WTO - And World Economy

The journey of WTO can be attributed to have commenced on Silk Road in 3rd century BC when China used it military power to secure the route and in the year 30 BC Rome concurred Egypt for its food grains. 

Post World War II there was a global need to stabilize international relations and protect peace and prosperity. Consequently many organisations having international authority and jurisdiction were created. 

From 1948 to 1994 GATT was providing level playing field for trade in goods.

As the world progressed services and intellectual property took the central stage of value creation and a more powerful and committed organisation was needed. Not only to facilitate trade negotiation among member state but also to have authority with the capability to adjudicate issues and pronounce binding verdicts.

WTO was created as a platform to negotiate not only product related issues but also the services and IPR. With the creation of WTO in 1995 (Geneva) the Political leadership agreed to negotiate economic issue at perceived to be on an independent and progressive platform - WTO, The World Trade Organisation. It also defined the procedure for dispute resolution mechanism.

As I write it has 164 member and Afghanistan is the latest entrants in 2016. Barring a few least developed countries it supports almost all the trade happening between member countries.

WTO is in existence for almost 25 years now and one can say that it has supported international trade by strengthening the institutional foundations of the trade system; widening its membership and increasing participation; deepening trade integration through lower barriers and stronger rules; improving transparency and policy dialogue; strengthening dispute settlement; expanding cooperation with other international organizations; and enhancing public outreach.

Having said that the success of the WTO has inevitably given rise to new challenges. There are many challenges and the most important one is to deal with the economic scenario of China with market let economy of the western world. While China is a state govern capitalism while West is the market dominated economy. Unless WTO learn the art of managing the word trade agreements between the two non-compatible economic operations its basic existence stands threatened.

China’s political framework can provide direct and indirect subsidies and other fiscal incentive to reduce the cost and consequently a free economy will have to impose countervailing duties to protect its own economic scenario. Hence the dispute. China Solar panel industries is a live and very apt example as it has created distorted level playing field in the world economy. Financial Express has also alleged China of providing incentive and not declaring the same to WTO in an agreed manner.

G20 nations continuously proposing the reform agenda and some of them are extremely relevant also, but unless WTO address the fundamental issues of operating environment of China and free economy of the world – it will lose its charm and efficiency.

Beijing’s support for SoEs (State Owned Enterprises) and other institutional policy factors have produced an uneven field favouring insiders against foreign –owned companies operating in China.

My believe after developing a reasonable understanding of economy and politics – the trade dispute is  a mix of both. In my previous article termed as “Buy American” I had highlighted that every country has right to protect its interest but under WTO regime as per agreed terms and through established procedure. WTO can probably adjudicate trade disputes as per agreed terms but if the two largest economy decides to work in their own style with complete disregard to the WTO policy – WTO will lose its relevance.

WTO has done a commendable job and it can continue to do so, but creating a level playing field between state sponsored economy and free economy seems to be an herculean task and beyond the jurisdiction of WTO. It requires very powerful reforms with unconditional commitments from both side. The action of USA for ZTE and Binging’s intervention on Qualcomm are recent example.

Can we fix it? Do we know how do we fix it?

I can understand the anxiety of the Trump government while blocking the appointment of Nominees to the WTO appellate bodies. Soon this will create a vacuum in the adjudicating capability of WTO and will render it toothless.

I am of the view that member country should work with two most powerful economy to reduce (if not remove) their dispute. A regulatory environment with rule based resolution will always be more productive and protective than an arbitrary actions by the most powerful. We should remember World War II and the invasion of Rome on Egypt for the reason most associated with economy and trade, else history will repeat itself.