Winning the battle, losing the war in the global trading arena

Pradeep S Mehta & Pranav Kumar

After 50 years of patient progress and some hard negotiations, the international community has achieved its objective of a rules-based multilateral trading system. The World Trade Organisation (WTO) was established in the year 1995. But the question remains, is it enough to ensure a free and fair trade regime? The answer is ‘No’.

To establish a fairer and freer trade regime, countries need to adhere to certain basic principles. Evidence shows that things are not moving as per the fundamental requirements of the multilateral trading system. Even two of the biggest champions of free trade: the United States and Japan are often unable to rise above their narrow parochial interests. For example, Japanese restrictions on Chinese farm products and US threats to protect the domestic steel industry are a flagrant violation of the spirit of multilateralism.

These are only few of the increasing number of trade battles in the recent past, which have both a positive and negative impact on the trading system. Positive to show that there is a rules-based system, but negative to indicate that there are problems between the trading countries. Some of these are extraneous.

Growing trade disputes
Domestic political compulsions rather than the requirements of the multilateral trading system are guiding the international trade policy of many member nations. An ever-increasing number of trade disputes and frequent unilateral trade sanctions are testimony to this fact. Apart from a few, like the US-European Union banana dispute and the Chile-EU swordfish dispute, hardly any dispute has been settled amicably. Though the latest news in the banana case is that there are problems in that settlement also.

Moreover, in some of the adjudicated cases, the country concerned has not implemented the WTO rulings. This is what happened in the case of the shrimp-turtle dispute. The panel report on the US’s implementation of WTO rulings in this case has been delayed, reportedly due to serious disagreement between the three panelists. In June, Japan slapped emergency curbs on Chinese exports in a bid to shore up support from the farm lobby ahead of the national elections.

The demand for import curbs in Japan is spreading fast to other domestic sectors as well. Japan’s largest bicycle industry group, the Japan Bicycle Association, was seen lobbying the Ministry of International Trade and Industry to impose emergency curbs on bicycles imported from China. China retaliated by issuing new restrictions on imports of Japanese automobiles.

US President George W Bush, on the US steel industry’s plea for government relief, ordered the US International Trade Commission (ITC) to conduct a thorough investigation into the steel business under Section 201 of the 1974 trade law. The probe will determine whether the problems faced by troubled American steelmakers are caused by “unfair trade practices”. Those targeted include the steel industry of India and the EU. The witch-hunt could lead to unilateral trade sanctions against any steel exporter to the US. All this, in spite of the fact that the US is one of the most vocal protagonists of trade liberalisation.

The US system of sharing the spoils of anti-dumping and safeguard actions with the complaining companies takes the cake. It is currently at the top of the agenda of the WTO’s dispute settlement system. The EU and eight other countries: Australia, Brazil, Chile, Indonesia, Japan, South Korea, Thailand and India have asked for a panel to be set up.

Developing countries’ role
Many developing countries have also started using several trade-distorting measures of a different nature. For example, during the 1990s there was a significant rise in anti-dumping cases initiated by developing countries like India. In 1992-93, India initiated only two anti-dumping cases, but this number went up to 26 in 2000-01. Between 1992 and 2000, India initiated 89 anti-dumping cases, the highest by any country. Following India’s liberalisation of consumer goods imports, many affected firms in the consumer goods sector are howling for anti-dumping action. Their chorus has been strengthened by tall promises made by politicians that they will be protected from cheaper imports. Clearly, the loss will be the consumer’s and the economy’s.

These trade measures are not only against the poor, but one poor country is doing it against another. For example, Bangladesh imposed an import ban on Indian rice as it had a bumper harvest. Even in the case of disputes for which compromise solutions have been negotiated, the true beneficiaries are not producers but big multinational marketing companies who are acting as intermediaries between producers and consumers.

In the EU-US banana dispute, which was settled recently, big marketing companies like Chiquita of the US and Noboa of Ecuador were the major beneficiaries. Poor farmers of Latin America and Africa were left out.

This trend is portentuous and against the basic spirit of WTO. Its importance is increasingly being undermined by the narrow intentions of many countries whose sectoral lobbies are successful. If a country like Japan, which has a substantial trade surplus, cannot adhere to the basics of the multilateral trading system, how can poor countries be expected to resist the cries for protection at home?

(The writers work for the Jaipur-based CUTS Centre for International Trade, Economics & Environment)