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Mentor’s Comment:   Donald Trump’s “reciprocal tariffs” have been compared to the Smoot-Hawley tariffs of the 1930s, which are believed to have worsened the Great Depression. The key difference today is that we have the World Trade Organization (WTO) to manage and enforce global trade rules. However, some believe that over time, the WTO has lost its direction and needs significant reforms.

Today’s editorial examines the relevance of the WTO in the current global context. This content will be useful for GS Paper 2 (International Institutions) and GS Paper 3 (Economy).

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Let’s learn!

Why in the News?

Over time, the WTO has become less effective and lacks clear direction, with many believing it requires major reforms to better manage and enforce global trade rules in the current world.

What are the main functions of the WTO?

• Negotiating Trade Agreements: The WTO provides a platform for member countries to negotiate and revise global trade rules aimed at reducing trade barriers (tariffs, quotas, etc.). Eg: The Doha Development Round was launched in 2001 to negotiate issues like agricultural subsidies and market access for developing countries.
• Settling Trade Disputes: The WTO’s Dispute Settlement Mechanism (DSM) resolves trade conflicts between countries based on agreed rules. Eg: The U.S.–EU Banana Dispute, where the U.S. challenged the EU’s import regime for bananas, was resolved through the WTO dispute system.
• Monitoring and Reviewing National Trade Policies: The WTO monitors trade policies of member nations to ensure transparency and consistency with WTO rules. Eg: The Trade Policy Review Mechanism (TPRM) allows regular scrutiny of each member’s trade practices — for instance, India’s trade policy is reviewed every 4-5 years under this mechanism.

Why is it struggling to fulfil them?

• Stalemate in Trade Negotiations: Consensus-based decision-making often leads to deadlocks, especially between developed and developing countries. Eg: The Doha Round has been stalled for years due to disagreements on agricultural subsidies and market access.
• Crisis in the Dispute Settlement System: The Appellate Body (WTO’s top court) has been non-functional since 2019 because the U.S. blocked the appointment of new judges, citing bias and overreach. Eg: Over 20 trade disputes remain unresolved, weakening trust in WTO’s ability to enforce rules.
• Rise of Protectionism and Plurilateralism: Countries increasingly prefer regional or bilateral agreements, bypassing WTO rules. Also, rising protectionism (e.g. tariffs, export bans) undermines multilateral trade. Eg: The U.S.–China trade war and RCEP (Regional Comprehensive Economic Partnership) are signs of countries drifting away from WTO-centered trade governance.

Why has the WTO’s Appellate Body become dysfunctional?

• U.S. Block on Judge Appointments: The United States has repeatedly blocked the appointment of new judges, alleging judicial overreach and bias against U.S. interests. Eg: As of 2019, the Appellate Body lacked the minimum three judges required to hear appeals, halting its operations.
• Allegations of Judicial Overreach: Critics, especially the U.S., claim the Body has exceeded its mandate by creating new obligations not agreed upon by member states. Eg: In disputes like U.S.–Antidumping Measures, the Appellate Body was accused of “interpreting” rules rather than just applying them.
• Delays in Rulings and Case Backlog: The Appellate Body has been criticized for delays in delivering rulings, often exceeding the 90-day deadline, leading to a growing backlog. Eg: In cases like the EU–Airbus dispute, delayed rulings undermined timely dispute resolution.

How has the MFN principle weakened?

• Rise of Bilateral and Regional Trade Agreements: Countries increasingly prefer bilateral or regional trade agreements (FTAs) over WTO multilateral negotiations, which often bypass the MFN principle. Eg: RCEP (Regional Comprehensive Economic Partnership) and USMCA (United States-Mexico-Canada Agreement) offer preferential treatment to members, sidelining MFN principles.
• Protectionist Measures by Major Economies: The U.S. and other major economies have imposed unilateral tariffs and trade measures, undermining the non-discriminatory nature of the MFN principle. Eg: The U.S. Section 232 tariffs on steel and aluminum were applied globally, but countries like the EU and Canada were exempted, contradicting MFN rules.
• China’s Trade Practices: China’s practices in trade, such as subsidizing domestic industries and restricting foreign market access, have raised concerns about compliance with MFN, as they distort fair trade. Eg: The U.S.–China trade war involved tariffs on Chinese goods despite China’s MFN status at the WTO.
• Decreasing Role of the WTO in Enforcing MFN: The WTO’s inability to enforce the MFN principle effectively, particularly with its dysfunctional dispute settlement mechanism, has weakened its role in global trade governance. Eg: In the India–U.S. solar panel dispute, the U.S. imposed tariffs on Indian solar panels despite the MFN rule, and the dispute resolution was delayed.
• FTAs and Evasion of MFN Obligations: Many countries have opted for free trade agreements (FTAs), which offer preferential trade treatment to signatories, making it easier to bypass MFN obligations for non-signatories. Eg: India has entered into FTAs with several countries, such as ASEAN, which offer preferential tariffs and benefits not extended to other WTO members, violating MFN principles.

How did the launch of the Doha Round contribute to this decline?

• Overly Ambitious Mandate: The Doha Round, launched in 2001, aimed to address a wide range of issues, including agricultural subsidies, tariffs, and market access. This broad agenda led to mismatched expectations and difficulties in reaching agreements, causing the talks to stagnate. Eg, despite extensive negotiations, no consensus was reached on key issues like agricultural subsidies, which frustrated many member countries.
• Challenges with China’s Accession: When China joined the WTO in 2001, there was insufficient foresight regarding the challenges its integration would pose. China’s growing dominance in global exports, especially in sectors like steel and cement, created trade imbalances and undermined the WTO’s ability to manage its impact. Eg, the WTO rules were not equipped to handle such issues, leading to frustration, particularly from the U.S.
• Failure to Lower Tariffs: The Doha Round aimed to reduce tariffs on a multilateral basis, but negotiations failed to gain traction. Eg, the U.S. had already lowered its tariffs significantly, but other countries, particularly India, were unwilling to reciprocate. This lack of progress on tariff liberalization further highlighted the WTO’s inability to deliver on its promises, contributing to its declining relevance.

Who is responsible for the collapse of key trade negotiations ? 

• Developed Countries’ Reluctance to Reduce Agricultural Subsidies: Developed nations, especially the U.S. and EU, were unwilling to significantly cut their domestic farm subsidies, which distorted global prices and affected developing countries’ exports. Eg: In the Doha Development Round, talks stalled because the U.S. refused to reduce subsidies that gave an unfair advantage to its farmers.
• Developing Countries’ Demand for Greater Policy Space: Countries like India, Brazil, and South Africa demanded flexibilities to protect their poor farmers and industries, which was resisted by developed nations. Eg: India’s push for a permanent solution on public stockholding for food security clashed with U.S. and EU positions, contributing to the deadlock.
• Consensus-Based Decision-Making Slowing Progress: The WTO follows a consensus model, requiring all 164 members to agree, making it difficult to conclude negotiations when interests diverge widely. Eg: In the Nairobi Ministerial Conference (2015), the failure to achieve consensus on the future of the Doha Round led to its effective collapse.

What role has India played?

• Advocating for Food Security and Agricultural Subsidies: India has strongly opposed any restrictions on agricultural subsidies and public stockholding for food security, fearing it would hurt its poor farmers. Eg: India led the opposition to a proposed agreement on agricultural subsidies during the Doha Round and sought a permanent solution for public stockholding, which stalled the negotiations.
• Pushing for Development Concerns of Poorer Countries: India has consistently championed the interests of developing nations at the WTO, advocating for greater policy flexibility in trade-related matters such as industrialization and agriculture. Eg: India was vocal in demanding special and differential treatment for developing countries and resisted any trade reforms that might harm their domestic industries, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
• Defending Sovereignty in Trade and Investment: India has often resisted foreign investment liberalization measures and binding international rules on labor standards and environmental regulations that it believes could undermine national sovereignty. Eg: India rejected proposals in the Doha Development Agenda that could have led to binding agreements on labor standards and environmental protections, fearing they could impose undue burdens on its developing economy.

Way forward: 

• Reform Dispute Settlement Mechanism (DSM): The WTO needs to revive and strengthen the Appellate Body by addressing issues such as judge appointments and allegations of judicial overreach, ensuring its effectiveness in resolving disputes and maintaining trust in the multilateral system. Eg: A compromise on U.S. concerns could be explored to restart the Appellate Body’s functioning.
• Enhance Flexibility for Developing Nations: The WTO should allow more policy flexibility for developing countries in areas like agriculture and food security, while balancing global trade interests. This could encourage inclusive negotiations and help prevent deadlocks, addressing concerns such as those raised by India in the Doha Round. Eg: Promoting a permanent solution for public stockholding in agriculture could lead to greater participation from developing nations.