After years of dilly-dallying at the World Trade Organization (WTO), the United States of America (US) has finally submitted a formal communication on 15 December, to the WTO General Council, the supreme decision-making body, on the need to reform the institution. It is a brief but succinct document and clearly indicates where the US stands on crucial issues. The gist of the issues raised by the US is given below.
Fair or free trade? The expression “trade liberalization” does not figure in the US submission. Nor does the expression “the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations”. Both these figure in the preamble of the Marrakesh Agreement establishing the WTO. Instead, the overarching principle in the US submission is “a global economy of fair and reciprocal trade”. Not surprising in light of the Trumpian tariffs.
No more MFN: The US submission is nothing short of derisive when it comes to the basic principle of the multilateral trading system i.e. the Most Favoured Nation (MFN) clause. The US argues this was meant for a bygone era which it says has passed. It goes as far as to argue that MFN “impedes welfare-enhancing liberalization” and pushes WTO Members to a one-size fits all approach. It therefore recommends a fundamental break from the basic principle of MFN underlying the multilateral trading system. Again, unsurprising.
Economic Security Interests: The American submission is clear: Judgements on matters of national security are the prerogative of Governments and the WTO has no authority to decide on the security exception provided in the rules.
Decision-making: The US agrees that no obligation should be imposed on any country without the latter’s consent. However, it strongly argues that countries which wish to go ahead and take on new obligations should be able to forge a new agreement among themselves. This is known as plurilateral agreement, in WTO-speak. The US submission declares that if the WTO is to have any future as a negotiating forum, it is likely to be for plurilateral negotiations.
Special and Differential Treatment: In the WTO, a country that declares itself a developing one, is entitled to “Special and Differential Treatment”. Clearly, this has been abused in the past, with Singapore at one time claiming it was a developing country. The US now wishes to see this treatment eliminated altogether. It allows for Least Developed Countries to benefit from some flexibilities but argues that Special and Differential Development must be viewed as a tool to enable Members to achieve the capability to follow the same rules that others do.
Overcapacity and Overconcentration of Production: The pervasive use of non-market policies and practices is the root cause, according to the US, of two systemic problems in the global trading system: overcapacity and overconcentration of production in numerous industrial sectors. Clearly, the US has China in mind. Interestingly, the US submission makes it clear that the WTO system has shown itself incapable of resolving these two issues.
Supply Chain Resilience: In a similar vein, the US submission says the WTO system is incapable of resolving issues related to supply chain resilience. It suggests countries deal with this outside the WTO.
Role of the Secretariat: The US believes that the role of the Secretariat is fundamentally administrative and not substantive. Which is why the WTO is often referred to as a member-led organization. The US in its submission says the Secretariat has usurped to itself a substantive role, not foreseen in the WTO Agreements. It says any WTO reform effort should address the role of the Secretariat.
In many ways, the above views should not come as any surprise to anyone with knowledge of the American negotiating position at the WTO over the last few years. But this is the first time that the US has put pen to paper, and this is significant. It also reveals a willingness, albeit reluctant, of the US to negotiate with other Members on the future of the WTO. Crucially, it comes against the backdrop of the next Ministerial meeting in Cameroon in March when the main agenda is likely to be reform of the WTO.
For India, the following questions arise:
- What kind of a WTO does India wish to see? Are we ready to accept a trading system which is explicitly NOT based on MFN?
- Are we ready to agree to plurilateral negotiations in the WTO, even if we are not ready to be part of it?
- Are we ready for a fundamental re-interpretation of the Special and Differential Treatment rule in the WTO?
The real challenge for India is this: Is it better off staying within the system and shaping the rules or is it better to allow rules to be shaped without us and then subsequently decide whether to join an agreement or not. This issue will become crucial since an overwhelming majority of the WTO Membership may well be prepared to join the plurilateral negotiations on a range of issues, with or without us.
The Ministry of Commerce and Government of India have some tough decisions to make in the run-up to the WTO Ministerial Conference in March next year in Cameroon.
Ambassador Dr Mohan Kumar is Director General of the Motwani Jadeja Institute for American Studies and is Dean/Professor at O.P. Jindal Global University.
Diplomacy and Geopolitics 