Power or law: what governs trade rules

Proposals made by some countries to the General Council to resolve the appellate body crisis in the World Trade Organisation reaffirm the necessity of a basic agreement about the need for the rule of law in the international trade regime. Theoretically, the idea behind the Bretton Woods system was to ensure mutual interdependence and peaceful coexistence. The theory of comparative advantage ardently preached by the West to the erstwhile colonies worked well as long as it gave dividends.

A trade regime designed on the basis of the ‘most favoured nation’ (MFN) rule ensured that colonial history did not prevent equal market access and competitive opportunity for all exporters. But the comparative advantage basis of the international trade regime was only superficial, as highlighted by the ‘dependency theory’ and accepted by the Harberler Committee.

The global South largely remained a supplier of raw materials and market for finished products from the global North. Wherever this was in danger of reversal, as in the case of textiles, precautionary measures were taken by the dominant economies. By the 1980s, the game in the goods sector was becoming fairer with the weaker parties gaining economic strength.

However, new playfields of Intellectual Property Rights (IPR) and Services were opened up and participation forced through single undertaking on all parties. But since then, much has changed which the West, especially the US, has not yet learned to live with.

Nothing gave as unexpected results as the General Agreement on Trade in Services, which bounced back the theory of comparative advantage directly on a West unprepared for the extent of surprise. Imports of skilled and semi-skilled labour through various modes was greater than they were ready to compromise with.

Slowly, not only the lopsided trade regime was rebalancing, developing countries are now more assertive, with greater acumen in trade negotiations and forceful pleadings before the panel and appellate body.

Dominant countries, few in numbers, banked upon aristocratic control more than the democratic. Control over the highest adjudicatory body is crucial for this. It is not that the appellate body has been dismissive of the power balance but obligation to give reasoned decision constrains the discretion of any adjudicatory body. However, the concept of Rule of Law is still to gain foundation in the international relations. The problem of present-day crisis in the WTO, hence, springs from two sources.

The real problem lies in the over-ambitious approach towards the expansion of the WTO agenda. Expansion without consolidation has led to the downfall of great empires. Ironically, the effectiveness of the dispute settlement mechanism under GATT and WTO has been the primary reason for the blind expansion drive.

The enforcement of non-trade norms through threat of retaliation under the WTO dispute settlement mechanism could become a cover for trade sanctions. Most members were still groping with the expanded trade regime under the WTO, yet the dominant members immediately introduced new issues in the Singapore Ministerial Conference.

The declaration of the demise of the Doha Round has also been made to start a new round of negotiations with new issues. It is amazing that the US is simultaneously pursuing two opposite agendas. On the one hand, it is publicly criticising the WTO and, on the other hand, it wants to expand the already overloaded trade organisation by bringing in investment and competition and, if possible, labour rights, environmental norms and a host of other norms.

The second problem is that the global North is missing its overarching dominant role in the international trade and economic system. Developing countries are becoming more effective, whether in negotiations or in interventions in the dispute settlement system. Their trade balance is improving. The importers of yesteryears have learned the tricks of the trade and are now exporting not only merchandise but also people and ideas.

The dominant countries have yet to learn the principles of international democracy, equality and tolerance which they have so ardently preached. Sharing the economic and public space on equal terms with ‘others’ is still an alien concept for them and that is giving rise to the fear of losing control. President Trump is not the first to voice the concern. Concerns have been raised earlier about the “inexorable invasion” and “colonisation of the privileged by the desperate” as Anton Gill puts it.

The US wants to regain control over the adjudication process as in the GATT era, where it could bargain and refuse to accept a panel finding that was not acceptable to it. This would be a regressive move.

There is a need to make the authoritative interpretation norm under Article IX of the WTO Agreement more effective. Democratic control over the content of any legal system is necessary. In the domestic sphere it is through legislative bodies; in the WTO, it has to be through the General Council or the Ministerial Conference.

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