relocate to countries with less stringent climate policies, leading to increased global emissions. By imposing carbon-related costs on imported products, CBAM aims to discourage carbon-intensive industries from shifting production to countries with lower environmental standards, thereby reducing carbon leakage.
- Encouraging Global Climate Action: CBAM incentivizes countries with carbon-intensive industries to adopt more stringent climate policies. The mechanism sends a signal that products exported to the EU market should meet similar environmental standards as EU-produced goods. This encourages exporting countries to reduce their greenhouse gas emissions and transition to cleaner production processes, contributing to global climate action.
- Levelling the Playing Field: CBAM aims to create a level playing field for EU industries by ensuring that imported goods face similar carbon costs as domestic products. This helps prevent unfair competition, as it aligns the cost of carbon across different markets. It incentivizes domestic industries to invest in cleaner technologies and processes, knowing that imported goods will also be subject to equivalent carbon-related costs.
- Revenue Generation for Climate Initiatives: CBAM has the potential to generate revenue for the EU, which can be used to fund climate initiatives and support the transition to a low-carbon economy. The funds collected through CBAM can be reinvested in research and development, renewable energy projects, or supporting industries in their decarbonization efforts.
- Aligning Trade and Climate Objectives: CBAM highlights the interlinkage between trade and environmental concerns. It creates an opportunity to align trade policies with climate objectives, fostering greater coherence between economic growth and sustainability. CBAM encourages countries to consider the carbon intensity of their exports and provides an impetus for the adoption of climate-friendly practices in international trade.
Key issues associated with CBAM
- Trade Protectionism: CBAM has been accused of being protectionist in nature. Critics argue that it could create barriers to trade and hinder the export capabilities of countries, particularly those with carbon-intensive industries. By imposing carbon-related costs on imports, CBAM may give an advantage to domestic industries and discriminate against foreign competitors.
- Discrimination and Non-Discrimination Principles: CBAM may face challenges in adhering to the principles of non-discrimination within the WTO. While it is designed to be origin-neutral, in practice, it could potentially discriminate between goods from different countries based on varying carbon pricing policies or reporting requirements. This could lead to disputes and challenges under WTO rules.
- Complexity and Implementation Challenges: CBAM implementation involves complex calculations and mechanisms to determine the carbon-related costs of imported products. Setting up effective monitoring, reporting, and verification systems to ensure compliance could be challenging, both for the EU and exporting countries. The administrative burden and costs associated with implementing CBAM may also pose practical difficulties.
- Potential for Double Regulation: Some argue that CBAM may lead to overlapping regulations and duplicate efforts. Exporting countries may already have their own carbon pricing mechanisms or environmental regulations in place. CBAM’s imposition of additional costs on top of these existing measures could be seen as redundant and burdensome.
- Impact on Developing Countries: Developing countries, which often have carbon-intensive industries, may face disproportionate negative effects from CBAM. These countries might struggle to comply with the stringent requirements and costs associated with CBAM, hindering their economic development and ability to compete in global markets.
- Incomplete Accounting of Emissions: CBAM focuses on explicit carbon prices, which may not fully account for the implicit costs associated with products from different countries. This incomplete accounting could result in arbitrary or unjustifiable discrimination and may not effectively incentivize countries to adopt more stringent environmental policies.
WTO Consistency and CBAM potential discrimination
- WTO’s non-discrimination principle: The World Trade Organization (WTO) operates on the principle of non-discrimination, treating ‘like’ products from different countries equally.
- Origin-neutral CBAM: While CBAM appears origin-neutral in design, its application could potentially discriminate between goods based on inadequate carbon pricing policies or burdensome reporting requirements for importers. Whether the products affected by CBAM are truly ‘like’ is a key consideration.
- For instance: While steel products may seem similar, different production methods lead to varying carbon intensity. This raises the question of whether processes and production methods should be relevant for comparing products. Critics argue that CBAM violates WTO law by discriminating based on embedded emissions
General Exceptions under WTO and potential application for CBAM
- Exceptions allow countries to deviate from trade rules: The General Exceptions, outlined in Article XX of the General Agreement on Tariffs and Trade (GATT), provide a set of policy grounds under which WTO members can justify trade measures that would otherwise violate their WTO obligations. These exceptions allow countries to deviate from certain trade rules for specified policy reasons.
- Justification for exception: Article XX of the GATT lists various policy justifications, including public health, conservation of natural resources, and protection of the environment. The use of these exceptions is subject to meeting specific requirements, known as the chapeau. The chapeau sets out conditions that must be satisfied to justify a trade measure.
- In the context of the CBAM: A WTO member implementing CBAM measures might seek to invoke the General Exceptions in Article XX of the GATT to justify any potential inconsistency with non-discrimination obligations.
- For example: A country might argue that CBAM measures are necessary for the conservation of exhaustible natural resources or the protection of the environment, thereby justifying any deviation from non-discrimination principles.
What are the concerns raised in India?
- Impact on Export of Carbon-Intensive Products: India fears that CBAM implementation could severely affect its export of carbon-intensive products, particularly in sectors like aluminium, iron, and steel. These sectors may face significant challenges in accessing the EU market if they are subjected to additional economic costs due to CBAM.
- Protectionism and Discrimination: India has criticized CBAM as being protectionist and discriminatory. It argues that the mechanism may create trade barriers and hinder the export competitiveness of Indian industries. India fears that CBAM could give an unfair advantage to EU domestic industries at the expense of Indian exporters.
- Potential Economic Disruption: The implementation of CBAM may disrupt India’s trade flows and economic stability. The imposition of additional costs on carbon-intensive products exported to the EU market could lead to reduced demand, loss of market share, and potential negative impacts on employment and economic growth in India.
- World Trade Organization (WTO) Challenge: India has contemplated the possibility of challenging CBAM at the WTO’s dispute settlement body. It raises concerns about the compatibility of CBAM with WTO rules, particularly regarding non-discrimination and trade-related principles
- Interplay between Trade and the Environment: The concerns raised by India highlight the broader issue of the interplay between trade and environmental considerations. While acknowledging the need for environmental protection, India emphasizes the importance of ensuring that environmental measures do not become a smokescreen for trade protectionism.
Facts for prelims
What is Regional Trade Agreement (RTA)?
What is Free Trade Agreement (FTA)?
|
Conclusion
- The implementation of the EU’s CBAM has sparked concerns in India, primarily due to its potential impact on carbon-intensive exports. Analyzing its WTO consistency and potential justifications under the General Exceptions clause is crucial. In the ongoing India-EU free trade agreement negotiations, India should actively engage with the EU to safeguard its interests regarding CBAM while remaining open to the possibility of a WTO challenge.
Also read:
| India-EU Free Trade Agreement |
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WTO and India
WTO reforms a top priority: India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: Reforms in multilateral institutions
Central Idea
- India has stressed the urgent need for prioritizing reforms within the World Trade Organisation (WTO).
- India has been advocating for WTO reforms and improved dispute settlement mechanisms during G20 discussions.
About WTO
| Functions and Principles | |
| Establishment | 1 January 1995 |
| Functions |
|
| Fundamental principles |
|
| Membership | 164 member countries representing over 98% of global trade |
| Decision-making |
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Prioritizing WTO Reforms
- India’s Push for Reforms: India has been actively advocating for reforms within the World Trade Organisation.
- Better Dispute Settlement Mechanisms: Alongside reforms, India is pushing for improved dispute settlement mechanisms within the WTO.
- Reaffirming Foundational Principles: The discussions aim to reaffirm the principles enshrined in the Marrakesh Agreement and the multilateral trade agreements, emphasizing the importance of an open, fair, inclusive, and transparent WTO.
Reforms that India is seeking
- Structural Reforms: There is an urgent need for reforms within the WTO to address issues such as transparency, shorter time frames, the establishment of a permanent panel body, and special and differential treatment for developing countries.
- Benefit for Developing Countries: Developing countries, including India, can benefit from these reforms if proposals specific to their needs are accepted.
- Trade Facilitation for Services: While the WTO has made progress with the Trade Facilitation Agreement (TFA) concerning goods, there is a need for reforms in trade facilitation for services. India, as a major service provider, stands to benefit from improved cross-border movement of people.
- Inclusivity: It is crucial to establish procedures and practices that are more inclusive, particularly for developing countries.
- Peace Clauses: Adoption of “peace clauses” for developing countries’ implementation of current agreements can formalize commitments by major trading powers to allow grace periods and exercise due restraint.
- Evolving Negotiation Modes: The single package approach used in the Uruguay Round is not effective in the Doha Round, necessitating the exploration of new negotiation modes.
- Strengthened Dispute Settlement Mechanism: The dispute settlement mechanism within the WTO requires strengthening and expediting to enhance its effectiveness.
- Separation of Political and Human Rights Issues: There is a need to separate political and human rights issues from trade disputes under Sanitary and Phytosanitary (SPS) norms.
Crossroads for WTO
- Stalled Multilateral Trade Negotiations: The multilateral trade negotiations, including the Doha Round, have reached an impasse, with limited progress in overall rule-making.
- Challenges from Alternative Trade Pacts: Alternative trade pacts, such as mega-regional arrangements, have emerged and posed challenges to the position of trade multilateralism.
- Disagreements on Market Access and Protection: The impasse in the Doha Round primarily stems from differences between highly industrialized countries and large developing countries regarding market access and protection of vulnerable economic sectors.
Importance of Addressing WTO Reforms
- Vital Role of WTO: The Minister emphasized that addressing WTO reforms is of utmost importance as the organization plays a crucial role in ensuring fairness and transparency in global trade.
- Backbone of Multilateral Trading System: The WTO forms the backbone of the multilateral trading system and its reforms are necessary to strengthen its functioning.
India’s Aspirations in International Trade
- Global Leadership Ambition: India has expressed India’s aspiration to emerge as a global leader in the international trade landscape.
- E-commerce Market Potential: India is poised to become the world’s second-largest e-commerce market, reflecting its transformation driven by open markets, global integration, and a strong entrepreneurial spirit.
Way Forward
- The urgent need for WTO reforms necessitates concerted efforts and global attention to ensure the fairness, transparency, and effectiveness of the multilateral trading system.
- India’s active participation in advocating for reforms, along with its ambition to become a global leader in international trade, reflects its commitment to fostering a thriving and inclusive global trade environment.
- It is essential for countries to collaborate and engage in constructive dialogue to address the challenges and opportunities in the evolving global trade landscape.
Back2Basics: WTO Agreements and Accords
- General Agreement on Tariffs and Trade (GATT): The GATT is the predecessor to the WTO and was in effect from 1948 to 1994. It aimed to reduce trade barriers and promote international trade through negotiations and tariff concessions.
- Agreement on Agriculture (AoA): This agreement aims to establish fair and market-oriented agricultural trading systems. It addresses issues such as market access, domestic support, and export subsidies related to agricultural products.
- Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS): The TRIPS agreement sets minimum standards for protecting intellectual property rights, including patents, copyrights, trademarks, and trade secrets.
- Agreement on Trade-Related Investment Measures (TRIMs): This agreement prohibits certain investment measures that restrict trade or are inconsistent with the GATT’s principles.
- Agreement on Sanitary and Phytosanitary Measures (SPS): The SPS agreement sets out rules for food safety and animal and plant health standards to ensure that countries do not use sanitary and phytosanitary measures as unjustified trade barriers.
- Agreement on Technical Barriers to Trade (TBT): The TBT agreement aims to ensure that technical regulations, standards, and conformity assessment procedures do not create unnecessary obstacles to trade.
- Agreement on Subsidies and Countervailing Measures (SCM): The SCM agreement regulates the use of subsidies and provides a framework for countervailing measures to address unfair trade practices arising from the use of subsidies.
- Trade Facilitation Agreement (TFA): The TFA aims to simplify and streamline customs procedures, enhance transparency, and improve efficiency in international trade, with a focus on reducing trade costs and facilitating cross-border trade.
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WTO and India
WTO panel rules against India in IT tariffs dispute
Note4Students
From UPSC perspective, the following things are important :
Prelims level: World Trade Organization (WTO)
Mains level: Read the attached story
A World Trade Organization (WTO) panel has ruled that India has violated global trading rules in a dispute with the European Union (EU), Japan, and Taiwan over import duties on IT products.
About World Trade Organization (WTO)
| Details | |
| Purpose | Regulate and facilitate international trade between nations |
| Establishment | 1995 |
| Headquarters | Geneva, Switzerland |
| Membership | 164 member countries as of 2023, representing over 98% of global trade |
| Goal | Promote free and fair trade by negotiating and enforcing rules and agreements governing international trade |
| Agreements | Administers a number of agreements, including GATT, SPS Agreement, and TRIPS Agreement |
| Dispute Resolution | Operates a dispute settlement system to resolve conflicts between member countries |
| Technical Assistance | Provides technical assistance and training to help developing countries participate more effectively in international trade |
| Decision-Making Body | Ministerial Conference, which meets every two years |
| Director-General | Chief executive responsible for overseeing the organization’s operations and activities |
| Criticisms | Some criticize the WTO for being undemocratic, favoring developed countries, and not doing enough to promote labor and environmental standards in international trade |
What was the case?
- The case involved a dispute over India’s introduction of import duties ranging from 7.5% to 20% on a wide range of IT products, including mobile phones, components, and integrated circuits.
- The EU, Japan, and Taiwan challenged these import duties in 2019, arguing that they exceeded the maximum rate allowed under global trading rules.
- The recent ruling by the WTO panel found that India had violated these rules and recommended that India bring its measures into conformity with its obligations.
WTO Panel’s Ruling
- The WTO panel has ruled that India violated global trading rules by imposing these import duties.
- The panel recommended that India bring these measures into conformity with its obligations.
- While the panel broadly backed the complaints against India, it rejected one of Japan’s claims that India’s customs notification lacked “predictability”.
Implications of the ruling
- The EU is India’s third-largest trading partner, accounting for 10.8% of total Indian trade in 2021, according to the European Commission.
- The ruling could have implications for trade relations between India and the EU, as well as Japan and Taiwan.
- India may be required to lower or eliminate the challenged import duties.
- It remains to be seen whether India will appeal against the ruling.
- If it does, the case will sit in legal purgatory since the WTO’s top appeals bench is no longer functioning due to US opposition to judge appointments.
Conclusion
- The panel recommended that India bring such measures into conformity with its obligations, and it remains to be seen whether India will appeal against the ruling.
- The case highlights the importance of complying with global trading rules and the role of the WTO in resolving trade disputes between countries.
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WTO and India
India’s WTO Challenge on MSP Programs for Food Grain
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO subsdies, Bali Peace Clause
Mains level: India-WTO row over agricultural subsidies
Central idea: India has been criticized at the World Trade Organization (WTO) for not adequately addressing questions raised by members regarding its Minimum Support Price (MSP) programs for food grain, particularly rice.
Minimum Support Price (MSP)
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Genesis of the row
- WTO members such as the US, Australia, Canada, the EU, and Thailand have alleged that India did not provide sufficient responses during consultations.
- The MSP programs have breached prescribed subsidy limits and are under scrutiny at the WTO argued these countries.
- With this, India became the first country to invoke the Bali ‘peace clause’ to justify exceeding its 10% ceiling for rice support in 2018-2019 and 2019-2020.
What is ‘Bali Peace Clause’?
- India’s minimum support price (MSP) falls under the amber box subsidies category.
- India has exceeded its limits for amber box subsidies for rice for two consecutive years, which is why it has been challenged at the WTO.
- The Bali ‘peace clause’ allows developing countries to exceed their 10% ceiling without facing legal action by other members.
- However, it is subject to numerous conditions, such as not distorting global trade and not affecting food security of other members.
- India’s MSP programs are subject to the ‘peace clause’, but some WTO members have accused India of habitually not including all required information in its notifications.
Allegations of Inadequate Reporting by India
- WTO members have been accusing India of not reporting all public stockholding programs under the ‘peace clause’.
- Some members have pointed out that India also lacks an adequate monitoring mechanism to ensure that no stocks are exported.
- India, on the other hand, argues that it is not obligated to notify any public stockholding programs other than for the crop where the subsidy limits were breached.
Impact on India’s MSP Programs
- The criticism from WTO members could have an impact on India’s MSP programs for food grain, particularly rice.
- The conditions set under the ‘peace clause’ could limit India’s ability to exceed the subsidy limits and support its farmers.
- India may have to provide more detailed notifications and monitoring mechanisms to address the concerns of other members and ensure compliance with WTO regulations.
Why is India defending its stance on MSPs?
- India faces several challenges in the agricultural sector, including climate change, soil degradation, and water scarcity.
- The country also has to deal with farmers’ distress due to low prices for their produce, which is why the MSP program was introduced in the first place.
- The challenge posed by the WTO to the MSP program could further exacerbate the problems faced by Indian farmers.
Back2Basics: WTO and its Subsidies Boxes
The World Trade Organization (WTO) is an intergovernmental organization that is responsible for regulating international trade between nations.
- Establishment: It was established on January 1, 1995, and currently has 164 member countries.
- Objective: To ensure that trade flows as smoothly, predictably, and freely as possible.
- Frameworks: Negotiating and formalizing trade agreements, resolving trade disputes between member countries, and monitoring national trade policies.
- Working principles: Non-discrimination, transparency, and fairness in international trade.
The WTO has three types of subsidy boxes – green, blue, and amber. Each box represents a different level of trade-distorting subsidies.
- Green box subsidies: These subsidies are considered non-trade-distorting and are allowed under WTO rules. They include measures such as research, disease control, and infrastructure development.
- Blue box subsidies: These subsidies are considered less trade-distorting than amber box subsidies but can still distort trade to some extent. They include measures such as direct payments to farmers to reduce production, provided that certain conditions are met, such as the use of fixed areas or yields.
- Amber box subsidies: These subsidies are considered the most trade-distorting and are subject to reduction commitments under the WTO Agreement on Agriculture. They include measures such as price support, input subsidies, and direct payments that are not subject to certain conditions.
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WTO and India
Bhutan no longer a ‘Least Developed Country’
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Least Development Countries
Mains level: NA
Central idea: Bhutan will become the seventh country to graduate from the United Nations’ list of Least Developed Countries (LDC) on December 13, 2023.
What is a Least Developed Country (LDC)?
- The LDCs are developing countries listed by the UN that exhibit the lowest indicators of socioeconomic development.
- The concept first originated in the late 1960s and was codified under UN resolution 2768 passed in November 1971.
- According to the UN, an LDC is defined as “a country that exhibits the lowest indicators of socioeconomic development, with-
- Low levels of income, human capital and economic diversification,
- High levels of economic vulnerability, and
- A population that is disproportionately reliant on agriculture, natural resources, and primary commodities.
Criteria for LDCs
- The UN identifies three criteria for a country to be classified as an LDC:
- It must have a gross national income (GNI) per capita below the threshold of USD 1,230 over a three-year average.
- It must perform poorly on a composite human assets index based on indicators including nutrition, health and education.
- It must demonstrate economic vulnerability such as being prone to natural disasters and possessing structural economic constraints.
- Countries must meet a selection from all three criteria simultaneously and are reviewed on a three-year basis by the UN.
How many countries are LDCs?
- Currently, the UN lists 46 countries that qualify as LDCs.
- Of those, 33 are from Africa, nine from Asia, three from the Pacific and one from the Caribbean.
- At the UN 2021 triennial review of LDC countries, the organisation recommended that Bangladesh, Laos, and Nepal be removed from the list.
How does a country get off the LDC list?
- To graduate from the LDC list, a country must meet certain criteria in the three areas stated before namely, income, human assets, and economic vulnerability.
- A nation must have a GNI per capita of at least USD 1,242 for two consecutive triennial reviews in order to meet the income requirement.
- The nation must also show that this level of income can be sustained over the long term.
- A nation also must show that it has improved its ability to withstand external economic shocks like natural catastrophes or shifts in commodity prices in order to pass the economic vulnerability test.
How did Bhutan get off the LDC list?
- Bhutan was included in the first group of LDCs in 1971. It fulfilled the requirements for graduation in 2015 and 2018.
- Bhutan’s economy grew more than eight times in the last 20 years, from under USD 300 million in 2000 to USD 2.53 billion in 2017.
- The percentage of people living in poverty decreased from 17.8 per cent in 2003 to 1.5 per cent in 2017.
- The percentage of people living below the national poverty line decreased from 23.2 per cent in 2007 to 8.2 per cent in 2017.
What economic measures did it take?
- Hydropower exports: Bhutan increased exports of hydropower to India, which now accounts for 20 per cent of its economy.
- Brand Bhutan: Bhutan established Brand Bhutan to diversify exports and target high-end markets with specialised exports of high-value, low-volume Bhutanese goods from sectors including textiles, tourism, handicrafts, culture, and natural resources.
- Tourism promotion: It emerged out to be an all-season tourist destination in South Asia.
Advantages of being an LDC
- LDCs enjoy duty-free and quota-free (DFQF) access to the markets of developed countries.
- LDCs are also eligible for loans with special terms for development, which include loans with a lower interest rate and a longer repayment time than those given to other nations.
- The term “Official Development Assistance” (ODA) or “aid” is frequently used to describe this form of support.
Way forward for Bhutan
- As such, advancing out of the list is often only the first step in overall development.
- Graduation from LDC status is not the end of the road, but the beginning of a new journey.
- It is a time when a country needs to redouble its efforts to build its productive capacities, diversify its economy, and create new opportunities for employment and income generation.
Back2Basics: Defining a country’s ‘Development’
- There are no WTO definitions of “developed” or “developing” countries.
- Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.
- The WTO however recognizes as least-developed countries (LDCs) those countries which have been designated as such by the United Nations.
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WTO and India
What is Goods Trade Barometer?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO trade barometer
Mains level: Not Much
The World Trade Organization’s Goods Trade Barometer says the global economy, hit by strong headwinds and weakening import demand, may see trade growth slowdown in the closing months of 2022 and into 2023.
What is Goods Trade Barometer?
- The Goods Trade Barometer was developed by the WTO to complement conventional trade statistics and forecasts.
- It is the world’s leading composite indicator that highlights the turning points in the global merchandise trade and provides forecasts of its likely trajectory in the near future.
- It is released on a quarterly basis based on the availability of data.
- It provides real-time data on the trajectory of merchandise trade relative to the current trends.
- Values higher than 100 indicates above-trend growth and the values less than 100 indicates below-trend growth.
Key trends
- In its recent release, it said trade growth is likely to slow down in 2022 and into 2023.
- Reflecting a cooling demand for traded goods based on actual trade developments through the second quarter of 2022, the current reading of 96.2 is below the baseline value index and the prior reading of 100.0.
- The downturn in the goods barometer is in line with the earlier forecast which predicted a merchandise trade volume growth of 3.5% in 2022 and a revised lower estimate of 1% for 2023.
Impact on India’s trade balance
- With a likely fall in export earnings, and no decrease in imports of essential items like crude oil and capital goods, India’s trade deficit is set to widen.
- The projection is that the country’s current account trade deficit is expected to be around 3% of GDP for FY23.
- Foreign exchange reserves which have already depleted by over $100 billion over the last year are likely to shrink further.
What does a slowdown mean for India?
- India is not an export-led economy. In FY22, 21.5% of Indian GDP depended on exports.
- However, in view of the poor performance of the country’s major market destinations such as the US and China, Indian exports are bound to suffer.
- During the subprime crisis which engulfed the entire world, India’s export-oriented sectors had to pay the price though the economy was to a large extent insulated due to a vibrant rural sector.
- But currently rural India is not in a strong position unlike in 2008-09.
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WTO and India
MC12 over, it’s ‘gains’ for the developed world
Note4Students
From UPSC perspective, the following things are important :
Prelims level: TRIPS waiver
Mains level: Paper 3- WTO and India
Context
The 12th Ministerial Conference (MC12) of the World Trade Organization (WTO) was concluded recently. A cursory examination of the outcomes of the meeting leaves us in no doubt that the European Union (EU) and some other developed countries are the overwhelming winners, while India finds itself on the losing side.
Background of TRIPS waiver for Covid related treatment
- On October 2020, India and South Africa put forth a proposal seeking to temporarily suspend the protection of intellectual property rights such as patents, copyrights, industrial designs and trade secrets, so that the production of vaccines, therapeutics and diagnostics could be ramped up to help overcome the crisis and fight the COVID-19 pandemic.
- The opponents of the proposal, i.e,. Germany, the United Kingdom, Japan, Switzerland and the United States, found themselves on the wrong side of the global opinion on this issue.
- In June-July 2021, the U.S. gave its support to the proposal, but limited it to vaccines.
- Pushed into a corner, the European Union (EU) made a counter-proposal to undermine the proposal made by India and South Africa.
- This counter proposal provided a cosmetic simplification in certain procedural aspects of compulsory licensing in patent rules.
- By March 2022, India and South Africa were corralled into accepting the EU’s proposal.
- This formed the basis of the final outcome at the MC12.
Gain for EU at MC12
- The ministerial outcome on the so-called TRIPS waiver represents the biggest gain for the EU.
- The ministerial outcome adds very little to what already exists in the WTO rulebook.
- The final outcome is almost unworkable; a big public relations victory for the EU.
- Change in institutional architecture: In the name of WTO reform, the EU sought to make fundamental changes to the institutional architecture of the WTO.
- It also sought to give a formal role to the private sector in WTO.
- Environmental issues: The EU has also managed to create a window to pursue negotiations on issues related to trade and environment at the WTO, an issue of concern for many developing countries.
Disappointments for India
- No solution to public stockholding issue: India, the issue of a permanent solution to public stockholding was identified by the Indian Minister of Commerce and Industry as being its top most priority.
- Despite having the support of more than 80 developing countries, this issue has not found mention anywhere in the ministerial outcome.
- Instead, the WTO members have succeeded in diverting attention from India’s interest by agreeing that food security is multi-dimensional, requiring a comprehensive solution.
- No taxing electronic transmission: India has also failed in many of its other objectives, such as securing the right to raise revenues by taxing electronic transmissions.
- In the area of fisheries subsidies, it gets two years to have suitable regulatory mechanisms in place to monitor fish catch and reporting.
- Although it has secured a temporary reprieve to provide subsidies for enhancing its fishing fleets, it will have to fight an uphill battle on this issue in future negotiations.
Conclusion
Overall, the path ahead for India at the WTO is difficult. India’s negotiators need to undertake soul searching to learn lessons from the dynamics at the MC12, and make course corrections.
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Back2Basics: Public stockholding issue
- Under the WTO’s Agreement on Agriculture, government procurement for public stockholding programs is exempt from discipline if stocks are procured at current market prices.
- If procured at pre-announced administered prices, however, those outlays would potentially be counted toward a country’s overall limits on trade-distorting support.
- Some developing countries are concerned that their procurement of food at fixed prices under these programs may push outlays to exceed allowed limits, thus depriving them of the necessary policy space to meet domestic food security requirements.
- In this context, India and other members of the G33 developing country coalition have called for WTO members to agree to a “permanent solution,” following the 2013 Bali decision to exempt these programs from legal challenge under certain conditions.
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WTO and India
Agreement on Fisheries Subsidies (AFS)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AFS
Mains level: Paper 3- Agreement on Fisheries Subsidies (AFS)
Context
The recently concluded twelfth ministerial conference of the World Trade Organisation (WTO) adopted the trade agreement called the Agreement on Fisheries Subsidies (AFS).
About the AFS
- WTO negotiations on fisheries subsidies were launched in 2001 at the Doha Ministerial Conference, with a mandate to “clarify and improve” existing WTO disciplines on fisheries subsidies.
- At the 2017 Buenos Aires Ministerial Conference (MC11), ministers decided on a work programme to conclude the negotiations by aiming to adopt, at the next Ministerial Conference, an agreement on fisheries subsidies which delivers on Sustainable Development Goal 14.6.
- The recently concluded twelfth ministerial conference of the World Trade Organisation (WTO) adopted a sustainability-driven trade agreement called the Agreement on Fisheries Subsidies (AFS).
Provisions adopted in the AFS
- Prohibits three subsidies: Fundamentally, AFS prohibits three kinds of subsidies:
- First, illegal, unreported, or unregulated (IUU) fishing.
- Second, fishing of already over-exploited stocks.
- Third, fishing on unregulated high seas.
- Two-year transition period for developing countries: As part of special and differential treatment (S&DT), developing countries like India have been given a two-year transition period for phasing out the first two kinds of subsidies within their Exclusive Economic Zone (EEZ).
- However, the final negotiated outcome, most crucially, lacks the much-needed discipline on subsidies for fishing in other members’ waters and those that contribute to overcapacity and over-fishing (OCOF).
- Limited AFS: WTO member countries agreed to a limited AFS sans regulations disciplining OCOF subsidies, which have been pushed to the future and are expected to be completed within four years.
- If negotiations fail, the AFS will stand terminated, as provided in Article 12.
- Meanwhile, all countries can continue providing most OCOF subsidies, that is, except for fishing on unregulated high seas.
What are the implications for India?
- Longer transition period required: India has been demanding that developing countries be given a longer transition period of 25 years to put an end to OCOF subsidies within their EEZ.
- Economic growth through ocean resources: Given its long coastline of nearly 7,500 kilometres, the blue economy — sustainable use of ocean resources for economic growth — occupies a cardinal place in India’s development trajectory.
- India has set a target of exporting marine products worth $14 billion by 2025.
- Policy space for marine infrastructure: India needs the policy space to invest in developing the marine infrastructure to harness the full potential of the blue economy.
- Livelihood concerns: Moreover, India needs to protect the livelihood concerns of close to four million marine farmers, the majority of whom are engaged in small-scale, artisanal fishing, which does not pose a great threat to sustainability.
- However, India’s demand for a longer transition period was not acceptable to many countries who insisted on this period being seven years
The disparity between Developed countries and Developing countries
- India rightly contends that WTO disciplines should not be developed in a manner that throttles its emerging sector while richer nations continue to negotiate exemptions for indefinite subsidisation and exclusion of horizontal, non-specific fuel subsidies in the text.
- Rich countries have historically provided massive subsidies to build capacity for large-scale fishing and fishing in distant waters, thereby contributing the most to depletion.
- India provided subsidies worth a mere $277 million in 2018, in sharp contrast to the top five subsidisers: China, EU, US, South Korea, and Japan, whose subsidies range from $7,261-$2,860 million respectively.
Way forward
- Comprehensive agreement: For the sake of sustainability, countries need to overcome their differences soon and forge a comprehensive agreement with the inclusion of meaningful S&DT, else they risk the indefinite continuation of harmful subsidies by all players.
- One balancing act could be to consider different ways to effectuate such flexibilities while accommodating the demands in a more targeted manner.
- Strengthening infrastructure: India could strengthen infrastructure and mechanisms to be able to utilise any future exemptions.
Conclusion
For India, the AFS is less-than-perfect, with a potential of no real outcome at the end of four years if the negotiations fail. But negotiations over the global commons are not easy.
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WTO and India
Outcomes of the WTO Ministerial Conference
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: Read the attached story
Recently, member countries of the World Trade Organization (WTO) wrapped up the Ministerial Conference’s twelfth outing (MC12).
Key outcomes: “Geneva Package”
- The conference has secured key agreements on
- Relaxing patent regulations to achieve global vaccine equity
- Ensuring food security
- According 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.
What is the WTO’s Ministerial Conference?
- The MC is at the very top of WTO’s organisational chart.
- It meets once every two years and can take decisions on all matters under any multilateral trade agreement.
- Unlike other organisations, such as the International Monetary Fund or World Bank, WTO does not delegate power to a board of directors or an organisational 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.
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 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 authorising 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.
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WTO and India
The Process of Cartelisation
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Cartel, Cartelization
Mains level: Read the attached story
This newscard is an excerpt from the original article published in TH.
What is a Cartel?
- According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
- The three common components of a cartel are:
- an agreement
- between competitors
- to restrict competition
What is Cartelization?
- Cartelization is when enterprises collude to fix prices, indulge in bid-rigging, or share customers, etc. But when prices are controlled by the government under law, that is not cartelization.
- The Competition Act contains strong provisions against cartels.
- It also has the leniency provision to incentivize a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
- This has proved a highly effective tool against cartels worldwide.
Philosophy behind
- Cartels, which involve a group of businesses colluding to keep prices high, have been viewed by economists as a significant threat to the market economy.
- When businesses cooperate with each other rather than compete against each other, there could be many adverse consequences to consumers.
- For one, consumers will have to pay higher prices for goods and services.
- It should be noted that the way cartels keep prices high is by limiting the supply of their output. Further, in the absence of any threat from competition, cartels also have very little reason to innovate or cater to consumers in better ways.
- In other words, they essentially act like a monopoly.
- The Organization of the Petroleum Exporting Countries (OPEC) is the most well-known international cartel that influences the price of oil globally through coordinated efforts to limit supply.
How do they work?
- Four categories of conduct are commonly identified across jurisdictions (countries). These are: price-fixing, output restrictions, market allocation and, bid-rigging
- In sum, participants in hard-core cartels agree to insulate themselves from the rigors of a competitive marketplace, substituting cooperation for competition.
How do cartels hurt?
- They not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
- A successful cartel raises the price above the competitive level and reduces output.
- Consumers choose either not to pay the higher price for some or all of the cartelized product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.
Are there provisions in the Competition Act against monopolistic prices?
- There are provisions in the Competition Act against abuse of dominance.
- One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in the purchase or sale of goods or services.
- Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
- However, where pricing is a result of normal supply and demand, the Competition Commission may have no role.
What is the penalty for cartelization?
- The Competition Act calls for a penalty on each member of the cartel, which is up to three times its profit for each year of anti-competitive behavior, or 10% of turnover for each year of its continuance, whichever is higher.
- However, in case of a leniency petition, CCI can waive the penalty depending on the timing and usefulness of the disclosure and full cooperation in the probe.
How might cartels be worse than monopolies?
- Monopolies are bad for both individual consumer interests as well as society at large.
- Monopolist completely dominates the concerned market and, more often than not, abuse this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.
How to stop the spread of cartelization?
- Strong deterrence to those cartels that are found guilty of being one.
- Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel and it is not always easy to ascertain the exact gains from cartelization.
- The threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.
Back2Basics: Competition Commission of India (CCI)
- The CCI is the chief national competition regulator in India.
- It is a statutory body within the Ministry of Corporate Affairs.
- It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.
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WTO and India
India risks being left out of TRIPS waiver
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- TRIPS waiver for Covid-19 treatment issue
Context
When the Covid-19 pandemic pounded the globe, India, with South Africa, piloted a proposal to waive key provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement on Covid-19 vaccines.
Significance of TRIPS waiver for Covid-19 related medical products
- The TRIPS agreement is part of the international legal order on trade enshrined in the World Trade Organization (WTO).
- The core idea behind the proposal is that intellectual property (IP) rights such as patents should not become a barrier in scaling up the production of medical products like vaccines, diagnostics and therapeutics essential to combat Covid-19.
- However, the WTO has failed to adopt a TRIPS waiver to date.
- Geographically limited waiver: The developed world is talking of a TRIPS waiver that would be geographically limited and exclude India.
- This is a failure of India’s economic diplomacy.
- There are also attempts at limiting the waiver to vaccines alone, leaving out diagnostics and therapeutics.
Domestic factors that affected India’s global campaign for TRIPS waiver
1] India failed to use provisions under Indian Patent Act
- During the entire pandemic, India rarely made use of the existing flexibilities under the Indian Patent Act, such as compulsory licences (CL), which are consistent with the TRIPS agreement, to increase the supply of Covid-19 medical products despite being nudged by the judiciary to do so.
- On the contrary, during the peak of the second Covid wave, the central government filed an affidavit in the Supreme Court stating that the main constraint in boosting the production of key drugs is the unavailability of raw materials, not IP-related legal hurdles.
- .This stand completely contradicted India’s argument internationally that views IP as an obstacle to augmenting the supply of Covid-19 medical products.
2] Lack of national strategy
- India did not proactively develop a national strategy to implement the TRIPS waiver as and when it is adopted.
- In other words, a TRIPS waiver at the WTO would only be an enabling framework.
- It would then require member countries to amend their domestic IP laws to implement the waiver.
3] Failure to involve Indian pharma industry
- The government failed to get the Indian pharmaceutical industry on board.
- Pharmaceutical bodies are a divided lot with many Indian companies speaking against the waiver, thus denting India’s global campaign.
4] Failure to walk the talk on indigenously developed Covaxin
- India should have unlocked the technical know-how of Covaxin to the world.
- While technology transfer agreements for Covaxin have been inked with domestic companies, making the vaccine technology available to anyone interested globally, at a minimal price.
- This would have exhibited India’s resolve to walk the talk on the TRIPS waiver.
Conclusion
While India would oppose the attempted exclusion, the lesson is that for economic diplomacy to flourish, it should be backed by concrete actions on the domestic front.
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WTO and India
What is TRIPS Agreement?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Geographical Indication, WTO, TRIPS
Mains level: India and WTO
India runs the risk of being excluded from a proposal it co-authored at the World Trade Organization (WTO) negotiations, in 2020, to “temporarily waive” intellectual property rights (IPR) held, by primarily Western countries, on vaccines, therapeutics, and diagnostics for COVID-19.
What is the case?
- India and China are two major global suppliers of medicine.
- A small group of WTO members was discussing suggestions to exclude drug manufacturers in India and China from prospective waivers to IPR obligations.
- IPR obligations are a result of the Trade-Related Intellectual Property Rights (TRIPS) which WTO members are committed to upholding.
What is the Agreement on TRIPS?
- The Agreement on TRIPS is an international legal agreement between all the member nations of the World Trade Organization (WTO).
- It establishes minimum standards for the regulation by national governments of different forms of intellectual property (IP) as applied to nationals of other WTO member nations.
- TRIPS was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990 and is administered by the WTO.
- It introduced intellectual property law into the multilateral trading system for the first time and remains the most comprehensive multilateral agreement on intellectual property to date.
Key provisions
- TRIPS requires member states to provide strong protection for intellectual property rights.
- It seeks to provide copyright rights, covering authors and other copyright holders, as well as holders of related rights, namely performers, sound recording producers, and broadcasting organizations.
- It provides for geographical indications (GI); industrial designs; integrated circuit layout designs; patents; new plant varieties; trademarks; trade names and undisclosed or confidential information.
- It also specifies enforcement procedures, remedies, and dispute resolution procedures.
- TRIPS also has a most favored nation (MFN) clause.
Why TRIPS?
- The obligations of the main international agreements of the World Intellectual Property Organization (WIPO) that already existed before the WTO was created:
- Paris Convention for the Protection of Industrial Property (patents, industrial designs, etc)
- Berne Convention for the Protection of Literary and Artistic Works (copyright).
- Some areas are not covered by these agreements. In some cases, the standards of protection prescribed were thought inadequate.
- So the TRIPS Agreement adds significantly to existing international standards.
What else is covered under TRIPS Agreement?
- Copyright terms must extend at least 50 years unless based on the life of the author.
- Computer programs must be regarded as “literary works” under copyright law and receive the same terms of protection.
- Patents must be granted for “inventions” in all fields of technology and must be enforceable for at least 20 years.
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WTO and India
India appeals against WTO order on Sugar
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Read the attached story
Mains level: India at crossroads with WTO
India has appealed against a ruling of the World Trade Organisation’s (WTO) trade dispute settlement panel on domestic sugar subsidies, stating that the panel had committed “certain errors of law” in its report.
What is the case?
- India’s Minimum Selling Price system for Sugarcane was brought to notice to the WTO by Brazil, Australia and Guatemala.
What was the complaint against India?
Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles against WTO’s:
- Agreement on Agriculture
- Agreement on Subsidies and Countervailing Measures (SCM)
- Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT)
- Domestic Support: All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production.
- Various subsidies: They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
- Notifying support: Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10.
India’s reply to WTO panel
- India rejected the panel’s findings as “erroneous”, “unreasoned”, and “not supported by the WTO rules”.
- It argued that the requirements of Article 3 of the SCM Agreement are not yet applicable to India.
- It has a phase-out period of 8 years to eliminate export subsidies under the agreement.
- India also argued that its mandatory minimum prices are not paid by the governments but by sugar mills, and hence do not constitute market price support.
Backgrounder: Sugarcane Pricing in India
Who determines Sugarcane prices?
Sugarcane prices are determined by the Centre as well as States.
- The Centre announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
- The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.
Minimum Selling Price (MSP) for Sugar
- The price of sugar is market-driven & depends on the demand & supply of sugar.
- However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
- MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.
Basis of price determination
- With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
- The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.
What is FRP?
- FRP is fixed under a sugarcane control order, 1966.
- It is the minimum price that sugar mills are supposed to pay to the farmers.
- However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.
Factors considered for FRP:
- The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:
a) cost of production of sugarcane;
b) return to the growers from alternative crops and the general trend of prices of agricultural commodities;
c) availability of sugar to consumers at a fair price;
d) price at which sugar produced from sugarcane is sold by sugar producers;
e) recovery of sugar from sugarcane;
f) the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;
g) reasonable margins for the growers of sugarcane on account of risk and profits.
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WTO and India
China’s disputed ‘Developing’ Country Status at WTO
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Read the attached story
Mains level: WTO reforms
China’s status as a ‘developing country’ at the World Trade Organization (WTO) has become a contentious issue with a number of countries raising concerns.
Defining a country’s ‘Development’
- There are no WTO definitions of “developed” or “developing” countries.
- Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.
- The WTO however recognizes as least-developed countries (LDCs) those countries which have been designated as such by the United Nations.
Benefits of ‘Developing Country’ tag
- Special and differential treatment: Certain WTO agreements give developing countries special rights through ‘special and differential treatment’ (S&DT) provisions.
- Preferential treatment: The classification also allows other countries to offer preferential treatment.
- Longer timeframe for pacts: WTO can grant developing countries longer timeframes to implement the agreements and even commitments to raise trading opportunities for such countries.
Issues with Chinese ‘Developing Country’ status
- China has become an upper-middle-income country according to the World Bank.
- It involves in unfair trade practices such as preferential treatment for state enterprises, data restrictions and inadequate enforcement of intellectual property rights.
How has China responded?
- China has consistently maintained that it is the “world’s largest developing economy”.
- It has recently indicated that it may be willing to forego many benefits of being a developing country.
What are the benefits of LDC classification?
- The WTO recognizes LDCs relying on a classification by the UN based on criteria that is reviewed every three years. LDCs are often exempted from certain provisions of WTO pacts.
- Bangladesh, currently classified as an LDC, receives zero duty, zero quota access for almost all exports to the EU.
- It is, however, set to graduate from the LDC status in 2026 as its per capita GDP has risen sharply surpassing that of India in FY21.
Try this question from CS Mains 2018:
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?
Reference: https://www.civilsdaily.com/sansad-tv-perspective-wto-reforms/
(Aspirants need not write whole answers. Just a quick summary with keywords would suffice.)
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WTO and India
The WTO’s challenge to MSP
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Types of subsidies
Mains level: Paper 3- MSP and challenges ahead at WTO
Context
Amid the demand for legal backing to MSP, the question remains about whether India can provide a legal guarantee violating its international law obligations enshrined in the Agreement on Agriculture (AoA) of the World Trade Organization (WTO)?
Classification of subsidies under AoA: Trade distorting and non-trade distorting
- The objective of AoA: One of the central objectives of the AoA is to cut trade-distorting domestic support.
- Three categories: In this regard, the domestic subsidies are divided into three categories: ‘green box’, ‘blue box’ and ‘amber box’ measures.
- Non-trade distorting: ‘Green box’ subsidies (like income support to farmers de-coupled from production) and ‘blue box’ subsidies (like direct payments under production limiting programmes subject to certain conditions) are considered non-trade distorting.
- Countries can provide unlimited subsidies under these two categories.
- Trade-distorting subsidies: Price support provided in the form of procurement of crops at MSP is classified as a trade-distorting subsidy and falls under the ‘amber box’ measures, which are subject to certain limits.
So, how do countries measure ‘amber box’ support?
- Compute AMS: To measure ‘amber box’ support, WTO member countries are required to compute Aggregate Measurement of Support (AMS).
- AMS is the total of product-specific support (price support to a particular crop) and non-product-specific support (fertilizer subsidy).
Understanding the de minimis limit
- Under Article 6.4(b) of the AoA, developing countries such as India are allowed to provide a de minimis level of product and non-product domestic subsidy.
- This de minimis limit is capped at 10% of the total value of production of the product, in case of a product-specific subsidy; and at 10% of the total value of a country’s agricultural production, in case of non-product subsidy.
- Subsidies breaching the de minimis cap are trade-distorting.
Possibility of India overshooting the de minimis limit
- Relation between MSP and AMS: The procurement at MSP, after comparing it with the fixed external reference price (ERP) — an average price based on the base years 1986-88 — has to be included in AMS.
- Widening gap between ERP and MSP: Since the fixed ERP has not been revised in the last several decades at the WTO, the difference between the MSP and fixed ERP has widened enormously due to inflation.
- According to the Centre for WTO Studies, India’s ERP for rice, in 1986-88, was $262.51/tonne and the MSP was less than this.
- However, India’s applied administered price for rice in 2015-16 stood at $323.06/tonne, much more than the 1986-88 ERP.
- Procuring all the 23 crops at MSP, as against the current practice of procuring largely rice and wheat, will result in India breaching the de minimis limit making it vulnerable to a legal challenge at the WTO.
- Even if the Government does not procure directly but mandates private parties to acquire at a price determined by the Government, as it happens in the case of sugarcane, the de minimis limit of 10% applies.
Way forward
- Peace clause: Although a permanent solution is nowhere in sight, the countries have agreed to a peace clause.
- The peace clause forbids bringing legal challenges against price support-based procurement for food security purposes even if it breaches the limit on domestic support.
- The peace clause is applicable only for programmes that were existing as of the date of the decision and are consistent with other requirements.
- India’s procurement for rice and wheat, even if it violates the de minimis limit, will enjoy legal immunity.
- However, India will not be able to employ the peace clause to defend procuring those crops that are not part of the food security programme (such as cotton, groundnut, sunflower seed).
- Move from MSP to income-based support: Arguably, India can move away from price-based support in the form of MSP to income-based support, which will not be trade-distorting under the AoA provided the income support is not linked to production.
- Supplement price-based support with income-based support: Alternatively, one can supplement price-based support (keeping the de minimis limit in mind) with an income-based support policy.
Conclusion
The Government needs to engage with the farmers and create an affable environment to convince them of other effective policy interventions, beyond MSP, that are fiscally prudent and WTO compatible.
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WTO and India
WTO rules against India’s Sugar Subsidies
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sugarcane pricing mechanism
Mains level: Issues with Sugarcane Pricing
A World Trade Organization panel ruled that India violated international trade rules when it offered excessive subsidies for the production and export of sugar and sugarcane.
What did WTO say?
- Under WTO rules, India’s sugar subsidies are capped at a de minimis limit of 10% of the value of production.
- India’s policies were inconsistent with WTO rules that govern the levels at which nations can subsidize domestic agricultural production.
- WTO has asked it to withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days.
What was the complaint against India?
Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles against WTO’s:
- Agreement on Agriculture
- Agreement on Subsidies and Countervailing Measures (SCM)
- Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT)
- Domestic Support: All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production.
- Various subsidies: They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
- Notifying support: Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10.
India’s reply to WTO panel
- India rejected the panel’s findings as “erroneous”, “unreasoned”, and “not supported by the WTO rules”.
- It argued that the requirements of Article 3 of the SCM Agreement are not yet applicable to India.
- It has a phase-out period of 8 years to eliminate export subsidies under the agreement.
- India also argued that its mandatory minimum prices are not paid by the governments but by sugar mills, and hence do not constitute market price support.
Must read:
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WTO and India
Charting a trade route after the MC12
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Marrakesh Agreement
Mains level: Paper 3- MC12
Context
The World Trade Organization (WTO)’s 12th Ministerial Conference (MC12) is being convened in Geneva, Switzerland at the end of this month.
Ministerial Conferences
- 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
The task ahead for MC12
- Recent WTO estimates show that global trade volumes could expand by almost 11% in 2021, and by nearly 5% in 2022, and could stabilise at a level higher than the pre-COVID-19 trend.
- The MC12 needs to consider how in these good times for trade, the economically weaker countries “can secure a share in the growth in international trade commensurate with the needs of their economic development’, an objective that is mandated by the Marrakesh Agreement Establishing the World Trade Organization.
- Some of the areas are currently witnessing intense negotiations, these include adoption of WTO rules on electronic commerce, investment facilitation, and fisheries subsidies.
Following issues will form the basis of MC12 discussions
1) IPR waiver for Covid-19 related technologies
- Pharmaceutical companies have used monopoly rights granted by their IPRs to deny developing countries access to technologies and know-how, thus undermining the possibility of production of vaccines in these countries.
- To remedy this situation, India and South Africa had tabled a proposal in the WTO in October 2020, for waiving enforcement of several forms of IPRs on “health products and technologies including diagnostics, therapeutics, vaccines, medical devices.
- This proposal, supported by nearly two-thirds of the organisation’s membership, was opposed by the developed countries batting for their corporates.
- The unfortunate reality of the current discussions is that an outcome supporting affordable access to COVID-19 vaccines and medicines looks distant.
2) Fisheries subsidies
- Discussions on fisheries subsidies have been hanging fire for a long time, there is considerable push for an early conclusion of an agreement to rein in these subsidies.
- The current drafts on this issue do not provide the wherewithal to rein in large-scale commercial fishing.
- Large scale commercial fishing is depleting fish stocks the world over, and at the same time, are threatening the livelihoods of small fishermen in countries such as India.
3) E-commerce
- Discussions on e-commerce are being held in the WTO since 1998, wherein WTO members agreed to “continue their practice of not imposing customs duties on electronic transmissions”.
- The more substantive outcome was the decision to “establish a comprehensive work programme” taking into “account the economic, financial, and development needs of developing countries”.
- However, in 2021, a key focus of the 1998 e-commerce work programme, namely “development needs of developing countries”, is entirely missing from the text document that is the basis for the current negotiations.
- On the negotiating table are issues relating to the liberalisation of the goods and services trade, and of course guarantee for free flow of data across international boundaries, all aimed at facilitating expansion of businesses of e-commerce firms.
- In fact, the decision on a moratorium on the imposition of import duties agreed to in 1998 has become the basis for a push towards comprehensive trade liberalisation — a perfectly logical way forward, given that the sole objective of the negotiations on e-commerce is to facilitate expansion of e-commerce firms.
4) Investment facilitation
- Inclusion of substantive provisions on investment in the WTO has been one of the more divisive issues.
- In 2001, the Doha Ministerial Declaration had included a work programme on investment, but developing countries were opposed to its continuation because the discussions were geared to expanding the rights of foreign investors through a multilateral agreement on investment.
- An investment facilitation has reintroduced the old agenda of concluding such an investment agreement.
Issues with the negotiations
- The negotiations on e-commerce and investment facilitation are being conducted not by a mandate given by the entire membership of the WTO in a transparent manner.
- Instead, these negotiations owe their origins to the so-called “Joint Statement Initiatives” (JSI) in which a section of the membership has developed the agenda with a view to producing agreements in the WTO.
- This entire process is “detrimental to the very existence of a rule-based multilateral trading system under the WTO”, as India and South Africa have forcefully argued in a submission against the JSIs early this year.
Conclusion
Current favourable tidings provide an ideal setting for the Trade Ministers from the WTO member-states to revisit trade rules and to agree on a work programme for the organisation, which can help maintain the momentum in trade growth.
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WTO and India
WTO & Related issues
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: Paper 3- Challenges facing WTO
Context
Created in 1995, during the heyday of neoliberalism, the World Trade Organization (WTO) became a shining example of triumphant free-market capitalism. Now, the WTO is facing a serious existential crisis.
Challenges facing WTO
1) Disfunctional appellate body
- The United States, which played a pivotal role in establishing the WTO, seems to have lost interest in it.
- The feeling in the US is that the WTO hasn’t served the American national interest by failing to stem China’s rise and regularly indicting the U.S. in several trade disputes.
- The continuation of the U.S. policy on the WTO is most evident in the sustained crippling of the Appellate Body (AB).
- Three out of seven AB members serve on any one case.
- However, since December 2019, the AB has stopped functioning due to rising vacancies.
- Countries now have an easy option not to comply with the WTO panel decisions by appealing into the void.
- If no solution is found soon, the WTO’s rules-based order will start crumbling.
2) Public stockholding for food security purposes
- No solution has been found to the public stockholding for food security purposes despite a clear mandate to do so in the 2015 Nairobi ministerial meeting.
- This is of paramount concern for countries like India that use Minimum Support Price (MSP)-backed mechanisms to procure foodgrains.
- With rising prices and the need to do higher procurement to support farmers and provide food to the poor at subsidised prices, India might breach the cap.
- Although countries have agreed that legal suits will not be brought if countries breach the cap (the so-called ‘peace clause’), it is imperative to find a permanent solution such as not counting MSP-provided budgetary support as trade-distorting.
3) Disagreement on TRIPS waiver for Covid-19
- The WTO member countries continue to disagree on the need of waiving the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement for COVID-19 related medical products.
- It was exactly a year back when India and South Africa proposed a TRIPS waiver to overcome intellectual property (IP)-related obstacles in increasing accessibility of COVID-19 medical products, including vaccines.
4) Regulating irrational subsidies provided for fishing
- Irrational subsidies provided for fishing that has led to the overexploitation of marine resources by countries like China, which is the largest catcher and exporter of fish.
- The WTO is close to signing a deal on regulating irrational subsidies
- This agreement should strike a balance between conserving ocean resources and the livelihood concerns of millions of small and marginal fishermen in countries like India.
5) Fragmentation of global governance due to plurilateral trade agreements
- The gridlock at the WTO has led to the emergence of mega plurilateral trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) agreement.
- These mega plurilateral agreements not only fragment the global governance on international trade but also push the multilateral order to the margin, converting the WTO to what some call an “institutional zombie”.
Conclusion
Notwithstanding its flaws, the WTO is the only forum where developing countries like India, not party to any mega plurilateral trade agreements, can push for evolving an inclusive global trading order that responds to the systemic imbalances of extant globalisation. What is at stake is the future of trade multilateralism and not just an institution, in which India has a huge interest.
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WTO and India
What is Agreement on Agriculture (AoA)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO, Agreement on Agriculture
Mains level: Read the attached story
The Agreement on Agriculture at the WTO is riddled with deep imbalances, which favour the developed countries and have tilted the rules against many developing countries, a Union Minister has said.
Agreement on Agriculture
- The AoA is an international treaty of the World Trade Organization.
- It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.
Three pillars of AoA
The Agreement on Agriculture consists of three pillars—domestic support, market access, and export subsidies.
(1) Domestic support
- AoA divides domestic support into two categories: trade-distorting and non-trade-distorting (or minimally trade-distorting).
- It the classification of subsidies by “boxes” depending on consequences of production and trade:
- Amber (most directly linked to production levels)
- Blue (production-limiting programs that still distort trade)
- Green (minimal distortion)
(2) Market access
- Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members.
- The 1995 AoA consists of tariff reductions of:
- 36% average reduction – developed countries – with a minimum of 15% per-tariff line reduction in next six years.
- 24% average reduction – developing countries – with a minimum of 10% per-tariff line reduction in next ten years.
- Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs—a process called tariffication—or “bind” their tariffs, creating a ceiling that could not be increased in future.
(3) Export subsidies
- The AoA required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years.
- For developing countries, the agreement required cuts were 24% (by value) and 14% (by volume) over ten years.
Criticism of AoA
- AoA has been criticized for reducing tariff protections for small farmers, a key source of income in developing countries, while simultaneously allowing rich countries to continue subsidizing agriculture at home.
- In 2017 India and China jointly submitted a proposal to the WTO calling for the elimination – by developed countries – of the most trade-distorting form of farm subsidies,
- They are known in WTO parlance as Aggregate Measurement of Support (AMS) or ‘Amber Box’ support as a prerequisite for consideration of other reforms in domestic support negotiations.
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WTO and India
Unpacking the resiliency of global trade
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Global trade in the post-COVID-19 world
Context
Past experiences suggest there is hope for global trade recovery in the post-COVID-19 world.
Impact of pandemic on the global and Indian economy
- In the last year, the devastating impact of COVID-19 pandemic has shrunk the world economy by 4.4% and global trade by 5.3%.
- Job losses in the world have been estimated to be to the tune of 75 million.
- India’s GDP contracted by 7.3% according to the National Statistical Office.
- About 10 million jobs were lost in India according to the Centre for Monitoring Indian Economy Pvt. Ltd.
- Around the world, countries have responded to pandemic-induced shortages with protectionist reactions and nationalist aspirations.
- Such a response has the potential to disrupt complex cross-border supply chains.
How economic shocks in the past laid foundation for institutional changes
- The Second World War was responsible for the creation of the Bretton Woods Institutions such as World Bank and International Monetary Fund (IMF) and International Trade Organisation (ITO) were created to help rebuild the shattered post-war economy.
- The General Agreement on Tariffs and Trade (GATT) was negotiated in 1947 as a means to reducing barriers to international trade.
- The oil shocks of the 1970s led to the establishment of the International Energy Agency (IEA) in 1974 and went on to create awareness on the need for global energy security.
- The financial crisis of 2008 led to the G20 Leaders Summit, an elevation from the G20 Finance Ministers forum in 1999.
- Increase in global trade: As a result of these developments global trade increased from a mere $60.80 billion in 1950 to $2,049 billion in 1980; $6,452 billion in 2000; $19,014 billion in 2019.
Changes in the global trade in post-Covid world
- Financial buffers due to stimulus package: Stimulus packages and forced savings in several countries in the last year have created financial buffers.
- Resilient supply chain: Global supply chains are expected to be resilient to help revive manufacturing with lower production costs, induce investments and promote technology transfers.
- Anti-dumping measures at WTO: In a post COVID-19 world, members of the World Trade Organization are expected to make rules to discipline errant nations that are known to dumping goods and erecting trade barriers through multilateral rules.
- Deeper economic integration through trade arrangements: Mutually beneficial trade arrangements that seek deeper economic integration will be entered into at the bilateral and regional levels.
- Dominance of technology: Countries that harness technology are expected to dominate international trade in future with a transformational impact on the global economy.
- Businesses will aim to harness data for innovation to remain ahead of the curve in a post-COVID-19 world.
Way forward for India
- The projections of the International Monetary Fund for India’s economic growth ahead are positive and in line with the general trends world-wide.
- Focus on value-added manufacturing: Building an ecosystem that incentivises value-added manufacturing and technology-induced finished products should form a part of our long-term strategy.
- Production Linked Incentive Scheme (PLI) schemes, if carefully nurtured, could lead the industry on that path.
- Support MSMEs: Supporting MSMEs with cheaper input costs, including raw material and intermediate goods would help sustain them with job creation at the local level.
- Developing a synergistic relationship between the big industry and MSMEs is at the core of a successful Atmanirbhar Bharat.
- Skill upgradation: Skills upgradation to global standards should form a part of India’s strategy in a post-COVID-19 world.
Conclusion
The patterns in the past leave much hope for optimism for global trade in the post-COVID-19 crisis in the collective belief that international trade is vital for development and prosperity.
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WTO and India
[pib] Authorised Economic Operators
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Authorised Economic Operators
Mains level: Not Much
Central Board of Indirect Taxes & Customs (CBIC) has inaugurated the online filing of Authorised Economic Operators (AEO) T2 and T3 applications.
Who are Authorised Economic Operators?
- The AEO concept is one of the main building blocks within the WCO SAFE Framework of Standards (SAFE).
- The latter is part of the future international Customs model set out to support secure trade.
- The growth of global trade and increasing security threats to the international movement of goods have forced customs administrations to shift their focus more and more to securing the international trade flow and away from the traditional task of collecting customs duties.
- Recognizing these developments, the World Customs Organization, drafted the WCO Framework of Standards to Secure and Facilitate global trade (SAFE).
- In the framework, several standards are included that can assist Customs administrations in meeting these new challenges.
- Developing an Authorized Economic Operator programme is a core part of SAFE.
AEOs in India
- AEO is a voluntary programme.
- It enables Indian Customs to enhance and streamline cargo security through close cooperation with the principal stakeholders of the international supply chain viz. importers, exporters, logistics providers, custodians or terminal operators, customs brokers and warehouse operators.
Back2Basics: World Customs Organization (WCO)
- WCO is an intergovernmental organization headquartered in Brussels, Belgium.
- The WCO is noted for its work in areas covering international trade facilitation, customs enforcement activities, combating counterfeiting in support of Intellectual Property Rights (IPR), drugs enforcement, illegal weapons trading, integrity promotion, and delivering the sustainable capacity building to assist with customs reforms and modernization.
- The WCO represents 179 Customs administrations that collectively process approximately 98% of world trade.
- As the global centre of Customs expertise, the WCO has the tools and expertise to assist implementation of all legal, policy, procedural, technological, and human resource aspects related to trade facilitation.
- The WCO maintains the international Harmonized System (HS) goods nomenclature and administers the technical aspects of the World Trade Organization (WTO) Agreements on Customs Valuation and Rules of Origin.
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WTO and India
India invokes peace clause again as rice subsidies exceed 10% cap
India has invoked the peace clause at the World Trade Organization (WTO), for the second time, for exceeding the 10 per cent ceiling on support it offered its rice farmers.
- India had earlier invoked the clause for 2018-19, when it became the first country to do so.
- India informed the WTO that the value of its rice production in 2019-20 was $46.07 billion while it gave subsidies worth $6.31 billion, or 13.7 per cent as against the permitted 10 per cent.
What is Peace Clause?
- The peace clause protects India’s food procurement programmes against action from WTO members in case the subsidy ceilings – 10 per cent of the value of food production in the case of India and other developing countries – are breached.
What does India told to WTO?
- India’s breach of commitment for rice arises from support provided in pursuance of public stockholding programmes for food security purposeswhich were in existence as on the date of the Bali Ministerial Decision on Public Stockholding for Food Security Purposes.
- India said that under its public stockholding programmes for food security purposes, rice, wheat, coarse cereals and pulses, among others, are acquired and released in order to meet the domestic food security needs of the country’s poor and vulnerable population, and “not to impede commercial trade or food security of others. For these reasons only the breach of the de minimis limits for rice is covered by the peace clause.
Government does not undertake exports on a commercial basis from public stockholdings. Additionally, open market sales of food grains from public stockholding are made provided the buyer gives an undertaking of not exporting from such purchase. - The peace clause can’t be challenged and because of this flexibility, distribution of food grains to the poor can be done for free which is crucial during the pandemic.
- India ensures food security through the minimum support price (MSP) programme, and Public Distribution System and National Food Security Act, 2013.
Subsidies of WTO:
- In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).
- In agriculture, things are, as usual, more complicated.
- The Agriculture Agreement has no red box.
- Domestic support exceeding the reduction commitment levels in the amber box is prohibited
- There is a blue box for subsidies that are tied to programmes that limit production.
- There are also exemptions for developing countries (sometimes called an “S&D box” or “development box”, including provisions in Article 6.2 of the Agreement).
Amber Box:
- Nearly all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes.
- These include measures to support prices, or subsidies directly related to production quantities.
- These supports are subject to limits: “de minimis” minimal supports are allowed (generally 5% of agricultural production for developed countries, 10% for developing countries); 32 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies.
- The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support”.
Blue Box:
- This is the “amber box with conditions” — conditions designed to reduce distortion.
- Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production (details set out in Paragraph 5 of Article 6 of the Agriculture Agreement).
- At present there are no limits on spending on blue box subsidies.
Green box:
- The green box is defined in Annex 2 of the Agriculture Agreement.
- In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion.
- They have to be government-funded (not by charging consumers higher prices) and must not involve price support.
- They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to current production levels or prices. They also include environmental protection and regional development programmes.
- Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria set out in Annex 2.
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WTO and India
India seeks TRIPS waiver for Vaccines
Note4Students
From UPSC perspective, the following things are important :
Prelims level: TRIPS Agreement
Mains level: TRIPS regulations
India and South Africa have jointly moved a proposal at the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) council for a waiver to help more countries get access to medicines and vaccines during the pandemic.
Q.WTO and multilateralism is dying in the face of a greater reliance on plurilateral and bilateral trade pacts. Discuss. (250W)
What is the TRIPS Agreement?
- The TRIPS is an international legal agreement between all the member nations of the World Trade Organization (WTO).
- It establishes minimum standards for the regulation by national governments of different forms of intellectual property (IP) as applied to nationals of other WTO member nations.
- Its agreement was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990 and is administered by the WTO.
- The TRIPS agreement introduced intellectual property law into the multilateral trading system for the first time and remains the most comprehensive multilateral agreement on intellectual property to date.
Why did India move such a proposal?
- TRIPS waiver would deal with the question of equity along with global growth and livelihoods.
- It is not only that we are coming in the way of life but it is very simple economics, asserted India’s ambassador.
- For a commercial business of $30-40 billion of annual vaccine output of a few companies, we are coming in the way of $6-7 trillion of global GDP output in one year.
Premise behind it
- In 2001, developing countries, concerned that developed countries were insisting on an overly narrow reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration.
- The Doha declaration is a WTO statement that clarifies the scope of TRIPS, stating for example that TRIPS can and should be interpreted in light of the goal “to promote access to medicines for all.”
Global response for the move
- Fifty-seven WTO members have backed the proposal brought out by India.
- But the EU, U.S., Japan and Canada have opposed the idea stressing the importance of intellectual property for innovation.
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WTO and India
Trade Policy Review of India at the WTO
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Trade Policy Review (TPR)
Mains level: WTO and India
India’s seventh Trade Policy Review (TPR) has begun at the World Trade Organization in Geneva.
Q.In the wake of the global economic fallout of the COVID-19 pandemic, discuss the challenges ahead of WTO.
Trade Policy Review (TPR)
- The TPR is an important mechanism under the WTO’s monitoring function and involves a comprehensive peer-review of the Member’s national trade policies.
- India’s last TPR took place in 2015.
Why need a TPR?
- To increase the transparency and understanding of countries’ trade policies and practices, through regular monitoring
- To improve the quality of public and intergovernmental debate on the issues
- To enable a multilateral assessment of the effects of policies on the world trading system
India’s progress
- Since previous TPR, India has worked diligently to reform and transform the entire economic eco-system to meet the socio-economic aspirations of a billion-plus Indians.
- The introduction of the GST, the IBC, labour sector reforms, an enabling and investor-friendly FDI Policy, and various national programmes like Make in India, Digital India, Startup India and Skill were the path-breakers.
- The improvement in the economic and business environment, on account of the wide-ranging reforms, has enabled India to better its position in the World Bank’s Doing Business ranking from 142 in 2015 to 63 in 2019.
- This improvement is also endorsed by investors who continue to view India as a desirable investment destination even during the testing time of the pandemic.
- In 2019-20, India received highest ever FDI inflow of USD 74.39 billion.
A note of caution
- India’s trade policy remained largely unchanged since the previous review.
- India continues to rely on trade policy instruments such as the tariff, export taxes, minimum import prices, import and export restrictions, and licensing, WTO said.
- These are used to manage domestic demand and supply requirements, protect the economy from wide domestic price fluctuations, and ensure conservation and proper utilization of natural resources.
- As a result, frequent changes are made to tariff rates and other trade policy instruments, which create uncertainty for traders.
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WTO and India
The many challenges for WTO
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: WTO
The next Director-General of the organization will have to navigate through a slew of thorny issues in WTO.
WTO to lead by a woman for the first time
- For the first time in its 25-year history, the World Trade Organization (WTO) will be led by a woman.
- The D-G’s job will require perseverance and outstanding negotiating skills for balancing the diverse and varied interests of the 164 member countries, and especially, for reconciling competing for multilateral and national visions, for the organization to work efficiently.
- The next D-G will have to grapple with the global economic fallout of the COVID-19 pandemic and work towards carrying out reforms of the multilateral trading system for reviving the world economy.
- On all these issues, her non-partisan role will be watched carefully.
Practice Question: In the wake of the global economic fallout of the COVID-19 pandemic, discuss the challenges ahead of WTO.
Tussle between developed and developing countries
- The current impasse in the WTO negotiations has led member countries to believe in the necessity of carrying out urgent reforms, which is likely to throw up some difficult choices for developing countries like India.
- At the core of the divide within the WTO is the Doha Development Agenda, which the developed countries sought to move in favour of a new agenda that includes, amongst others, e-commerce, investment facilitation, MSMEs and gender.
- Salvaging the ‘development’-centric agenda is critical for a large number of developing countries as they essentially see trade as a catalyst of development.
- Restoring the WTO dispute settlement mechanism, especially the revival of its Appellate body, is also crucial for the organization’s efficient functioning.
Definition of ‘Developing Country’ – a contentious issue
- The push for a change in the definition of “developing country” under the principle of special and differential treatment (S&DT), aimed at upgrading certain developing countries, will deeply affect the status of emerging economies such as India, China, South Africa, Turkey, Egypt, etc.
- The assumption that some countries have benefited immensely from the WTO rules since its formation in 1995 is flawed, at least in the case of India. And even if there may be no consensus of views on measuring ‘development’, India will remain a developing country no matter which parameter is used.
- The way out for India could be to negotiate a longer phase-out period or an acceptable formula based on development indices, etc.
Fisheries subsidies negotiations
- Among the current negotiations at the WTO, the fisheries subsidies negotiations command the highest attention.
- India can lead the way in finding a landing zone by urging others to settle for the lowest common denominator while seeking permanent protection for traditional and artisanal farmers who are at the subsistence level of survival.
- The danger lies in seeking larger carve-outs, which could result in developed countries ploughing precious fisheries resources in international waters.
Lessons from COVID-19
- The COVID-19 crisis has revealed the urgent and enduring need for international cooperation and collaboration, as no country can fight the pandemic alone.
- The D-G can help mitigate the effects of the pandemic by giving clear directions on ensuring that supply chains remain free and open, recommending a standard harmonized system with classification for vaccines, and by the removal of import/export restrictions.
- Voluntary sharing and pooling of Intellectual Property Rights (IPR) is required for any global effort to tackle the pandemic, but with the fear of vaccine nationalism looming large, several countries are seeking to secure the future supply of leading COVID-19 vaccines.
- India’sreiteration that its vaccine production and delivery capacity will help the whole of humanity will require the D-G to play a responsible role in removing barriers to intellectual property and securing a legal framework within the WTO TRIPS Agreement.
- This can be done by lending salience to the effective interpretation of Articles 8 and 31 of the Agreement, that allow compulsory licensing and agreement of a patent without the authorization of its owner under certain conditions.
Way Forward
- The consensus-based decision-making in the WTO, which makes dissension by even one member stop the process in its track, gives developing countries some heft and influence at par with developed countries.
- The D-G would need to tread cautiously on this front, as some will allude to the successful implementation of the Trade Facilitation Agreement in 2017 that allowed member countries to make commitments in a phased manner in accordance with their domestic preparedness.
- Most imminently, the next D-G will need to build trust among its members that the WTO needs greater engagement by all countries, to stitch fair rules in the larger interest of all nations and thwart unfair trade practices of a few.
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WTO and India
Shift in the US trade politics and opportunities for India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: Paper 3- Changes in trade politics in the US and opportunities for India.
The article focuses on the changes in the US trade politics fueled by the corona pandemic. Also there has been a growing demand for abandoning the WTO. So, amid this shift in the US politics, what are the opportunities for India at the global level?
What went wrong with the WTO: The US point of view
- Latest opposition to the WTO was expressed in a forceful article by a US senator, Josh Hawley.
- In his opinion, corona pandemic expresses the hard truth about the modern global economy: it weakens American workers and empowers China’s rise.
- So, what went wrong?
- Capital and goods moved across borders easier than before but so did jobs. And too many jobs left America’s borders for elsewhere.
- As factories closed, workers suffered, from small towns to the urban core.
- So, he wants US to abandon the WTO.
Rise of trade politics in the US
- Under Trump, the Republican Party has turned from the champion to a critic of free trade.
- The Democratic Party, which embraced globalisation since the early 1990s, has seen the erosion of working-class support.
- Elections this year could reveal if the shifting alignments on trade are now cast in stone or if anti-trade sentiment in America is deep and wide.
What alternatives are suggested by the senator?
- In replacing the WTO, Hawley suggests the following two measures-
- 1) The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty.
- 2) This, in turn, involves building a new network of trusted friends and partners to resist Chinese economic imperialism.
How this matters for India?
- India will have to take a fresh look at the global economy battered by the coronavirus.
- India should pay close attention to Hawley’s theme on working with “trusted friends and partners” to restructure international trade.
- Hawley is not alone in articulating this view.
- Reuters reported from Washington that the Trump Administration is “turbocharging” an initiative to rearrange the global supply chains currently centered on China.
- This rearrangement of the global supply chain offers an opportunity for India to lead the future global supply chains.
Consider the question, “Critically analyse the opportunities presented to India by the changes in trade politics in the US”.
Conclusion
Hobbled as it was by shaky political coalitions and preoccupied by multiple domestic challenges, India in the mid-1990s struggled to cope with the profound changes in the global economic order. As the world trade system arrives at a contingent moment a quarter of a century later, India is hopefully better prepared.
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WTO and India
Global crisis and opportunities for India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-Challenges to the globalisation due to covid pandemic, apportunities for India
Multilateralism has been on the decline for some time now. The corona pandemic has acted like a catalyst to heightene this crisis. China’s role in weaponising the interdependence of multilateralism would have far-reaching consequences to the world as we know it. Yet, the crisis presents India with some unique opportunities. What are these opportunities? How can we save multilateralism? or do we even need to? These questions and such other issues are discussed in the article.
The basic Idea
- Multilateralism has its benefits like to reduce the further spread of the virus, to develop effective medical treatments, and to curtail the worst effects of the inevitable recession- cooperation among nations will be necessary.
- But the very foundation of multilateralism is shaking today. Hence, the need of the hour is a meaningful fix.
- The US faces multiple internal challenges like the divisive Presidential election in November and China is facing a global crisis of credibility.
- Thus, India is uniquely positioned to help resuscitate multilateralism.
- New Delhi can assume leadership in strengthening constructive transnational cooperation.
- India may also help China: Through mediation to temper what is increasingly seen as Beijing’s unilateralist revisionism; revive the promise of the gradual socialisation of China into the international system; and its acceptance of the norms and rules that regulate the principal multilateral institutions.
So, when did the crisis of multilateralism start?
- The malaise that afflicts multilateralism is not new.
- 1) The paralysis of all three functions of the World Trade Organization (WTO) — negotiation, dispute settlement, and transparency — was one sign of that deep-rooted malaise.
- 2) The severely dented credibility of the World Health Organization (WHO) is just another more recent indicator.
- The pandemic has heightened the crisis of multilateralism, not created it.
- Pandemic has highlighted the misuse of international institutions (like WHO) and multilateralism is incapable of dealing with it.
Weaponisation of the global supply chain by China
- Post-war multilateral system was based on the idea of peace and prosperity.
- It was expected that economic inter-mingling among various countries would lead to peace.
- Most of the countries of were democratic and countries with a different system of governance were not part of this system.
- Our multinational institutions were not designed to handle the situation in which one country starts misusing its dominant position in interdependence (ex. global supply chains).
- The misuse of existing loopholes within the existing rules by China to gain an unfair advantage in trade relations was already attracting critique in the last years.
- China has been accused of forced technology requirements, intellectual property rights violations, and subsidies.
- But the pandemic has provided us with some even more alarming illustrations of how damaging the weaponisation of global supply chains can be.
Examples of China weaponising interdependence
- When India complained that test kits imported from China were faulty, China slammed it for “irresponsible” behaviour.
- When Australia indicated that it would conduct an independent investigation of China’s early handling of the epidemic, China threatened it with economic consequences.
- Several actors, including the EU and India, were alarmed at the prospects of predatory takeovers of their companies by China.
Against this background, repeated calls by heads of governments and international organisations urging countries to remain committed to multilateralism ring hollow.
So, what are remedies to save multilateralism?
- 1. Policies with renewed commitment
- There is the need for reassurance and policies that reflect a renewed commitment to the raison d’étre of multilateralism.
- A “retreating” United States must demonstrate that it remains committed to strengthening global supply chains.
- Global supply chains must be based on the promise of ensuring global stability and the attendant promise of peace and prosperity.
- 2. Strategic separation of value chains
- There is an urgent need for some strategic decoupling, handled smartly in cooperation with other like-minded countries.
- It will undoubtedly cause considerable disruption to existing global value chains.
- We will be less prosperous. But we will also be more secure.
- 3. Closer integration with some distancing from others
- A multilateralism that recognises the need for decoupling will necessitate closer cooperation with some and distancing from others.
- Membership of such renewed multilateral institutions would not be universal.
- Rather, one would limit deep integration to countries with which one shares values — such as pluralism, democracy, liberalism, animal welfare rights, and more.
Opportunities for India
- India is a country whose pluralism, democracy and liberalism have often been underestimated by the West.
- As some constituencies in the West seek a gradual decoupling from China, they would be well served to look toward India.
- To make use of the opportunities, for itself and for the provision of certain global public goods, India’s cooperation with like-minded actors will be key.
- India could work closely with the Alliance for Multilateralism, an initiative launched by Germany and France, to shape both the alliance itself and the reform agenda at large.
- Working together with a group of countries from the developed and developing countries could further amplify India’s voice.
- China may recover faster than most economically, and its military might remains intact, its image as a reliable partner has suffered a huge dent.
- India could lead a coalition to bridge the deficit of trust between China and the rest of the world.
Consider the following question “Covid pandemic has been acting as a catalyst in precipitating the fall of global order and multilateralism. At the same time, we are well aware of the utility of the multilateralism. Examine the opportunities that falling global order provides for India in restoring it in the new form.”
Conclusion
The disruption in the global order provides India with a unique opportunity. One the one hand it has to steer the gradual decoupling with China and on the other hand, it has the opportunity to lead the coalition to bridge trust deficit with China. India should not squander these opportunities.
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WTO and India
Between nationalism and globalism
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Is the globalisation past its peak? what will be the impact of corona crisis on the globalisation?
Context
Although all world leaders have acknowledged the global imperative in dealing with the virus, they have put the nation first without much consideration to the collective action.
The middle path between extreme globalisation and hyper-nationalism
- ‘Nation first’ approach: Although all world leaders have acknowledged the global imperative in dealing with the virus, they have put the nation first. Are all nations now for themselves? Not so fast.
- Sovereignty is certainly back. Solidarity is under stress, but not dead. The drift is towards a middle path between extreme globalism and hyper-nationalism.
- The last few decades have seen the growing awareness of “global problems” like climate change and the need for “global solutions”.
- Lack of collective action: The corona pandemic certainly adds to that consciousness. But as in the case of climate change, collective action is not easy to come by.
Closing of the borders and the idea of a “borderless world”
- One of the first steps most governments took during the current crisis was to shut down their borders.
- The idea of a “borderless world” had gained much acceptance in recent years but is now under serious questioning.
- For example, how the US, Canada and Europe are outbidding each other in buying medical material from China.
- They are ready to pay a hefty premium if Chinese suppliers break from an earlier commitment.
- Nations banning medicines: Meanwhile, many nations, including India, have banned the export of much-needed medicines and equipment to combat the virus.
- Washington, which initially criticised other countries for limiting exports of essential drugs, has had no option but to go down that path as the toll from coronavirus rose rapidly.
- Donald Trump is angry with 3M, one of the leading American producers of masks, for exporting to other nations at a time of huge domestic shortfall.
- The US ban on exports of medical supplies came just days after the G-20 affirmed that its member states “will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders”.
Globalisation and related ideas under stress
- A testing time for two ideas: The problem is not that governments are being hypocritical. They are simply trapped in a crisis that is testing two important assumptions that guided the world in the last three decades.
- One is that globalisation, with its long and transborder supply chains, generates prosperity through economic efficiency.
- The second was that economic globalisation based on the dispersal of production will serve the interests of all nations.
Opposition to globalisation in the West
- The new objections to economic globalisation are not coming from the traditional champions of sovereignty in the East and the South, but the West.
- It was North America and Europe that had preached the virtues of unhindered economic
- They also championed the idea of globalism that will transcend national sovereignty in terms of both institutions and values.
- New converts to nationalism and sovereignty began to appear in the West well before corona crisis.
- Brexit to take control own borders: Britain walked out of the European Union claiming the need to “take back control” of its borders.
- Storming the White House against all predictions in 2016, Trump has sought to push Washington away from the trinity of America’s post-war political commitments-to open borders, free trade, and multilateralism.
- Globalisation and corona crisis: For Trump and his team, the corona crisis is confirmation of the dangers of excessive globalisation.
- This argument is finding some resonance in Europe.
- Addressing workers at a factory that makes masks in France, President Emmanuel Macron echoed the same feelings.
Arguments against globalisation
- An argument against efficiency: The efficiency argument of the globalists has been countered in the West by many who say societies are not merely economic units; they are also political and social communities.
- The disadvantage to working people: While expansive globalisation has helped generate super-profits for the capital, it has put the working people at an increasing disadvantage.
- Uneven distribution of benefits: The uneven distribution of the benefits from the dispersal of production and free movement of labour has undermined political support for economic globalisation in the West.
- Role of China: Reinforcing this downward trend is the belief that China is misusing global economic interdependence for unilateral political advantage.
- There were indeed strategic consequences to China’s emergence as the world’s factory.
- After all, China is not a passive territory; it is an ancient civilisation with ambitions of its own.
Future of globalisation and the role of China
- The peak of expansive globalisation is over: While economic interdependence among nations can’t be eliminated, we might be past the peak of expansive globalisation and hyper-connectivity.
- Many countries are likely to move to the diversification of external production, short supply chains and stockpiles of essential materials to limit vulnerability during times of crises.
- China-West relations may change: The palpable anger against China in the US and beyond, for keeping the world in the dark about the spread of the coronavirus, has been magnified by Beijing’s “mask diplomacy” and political triumphalism after it got in control of the situation in Wuhan.
- This anger is bound to translate into long-term changes in the relations between China and the West and some rearrangement of multilateral mechanisms.
Conclusion
Out of this restructuring new international coalitions are likely to emerge. Even as world leaders put their own respective nations first, they will also explore new forms of solidarity. Like the instinct for self-preservation, solidarity too is part of human nature.
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WTO and India
[op-ed snap] How to protect trade in a tug of war between nations
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Cause of the emergence of trade disputes and how can emerging economies negotiate the deals
Context
Developing countries have argued for decades that the rules governing international trade are profoundly unfair. But similar complaints are now emanating from the developed countries that established most of those rules.
Why are developed countries complaining now?
- Competition: A simple but inadequate explanation is “competition.”
- Turning tide: In the 1960s and 1970s, industrialized countries focused on opening foreign markets for their goods and set the rules accordingly.
- Since then, the tide has turned.
- Left behind communities in developed countries
- Cheap labour-an advantage: One reason why emerging-market producers are competitive is that they pay workers less.
- Job creation in services by developed countries: To replace lost manufacturing jobs, developed economies have been creating jobs in services.
- Not everyone has moved to the service sector job: Unfortunately, not everyone in developed countries has been able to move to good service jobs.
- Efforts by the left-behind bring back the manufacturing job: The left-behind former manufacturing communities have a voice in the capital city now, and it wants to bring back manufacturing.
- Yet this explanation, too, is incomplete. The ongoing US-China trade war is not about manufacturing, it is about services.
- Services a reason behind US-China dispute: Much of the US dispute with China is not about manufacturing. It is about services.
- Emerging market competition increasing in services: Although eight of the top ten service exporters are developed countries, emerging-market competition is increasing.
- New services related rules: This increased competition from emerging markets is prompting a major push by advanced-economy firms to enact new service-related trade rules.
- An opportunity to protect the developed country producers: The new rules will ensure continued open borders for services. But it will also be an opportunity to protect the advantages of dominant developed-country producers.
Trade disputes- The combined effects of the two factors
- There are no easy trade deals anymore.
- Two conflicting factors: In sum, two factors have increased the uneasiness over international trade and investment arrangements.
- First-Left behind community: Ordinary people in left-behind communities in developed countries are no longer willing to accept existing arrangements.
- They want to be heard, and they want their interests protected
- Second-emerging economy demanding access to service sector: At the same time, emerging-economy elites want a share of the global market for services and are no longer willing to cede ground there. So, there is no easy trade deal anymore.
- Trade disputes-exercise in power politics
- High tariffs and ram tactics: Threats of sky-high tariffs to close off markets, for example, and battering-ram tactics to force “fairer” rules on the weaker party.
- The important difference from the past: One important difference is that the public in emerging markets is more democratically engaged than in the past.
- Short timed victory: Any success that rich countries have in setting onerous rules for others today could prove pyrrhic.
- No consensus on the rules: For one thing, it is unclear that there is a consensus on those rules even within developed countries. For example- rules to regulate social media.
Way forward
How should developed countries respond to domestic pressures to make trade fairer?
- Demand lower tariffs from developed countries: For starters, it is reasonable to demand that developing countries lower tariffs steadily to an internationally acceptable norm.
- Challenge the discriminatory barriers: Discriminatory non-tariff barriers or subsidies that favour their producers excessively should be challenged at the World Trade Organization.
- Go for less intrusive treaties: To go much beyond these measures—to attempt to impose one’s preferences on unions, regulation of online platforms, and duration of patents on other countries—will further undermine the consensus for trade.
- Less intrusive trade agreements today may do more for the trade tomorrow
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WTO and India
[op-ed of the day] Delhi-Davos disconnect-India must find ways to take advantage of new opportunities
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Trade war, Globalization and effects on Indian economy.
Context
Given its increased heft in the global economic order, India ought to be at the leading edge of the current debate of the future of capitalism.
The emergence of “stakeholder capitalism”
- Interests of all shareholder: Klaus Schwab, who founded the World Economic Forum 50 years ago, wants capitalists to look beyond their shareholders and consider the interests of all the stakeholders.
- Long overdue debate: Some hope that the debate on stakeholder capitalism is a long-overdue recognition of the capitalist excesses of recent decades.
- Generating value for customers: Last August, the Business Roundtable in the US, which brings together some of the top American corporates, said American companies must now generate value for customers.
- Invest in their employees.
- Deal fairly with suppliers and support the communities in which they operate even as they service their shareholders.
- Scepticism over “interests of all shareholders”: Sceptics say that this is a nice way of saying the right things, repackaging old ideas on corporate social responsibility and creating illusions about reforming capitalism.
- Cynics insist that it will be business as usual for the world’s capitalists.
- Reflection of deeper crisis: Beyond this divide between optimists and pessimists, the discourse on “stakeholder capitalism” is a reflection of the deeper crisis afflicting the global economy today.
Three major challenges according to WEF
- In its annual survey on global risks, the WEF has identified many challenges. Three of them stand out.
- First Challenge: Polarised politics
- In the US Trump is unlikely to be defensive.
- While the dominant sentiments see Trump as the very embodiment of nationalism and populism that are polarising politics around the world.
- Others point to the structural conditions that have bred these forces.
- America’s working-class whose wages haven’t risen in decades, whose jobs are less secure than ever rallied behind Trump.
- Politics in the US: Much the same happened in the British elections last year.
- Tory leader Boris Johnson won a sweeping mandate by breaking into the working-class strongholds of the Labour Party.
- Second Challenge: Trade war
- Trump had a long record of denouncing free trade.
- Many had hoped that Trump will moderate his anti-globalist rhetoric once in office.
- Attack on a core principle of globalisation: Trump has taken a pickaxe to the core principles of the globalised economic order – free trade, open borders and multilateralism.
- Renegotiating the treaties: The US has renegotiated a 25-year old trade agreement with America’s neighbours, Canada and Mexico.
- The threat of all-out-trade war with China: Trump’s threat of an all-out trade war with China over the last couple of years has led to an interim agreement.
- The agreement commits Beijing to reduce its trade surplus with the US by importing more.
- The trade deficit of the US with EU: At Davos, Trump is expected to turn his ire on the EU, which has a near $200 billion trade surplus with the US.
- Third challenge: Technology
- War in technology domain: The trade wars among the world’s major capitalist centres is accentuated by the technological revolution, especially in the digital domain.
- Need for coordination: The Davos report on global risks argues that the realisation of the full potential of new technologies depends on unprecedented coordination among all stakeholders.
- Digital fragmentation: What is emerging instead is “digital fragmentation” marked by the extension of geopolitical and geo-economic rivalries into the new domain.
- Digital issues have come to the front and centre of American arguments with Europe.
Conclusion
- India must find ways to take advantage of the new opportunities from the unfolding rearrangement of the global capitalist system.
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