Friday, 19 July, 2019

Making a start for WTO reforms


Trouble at WTO:

  • There is a sense around the world that the WTO is deep in trouble.
  • Doha round almost abandoned:
    • The last round of multilateral trade negotiations, the Doha Development Agenda, sponsored by the members in 2001, was virtually abandoned in 2015.
  • Dispute settlement mechanism in trouble:
    • Now, the dispute settlement function has been put in jeopardy by the action of US in refusing to allow vacancies to be filled up in the Appellate Body (AB).
    • The AB will become dysfunctional after December 10, 2019, when the next retirements occur and it ceases to have the required quorum of three members.
    • This would mean that dispute resolution would not progress beyond the panel process and there would be no final decision in disputes raised before the body.
  • If disputes cannot be settled in the WTO, enforcement of existing rules will be difficult and negotiation of new rules pointless.

WTO reform proposals:

  • Most of the WTO members want to strengthen the multilateral trading system.
  • They have made proposals for reform, some as formal submissions in the WTO, and others outside formal meetings.
  • Considering the fact that it is not going to be easy to agree on WTO reform, members must focus on selected issues on which deficiencies strike deep at the functioning of the WTO.

Two issues need attention as a matter of priority:

  • Appellate process: Steps need to be taken to keep alive the appellate process.
  • Negotiating process: The process must be revived, whereby new areas can be taken up for liberalisation without fear of deadlock because of lack of consensus.

Making progress at WTO:

  1. Appellate Process:
  • The US has raised some legitimate points on the working of the Appellate Body (AB).
  • A a number of members, including India, have proposed credible solutions to the issues raised but the US has refused to engage on the matter.
  • Some allege that the US is seeking to overturn the quasi-judicial format of the WTO and revive the structure of the GATT (1947) days when negotiation was the norm for resolving differences.
    • This enabled the member with economic strength and political clout to prevail, and while rules existed, they did not help clinch decisions.

Use Article 25 of the Dispute Settlement Understanding:

  • One way out is a proposal to use Article 25 of the Dispute Settlement Understanding (DSU) of the WTO Agreement, which provides for arbitration as an alternative means of dispute settlement.
  • Members desirous of preventing disruption of the appellate process in WTO disputes could enter into a plurilateral accord providing for appeal arbitration in all cases of appeal from a final panel report.
    • The Director General of the WTO will be authorised to select the arbitrators from among former AB members.
  • It would be an interim arrangement that would apply during the period in which the AB in unable to function due to non-appointment to vacancies in it.
  • While it will apply only to members willing to sign on to it, it would still be invaluable in helping to maintain continuity in the functioning of the dispute settlement system.
  1. Negotiating process:
  • Currently, there is a need for consensus among 164 WTO members in initiating new liberalisation negotiations and as a result, successfully concluding them is also challenging.
  • Often members are divided not only on whether the time is ripe for an agreement on these subjects but also on the disciplines that should go into them.

Using an open-ended plurilateral negotiation process: 

  • Two past plurilateral initiatives for the liberalisation of trade show us the way in situations in which there is disagreement on liberalisation initiatives.
  • These are the information technology agreement in 1996 and declaration on the expansion of trade in information technology products in 2015.
  • They were both negotiated on an open-ended basis, that is, those who wanted to participate in the negotiations did so and those who did not want to participate did not. At the end of the negotiations, there was another opportunity for participants to become a signatory or to withdraw if they were not satisfied with the result.
  • An important feature of these agreements is that they entered into effect when participants with a predefined critical mass of share of world trade (90%) accepted the outcome.
  • Another important feature of these agreements was that their benefits were extended on an MFN basis to all WTO members, whether or not they participated in the negotiations or accepted the agreement.
  • The advantage of such plurilateral initiatives is that they can go forward even in the absence of consensus, provided the critical mass of trade shares is achieved.

Conclusion:

  • The suggestions for WTO reform above are not ideal outcomes.
  • The objective of the interim appeal arbitration arrangement is rather to defend the multilateral trading system currently under attack by the US.
  • The plurilateral approach for liberalisation agreements provides a way forward, even in the absence of consensus.

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