Restoring the World Trade Organisation’s Crown Jewel

Why in News?

• In June 2022 at the Geneva Ministerial Conference, the member-countries of the World Trade Organization (WTO) managed to strike a deal in which India played a vital role thereby keeping faith in trade multilateralism alive.
• An important part of the conference was resurrecting the WTO’s dispute settlement system (DSS), also called WTO’s ‘crown jewel,’ by 2024.

 

WTO (World Trade Organisation)

• It is an international institution that oversees the rules for global trade among nations.
• WTO has 164 member countries[with Liberia and Afghanistan the most recent members, having joined in July 2016] and 25 observer countries and governments.
• It officially began operations on January 1, 1995, in accordance with the 1994 Marrakesh Agreement, thus replacing the 1948 General Agreement on Tariffs and Trade (GATT).
• The major functions of WTOare:
  • Administering WTO trade agreements.
  • Forum for trade negotiations.
  • Handling trade disputes.
  • Monitoring national trade policies.
  • Technical assistance and training for developing countries.
  • Cooperation with other international organisations. 

 

Organisational Structure of WTO

• The highest authority of the WTO is the Ministerial Conference, which is composed of all member states and usually convenes biennially (every two years) and consensus is emphasised in all its decisions.
• The daily work is handled by three bodies whose membership is the same. The only difference is the terms of reference under which each body is constituted.
  • The General Council
  • The Dispute Settlement Body 
  • The Trade Policy Review Body

 

The Dispute Settlement Body (DSB)

• The General Council convenes as the DSB to deal with disputes between WTO members. The DSB has authority to establish dispute settlement panels.
• DSB decides the outcome of a trade dispute on the recommendation of these panels and possibly on a report from the Appellate Body - that hear appeals from reports issued by panels.
• Only the DSB has the authority to make these decisions, panels and the Appellate Body can only make recommendations.

 

Issues faced by the WTO’s DSS

• The appellate body, which is the second tier of the WTO’s DSS, from 1995-2019, has upheld the international rule of law by holding powerful countries such as the U.S. and the European Union accountable for international law breaches.
• It does not discriminate in its assessment and decisions between big and small countries.
• However, the appellate body has become a victim of its success. It remains paralysed since 2019.

 

Why DSS is Non-Functional?

• Because the United States, single-handedly, has blocked the appointment of the members of the Appellate Body.
• Its one-time supporter, the U.S., has become the sharpest critic. 

 

Issues Raised by the US

• Judicial Overreach by the Appellate Body
  • The U.S. has raised the issue of judicial overreach and exceeding the assigned institutional mandate of the Appellate Body.
  • Thus, it argues that till the time the appellate body’s role is defined precisely, it cannot be resurrected.
• Precedent Problem: Another major problem that the U.S. identifies is that the appellate body, contrary to the text of the WTO’s dispute settlement understanding (DSU), has been creating binding precedents through its decisions.

 

Why the Concerns Raised by the US are not Valid?

• The Appellate Body Has Always Tried to Strike a Balance
  • It is well-established that there is no rule of precedent in international law.
  • The WTO’s DSU also makes this clear by stating that the appellate body rulings can neither add nor diminish the rights and obligations of WTO member-countries.
  • However, the DSS of the WTO is a central element in providing security and predictability to the multilateral trading system.
  • Thus, it is incumbent on the appellate body to ensure that there is consistency in the interpretation and application of the WTO agreements without creating a binding precedent.
  • This requires striking a fine balance precisely what the appellate body has tried to do.
• A Departure Can be Made in Case of “Convincing Reasons”
  • It has encouraged the WTO panels to rely on previous interpretations especially where the issues are the same.
  • Simultaneously, the appellate body has clarified that a departure can be made from the previous rulings and reasoning if there are “cogent reasons.”
• Appellate body is not the only international court that follows its previous decisions. Other international courts such as the International Court of Justice and the International Tribunal for the Law of the Sea also follow past decisions unless there are valid reasons not to do so.

 

US’ Broader Plan - De-judicialisation of Trade Multilateralism

• The WTO was created in a world with the neoliberal consensus that emerged after the Cold War and the collapse of communism.
• In a neoliberal economic system, the ‘invisible hand’ of market competition should be complemented by the ‘visible hand’ of the law.
• The WTO became this ‘visible hand’ of the law to regulate global trade.
• This, arguably, erodes the sovereignty of nations as they lose control over critical decision-making.
• De-judicialisation is the reverse phenomenon where countries weaken international courts to take back decision-making power.
• Given the emerging geo-economic challenges posed by a rising China, the U.S. wants to exercise full power over its trade policies, freeing itself from the constraints of the appellate body’s judicial review.

 

Prospective Solutions

• It has been proposed that the WTO member-countries can adopt a statement that the appellate body rulings do not create precedents.
• Another option that other countries have is to elect the appellate body members by resorting to voting at the WTO’s General Council meeting.

 

Conclusion

• Trade multilateralism might be out of fashion, but remains a critical component for developing countries like India.
• The US has identified many problems but has not offered a single solution. Therefore, other countries must find a way to reform the WTO because it is futile to negotiate with the US to put the appellate body back on track.

 

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Q1) What is ‘Trade Multilateralism?’

Multilateral trade agreements occur between three or more nations, and they are treated equally, and no one gets a most favoured nation status. The aim is to standardise commerce regulations, encourage exports and imports, reduce tariffs, and quotas between member countries.

 

Q2) Why is there a need to reform the WTO?

Contrary to WTO founding principles, today’s world is dominated by geo-economic considerations and heightened securitisation of international economic relations. The pursuit of unilateralism in international economic relations, especially by developed countries like the US, which goes against established WTO laws. Economic policies such as industrial subsidies and local content requirements have made a comeback. There is a deliberate effort to weaken trade multilateralism in favour of external plurilateral alignments keeping the big power confrontation in mind.

 

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Source: The Hindu