Uncertain global trading systemDisagreements in trade negotiations are not new, but differences between rich and poor countries have intensified recently.
The multilateral trading system under the World Trade Organisation (WTO) has been hit by two recent incidents. One, the Covid-19 pandemic has forced the WTO to put on hold its biennial 12th Ministerial Conference which was scheduled for last June. Two, WTO Director-General Roberto Azevêdo stepped down last August, one year before his term ended. As a result, the global trade organisation was left directionless and leaderless amid a crisis of international cooperation. This is the biggest setback the organisation has faced since its inception 25 years ago, and it has cast doubts over the ongoing and much-awaited Doha Round of trade negotiations.
Initiated in 2001, the Doha Round has apparently embraced the interests of both developed and developing countries. It has incorporated agreements to reduce subsidies and domestic support in agriculture trade and a modality to reduce tariffs on non-farm products. An understanding to eliminate barriers to exportable products of developing countries is another important feature. This means full reciprocity was not expected from the member countries when undertaking reduction commitments under the negotiations. Moreover, it has called for capacity-building measures to assist effective participation of least developed countries (LDCs) in the multilateral trading system.
In 2005, haggling at the Sixth WTO Hong Kong Ministerial Conference produced a proposal for binding preferential access and introduced a duty-free, quota-free programme for all LDC exports in the rich countries. For the first time, the scheme provided preferential market access to all LDC exports within the framework of the multilateral system. From the perspective of special privilege for impoverished countries like Nepal, the Doha Round is, therefore, meaningful not only in terms of non-reciprocity but also for guaranteed preferential market access.
But the Doha Round is in deadlock as disagreements between rich and poor countries remain. While developing countries wanted a larger cut of farm subsidies in developed countries, the developed countries, in return, sought indiscriminate abolition of tariffs on non-agriculture products, as per developing countries. They have complained that the negotiations put pressure on them to open their markets without giving them a chance to protect their domestic sectors from external competition.
Disagreements in multilateral trade negotiations are not new. They have been overshadowed by prolonged trade disputes between developed countries, like the United States and the European Union members. But lately, differences between rich and poor countries have intensified. The latest one being the US-China trade row which was provoked by the two taking arbitrary action instead of going through the proper WTO mechanism to resolve the issues. This points to a revival of protectionist sentiments, questioning the future of the multilateral trading system. If the top trading nations, like the US and China, follow a protectionist policy in defiance of the global trading system, other countries will likely follow them. If that happens, there is a possibility of the foundations of the system being weakened.
Since the inception of the General Agreement on Tariffs and Trade (GATT) 50 years ago, the multilateral trading system had been based on the principle of non-discrimination. Accordingly, member countries were required to offer most-favoured-nation treatment or equal treatment to all trading partners with regard to tariffs and customs. Similarly, they were not allowed to discriminate between imported and domestic products regarding the application of internal taxes. These provisions were strengthened by contingency measures, such as anti-dumping and countervailing measures, for the assurance of fair trade. In addition, member countries had access to powerful dispute settlement mechanisms as a means to defend their trade interests.
After the transformation of GATT into WTO in 1995, multilateral rules became more binding with wide-ranging rights and obligations for predictability and transparency in international trade. Unlike GATT, the WTO, currently embraced by 164 countries, is broader in scope as it covers not only trade in goods but also services and intellectual property. And most importantly, the WTO serves as a permanent forum for trade negotiations. Still, the WTO is not without criticism, and it has been labelled as managed trade rather than free and fair trade. Started with new areas for negotiations, such as labour, the environment and international competition, the first such meet in Singapore in 1996, and the third one in Seattle, Washington in 1999 turned into a debacle due to wrangling between developed and developing countries over linking trade with these issues.
Nepal and the WTO
It was only at its fourth summit in Doha 20 years ago that the WTO made progress as it sorted out conflicting matters with due respect to the interests of developing countries, but without success. When Nepal joined the WTO in 2004, the Doha Round was at the peak of its popularity. Its fame rose as it embraced LDC concerns, particularly the issue of preference erosion and trade capacity building. Realising that preference access was not the solution as long as the LDCs like Nepal had no capacity to exploit global opportunities, it introduced the aid-for-trade programme to compensate the LDCs for the loss of trade from the erosion of preferences due to reductions in world tariffs. For countries like Nepal, the successful conclusion of the Doha Round is important because of these two aspects. But as long as the differences between developed and developing countries are not sorted out, the expectations of the poor countries will not be met. Hence, while the problems of international trade are yet to be resolved, the future of a global trading system like the WTO also seems uncertain.