In a growing era where countries are inclined to flout the WTO rules and their own commitments, the uncertainty is a case for concern for developing countries like India.
India has been a major proponent of the multilateral trading system and has batted for the Doha Round to be a Development Round. However, with the slow progress of the Doha Round, countries are rolling back unilateral liberalisation and ignoring their own WTO commitments, resulting in a sudden surge in the number of disputes. With the retirement of the two judges on December 11, there has been significant debate and discussions on whether the demise of the WTO Appellate Body is a boon or bane for India.
While some believe that India is at a disadvantage as some critical trade dispute cases are pending and trading partners can now impose harsh measures to retaliate, others think that India now has a breathing space as some of the cases such as the one of export-linked subsidies, which India recently lost against the United States could now get into indefinite delays.
The reason why the US has been blocking the appointments and reappointments of the judges for over a year-and-a-half is its dissatisfaction of the rulings of the appellate body, which sometimes went against the US. The US has been expressing procedural and systematic concerns with the way the appellate body had been functioning for the last decade.
One of the procedural concerns is that some appellate body members are deciding appeals after the expiration of their four-year term. There was an unwritten tradition of the quasi-automatic reappointment of an appellate body member for a second term, which the US challenged since 2011. There are instances where the appellate body have overstepped its authority that was supposed to be limited to correcting legal errors in panel reports.
The implication of the appellate body crisis is an immediate break-down of the two-tier dispute settlement mechanism. Without a functioning appellate body, it will be difficult if not impossible to retain the sanctity and accountability of the multilateral trading system, with no one to maintain the checks and balances and rectify or look into legal inconsistencies in panel reports.
Now any WTO member can block adoption of a panel report by filing an appeal that may not be heard. In fact, the appeal filed by the US against a panel report that held America’s domestic content requirements and subsidies in the solar sector as violation of global trade norms in a case filed by India, is an example of how a member can leverage the crisis in its favour by blocking reports that obligate it to comply with the WTO rules. In a growing era where countries are inclined to flout the WTO rules and their own commitments, this is a case for concern for developing countries like India.
Since last year, a number of countries, including India, have jointly tabled proposals in the WTO to reform the appellate body, in an attempt to save it. These proposals covered the transition rules for outgoing appellate body members, the need for timelines for appellate proceedings and the need for transparency in the process, additional amendments aimed at strengthening the independence and impartiality of the appellate body, etc. However, these have not been able to stop the current situation.
India, in the past, expressed a strong intention to follow multilateral trade rules. However, of late there has been a conscious effort to not abide by the rules whether it is related to export-linked subsidies or domestic content requirements. There may be certain gains from protectionist measures; however, no study has weighed it against the cost of legal dispute and the issues that exporters are facing due to retaliation in key export markets.
For example, out of the 257 countervailing measures that was implemented between January 1995 and December 2017, Indian industries have been countervailed 45 times second only to China, which has been countervailed 84 times. If one puts these estimates against the export share of the two countries, it is clear that India needs to revisit its trade policy. As India prepares for a new foreign trade policy next year, the country needs to ensure that the policy gives Indian industry a level playing field with that of its competitors in other developing countries, especially in the RCEP region, and provides it with undisputed market access in key markets such as the US and the EU.
In this context, it is important to examine the policies of countries such as Vietnam and the support that they provide to their manufacturing sector.Arpita Mukherjee is professor, Indian Council for Research on International Economic Relations (ICRIER). Views are personal.