National interest trumps global trade

The Abu Dhabi conference highlights any progress for India at the WTO hinges on renewed US engagement in the trade body

The 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) concluded in Abu Dhabi on March 1 with few incremental outcomes. The results indicate a shift in the focus of major economies, such as the United States, towards their national industrial strategies, leading to a reluctance to advance on key issues that could conflict with these objectives.

At MC13, WTO members debated issues related to e-commerce, services, agriculture, fisheries, investment, and dispute settlement for five days. Let us explore the contrasting agendas, outcome for each issue, and their significance for India.

E-commerce: The main issue revolved around whether countries like India should impose import taxes on digital products such as movies, apps, games, software, music, and videos. In 1998, WTO members agreed not to charge import duties on digital transmissions for two years to facilitate the growth of the emerging digital market. This agreement has been extended every two years since then. Developed countries prefer to keep digital transmissions duty-free to benefit their tech companies, such as Google, Amazon, Facebook, and Netflix. However, developing countries, including Indonesia, India, and South Africa, argue that as business shifts online, they lose traditional revenue and control over digital trade. The WTO members at MC13 decided to continue not charging duties on digital products until March 31, 2026, or the next WTO meeting, whichever comes first.

Services: Country-specific domestic regulations (DR) on services pose major obstacles to international trade in services. Developed countries have established comprehensive regulatory frameworks, such as the APEC-OECD Integrated Checklist on Regulatory Reform (2005) and the OECD Recommendation on Regulatory Policy and Governance (2012), to make the trading of services easier. Now, they want others to use these.

Interested WTO members completed negotiations outside the ambit of the WTO in December 2021, and, during MC13, successfully persuaded all WTO members to agree to its adoption in the WTO law. The disciplines were integrated as “additional commitments” into the WTO’s services schedules of the 72 WTO members.

The incorporation of service DRs into WTO law might represent a new method for adding new topics, known as joint statement initiatives (JSIs), into the WTO framework. Important JSIs being considered include e-commerce, investment facilitation, micro, small, and medium enterprises (MSMEs), and gender and trade. However, many countries, including India, are against JSIs because they believe discussions on new topics should only start if all WTO members agree, which isn’t the case with current JSIs. India argues that this approach detracts from the WTO’s main goals by focusing on the interests of a few members.

Agriculture: India’s main concern during the discussion was to secure a permanent solution for its minimum support price (MSP) programme, particularly for crops like rice and wheat. According to the WTO Agreement on Agriculture (AoA), India’s MSP support surpasses the allowed 10 per cent subsidy limit. However, the AoA’s method for calculating this subsidy is criticised as outdated and flawed. For instance, even if India sets an MSP of Rs 4 per kilo for rice, it exceeds the AoA’s limits despite the current market price being around Rs 20 per kilo. This is because the AoA’s subsidy calculations are based on prices from 1986-88, not current market prices, making it practically impossible for any MSP programme to comply with its rules.

The negotiating battle lines are clearly drawn. The United Nations Food and Agriculture Organization predicts cereal imports from developing countries could triple in the next 30 years. Pursuing this end, many food-exporting developed countries, including the US, Australia and Canada, pushed for simultaneous discussion on lowering import duties on agricultural produce. India wanted a permanent solution to avoid legal concerns on the MSP. No decision was taken on these issues.

India may work to shift most of its agricultural support towards the WTO-compatible production limiting programmes, known as the Blue Box under the WTO, as China has done. We cannot expect rich countries to be sensitive towards the food security needs of one-sixth of humanity.

Fisheries: Similar to agriculture, the fisheries issue pits market access against livelihoods. The European Union (EU) wants to continue high subsidies for deep-sea fishing operations far off Africa’s coast while imposing strict conditions on subsidies for small-scale fishers. India advocates for no restrictions on fishing within exclusive economic zones (EEZs), which extend up to 200 nautical miles from the coast, arguing these subsidies are crucial for the survival and food security of small-scale fishers. India also calls for wealthy countries to end subsidies for distant-water fishing and proposes that developing countries should have up to 25 years to eliminate such subsidies. No agreement was reached at MC13 on this issue.

Investment: In 1996, the idea of adding investment as a topic within the WTO was turned down because the WTO focuses mainly on trade rules. At MC13, India and South Africa objected to incorporating the Investment Facilitation for Development (IFD) Agreement, spearheaded by China, into the WTO as a plurilateral agreement. They argued that the IFD, being a joint statement initiative, lacked formal approval from ministers. Similarly, India rejected a proposal from the EU regarding industrial policy, citing the same reason.

Dispute settlement reforms: The dispute settlement system of the WTO, essential for enforcing rules and resolving trade disputes, has been significantly weakened. This is primarily the result of the US halting the appointment of new judges to the appellate body since 2017, arguing that the body is inefficient and overreaches its mandate. India supports restoring a fully functional dispute resolution mechanism, emphasising the need for a fair and unbiased system that safeguards the interests of all members. The EU has proposed temporary measures for dispute resolution. However, no agreement was reached at MC13, as the current situation, with a non-functioning appellate body, favours the US. If the appellate body were active, US policies like the Inflation Reduction Act could potentially be contested at the WTO.

The WTO is a pale shadow of its former glory days. Any significant progress may only happen once the US becomes more interested in actively participating in the WTO again.

The writer is the founder of Global Trade Research Initiative