Restoring the World Trade Organization’s Dispute Settlement System: A Challenge Amidst US Opposition : Daily News Analysis

Date : 12/07/2023

Relevance : GS paper 2; international relations

Keywords : Trade Multilateralism, WTO, Dispute settlement system

Context -

The World Trade Organization (WTO) has been striving to revive its dispute settlement system (DSS), often referred to as its "crown jewel," by 2024.
However, the system has remained paralyzed since 2019 due to the United States blocking the appointment of members to the appellate body, the second tier of the DSS.
The appellate body has historically played a crucial role in upholding international law and holding powerful countries accountable. Nevertheless, its success has led to criticism, particularly from the US, which now opposes its functioning. As the clock ticks, it appears unlikely that the DSS will be fully operational by 2024.

The Issue of Precedents:

The US criticizes the appellate body for judicial overreach and exceeding its institutional mandate, particularly in creating binding precedents through its decisions. However, it is important to note that international law does not adhere to the principle of stare decisis or precedent.
The WTO's dispute settlement understanding (DSU) explicitly states that the appellate body's rulings cannot alter member countries' rights and obligations. While ensuring consistency in interpreting and applying WTO agreements, the appellate body has encouraged reliance on previous interpretations without creating binding precedents.
It allows for departures from previous rulings and reasoning under "cogent reasons." Comparatively, other international courts, such as the International Court of Justice and the International Tribunal for the Law of the Sea, also follow their past decisions unless valid reasons exist not to do so. Proposals have been made to adopt a statement clarifying that appellate body rulings do not establish precedents, but the US remains unsatisfied.

De-judicialization of Trade Multilateralism:

The US's opposition to the appellate body's functioning is part of a broader strategy to de-judicialize trade multilateralism.
The WTO was established during a period of neoliberal consensus, where the "visible hand" of the law was seen as essential to complement the market's "invisible hand." The WTO served as this "visible hand" to regulate global trade.
However, the US aims to reduce the influence of international courts, including the appellate body, to regain decision-making power. This de-judicialization, distinct from exerting political oversight over the appellate body, reflects a desire to assert full control over trade policies, particularly in the face of rising challenges from China.
While the US has identified issues with the DSS, it has provided few constructive suggestions for improvement.

The Challenge of Voting:

Negotiating with the US to restore the appellate body appears futile. One alternative proposed by Henry Gao is to elect appellate body members through voting at the WTO's General Council meeting.
However, this approach is likely to antagonize the US. The question arises as to whether countries are willing to pursue this route despite potential backlash.

Conclusion:

Restoring the WTO's dispute settlement system by 2024 faces significant challenges due to US opposition. The US objects to the creation of binding precedents and seeks to de-judicialize trade multilateralism. Negotiating with the US may prove futile, leading to alternative options such as voting for appellate body members. However, such steps could exacerbate tensions with the US. The issue remains unresolved as the clock continues to tick.

World Trade Organization (WTO): Enhancing Global Trade and Economic Cooperation

The World Trade Organization (WTO) is a prominent intergovernmental organization that regulates and promotes international trade among nations. It was established on January 1, 1995, replacing the General Agreement on Tariffs and Trade (GATT) that was established in 1948. With 164 member states, the WTO represents over 98% of global trade and GDP, making it the largest international economic organization. The WTO serves as the only global institution dedicated to governing trade rules between nations.

Reasons for Replacing GATT:

The WTO replaced GATT due to several limitations of the latter:

Lack of Institutional Structure: GATT solely consisted of rules and multilateral agreements without a proper institutional framework.
Limited Scope: GATT primarily focused on textiles and agriculture, neglecting trade in services and intellectual property rights.
Absence of Dispute Resolution Mechanism: GATT lacked an effective mechanism to resolve trade disputes among member countries.
Perception of Bias: Developing countries viewed GATT as favoring the interests of Western nations due to its establishment without representation from newly independent and socialist states.
Inadequate Control on Non-Tariff Barriers: GATT failed to effectively address quantitative restrictions and non-tariff barriers imposed on trade.

Key Principles of the WTO:

Non-Discrimination: This principle encompasses two components:

Most Favored Nation (MFN) Rule: WTO members must grant the same favorable conditions to all other members regarding trade in a particular product.

National Treatment Policy: Imported goods should be treated no less favorably than domestically produced goods after entering the market, addressing non-tariff barriers.

Reciprocity: This principle aims to limit free-riding and improve market access by ensuring that negotiated concessions result in gains for all parties involved.
Binding and Enforceable Commitments: WTO members make tariff commitments during negotiations and accession, which are legally binding.
Transparency: Members must publish their trade regulations, establish review institutions, respond to information requests, and notify changes in trade policies to the WTO.
Safety Values: WTO agreements allow measures to protect public health, animal health, plant health, and the environment in specific circumstances.

Organizational Structure:

The WTO's highest authority is the Ministerial Conference, meeting at least every two years. The daily work is managed by three bodies:

General Council: Comprising representatives from all member governments, it acts on behalf of the Ministerial Conference.
Dispute Settlement Body: The central pillar of the WTO's multilateral trading system, it resolves trade disputes through panels, the Appellate Body, and other entities.
Trade Policy Review Body: Undertakes trade policy reviews and considers reports on trade policy development.

Key WTO Agreements:

The WTO oversees around 60 agreements as international legal texts. Some important ones include:

Agreement on Agriculture: Covers domestic support, market access, and export subsidies.
Agreement on Trade-Related Aspects of Intellectual Property Rights: Sets minimum standards for intellectual property regulation.
Agreement on Sanitary and Phytosanitary Measures: Establishes constraints on food safety and animal/plant health policies.
Agreement on Technical Barriers to Trade: Ensures technical regulations and standards do not create unnecessary trade obstacles.
Agreement on Customs Valuation: Prescribes methods for customs valuation.

India and the WTO:

India became a WTO member in 1995, emphasizing fair distribution of rights and obligations between developed and developing countries. Initially defensive, India's engagement in the multilateral trading system increased with economic reforms. India played a crucial role in the Doha Development Agenda negotiations and continues to voice its concerns in WTO discussions.

Recent Issues for India in the WTO:

Ban on Chinese Mobile Apps: India's ban on Chinese apps faced criticism from China, alleging violations of WTO principles and market economy norms. India defended the ban based on national security concerns.
Peace Clause: India invoked the Peace Clause as its rice subsidies exceeded the prescribed cap, leading to questions from other countries regarding notification obligations and trade impact.
Fisheries Subsidies: India rejected the latest draft agreement on fisheries subsidies, citing inequitable treatment favoring certain countries and advocating for differentiated responsibilities.

Reviving the WTO for Multilateral Trade:

To enhance the effectiveness of the WTO, reforms and new negotiation approaches are proposed:

Appellate Body Reform: Addressing concerns about appellate body members and time taken for reports.
Special and Differential Treatment: Developing countries seek to preserve this treatment, while developed countries argue for a redefined definition.
Sustainable Development Goal-oriented Trade Negotiations: Exploring alternative negotiating modes and plurilateral agreements while maintaining multilateral dialogue.

The WTO plays a vital role in promoting global trade, resolving disputes, and establishing rules for fair economic cooperation. With ongoing challenges and evolving dynamics, reviving the WTO through reforms, equitable agreements, and sustainable development-oriented negotiations will be crucial for fostering a multilateral trading regime.

Probable Questions for mains exam-

Evaluate the reasons for replacing the General Agreement on Tariffs and Trade (GATT) with the World Trade Organization (WTO). Discuss the key principles of the WTO and its organizational structure. Analyze the importance of the WTO in governing trade rules between nations and promoting global trade and economic co-operation. (10 Marks,150 Words)
Examine the role of the appellate body in the WTO's dispute settlement system and its significance in upholding international law and holding powerful countries accountable. Discuss the criticisms raised by the US against the appellate body and its approach to creating binding precedents. Assess the potential impact of the US's opposition on the functioning of the DSS and propose measures to address the concerns raised. (15 Marks,250 Words)

Source : The Hindu