- Prelims: Protectionism, liberalization, WTO, GATT etc
- Mains GS Paper III: Government planning, mobilization of resources, LPG reforms, protectionism etc
ARTICLE HIGHLIGHTS
- World Trade Organization (WTO) Panel reports have ruled that the tariffs of 25% and 10% on steel and aluminum, respectively, that the United States (U.S.) had imposed during the presidency of Donald Trump are inconsistent with WTO law.
- The cases were brought by China, Norway, Switzerland, and Turkey
INSIGHTS ON THE ISSUE
Context
World Trade Organization(WTO):
Principles of WTO:
Functions:
World Trade Organization (WTO) Panel report:
- Article II.1(eleven point one)of the General Agreement on Tariffs and Trade (GATT): The tariff rates breached the U.S.’s obligations under Article II.1 of the General Agreement on Tariffs and Trade (GATT)—which obligates countries not to impose tariffs beyond bound rates.
- The tariffs breached Article I of GATT because they discriminated between some foreign producers of steel and aluminum over others.
US’s stand and panel reply:
US stand:
- Article XXI: The U.S. tried to justify its tariff hikes under Article XXI of GATT.
- It allows countries to deviate from their trade obligations on grounds of national security.
- Article XXI(b)(iii) of GATT allows a country to take any action which it considers “ necessary for the protection of its essential security interests(war or other ‘emergency) in international relations’.
Panel reply:
- Not entirely self judging: The panel held that the national security rule in Article XXI is not entirely ‘self-judging’.
- A panel can review the action of a state taken purportedly to protect its national security.
- The Panel’s decision on this point is consistent with previous WTO jurisprudence laid down in the Russia-Transit and the Saudi Arabia- IPR cases.
- The Panel rejected the U.S.’s argument that it increased the tariff rates due to global excess capacity, which could lead to excessive imports of these two commodities used in defense production, compromising the U.S.’s national security.
- Emergency in IR: The Panel held that the situation the U.S. referred to does not constitute an ‘emergency in international relations’ under Article XXI(b)(iii) because it lacked severity.
Neoliberalism:
- Neoliberalism is based on principles such as non-discrimination in international economic relations and a peaceful settlement of disputes through neutral international courts.
- In the neoliberal order, economic and security interests are relatively independent tracks.
- It champions interdependence.
- Global institutions: Neoliberal order created global institutions such as the WTO and a plethora of free trade and investment treaties.
Tools of Protectionism:
Arguments for Protectionism:
- National security: The argument pertains to the risk of dependency upon other nations for economic sustainability.
- Infant industry: protectionist policies are required to protect industries in their initial stages. As if the market is kept open, global established companies can capture the market. This can lead to the end of domestic players in the new industry.
- Dumping: Many countries dump their goods (sell them at lower price than their cost of production or their cost in the local market) in other countries.
- Saving jobs: Buying more domestically will drive up national production, and that this increased production will in turn result in a healthier domestic job market.
- Outsourcing: it is common practice for companies to identify countries having cheaper labor and easier systems of governance and outsource their job work.
- Intellectual Property Protection: Patents, in a domestic system, protect the innovators. On a global scale, developing nations copy new technologies via reverse engineering.
Arguments against Protectionism
- Trade Agreements: India has benefited immensely from international trade agreements.
- As per the Commerce Ministry data, India has entered into Free Trade Agreements (FTA) with about 54 individual countries.
- Against WTO Regulations: India has been a member of WTO since its inception. WTO’s regulations prohibit imposing restrictions on imports from other countries.
- Inflationary in Nature: Protectionist policies by restricting imports, can lead to rising prices in the domestic market. Thus, hurting the interest of the consumers directly.
- Uncompetitive Domestic Industries: By protecting the local industries, they have no incentive to innovate or spend resources on research and development (R&D) of new products.
Way Forward
- The neoliberal order is not dead, the independent economic and security tracks have started to converge, thus heralding the geoeconomic order.
- The increasing use of national security to justify economic nationalism is an attempt to blunt the possibility of international courts reviewing state action.
- This explains the U.S.’s argument that the national security defense is ‘self-judging’ and ‘non justiciable’.
- James Bacchus: The geoeconomic order will inevitably lead to international trade lawlessness’.
- The US’s rejection of the WTO Panel’s ruling calling it ‘flawed’.
- This will only embolden other countries to pursue unilateralism and economic nationalism.
QUESTION FOR PRACTICE
Q. The broader aims and objectives of WTO are to manage and promote international trade in the era of globalization. But the Doha round of negotiations seem doomed due to differences between the developed and the developing countries.” Discuss in the Indian perspective.(UPSC 2016) (200 WORDS, 10 MARKS)
