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The rise and fall of the WTO -C Rammanohar Reddy
-The Hindu

As the U.S. loses interest in multilateralism in trade, India should actively try to arrest the organisation’s slide

Less than 25 years after the World Trade Organisation (WTO) was created, its future as a body overseeing multilateral trade rules is in doubt. The failure of the recent ministerial meeting at Buenos Aires is only symptomatic of a decline in its importance.

Too ambitious?

When the WTO was born in 1995, replacing the General Agreement on Tariffs and Trade (GATT), it was given a large remit overseeing the rules for world trade. It was also given powers to punish countries which violated these rules. Yet, in what must be an unusual development in the history of international institutions, the WTO has been felled by the weight of the extraordinary ambitions placed on it. As a consequence, since the late 2000s, the organisation has been unable to carry out its basic task of overseeing a successful conduct of multilateral trade negotiations. The rise and decline has happened quickly.

In the early 1990s, global corporations pushed the major trading powers of the time — the U.S., the European Union (EU), Japan and Canada — for a GATT agreement that would vastly increase access for their products in foreign markets. They succeeded with the 1994 Marrakesh agreement which was supposed to be a grand bargain. The “farm subsidisers” of the U.S. and EU agreed to bring agriculture under GATT rules. In exchange, the developing countries had to pay up front by reducing import duties on manufacture, opening their markets to services, and agreeing to strict protection of intellectual property rights. The Marrakesh agreement also created the new Dispute Settlement Body (DSB) to adjudicate on trade disputes. All this would be overseen by the new WTO.

Under the DSB, the decision of a WTO panel could be rejected only by “a negative consensus” (i.e. all member-countries present had to turn down the ruling). A final verdict in favour of a complainant country entitled it to impose penalties on the other country. And under the principle of cross-retaliation, these penalties, when authorised, could be imposed on exports from a sector different from where the dispute was located. This hurt the smaller countries and was to the advantage of the bigger ones.

The new ability of the DSB to enforce decisions seemed too good to not take advantage of. For a brief while in the mid/late 1990s, the WTO seemed to be just the kind of “super” international organisation that the major powers wanted. If all trade and non-trade issues could be brought under one body which had the powers necessary for enforcement, there would be no place to hide for any country. There was pressure to bring many more “new” non-trade issues under the WTO. If the U.S. wanted labour and environment standards included, the EU wanted foreign investment, competition and government procurement.

Over-reach, however, sometimes can have the opposite of the intended outcomes.

The developing countries, which had realised that they had been had in the Marrakesh agreement, were far more active in the WTO from the late 1990s. Through a combination of the formation of strategic alliances and simply refusing to say “yes”, they began to win some battles.

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