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The GATT-ification of the World Trade Organisation

25-12-2024

04:31 AM

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1 min read
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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.

Q) What was the key difference between the GATT and WTO systems?

The key difference lies in the enforceability of commitments. While GATT relied on voluntary compliance and consensus-based diplomacy, the WTO introduced a binding rule-based system with a two-tier dispute settlement mechanism, ensuring impartial adjudication and legal rigor.

Q) How did the WTO empower smaller and developing nations?

The WTO's principles of non-discrimination, transparency, and enforceability provided smaller and developing countries with a platform to challenge economic giants, ensuring fairness and inclusivity in global trade relations.

Source:The Hindu