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Need To Restore WTO’s Authority


Many countries have found an easy way to avoid complying with the WTO panel rulings making the body toothless.


GS III: Indian Economy

Dimensions of the Article:

  1. WTO’s dispute settlement mechanism (DSM)
  2. World Trade Organization (WTO)
  3. Subsidies under WTO
  4. Need to relook into subsidy norms arises due to several reasons

WTO’s dispute settlement mechanism (DSM):

  • It is a permanent judicial body of seven independent members with compulsory jurisdiction over all WTO members.
  • This body heard appeals from the decisions rendered by WTO panels.
  • However, since the end of 2019, it stands crippled because the US, which lost several critical disputes before it, has single-handedly blocked the appointment of new members.
  • Consequently, countries have found an easy way to avoid complying with the WTO panel rulings. They appeal into the void, thereby rendering the WTO toothless.
  • At the 12th WTO ministerial meeting, countries resolved to create a fully functioning DSM by 2024.
  • India and several developing countries have rightly demanded the body’s restoration.
  • Significance of DSM:
    • It existed from 1995 till 2019, a fully functional dispute settlement, with the checks and balances that the appellate body provides.
    • It best serves the interests of the developing world

World Trade Organization (WTO)

  • The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations.
  • It is the largest international economic organization in the world.
  • The headquarters of the World Trade Organization is in Geneva, Switzerland.
  • The WTO deals with regulation of trade in goods, services and intellectual property between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments.
  • The WTO prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals.
  • Trade-related disputes are resolved by independent judges at the WTO through a dispute resolution process.
  • The WTO has 164 members (including European Union) and 23 observer governments (like Iran, Iraq, Bhutan, Libya etc.)
  • India is a founder member of the 1947 GATT and its successor, the WTO.

Origin of WTO

  • The WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947.
  • The Uruguay Round (1986-94) of the GATT led to the WTO’s creation. WTO began operations on 1st January, 1995.
  • The Agreement Establishing the WTO, commonly known as the “Marrakesh Agreement”, was signed in Marrakesh, Morocco in 1994.

Functions of WTO

  • Trade negotiations: The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They set procedures for settling disputes.
  • Implementation and monitoring: WTO agreements require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted. Various WTO councils and committees seek to ensure that these requirements are being followed and that WTO agreements are being properly implemented.
  • Dispute settlement: The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly.
  • Building trade capacity: WTO agreements contain special provision for developing countries, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities, and support to help them build their trade capacity, to handle disputes and to implement technical standards.
  • Outreach: The WTO maintains regular dialogue with non-governmental organizations, parliamentarians, other international organizations, the media and the general public on various aspects of the WTO and the ongoing Doha negotiations, with the aim of enhancing cooperation and increasing awareness of WTO activities.

Subsidies under WTO

Amber Box Subsidies:

  • Distort international trade by making a country’s products cheaper in comparison to other countries.
  • Examples include subsidies for inputs such as fertilizers, seeds, electricity, irrigation, and Minimum Support Price (MSP).
  • Agriculture’s amber box includes all domestic support measures that are deemed to distort production and trade.
  • WTO requires signatories to commit to reducing trade-distorting domestic supports in the amber box.
  • Members who do not make commitments must keep their amber box support within 5-10% of the value of their production. (Di Minimus Clause)

Blue Box Subsidies:

  • A conditional form of Amber Box subsidies.
  • Placed in the Blue Box if it requires farmers to limit production.
  • These subsidies aim to limit production by imposing production quotas or requiring farmers to set aside part of their land.
  • Currently, there are no limits on spending on Blue Box subsidies.

Green Box Subsidies:

  • Domestic support measures that do not cause trade distortion or cause minimal distortion.
  • Government-funded subsidies without any price support to crops.
  • Examples include environmental protection and regional development programs.
  • Green Box subsidies are allowed without limits (except in certain circumstances).

Need to relook into subsidy norms arises due to several reasons

Unequal Weight in Trade Discussions:

  • There has been a long-standing complaint that the viewpoints of the Global South and emerging markets have not been given equal weight as those of the developed nations in trade discussions.
  • The export of agricultural goods has been a particularly contentious issue.

Frozen Subsidies for Developing Countries:

  • The current reference price adopted under global trade norms has frozen subsidies for agriculture and poor farmers in developing countries.
  • WTO members are not allowed to breach the 10% value of production limit based on the reference price of 1986-88.
  • Subsidies for agriculture and poor farmers in developing countries were not counted at all.

Importance of Food and Fertilizer Security:

  • The Covid-19 pandemic and Russia-Ukraine conflict have highlighted the importance of food and fertilizer security.
  • Food security is stronger in developed nations due to unbalanced trade agreements.

Proposed Measures:

  • India has proposed measures such as amendments in the formula to calculate the food subsidy cap.
  • India has also proposed the inclusion of post-2013 programs under the Peace Clause to address the frozen subsidies issue.
    • The WTO’s Peace Clause is an interim mechanism agreed upon by its members in December 2013, aimed at dealing with the food stockpiling issue.
    • Under this clause, developing nations are allowed to breach the prescribed ceiling for food subsidies without facing any challenges at the dispute settlement forum of the WTO.
    • The Peace Clause will remain in effect until a permanent solution is found to the issue of food stockpiling.
  • These measures aim to balance the interests of both developed and developing nations in global trade discussions.

-Source: The Hindu, The Indian Express


February 2024