THE GIST of Editorial for UPSC Exams : 30 October 2018 (The WTO: Is it all over or can something be done?)

The WTO: Is it all over or can something be done?

Mains Paper: 3 | Economics
Prelims level: WTO
Mains level: International trade and economics

Previous US administrations have had their problems with the WTO, especially with its negotiating process which is based on consensus, and can prevent trade negotiations from moving forward if even one country objects.
No president has ever suggested that the US might want to leave the WTO.
The threat naturally has major trading partners worried.

The US has not just criticized the WTO.
It has also walked the talk by announcing a series of unilateral tariff increases outside the WTO framework.
These includeSafeguard tariffs to guard against a surge in imports of solar cells and washing machines,
Imposition of 25% tariffs on import of steel and 10% on imports of aluminium from all countries, (including India) ostensibly on national security grounds and,
Discriminatory tariffs on imports of about $50 billion from China under Section 301 of the US Trade Act.
Safeguard action is allowed under WTO, but to be WTO compatible, it has to follow a process that involves consultation between the parties, and a possible resort to the WTO to determine WTO compatibility. No such consultations took place.
The imposition of tariffs on steel and aluminium on national security grounds is even more questionable.
Such action is tolerated when taken against imports from countries which are seen as national security threats.
It is being used against countries some of which are actually allies, and it is directed at specific commodities for purely protectionist purposes.

The Ottawa meeting reaffirmed the importance of a “rules based multilateral trading system” and stressed the “indispensable role the WTO is playing in facilitation and safeguarding trade”.
Although Trump may not agree with the endorsement of the importance of the multilateral trading system.
The meeting concluded that action is necessary in three broad areas.

The WTO compared to its predecessor the General Agreement on Tariffs and Trade was the establishment of a strong dispute resolution system.
Disputes are first referred to a dispute resolution panel and appeals against the decisions of the panel go to an appellate board.
The US had taken the lead in setting up this system, but it now seems determined to unravel it.
There is some evidence that the US is unhappy about some specific rulings of the appellate board which arise from the board taking too wide a view of what it can pronounce on.
If this is indeed the problem, it could be addressed through discussions.
This is an area where we should support reconsideration of the practice in dispute settlement as it has evolved.

This relates to the issue of the practices of member countries in reporting open and hidden subsidies.
It is argued that the current provisions are not sufficiently clear, and are also not effectively enforced.
Compliance with reporting requirements is largely ignored.
The problem of non-transparent subsidies is not unique to China. Similar subsidies exist in industrialised countries also.
For example, much of
The technology behind iPhones, touch screens, and AI, have benefited from defence-sponsored research.
It may seem unfair that the issue is being raised now, in the case of China, when it was not in the case of the existing industrialised powers.
However, whatever the past practice, it is reasonable that common degrees of transparency should be expected from all countries.
It is not clear what exactly can be done to make the system more transparent, but there is surely room for negotiation here, and we should support it.

The Ottawa communique lists a number of issues related to strengthening the negotiating process which include making progress on new trade issues along with making progress on existing issues, and also keeping the focus on development.
These issues have proved difficult to resolve in the negotiating process.
The communique only says that the officials of the countries will work on these issues and report back when the group meets next in January 2019.
One issue that is relevant in trying to break the negotiating logjam is to reconsider the WTOs consensus rule itself.
The rule gives each country a veto. We could move to decisions being taken by qualified majority. Voting strength of each country could be based on share in world trade, and the qualified majority needed could be say 85%.
This would mean that any proposal accepted by members accounting for 85% of world trade would go through.
Both these proposals would meet with strong objections.
However, we should be willing to consider them if the alternative is the collapse of WTO.
The change to be implemented, the shift would have to be approved under the existing consensus rules

If the multilateral trading system is really as much at risk as many fear, it is an important enough issue for the heads of government of the G20 to get directly involved.
The next G20 Summit is scheduled to take place later in November in Argentina and trade is not on the agenda. The next one will be in Japan in July 2019.
Perhaps the G20 Summit in Argentina should consider appointing an eminent persons group, which could come up with some core proposals, which the G20 leaders could consider in Japan next year.
If Trump can be persuaded to do this we might have an opening for reform a year later.

The G20 summit made all the difference in 2008.
The finance ministers by themselves were unable to agree on how to save the global financial system.
Ten years later they need to repeat the performance this time to save the world trading system.
Once they have approved a broad approach, the trade ministers could take over again in Geneva.