Why the World Still Needs a Multilateral Trade Regime

Unilateral actions by the US

A few months into his second term as US President, Donald Trump kicked off his tariff onslaught. The reasoning was that higher US tariffs are needed to counteract foreign trade practices that Washington considers unfair and thus, re- duce US trade deficits. While some countries have accepted these higher tariffs, others have rushed to the negotiating table to sign bilateral agreements with the US even as some such as China have imposed counter-reciprocal tariffs on the US. On account of these recent actions, there is a growing perception that the World Trade Organisation (WTO) has lost its relevance.

It is true that the rules of the WTO and its institutional mechanisms have failed to rein in Trump’s unilateral economic coercive actions such as reciprocal tariffs, despite these breaching multiple commitments of the US at the WTO. Further, with the Doha Round being virtually pushed into cold storage, it cannot be denied that the negotiating function of the WTO is in a limbo.

Other members adhering to the WTO rulebook

While there may be considerable justification in concluding that the WTO has been rendered irrelevant in the current scenario, the reality is more nuanced.

With the exception of the US, the remaining 165 members of the WTO continue to abide by their commitments and adhere to the WTO rulebook.

Further, WTO member nations continue to remain engaged in negotiations in several areas, including fisheries subsidies, dispute settlement as well as WTO reform. The various committees of the multilateral trade organisation continue to meet regularly for overseeing the implementation, administration and operation of the various agreements. It may, thus, be a bit pre-ma- ture and unwise to consign the WTO as an institution, and its rule- book, to history.

Origins of the current crisis

Fitst, due to effective coali- tions of many developing coun- tries, the US and the EU were un- able to secure most of their nego- tiating objectives under the Doha Round in November 2001. To es- cape taking new commitments, in December 2015, the US foiled at- tempts of many developing na- tions to move ahead on the Doha Round. This dealt a severe blow to the negotiating function of the WTO.

In late 2019, the Appellate Body of the WTO, which hears appeals from panel cases on trade disputes, ceased to function as the US refused to allow the process of nomination of new members to replace those retiring to proceed. Absence of rule of law has created space for the US to indulge in pow- er play by resorting to series of ille- gal actions on the trade front.

Can bilateral deals replace multilateral rules?

Efficitent conduct of global trade requires an overarching framework of rules applicable to a large number of countries. A web of bilateral trade pacts can- not be an effective substitute for multilateral rules. It is unlikely that the comity of nations can dispense with a common framework of multilateral trade rules to which a large number of countries sub- scribe. However, the jury is out on whether the WTO will continue to be the institution to provide the multilateral rules for interna- tional trade.

What lies ahead for WTO?

WHILE TRUMP HAS re- fused to abide by the WTO rule- book, it is likely that the US is us- ing bilateral deals to pursue WTO- related trade objectives. This is ev- ident from the recent trade deal between the US and Indonesia. In- donesia has also agreed to fully im- plement the WTO Agreement on Fisheries Subsidies. These referenc- es to the WTO suggest that while the US continues to attach some salience to the WTO, it may simul- taneously be laying the foundation of a new global trading order. This could build on most of the exist- ing WTO rules. The emerging re- gime could also strike new ground on issues such as tariffs and non- discriminatory treatment. The new trading order may be housed in the WTO, or another institution could be created for it.

What India can do

A multilateral trade regime should be the preferred option for India to promote its national inter- est. Hence, India must continue to engage with other countries at the WTO. In parallel, its efforts must be directed at ensuring that if a new global trading order emerges, it is multilateral in character. India needs to ensure that a potential new trade order meaningfully addresses the legitimate aspirations of the devel- oping countries and does not per- petuate the asymmetries and imbal- ances inherent in the existing rules at the WTO.