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Thursday May 30, 2024

Dysfunctional WTO to harm Pak exports

US has established that the might-is-right rule would continue to prevail which is against the spirit of the WTO

By Khalid Mustafa
May 11, 2024
Shipping activity can be seen at Port Qasim, Karachi. — APP/File
Shipping activity can be seen at Port Qasim, Karachi. — APP/File

ISLAMABAD: From October 2018 onward, the World Trade Organisation (WTO) has been practically dysfunctional as America has blocked the appointments in the Dispute Settlement Body (DSB) of the organisation, apparently to avoid the decision on the cases filed against the USA by other economies.

The US has established that the might-is-right rule would continue to prevail which is against the spirit of the WTO. This has virtually put the economic world order in jeopardy.

The background discussions with relevant officials of the government and economic expert Dr Abid Sulehri, head of Sustainable Development Policy Institute suggest that if Donald Trump once again becomes the USA president after the November elections, then America may adopt the hard or populace stance and may withdraw from the WTO to make itself free from all kind of obligations just to punish China more, and the country like Pakistan under that scenario would be vulnerable as every developed country would follow the USA and arbitrarily place the high tariff duties, anti-dumping duties and, non-tariff barriers against its products and the dysfunctional forum like WTO would not come up to bail it out.

“However, as far as India is concerned, its economic muscle is very strong now and it has an attractive market for all major world economies which is why India has achieved the ability to adopt the tit-for-tat policy if any country increases duties or imposes NTBs against Indian products,” they said.

Pakistan has always emphasised that discussions on DSB reforms should be formal and open, and the two-tier system for dispute settlement in WTO forum should be adopted.

The government officials said that one of the outcome of the 13th ministerial conference has been that the progress made in the discussions for reforms so far including informal discussions led by the US and like-minded groups has been recognised and acknowledged by the WTO members and that they would work together to take the process forward.

The discussions with officials also disclosed that the USA has introduced the Inflation Reduction Act under which it would impose more duties on imports from various countries against the spirit of the WTO to encourage its own industry for the creation of more jobs to beat the inflation.

Donald Trump in his first stint of rule as US president imposed high tariffs and placed many the non-tariff barriers (NTBs) against the imports of Chinese products arbitrarily and the USA, therefore continued to block the appointments in DSB to avoid the verdicts against the USA in the cases filed by China, or other economies.

According to Reuters, the WTO warned that a surge of unilateral measures, if unchecked, would fragment the world economy, stripping 5 percent of global income. Since late 2019, after the US blocked the appointment of new judges to the WTO’s Appellate Body due to complaints over judicial overreach, 29 cases have been left in limbo, delivering a heavy blow to the dispute settlement system. Those depositing cases include China, Dominican Republic, India, Indonesia, Morocco, Pakistan, South Korea and the United States.

The Economist in its latest edition mentioned that in late April, for the 75th time in a row, America blocked a mundane motion at the WTO to fill vacancies on the panel that is the final arbiter of disputes among the group’s members. The relentless vetoes, obscure as they might sound, have in effect completely defanged the WTO for almost five years. Members that are found to have violated its rules can simply appeal against the decision, to a panel that is not functioning for lack of personnel.

While the appeals moulder, the transgressions go unpunished. Two years ago, at one of the WTO’s biennial summits, members resolved to get the dispute-resolution mechanism up and running again by this year. At the latest summit, earlier this year, having failed to do so, they instead decided, without even a hint of irony, to “accelerate discussions”, the Economist wrote.

More importantly, it said, the European Union (EU), although supposedly both more supportive of free trade and more determined to reduce its greenhouse gas emissions than other economic powers, is on the verge of imposing duties on Chinese electric vehicles. Last month the EU officials raided a big Chinese security-equipment maker as part of a probe into subsidies. America recently imposed sanctions on more than 300 entities, including some in China and Turkey, for providing support to Russia’s armed forces.

Dr Abid Sulehri said that the assumption that world economic order would breakdown if the WTO regime gets collapsed is hypothetical, arguing that for the last five years, the WTO has been partly dysfunctional but it would continue to be relevant. He hoped that the required reforms in the WTO take place. The world media is also not so sensitive about WTO affairs. Even the Ministerial Conferences on WTO issues do not make headlines in the print and electronic media across the world. He said that the EU, which ostensibly is supportive to the WTO cause, has also introduced the NTB of Carbon Border Adjustment Mechanism (CBAM). The objective of this NTB is good, but it would harm the exports of the developing countries. It would also affect Pakistan’s exports.

“Despite only 1.23 percent of Pakistan’s exports currently being at risk under CBAM, the potential inclusion of textiles – critical to Pakistan’s export economy – calls for pre-emptive strategic policy measures to preserve market competitiveness in Europe, a market that Pakistan has traditionally relied on. He said that Pakistan can offset the carbon cost in exports by increasing the green energy in total energy mix of the country.” Dr Sulehri said commencing from October 17, 2023, exporters of iron and steel, aluminum, electricity, fertilizers, cement, and hydrogen to the EU must provide a carbon emission disclosure at each stage of the supply chain.

By the year 2026, the CBAM would be fully integrated with the EU’s Emissions Trading System (ETS). The ETS is a cap-and-trade system that limits the total amount of emissions from high-emitting industries and allows companies to purchase or sell permits as needed. This integration implies that importers who bring in products with emissions higher than the prescribed limit would need to purchase CBAM certificates that replicate the weekly ETS allowance prices. This will effectively align the carbon costs of domestic and imported goods.

“This alignment compels exporters, including those from non-EU countries, to enhance their carbon efficiency or face higher costs,” he said.