Is the World Trade Organisation a Failure?

Is the World Trade Organisation a Failure?

The WTO has been described as “one of the most precious tools of global economic management” but the last major attempt by its member countries to engage in large-scale multilateral negotiations in Doha was abandoned without a deal after more than a decade (Sunderland, 2001). With the talks “all but dead,” it is worth questioning whether such broad multilateral dialogues can be successful in today’s geopolitical climate (Yigsaw, 2001, p.31). Europe is now facing an uncertain future in major international organisations, as the US allegiance is no longer guaranteed and as competition from China and India intensifies. In this regard, the WTO could serve as an important sounding board for Europe to collectively speak to a global audience, if the WTO can overcome its innate flaws. However, it has significant problems to face, such as the suppression of some of the world’s poorest countries at the expense of the advancement of economic leaders, the rise of still socialist-market-economy and contending superpower China, the increasing threat of climate change and its direct links to commercial globalisation, and the present US hostility towards trading partners spearheaded by the second Trump administration. 

Does the WTO Unfairly Benefit Wealthy Western Powers like the EU?

Firstly, the WTO has been repeatedly criticised for fuelling the dominance of the largest economies while neglecting the prosperity and quality of life in the smaller, developing ones (Sieber-Gasser et al., 2021, p.82). Short (2003) referred to the Doha round’s failure to “tackle the distortions and unfairness in trade rules” against developing countries as a “tragic missed opportunity”.  However, Gallagher (2008) argues that the defiance of developing countries stems from the fact that the “the possible gains from market access were not large enough to trade for giving up domestic policy space for development policy.” In November 2001, the “Doha Development Agenda” centred global development as a priority for discussion, with the goal of reducing poverty and fuelling economic growth (Hoekman, 2004). Representatives of Nicaragua, Honduras and El Salvador emphasised that Special and Differential Treatment (SDT) was a crucial point of discussion for developing countries in the Doha Round, specifying the need for technical and financial aid (Hoekman, 2004).

These Special and Differential Treatment clauses are flawed in that they tend to group low-income countries with little power in the WTO alongside those countries that enjoy a great deal of influence, even if their wealth is not evenly distributed across society, such as India or Brazil. Therefore, it is difficult to see how Special and Differential Treatment conditions can be fairly applied to countries with such different economic situations, and one can only imagine that the leading nations of the WTO would be resentful of building on Special and Differential Treatment that other competing economic powers can also benefit from. 

The imbalance of power in the WTO, which swings towards the West, is exemplified in the case of Antigua and Barbuda and their 2007 dispute with the US accused of breaching its General Agreement on Trade in Services (GATS) commitments (WTO, 2012). By 2006, the issue was raised again as Antigua said the US had not taken adequate steps to comply with the ruling, and in 2007, Antigua was granted the right to suspend its obligations under GATS and The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) as retaliation. Antigua and Barbuda ultimately found that raising tariffs on U.S. services would hurt its economy without having a significant effect on the US. Antigua imports around 49% of its total goods and services from the US; however, this equates to less than 0.02% of US exports (Basheer, 2010). Therefore, despite the full use and endorsement of the WTO Dispute Settlement Body, the US barely felt the effects of breaching its obligations to its trading partner, in an example of the international trade scenario that Basheer coined the ‘David vs. Goliath paradigm’ that disadvantages progress for developing countries (Basheer, 2010).

Is the WTO capable of responding effectively to the increasing economic influence of China?

Chu and Lee (2019) cited the enduring influence of communist republics in large world economies as a primary factor in the drastic shift of the geopolitical economy that the WTO is struggling to control. This leads to the discussion of the US/China trade war spearheaded by the first Trump administration in response to the failure of China to make proper market access commitments. The USA aimed to have China commit to increasing imports from the USA to match their exports to the USA; however, these were bilateral negotiations that never expanded to the multilateral breadth of the WTO. 

Additionally, the fundamentals of the WTO system don’t necessarily accommodate the socialist market economy operated by the Chinese government. Mavroidis and Sapir (2019) reject the view that there are only “two diametrically opposite approaches” to handle China’s assimilation within the WTO, with one being that China has to change its economic foundations and structures and the other being to “stay idle and accept” the current tension. Economist Bob Steger (2023) recommends that to encourage China to create and actualise “secure market access commitments, there is an historical precedent in the multilateral trading system.” He points to the accession to the General Agreement on Tariffs and Trade (GATT) of the Polish People’s Republic in 1967, at which point there was no forward thinking that Poland was going to become a market economy. The international dialogue was then centred on the manner in which Poland could make those market access commitments that the other nations required in the name of reciprocity while still maintaining its own fundamental economic ethos as a planned economy. A relatively simple conclusion was reached; a brief accession agreement in which Poland consented to a quantity agreement that satisfied the idea of reciprocity and specified that its fulfilment of this promise would entail increasing its imports from GATT member countries by a percentage per year that was commensurate with the member countries’ expectation of the increase they would see in Polish exports.

That is not to say that this exact solution seamlessly transfers to China, especially given the difference in scale of the two economies, but this instance does perhaps show that being a non-market economy and a GATT-adhering member of the international trade community are not mutually exclusive. Mavroidis and Sapir (2019) make the point that WTO members’ criticisms that China suffers from “disproportionate state involvement in the economy” echo the same complaints that were made about Japan, now a major economy and central WTO member. They also however suggest that assimilating China into the organisation would be a somewhat larger and more complex job than Steger does, arguing that a “reworking of the WTO” would also in turn “force the regime move out of the current crisis and head into a new era of smoother trade relations.”

Can the WTO be reformed to support globalization while addressing climate change impacts on smaller economies?

The WTO has been plagued in recent years by major geopolitical shifts such as the COVID-19 pandemic and increasing tensions that have made the organisation difficult to govern. Despite this, globalisation has continued to accelerate, with the associated cost of international trade being the exponential increase of carbon emissions. As the climate crisis continues to exacerbate, the WTO can and should act as a roundtable for changes going forward. 

One way this could be relevant is the imposition of carbon taxes, which have been discussed a great deal in recent years as a way forward for reductions in emissions globally. Yet, it would present a host of problems for the WTO, as seen with the complexities of carbon taxes conflicting with established tariff agreements. For example, if the EU wanted to impose carbon taxes, this would impact the tariffs that the EU has previously negotiated and agreed on, with negative spillovers affecting European manufacturers and sellers. Carbon leakage is a “displacement rather than a reduction of emissions as a direct consequence of climate policy choices”, usually occurring when emissions rise in one country due to them being forced down by another country (Grubb et al. 2022). In the case of EU-levied carbon penalties, the European bloc should then raise its tariffs to compensate for the negative impact on its domestic producers. However, this is exactly the type of action that the WTO does not support. Similarly, Nordhaus (2015) proposed the creation of so-called ‘climate clubs,’ where nations with cleaner, greener practices, and lower emissions trade with each other under a reduced tariffs regime. This system would in turn incentivise other countries to adopt a similar platform. However, while potentially effective in fostering global emissions abatement, it directly contradicts the WTO’s Most Favoured Nation principle and National Treatment Obligation.

However, in the case of Brazil – Certain Measures Concerning Taxation and Charges (2019), Brazil successfully argued that financially supporting domestic accredited companies manufacturing digital equipment was actively challenging the “differential access to digital resources affecting social mobility, democracy, literacy and economic growth” and pursuing the SDG goal of achieving development through increased access to technology (World Trade Organization, 2019). The Panel identified this as an issue for developing countries specifically and it accepted that the measure has the legitimate objective of protecting public morals under GATT Article 20(a). I would argue that this offers a significant opportunity for environmental decisions to be protected under the same article in the future, given the current SDG Goals of climate action, sustainable cities and communities, and responsible consumption and production (Moon, 2018).

Future Outlooks

Following the animosity towards the United States as a result of the April 2nd tariffs, the WTO has a new challenge in how to respond when its fundamental ethos of prohibiting barriers to trade is completely ignored. Despite the fact that the USA’s actions are a clear breach of the international obligations imposed by their involvement in the WTO, it can be expected that there will be members who refer the country to the dispute settlement system, if only to achieve a formal recognition that the USA is acting in contravention with WTO commitments. However, the USA could then simply appeal this ruling, referring it to the Appellate Body, which is not currently functional. On December 10 2019, following the end of the term of members of the Appellate Body, the USA blocked appointments to replace them. With there being no appropriate institution to adjudicate on appeals, the dispute settlement system of the WTO does not have an individual or institution whose judgment represents an absolute authority, “throwing into doubt the WTO’s role in enforcing multilateral trade rules“(Wolff, 2025). 

This then begs the question of how the WTO can survive in the present climate. As many countries observe a swing towards the political right, mounting dissatisfaction with multilateralism and international organisations should be considered in the devising of a path forward. The WTO first of all needs to resurrect and reform its dispute settlement mechanism to restore order within the organisation. Additionally, it needs to engage with emerging major economies such as China to truly understand how the country’s economic marketplace is evolving beyond being a manufacturing hub, particularly given the rapidly accelerating enrollment in higher education (Yang & Cao, 2023). Additionally, the WTO should look to reform its Special and Differential Treatment framework, and specifically those who fall into the Developing Countries categories. Thus far, members have been permitted to self designate as developing countries, with similar policies regarding trade negotiations and adherence to WTO agreements being applied for countries that range wildly in terms of economic strength, such as India and Burundi. Resolving these inequities should be of key priority to the WTO not only in order to make policies most effective for those who need them most, but also to prevent building resentment from the economic leaders of the WTO, whose support it relies upon heavily. This was perhaps best summarised by the US Trade Representative Lighthizer in 2017, when he pointed to the fact that there is “something wrong, in our view, when five of the six richest countries in the world presently claim developing country status” (Lighthizer, 2017). A key aspect going forward I believe is to listen and engage with the protectionist governments that are emerging, rather than hoping that this new geopolitical era will pass in time without necessitating significant reform. 

In conclusion, the WTO has some significant challenges going forward, but I would argue that there are possibilities for growth in positive ways, particularly if it seeks to negotiate and compromise with China, reforms its dispute settlement procedures and examines how to implement policies which offer Special and Differential Treatment in a way that protects those least developed countries who truly need the most support. However, I think that the ‘globalisation paradox’ will always exist to an extent in international trade, in that “we run the risk that the social costs of trade will outweigh the narrow economic gains,” and developing countries will always be left behind in pursuit of profit (Rodrik, 2011).

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