Trade bilateralism needs multilateralism

The visit of President Donald Trump has raised hopes of India and the US concluding a trade deal and India is even hoping to revive the Generalised System of Preferences (GSP) treatment. No doubt, in doing a business deal with a business negotiator, India would have to concede some ground. The US has also been able to crack a deal with China. How significant the concessions are going to be is a matter of speculation. One can only hope that the agriculture sector is not further impoverished. The stalemate in the WTO Appellate Body has effectively checked the threat of challenge against the WTO-inconsistent measures. It can be expected that this stalemate in the Appellate Body will end.

The US action, however, has set a dangerous precedent. Bullying countries into bilateral trade deals by threatening to wreck the multilateral trading system in which every country has an interest may give dividends in the short run, but it may backfire in the long run, with other countries using the same device. The US would have much more to lose with TRIPS, GATS, Agreement on Agriculture and some other agreements at stake. Moreover, the Doha Round has been buried to ‘modernise’ the WTO through a new round with stronger provisions on TRIPS and new agreements on investment, competition and significant concessions in other sectors.

All of the above require a strong rule-based system that is sensitive to the diversity of its membership. A comparatively more effective dispute settlement mechanism under the GATT was the main reason for the insistence of the US pharmaceutical lobby to introduce Intellectual Property Rights (IPR) in the Uruguay Round negotiating agenda.

The world political and economic situation is different from what it was after the Second World War. The international trade regime cannot function without an effective multilateral trade organisation like the WTO. Bilateral and plurilateral trade deals are successful as long as there is an effective multilateral trade system establishing the ground rules and creating an atmosphere free of trade wars. If this overarching umbrella folds under the strain of ambitious nationalism, trade blocs may transform into trade wars, and the rest we can imagine or refresh our memory. Thus, bilateralism may not suit the US in the long run.

The US has been critical of the Appellate Body applying the precedent system even though it is not part of the WTO dispute settlement system. The precedent system is applied in common law countries whereby decisions of the higher courts are binding on the courts below them. In a way, it leads to judicial lawmaking. The precedent system is not applied in international law for many reasons, one of which is the absence of hierarchy of courts. However, with the hierarchical structure of the adjudicating bodies in the WTO, it has been practised to some extent without formal acknowledgment. Under the WTO, the power to adopt authoritative interpretation of the WTO Agreements is only with the Ministerial Conference and the General Council.

The US’ anger can be understood as it tried to undo the decision of the Appellate Body on zeroing through a series of cases. The Appellate Body had held that the practice of zeroing was inconsistent with the Anti-dumping Agreement in the EC-Bed Linen case. Since the practice was also followed by the US, its anti-dumping measures were challenged in some cases and the US continued to reiterate its right to continue the practice. In one case, the Appellate Body had to observe that although the precedent system did not apply in the WTO dispute settlement system, it expected the panel not to deviate from the previous findings of the Appellate Body without strong reasons.

Ironically, the US has at times used the dispute settlement mechanism just to get a statement of law even though the conflict had ended. The India-Wine and Spirit case is an appropriate example, in which Indian taxes on the import of alcoholic beverages were challenged by the European Commission (EC) on the ground that they violated the tariff binding commitments India had undertaken under the GATT. India had settled the matter with the EC by bringing down the taxes at the border within the bound rate given in its schedule of concessions. But the US had also started a dispute in the meantime, and it refused to let the matter rest because it wanted a clear statement of law on the issue through the dispute settlement mechanism. If such practices do not strengthen the precedent system under the WTO dispute settlement mechanism, one wonders what would.

The international commercial agreements of today, whether bilateral, plurilateral or multilateral, can survive only through a democratic base guarded by an impartial dispute settlement mechanism. Blaming the system because you are not ruling over it anymore is not the best diplomacy. If the rules of the game themselves are thrown to the winds, no one can predict who will win.

(The writer is Professor of Law, National Law University, Odisha)