Trade regime is splintering

Trade regime is splintering

President Trump is reasserting Cordell Hull’s idea of reciprocity in market access and trade liberalisation on which the GATT framework was based. A limited recognition to the special position of developing countries was contained in the General Agreement on Trade and Tariff (GATT), providing flexibility to developing countries in tariff negotiations for the purpose of revenue generation and economic development. Credit must go to the New International Economic Order (NIEO) movement and Uruguay for highlighting the absurdity of the idea of reciprocal trade concessions in a world with huge economic disparities. Uruguay filed a complaint against developed countries, pointing out more than 500 import restrictions which its exports faced in the developed world; NIEO countered the Ricardian theory of comparative advantage with Dependency Theory.

The former argued for an international division of labour and specialisation in producing goods. The latter argued that the international trade regime generated by this theory would keep developing and newly decolonised countries perpetually dependent on the economically advanced world -- the developing world remaining a supplier of raw materials and a market for finished goods from the developed world, like in the colonial era. This was a note of caution that the lofty idea of international division of labour and specialisation should not degenerate into an international caste system among nations.

The stand of developing countries was vindicated when the Haberler Committee accepted that the GATT trading regime was not in harmony with the development goals of the less developed countries. Efforts were made to accommodate the growing discontent by establishment of UNCTAD and amendment of GATT, to which ‘Trade and Development’, was added. While the former was a forum for formulation and discussion of ideas, the GATT amendment was an eyewash.

The decision of the GATT contracting parties to accept the ‘Enabling Clause’ known as the Generalised System of Preferences (GSP) in the Tokyo Round provided some actual concession to developing countries by allowing developed and developing countries to provide market access to imports from developing countries at less than MFN rate of tariff. At present this is the only norm under the WTO regime which recognises the economic imbalance in the global trade regime. The objective of the provision is progressively eroding. This process was in a way legitimised by the finding of the Appellate Body in EC-Conditions for Granting Tariff Preferences to Developing Countries. In this case, conditional application of tariff preferences was accepted as legitimate if it was based on objective criteria. At a time when arbitrary use of power in international economic relations seems to be taking precedence, the need for objective criteria is becoming obsolete. The erosion has taken place to the extent that grant of GSP is becoming an informal tariff negotiation.

There can be no doubt that trade relations have to be based on mutual concession and a government can have amicable trade relations only if the country is getting some advantage from the deal. Trade, of course, is not charity but it surely is cruelty to maximise profits by piling up corpses. The international intellectual property regime under TRIPs is already benefitting giant pharmaceutical corporations at the cost of the right to life, especially in less developed countries. A moot question is how far economic welfare can be maximised at the price of basic human rights of citizens of other countries.

Cultural exception

A governmental effort to minimise the misery by price regulation on some medical products should normally not call for retaliation from any government, especially under GSP as the purpose of GSP was to help in the development of less developed countries. Similarly, culture is increasingly being argued as an exception to trade obligations on the ground of protection of public morality under GATT and the General Agreement on Trade in Services (GATS). The claim of exception so far has not been successful but growing academic literature on the subject is attempting to counter the US resistance to recognition of culture as an exception to trade obligations. While the desirability of cultural exception to trade obligation may be debated, India’s trade measures on medical devices and dairy feed products needs to be viewed in holistic perspective.

The real problem is not withdrawal of GSP treatment on a few items. The issue is the risk which the multilateral trade regime may face if it does not take into account the diversity of economic conditions in its framework. The inevitable consequence would be fragmentation of the international trade regime into trading blocks, a development that took place before WWII.  The present preferential and regional trade agreements are largely following the WTO framework and its norms in their rule formation. However, if public discontent due to economic imbalance disturbs this framework, trade blocks based on the power matrix would not be good news for world peace and stability.

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