Multilateralism in crisis: Can the world live without WTO?

Shariq Khan

Journalist, ET

 The World Trade Organisation (TO), which was instituted to promote global trade through a multilateralism-backed global trading regime, is losing relevance. With global trade hammered by a pandemic, many wonder if it’s time to write WTO’s obituary. WTO’s 25 years of existence has been mixed, but the challenges it faces now are most serious in nature, and ones that question its very legitimacy. Much of the precipitous downward spiral began as soon as Donald Trump became the president of the United States. Many around the world were already questioning the benets of globalisation, and Trump added fuel to those sentiments. Countries that so far swore by the virtues of globalisation shifted their allegiance to domestic priorities. Consequently, trade wars characterised with tit-for-tat taris among nations became rampant. WTO was often reduced to a mere spectator. The US has been both the leading voice and force in all the strategic aairs of WTO. As the Trump administration turned its back on the WTO, other nations followed suit. Another fact is that the US traditionally has had an important role in keeping the global body alive. Enjoying unrivalled global clout and matchless nancial inuence, making it the biggest funding contributor to the institution, the country so far remained critical for the organisation’s very existence. However, according to former Director-General of the orld Trade Organization, Pascal Lamy, the organization's problems are more deep-rooted. “WTO has failed in the last 20 years to update the rule book to factor in changes that have taken place in the world economy and in particular the area of obstacles to trade. The capacity of the system to adjust to the new reality has not delivered,” said Lamy at a recently organized webinar. He added that we still operate on rules made for the mid-90s, which is not in sync with the realities of today’s world. Since WTO advocates rules-based internationalisation and the positive use of globalisation for the sustainable development of the world’s population, experts reckon if the world loses its faith in multilateralism, it will be a lose-lose proposition for every nation. Any decline in the trade body’s standing not just poses a concerning challenge to the leading global economic forces, but also for India. 

India, in the last few decades, has embraced globalisation eectively. In fact, ever since the era of liberalisation and globalisation and privatisation dawned on India, its economy has had a great run with globalisation. This explains why any decline in the trading regime’s inuence has now got policymakers worried. “A new world is going to unfold, and we don’t know as yet how it would look like. Multilateralism is under a very serious threat. The question is how to deal with this threat when it is needed most,” said Suresh Prabhu, India’s Sherpa to the G20, in a webinar organised by CUTS International. Prabhu believes it is high time we reboot WTO with a forward-looking agenda that takes care of all member nations’ interests, and not of just a few. Everybody hurts Looking at WTO’s ideals that supposedly mandates it to strive for rules-based, non-discriminatory trade practices; it’s clear that in recent years, the Genevabased institution could not eectively do what it was supposed to do. The reasons for the decline of the global body are manifold. “A lot of weakening of the WTO has happened from the / fact that many countries feel they are not getting the right share of trade. And once that happens, the political compulsions of a domestic economy forces the leader to take a more populist measure, which are neither benecial for the domestic economy nor the world trade in the long run,” says Ajay Sahai, DG, Federation of Indian Export Organisations (FEIO). Sahai’s argument holds the clue why the Trump administration unleashed trade wars on several nations. But there is more than what meets the eye here. The issues hastening the decline of the global trading regime, are historic, structural and deep-rooted, experts argue. Abhijit Das, Head and Professor, Centre for WTO Studies, IIFT is of the view that the main reason for the decline of the global trading regime as enshrined in the WTO can be traced back to the failure of the developed countries, particularly the US, to push their commercial interests at WTO. “Unable to secure their interests at the negotiating table, the developed countries walked o the Doha Round (but lay the blame at the door of developing countries). The US struck the next blow after it rendered the dispute settlement mechanism of the WTO dysfunctional. These deadlocks are symptoms of the gradually emerging reality that larger developing countries, such as India, Brazil and Indonesia, are no longer content with a multilateral trading system that does not promote their interests,” says Das. He, however, ags these emerging developing countries (DCs) do not yet “have the economic and political heft,” to clinch trade deals in line with their interest. Also, it is pertinent to note that developing countries traditionally maintained that they had been treated unfairly at the WTO. However, even developed countries frequently have used the same argument to blame WTO for being lenient towards developing nations. Interestingly, in the guise of this argument, several developed nations could be seen outing WTO norms. A question arises here is whether WTO’s balance of scale is really tilted on one side and whether the resulting power tussle is responsible for a weaker WTO that is seen today? “Undoubtedly, it is an unequal world, and all are required to follow the same rules, and hence developing countries’ grouse of unfair treatment is valid. Developing countries are entitled to special and dierential treatment under Special and Dierential Treatment (S&DT), but only as best endeavour. On the other hand, developed countries have enjoyed enforceable S&DT in the agreements on textiles (now expired) and their heavily subsidised agriculture,” highlights Pradeep S Mehta, secretary-general, CUTS International. If one looks at the WTO’s rulebook, it clearly allows it to let developing countries, including the leastdeveloped countries (LDCs), enjoy S&DT because this feature recognises the noticeable dierence in the economic growth of developed nations and their not- / so-developed counterparts. The WTO accordingly advocates disadvantaged nations to make use of this policy vehicle to bridge the gap existing in between. In an uneven world where each country is uniquely placed on the scale of economic growth, this looks to be a plausible rationalisation. However, recent objections raised by the developed nations against developing nations on subjects such as agricultural subsidies, MEIS scheme, incentives in sectors such as pharma, and now even ecommerce, only show that the WTO could not regulate the developed nations as eectively as needed. There are quite a lot of items on the to-do list of reforms of WTO, but Lamy says what demands greater re-looking is the way the organisation works. “The working of the system is not alright. Member states have too much of a say, and the Secretariat has too little sway. In a nutshell, WTO is too much of an organization and not enough of an institution,” says Lamy. Can the world aord a weaker TO? According to FIEO’s Sahai, there has been a conscious eort by economically dominant nations to weaken the WTO, which has far-reaching implications. “If WTO becomes weak like it is today, each nation will get a free hand taking arbitrary decisions on taris and duties. Today, there is no eective dispute settlement mechanism available at WTO. The US has ensured that there isn’t an adequate number of judges in WTO’s DSB, this is something which is adding more fuel to the trade chaos the world is witnessing,” says Sahai. He adds a weaker WTO would practically mean that all its 164 members would need to carve out a separate trade relationship among one another. Stressing on the need for a robust and functional WTO, Sahai thus underscores that there are several product lines for which WTO is critical, particularly where manufacturing is happening through the value chains. “For example, in the case of automobiles or electronics — you have global manufacturing happening — where you have standard tari concessions, trade facilitation etc, which help in the easy movement of goods across borders. You also have agricultural commodities which require an export market. Suppose, the countries of Africa require soybean, and the US suddenly decides it will not allow trading in it. Look at the food scarcity it will create,” contends Sahai. For several reasons, WTO despite its aws is critical for the sustenance of global trade. The WTO’s core functions include administering trade agreements, acting as a forum for trade negotiations, and settling trade disputes. However, looking at the status quo, wherein every major world economy seems to show little care for WTO’s rulebook, it’s clear that the institution is no longer as eective as it used to be. This is particularly true in protecting the interest of developing nations. Experts maintain that the trade body’s indierent approach towards DCs and LDCs isn’t something new, but has been quite historic. IIFT’s Das even maintains that it is wrong to presume that WTO was protecting the interests of the developing countries all these years. “The WTO was, and remains, an organisation for promoting the interests of the developed countries,” he says, adding it is only after a lot of struggles that the developing countries have got their voices heard and decisions taken in their favour on rare occasions. Steps India musttake Lamy says other systems of organizing trade relations between nations or not organizing trade relations between nations are worse, costlier, more dangerous, more unequal, more unbalanced, and unfair than what we have today. Although we recognize that what we have is far from perfect, it is important to ensure we look to strengthen it and not diminish its capabilities. Looking at the various WTO committees, it is noticeable that these have been dominated by the developed countries with little representation from developing or least-developed countries. The FIEO representative holds the view that WTO today believes in a top-down approach, and India should work towards converting it into a bottom-up one so that even smaller countries are adequately represented in the functioning of the organisation. The critical question here is — amid rough times for the trading regime, what measures India should employ to safeguard its trade interests? According to Mehta, India should see that the WTO’s dispute settlement body becomes fully functional again. “We have oensive and defensive interests in trade. Unfortunately, defensive ones are becoming more prominent. Recent increase in our export of agricultural products shows we are able to calibrate various interests by making better use of our policy space,” emphasises Mehta, adding an alive WTO is in India’s interest. On the same thought, IIFT’s Das suggests it would be in India’s interest to create a coalition of like-minded countries for making the WTO more developmentfriendly. “India has already made some proposals on WTO reform. It needs to move forward with these proposals by seeking support from other developing countries. For India, the multilateral trading system provides the best opportunity for protecting its concerns and promoting its interests. It would be quite vulnerable to political and economic pressures if the country were to pursue the bilateral route with the developed countries,” sums up Das. It will also be crucial to gure out what the new US administration under Joe Biden does when it comes to global trade. “We have been living for the last four years with a president who decided to kill WTO. Trump was elected on a protectionist platform and he switched from a rules-based system to an arm twisting system. The good news is that he failed because a vast majority of countries think the Trump way was the wrong way,” says Lamy. Lamy adds that we have to wait till January 2021 to gure out the Biden administration's outlook towards international trade, but we can be sure at least the intention of the new government is to go back to the WTO table. “I do not think the serious problems will evaporate, but we will have a way to tackle them through discussions, talks and negotiations,” said Lamy. 

Source: https://economictimes.indiatimes.com/small-biz/trade/exports/insights/multilateralism-in-crisis-can-the-world-live-without-wto/articleshow/79421186.cms?utm_source=newsletter&utm_medium=email&utm_campaign=NewsDigest&utm_content=Small%20Biz&utm_term=3&ncode=7b57c34b23c590b0660c7e828b59698d30890d3f25a5941047a2f8267b7c96e5589123e5dff2e7c6c56c853c9158349a4555f9faf4c35aaf8d457c8c5bfe5adc33c401c1903cc513b8f955ed2cc6df60