World Trade Organisation (WTO)

• Context (TH): The 13th Ministerial Conference of the WTO took place in Abu Dhabi, United Arab Emirates.

About World Trade Organisation (WTO)

• WTO is an intergovernmental organization that regulates and facilitates international trade between nations, operating in a member-driven and consensus-based manner.

• Formally established on January 1, 1995, under the 1994 Marrakesh Agreement, the WTO is a successor to the General Agreement on Tariffs and Trade (GATT) of 1948, which was established in the wake of the Second World War.
• The WTO is the outcome of the 1986- 94 Uruguay Round negotiations, which included a major revision of the original General Agreement on Tariffs and Trade (GATT).
• From 1948 to 1994, the GATT provided the rules for much of world trade. Whereas GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property.
• Headquarters: Geneva, Switzerland; it is the world’s largest international economic organisation.
• 166 member states (India is a founding member), representing over 98% of global trade.
• It is the only international organization dealing with the global rules of trade.

Mandate of the WTO

• The WTO’s mandate encompasses the facilitation of trade in goods, services, and intellectual property.
• It achieves this by providing a framework for negotiating trade agreements that aim to reduce or eliminate tariffs, quotas, and other trade restrictions.
• Additionally, the WTO oversees independent dispute resolution mechanisms to ensure compliance with trade agreements and resolve trade-related disputes.
• While the WTO prohibits discriminatory practices among trading partners, it allows for exceptions in cases related to environmental protection, national security, and other significant objectives.

Key Principles of WTO

1. Non-discrimination:
   • Most Favoured Nation (MFN): Equal treatment of all trading partners. Free trade agreements (FTAs) are an exception to this rule since the benefits agreed in an FTA are exclusive to its parties.
   • National Treatment (NT): It establishes that a WTO member should treat foreign producers and suppliers the same way it treats domestic ones once the product, service, or item of intellectual property has entered its market.
2. National Treatment: Equal treatment of foreign and domestic goods and services.
3. Fair Competition: Non-discriminatory, rule-based trading.
4. Free Trade: Reduction in tariff and non-tariff barriers.
5. Predictability: Transparency & binding (bound rates)
6. Encouraging Development & Economic Reforms: Special assistance & concessions to developing countries & LDCs.

Relation between WTO and UN

• WTO is not a part of the United Nations. However, it has maintained strong relations with the UN.
• WTO-UN relations are governed by the “Arrangements for Effective Cooperation with other Intergovernmental Organizations-Relations Between the WTO and the UN” signed in 1995.
• The WTO Director General participates in the Chief Executive Board, the organ of coordination within the UN system.

Governance of WTO

• The WTO also has a hierarchical institutional structure to fulfil its mandate.

Ministerial Conference

• The Ministerial Conference (MC) is the main decision-making body in the WTO, comprising trade ministers and senior officials from the 164 WTO members.
• It usually meets every two years to discuss multilateral trade developments and decide on the issues debated in the WTO. Its mandate covers all multilateral trade agreements.
• The last MC – 13^th Ministerial Conference – was held in Abu Dhabi between 26 February – 2 March 2024.

WTO General Council

• It is the WTO’s highest-level decision-making body.
• It has representatives from all member countries.
• It has the authority to act on behalf of the Ministerial Conference.
• WTO General Council also meets, under different rules, as the Dispute Settlement Body (DSB) and as the Trade Policy Review Body.

Councils and Committees

• The councils consist of all the WTO members and report to the General Council.

Secretariat

• The WTO Director-General is the head of the Secretariat.
• It offers the WTO bodies administrative and technical support to perform a wide range of activities.
• It also manages the WTO budget.

Major Agreements of WTO

General Agreement on Trade and Tariffs (GATT)

• Its main goal is to consolidate and reduce members’ tariffs on goods.
• Each WTO member has a schedule of commitments where they bind their tariff rates and agree not to increase them beyond that established limit. This is to promote greater market access.

General Agreement on Trade in Services (GATS)

• It was negotiated during the Uruguay Round as the result of the increasing role played by services in the world economy.
• Article I.2 of the GATS establishes that the agreement applies to four modes of supply of services:
  1. Mode 1: Cross-border, when only the service crosses the border as the consumer and the supplier remain in their respective countries. For e.g., call centre services and remote training.
  2. Mode 2: Consumption abroad, when the consumer benefits from the service while abroad, for e.g., when travelling as a tourist or to receive medical care.
  3. Mode 3: Commercial presence, when the provider – a commercial entity – establishes a physical presence in another country, such as when companies set up a branch or subsidiary abroad.
  4. Mode 4: Presence of natural persons, when the supplier – a natural person – migrates to the country where they will provide the service. E.g. consultants working on a project or artists on tour.8
• GATS does not include, however, governmental services and certain air transport services.

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

• The TRIPS was negotiated separately to address how IP rights should be treated in trade relations.
• TRIPS rules confer to the IP holder the exclusive right to exploit their creations for a certain period.
• The agreement covers:
  1. Copyrights
  2. Trademarks
  3. Geographical indications
  4. Industrial designs
  5. Patents
  6. Layout-designs (topographies) of integrated circuits
  7. Industrial secrets
• The goal is to balance the need for encouraging innovation and enabling public welfare in a way that society can enjoy the advantages brought by such innovation.
• The TRIPS Council is responsible for administering & monitoring the operation of the TRIPS Agreement.

Technical Barriers to Trade Agreement and Sanitary and Phytosanitary Measures Agreement

• The TBT Agreement and the SPS Agreement aim at preventing governments from using domestic standards to pursue protectionism, that is, discriminate in favour of domestic producers and suppliers.
• It allows countries to protect their consumers, environment, and national security, considering the regulations and standards drawn on scientific evidence and, preferably, international guidelines.

Trade remedies

• These are instruments to protect domestic industries and sectors against injuries caused by unfair practices that favour imports – known as countervailing duties and antidumping – or by unforeseen surges in imports – known as safeguards.

Countervailing duties

• These are a tax on subsidised imports, making them more expensive to buy.
• The rationale behind these duties is to bring the market price of subsidised imports back up to what it would have been without subsidies.
• Doing so eliminates the “unfair advantage” granted by the subsidies and restores the level playing field between domestic producers and the imports they compete with.
• Accordingly, countervailing duties cannot exceed the amount of the subsidies.

Anti-dumping duties

• Dumping happens when a country exports a product at a lower price than its normal value in the exporter’s home market.
• Although WTO rules do not prohibit dumping, this practice can trigger “unfair competition”.
• The amount of anti-dumping duty may not exceed the dumping margins.

Safeguards against surges in imports

• These are temporary import restrictions, i.e., they are time-limited, and governments adopt them as a response to an unforeseen surge in imports of a given product that is causing or threatening to cause serious injury to a domestic industry.
• It can include a quota (a quantitative limit on the volume of imports) or an import tariff increase.
• Tariff rate quotas (TRQs) set a volume of a product that may be imported at relatively low (or zero) tariffs. Usually, a higher safeguard tariff applies beyond that limit.

Issues that remain unresolved in WTO Negotiations

Agreement on Fisheries Subsidies (AFS)

• It was adopted at the 12^th Ministerial Conference (MC12) in 2022 as part of Doha Agenda.
• It intends to ban subsidies on illegal, unreported and unregulated (IUU) fishing and subsidies contributing to overfishing.
• For the Agreement to become operational, two-thirds of members have to deposit their “instruments of acceptance” with the WTO.
• AFS is not in force yet since it has not reached the minimum ratification number of two-thirds of the WTO membership. India has not ratified the agreement yet.
• The AFS fell short of delivering on the main issue members were trying to regulate: subsidies contributing to overcapacity and overfishing.
• India’s argument: India wants a liberal regime with a 25-year transition period for developing countries as the current system benefits rich nations and the likes of China.

Agricultural Subsidies

• To address government policies that distort markets and restrict trade, WTO members concluded the Agreement on Agriculture, which came into force in 1995.
• This initiated reductions in subsidies and trade barriers to make markets fairer and more competitive.
• It also allowed members to continue negotiations for further reform, considering concerns such as food security and the environment.
• WTO viewed India’s foodgrain purchase at MSP as a trade-distorting subsidy and kept it under the Amber box.
• Under global trade norms, a WTO member country’s food subsidy bill should not breach the limit of 10% of the production value based on the reference price of 1986-88.

India’s stance

• MSP is meant to protect farmer livelihoods and ensure equitable market access.
  • However, developed nations are pushing to reduce domestic support and increase market openness despite providing large subsidies to their rich farmers.
• India has asked for measures like amendments in the formula to calculate the food subsidy cap.
• A ‘Peace clause’ was negotiated, which allowed India temporary relief on the mandate of keeping MSP subsidies below 10%. Although India was promised a permanent solution to this issue, there has been no progress.

Negotiations on Non-Trade Issues

• Developed countries wanted to bring non-trade issues like women empowerment, environment, labour, etc, under the realm of WTO talks.
• India is against bringing such issues into the realm of WTO discussions because these issues were being discussed in other relevant international organizations.

E-commerce trade

• The WTO’s 13th Ministerial Conference has extended the e-commerce customs duty moratorium for another two years, providing another short reprieve for digital services companies from the imposition of tariffs.
• Members first established the moratorium as a temporary measure in 1998 as a part of the WTO’s multilateral work program on trade-related aspects of e-commerce.
• Countries like India, South Africa, and Indonesia want the moratorium to be lifted as it is resulting in a loss of an estimated $10 billion custom duty.

Joint Statement Initiative

• Since 2019, 90 like-minded WTO Members have been negotiating a plurilateral Joint Statement Initiative agreement on e-commerce trade.
• Participants in the initiative account for over 90 percent of global trade. India is not a party to the initiative.
• Objective: To work around opposition to any new WTO negotiations from some WTO Members and to overcome the difficulties that the WTO consensus principle creates in trying to conclude a negotiation successfully and in a timely manner.
• In July 2024, the co-conveners of the Initiative published a draft text of an “Agreement on Electronic Commerce”, indicating that negotiations may be approaching the finish line.

Plurilateral Negotiations

• WTO Plurilateral initiatives are discussions at the WTO in which only a subset of Members participate.
• India, in principle, has been against plurilateral pacts on platforms such as the WTO as it believes it may dilute its multilateral trade framework.

Developing Country Status

• WTO adopts a self-declaration approach to whether a member is a developing country. It does not impose any requirements or standards a member must meet to fit into this category.
• Consequently, approximately two-thirds of the WTO membership is formed by developing countries. As such, they receive special and differential treatment (SDT) in the WTO.
• The US and the EU argue for reforming the WTO developing country status to introduce nuances to differentiate countries within that spectrum.
• They claim the current blanket approach that applies all exceptions to all developing countries results in some members being granted a competitive advantage.

Major issues in WTO

• Unilateralism: WTO has been less effective in addressing rising protectionism, like US-China trade war. This undermines free trade which WTO advocates for.
• Emergence of mega plurilateral agreements decreasing relevance of WTO. For eg. RCEP, CTPP etc.
• Structural and Operational Deficiencies:
  • The consensus-based approach promotes lobbying and delays, with no outcome leading to several deadlocks over issue of agricultural subsidies, public stockholding of food grains etc.
  • The will of the developed nations prevails over that of developing nations.
• Implementation problems: Lack of sincerity among members in meeting their obligations under the WTO agreements like TRIPS, Sanitary and Phytosanitary (SPS), Special & differential treatment etc.
• “Trade war” between the US and China: Since 2018, the US has raised tariffs on a wide range of products, from solar panels to aluminium and steel. Further, the US also challenges the market-economy status of China given the dominance of state-owned enterprises (SOEs) in the country
• Crises in Dispute settlement System: US blockage of appointments to the WTO Appellate Body rendering it dysfunctional.

Relevance of WTO

• Ensures free trade flow: Despite the popularity of free trade agreements, WTO still has a role in restraining protectionism. It also provides a forum for discussion and helps members cooperate over issues of public interest.
• Promotes non-discrimination: The Most-Favored Nation (MFN) principle helps prevent discriminatory trade practices and encourages a more level playing field for all countries.
• Multilateral in approach: A rules-based system has contributed to avoiding unilateral approaches, enhancing fair competition.
• Settling trade dispute: Any related dispute is channelled into the WTO’s dispute settlement process, which reduces the risk of disputes spilling over into political or military conflict.
• Inclusive development: WTO recognizes the needs of developing and least-developed countries and provides technical assistance and capacity-building programs to help them participate effectively in the global trading system.

13^th Ministerial Conference (MC13)

• The 13th Ministerial Conference of the WTO took place in Abu Dhabi, United Arab Emirates.

Key Decisions

• Renewed commitment to have a fully and well-functioning dispute settlement system by 2024;
• To improve the use of special and differential treatment (S&DT) for developing and least developed countries (LDCs) to make them more precise, effective and operational.

Main outcomes

• During MC13, the WTO formally welcomed two new countries: Comoros and Timor-Leste.
• About LDCs, WTO members agreed on rules to support a smooth transition for countries graduating from that category into that of a developing country.
• Formal entry into force of the rules agreed upon by the Services Domestic Regulation (SDR) joint initiative.
• WTO members also agreed to extend the moratorium on applying import duties on e-commerce until the next ministerial conference or 31 March 2026, whichever comes first.
  • As the moratorium expires, members will have to reach a consensus on a permanent solution for e-commerce tariffs, or each Member can unilaterally and nonreciprocally choose to apply the moratorium.

Shortcomings

• WTO members could not agree on:
  1. Permanent solution in agriculture for public stock holding
  2. New rules on fisheries, although 11 members formally accepted the AFS during MC13.
  3. Reforming the dispute settlement system (DSS)
  4. Integrating the investment facilitation for development agreement into the WTO