Global trade is shifting away from the WTO framework

Source: The post Global trade is shifting away from the WTO framework has been created, based on the article “Is the World Trade Organization still relevant?” published in “The Hindu” on 25 April 2025.

UPSC Syllabus Topic: GS Paper2-Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.

Context: The global trading system faces a critical moment as multilateral institutions struggle to remain effective. Tariff-based trade policies, shifting alliances, and structural limitations have raised doubts about the relevance of the World Trade Organization (WTO).

For detailed information on Major issues with the WTO: A requiem for the WTO read this article here

Decline in Core Functions of the WTO

1. Structural Flaws and Mismatched Goals: The Doha Round had overambitious and unrealistic targets. The entry of China was poorly integrated, and existing rules failed to address its trade behaviour. Countries grew frustrated as tariff negotiations failed to reduce disparities. The lack of progress weakened trust in the system.
2. Collapse of Negotiation, Monitoring, and Dispute Resolution: The WTO no longer performs its key roles. Negotiations broke down after the Doha Round. Only one multilateral agreement on fisheries was reached, and it remains unfinished. The appellate body, the highest trade court, became inactive due to blocked appointments. Trade monitoring is ineffective as many members withhold data on their trade actions.

Inability to Prevent Economic Crisis

1. Consensus-Based Reform Blocked by Members: Reforms are stalled because decision-making requires consensus. Attempts to shift to voting were blocked by key members. Proposals like arbitration for dispute resolution lack broad support. No legal way exists to force members to reveal their trade measures, undermining the monitoring system.
2. Lack of Global Crisis Response Mechanism: The WTO cannot stop an economic crisis caused by tariffs. It is not a space where countries can come together, speak frankly, and find solutions in emergencies.

Breakdown of MFN Principle

1. FTAs Undermining WTO Rules: The Most-Favoured-Nation (MFN) principle, the foundation of the WTO, is being bypassed. Countries increasingly use Free Trade Agreements (FTAs), which face minimal review. These agreements weaken the multilateral framework.
2. Tariff Imbalance and Shift to Bilateralism: One major country reduced its tariffs significantly over multiple rounds, expecting others to follow. When that didn’t happen, it turned to bilateral deals. Tariffs under sections 232 and 301 were introduced and maintained. The shift away from MFN became bipartisan and long-lasting.

Agricultural Disputes and India’s Opposition

1. Failure to Resolve Key Agricultural Issues: Talks on fisheries, subsidies, and food stockpiling remain deadlocked. Some developing countries do not share India’s concerns, making consensus harder. These issues have become too complex for bilateral deals.
2. Domestic Constraints on Subsidy Negotiations: India opposes many proposals on agriculture due to political and food security concerns. While large economies provide high subsidies, India remains limited to 10%. The WTO did not accommodate such disparities.

WTO’s Weakness in Handling China’s Impact

1. Overcapacity and Market Disruption: The WTO could not predict the scale of overcapacity. One country’s ability to produce more than half the global steel and cement disrupted markets without breaking any rules.
2. Inadequate Rules for Modern Trade: Current rules do not cover many trade-distorting actions. This loophole has damaged the credibility and effectiveness of the multilateral trading system.

Question for practice:

Discuss how structural limitations and geopolitical shifts have contributed to the decline of the World Trade Organization.