WTO Reforms and India- Explained Pointwise

Recently, the 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) ended in a status quo. No consensus was reached on most of the key issues. WTO reforms still remains an Achilles heel. However, Indian Commerce and Industry Minister Piyush Goyal emphasised that India has retained full policy space for the benefit of its farmers.

What were the outcomes of MC 13 of WTO? What were the hits and misses for India?

Agriculture

India’s Demand- India, along with other developing countries, has sought a ‘permanent solution’ to the public stock holding issue. Public stock holding is a policy tool used by governments for procuring, stockpiling, and distributing food for domestic food security. For ex- India’s MSP Scheme.

Outcome- No agreement was reached on the public stock holding issue. Developed nations, such as the European Union, have opposed public stock holding programs on the ground that could impact the food security of other countries.

Impact on India- India faces no immediate threat to its public stock holding program due to the ‘peace clause’. It offers a shield to developing countries from legal challenges over subsidies or free distribution of grains to the poor.

Fisheries Subsidies

India’s Demand- India acknowledged the negative impact of subsidies on the fisheries sector. India emphasised on the need to curb harmful subsidies for countries engaged in distant water fishing.

Outcome- Member nations failed to produce an outcome document regarding subsidization of fisheries. The ministerial declaration did not mention fisheries subsidies.

Impact on India- India retains full policy space for the benefit of its artisanal fisheries. The livelihoods of fishermen, particularly those fishing up to 200 nautical miles beyond territorial waters, is safeguarded.

E-Commerce

India’s Demand- India opposed the continued exemption of Customs duties on e-commerce or electronic transmission. India has argued that the moratorium adversely affected revenue collections. India also wanted an assessment of the moratorium’s scope and its impact on other countries.

Outcome- WTO nations agreed to maintain the current practice of not imposing Customs duties on electronic transmissions until the next ministerial conference or March 31, 2026, whichever is earlier.

Impact on India- The extension of tax breaks for Big Tech will impact the tax revenue collection of India. It curtails the policy space for undertaking digital industrialisation in India and escaping digital colonisation.

Dispute Settlement Mechanism

India’s Demand- India has demanded the establishment of a fully functional dispute settlement system for amicable resolution of disputes.

Outcome- Countries have resolved to establish a fully functioning dispute settlement system accessible to all members by the end of 2024.

Impact on India- The establishment of fully functional dispute settlement system will help in faster resolution of India related trade pacts.

What is WTO and the ministerial meetings?

WTO- The World Trade Organization is the only international organization that deals with the rules of trade between countries. The WTO officially commenced in 1995 under the Marrakesh Agreement signed by 124 nations, replacing the General Agreement on Tariffs and Trade (GATT).

According to its rules, all decisions are taken through consensus and any member can exercise a veto.

Key Agreements under the WTO framework

Ministerial Meetings- The Ministerial Conference is the WTO’s top decision-making body and usually meets every two years. All members of the WTO are involved in the MC, and they can take decisions on all matters covered under any multilateral trade agreements.

What have been the achievements of WTO?

1. Facilitation of International Trade- Binding rules for global trade in goods and services have facilitated dramatic growth in cross-border business activity. The real volume of world trade has expanded by 2.7 times since the inception of WTO.

2. Reduction in Tariffs- After the creation of WTO, average tariffs have almost halved, from 10.5% to 6.4%. This has facilitated the growth of International trade.

3. Boost to national incomes- Accession to WTO has given a lasting boost to national income of several developing economies.

4. Rise of global value chains- The predictable market conditions fostered by the WTO have combined with improved communications to enable the rise of global value chains. Trade within these global value chains today accounts for almost 70% of total merchandise trade.

5. Reduction in poverty- The free and fair trade principles has also contributed to reduction in world poverty levels. Taking into account, the World Bank’s $1.90 threshold for extreme poverty, the poverty level has fallen from ~33.33% in 1995 to ~10% today.

What are the challenges and key areas of reforms for WTO today?

1. Rising Protectionism and trade restrictions- Trade restrictions by the developed and advanced economies has affected international trade (~$747 billion in global imports), and postponement of investment by businesses.

2. Failure of dispute resolution mechanism- There has been a lack of consensus among the members regarding the reforms of the Appellate Body. The appointment of nominees to WTO’s appellate body has at times been blocked by developed countries, paralysing the WTO as a judge and enforcer of global trade rules. For ex- US blocking appointments in 2019.

3. Trade distortion by misusing the Special and Differential Treatment (S&DT)- Provisions for agricultural and industrial subsidies have been misused by many developed countries, causing trade distortions. High income countries like South Korea and China have misutilised the concessions of developing countries, as developing countries are defined based on ‘self-declaration’.

4. Shift to Plurilateral Agreements- There has been a shift towards plurilateral agreements like the TPP Agreement. Plurilateral Agreements favour developed countries more as they are able to push their interests (developing countries have less negotiating power) unlike WTO where all agreements happen through consensus.

5. Lack of consensus- There is lack of consensus on  WTO reforms. On one hand, the countries of Global South demand rationalisation of fisheries subsidies, handholding of their public stock holding programs. On the other hand, developed nations have put their old obligations on the back-burner and are pushing the WTO to form rules on e-commerce, an area where they have a clear edge.

What are the suggested WTO reforms? 

1. 30 for 30- India has issued a comprehensive proposal called “30 For 30”. It is to bring at least 30 operational improvements to the WTO before the Organization completes 30 years, that is by 1 January 2025. A year long cooling-off period before hiring a diplomat in any role in the organization, resolving old issues before picking up new ones, and a time-bound work programme to make dispute settlement more accessible for developing countries are some of the suggested operational improvements.

2. New rules on emerging trade domains- There must be consensus based new agreements on emerging trade domains like electronic commerce, investment facilitation, domestic regulation in services. It will make trade more efficient and predictable in cutting-edge sectors of the economy.

3. Increasing participation in global trade- Efforts must be made to make it easier, safer and viable for women and smaller businesses to participate in global trade. This would help make trade more inclusive.

4. Depoliticisation of Appointment process- The appointment process to dispute settlement body should be made independent of political control.

5. Reforming the voting process- Clear guidelines must be spelt as to when a country may use its veto power. Veto usage needs to be weighed against the interests of all, and in light of the WTO’s mandate.

6. Dispute settlement reform- This includes expanding the Appellate Body panel from seven to nine judges, redefining membership of the Appellate Body from part-time to full-time, and allocating more resources to the Appellate Body Secretariat.

7. Independent panel as arbiter- An independent panel could play the role of arbiter, evaluating the competing claims and helping to overcome the political deadlock.

8. Increasing transparency- WTO members should proactively disclose their subsidies to develop trust and transparency among WTO members.