It was a clear and balmy morning when I arrived in Geneva as ambassador to the World Trade Organization. I was ushered into the VIP lounge. Ambassadors visiting Geneva as representatives of their countries at any of the missions there have the privilege of using this lounge twice: once upon arrival and once before departure.
I had been working in Brussels for the previous three years as deputy chief of the Indian embassy. The gloom and incessant rain of Brussels had worn us out considerably, and it was great to see clear blue skies, the magnificent Lake Geneva, and the snow-clad Alpine mountains in the distance.
My work was not easy. The counsellor in my mission, Mohan Kumar, who distinguished himself later in many key assignments in the foreign service, came to me and said that our reputation was at its nadir. This followed the single-handed crusade by former minister Murasoli Maran at the previous ministerial conference in Doha in 2001 against the introduction of new issues such as investment and competition policy into the WTO’s work programme, making them subject to its powerful and rigid dispute settlement mechanism.
My first task was, therefore, to re-establish friendly links with other ambassadors, which I achieved by visiting more than 40 of them and getting on first-name terms with all. While this is not the place to describe all that transpired over the next three years, I thoroughly enjoyed my stay, loved being part of the core negotiations, and attended meetings where I pitted myself against some of the finest diplomats worldwide.
I am, therefore, sad to see the current status of the WTO, where it barely survives, with all its carefully crafted and negotiated trade rules in tatters, leaving global trade itself in a disarray. Trade is an essential component of global growth. As William J Bernstein puts it in his bestselling book, A Splendid Exchange: How Trade Shaped The World, “World Trade has yielded not only a bounty of material goods, but also of intellectual and cultural capital, an understanding of our neighbours, and a desire to sell things to others rather than annihilate them.”
Trump would probably disagree with Bernstein. He cast the first stone to break away from a well-established multilateral system of trade rules by arbitrarily raising tariffs on steel and aluminium in his first term. He struck an even more brutal blow later by rendering the WTO dispute settlement mechanism dysfunctional by disagreeing on the appointment of members to the appellate body.
Any ruling from the dispute settlement panel cannot therefore be taken up on appeal, breaking the legal chain. This meant that even if a member country broke multilaterally-agreed trade rules, the affected country could not impose retaliatory tariffs. Back in 2018, Trump expressed his resentment towards the WTO, claiming that the WTO was set up “to benefit everybody but us”, adding: “We lose the lawsuits, almost all of the lawsuits in the WTO.”
In his second term, he has virtually dismantled the WTO, although he recently paid a part of the amounts due to the organisation. He imposed a set of tariffs based on his perception of unfair treatment of the US. Not only did he impose high tariffs on many countries, but he also exercised his right to change them whimsically, at times based on extraneous factors such as his belief that an ally in Brazil, former President Jair Bolsonaro, was not being treated fairly by the judiciary, or that Indian companies were buying oil from Russia. He decided to flex his muscles against China and imposed a succession of increasing tariffs. He denied that the tariffs signalled a trade war, stating that the “trade war was lost many years ago by the foolish or incompetent people who represented the US”.
His attempt to bring China to heel, however, failed miserably because he grossly underestimated the strength of the country's trade weaponry and its readiness to employ all of it without remorse against an unnecessarily aggressive partner. Ultimately, peace had to be made on terms agreeable to both.
India is still labouring under a heavy 50 percent tariff. Perhaps the chances of an early settlement have improved, as China has agreed to buy more agricultural products from the US. The large-scale import of farm products is a significant red line that no elected government in India can dare to cross. Meanwhile, exporters everywhere and American importers operate under conditions of deep uncertainty. How can trade deals be established between exporters and importers when they are unsure what tariffs will be imposed?
There is another element that intrigues me. We know that certainty in tariffs and clearly-defined trade rules are beneficial. But then why is the virtual demise of the WTO causing barely a ripple? Has the WTO run its course?
When the Bretton Woods twins—the World Bank and the IMF—came into being, there was talk of establishing an International Trade Organisation. As the Cold War progressed, this came to nought. However, the General Agreement on Tariffs and Trade or GATT emerged in its place, establishing some cardinal principles of multilateral trade such as the most-favoured nation status, national treatment and transparency. Later, the GATT was found to be insufficient. After seven gruelling years of negotiations, it was superseded by the WTO, which addressed other key areas such as services, agriculture, and intellectual property.
Now perhaps there is further room for change. The phenomenal growth of digital trade, the speed of communication, advancements in technology, and significant changes in the financial transactions underpinning trade, as well as the growing linkages between trade and stocks and futures, have altered the dimensions of the WTO. New challenges necessitate a reinvented global system. Whether such a system will develop depends on the members of the WTO.
The dispute settlement mechanism, which is the prominent bone of contention, can be recast. After consultation between the disputing parties, the panel may mediate rather than rule. If mediation fails, the issue could be resolved through mutually agreed arbitration. Perhaps the principle of consensus in decision-making needs to change—reaching consensus among 166 members is no easy task.
The WTO is undoubtedly at a crossroads. Its members must decide whether it is doomed to extinction or whether it will re-emerge, like the phoenix, from its ashes.
K M Chandrasekhar | Former Cabinet Secretary and author of As Good as My Word: A Memoir
(Views are personal)
(kmchandrasekhar@gmail.com)