What's New

The GATT-ification of the WTO: Reversing International Trade Multilateralism

Syllabus:

GS – 3– Global trade , Role of WTO , Bilateral relations between countries

Focus :

This article examines the decline of the World Trade Organization (WTO) as a robust multilateral trade referee, highlighting the persistent paralysis of its Appellate Body, the shift in global power dynamics with China’s rise, and the resurgence of protectionist policies, particularly by the United States. It explores how these trends are reversing the legal revolution of international trade multilateralism.

Introduction: The WTO at a Crossroads

• Overview of the WTO: Established in 1995, the WTO was designed to serve as the foundation of rule-based global trade governance.
• Current Challenges: The WTO’s Appellate Body, a crucial component of its dispute settlement mechanism, has been non-operational since 2019.
• S. Opposition: Persistent blocking of appointments to the appellate Body by the United States highlights deep-seated challenges in global trade dynamics.
• Significance of the Crisis: This paralysis reflects broader shifts in international trade governance, marking a move away from multilateralism.

The Appellate Body Crisis

• Role and Importance:
  • The Appellate Body serves as the second tier of the WTO’s dispute settlement system.
  • Ensures binding and enforceable decisions in trade disputes.
• Current Dysfunction:
  • Panels (first-tier mechanism) continue to operate but their decisions can be appealed to the non-functional Appellate Body, creating a legal deadlock.
  • Losing countries exploit this gap to stall resolution.
• Historical Context:
  • S. obstruction began under Barack Obama, escalated under Donald Trump, and persists under Joe Biden.
  • Reflects bipartisan consensus in the U.S. on limiting the WTO’s legal authority.
• Future Concerns:
  • Anticipated intensification of protectionist policies under a potential Trump administration return.
  • Risks of further marginalization of the WTO’s role in global trade governance.

The WTO’s Original Promise

• From GATT to WTO:
  • Transition from the General Agreement on Tariffs and Trade (GATT, 1948-1994) to the WTO in 1995.
  • Shift from diplomacy-based trade multilateralism to a rules-based legal framework.
• Core Features:
  • Comprehensive governance of trade in goods, services, and intellectual property.
  • Binding two-tier dispute settlement system with an appellate function.
  • Provision for effective retaliation against non-compliance.
• Legal Revolution:
  • Scholars celebrated the WTO as a constitutionalist project advancing international law over politics.
  • Celso Lafer’s description: The “thickening of legality” in global trade relations.
  • Countries willingly accepted restrictions on their conduct in exchange for predictable trade rules.

The Rise of Challenges

• China’s Role:
  • China’s accession to the WTO in 2001, facilitated by the U.S., aimed to integrate it into the global free-market economy.
  • Expectations of China dismantling state-led industrial policies did not materialize.
  • Perception in the U.S. that China exploited WTO rules to pursue its own economic agenda.
• S. Discontent:
  • WTO rules seen as limiting S. ability to address China’s trade practices.
  • Trump administration’s unilateral imposition of 25% tariffs on Chinese imports in 2018.
  • Biden administration’s continuation of similar trade measures.
  • Emphasis on trade remedial measures and industrial policies, even at the cost of violating WTO law.

The Shift from Legalism to Diplomacy

• Thinning of Legality:
  • Geraldo Vidigal’s analysis: Shift from the “thickening” of legality (1995-2019) to its “thinning.”
  • Countries increasingly reclaim control over trade policies, reducing WTO’s influence.
• Regime Change:
  • Transition from legal revolution to the resurgence of GATT-style diplomacy.
  • Preference for bilateral and regional trade arrangements over multilateral frameworks.
• Implications:
  • Marginalization of smaller nations in a power-driven trade order.
  • Weakening of the global trade system’s predictability and stability.

Broader Implications for Global Trade

• Impact on Multilateralism:
  • Diminishing role of the WTO in shaping global trade norms.
  • Rise of protectionism and unilateral trade measures by major powers.
• Examples of Unilateral Actions:
  • S.-China trade war initiated under Trump.
  • Retaliatory tariffs and non-compliance with WTO rules.

Challenges for Developing Nations:

• Difficulty in navigating a fragmented and less predictable trade system.
• Reduced ability to leverage multilateral mechanisms for equitable trade outcomes.

The Way Forward

• Challenges in Reviving the WTO:
  • Efforts in Geneva to restore the Appellate Body face resistance from key players like the U.S.
  • Limited prospects for consensus-driven reform.
• Balancing Legalism and Flexibility:
  • Need for a trade governance model accommodating geopolitical realities.
  • Ensuring smaller nations retain a voice in global trade negotiations.
• Strengthening Regional Trade Alliances:
  • Regional trade agreements could complement WTO mechanisms.
  • Caution needed to avoid undermining the multilateral system further.
• Global Cooperation:
  • Rebuilding trust in the multilateral system through inclusive negotiations.
  • Addressing concerns of major powers while safeguarding the interests of developing nations.

Conclusion: The WTO’s Existential Question

• From a symbol of rule-based trade governance to its current state of dysfunction.
• The inevitability of “GATT-ification” under prevailing geopolitical and economic trends.
• Urgency for collective action to preserve the principles of multilateralism.
• Balancing state sovereignty with the need for predictable and fair trade rules.

Associated Article

https://universalinstitutions.com/world-trade-organization-wto/

Mains UPSC Question  GS 3

The WTO, once hailed as the beacon of rule-based international trade, now faces an existential crisis due to geopolitical shifts and rising protectionism. Critically analyze the implications of the ‘GATT-ification’ of the WTO on global trade and international law. (15 marks)