Current General Studies Magazine: "Rewiring the WTO" February 2017

Current General Studies Magazine (February 2017)

General Studies - III "Economy Based Article" (Rewiring the WTO)

Growing disenchantment with the existing model of globalisation is also a historic opportunityto frame new rules granting equal opportunities to all in the global marketplace

The visit of Roberto Azevêdo, Director General of the World Trade Organisation (WTO) to India, from February 8, comes at a juncture when the framework of global trade rules is undergoing a shake-up. The Trans-Pacific Partnership (TPP) — which had almost become the standard bearer of trade rules — has been dealt a death blow by the Trump presidency.

The TPP found itself in this position after the United States orchestrated the move to make the WTO virtually irrelevant during the 10th Ministerial Conference of the organisation, in Nairobi in 2015. The conference ended without a decision on the most important area of work of WTO members — the Doha Round negotiations. These negotiations were mandated by the Doha ministerial conference in 2001 to review extant trade rules in order to make the WTO more responsive to the needs of the majority of its membership — the developing countries. With the Nairobi ministerial failing to decide on the future of the Doha negotiations, the WTO’s relevance has been questioned since the organisation does not have a work programme.

The developing world has largely been questioning the relevance of the WTO for some years now, when the richer nations gained the upper hand in setting the priorities for the organisation. As a result, the efforts of the developing countries to amend several important agreements and to make them more responsive to their development needs have been seriously undermined. Similarly, issues of critical concern to the least developed countries, especially their inability to increase their presence in the global markets, have also been put on the backburner.

Silence on food stockholding

The skewed rules in the areas of agriculture and intellectual property rights have been flagged by the developing countries as their particular areas of concern. In agriculture, WTO rules have been loaded in favour of the developed countries, while the interests of small farmers have almost been completely ignored. India flagged the important issue of food security and argued that the sovereign states must have the right to decide the manner in which the poor should be provided subsidised food. This issue arose after questions were raised as to whether public stockholding of food, which is at the heart of India’s Public Distribution System (PDS), meets the WTO disciplines on agricultural subsidies. After India countered the viewpoints of the countries questioning its PDS, an understanding was reached where even if India breached agricultural subsidies’ disciplines to meet its food security needs, no penal action would be taken against it through what is commonly called a “peace clause”. But India’s insistence that there should be a permanent solution to the problem of public stockholding for food security purposes has been met with deafening silence.

While the developing country issues have not seen any progress, Mr. Azevêdo’s predecessor, Pascal Lamy, had lent support to the fast tracking of negotiations for an agreement on trade facilitation. This area covers all the measures that countries need to take in order to reduce transactions costs. Trade facilitation was not exactly an area that excited the developing countries for their shares in global trade are at very low levels. Moreover, by accepting the commitments under the agreement, they were required to undertake changes in their customs procedures and facilities, which seemed a daunting task for many of the poorer countries. The critical element was the availability of financing facilities for undertaking the modifications. However, despite their initial opposition, the developing countries eventually accepted the Agreement on Trade Facilitation at the end of the Bali Ministerial Conference in 2013.

Four years later, e-commerce

In the run-up to the 11th Ministerial Conference to be held in Buenos Aires in December 2017, ground is being prepared by the major economies for another exercise at “cherry picking”. The issues that have been identified for inclusion in the WTO are electronic commerce and investment. Their inclusion has been supported by the International Chamber of Commerce (ICC) and the B-20 (Business 20, representing the business groups of G-20 countries).

The ICC and B-20 tabled a proposal in September 2016 for the adoption of a “WTO package” on e-commerce. Interestingly, this proposal speaks of promoting micro, small and medium enterprises (MSMEs) through the better adoption of e-commerce. The proposal argues that an effective e-commerce environment would level the playing field between large and small businesses, thus enabling the latter to overcome the hurdles in accessing markets. The ICC-B-20 have proposed that the “package” should also provide capacity building resources to the developing economies, “including targeted assistance to ensure that MSMEs can get online and expand their business through e-commerce”. This approach is similar to the Trade Facilitation Agreement Facility, the window for supporting developing and least-developed countries to implement the Trade Facilitation Agreement. However, the biggest challenge for the WTO is to garner financial resources, since it does not have a financing arm.

The WTO Director General has given strong endorsement to e-commerce. He has pointed out that the increase in Internet penetration (43% of the global population) provides the basis for “changing the traditional way of doing business and conducting trade”. But the number that Mr. Azevêdo cites is far removed from reality. In 2015, Internet penetration in the least-developed and low income countries was 12.6% and 9.4%, respectively. Even for the low middle income countries, the figure was below the global average. These disparities in Internet penetration should make it clear as to who would be the likely beneficiaries from e-commerce.

Divisive issue of investment

The issue of including investment in the WTO has been a deeply divisive, almost right since the inception of the organisation. While previous attempts to include an investment agreement have been met with much resistance from the developing countries, the latest bid comes at a time when the investor-friendly bilateral investment treaties (BITs) are under the scanner. The focus is on the investor state dispute settlement process, using which investors can sue their host states in private international panels. India has unilaterally revoked a majority of the 73 BITs that it was a party to and has adopted a new model BIT that would be the basis of its future BITs. The new model BIT vastly truncated the powers of the foreign investor and their right to initiate disputes.

It is quite clear that the inclusion of e-commerce and investment in the WTO would further drive the wedge between the rich and the poor nations. The growing disenchantment with the existing model of globalisation has provided a historic opportunity to frame new rules that give equal opportunities to all countries and their citizens in the global marketplace. Can Mr. Azevêdo be the harbinger of this new regime?

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