Trade and Tussle: The Role of WTO in the Prevention of Disputes Between Countries

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The geographical boundaries are becoming a metaphor, as the world is becoming one. International influence can be seen in almost every sphere of our lives, be it political, social or economic. Trade has always been an essential part of any economy to function. With ideologies like globalization, the world opened its borders. This allowed the flow of goods, services and ideologies too. Organizations like the World Trade Organization have been prominent in facilitating cross border trades. Agreements like GATT have eased the process. Apart from this, various treaties help nations maintain smooth trade relations.

A question that has been prominent in recent times is, “Are we heading towards a global culture or more local culture?” With the Indian Prime Minister Narendra Modi announcing that “Local should be Vocal”. Also with the ban on 59 Chinese Apps, how does the whole trade aspect and broader globalization get affected? Not only India but the United States alleged plan to ban at least 20 Chinese companies. On account of protecting the privacy and safeguarding information will be a massive blow to the global economy. What can be the legal implications of the same? Or does the World Trade Organization have such authority to control the world trade mechanisms?

China and Trade

China’s gross domestic product (GDP) is $10.9 trillionBy 2030, China’s economy is forecasted to be number one, a position it previously held in 1820. China opened its economy to the world in 1978. It became a member of the World Trade Organization in 2001. The question of China’s compliance with the WTO has been controversial. The terms of China’s accession to the WTO are set out in the Protocol on the Accession of the People’s Republic of China (the Protocol). WTO also added specific rules that are custom made for China only.

There are 38 WTO dispute cases open against China. Over matters as the violation of intellectual property rights, discriminatory quotas, unfair government subsidies, export duties on raw materials, and restrictive regulations. A strong point of contention that has led to China’s uneven footing in the WTO is the structure of its economy. It has an economy that is controlled by the Government and not market forces. China initiated a WTO dispute to eliminate the Non-Market Economy label, which it lost to the European Union. China is also a member of the Free Trade Agreement with ten ASEAN countries.

The ongoing economic war with the United States and India has affected the Chinese economy and will have effects on the global economy as well. For instance, in 2019 Chinese quarterly GDP fell by 0.3% due to its economic struggle with the US.

India and China: A trade war

India is looked upon as a developing country with huge potential. International Trade becomes an important aspect in allowing cross border flow of capital, technology and ideology. Due to the current pandemic, global trade is expected to decrease by a significant amount. Developing economies have been responsible for exports to the Developed economies, also aiding global growth. In 2018, the total exports of goods and services reached US$10.4 trillion and amounted to US$10.2 trillion in 2019. Thus developing economies’ trade finally exceeded US$10 trillion, a level last achieved in 2014.

Exports from India touched $292.9 billion in the 11 months to February 2020, while imports were $436.03 billion. India is slowly progressing towards a self-reliant ideology, and the increased tariffs on imports add to the presumption. India also walked out of the Regional Comprehensive Economic Partnership (RCEP). It was a partnership aimed at creating an integrated market for its members between 16 countries. India is trying to create a niche for itself by carving out a policy that allows for more FDI while maintaining its Swadeshi policy.

Recently, India announced a ban on 59 Chinese Apps, among these apps, were few that had a huge user base in India. The banning of these applications was done to protect National interests and security. This move can be seen as a diplomatic reply to the Galway attacks and the rising Sino- Indian unrest.

China, however, criticized this move and stated that this matter may be taken up to the WTO for resolution as it contravenes the regulation laid down by the organization. Here, the burden of proof will lie on India to lay out the reasons as to why these apps are pervasive and a threat to national security and privacy. India’s decision has been supported by the United States, Australia and Japan.

Role of the World Trade Organization and Road ahead

With the economic and diplomatic standoffs between nations, it is crucial to understand the role the World Trade Organization plays in dispute resolution and the regulation of global trade.

In the current scenario, China can approach the WTO to resolve the ongoing dispute pertaining to India and America.

Understanding governs the dispute settlement procedure of the World Trade Organization (WTO) on Rules and Procedures Governing the Settlement of Disputes (DSU). The Dispute Settlement Body is a Political institution instituted as per Article 2 of the DSU. There is a quasi-judicial authority termed as Panels institutes as per Article 6, 7 and 8 of the DSU. They are responsible for settling differences between members in the first instance. They are a quasi-judicial authority as they resolve disputes independently or without any affiliation to government representation. 

Appellate Body is constituted as per Article 17 of the DSU. It is a body with members appointed by the DSB for a term of up to four years. Their role is to examine legal reports submitted by the panel. Arbitrators are appointed as per Article 25 of the DSU. They act as an alternative medium for dispute resolution.

Procedure

The Dispute Resolution begins with a consultation with the DSU. If the parties are not satisfied by the saw, they can opt for legal recourse. The Dispute Resolution process in legal terms begins with the panel if the parties are not satisfied by the panel they approach the Appellate Body. The recourse then available is the implementation of the order within the said period, compensation to the offender member state and retaliatory measures against the offender state.

India and USA 

In the present case, the focus is on India and the USA banning Chinese applications, companies under the garb of National Security. There are various such matters pending before the WTO. However, a landmark ruling in this aspect came in the year 2019 in the case of Ukraine v. Russia. Ukraine made a complaint against Russia’s transit decision, but Russia’s stance was that they were imposed to protect national security. The panel took the view that the invocation of the exception is justiciable and subject to scrutiny by the WTO Dispute Settlement Body (DSB). This stance can be taken under Article 21 of the General Agreement on Tariffs and Trade ( GATT). The judgement is important, especially for the US, because it is of the view that a stance taken under Article 21 of the GATT should not be scrutinized. However, the landmark ruling clearly states that it can and should be scrutinized. If remained out of scrutiny, the member states can impose unjust restrictions under the garb of national security.

Position of WTO 

The WTO has given many landmark judgements to date. A persistent issue is the binding of these judgements on member states. WTO’s role has been questioned in recent times. Countries prefer plurilateral agreements or negotiations as they are easier to manage and settle. Countries are also opting for bilateral Free trade Agreements for better regulation and negotiation.

WTO still holds value in the current economic affairs of the world. The criticisms are equally valid, however, with no new body in place, WTO has done a fair job in the regulation of world trade. 

In case of a dispute between member states, WTO has also embedded itself as an adjudicating authority with legal binding authority. 


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