India and World Trade Organisation (WTO): Background, Agreements, Significance, Issues and Challenges

Context: 

This article is based on the news “How to restore WTO’s authority” which was published in the Indian Express. The 13th Ministerial Ministerial Conference (MC13) of WTO is scheduled to be organised in Abu Dhabi from 26 February to 29th February 2024.

• India has called for finding a permanent solution to the issue of public stockholding for food security in the ministerial-level meeting of the World Trade Organisation (WTO) in February 2024

About World Trade Organisation (WTO)

• WTO is the only global international trade organisation which deals with rules of trade between nations. 
• It is governed by different agreements negotiated and signed by participating nations and ratified in their parliament. 

Historical Background Of WTO

• The WTO commenced operation on 1st January 1995, under the Marrakesh Agreement, signed on 15 April 1994 by 124 nations.
• It has replaced the General Agreement on Tariffs and Trade (GATT) which commenced in 1948.
• Most of the issues focused by WTO are derived from previous trade negotiations, especially from the Uruguay Round (1986-1994).

Functions Of WTO

• Promoting Free Trade: Establishes and uphold trade rules like non-discrimination and transparency. Also, it reduces barriers like tariffs and quotas.
• Resolving Trade Disputes: Offers a legal framework and process for settling trade disputes peacefully. It also provides a platform for negotiations and mediations between trading partners.
• Supporting Economic Development: Integrates developing countries into a global trading system. Offers special provisions and flexibilities for developing countries, famously known as special and differential treatment provisions.
• Engaging in Global cooperation: WTO collaborates with other international organisations like IMF and world bank to address broader economic challenges like poverty reduction etc

Organisational Structure Of WTO

• Ministerial Conference: It is the highest decision making body of the WTO, meeting at least every two years.
• General Council: It oversees the WTO’s day to day operation, and meets regularly at the Headquarters Geneva. 
  • It also acts as Trade Negotiations committee, the Dispute Settlement body, and the Trade policy review body.
• Dispute Settlement Panels: Established to examine specific trade disputes between WTO members and issue reports with findings and recommendations.
• Appellate Body: Reviews appeals from decisions by WTO dispute settlement panels. Its rulings play a vital role in interpreting and upholding WTO rules.

Ministerial Conference 0f WTO:

• The Ministerial conference of WTO is the heart of its operation. By now the WTO has held 12 ministerial conferences. The competition was held between 12-17 June 2022. It took place at WTO headquarters in Geneva. 
  • The conference was chaired by Timur Suleimenov, Deputy chief of staff of the Kazakhstan president.
• The 13th Ministerial conference is scheduled to take place at Abu Dhabi from 26 to 29 Feb 2024.
  • It will be chaired by Dr Thani bin Ahmed Al Zeyoudi, minister of state for foreign trade of the United Arab Emirates.

Major Agreements Of WTO

• General Agreement on Tariffs and Trade (GATT)

  • Signed in 1947 by 23 nations after the 2nd world war.
  • Aimed to reduce tariffs and other barriers to promote trade among nations.
  • Its limitations led to the Uruguay round negotiations, culminating in WTO in 1995.

• Agreement on Agriculture (AoA)

  • The Agreement on Agriculture (AoA) is an international treaty of the WTO.
  • Objective: To reduce govt support and subsidies given to domestic agricultural producers.
    • The agreement on agriculture consists of three pillars:
      • Domestic Support: It calls for reduction in domestic subsidies that distorts free trade and fair price.
        • The forms of subsidies are basically given under Agreement on Agriculture. They are Green Box, Amber Box and Blue Box subsidies.

• • • • Market Access: Market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets.
      • Export Subsidies: Government support that lowers export costs, including input subsidies, remission of import duties, and other export incentives, falls under export subsidies.

• General Agreement On Trade in Services (GATS)

  • It is a treaty of the WTO that came into force in January 1995 as a result of the Uruguay round negotiations.
  • It was created to extend the multilateral trading system to the service sector, in the same way GATT provides for merchandise trade.
  • It covers most service sectors, requiring member countries to open their market and treat foreign providers fairly.

• The Agreement on Trade Related Investment Measures (TRIMS)

• • The agreement was negotiated during the Uruguay round, and applies only to measures that affect trade in goods.
  • Recognising that certain investment measures can have trade-restrictive and distorting effects, it states that no members shall apply a measure that is prohibited by the provisions of GATT in Article 3 (national treatment) or Article 9 (quantitative restrictions). 

Principles Governing WTO Agreements

• No discrimination between foreign and domestic firms. It has two major components:
  • Most Favoured Nation Rule (MFN): It prohibits discrimination between trading partners by requiring that any advantage, favour, privileges, or immunity granted by a member country to any other country regarding trade in goods or services must be immediately and unconditionally applied to all other WTO members.
  • The National Treatment Policy: It is mentioned in Article 3 of the GATT. It prohibits WTO members from discriminating against imported products once they have entered their market, in favour of domestically produced goods.
• Predictability and transparency between trading firms
• Special and differential treatment with nations.
• Promoting open economy by reducing tariffs and non tariffs barriers.
• Free and fair trade.

Significance Of WTO

• The WTO has 164 countries, accounting for over 98% of the world’s trade. A total of 22 countries are seeking to join the WTO.
• Promoting Free Trade: The WTO has helped reduce tariffs and other trade barriers significantly since its inception, contributing to increased trade flows and economic growth.
• Dispute Settlement: The WTO provides a platform for settling trade disputes between member countries through a legal framework and process. This helps maintain stability and avoid trade wars.
• Integration of Developing Countries: The WTO provides special provision and technical assistance for developing countries to help them integrate into the global trading system.

Issues at WTO

• Issues with Public stockholding:

• • Distort Trade: The WTO maintains that PSH programmes distort trade, especially when implemented without limitations.

• • Current WTO rules: The Agreement on Agriculture (AoA) limits PSH programs to 10% of a country’s production for domestic consumption. 

• • Objection by G33 countries: The G33 countries object to the outdated method used by the WTO to calculate subsidy levels, which does not account for inflation.
    • Outdated methodology: This methodology of subsidy calculation is  based on the price index of 1986-88, which does not take into account inflation.

• Peace Clause

• • It was the 9th ministerial conference held in Bali, Indonesia in 2013.

• • It resulted in the adoption of a series of agreements on several trade issues, including the Peace Clause. 
  • Issues with the peace clause
    • Controversial: Some developed countries argue that it gives developing countries an unfair advantage, and it could lead to trade distortions. Others say it is crucial for developing countries to meet their food security.
    • Flexibility in rules-based order: WTO is a rules based organisation, and the peace clause is seen as a departure from those rules. The flexibility provided by WTO in the peace clause is leading to conflict of interest between developed and developing nations.

• Issues with Agricultural Subsidies Framework 

  • Subjectivity in Green Box Subsidies: The categorization of subsidies into Green Box, deemed to cause minimal trade distortion, introduces subjectivity. Disputes often arise due to varying interpretations of the “minimal” level, causing tensions between nations.
  • Lack of Transparency in Calculations: The criteria and calculations defining Green Box eligibility lack transparency. 
  • Developing Country Exemptions: While developing countries benefit from higher Amber Box limits, this creates an uneven playing field for developed nations. Concerns about fairness emerge as exemptions can potentially distort competition and trade dynamics.

• Appellate Body

• • US Obstructionism: The US has single-handedly blocked the appointment of new members to the Appellate Body (AB) since 2019, rendering the Dispute Settlement mechanism (DSM) ineffective.
  • WTO Toothlessness: Without a functioning AB, countries can easily avoid complying with panel rulings, undermining the WTO’s dispute resolution process.
  • De-judicialization: The US’s desire to de-judicialize its international trade relations raises doubts about the full restoration of the AB.
• Special Safeguard Mechanism (SSM): It is a tool to counter import surges that may put agricultural production in developing nations at risk. 
  • As per the current Agreement on Agriculture (AoA) design, only 39 members, predominantly developed countries, can use Special Safeguards (SSGs). 
  • The SSM aims to extend similar measures to developing countries.

Criticism of WTO

• Bias towards developed nations and corporations: High agricultural subsidies in developed countries, intellectual property rules hindering access to essential medicines, and limited flexibility for developing nations to pursue development policies, makes it biassed towards developed nations and cooperation.
• Lack of Transparency and Accountability:  The dispute settlement system’s complexity and cost are seen as barriers to holding powerful members accountable. All this creates a severe question on the credibility of transparency and accountability used in WTO.
• Undermining National Sovereignty: Some of the rules made by WTO infringe sovereignty by imposing rules that limit governments’ ability to regulate their economies and protect their markets. For eg, conflicts are seen in agriculture subsidies by developing nations and the 10% cap given by WTO.

Way Forward

• Modification of formula to calculate food subsidy cap:  India suggested measures like amendments to calculate the food subsidy cap and inclusion of programmes implemented after 2013 under the ambit of the ‘Peace Clause.’
• Updation of the external reference price (ERP): India emphasises on the need to update the external reference price (ERP) from 1986-88 levels to current market rates. 
  • It should account for inflation when determining the MSP ceiling.
• Three-year average price of a crop:  Using the three-year average price of a crop based on the preceding five-year period excluding the highest and lowest entries for that product. 
  • Subsidy calculations need to be based on actual procurement rather than encompassing all eligible production.
• Allowing PSH Programs: Public stockholding programs designed for food security objectives should be permitted and deemed compliant with World Trade Organization rules under certain conditions. These conditions include:
  • Ensuring that stocks acquired through PSH do not distort trade or harm the food security interests of other World Trade Organization members. 
  • Members should refrain from exporting stocks acquired, except for international food aid and non-commercial humanitarian purposes.
• Special Safeguard Mechanism: Countries should have the right to protect their domestic markets from dumping by other countries through the Special Safeguard Mechanism.
• Joining MPIA: Developing countries could join the European Union-led multi-party Interim Appeal Arbitration Arrangement (MPIA) to formalise an ad hoc appellate review. However, this lacks the binding nature and predictability of the original Appellate Body (AB).

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