A world without rules

India will suffer from US' subversion of WTO courts

The current United States administration, under President Donald Trump, has been at its most intransigent when it comes to the institutions that underpin the global trading system, particularly the appellate body at the World Trade Organization (WTO). The appellate body is supposed to have seven judges, who rule on cases brought by a WTO member against another suspected of flouting trade rules. But the US has blocked new appointments to the court — a process that predates Mr Trump, but sped up under his administration — and this month the court will likely lapse because of a shortage of manpower. Two of the last three judges are due to retire, and cases cannot be heard with just one judge. This would have global consequences. Since 1995, the appellate body has been central to the larger project of ensuring that global trade does not turn into a might-makes-right dystopia where larger countries such as the US and China can flout agreed-upon rules at will, and intimidate smaller countries into compliance. Such countries would not win a bilateral trade dispute, but have a chance of getting their way at the WTO. This is, of course, precisely why the “America first” Mr Trump disdains the system.

For smaller trading countries like India — which is one of the world’s larger economies, but accounts for only 2 per cent of world trade — the exit of the WTO appellate body would be a disaster. It is already embroiled in a trade dispute with the US. And, like with other developing countries, it has many complaints about Beijing’s non-market economy bending, if not breaking, the rules. India has to share some of the blame; it has not tackled Beijing enough at the WTO, instead allowing its China-focused trading barriers become causes for disputes with other countries, including the US. Nor has the Indian legal preparation for WTO cases always been top-notch. And it is also true that WTO reform is overdue. Nevertheless, unless Mr Trump is replaced by a pro-trade president, there is little chance of the appellate body being revived. So New Delhi must prepare for a world without rules, and one in which its new isolationism will incite retaliation rather than litigation.

Under such circumstances, the decision to turn India’s back on multilateral or bilateral rules appears particularly doubtful. For example, New Delhi’s decision not to sign the Regional Comprehensive Economic Partnership (RCEP) appears short-sighted in the context of this approaching debacle. If New Delhi was concerned about being left excessively open to trade distortions from China, then at least the RCEP provided a dispute settlement mechanism, which might not be available for much longer at the WTO. India will have to now take a pro-active approach and seek other methods to ensure that it retains the freedom to manoeuvre when it comes to trade policy. But, in general, this cannot be taken as another excuse to turn inwards. India must take the lead in finding other arrangements that suit its interests, not alter its policies in a manner that hurts Indian companies and workers.