WTO: Facilitating a Level Playing Field in Global Economy

          The World Trade Organization (WTO), an inter-governmental organization regulating international trade, officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), 1948. The WTO deals with regulation of trade among participating countries by providing a framework for trade negotiations and a dispute resolution mechanism. Most of the issues that the WTO deals with derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

          The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II along with  the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization (ITO) was also conceived. The ITO would address not only trade barriers, but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the US and a few other signatories.    In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization. The GATT was the only multilateral instrument governing international trade from 1946 until the WTO was established on 1 January 1995. 

          Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought about a GATT anti-dumping Agreement. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers by adopting agreements on non-tariff barriers, and in others broke entirely new ground. Most of these outcomes were later converted into multilateral commitments by all WTO members.

There were certain limitations of GATT. These included the following:

1.     It lacked institutional structure. GATT by itself was only the set of rules and multilateral agreements.

2.     It didn’t cover trade in services, Intellectual Property Rights etc. Its main focus was on textiles and agriculture sector.

3.     A strong Dispute Resolution Mechanism was absent.

4.     By developing countries, it was seen as a body meant for promoting interests of the West. This was because Geneva Treaty of 1946, where GATT was signed had no representation from newly independent states and socialist states.

5.     Under GATT, countries failed to curb quantitative restrictions on trade (Non-Tariff barriers).

          Accordingly, WTO seeks to give more weightage to the interests of the developing countries in framing of multilateral treaties. Here, a number of other aspects have been brought into, such as Intellectual property under Trade related aspects of Intellectual Property (TRIPS), Services by General Agreement on Trade in Service (GATS), Investments under Trade related Investment Measures (TRIMS).

          Lately, the WTO has been busy with the ongoing negotiations on the Doha Development Agenda (DDA) with an explicit focus on developing countries. The conflict between free trade and retention of  farm subsidies for domestic agricultural sector  and the substantiation of fair trade on agricultural products are the major obstacles. This impasse has made it impossible to launch new WTO negotiations beyond the Doha Development Round. As a result, there have been an increasing number of bilateral free trade agreements between governments. 

           

Main Issues of the Doha Development Round (DDR):

          The WTO launched the current round of negotiations, the Doha Development Round in 2001. This was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries.

          The First proposal at Qatar in 2001called for an agreement to commit to substantial improvements in market access, reductions and ultimate elimination of all forms of export subsidies and substantial reductions in trade-distorting support. The United States has been insisting that the EU and the developing countries agree to more substantial reductions in tariffs. 

          The DDA was given the mandate to critically look at farm subsidies extended by the US, which had increased from $61 billion in 1995 to $140 billion in 2012 and were threatening to increase further after the 2014 Farm Bill. But with the coming of the new trade arrangements such as the TPP (Trans Pacific Partnership), the US subsidy regime has remained unchallenged. Another issue involves the balance of interests between the pharmaceutical companies in developed countries that hold patents on medicines and the public health needs in developing countries.

          In Doha round, members agreed that developing and least developed countries will continue to be eligible for a favourable treatment. However, of late developed countries claim that big developing countries like India, China, Brazil and South Africa are unreasonable in their demand and only least developed countries are rightful claimant of differential treatment. Here it is inconceivable that poor countries like India are to be treated at par with western developed world.  

The Functions of WTO:

1.     WTO monitors the implementation, administration and operation of negotiated agreements.

2.     WTO facilitates the negotiations on issues of international trade and settlement of disputes.

3.     WTO provides the forum for negotiations among its members concerning their multilateral trade relations.

4.     The WTO administers the Understanding on Rules and Procedures Governing the Settlement of Disputes.

5.     The WTO administers Trade Policy Review Mechanism.

6.     With a view to achieve coherence in global economic policy making, the WTO cooperates with the IMF, the World Bank and its affiliated agencies.

          As the trade volume increases, issues such as protectionism, trade barriers, subsidies, violation of intellectual property arise due to the differences in the trading rules of every nation. The WTO serves as the mediator between the nations when such problems arise. WTO could be referred to as the product of globalization and also as one of the most important organizations in today's globalized society.

Some principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

Non-discrimination: It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members i.e. if a country grants someone a special favour, then it has to do the same for all other WTO members. National treatment means that imported goods should be treated no less favourably than domestically produced goods.

Reciprocity: It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets.

Predictability through Binding and enforceable commitments: The multilateral trading system is an attempt by governments to make the business environment stable and predictable. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are binding and enforceable.

Transparency: The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO.

Safety valves: In specific circumstances, the WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

Freer Trade: Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties or tariffs and measures such as import bans or quotas that restrict quantities selectively.

Promoting fair competition: The WTO system is a system of rules dedicated to open, fair and undistorted competition. Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual property, services, for example.

Encouraging Development and Economic Reforms: The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements.

The Aid for Trade initiative: This initiative, of which WTO is a leading proponent, is a crucial element in implementing the gains of trade opening. Its overriding purpose is to help developing countries, especially least-developed countries, improve their productive capacities and strengthen their trade-related infrastructure.

Organisational Structure:

The General Council has the following subsidiary bodies which oversee committees in different areas:

Council for Trade in Goods: There are 11 committees under the jurisdiction of the Goods Council each with a specific task. All members of the WTO participate in the committees.

Council for Trade-Related Intellectual Property Rights: Information on intellectual property in the WTO, news and official records of the activities of the TRIPS Council, and details of the WTO's work with other international organizations in the field.

Council for Trade in Services: The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS).

Trade Negotiations Committee: The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. The chair is WTO's director-general. As of now, the committee is tasked with the Doha Development Round.

          The WTO describes itself as "a rules-based, member-driven organization. All decisions are made by the member governments, and the rules are the outcome of negotiations among members. The WTO Agreement foresees votes where consensus cannot be reached, but the practice of consensus dominates the process of decision-making.

Dispute Settlement Mechanism: Dispute settlement is regarded by the WTO as the central pillar of the multilateral trading system, and as a "unique contribution to the stability of the global economy". WTO members have agreed that, if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. The priority is to settle disputes, preferably through a mutually agreed solution.

India and WTO:

          India has been member of GATT since 1948; hence it was party to Uruguay Round and a founding member of WTO. India has always been against new commitments from the developing world for achieving symmetry and equity in the existing agreements. It is in favour of non-trade issues being permanently kept off the negotiating table. India’s proposal in ongoing negotiations includes suggestions like allowing developing countries to maintain appropriate level of tariff bindings, commensurate with their developmental needs and the prevailing distortions in international markets.

          India has also been seeking a separate safeguard mechanism including provision for imposition of quantitative restrictions under specified circumstances, particularly in case of a surge in imports or decline in prices; exemptions for developing countries from obligations to provide minimum market access; exemptions of all measures taken by developing countries for poverty alleviation, rural development and rural employment.

          India has emphasised that the agreements reached earlier with the developing countries for all the special and differential treatment should be implemented so as to correct inherent imbalances in some of the Uruguay Round agreements. India strongly favours extension of higher levels of protection to the geographical indications for products like Basmati rice, Darjeeling tea, and Alphonso mangoes at par with that provided to wines and spirits under Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement. In the TRIMS (Agreement on Trade-Related Investment Measures) review, India has demanded flexibility for developing countries in adopting appropriate domestic policy while permitting foreign investment.

          The developed countries have been pressing for inclusion of non-trade issues such as rules on investment, environment and labour standards, competition policy, trade facilitation, transparency in government procurement, labour standards etc. Taking the plea that production of products in developing countries are not being done under proper environment and labour standards, the developed countries can ban the imports of some goods in their countries, as the USA has been trying to do so from time to time. India has been against any inclusion of non-trade issues that are directed in the long run at enforcing protectionist measures against developing countries.

          Some critics of WTO have expressed fears that Indian farmers are threatened by the WTO. India has bound its tariff to the extent of 100 per cent for primary agricultural products, 150 per cent for processed agricultural products and 300 per cent for edible oils. It has also been possible to maintain without hindrance the domestic policy instruments for promotion of agriculture or for targeted supply of food grains. Domestic policy measures like the operation of minimum support price, public distribution system as well as provision of input subsidies to agriculture have not in any way been constrained by the WTO agreement.

          Certain provisions in the Agreement on Agriculture (AoA) also give us flexibility to provide support for research, pest and disease control, marketing and promotion services, infrastructure development, payments for relief from natural disasters, payments under the regional assistance programmes for disadvantaged regions and payments under environmental programmes.

          Indian industry has had to face greater competition in the wake of globalisation. But it has successfully competed, as can be inferred from the fact that there has been no particular surge in imports. A close watch is also being kept to ensure that Indian industry does not have to face unfair competition from dumped or subsidised imports of other countries. As for drug prices, safeguards are provided like compulsory licensing, price controls, and parallel imports which should help address this concern. India has been alert against the TRIPS agreement hindering the efforts of developing countries to provide affordable access to medicines.

          India has continued its effort to prevent issues of developmental importance from being sidelined. West has relentlessly tried to project India as rigid and uncompromising negotiator. However, these attributes are better suited to US and other developed countries as they have been backtracking on various commitments under Doha Development Round and desperately trying to bring in new issues including non-trade issues known as Singapore issues.

          AT recent Nairobi meet in 2015, it was seen that while developed countries spoke in unison, there was no such unity in developing countries. Brazil, a prominent member of WTO, has already broken away from G-20/33 group and has aligned itself close to position held by developed countries. India made a serious effort at India-Africa summit in 2015 to arrive at common agenda for WTO and was largely successful.

          At Nairobi, there was a commitment to completely eliminate subsidies for farm exports, except for a handful of agriculture products by 2018. Developing members, however, are to have the flexibility to cover marketing and transport costs for agriculture exports until the end of 2023. The poorest and food-importing countries would enjoy additional time to cut export subsidies. There was another decision, under the Bali Ministerial Decision, whereby developing countries are allowed to continue food stockpile programmes, which are otherwise in risk of breaching the WTO’s domestic subsidy cap, until a permanent solution is found by the 11th Ministerial Conference in 2017.

          All said and done, The WTO has always stood for what is right and fair. Many cases have involved the exploitation of Newly Industrialized Countries (NICs) and Low Developed Countries (LDCs) by the developed countries, which use their position and status unfairly. The WTO has come to the rescue of these NICs and LDCs umpteen times. The WTO has a long history of making rules that exhibit fairness and equality. The WTO has been a great example of the way collective responsibility works. It has lived up to the expectations of making fair trading rules by getting countries together on an international, open forum, and letting the countries decide what is best for them. Since its birth in 1995, the WTO has solved about three hundred disputes. These disputes have shown that the World Trade Organization really works in an unbiased way, without any external pressure, force or control.

          However, critics have argued that the WTO policies overwhelmingly lead to the immiseration of much of the global South, as rising levels of global inequality show. WTO behaviour is alleged to be re-enforced and sustained by the dominance of a particular theoretical discourse that is propagated by the West to the rest of the world.

          The critics also think that the WTO has so far failed to deliver any significant multilateral trade liberalization, showing only minimal progress toward completing its Doha Development Agenda. Moreover, its role as the leading forum for international trade-policy cooperation is increasingly eroded by the proliferation of regional trade agreements to which governments are turning instead.

          However, concluding that the WTO is a failure would clearly be premature. After all, its success depends not only on how well it promotes trade talks, but on how well it prevents trade wars. And its track record seems much better with regards to the latter.    A casual look at the available data suggests that the WTO’s success at preventing trade wars will likely far outweigh its failure to promote trade talks.

          While the average tariff applied during the trade war of the 1930s was about 50 percent, the average tariff applied by WTO members today is only about 9 percent, as per an estimate. Converted into putative monetary values using manufacturing and agricultural value added in 2007, the estimates imply that the failure of the WTO to promote trade talks costs up to $26 billion per year, and the success of the WTO at preventing trade wars is worth up to $340 billion per year.

          The complexities of the global economic problems, therefore, necessitate the need for a multi-faceted solution. Such a solution must be conceived to improve standards of living and foster development in the global South via the WTO taking real steps towards the incorporation and adoption of international labour standards into trade deals, utilising its vast coercive power in a positive manner.

          However, the long-term strategy must be a radical restructuring of the current international trading system that is constructed in such a way as to maintain power asymmetries. What is necessary for any future trading system is that it is grounded in the will of the people of the countries which it is made up of, who are able to exercise the will through a collective and democratic decision-making process.

          The WTO has not only enhanced the value and quantity of trade but has also helped in eradicating trade and non-trade barriers. WTO has also broadened the trade governance scope to trade in investment, services and intellectual property. It has emerged as a greater institution than GATT and expanded the agenda by including developmental policies which further helped in settlement of disputes and improved monitoring by introducing the Trade Policy Review and the World Trade Report as well as increased transparency by removing green room negotiations.         The increasing number of disputes brought to WTO does not reflect increasing tension in the world; it rather reflects the closer economic ties increasing faith in the WTO system to resolve mutual differences.

          The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime. The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller countries more voice and at the same time freeing the major powers from the complexity of having to negotiate trade agreements with each of their numerous trading partners. The WTO system which evolved in the second half of the 20^th century helps governments take a more balanced view of trade policy. Governments are better placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy.

           The fact remains that the multilateral trading system – for all its imperfections – gives even the smallest and poorest countries far greater leverage and security than they would ever have outside the system. Multilateral negotiations allow weaker countries to pool their collective influence and interests – as opposed to bilateral or even regional negotiations in which they have virtually no negotiating clout. In the same way, a system which replaces the role of power in international trade relations with the rule of law is invariably to the advantage of the smallest and weakest countries.