Reviving the World Trade Organization | 28 Apr 2025

Source: TH 

Why in News? 

The World Trade Organization (WTO), was designed to foster rules-based global trade. However, instances of rising protectionism, the paralysis of its dispute settlement mechanism, and the proliferation of preferential Free trade agreements (FTAs) have raised concerns over its continuing relevance. 

What are the Challenges Undermining WTO’s Relevance? 

• Paralysis of the Dispute Settlement Mechanism: The  Appellate Body (the final court for trade disputes), once a cornerstone of the WTO’s credibility, has been non-functional since 2019 due to the US blocking the appointment of new judges.  
  • Dispute consultations peaked between 1995 and 2003, but after 2018, both dispute settlement activities and appeals sharply declined due to the paralysis of the Appellate Body. 
  • This has weakened enforcement of global trade rules, encouraging "appeals into the void" and eroding the rule-based order. 
• Negotiation Deadlock (Doha Round Failure): The Doha Development Round (started in 2001) aimed to make global trade fairer for developing countries. 
  • But negotiations deadlocked over agriculture, market access, and subsidies. Limited successes like the Trade Facilitation Agreement (TFA) and Fisheries Subsidies are exceptions, not the norm. 
  • Developed and developing countries had conflicting interests, and WTO could not reach consensus under the "single undertaking" principle. 
• Erosion of the Most-Favoured-Nation (MFN) Principle: The WTO’s core principle under Article 1 is the MFN rule, ensuring non-discriminatory trade among members. 
  • However, FTAs are recognized exceptions to Article 1, provided they are notified to and approved by the WTO. 
  • The WTO’s weak scrutiny of FTAs has undermined the MFN system, as the rise of bilateral and regional FTAs bypasses MFN obligations, fragments trade rules, and sidelines the multilateral vision. 
• Rise of Protectionism and Trade Wars: The US-China trade war and use of unilateral tariffs (e.g., by invoking "national security" under General Agreement on Tariffs and Trade (GATT) Article XXI) undermined WTO principles. 
  • GATT Article XXI, the "security exception," permits WTO members to form trade rules to safeguard essential security interests, including actions related to fissionable materials, arms traffic, and wartime measures. 
  • Countries increasingly resort to national security exceptions to justify protectionist measures. 
• Inability to Address New Trade Issues: WTO rules lag behind emerging sectors such as digital economy, e-commerce, green technologies, and data localization. 
  • No comprehensive framework exists for regulating cross-border digital trade or climate-related trade barriers. 
• Power Asymmetry Among Members: Developed countries (e.g., US, EU) push aggressive reform agendas, while developing countries (like India, South Africa) resist due to fears of losing development space. 
  • Lack of equitable treatment in areas like agricultural support and intellectual property rights widens North-South divides. 
• Geopolitical Rivalries Undermining Consensus: The growing tensions between the US and China, the fallout from the Russia-Ukraine war, and the emergence of and strategic bloc formations (e.g., Indo-Pacific Economic Framework (IPEF), BRICS initiatives) have significantly reduced cooperation within the WTO.  
  • Mega trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP), are creating alternative frameworks that impose stricter standards on labor, environment, and digital rules.  
  • As these agreements gain traction, the WTO risks becoming less central in global trade governance.  
  • Additionally, consensus-based decision-making in the WTO has become increasingly difficult, further compounded by rising geopolitical mistrust. 
• Disagreement Over "Developing Country" Status: WTO members self-declare their status as a "developing country" to receive Special and Differential Treatment (SDT). 
  • The US and EU argue that big economies like China should not get the same benefits as poorer countries, but there is no consensus on reform. 
• WTO and India: India's Minimum Support Price (MSP) for crops like rice and wheat often exceeds the WTO's 10% subsidy cap of the crop's value, citing food security needs. 
  • Additionally, India is reluctant to negotiate labor and environmental standards at the WTO, preferring to address these issues bilaterally with the EU, UK, and US.  
  • The failure of negotiations, especially on agricultural support, highlights the difficulty of achieving consensus within the multilateral framework, reducing the WTO's relevance. 

What is the Significance of WTO? 

• About: The WTO, established in 1995 under the Marrakesh Agreement (1994), following the Uruguay Round of negotiations (1986-94), is headquartered in Geneva, Switzerland.  
  • WTO is an international organization for liberalizing trade and serves as a forum for governments to negotiate trade agreements. It succeeded the GATT, which had regulated global trade since 1948.  
    • GATT focused on trade in goods, while WTO covers trade in goods, services, and intellectual property, including creations, designs, and inventions. 
• Members: The WTO has 166 members, representing 98% of world trade. India has been a member since 1995 and was part of GATT since 1948. 
  • Membership is based on negotiations, ensuring a balance of rights and obligations for all members. 
• Key WTO Agreements: TRIMS (Trade-Related Investment Measures),  TRIPS (Trade-Related Aspects of Intellectual Property Rights), and AoA (Agreement on Agriculture). 
• Key Reports: World Trade Report, Global Trade Outlook and Statistics, Aid for Trade in Action. 
• Significance: Since 1995, the real volume of world trade has expanded by 2.7 times, with average tariffs halving from 10.5% to 6.4%, reflecting a significant lowering of trade barriers. 
  • WTO facilitated growth in global trade, with the value of world trade nearly quadrupling since its establishment. 
  • It created predictable market conditions enabling the rise of global value chains (GVCs), which now account for almost 70% of total merchandise trade. 
  • WTO helped in poverty reduction with the extreme poverty rate reduced from over 33% in 1995 to under 10% by 2020. 
  • Despite global tensions, the WTO remains a central body for trade rules, providing the Global South with a platform through equal voting rights and access to dispute resolution, ensuring their voice is heard in global trade negotiations. 

How WTO Can Be Revived in a Multipolar World? 

• Move Beyond Trade Liberalization: The WTO must evolve from being merely a trade liberalization body to becoming a guardian of equitable globalization, ensuring trade supports developmental, environmental, and digital transitions. 
  • Craft enforceable rules on digital trade, cross-border data flows, green subsidies, and industrial policy to prevent fragmentation. 
  • Recommendations from the Global Trade and Development Report (2023, UNCTAD) stress that updating WTO frameworks is essential to manage emerging sectors like AI-driven trade and environmental goods. 
• Restoring the Dispute Settlement System: Restore the Appellate Body by addressing key US concerns such as clarifying limits to judicial overreach, introducing tighter timelines, and ensuring respect for domestic policy space. 
• Redefining Special and Differential Treatment (SDT): To access SDT, countries should move away from self-declaration of "developed" or "developing" status. 
  • Eligibility should be based on dynamic criteria like GDP per capita, vulnerability indices, and export competitiveness, using frameworks such as the World Bank's Income Classification or the UN Vulnerability Index for fairer, updated development classifications. 
• Institutionalizing Trade-Climate Linkages: Build a WTO Framework on Climate-Compatible Trade to align Carbon Border Adjustment Mechanisms (CBAMs) and green subsidies within WTO norms. 
  • Guarantee differential carbon transition periods for LDCs and developing countries to ensure green standards are not used as new protectionist tools. 
• Creating a Permanent WTO Reform Council: A Standing WTO Reform Council, should be established to propose systemic reforms every five years.  
  • This will ensure that trade governance adapts to evolving technological, environmental, and political realities.  
  • Middle powers like India, Australia, the EU, Brazil, and South Africa can form a Coalition for WTO Reform (CWR) to drive consensus on these necessary changes.

Conclusion

In an increasingly multipolar and fragmented world, the WTO's revival rests on its ability to become a dynamic, inclusive, and resilient institution capable of balancing development needs, technological transformations, and climate imperatives, while preserving the foundational principles of fair and rules-based global trade.