WTO legitimacy at stake in Abu Dhabi meeting

WTO members are facing the daunting task of making the multilateral trading system respond to the needs of the contemporary world, especially those of the developing countries.
Former US President Donald Trump
Former US President Donald Trump(Photo | AFP)

Trade ministers of the World Trade Organization (WTO) countries will meet for their 13th ministerial conference (MC13) in Abu Dhabi next month at a time when the multilateral trading system is losing an existential battle. This ‘ruled-based organisation’ was mandated to ensure orderly conduct of global trade through a set of rules that were mostly negotiated before 1990, when the organisation had less than 100 members. Over the past four and a half decades, the needs and aspirations of the members in the realm trade have changed beyond recognition as the global economy had undergone significant changes. Several of these changes were triggered by the downturns that altered the economic orientation of major economies, turning them more internally oriented. In the run-up to MC13, WTO members are facing the daunting task of making the multilateral trading system respond to the needs of the contemporary world, especially those of the developing countries.

Given these changing global dynamics, multilateral trade rules, which economists consider as the best option for conducting trade, need to be constantly reviewed and updated. Equally important is the need to ensure that the agreed rules are enforced effectively for maintaining the credibility of the institution. The founders of the WTO had foreseen this imperative by putting in place a robust dispute settlement body (DSB), by far the best among all multilateral organisations. As the adage goes, WTO’s DSB has “teeth that can bite”, thus keeping the members honest to their commitments. Unfortunately, both arms of the WTO, the negotiating arm that would have helped update the rules, and the DSB have become dysfunctional.

At the end of the fourth ministerial conference held in Doha in 2001, trade ministers had agreed to comprehensively review the agreements finalised during the Uruguay Round, leading to the formation of the WTO. The Doha Development Agenda reflected the demands of developing countries that the Uruguay Round needed to be rebalanced to reflect their needs. But after more 15 years, the Doha agenda was abandoned, and the negotiating arm of the WTO was taken over by the dominant economies who formed “clubs of the willing” to initiate discussions on new issues that suited their interests.

An organisation that is mandated to undertake negotiations only when there is consensus among the members for so is now witnessing engagements between a subset of its members on issues such as electronic commerce and investment facilitation. South Africa and India, two economies that are not among the participants, have repeatedly pointed out that these processes are violating the core principles of multilateralism.

The Trump administration dealt a death blow to the DSB by refusing to appoint new members to the appellate body that hears appeals against the decisions of the dispute settlement panels. The appellate body is the most critical part of the DSB since its rulings on disputes between members are final and binding. The erring members have to amend their laws and policies to bring them in conformity with the WTO rules. Now that the appellate body is non-existent, members can indulge in flagrant violations of WTO disciplines. The multilateral trade rules are, thus, dead in the water.

It is a travesty that WTO members are not reflecting on these systemic problems plaguing the WTO. As of now, members are engaging in issue-based discussions that include two subjects vitally important for India—adoption of subsidies discipline for the fisheries sector, and review of the disciplines on agriculture.

Fishery subsidies’ disciplines are aimed at prohibiting “certain forms of fisheries subsidies that contribute toovercapacity and overfishing, and eliminates subsidies that contribute to illegal, unreported and unregulated fishing”, thus promoting sustainable fishing. Though laudable, these disciplines must ensure that the governments retain their policy space to support the livelihoods of small fisherfolk in developing countries including India.

The review of the agreement on agriculture (AoA) includes a component that is critically important to India. Since the beginning of the previous decade, WTO members have been discussing the issue of public stockholding for food security purposes, the basis of India’s public distribution system. For India, the significance of this issue increased manifold after the then government decided to implement the National Food Security Act (NFSA) to provide subsidised foodgrains to two-thirds of the country’s population.

However, implementation of the NFSA is covered by the subsidies’ disciplines of the AoA, which stipulates that WTO members must limit their value of subsidies provided to crops and for inputs to 10 percent of the value of their agricultural production. According to the AoA, subsidies for individual commodities are differences between their current administered prices, or market price support, and the international prices prevailing during 1986-88 (called “fixed external reference price”), while input subsidies are budgetary outlays. Though this formula defies all economic logic, subsidies for most crops provided by India remained below the 10 percent threshold as did the overall level of subsidies.

This situation changed after the NFSA was introduced, as AoA requires WTO members to include the differences between prices at which foodgrains for PDS are acquired and their external reference prices as subsidies. This meant that India’s total subsidies would be above the 10 percent threshold, thus preventing the government from implementing the NFSA. India has consistently argued that the subsidies’ discipline must be amended by either updating the external reference price and/or allowing countries to account for inflation while calculating their subsidies. However, India’s arguments have not been accepted yet.

This challenge faced by India is among the plethora of legitimacy deficits that the WTO faces at this juncture. MC13 must take a decision to address this glaring weakness of the institution.

Biswajit Dhar

Former professor, JNU and Vice President, Council for Social Development

(bisjit@gmail.com)

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