Reviving the World Trade Organization

For Prelims: World Trade Organization, Free trade agreement, Most-Favoured-Nation (MFN)
Principle, General Agreement on Tariffs and Trade, Special and Differential Treatment

For Mains: Significance of the World Trade Organization in global trade, Challenges undermining the
relevance of the WTO.

Source: TH

Why in News?
The World Trade Organization (WTO), was designed to foster rules-based global trade. However,
instances of rising protectionism, the paralysis of its dispute settlement mechanism, and the
proliferation of preferential Free trade agreements (FTAs) have raised concerns over its continuing
relevance.

What are the Challenges Undermining WTO’s Relevance?

Paralysis of the Dispute Settlement Mechanism: The Appellate Body (the final court for
trade disputes), once a cornerstone of the WTO’s credibility, has been non-functional since 2019
due to the US blocking the appointment of new judges.
Dispute consultations peaked between 1995 and 2003, but after 2018, both dispute
settlement activities and appeals sharply declined due to the paralysis of the
Appellate Body.
This has weakened enforcement of global trade rules, encouraging "appeals into the void"
and eroding the rule-based order.
Negotiation Deadlock (Doha Round Failure): The Doha Development Round (started in
2001) aimed to make global trade fairer for developing countries.
But negotiations deadlocked over agriculture, market access, and subsidies. Limited
successes like the Trade Facilitation Agreement (TFA) and Fisheries Subsidies are
exceptions, not the norm.
Developed and developing countries had conflicting interests, and WTO could not reach
consensus under the "single undertaking" principle.
Erosion of the Most-Favoured-Nation (MFN) Principle: The WTO’s core principle
under Article 1 is the MFN rule, ensuring non-discriminatory trade among members.
However, FTAs are recognized exceptions to Article 1, provided they are notified to
and approved by the WTO.
The WTO’s weak scrutiny of FTAs has undermined the MFN system, as the rise of
bilateral and regional FTAs bypasses MFN obligations, fragments trade rules, and
sidelines the multilateral vision.
Rise of Protectionism and Trade Wars: The US-China trade war and use of unilateral
tariffs (e.g., by invoking "national security" under General Agreement on Tariffs and Trade
(GATT) Article XXI) undermined WTO principles.
 GATT Article XXI, the "security exception," permits WTO members to form trade rules to
safeguard essential security interests, including actions related to fissionable materials,
arms traffic, and wartime measures.
Countries increasingly resort to national security exceptions to justify protectionist
measures.
Inability to Address New Trade Issues: WTO rules lag behind emerging sectors such as digital
economy, e-commerce, green technologies, and data localization.
No comprehensive framework exists for regulating cross-border digital trade or climate-
related trade barriers.
Power Asymmetry Among Members: Developed countries (e.g., US, EU) push aggressive
reform agendas, while developing countries (like India, South Africa) resist due to fears of losing
development space.
Lack of equitable treatment in areas like agricultural support and intellectual
property rights widens North-South divides.
Geopolitical Rivalries Undermining Consensus: The growing tensions between the US and
China, the fallout from the Russia-Ukraine war, and the emergence of and strategic bloc
formations (e.g., Indo-Pacific Economic Framework (IPEF), BRICS initiatives) have
significantly reduced cooperation within the WTO.
Mega trade deals such as the Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP), and the Regional Comprehensive Economic
Partnership (RCEP), are creating alternative frameworks that impose stricter standards
on labor, environment, and digital rules.
As these agreements gain traction, the WTO risks becoming less central in global trade
governance.
Additionally, consensus-based decision-making in the WTO has become increasingly
difficult, further compounded by rising geopolitical mistrust.
Disagreement Over "Developing Country" Status: WTO members self-declare their status
as a "developing country" to receive Special and Differential Treatment (SDT).
The US and EU argue that big economies like China should not get the same benefits as
poorer countries, but there is no consensus on reform.
WTO and India: India's Minimum Support Price (MSP) for crops like rice and wheat often
exceeds the WTO's 10% subsidy cap of the crop's value, citing food security needs.
Additionally, India is reluctant to negotiate labor and environmental standards at
the WTO, preferring to address these issues bilaterally with the EU, UK, and US.
The failure of negotiations, especially on agricultural support, highlights the difficulty of
achieving consensus within the multilateral framework, reducing the WTO's relevance.

What is the Significance of WTO?

About: The WTO, established in 1995 under the Marrakesh Agreement (1994), following
the Uruguay Round of negotiations (1986-94), is headquartered in Geneva, Switzerland.
WTO is an international organization for liberalizing trade and serves as a forum for
governments to negotiate trade agreements. It succeeded the GATT, which had regulated
global trade since 1948.
GATT focused on trade in goods, while WTO covers trade in goods,
services, and intellectual property, including creations, designs, and
inventions.
Members: The WTO has 166 members, representing 98% of world trade. India has been a
member since 1995 and was part of GATT since 1948.
Membership is based on negotiations, ensuring a balance of rights and obligations for all
members.
Key WTO Agreements: TRIMS (Trade-Related Investment Measures), TRIPS (Trade-
Related Aspects of Intellectual Property Rights), and AoA (Agreement on Agriculture).
Key Reports: World Trade Report, Global Trade Outlook and Statistics, Aid for Trade in Action.
Significance: Since 1995, the real volume of world trade has expanded by 2.7 times, with
average tariffs halving from 10.5% to 6.4%, reflecting a significant lowering of trade barriers.
WTO facilitated growth in global trade, with the value of world trade nearly quadrupling
since its establishment.
It created predictable market conditions enabling the rise of global value chains (GVCs),
 which now account for almost 70% of total merchandise trade.
WTO helped in poverty reduction with the extreme poverty rate reduced from over 33% in
1995 to under 10% by 2020.
Despite global tensions, the WTO remains a central body for trade rules, providing the
Global South with a platform through equal voting rights and access to dispute resolution,
ensuring their voice is heard in global trade negotiations.

How WTO Can Be Revived in a Multipolar World?

Move Beyond Trade Liberalization: The WTO must evolve from being merely a trade
liberalization body to becoming a guardian of equitable globalization, ensuring trade
supports developmental, environmental, and digital transitions.
Craft enforceable rules on digital trade, cross-border data flows, green subsidies, and
industrial policy to prevent fragmentation.
Recommendations from the Global Trade and Development Report (2023, UNCTAD)
stress that updating WTO frameworks is essential to manage emerging sectors like AI-
driven trade and environmental goods.
Restoring the Dispute Settlement System: Restore the Appellate Body by addressing key US
concerns such as clarifying limits to judicial overreach, introducing tighter timelines, and
ensuring respect for domestic policy space.
Redefining Special and Differential Treatment (SDT): To access SDT, countries should
move away from self-declaration of "developed" or "developing" status.
Eligibility should be based on dynamic criteria like GDP per capita, vulnerability indices,
and export competitiveness, using frameworks such as the World Bank's Income
Classification or the UN Vulnerability Index for fairer, updated development
 classifications.
Institutionalizing Trade-Climate Linkages: Build a WTO Framework on Climate-Compatible
Trade to align Carbon Border Adjustment Mechanisms (CBAMs) and green subsidies within
WTO norms.
Guarantee differential carbon transition periods for LDCs and developing countries to
ensure green standards are not used as new protectionist tools.
Creating a Permanent WTO Reform Council: A Standing WTO Reform Council, should be
established to propose systemic reforms every five years.
This will ensure that trade governance adapts to evolving technological, environmental,
and political realities.
Middle powers like India, Australia, the EU, Brazil, and South Africa can form a Coalition for
WTO Reform (CWR) to drive consensus on these necessary changes.

Conclusion
In an increasingly multipolar and fragmented world, the WTO's revival rests on its ability to become a
dynamic, inclusive, and resilient institution capable of balancing development needs, technological
transformations, and climate imperatives, while preserving the foundational principles of fair and rules-
based global trade.

Drishti Mains Question:

Discuss the challenges currently undermining the relevance of the World Trade Organization (WTO) and
suggest measures for its revival.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Prelims:

Q1. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and
Phytosanitary Measures’ and ‘Peace Clause’ appear in the news frequently in the context of
the affairs of the (2015)

(a) Food and Agriculture Organization

(b) United Nations Framework Conference on Climate Change

(c) World Trade Organization

(d) United Nations Environment Programme

Ans: C

Q2. In the context of which of the following do you sometimes find the terms ‘amber box, blue
box and green box’ in the news? (2016)

(a) WTO affairs

(b) SAARC affairs

(c) UNFCCC affairs

(d) India-EU negotiations on FTA

Ans: A
 Mains:

Q1. 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)

Q2. “The broader aims and objectives of WTO are to manage and promote international trade in the era of
globalisation. But the Doha round of negotiations seem doomed due to differences between the developed
and the developing countries.” Discuss in the Indian perspective. (2016)

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