The West is trying to change the entire way the WTO works. India is resisting.
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- The story: Several countries, including India, have so far stayed out of the JI negotiations, on the principle that these initiatives lack a multilateral negotiating mandate and are an attack on the fabric of multilateralism underlying WTO. The WTO’s 12th ministerial conference (MC-12) will commence in Geneva on November 30. At stake is the relevance of this multilateral organisation in an increasingly fragmented world.
- What made WTO successful: What has made the WTO stand out since its establishment in 1995 is its legally binding dispute settlement process, comprising a two-tier structure of “panel” and “appellate body”. It is now two years since the US blocked the appointment of Appellate Body members, effectively dismantling it. As a result, the enforcement function has been severely undermined. There are currently 21 appeals pending before the presently defunct Appellate Body. Despite the change of guard in the US, the dispute settlement deadlock continues.
- Changing its DNA itself: While the WTO’s role as the arbiter of rules has been compromised, there is increasing pressure for new rules and new agreements. The multilateral format for rule-making that the WTO provided is also under threat. “Consensus” has been the fundamental norm for WTO decision-making.
- An important idea here is that it provides the ability for all countries, irrespective of economic heft, to express dissent. While WTO agreements also have provisions on voting under certain circumstances, this has not been used so far. It is important to see this in context—the WTO’s consensus principle worked well when the world economy was dominated by the US and the EU, which could exercise power to influence other countries. However, as the world economy equations are shifting, this has not worked as well, since there are other voices, including India’s, to contend with.
- The last two ministerials (Nairobi 2015 and Buenos Aires 2017) saw growing differences on the thrust of the negotiations based on the Doha Round. At Buenos Aires, seemingly innocuous discussions on new areas were floated by groups of members, as opposed to multilateral negotiations based on a consensus-based mandate.
- What JI does: Projected as joint initiatives (JIs) among interested members, these groups have focused on negotiations in the areas of domestic regulation (DR), e-commerce, investment facilitation and MSMEs. While clear legal pathways having been identified by participating members for incorporating the negotiated disciplines on services DR into WTO commitments on a “most favoured nation” (MFN) basis, the JIs on e-commerce and investment facilitation are still exploring the issue of possible legal architecture. The JI on MSMEs has put forth a set of facilitative principles to be adopted by willing members. Other than services DR, none of the other JIs are amenable to being comprehensively blended into existing WTO commitments. They also can’t be incorporated into the WTO fold as new plurilateral agreements that create rights and obligations only among participating members, since consensus of all members is the exclusive route for this to happen—sans recourse to voting, of course.
- JIs have, however, gathered momentum, and not just in terms of number of members but also in terms of the amount of trade they represent; of the 164 WTO members, 136 are participating in the JI on investment facilitation, 86 in e-commerce, 65 in services DR, and 70 in MSMEs. It is clear that the JIs are likely to form the basis in any future bilateral or even multilateral negotiations. Staying out runs the risk of minimising the ability to influence the shape of new rules.
- For instance, the disciplines on services DR were initially part of the multilateral services negotiations with underpinnings in the Doha Round. India was an active participant and an advocate of disciplines on recognition of professionals. The current avatar of the JI services DR disciplines is weak on this aspect.
- On MSMEs, the thrust of JI discussions is facilitation for MSMEs, including through establishing a new Trade4MSMEs platform that is expected to provide trade-related information to small businesses. While welcome, it is important to recognise that this is simply setting the basis for further discussions and possible rules-based outcome at a future ministerial.
- Any multilateral rules for MSMEs would first need to grapple with how size of an economy influences the perception of what is a MSME, and, therefore, the nature of benefits for such enterprises: a small enterprise in India is likely to be a micro enterprise for the EU, and a small enterprise for EU is likely to be large for India (and therefore out of India’s MSME definition). The ability to obtain clarity on this can only occur by being part of the discussions
- Summary: The fragmentation of the WTO’s rule-making function through the mushrooming of JIs is a real threat to the long-term continuity of WTO. This needs to be by ensuring that any new rules are based on WTO’s core principle of multilateral decision-making. This may also require consideration of the fact that the very principles of multilateralism can be used to insist that JIs need to be negotiated at the multilateral level.
- EXAM QUESTIONS: (1) Why is the Western world intent on changing the working DNA of the WTO as it has existed since 1995? Explain. (2) Why is India upset with the new JI system being adopted in the WTO? Explain.
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