World Trade Organisation: Successes, Challenges & Reforms

Table of contents

The World Trade Organisation (WTO), established in 1995, was envisioned as the institutional anchor of global trade governance, promoting free, fair, and rules-based international trade. However, recent developments—such as the rise of unilateral trade measures, ineffective dispute settlements, and waning multilateral negotiations—raise concerns about its ongoing relevance.

About World Trade Organisation (WTO)

WTO is an intergovernmental organization that regulates and facilitates international trade between nations, operating in a member-driven and consensus-based manner.

Formally established on January 1, 1995, under the 1994 Marrakesh Agreement, the WTO is a successor to the General Agreement on Tariffs and Trade (GATT) of 1948, which was established in the wake of the Second World War.
The WTO is the outcome of the 1986- 94 Uruguay Round negotiations, which included a major revision of the original General Agreement on Tariffs and Trade (GATT).
From 1948 to 1994, the GATT provided the rules for much of world trade. Whereas GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property.
Headquarters: Geneva, Switzerland; it is the world’s largest international economic organisation.
166 member states (India is a founding member), representing over 98% of global trade.
It is the only international organization dealing with the global rules of trade.

Why did the WTO replace GATT?

The GATT was intended to be a provisional agreement and not an organisation. Conversely, the WTO has both an institutional and a regulatory dimension.
It didn’t cover trade-in services, Intellectual Property Rights, etc. Its main focus was on the Textile and agriculture sectors.
A robust Dispute Resolution Mechanism was absent.
It was seen as a body meant to promote the interests of the West by developing countries. This was because the Geneva Treaty of 1946, where GATT was signed, had no representation from newly independent states and socialist states.
Under GATT, countries failed to curb quantitative restrictions on trade. (Non-Tariff barriers)

Reserve or Negative Consensus

Panels and Appellate Body reports are only binding if approved by consensus by the DSB, which comprises the entire WTO membership.
However, the DSB follows the reverse or negative consensus rule, which means that its decisions will not be adopted only if all Members oppose it.
Accordingly, even if only the winning party in a dispute accepts the report but all the other WTO Members reject it, it will still be adopted and binding.

Mandate of the WTO

The WTO’s mandate encompasses the facilitation of trade in goods, services, and intellectual property.
It achieves this by providing a framework for negotiating trade agreements that aim to reduce or eliminate tariffs, quotas, and other trade restrictions.
Additionally, the WTO oversees independent dispute resolution mechanisms to ensure compliance with trade agreements and resolve trade-related disputes.
While the WTO prohibits discriminatory practices among trading partners, it allows for exceptions in cases related to environmental protection, national security, and other significant objectives.

Key Principles of WTO

Non-discrimination:
- Most Favoured Nation (MFN): Equal treatment of all trading partners. Free trade agreements (FTAs) are an exception to this rule since the benefits agreed in an FTA are exclusive to its parties.
- National Treatment (NT): It establishes that a WTO member should treat foreign producers and suppliers the same way it treats domestic ones once the product, service, or item of intellectual property has entered its market.
National Treatment: Equal treatment of foreign and domestic goods and services.
Fair Competition: Non-discriminatory, rule-based trading.
Free Trade: Reduction in tariff and non-tariff barriers.
Predictability: Transparency & binding (bound rates)
Encouraging Development & Economic Reforms: Special assistance & concessions to developing countries & LDCs.

Relation between WTO and UN

WTO is not a part of the United Nations. However, it has maintained strong relations with the UN.
WTO-UN relations are governed by the “Arrangements for Effective Cooperation with other Intergovernmental Organizations-Relations Between the WTO and the UN” signed in 1995.
The WTO Director General participates in the Chief Executive Board, the organ of coordination within the UN system.

Governance of WTO

The WTO also has a hierarchical institutional structure to fulfil its mandate.

Ministerial Conference

The Ministerial Conference (MC) is the main decision-making body in the WTO, comprising trade ministers and senior officials from the 164 WTO members.
It usually meets every two years to discuss multilateral trade developments and decide on the issues debated in the WTO. Its mandate covers all multilateral trade agreements.
The last MC – 13^th Ministerial Conference – was held in Abu Dhabi between 26 February – 2 March 2024.

Important MC and their outcomes

MC4, 2004 in Doha, Qatar: Doha Development Agenda was launched.
MC9, 2013 in Bali, Indonesia: ‘Bali Package’ was adopted accompanied by Trade Facilitation Agreement.
MC10, 2015 in Nairobi, Kenya: ‘Nairobi Package’ was adopted accompanied by abolition of agricultural subsidies.

WTO General Council

It is the WTO’s highest-level decision-making body.
It has representatives from all member countries.
It has the authority to act on behalf of the Ministerial Conference.
WTO General Council also meets, under different rules, as the Dispute Settlement Body (DSB) and as the Trade Policy Review Body.

Councils and Committees

The councils consist of all the WTO members and report to the General Council.

Secretariat

The WTO Director-General is the head of the Secretariat.
It offers the WTO bodies administrative and technical support to perform a wide range of activities.
It also manages the WTO budget.

Major Agreements of WTO

General Agreement on Trade and Tariffs (GATT)

Its main goal is to consolidate and reduce members’ tariffs on goods.
Each WTO member has a schedule of commitments where they bind their tariff rates and agree not to increase them beyond that established limit. This is to promote greater market access.

General Agreement on Trade in Services (GATS)

It was negotiated during the Uruguay Round as the result of the increasing role played by services in the world economy.
Article I.2 of the GATS establishes that the agreement applies to four modes of supply of services:
1. Mode 1: Cross-border, when only the service crosses the border as the consumer and the supplier remain in their respective countries. For e.g., call centre services and remote training.
2. Mode 2: Consumption abroad, when the consumer benefits from the service while abroad, for e.g., when travelling as a tourist or to receive medical care.
3. Mode 3: Commercial presence, when the provider – a commercial entity – establishes a physical presence in another country, such as when companies set up a branch or subsidiary abroad.
4. Mode 4: Presence of natural persons, when the supplier – a natural person – migrates to the country where they will provide the service. E.g. consultants working on a project or artists on tour.8
GATS does not include, however, governmental services and certain air transport services.

The TRIPS was negotiated separately to address how IP rights should be treated in trade relations.
TRIPS rules confer to the IP holder the exclusive right to exploit their creations for a certain period.
The agreement covers:
1. Copyrights
2. Trademarks
3. Geographical indications
4. Industrial designs
5. Patents
6. Layout-designs (topographies) of integrated circuits
7. Industrial secrets
The goal is to balance the need for encouraging innovation and enabling public welfare in a way that society can enjoy the advantages brought by such innovation.
The TRIPS Council is responsible for administering & monitoring the operation of the TRIPS Agreement.

Technical Barriers to Trade Agreement and Sanitary and Phytosanitary Measures Agreement

The TBT Agreement and the SPS Agreement aim at preventing governments from using domestic standards to pursue protectionism, that is, discriminate in favour of domestic producers and suppliers.
It allows countries to protect their consumers, environment, and national security, considering the regulations and standards drawn on scientific evidence and, preferably, international guidelines.

Trade remedies

These are instruments to protect domestic industries and sectors against injuries caused by unfair practices that favour imports – known as countervailing duties and antidumping – or by unforeseen surges in imports – known as safeguards.

Countervailing duties

These are a tax on subsidised imports, making them more expensive to buy.
The rationale behind these duties is to bring the market price of subsidised imports back up to what it would have been without subsidies.
Doing so eliminates the “unfair advantage” granted by the subsidies and restores the level playing field between domestic producers and the imports they compete with.
Accordingly, countervailing duties cannot exceed the amount of the subsidies.

Anti-dumping duties

Dumping happens when a country exports a product at a lower price than its normal value in the exporter’s home market.
Although WTO rules do not prohibit dumping, this practice can trigger “unfair competition”.
The amount of anti-dumping duty may not exceed the dumping margins.

Safeguards against surges in imports

These are temporary import restrictions, i.e., they are time-limited, and governments adopt them as a response to an unforeseen surge in imports of a given product that is causing or threatening to cause serious injury to a domestic industry.
It can include a quota (a quantitative limit on the volume of imports) or an import tariff increase.
Tariff rate quotas (TRQs) set a volume of a product that may be imported at relatively low (or zero) tariffs. Usually, a higher safeguard tariff applies beyond that limit.

Agreement on Subsidies and Countervailing Measures (SCM)

It regulates the use of subsidies and the actions countries can take to protect themselves from the effects of another country’s subsidies.
The WTO SCM Agreement defines the term “subsidy”. The definition contains three basic elements:
1. a financial contribution
2. by a government or any public body within the territory of a Member
3. which confers a benefit.
- All three elements must be satisfied for a subsidy to exist.
For a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member.
- The SCM Agreement, thus, applies not only to measures of national governments but also to measures of subnational governments and of public bodies such as state-owned companies.
A financial contribution by a government is not a subsidy unless it confers a “benefit.”

Categories of Subsidies

The SCM Agreement creates two basic categories of subsidies:
1. Prohibited Subsidies
2. Actionable Subsidies

An actionable subsidy is allowed, but other countries can take certain actions if the subsidy harms them.

Prohibited Subsidies

Two categories of subsidies are prohibited by Article 3 of the SCM Agreement.
1. Subsidies contingent upon export performance.
2. Subsidies contingent upon the use of domestic content over imported goods.
They are prohibited because they are designed to affect trade directly and thus are most likely to affect the interests of other Members adversely.

Actionable subsidies

An actionable subsidy is allowed, but other countries can take certain actions, such as imposing countervailing duties or antidumping duties, if the subsidy harms them.
Production subsidies fall in the “actionable” category.

Issues that remain unresolved in WTO Negotiations

Agreement on Fisheries Subsidies (AFS)

It was adopted at the 12^th Ministerial Conference (MC12) in 2022 as part of Doha Agenda.
It intends to ban subsidies on illegal, unreported and unregulated (IUU) fishing and subsidies contributing to overfishing.
For the Agreement to become operational, two-thirds of members have to deposit their “instruments of acceptance” with the WTO.
AFS is not in force yet since it has not reached the minimum ratification number of two-thirds of the WTO membership. India has not ratified the agreement yet.
The AFS fell short of delivering on the main issue members were trying to regulate: subsidies contributing to overcapacity and overfishing.
India’s argument: India wants a liberal regime with a 25-year transition period for developing countries as the current system benefits rich nations and the likes of China.

Agricultural Subsidies

To address government policies that distort markets and restrict trade, WTO members concluded the Agreement on Agriculture, which came into force in 1995.
This initiated reductions in subsidies and trade barriers to make markets fairer and more competitive.
It also allowed members to continue negotiations for further reform, considering concerns such as food security and the environment.
WTO viewed India’s foodgrain purchase at MSP as a trade-distorting subsidy and kept it under the Amber box.
Under global trade norms, a WTO member country’s food subsidy bill should not breach the limit of 10% of the production value based on the reference price of 1986-88.

India’s stance

MSP is meant to protect farmer livelihoods and ensure equitable market access.
- However, developed nations are pushing to reduce domestic support and increase market openness despite providing large subsidies to their rich farmers.
India has asked for measures like amendments in the formula to calculate the food subsidy cap.
A ‘Peace clause’ was negotiated, which allowed India temporary relief on the mandate of keeping MSP subsidies below 10%. Although India was promised a permanent solution to this issue, there has been no progress.

Negotiations on Non-Trade Issues

Developed countries wanted to bring non-trade issues like women empowerment, environment, labour, etc, under the realm of WTO talks.
India is against bringing such issues into the realm of WTO discussions because these issues were being discussed in other relevant international organizations.

E-commerce trade

The WTO’s 13th Ministerial Conference has extended the e-commerce customs duty moratorium for another two years, providing another short reprieve for digital services companies from the imposition of tariffs.
Members first established the moratorium as a temporary measure in 1998 as a part of the WTO’s multilateral work program on trade-related aspects of e-commerce.
Countries like India, South Africa, and Indonesia want the moratorium to be lifted as it is resulting in a loss of an estimated $10 billion custom duty.

Joint Statement Initiative

Since 2019, 90 like-minded WTO Members have been negotiating a plurilateral Joint Statement Initiative agreement on e-commerce trade.
Participants in the initiative account for over 90 percent of global trade. India is not a party to the initiative.
Objective: To work around opposition to any new WTO negotiations from some WTO Members and to overcome the difficulties that the WTO consensus principle creates in trying to conclude a negotiation successfully and in a timely manner.
In July 2024, the co-conveners of the Initiative published a draft text of an “Agreement on Electronic Commerce”, indicating that negotiations may be approaching the finish line.

Joint Initiatives are a negotiating tool initiated by a group of WTO Members who seek to advance discussions on certain specific issues without adhering to the rule of consensus decision-making involving the whole WTO membership. They are open to any WTO Member.

Plurilateral Negotiations

WTO Plurilateral initiatives are discussions at the WTO in which only a subset of Members participate.
India, in principle, has been against plurilateral pacts on platforms such as the WTO as it believes it may dilute its multilateral trade framework.

Investment Facilitation for Development Agreement (IFDA)

Initially mooted in 2017, IFDA is a proposed agreement within the WTO framework that purports to “enhance the transparency and efficiency of investment regulations and procedures, making participating economies more efficient and attractive to foreign investors in all sectors.
It was a plurilateral rather than multilateral agreement—meaning it was between a select group of WTO members, but not all.
India and South Africa submitted a paper at the conference about the inadmissibility of this plurilateral agreement in WTO’s fold.

Developing Country Status

WTO adopts a self-declaration approach to whether a member is a developing country. It does not impose any requirements or standards a member must meet to fit into this category.
Consequently, approximately two-thirds of the WTO membership is formed by developing countries. As such, they receive special and differential treatment (SDT) in the WTO.
The US and the EU argue for reforming the WTO developing country status to introduce nuances to differentiate countries within that spectrum.
They claim the current blanket approach that applies all exceptions to all developing countries results in some members being granted a competitive advantage.

Special and Differential Treatment (S&DT)

Special and Differential Treatment (SDT) acknowledges that countries at different stages of development need different rules to support economic growth.
It seeks to addresses this challenge through a set of legal provisions that exempt Developing Countries from some of the binding commitments that accompany WTO membership. The special provisions include:
1. Longer time periods for implementing agreements and commitments
2. Measures to increase trading opportunities for these countries
3. Provisions requiring all WTO members to safeguard the trade interests of developing countries
4. Support to help developing countries build the infrastructure to undertake WTO work, handle disputes, and implement technical standard
5. Provisions related to least-developed country (LDC) members
It also allows Developed Countries to unilaterally ‘discriminate’ in favour of Developing Countries in bilateral trade agreements.
However, since it involves favourable treatment for Developing Countries, and since countries currently self-designate their status as ‘Developing’, the issue of who should have the right to claim SDT is highly contested within the WTO.
In recent years, tensions surrounding SDT have exacerbated, with several Developing Countries continuing to claim SDT despite having achieved significant economic growth and development.

WTO’s Core Functions and Current Crisis

Function	Status
Negotiation Function	Dysfunctional since the Doha Round (2001). Only one multilateral deal, the Fisheries Subsidy Agreement, has emerged, and even that is incomplete.
Dispute Settlement Mechanism (DSM)	The Appellate Body has been non-functional since 2019 because the U.S. blocked appointments.
Trade Monitoring Function	Largely ineffective due to a lack of transparency, particularly from major economies like China.

Relevance of the World Trade Organization (WTO)

Ensures Free Trade Flow: Despite the proliferation of free trade agreements, the WTO is crucial in restraining protectionism and providing a forum for multilateral trade discussions.
Promotes Non-Discrimination: Most-Favoured Nation (MFN) principle helps prevent discriminatory trade practices and fosters a level playing field.
Multilateral Approach: A rules-based system contributes to avoiding unilateral approaches and enhances fair competition.
Settlement of Trade Disputes: The WTO’s dispute settlement process channels trade disputes into a structured mechanism, reducing the risk of conflicts escalating.
Inclusive Development: The WTO supports developing countries with technical assistance and capacity-building to enhance their participation in global trade.

Successes of the World Trade Organization (WTO)

Trade Expansion and Liberalisation: WTO has boosted global trade by reducing barriers and covering services, investment, and intellectual property.
Stronger Governance and Transparency: WTO enhances transparency and governance in international trade through tools like the Trade Policy Review Mechanism and the World Trade Report.
Peaceful Dispute Resolution: WTO provides a trusted platform for resolving trade disputes, reflecting member countries’ confidence in the system.
Broad Global Membership: With over 95% of world trade under its supervision and 85% of the global population represented, the WTO is the most effective global trade agency.
Uniform Rules and Fairer Participation: A single set of rules simplifies global trade, enhances predictability, and gives smaller countries a stronger voice.
Platform for Emerging Global Issues: WTO’s success has led to calls for expanding its mandate to cover non-trade issues such as labour standards, environmental protection, and competition policy.

Challenges and Key Areas of Reform

Undemocratic Governance: Decision-making processes lack transparency; for instance, “Green Room” negotiations often exclude over two-thirds of member states, undermining inclusivity.
Bias Towards Developed Nations: Despite the MFN principle, developed countries maintain higher agricultural tariffs, disadvantaging exports from developing nations.
Labour Rights Overlooked: WTO has ruled against bans based on production methods, such as child labour, and no binding labour standards are included in core agreements.
Environmental Concerns: WTO rulings have sometimes overridden environmental standards, raising concerns about the organisation’s commitment to sustainable development.
Slow Dispute Resolution: Disputes average over 2.5 years to resolve; the Appellate Body crisis since 2019 has paralysed the final settlement stage, further delaying outcomes.

WTO’s Dispute Settlement Body

The Uruguay Round negotiations resulted in the adoption of the Dispute Settlement Understanding (DSU) to govern trade disputes between member states.
Accordingly, the Dispute Settlement Body (DSB) was established in 1995 as a platform for addressing disputes between WTO members. The General Council sometimes meets as the DSB.
The DSB possesses the authority to establish dispute settlement panels and make decisions based on their recommendations.
DSB may also consider reports from the Appellate Body, which hears appeals from panel reports.
Currently, the appellate body, constituting the second tier (DSB is the first tier) of the WTO’s Dispute Settlement System (DSS), remains non-functional.

Reasons for the appellate body’s non-functionality

From 1995 to 2019, the appellate body upheld the international rule of law by holding powerful countries, such as the US and the EU, accountable for breaching international laws.
However, its once-supportive entity, the US, has now become its most prominent critic, obstructing the appointment of its members.

US Argument

The US argues that the appellate body must consistently interpret and apply WTO agreements without establishing binding precedents.
According to the US, creating binding precedents through appellate body decisions represents judicial overreach and exceeds its institutional mandate.

Interim Appeal and Arbitration Arrangement

The WTO Multi-Party Interim Appeal Arbitration Arrangement (MPIA) is a temporary alternative procedure for deciding on appeals of panels’ recommendations.
It is a response, but not a solution, to the Appellate Body crisis.
The MPIA allows the WTO DSS to keep functioning, avoiding appeals into the void, while members discuss ways to revive the Appellate Body.
Adherence to the MPIA is voluntary, which means that any WTO member can choose to participate by notifying the DSB.
India is not a party to MPIA.

Way Forward: Reforming the WTO for Global Trade Resilience

Restoring the Appellate Body: Revive its functionality, expand membership, and enforce timely, transparent rulings.
De-politicising Dispute Appointments: Ensure the judge selection process is free from national vetoes and political interference.
Interim Dispute Resolution Mechanisms: Introduce mediation and alternative solutions to manage disputes while long-term reforms are underway.
Strengthening the Dispute Settlement System: Make judges full-time and allocate more resources for faster and more efficient case resolution.
Reforming Special and Differential Treatment (SDT): Establish objective criteria like GDP and trade share for eligibility instead of self-declaration.
Introducing SDT Graduation: SDT benefits for emerging economies will be gradually phased out while safeguarding Least Developed Countries (LDCs).
Implementing India’s “30 for 30” Proposal: By 2025, the WTO should implement at least 30 operational improvements to enhance efficiency and accessibility.

13^th Ministerial Conference (MC13)

The 13th Ministerial Conference of the WTO took place in Abu Dhabi, United Arab Emirates.

Key Decisions

Renewed commitment to have a fully and well-functioning dispute settlement system by 2024;
To improve the use of special and differential treatment (S&DT) for developing and least developed countries (LDCs) to make them more precise, effective and operational.

Main outcomes

During MC13, the WTO formally welcomed two new countries: Comoros and Timor-Leste.
About LDCs, WTO members agreed on rules to support a smooth transition for countries graduating from that category into that of a developing country.
Formal entry into force of the rules agreed upon by the Services Domestic Regulation (SDR) joint initiative.
WTO members also agreed to extend the moratorium on applying import duties on e-commerce until the next ministerial conference or 31 March 2026, whichever comes first.
- As the moratorium expires, members will have to reach a consensus on a permanent solution for e-commerce tariffs, or each Member can unilaterally and nonreciprocally choose to apply the moratorium.

Shortcomings

WTO members could not agree on:
1. Permanent solution in agriculture for public stock holding
2. New rules on fisheries, although 11 members formally accepted the AFS during MC13.
3. Reforming the dispute settlement system (DSS)
4. Integrating the investment facilitation for development agreement into the WTO.

“A rules-based trading system without effective enforcement is like a constitution without a judiciary.” The paralysis of the WTO’s dispute settlement mechanism has undermined trust in multilateralism and emboldened unilateralism. To restore its credibility, the WTO must implement urgent reforms to continue to serve as the cornerstone of a fair, inclusive, and future-ready global trading order.

Reference: The Hindu

PMF IAS Pathfinder for Mains – Question 173

Q. In the backdrop of rising protectionism and the paralysis of the WTO’s dispute settlement mechanism, critically examine the relevance of the WTO in safeguarding the trade interests of countries like India. (250 Words) (15 Marks)

Approach

Introduction: Briefly explain the WTO’s role in global trade and its challenges, such as rising protectionism and the paralysis of its dispute settlement mechanism (DSM).
Body: Discuss the challenges to the WTO’s relevance and impact on India’s trade interests. Additionally, suggest a way forward.
Conclusion: Emphasise the WTO’s role in global trade and suggest reforms: restore DSM, update trade policies, and expand policy space for developing nations.