World Trade Organisation Must Get Back To Trade

News: For the first time in a decade, the members of the World Trade Organization (WTO) have finalized a historic deal at the 12th Ministerial Conference(MC12). The key issues include a reduction in fishery subsidies, patent waivers for making a vaccine for the pandemic, food security and e-commerce.

What are the concerns associated with the MC12 outcomes?

World trade has two core components: goods and services. Both with an annual value of $28. 5 trillion. But the current WTO outcome does not include new rules on goods, services, or other trade-related subjects.

For the past 27 years, WTO members did not agree on a single multilateral agreement liberalising trade in goods or services.

Note: The trade deal signed in 2013 is related to trade facilitation only.

About the evolution of GATT

The General Agreement on Tariffs and Trade (GATT), established in April 1947 with 23 members, was the beginning of the multilateral trade system.

The US, EU and Japan cut their tariffs on industrial goods without seeking reciprocal cuts from other countries. They did not lose much as they produced and traded most goods among themselves.

This led big firms to shift production to low-cost countries like China in search of profit. Further, they required the free flow of products across countries.

From 1947 to 1994 talks at GATT led to a fall in average import tariffs from over 100% to 4% for developed and 10% for developing countries. These tariff cuts benefited the trade of rich and poor countries alike. But the major gainer was China.

About the evolution of WTO

Offshoring and tariff cuts increased the profits of Western corporates. Hence, there was an opinion that GATT could be more beneficial if it dealt with more subjects.

Hence, a new body, WTO, soon replaced GATT in 1995. It added intellectual property rights, services, agriculture and an effective dispute-settlement system.

IP Rights: WTO’s dispute-settlement process ensured time-bound punishment for violation of intellectual property. IP became the first non-trade subject to be included in WTO.

WTO’s agriculture rules: These rules were drafted by large agriculture trading firms that legalised most subsidies provided by the developed countries. At present, if support given by a developing country like India exceeds more than 10% of the production value then it is considered that the government violated WTO rules.

What are the challenges associated with the WTO?

Burden for Poor countries: The WTO rules included many Non-trade subjects. The subjects like environment, labour standards, fossil fuel subsidies, plastic pollution and transparency in government procurement into the WTO fold.

This made a poor country exporting cotton shirts must first meet high environmental standards at home. This will only raise costs and cut exports from poor countries.

Legitimise trade protectionism: Specialised multilateral and regional institutions exist for the environment and labour protection. Developing countries are active participants in these bodies. Discussing them at WTO is an attempt to legitimise trade protectionism.

Trade war paralysed WTO: In 2017, the US administration imposed steep tariffs in January 2018 on China alleging IP violations. In December 2019 the US also blocked the appointment of new nominees to WTO’s appellate body. This paralysed WTO as a judge and enforcer of global trade rules.

What should be done?

First, out of 164 members, at least 140 are developing or least-developed countries accounting for 45% of world trade. Hence, WTO needs a new plan that reflects the aspiration of all members.

Second, WTO should handle only trade-related subjects, while retaining core principles like decision-making by consensus and restoring the dispute-settlement process.

GATT/WTO rules have to increase trade for both rich and poor countries. A new WTO agenda with a focus on this core value should  be framed.

Source: This post is based on the article “World Trade Organisation Must Get Back To Trade” published in The Times of India on 18th June 22.