The GATT-ification of the WTO: A Reversal of Trade Multilateralism

Why in News?: Recent trends have led to its gradual erosion, signalling a shift back to the ad-hoc diplomacy-driven framework of its predecessor, the General Agreement on Tariffs and Trade (GATT). This regression termed the “GATT-ification” of the WTO, underscores the challenges faced by the multilateral trading system today.

WTO vs. GATT: Establishment and Evolution

The World Trade Organization (WTO), established in 1995, was envisioned as a rules-based organization to foster predictability and fairness in global trade.

1. Establishment of the WTO:

• Origin: The WTO was created to address the limitations of GATT, including weak enforcement mechanisms and inadequate dispute resolution systems.
• Goals:
  • Promote free trade by reducing tariffs and trade barriers.
  • Institutionalize a rules-based multilateral trading order with uniform application of trade rules.
  • Establish an Appellate Body (AB) to strengthen dispute resolution.

2. GATT’s Legacy:

• GATT (1948-1994) was largely a diplomacy-driven system that relied on consensus and voluntary compliance.
• Its informal approach often lacked enforcement, leading to inconsistent adherence to trade rules.

Unravelling of WTO Multilateralism: U.S.-China Rivalry

• Historical Context: The U.S. supported China’s accession to the WTO in 2001, expecting it to adopt market-driven reforms.
  • However, China’s state-led economic model, featuring subsidies to state-owned enterprises (SOEs) and intellectual property violations, challenged the liberal global trading order.
• U.S. Response: Frustrated by the WTO’s inability to address China’s practices, the U.S. bypassed multilateral norms, imposing unilateral tariffs on Chinese goods during the Trump administration.
  • These measures, justified under national security grounds, signaled a shift toward protectionism and weakened the WTO’s authority.

What Does “GATT-ification” Mean?

The “GATT-ification” of the WTO refers to its regression toward an informal, diplomacy-driven system. Key indicators include:

• Dysfunctional Dispute Settlement System: The Appellate Body (AB), a cornerstone of the WTO’s dispute resolution mechanism, has been non-operational since 2019 due to the U.S. blocking new appointments.
  • Without the AB, unresolved appeals render the first-tier dispute panels ineffective, stalling enforcement.
• Rise of Unilateralism: Countries are increasingly bypassing WTO rules to pursue national trade policies, undermining multilateralism.
  • U.S. protectionism, such as tariffs on steel and aluminum, exemplifies this trend.
• Proliferation of Regional and Bilateral Trade Agreements: Agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) reflect a preference for smaller, regional trade blocs over multilateral negotiations.
  • The Doha Round stalemate further highlights the WTO’s diminished relevance in facilitating global trade deals.

Impacts of GATT-ification

• Fragmentation of Global Trade: Bilateral and regional agreements create a patchwork of rules, complicating international trade.
  • Small and developing economies may struggle to navigate these fragmented systems.
• Weakened Dispute Resolution: Without a functional dispute resolution mechanism, trade conflicts risk escalating into larger disputes, threatening global economic stability.
• Decline of Trust in Multilateral Institutions: The erosion of the WTO’s authority undermines trust in the global trading system, encouraging protectionism and economic nationalism.
• Inequity for Developing Nations: Developing countries, which rely on the WTO for a level playing field, face challenges in safeguarding their interests against larger powers in a fragmented system.

India’s Concerns on GATT-ification

• Erosion of Multilateralism: India has consistently emphasized the importance of a rules-based trading system to protect the interests of developing countries.
• Dependence on WTO: As a developing economy, India relies on the WTO to ensure fair trade practices and resolve disputes.
• Vulnerabilities: The rise of regional agreements and unilateral actions could marginalize India in global trade negotiations.

Way Forward to Address GATT-ification

• Reviving the Appellate Body: Member nations must collectively resolve the deadlock to restore the WTO’s dispute settlement mechanism.
  • Institutional reforms can address U.S. concerns while preserving the AB’s independence.
• Strengthening Multilateral Negotiations: Revive stalled negotiations like the Doha Development Agenda to address systemic issues, including state subsidies and market access.
• Enhancing Inclusivity: Ensure the WTO remains relevant to developing countries by addressing their concerns about agriculture, technology transfer, and capacity building.
• Fostering Trust Through Diplomacy: Promote dialogue among major players, particularly the U.S. and China, to rebuild trust and reduce unilateralism.
• Encouraging Transparency in Regional Agreements: Ensure that regional trade blocs align with WTO principles to avoid creating fragmented systems.

Conclusion

The GATT-ification of the WTO represents a significant shift in global trade governance, challenging the principles of multilateralism. While the flexibility of a diplomacy-driven approach may appeal to powerful nations, it risks undermining the predictability and fairness that the WTO was designed to ensure. Addressing this crisis requires collective action, institutional reforms, and a renewed commitment to multilateralism. By revitalizing the WTO, member nations can ensure a stable, inclusive, and rules-based global trading system, essential for equitable economic growth.

The End of the Blog: The GATT-ification of the WTO: A Reversal of Trade Multilateralism