Trade multilateralism at risk

The World Trade Organization is facing an existential crisis

October 07, 2021 12:47 am | Updated 12:50 am IST

Getty images/istockphoto

Getty images/istockphoto

The World Trade Organization (WTO) — the global trade body — is facing a serious existential crisis. The upcoming WTO ministerial meeting scheduled for next month in Geneva provides an opportunity to rescue this critical global institution from irrelevance. Created in 1995, during the heyday of neoliberalism, the WTO became a shining example of triumphant free-market capitalism. It championed a rule-based multilateral trading order. Critics of neoliberalism chastised the WTO for pushing the American imperialist agenda. Paradoxically, more than two-and-a-half decades later, the United States, which played a pivotal role in establishing the WTO, seems to have lost interest in it. The feeling in Washington is that the WTO hasn’t served the American national interest by failing to stem China’s rise and regularly indicting the U.S. in several trade disputes. President Joe Biden, notwithstanding his credentials as an internationalist, has continued with the same policy towards the WTO that Donald Trump practised.

The continuation of the U.S. policy on the WTO is most evident in the sustained crippling of the Appellate Body (AB). The AB is part of the WTO’s dispute settlement mechanism, also known as the “crown jewel” of the organisation. It is a permanent body with seven members, and acts as an appellate court hearing appeals from the decisions given by WTO panels. Three out of seven AB members serve on any one case. However, since December 2019, the AB has stopped functioning due to rising vacancies. Over the years, the U.S. has consistently blocked the appointment of AB members. Not just this, the U.S. also vetoes proposals to find solutions to this impasse, including stalling the proposal of the European Union to establish an alternative interim appellate arbitration mechanism. The number of pending appeals to the AB has increased sharply to around 20 cases. Countries now have an easy option not to comply with the WTO panel decisions by appealing into the void. Accordingly, they can continue with their defiance of WTO obligations. If no solution is found soon, the WTO’s rules-based order will start crumbling.


Other challenges

Additionally, there are four other compelling challenges that the WTO faces. First, no solution has been found to the public stockholding for food security purposes despite a clear mandate to do so in the 2015 Nairobi ministerial meeting. This is of paramount concern for countries like India that use Minimum Support Price (MSP)-backed mechanisms to procure foodgrains. The WTO rules allow countries to procure, stock and distribute food. However, if such procurement is done at an administered price such as the MSP that is higher than the external reference price, then the budgetary support provided shall be considered trade-distorting and is subject to an overall cap. With rising prices and the need to do higher procurement to support farmers and provide food to the poor at subsidised prices, India might breach the cap. Although countries have agreed that legal suits will not be brought if countries breach the cap (the so-called ‘peace clause’), it is imperative to find a permanent solution such as not counting MSP-provided budgetary support as trade-distorting.

Second, the WTO member countries continue to disagree on the need of waiving the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement for COVID-19 related medical products. It was exactly a year back when India and South Africa proposed a TRIPS waiver to overcome intellectual property (IP)-related obstacles in increasing accessibility of COVID-19 medical products, including vaccines. With large parts of the world still unvaccinated and with IP acting as an important barrier to vaccines and drugs, the WTO needs to rise up to the challenge and adopt a waiver in the upcoming ministerial meeting.

Third, the WTO is close to signing a deal on regulating irrational subsidies provided for fishing that has led to the overexploitation of marine resources by countries like China, which is the largest catcher and exporter of fish. However, this agreement should strike a balance between conserving ocean resources and the livelihood concerns of millions of small and marginal fishermen in countries like India. In this regard, an effective special and differential treatment provision that accords adequate policy space is what India and other developing countries should insist on. Fourth, the gridlock at the WTO has led to the emergence of mega plurilateral trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — a trade treaty between 11 countries, which China is now keen to join. Another key trade treaty is the Regional Comprehensive Economic Partnership (RCEP) agreement between powerful Asian economies and countries down under. These mega plurilateral agreements not only fragment the global governance on international trade but also push the multilateral order to the margin, converting the WTO to what some call an “institutional zombie”.


Prime Minister Narendra Modi, during his recent U.S. visit, rightly pleaded for a rule-based global order. Institutional multilateralism would be the ideal antidote to mounting unilateralism and economic nationalism. The WTO is the finest example of such a rule-based multilateral order in trade. Notwithstanding its flaws, the WTO is the only forum where developing countries like India, not party to any mega plurilateral trade agreements, can push for evolving an inclusive global trading order that responds to the systemic imbalances of extant globalisation. What is at stake is the future of trade multilateralism and not just an institution, in which India has a huge interest.

Prabhash Ranjan is Professor and Vice Dean, Jindal Global Law School, O.P. Jindal Global University

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