WTO Amidst Trade War

What is the issue?

• Countries are increasingly announcing new trade sanctions and imposing tariffs and retaliatory tariffs on imports.
• The looming trade war raises serious concerns on the very role of the World Trade Organisation (WTO).

What are the recent developments?

• China, India and others have already filed complaints against the US in WTO.
• This is in regards to imposing high tariffs on steel and aluminium imports, citing national security as the reason.
• Adjudication starts after a mandatory 60-day waiting period.
• Meanwhile, US President Trump describes WTO as a “catastrophe” and threatens to pull US out of it.
• At present, WTO rules may prevent the break-out of a full-fledged trade war.

What are the concerns?

• Despite the rules in place, the risks remain, and WTO’s limitations are showing.
• Relevance - WTO was unable to bring successful closure to the Doha Round of multilateral trade negotiations.
• Most of the action in recent years has been outside the WTO’s multilateral framework.
• They had taken the form of bilateral or plurilateral discussions and agreements.
• Disputes - WTO's appellate body for disputes may soon become non-operational.
• It has 7 members, but 3 seats are vacant because the US has blocked fresh appointments.
• Given this deterioration, WTO's function of dispute settlement is uncertain and less encouraging.
• Delay - In any case, dispute settlement takes years to do.
• By this time, non-compliant tariffs and retaliatory action prevail.
• E.g. China has been imposing tariffs knowing well it would eventually be ruled out of court after a couple of years.
• Nevertheless, it gains from the tariffs in the interim.
• Violation - A country that files a successful trade complaint only earns the right to impose penal tariffs on the offending country.
• The whole idea of dispute settlement seems baseless, given the fact that retaliatory tariffs are already being imposed.
• Meanwhile, the US has imposed unilateral trade and other sanctions on countries like Russia, North Korea and Iran.
• India’s difficulty to buy oil from Iran, or missiles from Russia is continuing.
• Role - WTO is supposed to set the rules for trade and deal with trade disputes.
• But WTO cannot act on its own even in reacting to unfair trade practices.
• It has to wait for member-nations to take the initiative.
• The recent unwelcome developments call for a reform of WTO.

Source: Business Standard