Change comes to WTO?

India should closely watch China-focused reform

In an age of regional and bilateral trade pacts, the World Trade Organization (WTO) might appear increasingly under siege. But, in fact, a great deal of momentum is building up for comprehensive reform of the WTO. The WTO ministerial, which is scheduled for the middle of next year, is likely to become a key platform for efforts to reshape the global trading architecture for the coming decades. The clearest indication of where the leading developed economies would like this reform to go are evident in a concept paper released by the European Commission in June 2018. The paper includes specific recommendations for European Union trade negotiators. These include, in particular, the notion that “special and differentiated treatment” (SDT) that are allowed to developing countries need to be so that the “the world’s largest and most dynamic economies” do not avail of these flexibilities. The paper argues that “the current distinction between developed and developing countries, which allows no nuance, no longer reflects the reality of rapid economic growth in some developing countries”. In other words, the paper argues that there should be a set process by which economies graduate out of SDT, and thus that the availability of SDT should be “need-based and evidence-based”.

The paper also argues that the WTO should move towards a model of negotiations where “individual issues can be built up by interested members under the auspices of the WTO towards eventual agreement by some or all members forming an integral part of the WTO framework”. The idea underlying this notion is clear: That the consensus of the entire membership should no longer be mandatory. There are also recommendations that seem squarely targeted at concerns about the People’s Republic of China, with its system of hidden subsidies and national champions. The paper suggests that the Agreement on Subsidies and Countervailing Measures needs to be strengthened to improve transparency and subsidy notification measures, as well as to improve compliance. The argument also is made for examining the precise nature and scope of state influence on enterprises so that a fuller description of state champions can be made, one not limited to state-owned enterprises. Reflecting the high-tech nature of ongoing Sino-US trade tensions, the EU also argued that the rule book on investment should be updated to deal with restrictions on digital trade and “forced technology transfer”. The EU’s attempts reflect developments in other jurisdictions. On September 25, 2018, the trade minister of Japan, the trade commissioner of the EU, and the US trade representative issued a joint statement which incorporates several of these recommendations for WTO reform. After spelling out the various unfair trade practices pursued by certain third world countries (which mostly seem to be about China), the ministers agreed to jointly sponsor efforts at the WTO to operationalise these principles.

There are major implications of these developments for India’s external economy and its growth strategies. The notion that trading doors will continue to be opened more easily for India because of its status as a developing economy may have to be revisited. Smart diplomacy will be required of India’s trade negotiators. India is not the target of these moves. It should not allow itself to become collateral damage in any attempt by the developed world to deal with the perceived threat that China poses to global trading system.