The General Agreement on Tariffs and Trade (Gatt) came into force on January 1, 1948, though established in 1947. Its aim was to abolish trade quotas and reduce tariffs used by developed countries so that developing countries could get access to their lucrative markets. Gatt led to the establishment of the World Trade Organization (WTO) on January 1, 1995, after the conclusion of eighth Gatt round of talks (1986-1993), known as the Uruguay Round. India was a founder-member of Gatt, which began with just 23 members. Its successor, the WTO, has 151 member countries. That?s nearly the whole world (Russia is among the few major economies left out).
Yet, despite such foundational strength, the future of multilateral trade cannot be taken for granted. In his review of the past six decades to mark the 60th anniversary of the multilateral trading system, WTO Director-General Pascal Lamy asked a select group of diplomats and trade experts to help create an instrument that could withstand economic shocks and prevent financial chaos. He noted that the shocks so far have not been minor, though the system had been resilient. ?It survived the Berlin Wall fall. It survived the Berlin Wall rise at the time. It survived successive oil shocks and the huge financial crises of the ?90s, largely retaining the essence of inclusiveness, predictability and the rule of law. And, these are key values of the system,? he pointed out.
Carin Smaller, head of the Geneva office of the Institute of Agriculture and Trade Policy, a lobby group for poor farmers, believes that while the multilateral trading system has worked well in many respects, the radical push for free markets since the 1980s has benefited the rich at the expense of the poor. This, she says, has led to huge imports of agricultural goods into developing countries, displacing local production. ?In countries like Ghana, Honduras and Indonesia, you have had livelihoods displaced because of cheap rice imports coming in. Because they had opened their markets up too soon probably,? she said. ?You have the case of sugar coming into the market in Kenya… and all of these massive increases in agricultural goods coming into these countries are undermining livelihoods.?
Today, worldwide free trade is seen as part of an agenda of globalisation, and not everyone is in favour of it. In 1999, anti-globalisation protests against a WTO meet in Seattle scuttled the start of a new round of free trade talks.
Yet, in 2001, the WTO was able to get its Doha Development Round underway. The round?s explicit aim is to extend the benefits of globalisation to developing countries through free global trade. But even after seven years of rocky negotiations, an agreement remains elusive. The major sticking point is agriculture and trade-distorting subsidies used by developed countries, apart from the reduction of tariffs related to non-agriculture market access (Nama). Developing countries are refusing to sign an agreement that does not give them greater access to rich country markets. Unless there is a change in the position of major actors, particularly the European Union and United States, as well as Brazil and India, there is unlikely to be any progress in talks.
But one glimmer of hope, given the possibility of a US recession looming on the horizon, is that American producers might turn more welcoming of free trade and wary of the fallacies of protectionism. Sensible lobbying might lead the US to reconsider some of its positions on Doha. Likewise, the risk of a global recession might also lead others to reconsider their positions. India cannot escape the impact of a US slowdown. But compared to China, where trade accounts for 60-65% of GDP, India is less exposed?goods trade makes up 35% of GDP and services another 5-10%. By and large, given our large reserves and economic fundamentals, we may tide over an American recession. However, what is of concern is whether the global financial market turmoil reflects something deeply worrying that is yet to come out. If it is, then the crisis gets an entirely different complexion.
?It?s a sine qua non of an agreement that we get something on agriculture,? said WTO Chief Economist Patrick Low. ?What that something is, of course, is what these negotiations are all about.?
Patrick Low recognises the difficulty of getting the EU and US to reduce their subsidies to a level low enough to be acceptable to developing countries, but dismisses suggestions that divisions over agriculture or a possible failure of the Doha Round will lead to a breakup of the WTO. The multilateral trading system will survive.
Advocates on both sides of the globalisation debate agree that the WTO will face a roster of new issues, including climate change. There will also be more pressure for an equitable trading system and for it to be more accountable, accessible and transparent. How the WTO responds to these challenges will determine the future of the multilateral trading system.
The author is trade professor, Icfai Business School, Chandigarh.
Email: Vasu022@gmail.com.
These are his personal views