The trouble with World Trade Organisation (WTO)

With Americas’ announcement of tariffs on steel and aluminium, there are fears of a global trade war. If a trade war starts is WTO strong enough to intervene and stop it?

Over the last decade, numerous stalled negotiations have beset WTO credibility. The Ministerial Conference in Kenya in 2015 for the first time failed to support the Doha mandate. An ineffectual WTO will hurt everyone, but the most significant impact will be felt by the poor. In 2010 the Millennium Development Goals achieved one of its objectives, and that was to cut extreme poverty by half. Achieving this objective was aided by economic growth in poorer countries that took advantage of low tariffs and open markets where WTO played an essential role in overseeing trade rules are appropriately negotiated, implemented and monitored.

A possible trade war and a weak WTO will result in wealthier countries uplifting their tariffs and introducing other protective measures. The current playing field, as it were, would be ineffective, and the strong countries would push poorer countries to accept harsher trade deals. Currently, all members have one vote each, allowing even a small nation a genuine say. The negotiations are therefore consensus-based.  The dispute settlement mechanism also enables members of one country to take another to court if they violate trade rules, thus strengthening the hand of poorer nations.

A full-out trade war will affect the rich countries as they will also lose out on low tariffs access to, for example, cheap clothes, fuel and foods. America’s increase in traffic may benefit them in some industrial sectors, but for others where they import steel (as other countries would retaliate), cost of production would go up. Take China; for example, they are the second largest importer of agricultural goods from the US. What would happen to American exports and farms if tariffs from China increased for agricultural in response to the steel tariffs? The more impoverished Chinese people would suffer disproportionately from the lack of agricultural imports. The farmers in America would also be adversely affected but not as much as some of their Chinese customers. A trade war is a lose-lose situation.

Decision making in the WTO is still based on consensus diplomacy by 160 members with different outlook and views working on the principle that nothing is agreed until everything is decided. The last round of multilateral talks to further liberalise trade (known as the Doha Round) went on for five years. Many believe that WTO was too ambitious when they estimate that Doha Round will increase world GDP by $150 billion. The talks eventually failed in 2006.

At the Ministerial conference in Buenos Aires, 2017, the WTO failed even to produce a Ministerial Declaration. WTO seems to be in limbo with its ability to oversee negotiations being called into question. This is happening at a time when we seem to be heading towards a period of protectionism.

 

* Tahir Maher is a member of the LDV editorial team and the Chair of the English Party

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