The 13th WTO Ministerial Conference: Addressing Fragmentation and Unilateral Industrial Policy

As the 13th WTO Ministerial Conference (MC) is scheduled to take place during February 26-29, 2024 at Abu Dhabi amidst a highly fractured world, trade ministers of member countries are worried and concerned about the prospects of world trade. Growth of global trade is on a decline and a prospect for improvement is not in immediate sight. In fact, it was projected to decline by 5.1 per cent in 2022 to 0.9 per cent by December 2023.

Establishment of the multilateral trading system over seven decades ago was based on the understanding that free and fair-trade benefits everyone and the interdependence and cooperation it fosters contribute to peace and shared prosperity. However, recent “poly-crisis” emanating from geopolitics, health care, extreme protectionist measures, climate change, rising cost of living, Red Sea disturbance and Gaza conflict have led to fears that globalization exposes countries to excessive risks.

Such fears have increased pressures to unwind trading relationships among traditional partners and instead compelling countries to turn to unilateral policies. Pursuit of such unilateral policies in last 5 years has resulted in fragmentation of global trade. For example, America’s imports of Chinese goods after tariff imposition by USA have been primarily replaced by exports from Vietnam and Mexico of firms that are intricately linked to China’s supply chains. So, this inward and alliance-oriented arrangement because of current geopolitics is proving to be meaningless as they are based on short term interests and weak foundation. However, such developments are dramatically altering the course of multilateral trade pursued during globalization and hyper- globalization in 1980s, 1990s, till 2008 where countries experienced trade gains and benefits progressively with fast pace of liberalization and result oriented foreign trade policies.

Current global economy is at the crossroads as it witnesses serious fragmentation. Against such fragmentation in global economy today and unilateral actions followed by many important members of the WTO, the 13th MC of the WTO may find it difficult to forge any unity among 164 member countries. Outstanding issues such as agricultural negotiations including food security, reforms in dispute settlement mechanism (DSM) a moratorium on custom duties relating to e-Commerce, fisheries subsidies will be at the forefront of discussions in Abu Dhabi.

Agricultural negotiation by far has remained the most contentious and thorny issue. As two third of the WTO members are dependent on agriculture for their livelihood, these countries are extra cautious about its trade liberalization. They find proposal put forth by developed economies highly discriminatory in nature. To counter such tendencies, India on behalf of developing economies has taken the lead in pitching for provisions like Special Safeguard Mechanisms (SSM) and identification of ‘Special Products’ (SPs) which aim to help developing countries defend their triple concerns of food security, farmers’ livelihoods and rural development in the event of agricultural trade liberalization. Issue of public stock holding of grain will find prominence in this 13th MC. At the heart of this contentious issue lies the pursuit of a permanent solution for public stock holding for food security purposes in developing countries. USA in the past has remained violently opposed to such permanent solution and continues to do so as its powerful farm lobbies were quite unhappy with the existing peace clause or interim solution that was decided in 2013, which was later reinforced in 2014. It was decided that the peace clause for exempting public stockholding programmes from legal scrutiny will continue as long as countries agreed to a permanent solution which ought to have been concluded in 2015. The timeline was again deferred to 2017. Even after seven years USA in 2024 also opposes such proposal in tooth and nail as it believes such a proposal will go against its agricultural interests. This will reduce its chances of liberalizing further the agricultural sector of developing economies, hence won’t find market access in developing countries to push its own agricultural exports. Currently, USA is set to block any such decision.

USA believes that India has benefited from peace clause. It is of the view that the peace clause has enabled India to emerge as one of the largest exporters of rice, an item on which India has also exceeded its de minimis limit of 10% during 2021 and 2022. De minimis limit under WTO rules suggest that member countries are required to limit the amount of domestic support they provide to their agricultural producers, as excessive subsidies can distort international trade. The de minimis level represents a threshold below which subsidies are considered insignificant and do not count toward the total allowable support.

However, India is firm and clear that finding a permanent solution to public stock holding is in its best interests. Such views have been echoed by many developing economies. Developing countries, particularly members of the G-33 led by Indonesia and the Africa Group, have repeatedly demanded a permanent solution. However, they look up to India to do the heavy lifting because of the allegedly political/diplomatic/negotiating arm-twisting that goes in green rooms and corridors of WTO ministerial conferences. It has been seemingly observed that the powerful members and the WTO Secretariat ensure that issues raised by the developing countries are often conveniently ignored or pushed to the back burner.

But India argues that such proposal only aims at securing food security hence can’t be compromised. The groundwork for a permanent solution for public stock holding programmes for food security purposes has been laid ably by the Indian negotiators. India will try to clinch such a deal where permanent solution to public stock holding can be sought.

On DSM front, it looks very unlikely that there will be a consensus on selection of appellate body members and further reforms required to make the DSM a transparent, secured, predictable, impartially actionable and fast-moving process. Developed and developing countries are holding different viewpoints on this matter.

Moratorium on custom duties relating to e-commerce transmission holds significance as potentiality of e-commerce is globally recognized. India and many other countries express the moratorium to end in order to preserve the policy space for their digital advancement, regulate imports, and generate revenue through customs duties.

All these issues are an extension of 12th MC of WTO held at Geneva in June 2022 and will be no doubt deliberated at length in 13th MC. But the question is, will there be a positive outcome or consensus on these issues or any of the issues? Doubtful, as the current fragmented world is pursuing objectives unilaterally. For instance, unilateral industrial policy followed by USA, China and others with heavy governmental intervention is causing hindrance to free flow of goods and services and restrictive industrial policy measures such as tariffs and subsidies imposed have distorted and reduced the prospects of world trade. Industrial policy can even distort FDI patterns and be a disincentive for investment. Around 3,000 trade restricting measures were imposed last year—nearly 3 times the number imposed in 2019. To add, national security consideration is also becoming an influential factor in the fragmentation of global economy post “poly-crisis.”

With such fragmentation in sight, the larger goal of attaining global green transition is getting jeopardized. Critical rare earth minerals essential for global production are highly concentrated in some parts of the world. This further will make green transition more difficult. With unprecedented challenge like global warming and climate change threatening the very existence of human life, never has been global cooperation as daunting as it is today. Fragmentation seems to derail all our efforts.

So, what’s the alternative then? The biggest danger one can see is that of climate change; and that requires collective action not an individual country’s chivalry. International cooperation in framing all inclusive trade policy with openness and predictability and addressing security concerns would be the best bet. The 13th MC at Abu Dhabi should aim at restoring faith and confidence of all members to bring back spirit of multilateralism and simultaneously exposing risks and impact of unilateral industrial policies.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>

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