Every country is rustling up bilateral or regional treaties, leaving the WTO fairly out in the cold.

Last week, the World Trade Organisation upheld complaints by US, the European Union and Mexico against restrictions of one kind or another, export duties, quotas and licence agreements imposed by China on exports of key raw materials.

The WTO held that such restrictions violated global rules and gave domestic companies an edge. The ruling comes at the end of an 18-month investigation by the trading body, after the three countries complained that such practices stoked raw material prices. And as the USTR responded, such quotas had caused “massive distortions” in supply chains “in the US and elsewhere”.

Now, the complainants believe their grouse against China's restrictions on the export of rare earths used in the manufacture of cars, guided missiles and wind turbines will also bear fruit. Prices of rare earths have been skyrocketing, with China blessed with more than 95 per cent of the world's supplies.

China will appeal against the WTO decision; it's not clear how effective the WTO ruling will be, or how soon China will toe the line. Its defence has been that restrictions are needed to control pollution and carbon emission and to conserve exhaustible supplies of such raw materials; the WTO has not been convinced that export restrictions help reduce pollution but the appeal itself may drag the issue for some more months, leaving the West fuming.

Double Standards

The WTO ruling, as and indeed the complaint by the EU and the US, raises some important questions of consistency of trade conduct among members of a multilateral body. By implication, it also evokes doubt about WTO's own standards and its capacity or willingness to goad dominant trading members into practicing what they preach.

Export restrictions or outright bans are not new; both America and the EU have used quotas and restrictions for various purposes; the Americans have made no bones about selling technology to “friendly” countries, thereby constituting a trade practice that is even more restrictive than Chinese quotas. Leave alone military hardware or software exports, even the sale of civilian technology has been long forbidden without the Commerce or State Departments giving their nod. Trade in such exports has long been instruments of US foreign policy. Last month, President Obama relaxed regulations on sale of civilian technology to 36 ‘allies' with the condition they did not sell onward to those frowned upon. India too has had its knuckles rapped for trading with “terrorist” Iran.

The EU has not fared better. For years, it has had an export quota for sugar; when ministers asked the European Commission last year to raise the quota to allow a million tonnes of the sweetener for export because world prices were favourable, some associations voiced opposition on the grounds that more sugar was needed for consumption within the 27-member bloc.

That the EU went ahead and raised the quota does not detract from the striking similarity of the arguments used both to defend their own quotas and criticise the Chinese justification for the same action.

At the heart of the WTO ruling on China lies a perfectly acceptable concern for a trading system free of impediments that favours an exporting country to the detriment of the larger number of global buyers. The history of post-War world trade, however, shows the accusers to have been the biggest violators of this perfectly reasonable assumption, that countries blessed by nature or their own efforts with tradable resources should not engage in practices that distort the free flow of goods and services.

Going bilateral

The decade-old Doha Round has consistently floundered on the persistent refusal of the EU and the US to discuss, leave alone alter, their restrictive practices on agriculture trade.

In an age marked by the paradox of uncertain economic prosperity in the biggest markets and a trading system that has more exporters than importers, multilateralism and its rules are hard to live by.

Swearing by the Doha Round, every country is busy pushing bilateral treaties most favourable to it; the US wants ‘pre-investment guarantees' embedded in its bilateral treaty with India, the EU wants a litigation clause in its own version while India has baulked at one and rejected the second.

Sunil Khilnani once wrote that India flirts multilateral and dates bilateral. With the exception of the WTO, so does everyone else.


(This article was published on July 10, 2011)
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