LATHA JISHNU Bracing for an ‘improved’ WTO DYSFUNCTIONAL BODY
OUTSIDE THERE is anguish and fear, insecurity about jobs. It is the sacred duty of the UN system, the World Trade Organization (WTO) and the Bretton Woods Institutions to create reasons to believe in the future and to give people sound reasons to hope.” That was Rubens Ricupero, Secretary-General of the UN Conference on Trade and Development (UNCTAD) 22 years ago. The Brazilian economist was speaking to WTO delegates, many of them heads of government, on behalf of the UN chief to caution them that despite the impressive gains of global liberalisation the world was in turmoil since large numbers of people were not seeing the benefits. The turmoil has increased manifold since then, specially after the US mortgage crisis of 2008 roiled global financial markets and resulted in a contraction of economies.
Today the situation is dire. The COVID-19 pandemic has tested the ability of the world to act in concert to tackle an unprecedented challenge, and found it wanting. The disruption of global supply chains and the growing gravity of the economic downturn have spurred widespread trade protectionism, deepening a trend that set in two years ago. WTO finds trade restrictions by member governments have affected global imports valued at US $747 billion in 2019 alone. The rising uncertainty about market conditions has stalled investment worldwide and its implications for developing countries can be gauged from the World Bank’s projection that an additional 71 million people will fall into extreme poverty.
In the midst of the Great Lockdown and its grim trajectory, there is farce and tragedy being enacted by the US. Instead of spearheading a collective response, it has attacked relentlessly the very
institutions that should be leading the charge—the World Health Organization and WTO—and has choked off funds to the former. WTO is in a shambles brought to its knees by successive US administrations but more resolutely by the Donald Trump regime which is contemptuous of multilateral organisations in general. Trump is given to describing the 164-member WTO as “a disaster” or “horrible” and frequently threatens to quit the organisation. He has paralysed a critical aspect of its work, dispute resolution, by blocking the appointment of the required number of judges to its Appellate Body.
WTO is also headless. Robert Azevedo, the director-general, quit in August, a year before his term was to expire, saying nothing much was happening at the apex trade regulatory organisation. His exit was likened to someone leaving a sinking ship. There is a slender chance a new director-general will be appointed before the year-end but the hope that the new incumbent will revive a floundering organisation is out of the question; it’s the members who drive WTO. In any case, the successful candidate would have to be someone who is agreeable to the US and Europe and, perhaps, to China as well.
Skirmishes among major trading partners—the US, China, European Union, Japan and South Korea—have erupted into full blown wars. In all three areas of its functioning—negotiation, dispute resolution and monitoring compliance—WTO is in deep crisis, says Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade. “Respect for WTO rules has receded.” You could argue that the credibility of WTO dented a long time ago and that multilateral rule-making had become unfeasible almost from the start.
A headline event on September 15, 2020, underlines how dysfunctional the global trading system is. A WTO
panel found the US had illegally imposed tariffs on more than $350 billion worth of Chinese imports. Since he unleashed a trade war against China in 2018, Trump had threatened tariffs on nearly all Chinese imports but stepped back from the brink in January when he signed an initial trade deal with China.
The US had claimed its tariffs were justified because China was stealing intellectual property and forcing American companies to transfer technology to Chinese firms. WTO’s three-member panel did not accept the argument. “A WTO
member cannot waive unilaterally its own WTO obligations whenever it considers that another member is acting ‘unfairly’ and that the WTO
Agreement does not provide adequate remedies,” the panel said. “Such unilateral responses are themselves both unfair and illicit under the WTO Agreement.”
There is little comfort to be drawn from the ruling. China has already retaliated against the US
will succeed is an open question. That’s the reason the panel which ruled on the US-China dispute wrote in justification that “it is very much aware of the wider context in which the WTO system currently operates,” reflecting “a range of unprecedented global trade tensions”.
What is the outlook? Will WTO continue to hobble along in its crippled state? Will it wither away and die? Not at all, declares trade policy analyst Biswajit Dhar. “Big business needs a predictable rulesbased system. It’s very important for them and they will not allow it.” Besides, with new areas coming up on the horizon, such as investment facilitation, E-commerce and rules of MSMEs (micro, small and medium enterprises), all of which offer huge market access to the big players, reinvigorating its negotiating function which has atrophied since the collapse of the Doha Round although the dispute settlement mechanism will be the primary focus. It’s fairly certain the wings of the Appellate Body will be clipped since the US complains bitterly that the institution has created new rules of its own.
The reforms push, which started in 2018, is set to gain momentum with several initiatives under way. While the European Commission has published a revised paper on modernising WTO to “make international trade rules fit for the challenges of the global economy”, more than a dozen likeminded members have organised minister-level meetings to chart the way forward. Besides, the US,