India's options amid shifting global trade rules

With the changing dynamics of global trade institutions, India needs to infuse flexibility into its trade policy

- AMITA BATRA

As India navigates its way through global, regional and bilateral trade negotiations, it is important to understand that evolving global trade trends are also accompanied by shifting contours of global trade institutions and rules. Foremost among these is the need to recognize that the evident debilitation of the World Trade Organization (WTO) is due to the blunting of its central pillar of dispute resolution by the US, rather than the "spaghetti bowl effects" of preferential trade agreements (PTAs), as propounded by some economists in the 1990s.

PTAs acquired greater significance in the early 2000s, with increased depth and coverage of provisions in response to the changing nature of trade, engendered by the cross-border fragmentation of production processes. The provisions and agreements of the WTO, then entangled in the Doha Development Agenda negotiations, were not sufficiently facilitative of this transformation in global trade. The deep PTAs, while evolving as an alternative to the slow-moving WTO, were very much within the realm of WTO rules, in particular GATT (General Agreement on Tariffs and Trade) Article XXIV.

Simultaneously, the Dispute Settlement Mechanism (DSM) at the WTO continued to provide a forum for resolving trade-related complaints and disputes among all member economies, irrespective of their participation in PTAs. The two modes of global trade – PTAs at the bilateral and regional levels, and the multilateral system – worked successfully, in tandem, during this period.

However, the US intransigence in appointing judges to the appellate body of the DSM over the last five years has undone this harmonious working of the rules-based global trade order. By striking at the most significant reform in the multilateral system in the transition from GATT to the WTO, the US has seriously weakened trade multilateralism.