WTO: An existential battle

The last resort for developing nations

Business

May 15, 2019

/ By / New Delhi

wto

The WTO has also managed to bring on board a very large number of other nations in the past 25 years of its existence

As countries chart their own path, violating global trade rules with impunity, the World Trade Organisation (WTO) is more vulnerable than ever. But for the smaller developing nations, WTO is the sole recourse in a lawless world.

The last few years have been specially terrible for the World Trade Organisation as it has spent most of the time watching the action on global trade from the sidelines. When it was created in 1995, replacing the previous loose arrangement of General Agreement on Tariffs and Trade (GATT), the WTO was meant to be a single, multilateral platform to unify and harmonise the global trade, create some basic rules of fair treatment and protection of the weaker and smaller nations against the global giants (read the developed countries).

One of the key mandates of the WTO was to integrate the numerous bilateral or plurilateral agreements between countries or regions into the global trade system in order to create a uniform system that would boost trade by not only opening up new markets around the world, but also by removing differential tariffs that countries often applied on all but a few of their favoured trading partners.

WTO started off on the right note. One of its key achievements, early on, was to bring China, the country with the biggest market in the world, into the global trading system. With China’s integration in 2001, global trade boomed multi-fold as over the next decade and a half, the Asian giant became the global factory and was shipping goods to practically all the corners of the world, often made by Western companies in their own factories or outsourced to Chinese manufacturers.

China’s entry into the global trading arena was a god sent for consumers as it democratised the market for almost all the products that could be made in a factory. It was thanks to China’s WTO membership that consumers of a wide range of products – from textiles and telephones to cars and computers – saw a sharp fall in prices, thus raising the affordability of several goods that had been hitherto too expensive for a vast majority of them.

Another significant achievement of the WTO has been to enforce a rules-based trade regime which has allowed even a small nation like Guatemala take on the European Union, the world’s largest single market through the dispute settlement mechanism created by the WTO! In the last 24 years, over 500 disputes over trade have been brought by various member states to the dispute settlement body and nearly 350 rulings have been issued. This system has indeed played a key role in smoothening global trade.

The WTO has also managed to bring on board a very large number of other nations in the past 25 years of its existence. The organisation began with 128 countries that had signed up to the GATT in 1994. Today, it counts 164 nations as full members, 20 that are currently in negotiation for accession and a number of international organisations that are observers in WTO. By taking the membership to practically every country on the planet, the WTO has tried to create a level playing field to ensure that smaller members do not get trampled upon by the large economies that are often hundreds of times bigger than the small nations.

Failing the nations

But it is also here, in creating a level playing field, that the WTO has failed in its objective. When the organisation was launched in 1995, the developing nations had been complaining that they had not obtained a fair deal from the developed nations and there were large trade imbalances. It was with the objective of helping developing countries boost their exports by providing access to the promising markets in the developed nations that in 2001, the Doha Development Round of negotiations began. These negotiations were meant to be wound up with a broad agreement within four years. However, nearly two decades later, the negotiations are still nowhere near completion.

In order to boost the economic growth of the developing nations, Doha talks centred around the principle of special and differential treatment for the poorer nations. One of the basic issues was ending or lowering farm subsidies in the developed nations as agricultural products were, and still are, the biggest component of exports of practically all the developing countries around the world. By cutting farm subsidies and opening their markets to food imports, the developed nations were meant to create a favourable ground for the developing world. In addition, the developed countries were also supposed to lower their tariffs on other imports from the developing countries, who in turn were meant to open their markets to services, notably financial services.

But almost 19 years later, the Doha round is still stuck and primarily because the developed world has reneged upon its promises of opening up its markets to exports from the developing countries. As a result, talks on further liberalisation of trade as well as setting the basic rules and framework for the ‘new economy’ and technology-driven services have been blocked or moving ahead at a snail’s pace.

The lack of progress in WTO has led a large number of countries or regions proceed with their own bilateral trade agreements, thus weakening the position and importance of a global trade system. WTO records indicate that there are a total of 291 such trade agreements that exist today and a large number of these have been reached in the last 15 years, since the derailment of the Doha negotiations.

Even in area of dispute settlement, the WTO is facing a serious challenge as the United States, unhappy with some of the recent rulings of the trade body, has refused to allow nomination of judges to the dispute settlement body, thus virtually paralysing the dispute settlement mechanism.

It may be imperfect and still far away from delivering on its promises. Still the world needs the WTO and a strengthened and robust body which can take the harsh measures and decisions that referees are often called upon to take.

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