The United States has launched a scathing critique of the World Trade Organisation (WTO), holding the Geneva-based body responsible for creating severe global economic imbalances. In a significant policy paper submitted late Monday, the US argued that the WTO is no longer a competent forum to address the existing and future problems plaguing the international trading system.
Core US Grievances Against the WTO
The US document expresses serious concerns with the trading system embodied by the WTO, stating it has overseen a world of severe and sustained imbalances. It claims these imbalances, driven partly by overcapacity and concentrated production, have created dangerous dependencies and vulnerabilities for many nations. The paper argues this situation undermines the legitimate aspirations of countries to develop or maintain their own industrial capacity.
While not explicitly naming China, the problems listed are widely seen as directed at Beijing's economic practices. The US contends that trade imbalances stem from countries offering subsidies, suppressing wages, indulging in labour and environmental abuses, and manipulating currency policies. These actions, according to the US, have resulted in massive trade deficits for America, which it is now actively seeking to address.
Attacking Foundational WTO Principles
In a move challenging a cornerstone of global trade rules, the US attacked the Most-Favoured Nation (MFN) principle. This principle requires countries to levy the same tariff on a product from all other WTO members. The US paper calls MFN unsuitable for the current era, claiming it prevents countries from optimising bilateral trade relationships and impedes welfare-enhancing liberalisation by forcing a one-size-fits-all approach through the WTO.
The US argues the current global system has been replaced by an era of deepening divergence. It cites some countries' unwillingness to pursue fair competition, the maintenance of economic systems incompatible with WTO principles, and the pursuit of chronic trade surpluses that harm deficit nations. To face these challenges, the US asserts that trading nations must be able to treat different partners differently, a direct challenge to the non-discrimination ethos of the WTO.
Implications for India and Calls for Reform
The US criticism extends to other areas crucial for developing nations like India. It has hit out at countries blocking plurilateral agreements—where a group of WTO members negotiate sector-specific deals, such as on investment facilitation—without directly naming India. More significantly, the Special and Differential Treatment (S&DT) provision, which allows developing countries longer implementation periods and lower commitment levels, has once again faced an American attack, with the US calling for its elimination.
The US paper concludes that the current WTO architecture has eroded manufacturing capabilities not only in America but in other developed and developing countries. It calls for a deep-rooted reform of the institution, signalling a potential major shift in how global trade is governed if the US persists with this stance.
