How to Restore WTO’s Authority

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Why in News?

  • The 13th ministerial meeting of the World Trade Organisation (WTO) is set to convene in Abu Dhabi and it provides another opportunity to address the ongoing crisis in the Dispute Settlement Mechanism (DSM).
  • The WTO's crown jewel, the DSM, has been rendered ineffective since the end of 2019 due to the US blocking the appointment of new Appellate Body (AB) members.
  • While there are implications of the DSM crisis, there are certain options available for developing countries which could provide potential solutions to revive DSM.

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 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).

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 General Council
    • The Dispute Settlement Body (DSB)
    • The Trade Policy Review Body
  • The only difference is the terms of reference under which each body is constituted.
  • The General Council convenes as the DSB to deal with disputes between WTO members. 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, and
    • Authorise suspension of concessions in the event of non-compliance with those recommendations and rulings.
  • Only the DSB has the authority to make these decisions, panels and the Appellate Body can only make recommendations.

The Significance of the Appellate Body (AB)

  • Binding Decision-Making
    • The AB possesses the authority to review and, if necessary, overturn legal findings and interpretations made by WTO panels.
    • This binding nature ensures a definitive resolution to trade disputes, contributing to the stability and predictability of international trade relations.
  • Compulsory Jurisdiction
    • The AB's jurisdiction extends across all WTO member countries, providing a compulsory framework for resolving disputes.
    • This means that member nations are obligated to participate in the AB process, reinforcing the notion of a rules-based international trading system.
  • Promotion of Fair-Trade Practices
    • By addressing disputes and enforcing compliance with WTO rules, the AB contributes to the promotion of fair and equitable trade practices.
    • This, in turn, fosters a level playing field for both developed and developing nations, promoting inclusivity and sustainable economic growth.

Current Challenges in the DSM

  • Crippling of the Appellate Body (AB) Due to US’ Reluctance to Revive the AB
    • Since the end of 2019, the AB, a vital component of the DSM, has been rendered practically non-functional due to the blockage of new member appointments.
    • The United States, dissatisfied with previous dispute outcomes, has single-handedly impeded the AB's ability to operate.
    • This has led to a situation where appeals to WTO panel decisions now result in a legal void, eroding the binding nature of the dispute resolution process.
    • Having lost multiple critical disputes, the U.S. has chosen to wield its influence to halt the appointment of new AB members, leading to a dwindling number of adjudicators and, consequently, a standstill in the appellate process.
  • Avoidance of Compliance
    • With the AB inoperative, countries have found an easy way to circumvent compliance with WTO panel rulings. Nations can appeal into the void, effectively rendering the DSM toothless.
    • This undermines the very essence of the dispute settlement mechanism, which is designed to provide a binding and enforceable resolution to trade disputes.
  • Delayed Resolution of Disputes
    • The absence of a functioning AB contributes to delays in the resolution of trade disputes.
    • Without a binding appellate process, disputes may linger, leading to economic uncertainties and potential retaliatory actions between trading partners.
  • Threat to Rules-Based Trade
    • The crisis in the DSM undermines the concept of a rules-based international trading system.
    • The inability to enforce agreed-upon rules diminishes the predictability and stability necessary for fostering global economic growth through trade.

Potential Solutions for Developing Countries to Maintain a Fully Functional Two-Tired DSM

  • Joining the European Union-led MPIA
    • The first option is to join the European Union-led multi-party Interim Appeal Arbitration Arrangement (MPIA).
    • This body formalises the mechanism for arbitration already available under the WTO to provide the appellate review for panel reports.
    • The MPIA’s procedure is quite like the one that the AB followed, however, there are two downsides.
      • First, its voluntary nature means that each MPIA tribunal would be an ad hoc one.
      • Second, though MPIA awards are binding on the parties to the dispute, unlike the AB ruling, they are not required to be adopted by all WTO members.
    • This means that all MPIA rulings would remain ad hoc, unlike the AB, whose rulings set a body of jurisprudence that subsequent panels have frequently relied on to ensure certainty and predictability in dispute settlement.
  • Formulation of a Diluted AB with Limited Powers
    • While the US has so far opposed the AB in principle, it may consider an AB with limited powers.
    • The powers of the AB can be shortened in various ways, such as requiring it to be largely deferential to the parties to the dispute, stating that AB rulings will not have a persuasive value, etc.
    • But a diluted AB will be antithetical to the role that WTO law expects the DSM to play: To provide security and predictability to the multilateral trading regime. It will also be inimical to the interests of countries like India.
    • Even if the US does not like AB’s jurisprudence, the fact remains that the AB, over the years, has clarified the meaning of WTO law.
  • Resurrecting the AB with Opt-Out Provision
    • Scholars Robert Howse and Wenhua Ji have proposed to resurrect AB in the same form as it existed till 2019 but with one important change thatcountries will have the option to opt out of AB’s compulsory jurisdiction.
    • A country opting out cannot participate in an appellate process either as a complainant or as a respondent.
    • Therefore, if the US opts out of the appellate mechanism, any country with a dispute against the US would have to settle for only a single-tier panel jurisdiction over such disputes.
    • Critics are sceptical about it as this will change the intrinsic nature of a two-tier binding DSM and more importantly keep the US, one of the WTO’s most frequent litigators, outside the appellate mechanism’s purview.
    • But this is a price that one might have to pay to safeguard the AB in its current form. The United States' decision not to participate in the AB will not diminish its influence.
    • For example, the optional jurisdiction of the International Court of Justice (ICJ) has not undermined its legitimacy and standing.

Conclusion

  • In navigating the current crisis within the WTO's DSM, developing countries, including India, face a complex decision-making process.
  • While the ideal solution involves restoring the AB to its former glory, the proposed resurrection of the AB with an opt-out provision presents a pragmatic compromise, acknowledging the challenges while seeking to safeguard the AB's legitimacy.
  • As the WTO member countries convene in Abu Dhabi, the way forward involves careful consideration of the trade-offs between preserving the DSM's effectiveness and accommodating the diverse interests within the international trade landscape.

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) What should be the Focus of Developing Nations during Deliberation on WTO Reforms?

The focus of developing nations should be on the Presence of Special and Differential Treatment (SDT) Principle. This is one of the cardinal pillars of the international trading regime. Given the varying levels of development of different WTO member countries, SDT provisions give special rights to developing countries and obligate developed countries to treat the developing nations more favourably.


Source: The Indian Express