Syllabus
Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests (GS2)
Source
The Hindu, 30/09/2023
Context
The recently concluded G-20 Declaration reiterated the need to pursue reform of the World Trade Organization (WTO).
Content
World Trade Organization (WTO)
- The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.
- The WTO has many roles: it operates a global system of trade rules, it acts as a forum for negotiating trade agreements, it settles trade disputes between its members and it supports the needs of developing countries.
- All major decisions are made by the WTO’s member governments: either by ministers or by their ambassadors or delegates.
- The WTO’s top decision-making body is the Ministerial Conference. Below this is the General Council and various other councils and committees.
- The WTO has over 160 members representing 98 percent of world trade.
- India has been a WTO member since 1995 and a member of General Agreement on Tariffs and Trade (GATT) since 1948.
Dispute Settlement System (DSS) of the WTO
- The Dispute Settlement System is hailed as the crown jewel of the WTO.
- The DSS came into existence in 1994 through the Uruguay Round negotiations to govern trade disputes between member states of the WTO.
- The dispute settlement system, with the scope for appellate review and mechanisms to enforce rulings, has issued over 493 rulings since its establishment in 1995.
- The WTO’s dispute settlement mechanism deals with trade-related legal spats among the member countries.
- It is made up of two tiers. The first tier is where the disputes are adjudicated by ad-hoc panels. The second tier is the WTO’s appellate mechanism, called the ‘appellate body’ (AB).
- There are two main ways to settle a dispute once a complaint has been filed in the WTO:
- (i) the parties find a mutually agreed solution, particularly during the phase of bilateral consultations
- (ii) through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by the Dispute Settlement Body(DSB).
- There are three main stages to the WTO dispute settlement process:
- (i) consultations between the parties
- (ii) adjudication by panels and, if applicable, by the Appellate Body.
- (iii) the implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.
Dispute Settlement Body (DSB)
- The DSB has authority to establish dispute settlement panels, refer matters to arbitration, adopt panel, Appellate Body and arbitration reports, maintain surveillance over the implementation of recommendations and rulings contained in such reports.
- It can authorize suspension of concessions in the event of non-compliance with those recommendations and rulings.
- The DSB is made up of all member governments, usually represented by ambassadors or equivalent.
Appellate Body
- The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
- It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members.
- The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports are adopted by the Dispute Settlement Body (DSB) unless all members decide not to do so.
Challenges with Dispute Settlement System of WTO
- Dysfunctional Appellate Body: The major ongoing crisis in the WTO is the blocking of appointments of judges to the Dispute Settlement Mechanism(DSM) by the US. The DSM is an important arm of the trade body that rules on trade disputes, and blocking appointments of judges is an invitation to crisis.
- Delay in Compliance: There is a delay in compliance with the rulings of the Dispute Settlement Body by developed country members.
- Lack of Convergence: Negotiations are still continuing without convergence of views on some issues.
- Divergent Approaches: Divergent approaches proposed by countries like China, and the European Union is another problem.
- Backlog of Cases: The understaffed appellate body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years, leading to a backlog of cases.
Impacts of non-functional Dispute Settlement System (DSS)
- Threat to WTO Itself: The crisis in the DSS could potentially signal the demise of the WTO itself, given that the system for settling disputes has been one of its most important functions.In its absence, the disputes will persist and the relevance of the WTO as a multilateral organization will be lost.
- Marginalization of developing and least developed countries:Developing and Least Developed countries will find it difficult to ensure that larger nations adhere to their trade commitments.
- Impact on Primary and Secondary sectors: The lack of certainty in resolving trade disputes can lead to unpredictability in trade policy. This, in turn, can have a direct impact on primary and secondary sectors of the economy.
- Threat to Rules-Based Trading Regime: With a dysfunctional DSS, countries may resort to unilateral measures to protect their trade interests; this threatens the entire rules-based trading regime.
- Loss of Amenable Platform: The dispute settlement mechanism has been vital to the functionality of the WTO as it provided an amenable platform to the member states to settle their disputes.
- Loss of Stability and Predictability: The purpose of the Dispute Settlement System to provide “stability and predictability” to the multilateral trading system will be questioned.
- Impact on Global Trade Flows: Global trade flows could fall due to trade tensions.
India and the WTO
- India is governed by a number of major agreements like Agreement on Subsidies & Countervailing Measures, General Agreement on Trade in Services (GATS), Sanitary and Phytosanitary (SPS) Measures, Trade-Related Aspects of Intellectual Property Rights (TRIPS), Trade-Related Investment Measures (TRIMs), Agreement on Agriculture & Agreement on Textiles, as a member of the WTO.
- India is involved in a number of trade disputes at the WTO. The US has challenged India’s export subsidy schemes like Merchandise Exports from India Scheme (MEIS).
- India’s subsidies for sectors like sugar, fisheries and solar panels as well as import duties for sectors like electronics, iron and steel have been challenged by other countries at the forum.
- The US has also challenged India’s retaliatory tariffs on 28 products.
Future of WTO
- Unilateral tendencies, the rise of tariff & non-tariff trade barriers and protectionism, the principles of free trade & liberalism envisioned in GATT are seriously being challenged and the future of WTO is under threat.
- Policies such as America first, the ensuing US-China trade war, the withdrawal of GSP status meted out to India & restrictions on labour mobility are seriously subverting the authority of WTO as an organization.
- Another point of concern is that developed countries design and implement stringent non-tariff measures (NTMs), which exacerbate the problems faced by poor countries that are willing to export.
Conclusion
- There is a need for reforms in the WTO provided that the process is inclusive and addresses the developmental concerns of developing and least developed countries.
- A meaningful reset to secure the future of WTO requires a new work programme that reverses the rise in discrimination against foreign commercial interests that has intensified since the global financial crisis began.
- India must do its homework to focus on the unresolved issues and address the newer ones, which are of interest to developed nations, mainly investment facilitation.
- The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters.
Reference
- https://www.google.com/amp/s/www.orfonline.org/research/the-wto-crisis-exploring-interim-solutions-for-indias-trade-disputes/
- https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s1p1_e.htm
- https://indianexpress.com/article/explained/explained-the-wtos-dispute-settlements-mechanism-is-all-but-dead-this-is-why-india-should-worry-6158502/
- https://www.tpci.in/research_report/future-of-wto/
Practice Question
The Appellate Body of the World Trade Organization’s (WTO) dispute settlement system has been facing significant challenges, leading to its dysfunction. Critically analyze the reasons behind this dysfunction and its implications on global trade. Also, suggest measures to reform and revitalize this body.