World Trade Organization (WTO)

Source: The Hindu

Relevance: GS III – Economy                                   

The World Trade Organization (WTO) is an intergovernmental organization that regulates and promotes international trade between nations. It is the only global organization that deals with trade rules between the nations.

Declining Relevance of the WTO

Experts are of the view that the economic organization is gradually regressing to irrelevance and is almost gone despite being the world’s largest international economic organization, with 164 member states representing over 98% of global trade and global GDP.

Against the backdrop of retaliatory tariffs imposed by United States President Donald Trump and China responding with equal measure, it is observed that the diminishing importance of the trade body had started long before the Trump administration to the launch of the Doha Round.

WTO’s Failure in Its Core Functions

The WTO is failing to perform in all the major three functions it was required to deliver on the negotiating function, dispute settlement, and the trade monitoring function.

• Even in the then Doha Round, there were efforts to negotiate on large disparities on tariffs, which is a major concern for the Trump administration today, but back then there wasreally no momentum to lower the tariffs multilaterally despite the efforts.
• The Appellatebody – dispute settlement mechanism – has also been dysfunctional over the last 5 years since the United States has blocked appointments to the body.
• Even under the trade monitoring function, the WTO has failed starkly due to transparencyconcerns as many members do not openly declare their trade measures.

The body’s capability to prevent any economic crisis is being seriously questioned now.

Challenges Rooted in the Decision-Making Process

The WTO is in an extremely difficult position to put forth solutions for global economic concerns as the problems roots down to it’s decision by consensus principle which was opposed in voting by the United States and India.

• Even the proposal forwarded by the European Union on arbitration did not find global support. Also, on trade monitoring no country can be forced to reveal it’s trade measures.
• Article 1, Most-favored-nation principleis the cardinal foundation for the multilateral trading system. Free Trade Agreements is an exception to this rule and has to be in the knowledge of the WTO.
• During the late 1990s and early 2000s countries increasingly negotiated FTAs amongst themselves and so did the United States.
• The present Trump administration is of the view that the US, over the years of negotiation lowered their tariffs to a very low level, expecting other countries to follow suit, which eventually didn’t happen. Negotiating FTAs bilaterally signals stepping away from the MFN and thus from the WTO too.

India’s concerns

India is an agricultural country engaging almost 55% of the population. India was limited to a 10% subsidy, whereas the US and the EU were allowed to subsidise for so many years.

• On labour standards and environmental protection, India finds it better to discuss bilaterally with the EU, UK and even the US.

The WTO simply did not foresee China, which produces more than 50% of steel and aluminium, distorting trade rules and therefore could not formulate any rules when China flooded the global markets with cheap exports and also restricted access to its domestic markets.