Is the World Trade Organization still relevant?

Background of WTO

• The World Trade Organization (WTO), established in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), stands as the principal international body governing global trade.
• Unlike its predecessor, the WTO introduced a robust framework for trade liberalization coupled with a binding Dispute Settlement Mechanism (DSM).
• The resurfacing of unilateral trade measures, such as the “reciprocal tariffs” approach employed by the United States, draws concerning parallels to the Smoot-Hawley tariffs of the 1930s, widely blamed for deepening the Great Depression.
• While the WTO was designed precisely to prevent such destructive trade wars, its current operational challenges have led many to question its efficacy and enduring relevance in the complex 21st-century global economy.

The fundamental question facing the WTO is whether it can continue to effectively regulate international commerce, mediate disputes, and foster cooperation amidst increasing protectionism, unilateral actions by major powers, and the rapid evolution of global trade dynamics.

Challenges Facing the WTO

Several critical issues undermine the WTO’s authority and prompt questions regarding its continued relevance:

1. Paralysis of the Dispute Settlement Mechanism (DSM): Considered the cornerstone of the multilateral trading system, the DSM’s functionality is severely impaired due primarily to the United States blocking appointments to the Appellate Body (AB) since 2019. The AB, requiring a minimum of three members for quorum, became inoperative by December 2019 as member terms expired without replacements.

• Consequence: The inability of the AB to hear appeals effectively creates a legal vacuum. Members can appeal panel rulings into this void, preventing definitive resolution and enforcement of WTO rules, thereby eroding the system’s predictability and credibility. The dispute settlement crisis in the World Trade Organization:
• US Criticisms: The U.S. cited concerns including alleged judicial overreach by the AB, procedural issues, and claims that the body created new obligations not agreed upon by members.
• Illustration: Disputes, including challenges against U.S. tariffs on steel and aluminum imports imposed under GATT Article XXI (National Security), remain unresolved at the appellate stage.

2. Resurgence of Protectionism and Unilateralism: A significant trend since the 2008 financial crisis has been the rise in protectionist measures and unilateral actions by WTO members, often circumventing established multilateral processes.

• Examples: The U.S. imposition of tariffs under Section 232 (national security) and Section 301 (unfair trade practices) are prominent instances where unilateral action challenged the WTO’s dispute resolution process and its interpretation of permissible measures.

3. Difficulty in Updating Rules for the Modern Economy: The global trade landscape has transformed dramatically with the rise of digital trade, e-commerce, the increasing role of state-owned enterprises (SOEs), and the intersection of trade with environmental sustainability and climate change. The WTO has struggled to forge consensus among its diverse membership to develop relevant rules for these ’21st-century’ issues.

• Challenge: Divergent national interests, particularly between developed and developing economies, slow down or stall negotiations on new areas like comprehensive e-commerce rules or disciplines on subsidies.

4. Slow Pace of Negotiations and Consensus Requirement: The consensus-based decision-making model, while intended to be inclusive, often leads to protracted negotiations and difficulty in reaching agreements on contentious issues. The Doha Development Agenda, launched in 2001, remains largely unfinished, illustrating the challenges of achieving comprehensive multilateral outcomes.

5. Impact of Geopolitical Tensions: Increasing geopolitical rivalries among major trading powers negatively affect the cooperative spirit essential for effective multilateral trade governance, hindering progress on both dispute settlement and negotiations.

Arguments for WTO’s Continued Relevance

Despite these significant challenges, the WTO remains crucial for several reasons:

1. Foundation of a Rules-Based System: The WTO provides the only global framework of agreed-upon trade rules (like Most-Favoured Nation treatment and National Treatment), offering predictability and stability in international trade relations. Its absence would likely lead to a less predictable, power-based system where stronger economies could more easily coerce weaker ones, potentially triggering frequent trade conflicts reminiscent of the pre-GATT era.

2. Forum for Negotiation and Dialogue: The WTO serves as an indispensable platform for member states to discuss trade policies, negotiate new agreements, and address trade-related challenges collaboratively. Even with stalled multilateral rounds, the WTO facilitates plurilateral agreements among subsets of members and remains a venue for essential dialogue.

3. Transparency and Monitoring Functions: Through mechanisms like the Trade Policy Review Mechanism, the WTO monitors members’ trade policies. It also maintains a system for members to notify their trade measures, enhancing transparency crucial for fair trade.

4. Benefits for Developing Countries: The WTO framework provides developing countries with a platform to voice concerns, negotiate for special and differential treatment (flexibility in implementing agreements), and challenge unfair practices. The principles of non-discrimination have historically opened markets for developing economies.

5. Lack of a Viable Alternative: There is currently no other international institution with the universal membership, comprehensive scope, and legal framework necessary to govern global trade effectively. Regional or bilateral agreements cannot substitute for a global system.

Impact on India

The challenges confronting the WTO directly affect India:

• DSM Impasse: India, as both a complainant and respondent in numerous disputes (e.g., on agriculture subsidies, fisheries, anti-dumping), is significantly impacted by the non-functional Appellate Body. The inability to appeal and enforce rulings delays or prevents resolution of critical trade issues for India.
• Increased Protectionism: Unilateral trade barriers by other countries negatively impact India’s exports. A weakened WTO makes it harder for India to effectively challenge such measures within a predictable legal framework.
• Stalled Negotiations: Delays in multilateral negotiations on key issues like finding a permanent solution for public stockholding for food security purposes, a critical demand for India and other developing nations, limit potential benefits from updated global rules.
• Advocacy for Rules: India consistently advocates for a strong, rules-based multilateral trading system, viewing it as essential for protecting its trade interests and providing a level playing field against larger economies’ potential unilateralism. India actively participates in reform discussions, pushing for a more equitable system aligned with development needs.

Potential Reforms and Way Forward

Addressing the WTO’s crisis requires concerted effort and reform in several key areas:

• Restoring the DSM: Finding a permanent resolution to the Appellate Body impasse is paramount. Discussions involve potential reforms to the AB process or exploring alternative dispute resolution mechanisms. The Multi-Party Interim Appeal Arbitration Arrangement (MPIA), formed by a group of members, offers a temporary workaround but is not a substitute for a universally accepted solution.
• Updating the Rulebook: Members need to prioritize negotiations to incorporate contemporary issues like digital trade, e-commerce, addressing trade-distorting subsidies (including those related to SOEs), and the interface between trade and climate/environment policies.
• Enhancing Transparency: Strengthening the notification requirements for members’ trade measures is crucial for improved transparency and accountability.
• Improving Negotiating Flexibility: Exploring alternative negotiating formats, such as plurilateral agreements open to all members, could potentially overcome stalemates in comprehensive multilateral rounds, provided they do not undermine the principle of multilateralism.
• Member Commitment: Ultimately, the WTO’s future depends on the political will of its members, particularly the major trading powers, to reaffirm their commitment to multilateralism and invest in reforming the system. Crisis in the WTO: Restoring the Dispute Settlement Function

Conclusion

The World Trade Organization is currently navigating its most significant crisis since its inception, marked by a crippled dispute settlement system and increasing unilateralism. These challenges undeniably raise serious questions about its effectiveness as the guardian of the global trading order. However, declaring the WTO irrelevant would be a premature and potentially detrimental judgment. It remains the sole global institution providing a foundational rules-based framework, a crucial platform for dialogue and negotiation, and essential mechanisms for transparency and monitoring, albeit currently hampered. The alternative scenario – a world devoid of the WTO’s framework – would likely regress to increased trade protectionism, arbitrary unilateral actions, and heightened uncertainty, disproportionately harming smaller economies and developing nations like India.

The current state signifies not irrelevance, but an urgent need for fundamental reforms to adapt the organization to the complexities of the 21st-century global economy and geopolitical realities. Revitalizing the dispute settlement system and updating the rulebook are critical steps for the WTO to reclaim its full strength and prevent a damaging erosion of multilateral cooperation. Its continued relevance hinges on the collective determination of its members to engage constructively and implement these necessary transformations.