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Published on: Oct. 27, 2020, 8:49 a.m.
Testing time for WTO
  • WTO’s survival depends on profound systemic reforms

By Brij Khindaria

Indian businesses should brace themselves for upheavals in their most generous international benefactors, the World Trade Organisation (WTO), which supervises the rules underpinning global trade. The organisation will choose its first woman Director General at the end of October, just days before the fateful 3 November presidential elections in the US. She will have bagged the worst of all the top jobs in international agencies.

The two finalists are South Korean trade minister Yoo Myung-hee and Nigeria's former finance minister Ngozi Okonjo-Iweala. Both are acceptable to the US, since it wants a plaint leader who will not interfere with President Donald Trump’s plans for bone-rattling top-down reforms to WTO.

In recent years, India has been a leading player in WTO affairs and has fought tooth and nail to protect Indian interests -- especially in intellectual property, service industries and small businesses in agriculture. For a while, it was blamed for the failure of the Doha round of trade negotiations after more than 10 years of heated struggles. But it is more pragmatic now.

Future Indian trade successes will belong to businesses backed by the strength of India's economy and the muscle of trade diplomats. Indian businesses are unfortunate in these regards.

India is a rising political power but has a weak economy. It is likely to be ground down by intense trade battles among the big three trading powers – the US, European Union and China. Expect it to be assailed on all fronts, including agriculture, services, intellectual property, public procurement, manufactures and red tape.  

Indian businesses should keep close watch on their trade diplomats because WTO’s survival depends on profound systemic reforms. The reforms will strike at the core of trade regulations that opened great power aspirations for India by taking advantage of WTO’s support for globalisation, poverty reduction and development.  

President Donald Trump wants to change WTO rules to force China to end its state-support for companies and state-subsidised manufacturing. They are deemed unfair for US businesses that rely mostly on the private sector and private investments.

Underlying these goals is genuine fear of China’s rise as a canny technology, services and manufacturing aggressor that could seriously challenge America’s economic influence around the world. That would give respectability to China’s authoritarian one-party governance system compared with conflict-ridden US democracy. Trump wants to use WTO reforms to nip these in the bud because trade is a central driver of China’s rise.

Democrat Joe Biden is unlikely to be kinder if he dethrones Trump in November, because both have a visceral dislike for the way in which China has profited from WTO rules while eroding the liberal world trade system. If hindered, Trump has threatened to withdraw altogether from WTO, despite the many crises that would cause in world trade flows.

The threat places WTO in an existential fight on charges that it is allowing China to deform its core goals of strengthening a world trade system ‘based on open, market-oriented policies and the commitments set out in the (1994) Uruguay Round Agreements and Decisions’. The WTO was established a year after those agreements.

Trump is enraged at China’s encroachment on US economic dominance partly because, in 1995, Chinese per capita income was within $900 of the least developed country (LDC) average. It was nearly 20 per cent smaller than that of Kenya and more than 25 per cent smaller than that of Pakistan. Today, it is nearly four times that of Kenya, and more than triple that of Pakistan.

The US said in October that China’s merchandise exports are 14 times greater than the combined exports of all 49 countries that the UN categorises as LDCs. Its economy is more than 11 times all their economies and its per capita income is more than five times higher than the LDC average. Yet, China claims to be a developing country in many respects.

Trump wants deep reforms that will turn the WTO into a different organisation. They include drastic changes to the WTO’s Appellate Body (its supreme court) which, the US says, has overreached its authorities so outrageously that some countries prefer to litigate rather than negotiate to reach better trade outcomes. WTO will survive because global trade rules are too fiendishly complex to repeal or reform entirely. But much of its supervisory bite will be lost.

Beijing denies all American criticisms of its industrial and trade policies. Instead, it accuses the US of bullying and coercion.

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