The World Trade Organisation on life support: Can it survive the global trade turmoil?

The World Trade Organisation (WTO) was born in the 1990s as a symbol of globalisation. It was said that the world is like a village and, therefore, the unhindered free flow of not only goods and services but also capital should be ensured so that the cheapest goods and services can be made available to people across nationalities. It was also said that the free flow and adequate availability of capital would improve the possibilities of development in developing countries as well. The specialty of the WTO was that, through it, the conduct of international trade was made rule-based. That is, if a country was not behaving in accordance with WTO agreements—imposing higher tariffs or placing barriers or obstacles on goods coming from foreign countries against WTO rules—then legal action could be taken against that country.

However, from the very beginning, developing countries were apprehensive about the stated benefits of the WTO because they felt they would not be able to protect their industries and agriculture properly through tariffs and other barriers against competition from highly subsidized agricultural products from foreign countries. Not only this, but it would no longer be possible to safeguard the economy from the adverse effects of agreements related to TRIPS, TRIMS, services, and agriculture, especially those concerning health security, agricultural security, and industrial security.

Most economists applauded rule-based international trade as a boon due to the benefits arising from the formation of the WTO and the unhindered movement of goods and services. However, the disadvantages caused by the new agreements made under GATT in that era of globalisation were either not studied properly or were ignored.

For the past eight years, since Donald Trump first took office as President of the USA, the WTO—which was a major tool for conducting global trade—has been losing its relevance. The decisions taken by Trump at the very beginning of his second term further accelerated the WTO's decline. Concerns are being expressed worldwide about its future. Interestingly, those who once considered the WTO a symbol of human welfare, development, and smooth global trade are now debating how soon the WTO will meet its end.

There is no doubt that the World Trade Organisation is now paralyzed. The process of its paralysis began with the Doha Development Round, initiated at the WTO Ministerial Conference in Doha. At this conference, developing countries raised the issue that since developed countries are economically strong, the development process in developing nations is obstructed due to unequal trade. Therefore, international trade rules needed to be amended to accelerate the development of developing countries. This led to the Doha Development Round discussions within the WTO. However, developed countries had no interest in this, and due to their indifference, the Doha Development Round ended without a conclusion. Developing countries, including India, were obviously disillusioned with the WTO.

But it was not just that developed countries were indifferent to the problems of developing nations—the US developed the belief that it had already gained all it wanted from the WTO. American corporations were now receiving much more in royalties and technical fees than before, as the intellectual property regime post-WTO establishment favoured companies—mostly American ones—that owned the majority of patents and other intellectual property rights. US companies gained ample opportunities to invest in developing countries, and American agricultural products began to enjoy unprecedented market access in these nations. However, after China's entry into the WTO in 2001 and its subsequent economic rise, Chinese goods started dominating US markets, leading to a massive US trade deficit with China. The US also began to grumble that, due to the WTO's dispute settlement system, it was losing many trade disputes with other member countries.

In the past, America made financial contributions to various international institutions, including numerous United Nations organisations, the World Health Organisation, the World Bank, and the International Monetary Fund. However, since Donald Trump first became President, the US began to feel that financing these institutions with American taxpayers' money was not in its best interest. As part of its strategy, America obstructed the appointment of judges in the World Trade Organisation. As a result, the WTO’s dispute settlement system became almost paralyzed. It is well known that the dispute settlement process is an integral part of the WTO’s rule-based system. Consequently, ensuring compliance with WTO rules by member countries has become increasingly difficult. It can be said that the WTO has been weakening due to the apathy of the US and even its allies.

In successive ministerial conferences of the WTO, it has become evident that the US has lost interest in the organisation. But at a time when developing countries—including most of the world except China—have not only suffered industrially due to their markets being flooded with Chinese products but have also lost their freedom to make laws for public health and international trade under the guise of free trade and globalisation, the WTO was their only tool for accessing global markets. In this situation, they have continuously worked through WTO conferences to make the organisation effective.

However, with Donald Trump returning to power in the US, the very existence of the WTO is now in danger. After assuming office, Trump launched a frontal attack on the global free trade system. The same America that once championed the WTO’s negotiations, formation, and free trade advocacy is now pushing for protectionism. The US argues that since other countries impose higher tariffs, it will also impose higher import duties under what Trump calls "reciprocal tariffs." With the declaration of this tariff war, the relevance of the WTO is eroding.

It is important to note that, at the time of the WTO's formation, India and other developing countries were granted flexibility, allowing them to maintain higher import tariffs even if developed nations reduced theirs. India's average bound tariff (the tariff permitted under WTO rules) is 50.8%. Despite this, since 2006, India has actually imposed a weighted average import duty of only 6%—much lower than the bound tariff.

Although the US has no justification for imposing retaliatory "reciprocal import duties," it enjoys a privilege within the WTO that allows it to impose country-specific import duties—a right not granted to other nations. By misusing this privilege, the US has begun challenging the entire WTO free trade system. In such a scenario, the world must reconsider whether one-sided free trade can continue. Many experts now suggest that the rest of the world—excluding the US—can strengthen the WTO by remaining within it. However, this may not be practical. Today, the entire free trade system is in crisis. In this situation, countries worldwide must conduct international trade based on their national interests, which may not necessarily align with the principles of free trade.

Views are personal. The author is National Co-Convenor, Swadeshi Jagran Manch, and Former Professor, PGDAV College, University of Delhi.