Editorial: The problem at the WTO

Evolution of WTO:

World Bank and IMF are called Bretton Wood institutions; they were established at Bretton Wood Conference in 1944. The original Bretton Woods agreement also included plans for an International Trade Organisation (ITO)

International Trade Organisation (ITO) was to be created to establish multilateral rules for the settlement of trade disputes and to resist protectionist demands and provide for greater legal certainty. The ITO never came into existence as it was eventually rejected by the U.S.

The General Agreement on Tariffs and Trade (GATT) came to replace the ITO. This ad hoc and provisional mechanism (GATT) was replaced by WTO in 1994.

The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade.

The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.

It is the largest international economic organization in the world.

Context of the issue:

WTO is facing existential crisis during a time when developed economies have adopted protectionist attitude.

The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism

With only four working members out of seven normally serving office in July 2018, the institution is under great stress

If no appointment is made, it will simply be destroyed by December 2019, with only one remaining member to tackle a massive number of disputes that are also increasingly hyper technical.

The U.S.’s ire (Strong Emotion, temper):

The U.S. drove the agenda to establish the World Trade Organisation (WTO) purely to pursue its own commercial interests.

The U.S. has been long proven isolationist and has never truly embraced the idea of a multilateral system in which its leadership could be contested.

So, the recent ire against its very creations, from the North American Free Trade Agreement (NAFTA) to the Trans-Pacific Partnership (TPP), and the less recent disenchantment with NATO or UNESCO, is not surprising.

Dispute Settlement Crisis at WTO:

The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism. The U.S. is not willing to be judged by an independent multilateral quasi-judicial institution.

Many analysts have said that Buenos Aires summit has highlighted the existential crisis faced by WTO especially during a time when emerging economies have adopted assertive and developed economies have adopted protectionist attitude.

Concerns Related to Dispute Settlement at WTO:

• Over the politicisation of the Appellate Body appointment and reappointment process. The quasi-attribution of permanent Appellate Body seats to the U.S. and the European Union (EU).

• There is a trade war between US and China despite both being a member of WTO. This negates the core non-discriminatory principle of WTO.
• US and China have imposed counter-productive duties, accusing each other of harming their domestic interests. WTO has not been able to prevent the trade wars despite best efforts and has been labelled as a talk shop. There is concern that China may be on its way to having a permanent seat.

• The “Overreaching” or judicial activism of United States. The US here tried to separate trade from development and objected to mention centrality for development at the preparation of the declaration.
• The US stand will adversely affect the development interest of the developing world.
• At the Buenos Aires, the developed countries led by the US and the European Union formed groups on e-commerce, investment facilitation and MSMEs within the WTO with more than 70 members in each group.

• The WTO dispute settlement mechanism is not a world trade court. The process remains political and diplomatic. In trade wars, the objective is not to settle a dispute; it is to win the battle.
• The very existence of an appeal mechanism is now paradoxically questioned at a time the global community criticises the absence of the same mechanism in Investor-State Dispute Settlement.

Who could be WTO’s saviour?

Beijing might well be the new WTO leader and China’s growing assertiveness may be the reason for the U.S.’s hard posturing. China is trying to establish herself by its assertiveness in rule-based WTO system.

In less than a decade since its first dispute, China has accumulated a vast experience close to that of the U.S. or Europe. This strategic and selective normative acculturation has been an empowering one — so much so that Beijing, together with a few others, the EU, and to some extent India, is now the main supporter of multilateralism.

China, EU, and to some extent India, and a few others, is now the main supporter of multilateralism.

The recent EU-China proposal to promote the reform of the WTO is said to combat “unilateralism and protectionism” but might well fail to address unfair trade issues raised against China itself.

Conclusion:

The world has changed and multilateral institutions now have to embed these changes. This WTO crisis might well be the final battle to retain control over a Western-centric organisation.

The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions.

Way Ahead:

WTO needs to strengthen the dispute settlement mechanism as there are issues in appointment of judges in new appellate body.

WTO needs to enhance discussion mechanism by introducing wider consultations. It has been a long-standing complaint by the smaller participants that the consultations or decision making is limited to the green room of DG of WTO.

There is a need of free trade is required more by developing countries like India than developed countries.

There is need for the structural reform in the WTO functioning as multilateral trading system. Despite WTO being a democratic organization, there is a need to make it more effective in protecting the interests of small nations against stronger countries. The process of retaliation is ineffective and too impractical for smaller players.

So, developing countries must work collaboratively to strengthen WTO to collaborate effectively and learn from the past experiences when India and China led the developing countries in environmental forums, garnering funds in the form of GCF.