Answer Synopsis 10/12/2020

Question :WTO’s mandate as a trade body is decreasing day by day. In the light of recent incidents happening in the international arena critically analyze the above statement

Structure of the answer

  • Write in short what WTO is
  • Write the achievements of WTO and challenges faced by it.
  • Enlist the possible measures to overcome the shortcomings.
  • Conclude answer highlighting the importance of WTO.

Synopsis

The World Trade Organization has again been brought into the discussion during the recent event of Corona pandemic and due to the stifles between US and India. The bone of contention as earlier is the title of ‘developing nation’ and the concessions attached with it.

Achievements of WTO since its inception

  1. Since the WTO came into being in 1995, massive changes have happened, some deeply structural in nature.
  2. New technologies have transformed the way of living, communicating, and trade.
  3. Communication technologies lowered costs and boosted volumes of components moving in and out of countries allowing production chains to become increasingly international and also much more complex. An iPhone, for example, has about 14 main components that are manufactured by 7-8 multinational companies with branches in more than 40 countries.
  4. Trade in goods has nearly quadrupled since 1995, while WTO members’ import tariffs have declined by an average of 15 per cent.
  5. Over half of world trade is now tariff-free (WTO, 2015).
  6. Growth in trade has exceeded growth in world GDP and has been associated with improved standards of living.
  7. Today, the WTO regulates more than 98 per cent of global trade flows among its members.
  8. It also monitors the implementation of free trade agreements, produces research on global trade and economic policy, and serves as a forum for settling trade disputes between nations.
  9. An alternate way to look at the WTO’s success is not to focus on how much trade it has helped create and the corresponding tariff reductions, but the damage in trade value it has helped avert. One estimate puts the value of avoided trade wars at $340 billion per year.

Challenges faced by WTO

  1. Dispute settlement cases continue to be filed for the time being and are being litigated. A civil dialogue over trade issues persists.
  2. Technical functioning is now wholly inadequate to meet the major challenges to the strategic relevance of the WTO in the 21st century. In critical areas, the organization has neither responded, nor adapted, nor delivered.
  3. Dimensions of its structures and functions are fragile, creaking, and failing in parts.
  4. Functioning of state enterprises engaging in commercial activities is interfering with and distorting the operative assumption of the General Agreement on Tariffs and Trade (GATT)/WTO that international trade is to be conducted, principally, by private sector operators in response to conditions of supply and demand through price in a market economy.
  5. Many WTO members bear responsibility for the use of trade-distorting domestic subsidies. Agricultural and industrial subsidies have caused blockages in the system and prompted protectionist reactions in a number of WTO members.
  6. Blockage and deadlock in the Appellate Body stage of the WTO dispute settlement system triggered the present crisis.
  7. The WTO lost the critical balance between the organization as an institution established to support, consolidate, and bind economic reform to counter damaging protectionism, on the one hand, and the organization as an institution for litigation-based dispute settlement, on the other hand.
  8. The multilateral system for the settlement of trade dispute has been under intense scrutiny and constant criticism. The U.S. has systematically blocked the appointment of new Appellate Body members (“judges”) and de facto impeded the work of the WTO appeal mechanism.

Measures to revive WTO

  1. A vibrant WTO cannot accommodate conflicting economic models of market versus state. All WTO members will have to accept the operative assumption of a rules-based order steered by a market economy, the private sector, and competition.
  2. Launch negotiations to address the intertwined issues of agricultural subsidies and market access, while recognizing that food security concerns will not disappear.
  3. A credible trading system requires a dispute settlement system that is accepted by all.
  4. Launch serious negotiations to restore the balance, and we must do so in an open-ended plurilateral manner that cannot be blocked by those who do not want to move ahead.
  5. GATT/WTO rules in a number of areas are outdated. New rules are required to keep pace with changes in the market and technology.

Members have to face the reality that the organization requires non-cosmetic, serious root-and-branch reform for a WTO adapted to 21st century economic and political realities. A reformed WTO will have to be constructed on the foundation of liberal multilateralism, resting on open, non-discriminatory plurilateral pillars, an improved Appellate Body.

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