WORLD TRADE ORGANISATION

WORLD TRADE ORGANISATION

The WTO is an inter-governmental organization that regulates and facilitates international trade between nations. It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, replacing the General Agreement on Tariffs and Trade (GATT) established in 1948.

Objectives of WTO

• Rules: To set and enforce rules for international trade.
• Negotiation and monitoring: To provide a forum for negotiating and monitoring further trade liberalization.
• Dispute resolution: To resolve trade disputes.
• Transparency: To increase the transparency of decision-making processes.
• Cooperation: To collaborate with other major international economic institutions involved in global economic management.
• Support for developing countries: To help developing countries benefit fully from the global trading system.

Achievements of WTO

• Growth in cross-border trade: Binding rules for global trade in goods and services have significantly boosted cross-border business activity. Since 1995, world trade value has nearly quadrupled, outpacing the two-fold increase in global GDP.
• Rise in global value chains: Predictable market conditions fostered by the WTO and improved communication have enabled the growth of global value chains, which now account for 70% of total merchandise trade.
• Decline in tariffs: Average tariffs have nearly halved, from 10.5% to 6.4%.
• Growth in developing countries: Global value chains (GVCs) have facilitated rapid growth in developing economies, increasing consumer choice and purchasing power.
• Reduction in poverty: Over the past 25 years, there has been a historic reduction in poverty rates. In 1995, one in three people globally lived below the World Bank’s $1.90 threshold; now, the rate is below 10%.

Issues/Challenges of World Trade Organization

1. Global environment
   • Trade restrictions: In recent years, governments have imposed trade restrictions affecting $747 billion in global imports (as of 2019).
   • Rising uncertainty: Uncertainty about market conditions has delayed investments, impacting growth and economic potential.
2. Structural challenges
   • Conflicting demands: Developing countries seek to maintain special and differential treatment, while developed nations push for the removal of such measures and an update of WTO rules.
   • Consensus-based voting: WTO decisions are made by consensus, which has led to delays on crucial issues like agriculture, subsidies, and services.
   • Ineffective enforcement powers: The WTO struggles to address issues like labor rights violations in countries like China, which reduces export costs and contributes to rising protectionism.
   • Misuse of national security clause: WTO allows members to act on “essential national security interests.” For example, the US used this clause to impose high tariffs on steel and aluminum.
   • Paralyzed dispute settlement mechanism: The Trump administration’s veto on new appointments to the WTO’s appellate body has effectively halted its dispute resolution function. ​​
   • Developing country status: There is no agreed definition of what constitutes a developing country at the WTO; countries can self-declare their status. As developing countries receive “special and differential treatment,” approximately two-thirds of WTO members claim developing-country status.
3. Issues in WTO Agriculture Rules
   • Use of External Reference Price (ERP): WTO’s ERP, for calculating market price support (MPS) limits, is set at the 1986-88 level, even after global price hikes in 2007-08 and 2010-11.
   • Use of procurement price: WTO uses the procurement (administered) price instead of the domestic market price for calculating support received by farmers.
   • Use of total production instead of actual procurement: There is no clarity on whether to calculate a country’s food grain production or only the amount procured by the government. While India uses only the amount of grains procured by the government, the US uses total production of rice and wheat to raise objections.

1. Other issues
   • Alternative arrangements: Regional and bilateral trade agreements, such as RECP and FTAs between member countries, undermine the relevance of WTO.
   • Undermining credibility of WTO: Imposing unilateral tariffs or threatening such actions violates WTO’s established procedures, undermining its credibility. For example, the tariff war between the U.S. and China.
   • Conflict related to Intellectual Property: There is tension between developing and developed countries. Developed countries want stricter patent rules, particularly in pharmaceuticals, while developing countries seek lenient provisions to allow generics.
   • WTO e-commerce moratorium: Established to examine all trade-related issues in global e-commerce, this moratorium has been questioned by developing countries due to revenue implications.

Way Forward

• Handling Developing Country Status:
  • Encouraging ‘graduation’: WTO members could emulate Brazil, Singapore, South Korea, and Taiwan in forgoing special and differential treatment.
  • Determining status on a case-by-case basis: Instead of an across-the-board approach, WTO members could graduate to developed-country status through agreement-by-agreement assessments.
  • Increasing the use of plurilateral agreements: This approach would allow relevant commitments to apply only to countries ready to join a plurilateral coalition, accommodating differences without relying on rigid definitions.
  • Individualizing commitments: Following the Paris Agreement model, WTO members could adopt individualized schedules and commitments.
• On Agriculture Rules:
  • Changing reference price: Negotiators could consider updating reference prices to 2014-16 or 2016-18 averages or use a rolling average, excluding the highest and lowest years from a 5-year period.
  • Exempt support: Support could be exempt from maximum limits if administered prices are below international market levels.
  • Discount support consumed: Members could exclude support consumed by subsistence farmers in calculating eligible production volumes.

• Reforming the Voting Process: Guidelines should be established to clearly define criteria for veto usage. Veto decisions should align with the interests of all members and the WTO’s mandate. ​​
• Avoiding national security issues: WTO should refrain from passing orders on national security issues, such as in the Ukraine & Russia matter, where it ruled that it has the right to review whether a country’s claim was made in good faith, potentially opening a Pandora’s box.

• Plurilateral negotiations: Promoting plurilateral negotiations offers the prospect of building “coalitions of the willing.”
• Appointment process to dispute settlement body: It should be made independent of political control. For example, recent blocking by the US rendered the appellate mechanism non-functional.
• Using other platforms for reform talks: Platforms like G20 can be used to bring countries in sync on reforms due to distrust among WTO members.
• Increasing transparency: WTO members should proactively disclose their subsidies to build trust and transparency among members.