WTO trumped by America

WTO's recent ministerial meeting at Buenos Aires highlights the strain on the multilateral trading bloc from US unilateralism and its own`unfair' system

By Latha Jishnu
Published: Monday 15 January 2018
Illustration: Tarique Aziz
Illustration: Tarique Aziz Illustration: Tarique Aziz

When elephants fight, it is the grass that suffers—an African aphorism that well describes the current state of play at the World Trade Organization (WTO). The 11th ministerial conference in Buenos Aires (December 10-13) was by all accounts a flop show with no movement on any major issue. “Collapse” was the word most commonly used, and had everyone asking the same question. Is it curtains down for the multilateral trading system, with the world’s biggest trading power, the US, accusing WTO of losing its focus besides attacking its rules? US Trade Representative (USTR) Robert Lighthizer also made clear his disdain for the organisation by leaving the ministerial conference (MC) a day before the event was wrapped up.

For long, developing countries have been mourning the death of WTO’s Doha Development Agenda, a round of negotiations that was aimed at improving their trade prospects. Now, it appears all 164 member countries will be mourning the death of the current WTO, if the US has its way. The WTO may not be the fairest of trading systems but it’s possibly the best of options now available to developing nations in a world of predatory free trade agreements and exclusionist plurilateral deals.

The WTO so far has functioned as a global club where members know their place. Although theoretically, member nations have equal rights, the hierarchies and privileges are neatly codified. The rules are fixed by the big boys and so is the system, which largely favours the powerful and rich. There was no fundamental challenge to the ruling order till China’s entry. With China’s exports showing no signs of flagging—the US trade deficit with China was $347 billion in 2016—the WTO has emerged as the villain of the piece.

Donald Trump’s trade war against China is a carryover from Barack Obama’s presidency. What is new, however, is a hardened US position under Trump with his “America First” policy. He believes the WTO’s biased trade rules are responsible for the US trade deficit and job losses at home and has, therefore, made the trade body a special target. Like Obama, for Trump the real focus is China, which has undermined the long trade supremacy of the US. Washington views China’s state-controlled capitalism as an opaque system that directly threatens the West’s free market economy. It wants China’s subsidies investigated but thinks the WTO is not up to the challenge.

In recent months, Trump has paralysed the WTO’s dispute settlement system by blocking the appointment of several appeals judges to its seven-member appellate body, a move which could stall dispute resolution for years. Some analysts fear this could be used by the US to justify any unilateral action it takes against trade partners, such as the imposition of tariffs or other duties. Champions of the multilateral system view the dispute settlement process as a way of pre-empting trade wars even if the disputes take long to settle.

USTR Lighthizer had two major grouses that he aired at the opening session of the Buenos Aires MC. The first is that WTO is losing its “essential focus on negotiation” and becoming a litigation-centred organisation. “Too often, members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table,” he said.

Trump’s trade chief also said there was “a need to correct the sad performance of many members in notifications and transparency,” and for greater market efficiency, with both the charges aimed at China’s subsidies to its state enterprises.

Ironies are rife in the US position. It is Washington that has repeatedly blocked and deflected decisions that have gone against it for clear violation of trade rules. The most egregious example is the cotton subsidy case which it lost to Brazil. In 2005, the WTO appellate body had ordered the US to eliminate its cotton production subsidies which it found were depressing global cotton prices. The economies of four very poor African countries had been destroyed by US subsidies but not surprisingly, the nations had not taken their case to the WTO for want of funds. Instead of cutting its subsidies, the US chose to buy its way out of the decision of the appellate body. It agreed to pay Brazil $147 million a year indefinitely along with a lump sum $300 million.

While the cotton case highlights the limitations of the dispute settlement body, the majority of members say there is no alternative. On December 11, ministers from 44 developing and developed member countries issued a joint statement strongly supportive of the multilateral trading system and praised the unique role of the disputes settlement body besides calling for all vacancies on the appellate body to be filled forthwith. India, strangely, was not a signatory.

The European Union is at odds with the US in its strong support for the WTO. European Trade Commissioner Cecilia Malmstrom says: “For the EU, this is a clear objective: to preserve and to strengthen the rules-based multilateral trading system.” But that claim is being questioned by China, which has filed a high stakes case against the EU (the US has made itself a party) for failing to abide by its agreements. China has filed the suit for the EU’s refusal to accord Beijing the promised market economy status after 15 years of joining WTO in 2001. The market economy status means WTO members have to take Chinese prices at face value instead of challenging these.

“China joined this organisation in the belief that the WTO is rule-based, non-discriminatory, and promotes free trade. However, the EU’s measures defy every single one of those principles: it is rule-bending, discriminatory, and protectionist,” China’s WTO ambassador Zhang Xiangchen was quoted by Reuters as telling a WTO hearing on December 15.

But as the trading giants meet head-on, what of India which was reduced to being on the sidelines at Buenos Aires? Its sole focus was on securing a permanent solution to its food subsidy bill (stockpiling of grains), a contested issue that put it in the thick of controversies at 2013 in Bali and in 2015 at Nairobi. But once again, attempts to reach a consensus hit a dead end after assistant USTR Sharon Bomer Lauritsen said bluntly that the US was not interested in a permanent solution. The official Indian statement, however, was muted and blamed the US without naming it for reneging on a commitment to “deliver a solution of critical importance for addressing hunger in some of the poorest countries of the world”. However, since the interim accord allows it to stockpile food grains till a permanent solution is found, India is not unhappy with the continuing status quo.

New Delhi is plainly relieved that it was not in the firing line at Buenos Aires. Commerce Minister Suresh Prabhu said delightedly on his return: “This is the first time that India is not being blamed...

we are definitely not going back as villains.” When elephants fight, it obviously makes sense for small denizens to keep out of the way.

(This story was first published in the 16-31 issue of Down To Earth).

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