WTO

Introduction

• The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade between nations.
• It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, thus replacing the General Agreement on Tariffs and Trade (GATT) that had been established in 1948
• The WTO is the world’s largest international economic organization, with 164 member states representing over 98% of global trade and global GDP
  • Also, WTO is the only global international organization dealing with the rules of trade between nations

• Why WTO replaced GATT?
  • There were certain limitations of GATT, like
    • It lacked institutional structure. GATT by itself was only the set of rules and multilateral agreements.
    • It didn’t cover trade in services, Intellectual Property Rights etc. Its main focus was on Textiles and agriculture sector.
    • A strong Dispute Resolution Mechanism was absent.
    • By developing countries it was seen as a body meant for promoting interests of wests. This was because Geneva Treaty of 1946, where GATT was signed had no representation from newly independent states and socialist states.
    • Under GATT countries failed to curb quantitative restrictions on trade. (Non-Tariff barriers)

• Principles that are of importance to WTO:
  • Non-discrimination
    • It has two major components:
      1. The most favoured nation (MFN) rule
         • The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e., a WTO member has to grant the most favourable conditions under which it allows trade in a certain product type to all other WTO members
      2. The national treatment policy
         • National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods)
  • Reciprocity
    • It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets.
    • A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize
  • Binding and enforceable commitments
    • The tariff commitments made by WTO members in multilateral trade negotiation and on accession are enumerated in a legal instrument known as a schedule (list) of concession.

• • Transparency
    • The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO
    • These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM)
  • Safety values
    • In specific circumstances, governments are able to restrict trade.
    • The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health

Organizational structure

• The highest authority of the WTO is the Ministerial Conference, which must meet at least every two years
• In between each Ministerial Conference, the daily work is handled by three bodies whose membership is the same; they only differ by the terms of reference under which each body is constituted
  • The General Council
• • • This is the WTO’s highest-level decision-making body in Geneva, meeting regularly to carry out the functions of the WTO
    • It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years

• The Dispute Settlement Body
  • Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy.
    • Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced
  • The operation of the WTO dispute settlement process involves case-specific panels appointed by the Dispute Settlement Body (DSB), the Appellate Body, The Director-General and the WTO Secretariat, arbitrators, and advisory experts
  • The priority is to settle disputes, preferably through a mutually agreed solution, and provision has been made for the process to be conducted in an efficient and timely manner

• The Trade Policy Review Body (TPRB)
  • The WTO General Council meets as the TPRB to undertake trade policy reviews of Members under the TPRM and to consider the Director-General’s regular reports on trade policy development.

WTO AGREEMENTS

• The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession
• Discussion of most important agreements are as follows:
  • The Agreement on Agriculture(AoA) came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or “pillars”: domestic support, market access and export subsidies
    • Domestic Support – It refers to subsidies such guaranteed Minimum Price or Input subsidies which are direct and product specific. Under this, Subsidies are categorized into 3 boxes
      • Green Box – Subsidies which are no or least market distorting includes measures decoupled from output such as income-support payments (decoupled income support), safety – net programs, payments under environmental programs, and agricultural research and-development subsidies
      • Blue Box – Only ‘Production limiting Subsidies’ under this are allowed. They cover payments based on acreage, yield, or number of livestock in a base year
      • Amber Box – These include subsidies which are trade distorting and need to be curbed.
    • The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector, in the same way as the General Agreement on Tariffs and Trade (GATT) provided such a system for merchandise trade. The agreement entered into force in January 1995
    • The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994
    • The Agreement on the Application of Sanitary and Phytosanitary Measures—also known as the SPS Agreement—was negotiated during the Uruguay Round of GATT, and entered into force with the establishment of the WTO at the beginning of 1995.
      • Under the SPS agreement, the WTO sets constraints on members’ policies relating to food safety (bacterial contaminants, pesticides, inspection, and labelling) as well as animal and plant health (imported pests and diseases)
    • The Agreement on Technical Barriers to Trade 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 at the end of 1994.
      • The objective was to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade”
    • The Agreement on Customs Valuation, formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow
    • In 2013, the biggest agreement within the WTO was signed and known as the Bali Package
      • The accord includes provisions for lowering import tariffs and agricultural subsidies, with the intention of making it easier for developing countries to trade with the developed world in global markets

WTO & INDIA

• India is one of the twenty-three original contracting parties to the General Agreement on Tariffs and Trade (GATT).
  • India, thus automatically became a member of the World Trade Organization (WTO), which replaced GATT on 1 January 1995, following the completion of the Uruguay Round of negotiations in 1994
• In the post-WTO era, India continues to be an important voice in discussions to launch a new round of multilateral trade negotiations
  • The thrust of India’s position has been to ensure a fair distribution of rights and obligations between developed and developing countries and to address the developmental concerns of poor countries
• Earlier, India’s strategy was largely defensive, in line with its import substitution policies.
  • But the initiation of economic reforms following the balance of payments crisis of 1991 altered India’s views on the opportunities, benefits, and threats of engaging in the multilateral trading system and has led to the adoption of a more forward-looking negotiating strategy
• Tracing the relations
  • The WTO entered into force in 1995 with a binding dispute settlement mechanism and with agreements going well beyond goods, to include services and intellectual property rights (IPRs)
    • While there were some gains for developing countries such as India in the field of textiles and clothing, the outcome was unfair to these countries and far more favourable to the US, EU and other developed countries
    • As a result, in India’s case, this led to “negotiation resentment,” which persisted far beyond the Uruguay Round
  • Yet, India enthusiastically joined the WTO in 1995. India had taken on onerous obligations, evident from the fact that it had to change its domestic law completely to bring itself in line with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement
  • Doha Development Agenda
    • The Doha Ministerial Declaration makes clear that the majority of WTO members are developing countries and that their needs and interests will be placed at the heart of the work programme adopted in the declaration
    • However, the Doha Rounds of negotiations failed due to systemic problems,
      • It was linked to rule and regulations of the global financial bodies
      • The strong opposition led by G20 then, stalled negotiations
      • There was a lack of agreement on the Special Safeguard Mechanism (SSM), which was an important element of Agriculture negotiations
    • The Doha Development Round became just another mercantilist round of concessions being exchanged between the developed and developing countries
    • As a result, India did not go ahead with negotiations in areas such as investment, competition policy, government procurement and trade facilitation (also known as Singapore Issues), and were put off for a future date
  • WTO ministerial conference in Bali (2013)
    • This was perhaps the last opportunity to save the Doha Round. It was becoming increasingly difficult to justify that not a single multilateral agreement had been agreed on 18 years after the WTO’s establishment

• In Bali, the fact that members were able to agree to a multilateral agreement on trade facilitation was greeted with enthusiasm and relief.
• The Trade Facilitation Agreement is remarkable as it fulfilled the fundamental objective of cutting down red tape and diminishing the costs of trading, and it also reflects in full the S&DT(Special and differential treatment ) applicable for developing and least-developed countries.
• But agriculture continued to be a sticking point in Bali as well.
  • India, supported by the G33 coalition of countries, wanted public stockholding to be moved to the ‘green box’ (subsidies that are permissible).
  • The developed countries led by the US opposed this. In the end, the compromise was that there would be a peace clause — India and others who avail of public stockholding will not be dragged to dispute settlement until a permanent solution is found

India – WTO: Recent issues

• Ban of Chinese Mobile Apps
  • According to China, India’s move to continue with a ban imposed last year on 59 Chinese apps is in violation of the principles of the World Trade Organisation and norms of market economy,
    • India’s measure selectively and discriminatorily aims at certain Chinese apps on ambiguous and far-fetched grounds, runs against fair and transparent procedure requirements, abuses national security exceptions, and [is suspected] of violating the WTO rules.
    • It also goes against the general trend of international trade and e-commerce, and is not conducive to consumer interests and the market competition in India
  • But, India’s Ministry of Information Technology has defended by stating that the apps were blocked under section 69A of the Information Technology Act after learning that the apps are engaged in activities which are prejudicial to sovereignty and integrity of India.
• Issues related to the Peace Clause
  • Under the Peace Clause, WTO members refrain from challenging any breach in prescribed subsidy ceiling given by a developing nation at the dispute settlement forum of the Geneva-based organisation.
  • Accordingly, India invokes peace clause as rice subsidies exceed 10% cap
  • The peace clause was invoked by India, as it protects its food procurement programmes against action from WTO members as its rules were breached.
    • In this particular case, the subsidy ceilings which stands at 10 per cent of the value of food production in the case of India and other developing countries was breached as India granted subsidies amounting to 13.7% of food production
  • In response, US, EU, Canada, Brazil, Japan and Paraguay registered a total of 25 questions in relation to India’s additional notification obligations, reporting methodologies and the trade impact of the support
• Fisheries subsidies
  • Recently, India has rejected the latest draft for an agreement to lower fisheries subsidy at the World Trade Organization (WTO), arguing that it did not take on board the suggestions to make the regime equitable and was biased in favour of countries such as Norway, China and Japan, which were exploiting international waters.
  • India is demanding common but differentiated responsibilities
    • A key proposal from India is to seek a standstill for 25 years from countries in Europe, as well as other countries for fishing in International waters

Reviving WTO for a multilateral trading regime

• Appellate body reform
  • The appellate body is the lynchpin of the dispute settlement mechanism
  • Issues and solution
    • To the complaint that appellate body members who have finished their term should not sit in judgment of cases, the proposal states that the selection process to replace appellate body members begin six months before the expiry of the term
    • On the criticism that the body takes too long to issue reports, the draft decision states that 90 days should be the norm
    • The most substantive criticism levelled against the appellate body by the US was one of ‘judicial overreach.’ On this, the body will be reminded that it cannot add or diminish the rights and obligations of WTO members under the covered agreements
  • Special and differential treatment
    • This entitlement to the S&DT is a hard fought one for developing countries and therefore they view with anger and angst the attempts by developed countries to dismantle it
    • Contention by developed countries: if a country belongs to the G20 grouping it loses its developing country status is absurd
    • Hence approach should be taken to resolve the issue of the S&DT definition
  • Towards a Sustainable Development Goal-oriented trade negotiation
    • Achieving consensus in the WTO is difficult given its members’ economic diversity. Many studies have proposed alternative negotiating modes to adopt rules for new disciplines
    • Despite limitations, plurilateral negotiations can bring progress in many policy areas, if standalone multilateral agreements cannot be finalized.
      • They can be useful in diverse areas such as domestic regulation of services, e-commerce, investment facilitation, SMEs, digital trade, subsidies, environmental goods, regulatory cooperation, etc.
    • Along with these options, it is essential to maintain multilateral dialogue open, to preserve the sustainability and centricity of a functioning and effective WTO system