Reform proposal of WTO and India

Several developing countries including India are concerned that the G20 proclamation on reforming the World Trade Organization (WTO) could be used to change the consensus-driven character of the multilateral trade body, which could go against India’s interest. ( IR Section, GS Paper - 2)


WTO Reforms and India


Proposed reforms in WTO at G20 meeting

  • At the G20 meeting in Buenos Aires on 1 December 2019, leaders were able to agree on a paragraph on trade in their final declaration that says:

  • “We recognize the contribution that the multilateral trading system has made to that end. The system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning. We will review progress at our next summit”

  • The G20 declaration suggests the developed countries will try to alter the consensus-based model of the WTO.

  • They may propose a majority-driven model like the Trade Facilitation Agreement (TFA) or voting on the basis of assigned weights as done at the International Monetary Fund.

  • Under the TFA signed within the WTO umbrella, once two-third of the members signed the deal, it came into effect while other countries were given time to join when ready. TFA benefits are available to WTO members only when they sign the deal.

  • The WTO director general Roberto Azevedo had also welcomed the G20 declaration, stating it to be a very important moment in tackling current challenges in global trade.

Although, there are various criticisms of WTO and its way of functioning since the Marrakesh Agreement that concern India, but in this article, we’ll discuss mainly about the following issues:


THE EVOLUTION OF WTO

  1. World Bank and IMF are called Bretton Wood institutions; they were established at Bretton Wood Conference in 1944. The original Bretton Woods agreement also included plans for an International Trade Organisation (ITO).

  2. International Trade Organisation (ITO) was to be created to establish multilateral rules for the settlement of trade disputes and to resist protectionist demands and provide for greater legal certainty. The ITO never came into existence as it was eventually rejected by the U.S.

  3. The General Agreement on Tariffs and Trade (GATT) came to replace the ITO. This ad hoc and provisional mechanism (GATT) was replaced by WTO in 1994.

  4. The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade.

  5. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.

  6. It is the largest international economic organization in the world.

Main Ministerial Meets

Criticisms of Nairobi outcomes:

  • The ministerial declaration, adopted after some delay and amid much acrimony didn’t abandon the DDA (which was a real apprehension for India and other developing countries), but the reaffirmation was not unanimous.

  • WTO ministerial declarations are always consensus documents and even one country can hold things up. Clearly, there was no meeting ground at all between the developing countries (which wanted an unambiguous reaffirmation of the DDA) and the developed countries (which want the Doha Round to be scrapped and a new Round to be initiated, with new issues).

  • The Nairobi ministerial also leaves a window open for the inclusion of new issues – investment, competition, transparency in government procurement, to name just three – that developed countries have been pushing for and developing countries have been resisting.

Nothing on Peace clause

  • Under WTO’s agreement on agriculture (AoA), member-states have to limit their food-subsidies to 10% of the value of agriculture production in 1986.

  • India and other developing countries opposed it because to provide food security to their poor masses.

  • During WTO’s Bali summit (2012) they were given immunity under a ‘peace clause‘, with the deadline of 2017.

  • Even after two years

  • Nothing on ministerial decision on SSM since the Hong Kong ministerial in 2005.

What did the developing countries – especially India – get out of the ministerial?

  • Of the six items of the so-called historic Nairobi package, two were of particular interest to India – a permanent solution to the issue of public stockholding for food security and special safeguard measure (SSM) to protect farmers from import surges.

1. ISSUE OF CONSENSUS-DRIVEN PRINCIPLE:

  • In October, WTO had an informal Trade Negotiations Committee (TNC) meeting with the World Bank and the International Monetary Fund (IMF).

  • The three chiefs of the WTO, IMF, and World Bank issued a report, ‘Reinvigorating Trade and Inclusive Growth’ at the meeting.

  • The report prepared by the WTO secretariat along with the secretariats of the IMF and the World Bank advocated the termination of the principle of consensus-based multilateral rule-making for pursuing plurilateral negotiations in new issues.

  • The report has called for negotiating new “rules” in five areas--electronic commerce, investment facilitation, disciplines for micro, small and medium enterprises (MSMEs), domestic regulation for services, and gender--that would penetrate into the autonomous space of domestic regulatory structures.

Reasons given in the report:


  • The WTO Secretariat has opted for a change by setting aside the consensus principle on grounds that it is disrupting the negotiating activity at the global trade body.

  • The WTO has argued that “the practice of bundling negotiating issues together in giant, all-or-nothing trade rounds (based on the Single Undertaking) has become extremely difficult to manage”

  • The report suggested that the “single-undertaking approach”, which implies that nothing is agreed until everything was agreed as in the Doha negotiating framework “became increasingly vulnerable to delays and deadlocks as progress on more feasible issues was held back by a lack of progress on more controversial and intractable ones”.

  • In certain areas, especially those emerging issues where policy innovation is needed and where not all 164 WTO members are equipped or ready to engage, some countries wish to move further and faster than others, and are doing so.


WTO Decision Making structure

  • Like its predecessor, the GATT, the WTO operates as a rules-based, member driven organization.

  • All major decisions are made by the membership as a whole, with each member having an equal voice. Ordinarily, decisions are made by consensus.

  • A consensus is reached if no member formally objects to a decision.

  • In a limited range of circumstances, the WTO agreements allow for decisions to be made by voting, usually by a supermajority.

2. Issue of special and differential (S&D) treatment:

  • The other issue that may come under stress is the S&D treatment for large developing countries like India and China.

  • “Developed countries may get some developing countries like to voluntarily give up S&D. If countries like Kenya and Nigeria give up S&D benefits, that will put pressure on India.

  • It is easy to create the feeling among African countries that large emerging economies like India are taking the S&D benefits that are meant for small developing and least developed countries.

  • India need to counter that narrative.


3. Launching plurilateral negotiations on new issues:

  • The three institutions also advocated the more so-called use of plurilateral talks to help unblock trade negotiations that have failed to advance at the multilateral level.

  • Plurilateral accords are deals negotiated among a group of like-minded members that are limited to certain sectors of goods or services. Such agreements are typically easier and faster to negotiate than multilateral accords, which require a consensus among the WTO’s 164 members.

Reasons given in the report:


  • New rules negotiated through plurilaterals in e-commerce, domestic regulation, investment facilitation, disciplines for MSMEs, and gender would likely be inherently non-discriminatory, because they involve domestic regulations that cannot be easily tailored to benefit specific trade partners, making concerns about discrimination, like calculations of reciprocity,less relevant.

  • The open-plurilateral discussions are not aimed at “exchanging market access concessions, but to improve regulatory coordination, in order to minimize policy frictions and advance shared goals in a ‘least trade restrictive’ way, and they could lead to a more cooperative, less mercantilist, approach to WTO negotiations in the future”.


Accusations on India:

  • India is often accused of stalling negotiations by taking advantage of the consensus-driven approach at the WTO under which even one member can block an agreement in the 164-member body.

  • At the WTO’s 11th Ministerial Conference in Buenos Aires in December 2017, India blocked an agreement that would have included a ministerial decision on fisheries subsidies; a work programme on electronic commerce and including an extension of the moratorium on customs duties on electronic transmissions, among others, because the declaration did not contain an affirmation of the special and differential (S&D) treatment for developing countries and the conclusion of the Doha Development Agenda (DDA).

Criticisms of the report and proposed reforms:


  • The report’s central goal is aimed at preparing the ground for the WTO’s 12th ministerial conference to be held in Astana, Kazakhstan, in June or July 2020, for a formal burial of the Doha Round, and simultaneous launch of plurilateral negotiations in new issues.

  • The report has failed to answer the vital question as to how the new rules were going to be enforced and whether there will be a dispute settlement system to oversee trade disputes arising from these rules in these areas.

  • According to the report, “the multilateral trading system has not always relied on large-scale ‘single undertakings’ like the Uruguay Round”. It spoke about American priorities in the trade policy since 1995.

  • It is quite apparent now that the emerging new regime will not be the one defined around the principle of multilateralism embodied in the World Trade Organization (WTO).

  • The developed countries have systematically worked to undermine the WTO and deny the inclusive agenda being pursued by developing countries such as India, Brazil and South Africa.

Who are supporting the reforms recommended?


  • The major industrialized countries, such as the United States, the European Union, Japan, Canada, and Australia, welcomed the reform proposals saying that the institutional reform is an imperative at this juncture.

  • The US deputy trade representative and envoy to the WTO said his administration is encouraged by reforms proposed by the US Trade Representative at the Buenos Aires ministerial meeting.

India’s opposition to the proposed reforms:


Against the Marrakesh Agreement


  • The WTO Secretariat has crossed the “Marrakesh Agreement”, which had clearly laid out the rules for the conduct of business for the Secretariat.

  • According to the Marrakesh agreement, the WTO Secretariat, unlike the Secretariats in the World Bank and the IMF, is required to remain neutral in negotiating new trade rules without advancing the positions of any one country or groups of countries.

  • Under WTO rules, the secretariat cannot offer or propose reforms without prior approval of all the 164 members.

  • Clearly, it violated the core principles of the Marrakesh Agreement for conducting the business at the trade body.


Still Doha issues have not resolved


· India said that it is “deeply concerned at the WTO secretariat becoming a party to the recent report by international organizations on WTO reforms.”


· Instead of addressing “the existential crisis facing the Appellate Body”, which is the highest adjudicating arm for resolving global trade disputes, the proposed reforms, particularly the plurilateral trade negotiations in new issues, will amount to “launching a new round [of trade negotiations] even when we still need to address some of the Doha issues”.


Against new issues like e-commerce


  • On electronic commerce, the report advocated that members must be guided by the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), which had replaced the TPP (Trans-Pacific Partnership) Agreement.

  • Without addressing the digital divide and numerous concerns arising from globalization for countries like India, it would be imprudent to seek reforms that will “freeze the inequities against the developing countries and perpetuate the monopoly of e-commerce platforms that would thwart competition,” India maintained.

  • In India, a fledgling but vibrant electronics industry has been almost completely wiped out after joining the ITA-I (information technology agreement), while in the last eight years, our exports of goods as a proportion of GDP in percentage terms have reduced by a third.


Preserving member-driven character of the WTO


  • In the absence of any explicit request from the membership by consensus, India expect the secretariat to act with restraint in this matter so that the member-driven character of the WTO is preserved.

  • The issue “is best resolved by the membership without the secretariat offering its suggestions.”

Response of WTO after facing severe criticism from developing countries:


  • Responding to criticisms against the secretariat, WTO Director general said he does not know which division of the secretariat collaborated with the World Bank and the IMF in drafting the report.

  • He also ensured that he will now look into the report in the face of criticisms made by members, suggesting that there was no bias.



Conclusion:The slow pace of reforms since the early 2000s, fundamental changes in a more interconnected modern economy, and the risk of trade policy reversals call for urgency to reinvigorate trade policy reforms.


However, the reforms suggested at G20 meeting for WTO will not be in our interest.India should oppose any such move even though it is a lonely battle ahead. Though China is currently opposed to it, they may be forced to accept. That would mean India and South Africa will be left alone opposing it. India should see how much it can build to improve the system and make it responsive for all WTO members.



Ponder over these Mains Questions


1. The Indian government is concerned that the G20 proclamation on reforming the World Trade Organisation (WTO) could be used to change the consensus-driven character of the WTO which could go against India’s interest. Comment.


2. WTO is facing existential crisis during a time when developed economies have adopted protectionist attitude. Critically comment on the functioning of WTO as a global trade negotiation body and how India should ensure that it remain a multilateral body in the background of rising bilateral or plurilateral negotiations?

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