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Crisis in World Trade Organisation

Crisis in World Trade Organisation

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 Why in news?

US holding up appointments to the appellate review wing of its dispute settlement mechanism will derail the enforcement of WTO rules and principles.

 WTO Appellate Body: Justice platform

  • A unique contribution of the Uruguay Round negotiations, the appellate body is the court of appeal for issues of law and legal interpretation arising from decisions rendered by the dispute resolution panels.
  • The appellate body is composed of seven permanent members appointed by WTO members by consensus. The initial appointment of an appellate body member is for a four-year term, with possible reappointment for a second term.
  • The appellate body’s role is remarkable in that it has issued over 140 reports since 1995. It is unique as its judgments are enforced through gentle suasion and the stick of authorised trade retaliation.

 Power-play restrained

  • US has been uncomfortable with a trading system that does not suit its interests. Its approach at the GATT/WTO has been best described by some trade experts as “aggressive unilateralism”.
  • The dispute settlement mechanism — particularly, the functioning of the appellate body — has imposed some restrictions on the ability of the US to resort to power-play at the WTO.
  • The latent reason behind the intention of the US to shut down the appellate body is, in effect, to force the WTO members to revert to a power-based system of settling disputes that prevailed in the GATT era, and unravel the current rules-based system, which the Uruguay Round negotiators so carefully sought to achieve.
  • Over the past two decades, the US has sought to preserve the primacy of its domestic laws over its obligations under the WTO. This has resulted in conflicts, most visible in WTO disputes in which the appellate body struck down certain domestic laws of the US, including the Anti-Dumping Act of 1916 and the so-called Byrd Amendment.

 The dispute settlement crisis

  • The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism.
  • If no appointment is made, it will simply be destroyed by December 2019, with only one remaining member to tackle a massive number of disputes that are also increasingly hypertechnical.
  • Importantly, the Appellate Body requires a core of three members to decide a dispute.
  • There are two layers of explanations behind the peculiar behavior of the US in seeking to wreck the dispute settlement process: the concerns explicitly articulated by the US and the latent reasons behind the action.
    1. The appellate body’s alleged judicial activism. Ironically, the US itself has benefited from such judicial activism in trade and environment disputes such as shrimp-turtle, to the detriment of developing countries.
    2. The practice of the appellate body members continuing to adjudicate an appeal even after expiry of their tenure. This is a pragmatic practice, which the US does not appear to have formally opposed when these appeal reports were discussed by the WTO members.

 Who could be WTO’s saviour?

China

  • Beijing might well be the new WTO leader and China’s growing assertiveness may be the reason for the U.S.’s hard posturing.
  • Since its accession to the Organisation in 2001, China has largely benefited from the rules-based WTO system. In less than a decade since its first dispute, China has accumulated a vast experience close to that of the U.S. or Europe.
  • This strategic and selective normative acculturation has been an empowering one — so much so that Beijing, together with a few others, the EU, and to some extent India, is now the main supporter of multilateralism.
  • The recent EU-China proposal to promote the reform of the WTO is said to combat “unilateralism and protectionism” but might well fail to address unfair trade issues raised against China itself. One cannot take multilateralism in trade for granted.

 India

  • India should be more actively engaged in how to arrest the slide and then make the WTO a more equitable organisation.
  • India has recently co-sponsored a proposal with the European Union and other members on reform of the dispute settlement mechanism.
    • The proposal addresses various imperative issues of timelines, the appointment process of the appellate body members, their tenure and other conditions, so that the body and the mechanism work more efficiently.
  • Moreover, India needs to work on persuading all members of the WTO to return to the table and negotiate on bread-and-butter issues like agriculture, industrial tariffs, and services.

 Way ahead

  • By resorting to brinkmanship on the critical issue of appointment of new members to the appellate body, the US is trying to bend WTO members to agree to its wishes so that WTO reverts to a power-based system of settling disputes.
  • Today’s WTO crisis might well be the last ditch battle to retain control over a Western-centric organisation. The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions.

 Additional Info-WTO

  • While Bretton Woods institutions (World Bank and the International Monetary Fund) were to embed the new financial trade order, an International Trade Organisation (ITO) was also to be created to establish multilateral rules for the settlement of trade disputes.
  • Adherence to the rules of an international trade organisation was expected to serve as an important domestic incentive (and imperative) for governments by allowing them to resist protectionist demands and provide for greater legal certainty.
  • Successive multilateral conferences were held between 1946 and 1948, and led to the adoption of the Havana Charter, a draft agreement for the creation of the ITO. But the ITO never came into existence as it was eventually rejected by the U.S. in 1950.
  • The General Agreement on Tariffs and Trade (GATT) came to replace the ITO, as an ad hoc and provisional mechanism.
  • Four decades later, the U.S. drove the agenda to establish the World Trade Organisation (WTO) purely to pursue its own commercial interests.

The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.

 Mains question

Time has come for a structural overhaul of the WTO. Discuss in light of the recent crisis in the dispute resolution mechanism of the organization.