The GATT-ification of the World Trade Organization

The World Trade Organization (WTO) is set to miss its target of revitalizing a fully functional dispute settlement system by the end of 2024. The Appellate Body (AB), the second-tier dispute resolution mechanism, has been non-operational for five years due to the United States blocking the appointment of members. This obstruction has led to delays in resolving trade disputes, highlighting the growing dysfunction of the WTO.

The WTO’s Promise and Past Achievements

• Foundation of the WTO: Established in 1995, the WTO introduced a comprehensive legal framework governing global trade, with an effective two-tier dispute settlement system. This system, including the Appellate Body, was seen as a significant step towards international rule of law.
• Shift to a Rule-Based System: The WTO marked the transition from diplomacy-based multilateralism (GATT era) to a rule-based system that placed international legal structures above national interests, creating binding commitments for its members.
• The Promise of Global Governance: The WTO’s dispute settlement system was regarded as a constitutional project for global trade, aiming to ensure compliance with trade rules and facilitate equitable global economic relations.

The Unravelling of the WTO System

• China’s Rise and U.S. Discontent: The U.S. facilitated China's WTO accession in 2001, hoping China would adopt free-market principles. However, China’s continued state-led policies led to dissatisfaction in the U.S., which believed China exploited the WTO system to its advantage.
• S. Hostility Towards the WTO: The U.S. views the WTO, particularly the Appellate Body, as an obstacle to countering China's trade practices. The blocking of Appellate Body appointments reflects the U.S. strategy to weaken the WTO system to gain freedom in dealing with China.
• Impact on Global Trade: With the WTO’s dispute settlement mechanism dysfunctional, the U.S. has increasingly resorted to unilateral trade measures, such as the 25% tariff on Chinese products in 2018, bypassing WTO law, and signaling a shift towards trade policies based on international politics rather than international law.

A Shift in the Global Trade Order

• The WTO's ‘Thinning Legality’: Experts argue that the WTO is undergoing a “regime change,” moving from the era of strong legal commitments to a system where countries are reclaiming control over their trade policies, reverting to a more flexible, diplomacy-based approach reminiscent of the GATT era.
• GATTification of the WTO: This shift is seen as the “GATTification” of the WTO, where international trade laws are less binding, and nations increasingly pursue trade policies that suit their geopolitical and economic interests, bypassing the WTO’s rules-based framework.
• Reversal of WTO’s Legal Revolution: The ongoing erosion of the WTO’s dispute settlement function reflects a broader trend of de-legalisation in international trade relations, as countries return to more unilateral, politically-driven actions rather than relying on WTO adjudication.

Practice Question:

Q. Examine the role of the World Trade Organization (WTO) in international trade governance and critically evaluate the consequences of the United States’ blocking of the Appellate Body’s functioning. How does this reflect a shift from a rules-based multilateral trade system to a more politicized trade environment?