India is rapidly resolving trade disputes: What does that mean for the WTO?

The WTO might continue to be the bedrock of the global trading system, but its context in today's era has perhaps changed

Last month, India and the United States settled their last dispute at the World Trade Orgnization (WTO), the one about poultry products. With this, the two countries have resolved all seven of their pending trade disputes at the global trade body.

The US had moved the WTO against India in the poultry case in 2012 and the trade body had ruled that India’s ban on poultry imports from the US was inconsistent with the global norms. 

The US demanded compensation because India was not able to implement the decision in time. However, the two countries had been discussing truce and the talks have come to fruition.

Two and a half months earlier, in June, India and the US agreed to end their other six trade disputes at the WTO. India also agreed to remove retaliatory Customs duties on 28 US products, such as almonds, walnuts, and apples. These duties, imposed in 2019, had come in response to the US move the previous year to impose 25 per cent import duty on steel products and 10 per cent on aluminium products on the grounds of national security.
 

The US is India’s largest trading partner. Goods trade between the two countries increased to $128.8 billion in 2022-23, from 

$119.5 billion in the previous financial year.
 

The resolution of the seven disputes marks the beginning of a new chapter in trade relations between the two countries. It also showcases India’s new approach to trade issues.

 

Peace by peace
 

Mutual resolution, or out-of-court settlement of WTO disputes, is not a new phenomenon. But settling such a large number of disputes in such a short span of time is something that has not been seen in the recent past.
 

Almost inevitably, the back-to-back settlements have stirred a debate on whether they diminish the importance of the global trade body’s dispute settlement system. Stoking the debate is the fact that India’s conciliatory approach is not confined to the US. The country is also looking to settle with Brazil a sugar-related trade dispute.
 

It does not help that the top court for trade disputes at the WTO — the appellate body — has been defunct for close to three years, as the US has blocked the appointment of new judges.
 

In the case of Brazil’s sugar industry players, there is a move to settle the long-pending disputes related to the payment of Fair and Remunerative Price (FRP) to Indian farmers and also the export subsidy. The export subsidy has been stopped since 2019-20, while the FRP issue has been moved to an appellate tribunal that is non-existent.
 

As a settlement, sources say, India is looking to engage with Brazil for transfer of technology for converting sugarcane juice into ethanol. Brazil is a world leader in ethanol technologies and has one of the most modern systems in this area. India is also seeking technology assistance on flex fuel cars, another of Brazil’s strong points.
 

Experts are divided on what the settlements mean for the WTO.
 

Biswajit Dhar, distinguished professor at the Council for Social Development, says such a move not only reduces the utility of the WTO but also the credibility of its member nations.
 

“If cases are resolved bilaterally, what is the need for approaching the dispute settlement and dragging the cases for years? The cases can anyway be withdrawn bilaterally at the consultation stage,” Dhar says. “Besides, if countries are withdrawing cases, they are accepting that prima facie they are at fault, and they should not have done it. This is not a good signal given by sovereign states.”
 

Anwarul Hoda has a different view. The honorary professor of Indian Council for Research on International Economic Relations’ Trade Policy and WTO Research Programme believes it is difficult to draw a conclusion on whether out-of-court resolutions diminish the importance of the WTO’s dispute settlement mechanism.
 

“To some extent, the disputes between India and the US were settled due to the good relations between the two nations. It was also because of a confluence of circumstances, which led to this settlement,” Hoda says.
 

For instance, one of the biggest disputes between India and the US was due to the imposition of steel and aluminium tariffs by Washington, against all countries, on the grounds of national security, after which India retaliated by slapping additional duties on some products.
 

However, it is important to note that not only India, but other countries too filed a case against the US at the WTO and Washington resolved the matter, starting with the European Union. Apart from that, the strengthening of the India-US relations is seen from the point of view of how the latter is trying to break China’s growing clout.

A new role for WTO
 

A senior government official says the WTO will continue to be the bedrock of the global trading system and its relevance remains intact. However, its context in today’s era has perhaps changed.
 

“What the WTO was 25 years ago… the way it is evolving… has changed. However, its importance has not diminished,” the official says. “If India opts for an out-of-court settlement, that does not mean we do not believe in the WTO courts. It is not about the dispute or trade or the rules, India is also looking at the greater business opportunities and cooperation,” adds the official.
 

For instance, in the case of India’s dispute with Brazil on sugar, the latter dragged New Delhi to the WTO because it felt India’s policies were distorting the international trade in sugar. However, after discussions with India, Brazil seems to have understood that the steps taken by New Delhi are not for the international market but a need of India’s farmers and a part of the ethanol blending requirements.

“Resolution of the cases with the US and — if it materialises — with Brazil shows India’s place as a reliable trading partner and as a potential market,” says the official.
 

The WTO in itself is seized of the matter and has been working towards ensuring that its own house is in order. The WTO ministerial conference last year committed to work towards the reform of the WTO while reaffirming the foundational principles of the global trade body. It also promised to revive its dispute settlement body by next year.
 

All eyes will be on how, in the coming meetings, the global trade body and its members work towards strengthening the dispute settlement systems so that its role as the referee in world trade remains intact.

(With inputs from Sanjeeb Mukherjee)