Who’s afraid of WTO

The World Trade Organisation is vital for India and the world, but needs to be restrained form wandering into fields other than trade. This lesson emerges form the ministerial meeting of the WTO in Singapore.

In three respects, the WTO has proved very different form its predecessor, GATT, WTO has more teeth, faster negotiation speed, and seeks to greatly expand the reform agenda.

In the old days, any country could veto a GATT decision. The USA used its trade laws, Super 301 and special 301, to threaten trade sanctions against countries with whom it had differences, although such threats were not permissible under GATT rules. WTO, which succeeded GATT in 1995, has teeth. Its dispute settlement panel give majority decisions that are binding and bring to book the most powerful nations. The maximum number of complaints since1995 have been against the USA, which has lost disputes with India and Costa Rica over garments, and with Venezuela and Brazil over petrol imports. WTO has disciplined the US and other countries fairly, and this constitutes a major global gain.

Many in India complain about the rules of WTO. But a rule-based body is infinitely superior to a world without rules, where the powerful bully the weak into submission. The WTO binds the US no less than India. All developing countries gain from a rule-based forum like WTO, even if they find some rules inconvenient.

A key WTO rule is that any tariff cut must be available to all members, not a favoured few. So when the US uses its muscle to lever open, say the Japanese market for rice and auto components, the benefits are available not just to US exporters but all WTO members including India. Just look at the information technology agreement signed at Singapore, which showed WTO at its very best. The USA and European Union have a large net deficit in trade in information technology. Yet they led the move for stashing tariffs in this sector to zero by 2000, ignoring the short-term effect on their balance of payments in order to reap the lager gains of lowering the costs of essential information infrastructure. Even WTO members who do not sign the pact will share in its benefits (India’s software exports will enter markets duty-free).

The old GATT had maybe one round of tariff-cutting negotiations per decade. But at Singapore, WTO concluded an information technology agreement, which had been in the works for less than a year. The meeting also launched studies on investment, competition policy, transparency in government procurement and trade facilitation. The US delegate said her country no longer wanted protracted negotiating rounds, and desired non-stop liberalisation instead. In place of GATT’s leisurely pace, we now witness enormous pressure to compress into the next few years what used to take decades to complete.

In the process, rich countries seek to expand the agenda of WTO well beyond its original agenda of trade liberalisation. They seek to bring in investment, labour standards and much else. Now, in economics everything is connected with everything else: you can find some connection between trade and virtually any other economic trade under the sun. The US is using this to expand the WTO agenda. Developing countries including India are resisting this, though they gave way partly at Singapore.

In the old days, there used to be separate agreement on separate subjects, and any country could stay out with impunity. Once these subjects are brought within WTO, defaulters and naysayers can be subjected to trade sanctions. Now, no country can really afford to stay outside the global trading system, whatever objections it may have to some of its rules. This means the developed countries can, by expanding the WTO agenda, pressure developing countries into ‘agreements’ that they actually disagree at Singapore over labour standards and multilateral investment.

Developed countries say everybody benefits from a more liberal world economy. Many developing countries say they must be left free to determine their own path of liberalisation, and not be forced to liberalise. However, the sad fact is that many developing countries (including India) pander to strong lobbies rather than the masses. Such government have impoverished their masses through misconceived protectionism parading as high morality, and need to be dragged, kicking and screaming, into liberalisation for the public good.

However, there must be limits to such ungentle persuasion. Liberalism is ultimately about freedom of choice. Is such freedom expanded by bringing new items onto the WTO agenda and forcing these down unwilling throats? Beyond a point, no. The WTO is viral as a rule-making body for trade liberalisation. But it should not expanded into a sort of world government covering every economic subject under the sun; which uses the threat of trade sanctions to bring about a new world order.

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