Free trade appears in throes of death

Going by the developments on global trade front, one is not wrong to think of the ‘Precept and Practice’ of free trade as going into oblivion.  It was about a decade ago, Dr Jagadish Bhagawati, a noted advocate of free trade, predicated that there was a dangerous growth of terminates wrecking the system of free trade.  He was referring to the multifarious bilateral and regional trade agreements dealing a serious blow to the concept and practice of international trade.  

Even the clauses pertaining to the MFN (Most Favoured Nation) and NT (National Treatment) are grossly misused by the members of the WTO.  MFN is an agreement to treat a particular nation no worse than others, in terms of concessions, privileges or immunities.  Every signatory is obliged to extend the MFN status to every other member country.  This is not happening.  For instance, India extended MFN status to Pakistan in 1996; but the latter has not reciprocated.  It however granted the same to China in 2013.  As a matter of fact, China was a late comer into the WTO in December 2001.

If India in retaliation withdraws the MFN status accorded to Pakistan, it would perhaps permanently end trade between India and Pakistan, which is hovering around $2.61 billion at present, in contrast to China-Pakistan trade volume at $15 billion.  The question, therefore, is whether to have Pakistan as trading partner at all! 

The issue of European Union under MFN is still complex.  The competition Laws of the EU are do not allow any country to intensify competition from outside.   Unless these laws are changed, there is no much meaning to the MFN and level-playing field in the European countries.

Under National Treatment clause, every member country is obliged to treat foreigners and locals equally in terms of internal taxation and other government regulation.  This also is not happening.  There are diverse legislations in vogue in various countries that are biased towards domestic/native producers. 

All these restrictions naturally impinge on the free play of trading partners.  Besides, the rule of national treatment applies only when either a product or service enters the market.  Before entering the market, the country of import can impose ‘import duty’ at the rates prevailing.  It is consistent with the clauses of WTO.  Therefore, many countries are resorting to this practice to extend an element of competitive edge to the domestic manufacturers.

As a matter of fact, the edifice of free trade, rested on the five basic principles, viz., non-discrimination, reciprocity, binding and enforceable commitments, transparency and safety values.  Unfortunately, the edifice got weakened by the unscrupulous and selfish actions of the members alone.  The innumerable bilateral and regional agreements being signed by every member-country are the attempts at wrecking the boat.  

In addition, there is also the devious trend of the emergence of newer political and trade blocks such as G8, BRICS, EU, EEA and many more.  As per the data of the United Nations Statistics Division, there are as at present 33 trade blocks operating in the international arena, involving preferential treatment to the block members.  China is now growing aggressive on this account by forming China–ASEAN Free Trade Area.

The recent retreat of USA on the trade front may culminate in a total burial of the concept of free trade.  By virtue of its unilateral measures, the US has started building brick-by-brick a great wall of protectionism.  USA, once a very vocal and serious proponent of free trade, has started undoing all significant achievements, causing dismay to every member-country of the WTO. The recent pronouncement of the Trump Administration such as hiking tariffs, abandoning Trans-Pacific Partnership and walking away from the North American Free Trade Agreement are all viewed as retrograde in the direction of promoting international trade.  

The USA has started engaging and daring every potential exporting country including India and China.  The trade war with China is intensifying and the Trump administration has already announced 25% tariff on Chinese goods worth $ 50 billion. China also paid in the same token.  As it appears, the trend is likely to continue unabated.  In effect. All these actions of member-countries will finally bury the initiative towards non-discriminative trade among countries and make the WTO irrelevant, unless wisdom dawns on major players in global commerce to save the situation. 

By: Prof K Viyyanna Rao
(Writer is former VC, ANU, and presently Director, SEA Group of Institutions, Bengaluru)