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The Financial Express

World Trade Organisation at a cross-roads


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World Trade Organisation at a cross-roads

International trade among nations, based on comparative advantage, has been as old as civilisation. And yet, it has not been free and fair in terms of the conditions to be made for access to each others markets. The desire to protect domestic industries through tariff and non-tariff barriers has been hard to overcome. Because such a narrow mercantilist view not only affects international trade but domestic economies as well has led to efforts at rationalising global trade. These efforts gained a new sense of urgency after the second world war when strengthening policies to build a new world order was given top priority. The General Agreement on Trade and Tariff (GATT) emerged in 1947 as the chief international institutional framework for implementing international trade norms through tariff negotiations on a product by product basis. The United Nations' role in promoting international trade, particularly in respect of preserving the interests of developing countries, was strengthened through the GATT and the UN Conference on Trade and Development (UNCTAD). Under the auspices of the GATT a number of high level meetings were held for reduction of tariffs and removal of non-tariff barriers that came to be known in consecutive periods as the Uruguay Round, Kennedy Round and Tokyo Round. Though the achievement of the goals of GATT and UNCTAD were few and far between, the momentum for liberalising and strengthening international trade through cooperation was maintained. This ultimately led to the establishment of the World Trade Organisation (WTO) in 1995, and was entrusted with the unfinished tasks of GATT.

The WTO benefitted from the achievements of GATT and UNCTAD, however limited those were in number and scope. But it also inherited the structural problem of international trade represented by the differing strengths of the developed and developing  countries and their divergent interests. Like GATT, the WTO has held rounds of talks starting at Doha in 1997 among its 130 member countries to reduce tariff, remove non-tariff barriers and to foster international trade in an environment of cooperation based on multi-lateral rules. The rules-based system that WTO has tried to promote, starting from where GATT left-off, have faced two major problems. Firstly and most importantly, it has tried to reduce tariff and remove non-tariff barriers to help accelerate global trade. In this it has made with very limited success so far because of the uncompromising stance taken by the developed countries in respect of opening up of their protected sectors like agriculture. Likewise, the developing countries have also been adamant in protecting their industries from foreign competition. All that the WTO can claim to be its achievement so far is the agreement among members to take measures conducive for trade facilitation. But the scope and meaning of the words in the agreement over this issue are too wide and vague to pin down members to specific obligations.

The slow process of arriving at a consensus on the terms of imports and exports by member countries of WTO received a severe set back by the `America First' policy pursued by the former President of United States, Donald Trump. In pursuance of this unilateralist policy, his administration put priority on bi-lateral and regional trade agreements, by passing the WTO. The most glaring example of this is the trade negotiation between America and China in the back drop of tit-for-tat tariff that worsened through escalations. This, along with America's imposition of `punitive tariff' on imports of steel, aluminum and automobile parts from Japan and countries of EU and a long list of goods from China, has weakened the tariff reducing role of WTO. When the number one economy in the world bypasses WTO, other members can do very little by way of redressing the balance. As a result the whole multi-lateral rules-based system upheld and promoted by WTO faced and existential crisis which it has not overcome yet. The global trade regime never faced a more bleak prospect as it did during the tenure of Donald Trump. It remains to be seen how soon and to what degree the unilateralist 'America First' policy is unraveled by the new American administration. 

In spite of the lackluster performance in terms of reducing tariff and removing non-tariff barriers, WTO can take some satisfaction on its record of settling trade disputes among its member countries. Settlement of trade disputes takes place through hearing by its appellate body which consists of two tiers. In the first tier a member can lodge a complaint against another member for non-compliance of WTO rules to settle a dispute amicably through consultations. If consultations do not succeed a panel is formed by WTO which hears both parties and gives a written report in the form of recommendations. If a party is not satisfied with these recommendations it can seek appellate review. At the second tier of dispute settlement the appellate body of WTO calls for hearing of the parties and analyses the panel report. The appellate judges then prepare their report which the parties in the dispute are legally bound to comply with.

America has expressed dissatisfaction with the appellate verdict in many cases, particularly when it lost against complaints by other members. Taking an aggressive stand, the Trump administration observed that WTO always ruled against American interests. The record, however, shows otherwise. Since 1995, America has won ninety per cent of cases brought before the appellate body of WTO. But American administration under Donald Trump was not happy with this outcome because it lost in eighty per cent of cases brought against it by other countries. Becoming critical in the dispute settlement system Trump administration decided to scuttle this mechanism and make WTO non-functional by vetoing the appointment of judges to the appellate body. At present there are three out of seven judges and the terms of two judges have expired, leaving only one in post. The request of having at least three judges to hear settlement disputes have been kept in abeyance due to the non-cooperative attitude of Trump administration. This policy was aimed at putting an end to the role of WTO as an adjudicator in dispute cases, its only justification as an international body so far.

If Donald Trump was re-elected as President for the second term, the refusal to agree to appoint the required number of judges would have dealt the death knell for WTO as a rule-based system for multilateral trade. America would have continued on its policy of forging bilateral trade deals with other countries to suit its national interest. Other countries would have followed suit, many against their better judgment. That would have meant the end of WTO as an international organisation for promoting freer and fairer an international trade. Perhaps as an alternative a plurilateral organisation might have taken its place. But given the role of America, both in terms of imports and exports this alternative would have been a non-starter. Change could come only after the American economy suffered severely as it did during the 1930's Great Depression. But that change would have come at a price that the other member countries could ill afford. Now that there is a new occupant of White House who has already declared that America is back again, there is every hope that the rule-based multilateral system of trade promoted through WTO would be given due support by the new administration. It may not agree overnight to reduce all the tariff barriers without proper negotiation but neither will it be so petty-minded like its predecessor to undermine the organisation that has been established after painstaking efforts spanning almost fifty years. But WTO cannot expect a radical shift in the trade policy of America. One of the legacy of Donald Trump will be for the new administration to pay heed to populist demand for protecting national interests, even when it means taking mere postures. In other words, liberalisation of the trade policy by the Biden administration will be slow in coming and may not give unconditional support to WTO. Meanwhile, a new director general has taken over the charge of WTO, who is not only the first woman to hold the post but also from the continent of Africa, another first. The days ahead do not appear as bleak as they were during the previous American administration, but neither can a sudden reversal of the fortunes of WTO be expected. But whatever may be the course of the future, a new beginning is going to be made by the world trade body under its new leadership.     

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