Trade in transition

The World Trade Organisation’s (WTO) 13th Ministerial Conference (MC13) concluded in Abu Dhabi on March 1, 2024 with the adoption of a Ministerial Declaration setting out a forward-looking, reform agenda for the organisation. Initially scheduled for 26-29 February, the Conference was extended by a day to reach outcomes on the various issues at stake. The Ministerial Conference brought together nearly 4,000 ministers, senior trade officials and other delegates from the WTO’s 164 members and observers as well as representatives from civil society, business and the global media. MC13 coincided with the 30th anniversary of the establishment of the WTO at Marrakesh.

WTO press release reports that the Ministers took a number of decisions, including renewing the commitment to have a fully and well-functioning dispute settlement system (DSS) by 2024, and to improve the use of the special and differential treatment (S&DT) provisions for developing and least developed countries (LDCs). They also agreed to continue negotiations in all areas where convergence was elusive at MC13. Few important decisions adopted during the conference are:

* MC13 committed to preserve and strengthen the ability of the multilateral trading system, with the WTO at its core, to respond to current trade challenges.

* The Ministerial Declaration underlines the centrality of the development dimension in the work of the WTO, recognising the role that the multilateral trading system can play in contributing towards the achievement of the UN 2030 Agenda and its Sustainable Development Goals. It also recognised the contribution of women’s economic empowerment and women’s participation in trade to economic growth and sustainable development.

* It recognised the role and importance of services to the global economy as it generates more than two-thirds of global economic output and accounts for over half of all jobs.

* On the most crucial issue on dispute settlement system (DSS) reform, members adopted a Ministerial Decision where the ministers instructed the officials to accelerate discussions in an inclusive and transparent manner, build on the progress already made, and work on unresolved issues, including issues regarding appeal/review and accessibility to achieve the objective by 2024 as set forth at MC12.

* India has asked for the restoration of the appellate body of the WTO’s dispute settlement system; the US has been blocking the appointments of judges in the body since 2019, due to which the system is not working smoothly.

* On special and differential treatment (S&DT), MC13 adopted a resolution responding to a 2009 mandate to review S&DT provisions for developing and least developed countries (LDCs) with a view to making them more precise, effective and operational.

* During MC13, the ministers initiated conversations on how trade relates to two major political, economic and environmental challenges, namely sustainable development and socioeconomic inclusion.

* On electronic commerce, members agreed to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference (MC14), or March 31, 2026, whichever is earlier.

Breakdown of the Dispute Settlement System

Arguably, the dispute settlement is the central pillar of the multilateral trading system, and is vital to WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. Since 2019, the current crisis at the WTO Appellate Body, which is an integral part of DSS of WTO, has highlighted its role. As per the WTO structure, the highest tribunal of world trade is a standing body of seven individuals that hears appeals regarding reports issued by panels in disputes between WTO members. Each Appellate Body member serves a four-year term and may be reappointed for another four-year term.

A Chatham House Study reveals that since 2017, as the Trump administration had blocked the (re)appointment of several Appellate Body members, the Appellate Body on December 11, 2019 lost its quorum of three members required to hear new appeals. This has brought the Appellate Body’s work to a standstill. If this DSS logjam is not resolved, this could lead to increased protectionism and chaos in global trade as observed before the formation of WTO.

Interestingly, it has been observed that the US is the most active user of the WTO’s dispute settlement system. Between 1995 and 2019, the US was a complainant in 124 out of the total of 593 WTO disputes. The EU initiated 104 cases. The US and the EU also had the highest number of WTO disputes filed against them between 1995 and 2019 – with the US being a respondent in 155 cases and the EU in 86. Both the US and the EU have targeted each other significantly.

In the growing trade disputes between China and USA, restoration of DSS in a multilateral framework of WTO will help both the countries for an amicable solution — especially to USA which has received the maximum benefit till now from WTO’s DSS.

Major issues where consensus could not be arrived at:

Issues such as non-trade concerns, cotton subsidies, ‘dirty subsidies’, and food stockholding remain challenges. Permanent solutions in agriculture for public stock holding to ensure domestic food security or subsidies to the fisheries sector have remained non-conclusive, though MC13 was extended for a day as developing and developed nations were unable to find a common ground on these key issues.

The G-33 group which includes 47 developing and least developed countries expressed serious concern over the lack of progress in agriculture trade negotiations and urged the members of the World Trade Organisation (WTO) to work on a permanent solution to the issue of public stockholding of grains for food security purposes. In a joint statement, the group also said that it is the right of the developing countries to use the Special Safeguard Mechanism (SSM) as an important instrument against major import surges or sudden price declines. The members should agree and adopt a decision on SSM by the 14th WTO Ministerial Conference (MC), it said.

India and South Africa have blocked a proposal led by China on investment facilitation for development (IFD) stating that the agenda is out of the WTO mandate. The Chinese proposal was backed by over 130 countries. The convenors – South Korea and Chile, backed by China – announced the plan despite sustained objections from India and South Africa that these negotiations had no legitimacy. WTO members have explicitly rejected attempts to create an investment agreement since 1996, reports LiveMint.

As per a report by Economic Times, the IFD was first mooted in 2017 by China and other countries that depend heavily on Chinese investments, and countries with sovereign wealth funds are party to that pact. It may be noted that The Government of China has pledged USD 490,000 to the WTO’s Least-Developed Countries (LDCs) and Accessions Programme (also known as the China Programme). The China Programme — initiated in July 2011 under the WTO’s Aid for Trade initiative — aims to enable LDCs to better integrate into the global economy by strengthening their participation in WTO activities and helping those not-yet members join the organisation.

India, on February 26, expressed “serious” concerns in a WTO meeting in Abu Dhabi over increase in the use of trade protectionist measures by certain countries in the name of environment protection. The remarks assume significance as the country had earlier flagged issues over the European Union’s (EU) decision to impose carbon tax (a kind of import tax) on sectors such as steel and fertiliser; and adoption of deforestation regulation by the 27-nation bloc, reported The Hindu.

Concerns and conflicts

MC13 has exposed fissures between some of the world’s top economies. The developing countries of the Global South have also expressed their dissatisfaction with the functioning of the WTO. Here are a few examples.

Reports suggest that the Pacific island nations have complained at the talks about feeling marginalised and overlooked by most major powers, arguing that proposals did not go far enough to protect fish stocks.

Indian farmers and fishermen also have put pressure on the government for a proper deal on agriculture and fisheries subsidies. While the Samyukta Kisan Morcha (SKM) has held a nationwide tractor rally demanding that India should quit the WTO, the splinter group — SKM (Non Political) — has decided to send a three-member delegation to Abu Dhabi to raise their concerns and for attending parallel sessions against the WTO meeting, reports The Hindu. Similar discontent against WTO by farmers has been reported from many other countries.

Meanwhile, the European Trade Commissioner blamed India for the lack of consensus on fisheries, agriculture and broader reforms. “Agreements were within reach, supported by an overwhelming majority of members, but ultimately blocked by a handful of countries – sometimes just one,” he said in a statement.

Business Standard has reported that India has blocked the move by the European Union to launch deliberations linking international trade policy with industrial policy of economies. India argued that since industrial policy is in the concurrent list and involves policymaking by states which may not impact international trade, such scrutiny beyond the current level of analysis of export subsidies is not required.

It is also observed that India and China, core members of the BRICS group of nations who are expected to lead the developing and least developed countries of the Global South, have disagreed on key issues including on investment. India’s commerce minister joined the negotiations two days after they started and after his Chinese counterpart had left Abu Dhabi, reports LiveMint.

In a strongly worded joint statement dated February 28, 2024, various organisations of the Global South have observed that the WTO was unfit for purpose in an era of multiple crises. And it was time for an Alternative International Trade Framework based on Food Sovereignty.

China and the WTO

Analysts believe that China is planning to reshape world trade on its own terms. Proposal for a plurilateral agreement on IFD submitted during MC13 is a case in point. Reuters observed that China’s financial clout will be hard to reverse. China recycled the majority of its USD 1.6 trillion of foreign currency earnings over the next decade into infrastructure in developing countries. This overturned decades-old patterns of international finance. By 2017, China had become the single biggest official creditor to developing country governments: its exposure was larger than that of the World Bank, the International Monetary Fund, and the Paris Club of 22 advanced economy lenders combined. A recent study puts China’s current portfolio of lending to emerging market sovereigns at USD 1.1 trillion to USD 1.5 trillion.

In a very interesting observation made during her speech at WTO MC 13, US Trade Representative Katherine Tai has said that China’s economic development system is creating “many competitive pressures” in the world and termed the steep decline in US-China bilateral trade last year as a positive indication for the diversification of global trade. “We need to address in the WTO the competitive economic pressures that many of us are feeling in the global economy because of the economic and trade footprint of China and its particular system,” she said.

Observation

Noted trade analysts Srinivasa Raghavan observed that WTO cannot be saved. Instead, a body bringing together trading blocs can help everyone negotiate from a position of strength. The world is increasingly getting fragmented into numerous blocs. The WTO website mentions that as of 1 January 2024, 361 regional trade agreements (RTAs) were in force. These correspond to 594 notifications from WTO members, counting goods, services and accessions separately. There are more regional trade blocs in the world than the number of nations! There is an urgent need to address this reality.

Over the last three decades, China has emerged as a major economic and military force. Countries of the European Union who took a leading role in the establishment of WTO have lost their economic might. The USA , which was against the formation of a multilateral trade organisation since the 1940s, is showing averseness in WTO. But in a fast changing complex global environment, existence of a multilateral trade organisation in WTO is essential for a rule-based hassle free global trade. But there is a need for urgent reform to make it more inclusive and appropriate for the 21st century.

India, one of the largest countries with over 1.43 billion population, should play a more active role, as a leader of the Global South, in bringing changes in WTO. For this, India needs a medium and long term strategic plan on its future involvement in global trade.

Views expressed are personal