• The JSBF Report

IS THE WORLD TRADE ORGANIZATION ANY LONGER RELEVANT FOR THE WORLD ECONOMY?

By: Prthika Bajaj



Source: Bangkok Post


The new World Trade Organization was praised as a significant move towards a modern, rules-based system that would advance the initiative of international trade liberalization when 123 nations signed the agreement establishing a fully global agency to regulate international trading in 1994. What a change a quarter-century has made, alas.

The World Trade Organization (WTO) is now widely regarded as cynical. Its laws are in desperate need of revision, and the mechanism for resolving disputes is in disarray. According to Jeffery J Schott's report from May 4, 2020, multilateral trade negotiations have broken down, making even minor agreements impossible. The World Trade Organization (WTO) is, without a doubt, in existential peril. [1]

Considering the trade war between the United States and China it is inferred that the failure of the WTO as a negotiating platform has restricted the degree to which its rules resolve modern trade issues and has placed pressure on the dispute resolution mechanism. So, what can be done to address this issue?

In terms of substance, the inability to sign new agreements is once again the main culprit. In general, the legislative and judicial roles in government are intertwined. New laws or regulations are passed by the legislative branch to address political issues. These laws or guidelines are inherently insufficient, allowing for some interpretation. The judicial branch plays an important role in filling in the holes left by ambiguous laws. If the judicial branch – in this case, the WTO dispute resolution system – is left to operate for decades without any new laws, a major problem arises. Rather than filling significant gaps in interpretation by new WTO member country political agreements, the responsibility is delegated to the dispute resolution body. It must apply increasingly stale laws to an economy that is rapidly modernizing, and it must deal with conflicts that are becoming increasingly political and less legal. If the dispute resolution body refuses, it may be claimed that it has failed to resolve trade disputes. It could be accused of judicial activism if it ventures into places where the guidance provided by a mid-1990s agreement is uncertain. The main issue is that there aren't any new agreed agreements among members to amend the rules.[2]

After considering the US attacks on the Appellate Body, which were that the United States had declined to take part in the selection of new judges for the appellate body, it is clear that the WTO's permanent Secretariat staff, diplomats, and private lawyers representing WTO members all play a part in influencing the decisions just as much as the adjudicators do. Do you not believe there is a flaw in the way the WTO operates? The majority of the money for the WTO's annual budget comes from member donations, which are calculated using a formula based on each member's share of global trade. The United States contributes the most (11.4 percent), followed by China (9.8 percent). Members of the European Union (EU) account for 33.6 percent of the WTO's overall support. However, this does translate to voting power. The WTO is a member-driven organization with a consensus-driven decision-making process that is run by its 164 member governments. In the present context, reaching a consensus has become extremely difficult. All WTO members adhere to a trade resolution process to prevent unilateral solutions to disputes and future trade tensions, regardless of their size or economic standing. This is meant to protect against arbitrary taxes, limits, and other arbitrary limitations. However, the conflict resolution process requires multiple phases that can take up to 15 months to complete (with appeal). Furthermore, the WTO lacks the power to enforce fines, limiting its jurisdiction. [3]

Yet another important factor is the entry of China into the World Trade Organization. Robert Lighthizer, the US Trade Representative, has suggested that the WTO is unprepared to navigate an economy like China's and that admitting China to the WTO in the first place was an error. The escalating trade war between the United States and China is, of course, a major problem for the WTO. The controversy began after the Trump administration agreed to aggressively enforce tariffs on China over suspected intellectual property rights violations rather than waiting for WTO justice. While markets with a high level of government interference will cause problems for more market-oriented economies, the real question is what to do about it. Ambassador Lighthizer was incorrect in implying that his predecessors mistakenly thought China a commercial economy when admitting it to the WTO. China's 2001 accession protocol stipulated that China must be regarded as a non-market economy for 15 years. The clause ultimately enabled the US and other major economies to impose higher tariffs on China than they would have been allowed if China had been classified as a market economy. To claim that allowing China into the WTO was an error, one must be able to provide a reasonable alternate route that would have made the US better off, which the Trump administration has failed to do. In exchange for membership, China made significant contributions to economic reform, which it has effectively implemented. The main issue is that the promises, which were made between 1986 and 2001, were insufficient. They didn't answer any of the concerns that the US and other countries had at the time, and they don't address any problem that has arisen since, as China's significance as a trading nation has grown.[4]

The concern now is whether the WTO scheme can be brought back on track. To do so, it will have to admit that the rulebook, as well as the mechanism for settling disagreements over certain laws, was in desperate need of updating. It also involves the understanding that global responses to the world's most pressing issues are needed, and that the world's top markets — the United States, the European Union, Japan, and China — must come together in a common cause.

That’s a tough row to hoe, especially given current U.S.-China and U.S.-EU frictions. But it is doable if WTO members reorder their priorities and focus on narrow, pragmatic solutions.



Prthika Bajaj is a first-year B.Com(Hons.) student at JSBF. You can check her profile on LinkedIn.


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REFERENCES

[1] A report by Jeffery J. Schott published by Peterson Institute for International Economics https://www.piie.com/system/files/documents/pb18-5.pdf

[2] WTO losing trade focus, too easy on some developing nations, an article by Luc Cohen https://www.reuters.com/article/us-trade-wto-idUSKBN1E51MG

[3] The decline of the WTO, an article by Suhail Nathani published on 20 Dec, 2017 https://www.livemint.com/Opinion/EfWh3TopFTyctnCWMUQYJK/The-decline-of-the-WTO.html

[4] WTO struggling to stay relevant by Parthapratim Pal published on July 21, 2019 https://www.thehindubusinessline.com/opinion/wto-struggling-to-stay-relevant/article28627776.ece

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