Moving forward at WTO: India must recalibrate its positions at the forum

With WTO reform on the MC-14 agenda in Yaounde, India faces a key choice on plurilateral deals like the IFDA and the future of global trade rules

Earlier this month, World Trade Organization (WTO) Director General Ngozi Okonjo-Iweala stated that the “status quo is not an option” anymore for the multilateral organisation. Her statement makes it clear that reforms of the WTO will dominate the agenda of the 14th Ministerial Conference (MC-14) to be held next month in Yaounde, Cameroon. This is reinforced by the fact that this month, starting February 5, has been designated as the reform month at the WTO. Members are expected to come up with a work plan to guide the reform process following MC-14, which is the highest decision-making body of the WTO, comprising trade ministers of member nations, and meets every two years.

 

Among the immediate triggers for WTO reforms is the ecommerce moratorium on the imposition of Customs duties on electronic transmission, which is due to expire with the conclusion of MC-14. A majority of WTO members are seeking a permanent moratorium, arguing that it offers predictability for the digital economy. The other matter of immediate concern is the integration of the Investment Facilitation for Development Agreement (IFDA), sought by an overwhelming majority of members, in the rulebook of the WTO through Annex 4 of the 1994 Marrakesh Agreement. A common obstruction to achieving success on both issues is derived from the objection to plurilateral agreements and the consensus-based decision-making process at the WTO.

 

It is important to outline the context leading up to the necessity for alternatives to multilateral negotiations at the WTO.  Over its three-decade existence, the WTO has largely dealt with implementation issues related to earlier agreements and/ or been entangled in issues related to the Doha Development Agenda.  In the last decade, in particular, the WTO has had its functioning seriously impeded by the United States blocking appointments to the Appellate Body and by the spillover implications of bilateral trade frictions between the US and China. In the last 30 years, therefore, the WTO has managed to successfully conclude only two agreements — one on trade facilitation and the second on fisheries subsidies.

 

However, global trade during this time has undergone a significant transformation. Global value chains (GVCs) and trade in parts and components have emerged as the lead mechanism for global trade. The consequent interlinkages between trade, investment, transfer of technology/ know-how and intellectual property require complementary developments in global trade rules. Ideally, multilateral negotiations at the WTO should have been the means to develop the appropriate new age trade provisions. But WTO, caught in diverse interests of an expanding membership amidst difficult circumstances, has struggled to move past legacy issues.

 

Free trade agreements (FTAs), allowed under Article XXIV of the General Agreement on Tariffs and Trade (GATT), have been successfully adopted as an alternative vehicle to facilitate GVC-led trade, with an increasing number and depth of relevant provisions. Plurilaterals initiated, also under the aegis of the WTO provisions, by a subset of its membership have however not met with similar success in negotiating 21st century trade-related issues. While FTA provisions remain limited to participating nations, the outcome/ agreement of plurilateral negotiations can potentially be integrated into the WTO rulebook through Annex 4 of the WTO agreement. The possible extension of the outcome of negotiations initiated by a subset of WTO membership (and hence not based on consensus) to all members has been the fundamental objection to plurilateral agreements. However, it needs to be understood that while initiation may not be consensus-based, the integration of plurilateral agreements into the WTO rulebook under Annex 4 requires consensus among all members.

 

Specifically, in the case of the IFDA, objections to its inclusion in Annex 4 are based on this perceived inconsistency. India is among the few opposing the inclusion of IFDA in Annex 4.

 

Introduced in 2017 as a joint statement initiative, the legal text of the IFDA was concluded in 2023. It is formally supported by three-fourths (128 of 166) of the WTO membership, including developed, developing, and least developed countries. The objective of the agreement is to assist the flow of foreign direct investment (FDI), especially to lesser developed countries, to foster sustainable development. The focus is broadly on measures relating to investment facilitation, such as transparency, simplification and streamlining of administrative procedures, improving domestic regulatory coherence and capacity building for sustainable investment. Importantly, the IFDA does not involve any modification of existing commitments on market access or investor protection. Provisions relating to sector specific FDI liberalisation are outside the ambit of the agreement. Furthermore, the agreement includes a firewall provision to keep the interpretation of the IFDA distinct from the International Investment Agreements (IIA) of a country to prevent any interpretative overlap. Notably, the IFDA places no obligation on non-participants but benefits of improved investment facilitative measures will be equally applicable to all.

 

The IFDA is, no doubt, important for its developmental objectives. In addition, incorporating the IFDA in the WTO framework also has significant systemic implications. At this time of heightened global trade uncertainty, the need to evolve context-specific multilateral trade rules is greater than ever before. For India, the IFDA measures directed at facilitating investment through the reduction of regulatory uncertainty could be particularly helpful against the background of a decline in net FDI inflows in recent years. Hence India should rethink its stance on the IFDA.

 

On the larger issue of plurilaterals, too, India needs to review its longtime rigid stance and seriously consider proposals on “variable geometry” to take forward negotiations on 21st century issues. Indian negotiators should focus on identifying rules for initiating a plurilateral negotiation. This could be in terms of a specified majority proportion of WTO membership or of global trade. On incorporating plurilateral outcomes in Annex 4, India should work with other member economies on developing necessary guardrails such as transparency, inclusivity etc.

 

India needs to stop being mired in its age-old defensive trade policy positions at the WTO. A forward-looking mindset, with the necessary flexibility in its negotiating positions at the multilateral forum, will help contribute to its systemic revival and continued relevance.

The author is professor, School of International Studies, JNU. Her book India’s Trade Policy in the 21st Century was published by Routledge, London, in 2022. The views are personal