Need to breathe life back into WTO

Ajay Srivastava | Updated on: May 12, 2019
Power play: The Dispute Settlement Mechanism of the WTO is at risk of being made dysfunctional by rich nations

Power play: The Dispute Settlement Mechanism of the WTO is at risk of being made dysfunctional by rich nations

Rich countries are pushing their agenda in areas such as e-commerce. Developing country interests should be safeguarded

These are challenging times for developing countries at the WTO. Ministers and officials of 23 Developing and Least Developed Countries (LDCs) will bear the brunt of the Delhi heat on May 13-14 to brainstorm trade issues of long-term consequences. India is hosting this informal ministerial of select WTO members.

The four significant issues of concern to developing countries are: (i) Push for a new decision making model at the WTO — from the current all-member consensus principle to small group-based plurilaterals; (ii) Push for negotiations on e-commerce where understanding is limited; (iii) Push for abolishing flexibilities available to developing countries; (iv) Prevent the Dispute Settlement Mechanism (DSM) from becoming dysfunctional. Let us understand the key arguments of each issue.

Plurilaterals: WTO members at the launch of the Doha Round in 2001 agreed for an ambitious development-centric negotiation agenda on agriculture subsidy, market access and services. However, big countries seem to have lost interest in these issues and are pursuing new subjects of interest to their corporates. This is the background for their pursuing plurilaterals. But could consenting members coming together to sign plurilateral agreements be an alternative to the consensus-driven decision making at the WTO? Even plurilaterals should be introduced only by consensus of all WTO members.

Developed countries do not agree. They took the first step and proposed four plurilaterals in the last WTO Ministerial meeting at Buenos Aires in December 2017. Areas are e-commerce, investment facilitation, MSME and gender. As many as 70-100 members support these. But, should large participation legitimise the action? Developed countries can quickly get such numbers. Fifty LDCs with little domestic capacity say yes to them. Add OECD countries including 28 EU members and number crosses 100.

Looking at the push from developed countries, many feel days of multilateral level rule-making may be numbered. And Agreement on Fishery subsidy slated for next year could be the last Multilateral Agreement of the WTO. The real game is between developed countries on one side and large developing countries such as India, Brazil, South Africa, and Indonesia, etc. on the other. China has already joined most plurilaterals.

E-Commerce: This sector has most dollars at stake and hence is turning out to be the most heated. Large US technology firms dominate the digital economy space. Google and Facebook deal with data and services while Amazon sells goods. With a technology lead backed by deep pockets, they have no rivals in any country. Except for China, which followed a three-pronged strategy.

It did not allow entry to Google or Facebook and gave a tough time to Amazon. It also developed national champions like Baidu and Tencent. China also introduced cybersecurity laws and other necessary regulations creating a robust ecosystem. Only after fortifying its interests, China has joined the e-commerce plurilateral negotiations. It is now in a position to negotiate global markets for Baidus and Tencents while preventing the free run of Google or Facebook.

India has taken steps to introduce e-commerce policy framework, online data protection and data localisation rules. These need to be expanded and woven into a central law. India also needs to promote national champions. But nurturing firms needs active government support. Imagine one obscene or hyper-national rant on an Indian platform and the promoter lands in jail. Who bothers about such things on Google or Facebook?

On their part, the US, EU, and Japan are in a great hurry to have WTO rules on e-commerce. The US wants no restrictions to data flow, the EU wants full protection of personal data, while others like India, countries of Africa and Indonesia feel it’s too early to make global rules at the WTO. Members that are interested may sign FTAs.

Countries are still grasping the significance of issues like data flow, server localisation, mandatory disclosure of source code, etc. Here is an example, how half-baked understanding does not help.

One country prescribed disclosure of source code as a necessary condition for grant of business. Firms from most countries declined. Finally, a Chinese firm shared the code and got the business. It turned out that the code was dynamic and changed every moment. Signing a deal without complete understanding will throw such surprises. It would turn the world into a passive consumer with no place for domestic firms.

Special and Differential Treatment: SDT are flexibilities allowed by WTO to developing countries and LDCs in implementation of the WTO agreements. A few examples are (i) higher domestic support for agriculture, (ii) Export subsidy not to be treated as prohibited subsidy for developing countries with less than $1000 per capita income, (iii) longer implementation period under various WTO agreements like TRIPS.

How SDTs were incorporated in the WTO agreements is interesting. Developed countries accepted SDT elements in return of developing countries agreeing to developed countries’ proposals on introducing non-trade subjects like intellectual property in the WTO.

But now the US, EU and Japan argue that developing countries are sufficiently developed and do not need SDT which should be limited to LDCs alone. Most developing countries including India, China, and countries of the African group oppose this move. They argue that gap in the standard of living between developed and developing countries has only increased over the years and hence SDT must continue. Also, SDTs are part of the WTO agreement, so any change would require negotiations among all members.

Dispute Settlement Mechanism: DSM has proven to be the most useful of the WTO bodies, settling over 500 trade disputes. But it is at risk of being dysfunctional with the US stopping the appointment of Appellate Body members. The US probably foresees that most of Trump’s action would fail the DSM test. It will stop functioning from December 2019 with the retirement of last of the three members. Without DSB, the WTO will lose its bite as countries cannot not be tried for violating WTO rules.

WTO has been a fertile ground for the power play. But the developing countries secured a reasonable deal in the past by having a common position. Time will tell if they are lucky again.

The writer is from the Indian Trade Service. Views are personal

Published on May 12, 2019
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