WTO is now just a tool to bully weaker nations

The organisation primarily serves to protect and advance the interests of developed economies under a consensus-based decision-making framework.

WTO director-general Ngozi Okonjo-Iweala speaks during the opening ceremony of the WTO ministerial meeting, in Abu Dhabi on February 26. | Photo Credit: ABDEL HADI RAMAHI/REUTERS

At the time of writing, the 13th ministerial meet of the World Trade Organization (WTO) was under way in Abu Dhabi. Among the many issues being discussed were two of concern for less-developed countries generally and India in particular.

The first related to the renewal of a moratorium on imposition of trade taxes on digital services identified as “electronic transmissions”.

The second was that of finding a permanent solution to the issue of public stockholding of food, or the legality under WTO rules of measures to procure, at administratively prescribed, “non-market” prices, food to be stored and distributed to ensure food security.

According to developed countries, which subsidise their farmers through other means, the administratively determined prices are instruments for subsidising farmers in ways contrary to WTO rules. There are many other issues of special concern for less-developed countries, including “Special Safeguard Mechanisms” to address import surges and the tendency in advanced economies to use “non-trade” issues such as climate to invoke trade measures, as noted in a statement issued by the G33 group of countries on the eve of the ministerial meet.

Despite such concerns, the event has not received the attention it got in the past or even to the extent that the annual Conference of Parties on climate-related issues gets. This is not because global trade flows have become any less weighty or significant than they were. If anything, the consolidation of global value chains and the increased cross-border provision of services have increased the volume and impact of trade on global economic performance.

Dysfunctional WTO

The retreat from attention to the WTO and its meetings is because the organisation, ostensibly created to ensure the “orderly” liberalisation of global trade, is now largely dysfunctional. This is not because of undisciplined low- and middle-income countries violating rules but because of moves by the US and, on occasion, its allies to protect their own markets while forcing less-developed countries to open their markets further.

Epitomising this is the evidence that the principal means through which the organisation facilitated implementation of the decisions taken at its meets and summits, the Dispute Settlement Mechanism, has stopped functioning.

The mechanism was the channel through which countries appealed when aggrieved by actions of trading partners, leading to consultations and, if those discussions were not fruitful, to the constitution of a panel to study and report on the complaint.

If not settled based on that report, the complaint goes to the Appellate Body, which adjudicates on the matter. If the grievance is found to be genuine, the member violating rules has to take action, failing which the affected member country can retaliate.

Highlights

• The WTO is now largely dysfunctional because of moves by the US and allies to protect their own markets.
• The dispute settlement system in the organisation is no longer operative because the US has blocked appointments to the Appellate Body.
• One of the controversial issues affecting less-developed nations is a moratorium on customs duties on electronic transmissions.

No dispute settlement system

This dispute settlement system is no longer operative because the US has blocked appointments to the Appellate Body, leaving panel reports that are challenged in limbo. The US has not even specified what changes to the Appellate Body would ensure its support for the appointments process. In the process, the US has disrupted the WTO, which, along with its allies, it has long dominated.

When the task was to open up the markets of less-developed countries, the WTO was useful. However, most less-developed country markets have been prised open, but the US and Europe have lost or are losing competitiveness in many areas, and developed nations want to close their own markets and regulate imports.

For instance, the EU’s controversial Carbon Border Adjustment Mechanism, which will be effective from 2026, is an example of the new protectionism. It is an import tax on carbon-intensive imports such as steel, cement, and aluminium.

An organisation that specifies common rules is an impediment to the adoption of such measures. It must be decommissioned.

Despite this impasse, the WTO continues its routine operations, holds myriad consultations, and convenes ministerial and other meetings. That is because it functions as a pressure pump to be used to bully weaker nations into accepting reforms without a quid pro quo.

One way to do this is for groups of countries to arrive at “plurilateral”—rather than “multilateral”—agreements on multiple issues, which lack force because they remain outside of a global treaty, and then get nations to accept the terms of those plurilateral agreements in a multilateral settlement. Examples of such efforts are the Information Technology Agreement (1996) and protocols on financial services.

“Electronic transmissions”

One of the controversial issues affecting less-developed nations, which features in the ongoing meet, is a moratorium on customs duties on electronic transmissions that was agreed on as far back as 1998 and has been periodically extended since then. In the interim, much has happened.

On the one hand, the volume of cross-border provision of priced digital services, including digitally delivered information and commercially streamed music, movies, and video games, has increased enormously, with substantial profits accruing to providers from clients and consumers in less-developed countries. On the other hand, less-developed countries have been overcome by fiscal stringency that affects their ability to meet crucial capital and social expenditures through their official Budgets.

Revenues from growing markets for commercial “electronic transmissions” can help. A study from 2020 by Richard Kozul-Wright and Rashmi Banga of the UN Conference on Trade and Development estimated the potential tariff revenue loss to developing countries as a result of the moratorium at about $10 billion a year. So, the less-developed countries want the moratorium lifted.

The advanced economies have raised a range of arguments to justify their stance against digital services imposts, which are echoed in a piece by Alan Beattie in Financial Times: that implementing such taxes despite the benefits of available digital technologies is not feasible, that it would involve an invasion of privacy, and that the measure would reduce the social accountability of large tech companies.

They, therefore, recommend implementing value-added taxes on the consumption of digital services so that the burden is placed on the consumer of these services rather than on the profits of the providers, which are global majors.

Countries like India, it is argued, are not really serious about the demand for an end to the moratorium and only use it as a bargaining chip “to gain leverage in other WTO issues, such as its long-running campaign to subsidise its farmers in the name of building up buffer stocks of grain”. This, in Beattie’s view, is bizarre, and amounts to “holding a 21st-century industry hostage to a 19th-century one”.

The reality is that India lost out on revenue because it dropped digital services taxes as part of an agreement on sharing revenues from a global minimum tax on corporates, from which it obtains far less. The WTO crafted to liberalise global trade has lost its purpose. But it remains relevant only as an instrument to protect and advance developed economy interests, within a framework where decisions are ostensibly based on “consensus”.

C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts Amherst, US.