The WTO's Crisis: From Rule-Based Trade to Political Power Struggles

Context: 

The World Trade Organization (WTO) is currently facing significant challenges, with its Appellate Body (AB) being non-operational since 2019. This has sparked concern about the WTO’s ability to effectively resolve trade disputes, impacting its credibility and relevance in global trade. The U.S.-China tensions, along with increasing political dynamics, have highlighted the WTO's declining influence and have raised questions about its future role in the global trading system.

Key Points of the WTO's Decline:

1. Origins of the Decline

   • The U.S. started blocking appointments to the Appellate Body (AB) during Obama’s presidency, and the situation worsened under Trump and continues under Biden.
   • While dispute panels still operate, countries often stall decisions by appealing to the non-functional AB.
   • The real issue is not just the Appellate Body’s dysfunction but the WTO’s broader decline in relevance.

2. Early Successes of the WTO

   • The WTO, established in 1995, succeeded GATT, moving from voluntary to legally binding trade agreements.
   • It extended its scope beyond goods to include services (GATS) and intellectual property (TRIPS), aiming for a harmonized global trade system.
   • The two-tier dispute settlement system was a significant innovation, ensuring fair and impartial trade resolutions.
   • Early successes, such as resolving trade disputes and establishing agreements like the Information Technology Agreement, helped stabilize global trade.

3. Factors Leading to Decline

   • China’s Rise: China’s entry into the WTO in 2001, expected to adopt free-market policies, instead maintained state-led industrial practices, leading to disillusionment.
   • U.S. Response: The U.S. began imposing tariffs (e.g., 25% tariff on Chinese goods in 2018), bypassing WTO rules.
   • Blocking Appellate Body Appointments: Since 2019, the U.S. has blocked the appointment of new members to the AB, rendering it non-operational.

4. Shift from Legalism to Politics

   • The decline of the Appellate Body reflects a shift from legal-based trade governance to more politically driven actions.
   • This trend, known as the “GATTification” of the WTO, suggests a return to diplomacy-based trade and weakened international legal frameworks.
   • The U.S. and other nations seek to reshape global trade relations outside of the WTO’s legal processes.

5. Implications for Global Trade

   • Without a functional dispute resolution system, trade rules will be enforced through political power rather than legal rulings.
   • This could lead to more trade wars and economic fragmentation.
   • The rise of regional and bilateral trade agreements may exclude smaller nations, creating inequalities in global trade.
   • The shift back to a GATT-like system raises doubts about the future of multilateral trade governance.

Conclusion

The WTO’s failure to restore its dispute settlement system by 2024 signals an existential crisis for the organization. The primary cause is the geopolitical tensions, particularly the U.S.-China rivalry, which is shifting global trade away from a rule-based system to a more politically driven approach. The WTO’s decline could mark a significant reversal of its founding principles, leaving its future uncertain in an increasingly fragmented global trade environment.