Context

• The World Trade Organisation (WTO), headquartered in Geneva, was established in 1995 as a monumental step towards a rule-based international trading system.
• However, it now finds itself in a precarious position, unable to fulfil its promise of a comprehensive dispute settlement mechanism and the paralysis of its Appellate Body (AB) is emblematic of deeper systemic issues that threaten the WTO’s relevance in global trade.
• Now it becomes imperative to critically examine the origins of the WTO’s decline, the geopolitical factors influencing its dysfunction, and the implications for global trade.

The Origins of WTO’s Decline

• This obstruction began during Barack Obama’s administration, escalated under Donald Trump’s first presidency, and has continued under President Joe Biden.
• It reflects a bipartisan political consensus in the U.S. The U.S.’s hostile stance towards the AB will intensify further under what is anticipated to be a highly protectionist Trump 2.0 administration.
• The WTO panels, the first stage of dispute settlement, continue to operate and render decisions resolving trade disputes between WTO member countries.
• However, this is of little significance because the losing country uses its legal prerogative to appeal to a non-operational AB, and thus stall the adjudicatory process.
• It is a fool’s errand to put the AB back on track because the real issue is the WTO’s existential crisis and its quest to be a relevant player in global trade.
• The larger game is not about killing the AB but, rather, making the WTO dysfunctional.

 An Analysis of the Promising Beginning of the WTO

• The Evolution from GATT to WTO
  • The establishment of the WTO in 1995 marked a historic transition from the General Agreement on Tariffs and Trade (GATT).
  • It sought to address the limitations of its predecessor by shifting from voluntary compliance to enforceable legal commitments.
  • This change reflected the global embrace of neoliberal principles, including market liberalisation and deregulation.
• A Comprehensive Rule-Based Framework
  • The WTO extended its reach beyond trade in goods to encompass services and intellectual property, introducing agreements such as GATS and TRIPS.
  • This comprehensive framework aimed to harmonise global trade practices and ensure stability and predictability in international markets.
• The Innovation of a Two-Tier Dispute Settlement System
  • One of the WTO’s key innovations was its two-tier dispute settlement mechanism, featuring a binding adjudicatory process and an appellate function.
  • This mechanism enhanced impartiality and rigor, positioning the WTO as a pioneer in international legal adjudication.
• The Optimism Surrounding Rule-Based Trade
  • The WTO’s legal framework inspired confidence in its ability to transcend political diplomacy.
  • Scholars viewed it as a constitutional project that prioritised the rule of law, with countries ceding sovereignty to create a more stable and predictable trading system.
• Early Successes and Stabilizing Global Trade
  • During its early years, the WTO achieved significant milestones, including resolving trade disputes, and facilitating market access through initiatives like the Information Technology Agreement.
  • These successes reinforced its role as a stabilising force in the global economy.
• A Symbol of Global Cooperation and Equity
  • More than a trade body, the WTO represented a commitment to cooperation and shared prosperity.
  • Its principles of non-discrimination, transparency, and enforceability empowered smaller and developing nations, ensuring a fairer global trade system and solidifying its initial appeal.

The Unravelling of the WTO

• The Rise of China and Decline of WTO
  • The optimism surrounding the WTO began to dissipate with the rise of China as a global economic power.
  • China's accession to the WTO in 2001, facilitated by the United States, was driven by the expectation that Beijing would adopt free-market principles and dismantle its state-led industrial policies.
  • However, this transformation did not materialize, instead, the U.S. perceived that China exploited the WTO system to gain an unfair advantage, exacerbating trade imbalances and industrial policy conflicts.
• The Shift in US Policy Towards WTO
  • This disillusionment prompted a shift in U.S. policy, particularly during Donald Trump’s presidency, where unilateral measures such as a 25% tariff on Chinese goods were imposed in 2018, bypassing WTO rules.
  • The Appellate Body, a key pillar of the WTO’s dispute settlement system, became a casualty of this geopolitical struggle.
  • Since 2019, the U.S. has blocked appointments to the AB, rendering it non-operational and stalling dispute resolution.
  • This obstruction reflects a bipartisan consensus in the U.S., with current President Joe Biden continuing the policy, signalling a broader disinterest in reviving the WTO’s adjudicatory mechanisms.
• The Shift from Legalism to Politics
  • The decline of the Appellate Body is not merely a technical issue but a symptom of a larger transformation in international trade governance.
  • As legal scholar Geraldo Vidigal argues, the crisis represents a regime change rather than a temporary setback.
  • The thick legal framework established in 1995 is being replaced by a ‘thinning of legality,’ as states reclaim sovereignty over trade policies.
• The GATTification of WTO: Reversal of WTO’s Founding Principles
  • This regression, termed the GATTification of the WTO, indicates a return to the less formal, diplomacy-driven mechanisms of the GATT era.
  • The S. seeks to dismantle the WTO’s institutional controls to confront China without legal constraints.
  • For instance, future U.S. administrations, including a potential Trump 2.0 presidency, are expected to pursue protectionist policies that may escalate trade wars.
  • This shift underscores the resurgence of international politics over law in shaping trade relations.

Implications for Global Trade

• The WTO’s weakening holds profound implications for the global trading system.
• Without a functioning dispute settlement system, the enforcement of trade rules becomes a matter of political leverage rather than legal adjudication.
• This undermines trust in multilateralism and incentivises unilateral actions, increasing the risk of trade wars and economic fragmentation.
• Moreover, the erosion of the WTO’s authority coincides with the rise of regional trade agreements and bilateral deals, which often exclude weaker nations and exacerbate inequalities.
• The return to a GATT-like system raises questions about the future of global trade governance and whether the WTO can adapt to the changing geopolitical landscape.

 Conclusion

• The WTO’s inability to restore its dispute settlement system by 2024 reflects a broader existential crisis.
• While the paralysis of the Appellate Body is a pressing issue, the root cause lies in the shifting dynamics of global power, particularly the U.S.-China rivalry.
• The transition from a rule-based to a politically-driven trade regime marks a reversal of the WTO’s founding principles.