IS THE WORLD TRADE ORGANIZATION STILL RELEVANT?

THE CONTEXT: 2025 debate over U.S. “reciprocal tariffs” evokes the 1930 Smoot-Hawley spiral, but the present era possesses the WTO’s legal architecture. Yet the WTO’s three original functions—negotiations, dispute settlement, and trade policy surveillance—are under stress, casting doubt on its continuing salience.

BACKGROUND & THEORETICAL FRAMEWORK

• • Established in 1995 as the successor to GATT (1947), WTO’s objectives included predictable trade liberalisation, non-discrimination (MFN/National Treatment), and binding dispute resolution.
  • Its architecture rests on three pillars: negotiation, dispute settlement, and trade monitoring — all of which are now undermined.
  • Key Agreements: Agreement on Agriculture (AoA), Subsidies and Countervailing Measures (SCM), Trade Facilitation Agreement (TFA).

HISTORICAL & THEORETICAL FRAMEWORK

GATT-1947 → WTO-1995	Core Norms	Intended Discipline	Current Status*
Most-Favoured-Nation (MFN)	Non-discrimination	Tariff bindings, transparency	Fraying via mega-FTAs & unilateral tariffs
Special & Differential Treatment (S&DT)	Equity	Longer transition, policy space	Graduated demands; pushback from U.S./EU
Dispute Settlement Understanding (DSU)	Rule-based enforcement	Two-tier adjudication	Appellate Body paralyzed since Dec 2019

CURRENT SCENARIO: MULTILATERALISM IN RETREAT

Function	Current Status
Negotiation	Doha Round collapsed; only partial success in Fisheries Agreement
Dispute Settlement	Appellate Body dysfunctional due to U.S. blockage of judge appointments
Trade Monitoring	Low transparency; major powers (e.g., China, U.S.) non-compliant on disclosures

WHY THE DRIFT? – MULTI-LAYERED DRIVERS BEHIND THE WTO’S INSTITUTIONAL CRISIS

1. Doha Mandate Mismatch: Agenda Overload and Normative Divergence

• • The WTO’s Doha Development Round (launched in 2001) promised a “single undertaking” to address agriculture reform, market access, IPR flexibility, special and differential treatment (SDT), environment, and trade facilitation. However, this multi-pronged agenda became unmanageable due to diverging North-South priorities.

• • Developed nations pushed for new issues like investment rules, competition law, and digital trade, while developing countries (e.g., India, Brazil, South Africa) sought food security exemptions, subsidy flexibility, and public stockholding safeguards.
  • The WTO’s single-consensus structure could not reconcile these normative and interest-based cleavages, resulting in the collapse of the round without a comprehensive outcome.

2. China’s State-Capitalist Surge and Structural Rule Gaps

• • The WTO failed to anticipate the scale and character of China’s economic ascent post-2001 accession. China’s non-market practices—including state-directed credit, hidden subsidies, forced technology transfer, and overcapacity—were not effectively addressable under existing WTO disciplines.

• • In 2024, China produced over 53% of global steel output, distorting global prices and harming small producers in developing economies.
  • WTO rules lack disciplines on excess capacity, unlike anti-dumping and countervailing measures, which are reactive.

3. U.S. Grievances and Strategic Retreat from Multilateralism

• • The U.S. has voiced long-standing discontent with the WTO’s tariff asymmetries, dispute settlement activism, and perceived loss of policy space.

• • U.S. simple average MFN tariff stands at ~2.4%, while India’s is ~13% (WTO Tariff Profiles, 2024), fueling perceptions of reciprocity deficit.
  • The Appellate Body (AB), especially post-2006, has been accused by the U.S. of “judicial overreach” by expanding interpretations beyond member consent—thus violating the non-legislative mandate of the DSM.
  • Under both Trump and Biden, the U.S. blocked appointments to the AB, rendering the DSM virtually dysfunctional since December 2019.

4. Consensus Rule Gridlock: Democracy or Dysfunction?

• • The WTO operates under a rigid consensus mechanism, where any one of the 164 members can veto decisions — effectively stalling reforms.

• • Reforming the Dispute Settlement Understanding (DSU) or introducing new agreements requires unanimity, not qualified majority.
  • In DSU talks, both India and the U.S. opposed voting reforms, fearing loss of veto leverage and legal autonomy, respectively.
  • This gridlock undermines institutional adaptability, making the WTO an outlier among multilateral institutions (e.g., IMF’s weighted voting).

5. Proliferation of FTAs and MFN Erosion

• • The MFN principle under Article I—the bedrock of non-discrimination—is being diluted by the exponential rise in regional and bilateral trade agreements.

• • As of 22 January 2025, 373 regional trade agreements (RTAs) are in force (WTO RTA Database), and over 52% of global merchandise trade occurs outside the MFN framework.
  • Countries prefer FTAs over WTO negotiations for speed, specificity, and strategic leverage, exemplified by India’s recent FTAs with UAE, Australia, and ongoing UK/EU talks.

U.S. “RECIPROCAL TARIFFS” – POTENTIAL SYSTEMIC SHOCK TO THE MULTILATERAL TRADING SYSTEM

1. MFN Erosion and Violation of WTO’s Foundational Norms

• • The Most-Favoured-Nation (MFN) principle under Article I of the GATT 1994 mandates non-discrimination in tariff treatment among WTO members. The recent S. “reciprocal tariff” doctrine, revived under Trump 2.0, openly proposes unilateral tariff hikes based on bilateral asymmetries — undermining MFN.

• • The use of Section 301 (retaliatory tariffs for IPR violations) and Section 232 (national security tariffs on steel/aluminium) already strained multilateral trust.
  • Blanket tariff formulas — like equalising U.S. tariff rates with those of trading partners — are de jure violations of Article I unless justified under Article XXI (national security exception), a provision meant for rare geopolitical exigencies.

2. Risk of a Smoot-Hawley Redux and Global Trade Retaliation Spiral

• • The 1930 Smoot-Hawley Tariff Act, which imposed punitive import duties on over 20,000 goods, is widely acknowledged by economists as a trigger for the Great Depression’s globalisation collapse. Today’s context holds similar systemic risks.

• • According to WTO’s Global Trade Outlook (April 2025), global merchandise trade volume is forecast to grow by just 2.6% in 2024 and 3.3% in 2025—both figures are highly susceptible to tariff-driven disruptions.
  • The IMF’s 2024 External Sector Report warned that every 1% increase in global tariffs could reduce global GDP by 0.4%, through demand shocks, input fragmentation, and capital market volatility.

3. Legal Ambiguity and the Weaponisation of Article XXI

• • The U.S. defence under Article XXI(b)(iii) (national security exception) for tariffs on steel/aluminium, and potential future sectors like semiconductors and EVs, risks setting a dangerous precedent for arbitrary protectionism.

• • The Russia-Transit case (DS512, 2019) was a rare instance where the WTO Appellate Body offered a minimalist interpretation of Article XXI — deferring to state discretion but maintaining a threshold of good faith.
  • The U.S. stance post-2018 has increasingly favoured self-judging interpretations of security, effectively undermining WTO adjudication authority and opening the floodgates for reciprocal weaponisation of trade law.

INDIA’S LOCATION IN THE MATRIX – CALIBRATED ENGAGEMENT WITH STRATEGIC HEDGING

1. Agriculture and MSP: The Structural Constraint and Developmental Dilemma

• • India’s core concern at the WTO has remained the preservation of its Minimum Support Price (MSP)-based procurement system and public stockholding for food security.

• • Under the Agreement on Agriculture (AoA), Article 6.4, India’s trade-distorting subsidies (AMS) are capped at 10% of the value of production (VoP) of a product. India consistently breaches this limit, but avails protection under the “peace clause” granted at the Bali Ministerial (2013).
  • India’s push for a “permanent solution” on public stockholding has stalled due to resistance from developed members, particularly the U.S. and EU, who claim it distorts global markets.

2. Digital Trade, Labour & Environmental Standards: Resistance at WTO, Flexibility in Bilaterals

• • India has adopted a dual-track approach to emerging “new issues” like e-commerce rules, data localization, labour rights, and green trade disciplines.

• • At the WTO, India has opposed plurilateral negotiations under the Joint Statement Initiative (JSI) on digital trade, citing policy space, digital sovereignty, and data localisation concerns.
  • However, India has shown calibrated flexibility in bilateral FTAs—notably in the India-EFTA TEPA (2024) and India-UAE CEPA (2022)—where it agreed to conditional chapters on sustainability, labour cooperation, and green transition financing.

3. Dispute Settlement Experience: Balancing Development Goals with Trade Obligations

• • India’s experience with the WTO Dispute Settlement Mechanism (DSM) reveals a growing friction between sovereign developmental policy and trade rules.

• • In India–Solar Cells, the U.S. successfully challenged India’s Domestic Content Requirements (DCRs) in solar projects under the National Solar Mission.
  • The WTO panel ruled that DCRs violated TRIMS and GATT Article III (National Treatment), forcing India to redesign its Power Purchase Agreements (PPAs) and shift to international competitive bidding models.
  • India argued the policy was part of its climate obligation under the Paris Agreement, but the WTO tribunal did not recognise climate obligations as a valid trade defence.

STRATEGIC ASSESSMENT

Domain	India’s Position	Strategic Rationale
Agriculture	Assertive defensive stance	Food security for ~800 million beneficiaries under NFSA
Digital Trade	Multilateral resistance; bilateral flexibility	Data localisation, digital tax autonomy
Labour/Environment	Selective engagement	Avoid WTO as forum for social clauses
Disputes	Pragmatic compliance	Use DSM selectively; promote climate exceptions

THE WAY FORWARD:

1. Restoration of DSM 2.0 – From Legal Paralysis to Procedural Credibility

• • Replace the defunct Appellate Body with a single-tier “Appeal-Review” mechanism, enforcing strict procedural deadlines and drawing from the EU-led MPIA (Multi-Party Interim Appeal Arbitration Arrangement)

2. Variable-Geometry Negotiations – Enabling Plurilateralism Without Fragmentation

• • Institutionalise plurilateral agreements with MFN-compatible opt-in clauses, allowing WTO members to proceed without full consensus, while still enabling eventual universalisation.

3. Re-calibrated S&DT (Special and Differential Treatment) – From Binary to Graduated Support

• • Replace the current binary “developed-developing” classification with objective indicators—per capita GNI (World Bank Atlas Method) + global export share thresholds—and targeted Aid-for-Trade support for LDCs.

4. Subsidy Transparency Dashboard – AI-Powered Real-Time Monitoring

• • Deploy an AI-integrated digital dashboard for real-time notification of agricultural and industrial subsidies, using customs data and cross-border invoice analytics.

5. Sustainable Trade Accord – Mainstreaming ESG Norms into Trade Rules

• • Embed core climate, labour, and gender equality standards into WTO through a Sustainable Trade Accord, linked to SDG 12 (sustainable consumption) and SDG 13 (climate action).

6. Consensus-Minus Administrative Voting – Preventing Institutional Paralysis

• • Amend WTO procedures to allow ¾ majority voting for administrative matters (budget, appointments, procedural rules) while retaining consensus for substantive rule-making.

THE CONCLUSION:

Re-imagined, the WTO can evolve from a 20th-century tariff-policing club into a 21st-century platform for sustainable, digitally enabled and inclusive commerce. India must partner middle powers to convert this inflection point into an era of resilient, rules-based and equitable globalisation.

UPSC PAST YEAR QUESTION:

Q. What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? 2018

MAINS PRACTICE QUESTION:

Q. The crisis of the World Trade Organization is not one of “relevance”, but of “reform”. Critically analyse the systemic dysfunctions in the WTO and suggest institutional reforms to restore its legitimacy.

SOURCE:

https://www.thehindu.com/opinion/op-ed/is-the-world-trade-organization-still-relevant/article69488005.ece#:~:text=The%20difference%20between%20the%201930s,in%20need%20of%20massive%20reforms.

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