[Editorial Analysis] World trade order, or US trade order?

Mains Paper 2 : International Relations

Prelims level : US trade order

Mains level : International Trade

Context

• It has been a year since US President Donald Trump roiled international trade by imposing tariffs on steel and aluminum on the dubious ground of protecting security of the US.

• What has he achieved through this illegal action and other questionable measures?

• Also, what might be his ultimate aim? Let us examine these questions.

Strategies adopted by President Trump

• President Trump has resorted to the time-tested strategy of the US of erecting barriers to exports from other countries, in order to coax them to come to the negotiating table and accept even the most unreasonable demands of the US business and trade.

• The illegal steel and aluminum tariffs, as well as the threatened withdrawal of GSP benefits to India, should be viewed as integral parts of this line of action by the US.

• The US had unleashed this strategy during 1986-1993 and arm twisted Brazil, India and Thailand to agree to the Agreement on Trade-Related Aspects of Intellectual Property Rights.

• The ongoing bilateral negotiations between China and the US for addressing the concerns of the latter is a further testimony to the success of this strategy.

• By compelling some countries to accept export quotas as a condition for exporting steel to the US, Trump has rendered the WTO prohibition on such quotas as being irrelevant for the US. Through this tactic Trump has pushed countries back to the era of managed trade.

• In this framework, the pattern of international trade will be determined unilaterally by the commercial interests of the US and not by multilateral rules.

• This type of power play, which was evident in the textiles sector during 1960s and up to the early years of the 21st century, has staged a comeback with greater force for serving the economic interests of the US.

• The US has taken pre-emptive action in order to prevent countries from meaningfully challenging the illegal actions of President Trump under the WTO’s dispute resolution mechanism. By refusing to nominate new members to the Appellate Body, the highest judicial body at the WTO for adjudicating trade disputes, the US would have rendered the WTO’s dispute resolution mechanism dysfunctional in December 2019.

Blow to DSB

• However, the US does not appear to be prepared to wait that long. It has recently dealt a deep blow to multilateral dispute resolution by not allowing the meetings of the Dispute Settlement Body (DSB) to proceed on the pretext that the US does not recognise the diplomats at the WTO appointed by President Nicholas Maduro of Venezuela.

• By sabotaging the DSB, the US has ensured that other countries will not have an avenue for seeking redress against its dubious and illegal actions.

• This provides the US an unfettered environment for brow beating countries through its illegal actions and pressurising them to meet its ever-growing demands.

• The fourth element in the overall strategy of the US is to undermine the concept of special and differential treatment (S&DT) during trade negotiations. By shredding the concept of S&DT, a fundamental pillar of both the GATT and the WTO, the US wants the same rules to apply to the developed countries and to some of the larger developing countries.

• This would severely erode the ability of India and similar other countries to protect vulnerable sections — particularly fishermen and farmers — from the market-grabbing designs of the US. India has stood up firmly to the US on this issue and has also succeeded in mobilising about a dozen developing countries to oppose any dilution of S and DT.

• However, the US may not hesitate to wield the big stick, yet again, in order to coerce countries such as India to ‘voluntarily’ renounce any claims to S and DT provisions in the future.

Digital trade, e-commerce

• The final element in this grand strategy is to bulldoze negotiations at the WTO on the key issue of its interest digital trade and electronic commerce.

• While there is no multilateral consensus on initiating negotiation on this issue, this has not prevented the US from pushing ahead with negotiations with 74 other countries.

• It is also using all available platforms, such as the United Nations, to champion the supposed gains for developing countries if they agree to negotiate binding rules at the WTO on digital trade.

• Further, strong pointers already exist suggesting that at the forthcoming summit of G20 leaders to be held in June, President Shinzo Abe of Japan will lend a helping hand to the US in nudging India, South Africa and Indonesia to join the bandwagon of negotiation on digital trade. The outcome of these negotiations would be totally asymmetric and skewed.

• Developing countries would be compelled to give up the data generated in their country for free to the digital giants in the developed countries.

• This would fuel the business of the digital giants, without any benefit accruing to the developing countries.

Conclusion

• The illegal actions of the US over the past one year may not provide any inkling of an underlying coherent strategy.

• However, join the dots and it becomes clear that the US is resorting to all tricks, fair and foul, for rewriting trade rules to further bend the international trading system in its favour.

• So far, India has firmly resisted the US pressure. In order to further strengthen its hands, India needs to explain the dangers of the US strategy to other developing countries and get them on its side.

• This is the only effective way to prevent the US from pushing ahead with its own commercial interest, while totally ignoring the development concerns of other countries, including India.

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Prelims Questions:

Q.1) Which among the following is/are part of Revenue Receipts of the Government?

1. Borrowings

2. Income earned from Taxes

3. Disinvestment

4. Profits/Dividend of the Public Sector Undertakings (PSUs)

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 1 and 3 only

(c) 2 and 3 only

(d) 2 and 4 only

Correct Answer: D

Mains Questions:

Q.1) India must join hands with other nations to prevent the US from bending the global trading system in its favour. Comment.

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