WTO faces deepest existential crisis ahead of its silver jubilee

By: |
Published: December 9, 2019 4:44:01 AM

The WTO’s sorry state of affairs may also prompt countries to opt for bilateral or plurilateral deals, which will further fragment the global trading zones and weigh on supply chains as well.

WTO, free trade, DSB ruling, ICT products, Donald Trump, WTO Appellate Body, global exports, india exportThe WTO’s sorry state of affairs may also prompt countries to opt for bilateral or plurilateral deals, which will further fragment the global trading zones and weigh on supply chains as well.

The World Trade Organization (WTO) will be left with only one judge after December 10. This will cripple its dispute appellate mechanism — a sharp rebuke to the very idea of rules-based free trade that the multilateral body represents —ironically ahead of its silver jubilee on January 1, 2020.

The US has stubbornly refused to relent on its move to block the appointment of appellate members (judges) at the WTO at a time of heightened risks to global exports from the ongoing trade war. Since at least three members are required to hear an appeal, the fate of appeals against 14 rulings of the WTO’s dispute settlement body (DSB) —including on India’s export “subsidies” — remains uncertain. More importantly, the DSB’s rulings won’t be binding on the losing sides unless their appeals are heard and settled. Three of the cases involve India, while the US features in five such appeals.

For India, a staunch advocate of the rules-based multilateral trading system, it will be a mixed bag, to start with. It will be spared the trouble of having to fast restructure some of its contentious trade export schemes, as its November 19 appeal against a DSB ruling in favour of the US against New Delhi’s export “subsidies” is still pending.

However, the US, too, will get some relief, as it has a pending appeal against India’s victory in a case of illegal solar subsidies offered by some American states. Ironically, the US had won a similar case against India in 2016 and New Delhi reworked its solar programmes to comply with the ruling after losing the appeal.

As for fresh disputes, India is in consultations with the EU, Japan, the US, Chinese Taipei, etc over its decision to raise tariffs (up to 20%) on certain ICT products, including mobile phones. Typically, if the consultations fail, the aggrieved parties are free to approach the DSB for the composition of a panel to adjudicate on the case. The panel’s findings can be appealled at the Appellate Body.

What worries analysts is that the Appellate Body goes into a freeze mode when a trade war between the US and China is showing no signs of abating. A non-functional appellate mechanism leaves a greater scope for countries to step up protectionism and disrupt global trade, growth in which is expected to plummet in 2019 to the lowest level since the 2008 financial crisis.

To be sure, countries can still initiate disputes against one another at the WTO; problems will arise only when a losing party appeals against the ruling of the DSB, which remains very much functional even after December 10. In 60 cases, the DSB has either set up panels to adjudicate disputes or is in the process of doing so. However, since over 70% of the disputes — and almost all high-stake cases — are usually settled after appeals, without a functional appellate mechanism, the WTO’s dispute resolution prowess will be all but diminished.

The WTO’s sorry state of affairs may also prompt countries to opt for bilateral or plurilateral deals, which will further fragment the global trading zones and weigh on supply chains as well. And this will lead the global multilateral trading system to, what many analysts world over have warned, a “self-destruct” mode. The alternative of not joining any trade block, too, is fraught with risks of isolation. Either way, India, which last month pulled out of the RCEP trade deal, will have to make some tough choices.

Importantly, since the blocking of the appointment of appellate judges by the US started under the Obama administration (although its WTO stance hardened under Donald Trump), even if a new President is elected there, it is unlikely to lead to any material change unless Washington makes up its mind on the merit of multilaterialism. Efforts to pursuade the US, the original WTO proponent which now believes the trade body has been unfair to it, haven’t so far borne fruit. Interestingly, Robert Lighthizer, current US Trade Representative and a staunch critic of the WTO, was nominated to the Appellate Body as a member in 2003 but his appointment wasn’t confirmed due to a lack of unanimous support.

Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, said: “If the multilateral system collapses in a few years, then the roots of the collapse cane be traced to the demise of the Appellate Body. Then we all know which country is responsible for it.”

The WTO Appellate Body’s annual report for 2018 highlighted its role aptly. “While losing parties and sometimes other WTO members have criticised individual rulings, to date, no WTO member has explicitly chosen not to implement a ruling in a dispute that it has lost,” it said. “At the same time, they (the indicators of its success) stand in stark contrast to the institutional crisis we are currently facing.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1Chhattisgarh ranked sixth in giving MNREGA jobs to differently-abled persons
2China’s trade with US sinks in November amid tariff war
3Govt to launch 3rd phase of Pradhan Mantri Kaushal Vikas Yojana in FY21, says skill development minister