World Trade Organisation – Relevance & Challenges – Explained Pointwise

One of the major global headwinds casting a shadow on the international trade is the ‘reciprocal tariffs’ which have been imposed by the US President Donald Trump to punish the countries, including some of the closest trading partners of America. These tariffs, also known as the ‘Trump Tariffs’, have been compared to the Smoot-Hawley Tariffs of 1930 – which is believed to had hastened the slide into the Great Depression.
However, unlike the 1930s, the world today has an international organisation, called WTO, regulating the international trade according to a rule-based order. However, many have also argued that the WTO has lost its relevance in the present period. Thus, in this article we will try to discuss the achievements of WTO, the challenges that it is currently facing & what could be the reforms that should be brought in it.

What is WTO?

The World Trade Organization (WTO) is the primary international organization governing the rules of trade between nations. It was established in 1995, replacing the General Agreement on Tariffs and Trade (GATT), which had been in effect since 1948.

Principles: The WTO operates on several core principles such as:

• Non-discrimination:
  • Most-Favoured-Nation (MFN): Treating all trading partners equally.
  • National Treatment: Treating foreign products, services, and nationals no less favorably than domestic ones.
• Reciprocity: Countries should aim to lower trade barriers in exchange for similar concessions from other countries.
• Trade Liberalization: Gradual reduction of tariffs and quotas.
• Binding Commitments: Countries’ commitments to open markets are binding and enforceable.
• Transparency: Member countries are required to publish their trade regulations. WTO collects and shares trade information among members.
• Dispute Settlement: Provides a legal and institutional framework for resolving trade conflicts

What have been the achievements of WTO?

1. Facilitation of International Trade- Binding rules for global trade in goods and services have facilitated dramatic growth in cross-border business activity. The real volume of world trade has expanded by 2.7 times since the inception of WTO.

2. Forum for Negotiations: It serves as a platform for countries to negotiate new trade agreements and address trade-related issues, promoting ongoing trade liberalization.

3. Reduction in Tariffs- After the creation of WTO, average tariffs have almost halved, from 10.5% to 6.4%. This has facilitated the growth of International trade.

4. Boost to national incomes- Accession to WTO has given a lasting boost to national income of several developing economies.

5. Rise of global value chains- The predictable market conditions fostered by the WTO have combined with improved communications to enable the rise of global value chains. Trade within these global value chains today accounts for almost 70% of total merchandise trade.

6. Reduction in poverty- The free and fair trade principles has also contributed to reduction in world poverty levels. Taking into account, the World Bank’s $1.90 threshold for extreme poverty, the poverty level has fallen from ~33.33% in 1995 to ~10% today.

7. Dispute settlement: The Dispute Settlement Body (DSB) of WTO provides a rules-based system to resolve trade conflicts. It has handled over 600 disputes, many involving major powers like the US, EU, and China. It has helped in avoiding the trade wars and ensures compliance with international norms so far.

8. Support for Developing Nations: WTO has provided technical assistance, training, and special provisions to developing countries which has helped them in developing their capacities. It has allowed longer timeframes and flexibilities to them in implementing trade agreements. It has also launched the Aid for Trade initiative to help the least-developed countries (LDCs).

9. Trade Policy Review: The WTO reviews national trade policies to ensure transparency and compliance with WTO regulations, fostering greater openness in trade practices.

What are the challenges and key areas of reforms for WTO today?

The WTO was expected to perform 3 functions – the negotiating function, the dispute settlement function, and the trade monitoring function. It has been struggling to perform any of them.

1. Stalemate in Trade Negotiations (Doha Round Failure): The Doha Development Round, launched in 2001, aimed to improve trade conditions for developing countries. It failed to reach consensus due to deep disagreements between:

• Developed nations (pushing for access to developing markets)
• Developing nations (seeking agricultural subsidies reform).

The failure reflects the WTO’s inability to adapt to evolving global dynamics.

2. Bias Towards Developed Countries: WTO rules are often seen as favoring the economic interests of rich nations. Developed countries continue to provide massive agricultural subsidies (e.g., EU, US), while pressuring developing nations to open up markets. This has led to growing North-South tensions within the WTO framework.

3. Rising Protectionism and trade restrictions:

• MFN (Most Favoured Nation) principle is the bedrock of WTO & hence it was included as Article 1 in the Agreement. However, many countries (especially developed countries) are now stepping away from the MFN because according to them the trade liberalization has not happened as much as they were expecting, Moreover, they are finding it easier to negotiate on tariffs bilaterally by signing FTAs rather than at WTO.
• Trade restrictions by the developed and advanced economies has affected international trade (~$747 billion in global imports), and postponement of investment by businesses. WTO has not evolved into a forum to find a solution out of such kind of economic crisis.

4. Failure of dispute resolution mechanism (DSM)- There has been a lack of consensus among the members regarding the reforms of the Appellate Body. The appointment of nominees to WTO’s appellate body has at times been blocked by developed countries, paralyzing the WTO as a judge and enforcer of global trade rules. For ex- US has been blocking appointments to the Appellate Body since 2019. 

5. Trade distortion by misusing the Special and Differential Treatment (S&DT)- Provisions for agricultural and industrial subsidies have been misused by many developed countries, causing trade distortions. High income countries like South Korea and China have mis-utilised the concessions of developing countries, as developing countries are defined based on ‘self-declaration’.

6. Shift to Plurilateral Agreements- There has been a shift towards plurilateral agreements like the TPP Agreement. Plurilateral Agreements favour developed countries more as they are able to push their interests (developing countries have less negotiating power) unlike WTO where all agreements happen through consensus.

7. Lack of consensus- WTO works on the principle of consensus-based decision making which often leads to deadlock & inaction. Moreover, there is lack of consensus on  WTO reforms. For e.g. on one hand, the countries of Global South demand rationalization of fisheries subsidies, handholding of their public stockholding programs. On the other hand, developed nations have put their old obligations on the back-burner and are pushing the WTO to form rules on e-commerce, an area where they have a clear edge. Due to slow bureaucratic process of WTO, it takes years to complete the negotiations & bring reforms, making the WTO too slow to respond to modern trade issues like: E-commerce, Digital services, Climate-related trade policies.

8. Lack of Support for Least Developed Countries (LDCs): Despite promises, LDCs struggle to access global markets due to: Complex rules, High compliance costs & Limited representation in negotiations. WTO has not fully delivered on its development agenda.

9. Lack of Transparency: WTO negotiations are often criticized for being opaque, with limited input from civil society and smaller countries. The process is seen as undemocratic, favoring the interests of richer members.

10. China-factor: WTO has been criticized to allow China to flood the global markets with its cheap exports, but simultaneously restricted access to its domestic markets. WTO rules were highly inadequate to anticipate that how one country can produce more than 50% of steel & would flood the market &  able to distort the trade – without violating the WTO rules, but clearly undermining the integrity of multilateral trading system.

11. India-specific challenges:

• WTO required the participating members to reduce their domestic subsidies on agriculture sector.  However, agriculture is a politically sensitive issue for any government in India. Moreover, for country like India, which relies on domestic production, to limit its subsidies to just 10% will limit its developmental needs & raise food security concerns.
• India’s large-scale public stockholding programs for food security have been contentious at the WTO, as other members argue these programs distort global trade. The “Peace Clause” offers temporary protection, but a permanent solution remains elusive, leaving India’s food security policies vulnerable to challenge.
• India has opposed recent plurilateral initiatives (agreements among subsets of WTO members) on issues such as investment facilitation, arguing there is no mandate for such negotiations. This stance has isolated India and is seen as obstructing the WTO’s ability to address emerging trade topics like digital trade, climate, and labor standards.
• India’s competitive advantage in services (IT, finance, education) is often hampered by barriers in developed markets, including visa restrictions (e.g., H-1B visas in the US). Negotiations under the General Agreement on Trade in Services (GATS) have not yielded sufficient gains for India’s service exporters.
• The WTO’s TRIPS agreement poses challenges for India’s generic pharmaceutical industry, which is vital for affordable medicines both domestically and globally. Stringent patent rules can restrict India’s ability to produce generics, impacting public health.
• Developed countries frequently use non-tariff barriers, such as sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT), which Indian exporters find costly and difficult to comply with. These requirements often necessitate significant investment in infrastructure and standards compliance, putting Indian producers at a disadvantage.
• India often faces an asymmetry in negotiating power against developed countries, making it challenging to advance its interests effectively. To counter this, India builds coalitions with other developing countries, but this sometimes leads to a perception of obstructionism.

What are the suggested WTO reforms? 

1. Dispute Settlement System Revival:

• Restore Appellate Body Functionality: Simplify procedures, reduce costs, and improve transparency. Clearer timelines, stricter compliance with rulings, and safeguards against overreach.
• De-politicization of Appointment process- The appointment process to dispute settlement body should be made independent of political control.
• Interim Solutions: Some members propose alternative dispute resolution mechanisms (e.g., mediation) while addressing Appellate Body paralysis.
• Dispute settlement reform- Expanding the Appellate Body panel from seven to nine judges, redefining membership of the Appellate Body from part-time to full-time, and allocating more resources to the Appellate Body Secretariat.

2. Special and Differential Treatment (SDT) Reform:

• Objective Criteria: Replace self-declared developing-country status with metrics like GDP per capita, trade share, and human development indicators.
• Graduation Mechanism: Phase out SDT benefits for advanced developing economies (e.g., G20 members) while retaining protections for LDCs

3. 30 for 30- India had earlier issued a comprehensive proposal called “30 For 30”. It was to bring at least 30 operational improvements to the WTO before the Organization completes 30 years, that is by 1 January 2025. A year long cooling-off period before hiring a diplomat in any role in the organization, resolving old issues before picking up new ones, and a time-bound work programme to make dispute settlement more accessible for developing countries are some of the suggested operational improvements.

4. New rules on emerging trade domains- There must be consensus based new agreements on emerging trade domains like electronic commerce, investment facilitation, domestic regulation in services. It will make trade more efficient and predictable in cutting-edge sectors of the economy.

5. Increasing participation in global trade- Efforts must be made to make it easier, safer and viable for women and smaller businesses to participate in global trade. This would help make trade more inclusive.

6. Reforming the voting process- Clear guidelines must be spelt as to when a country may use its veto power. Veto usage needs to be weighed against the interests of all, and in light of the WTO’s mandate.

7. Independent panel as arbiter- An independent panel could play the role of arbiter, evaluating the competing claims and helping to overcome the political deadlock.

8. Increasing transparency- WTO members should proactively disclose their subsidies to develop trust and transparency among WTO members.

Conclusion:
However, despite these challenges, WTO remains essential, but without real reforms, its influence will continue to decline, and global trade may become more fragmented and unstable. WTO reform is not just about fixing broken systems—it’s about revitalizing global trust in a fair and inclusive multilateral trading order.