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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: