It should go without saying that it has been an eventful year on the tariff and trade front. Even with the US Supreme Court’s decision on February 20 striking down “reciprocal” tariffs under the International Emergency Economic Powers Act (IEEPA), US tariffs are at levels not seen since the 1930s. Countries from El Salvador and Guatemala in Central America to Uzbekistan and Kazakhstan in Central Asia have struck or are still pursuing trade deals with the Trump administration. Much of the world is scrambling to negotiate trade agreements among themselves, continuing their de-risking from China and, now, from the United States as well. One term being used to mark this upheaval, if not fully explain it, is the “Great Diversification.”
If anything, trade agreements are increasingly multipolar, with no North Star, no central pillar, to ensure stability and predictability over chaos. The only multilateral trade body, the World Trade Organization (WTO), sits on the sidelines, openly questioning whether it has a role to fill in this new world order. In a few weeks in Cameroon, the WTO will convene its biannual Ministerial Conference for the 14th time (MC14) since its creation in 1995, and it is a safe bet that even a modest set of outcomes would constitute a huge success for the WTO. That is a far cry from the WTO’s heyday when Ministerial Conferences could be opportunities to launch an ambitious new negotiating round or conclude big new agreements.
A tale of two agreements
Two recent agreements, involving three of the world’s four largest and most important economies and concluded outside the WTO, spell the challenges the WTO faces in reversing its slide in relevance. First came the agreement between the European Union (EU) and India on January 26. Just a few days later, on February 2, President Trump announced he had struck a deal with Indian Prime Minister Narendra Modi, and the United States and India issued a joint statement with some details on February 6.
The EU and India pursued their agreement over many years and, while it is not a WTO agreement, it was concluded under cover of WTO rules on free trade agreements (FTAs). In stark contrast, the US-India agreement came together in less than a year, with plenty of dramatic moments in between, and is a manifestation of a Trump trade policy that deliberately thumbs its nose at WTO rules. Plenty of analysts and press reports suggested each was a reaction to the other. That could not be further from the truth. In fact, both the EU and the United States sought a more level playing field with India, which, historically, is known for its protectionist trade system. The two agreements could even prove complementary and mutually reinforcing of important reform efforts in India. However, what seems clear is that the WTO is an afterthought. Results on effective trade rulemaking now are coming outside the WTO, not inside.
In substance, it is difficult to provide a detailed comparison of the two agreements and an assessment of their implications because we do not have the final texts of the negotiated terms. From the EU’s chapter-by-chapter summary, we know that the EU-India FTA broadly covers tariffs on more than 90% of products traded between the two countries, even if it might be a stretch to argue that it meets WTO requirements that FTAs eliminate tariffs on “substantially all trade.” In the end, it does not really matter because there are limited precedents in the WTO for judging agreements against this standard and the WTO’s dispute review and settlement mechanisms will not deliver an answer for the EU-India FTA. We also know that there are roughly 20 chapters in the EU-India agreement, ranging from technical barriers to trade to digital trade to sustainable development. As broad as the agreement appears to be from this summary, the EU clearly cut some corners and veered from its longstanding templates for FTAs to secure one with India.
There is far less information available on the US-India deal, but it appears to be partial, tentative, and more free-form. That said, the US-India agreement should be a very substantial step forward in US-India trade relations and a platform on which to build the leaders’ aspiration for a full-blown, comprehensive bilateral trade agreement (BTA), as committed to in February 2025 when Modi and Trump met in Washington. This first step of a “Framework for an Interim Agreement” accelerates negotiations on the fine print in the form of specific legal commitments. The final agreement should lower most industrial tariffs, add a first course of agricultural market access, and fix some priority non-tariff barriers. It is possible that the forced scrapping of Trump’s “reciprocal” tariffs by the Supreme Court on 20 February could upend finalization of the Interim Agreement, but that seems unlikely given that the interim agreement appears to be win-win and any foot-dragging by India could saddle it with even higher tariffs under Section 301 of the 1974 Trade Act.
All three trading powers are also negotiating with many other countries. In fact, in recent days, there have been reports that the EU and the trading bloc of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership countries may begin talks on future preferential arrangements. India’s bilateral trade negotiating agenda is unprecedented, including recent agreements with the United Kingdom, the European Free Trade Association countries, Australia, and the United Arab Emirates, and negotiations with the Gulf Cooperation Council, New Zealand, and Canada are underway. The United States is essentially negotiating with the world. While the cudgel of the IEEPA tariffs is gone, Section 301 action could accomplish the same thing, and most trading partners are likely to seek least worst outcomes through negotiations with the Trump administration.
What these agreements mean for the WTO
There is no beating around the bush that the EU-India and US-India agreements, negotiated outside the WTO, undermine the foundations of the multilateral trading system. The EU and India deliberately negotiated their FTA within the framework of WTO rules, which allow deviations from non-discriminatory tariffs for agreements that cover substantially all trade. However, this agreement, when added to the many FTAs already in existence, is clearly an example of the exception swallowing the rule.
The US-India agreement, on the other hand, is a deliberate effort to go around WTO rules on “most-favoured-nation” (MFN) treatment and memorialize US tariffs that exceed US WTO-bound tariffs. MFN may remain the predominant approach to tariffs among countries, but the trendline is clearly an uninterrupted declining one.
But before we start to write post-mortems for the WTO, we might consider that major trading nations undermining or even walking away from their MFN tariff obligations need not mean the end of the WTO and the multilateral trading system which it embodies. In fact, the WTO might just shift into a new era in which its role is diminished but it retains some continuing relevance as the only venue in which most of the world can have a common language and set of agreed standards with respect to international trade.
What the WTO may have irretrievably lost
A central reason why the WTO lost its way and its mojo in years past is the failure to deliver on several of its core responsibilities. For example, one of the major grievances of successive US administrations is that the system is somehow rigged, with the United States constrained to impose very low tariffs while many others are allowed to protect their domestic industries with much higher tariffs. Here the United States has a point, even if it conveniently ignores a long history of the United States and many other developed countries willingly lowering tariffs to promote economic efficiency and global economic growth. When the United States and the EU pushed in the early days of the last round of multilateral trade negotiations, the Doha Round, for developing countries to reciprocate even partially, the big developing economies, including India, made it clear they would not play ball. Ultimately, the Doha Round floundered and eventually collapsed (incidentally, during the Bush and Obama administrations) due in large part to the resistance of countries with high tariffs to offer meaningful cuts to decrease tariff differentials.
Agriculture reform, including market access and domestic support subsidies, is another area in which the WTO failed to deliver. The compromises reached during negotiations to create the WTO in the early 1990s satisfied neither developed nor developing countries, and market developments after that, including the rise of agricultural exporting powerhouses, such as India, made later compromises even more elusive.
Finally, the support for the system that many felt was the crown jewel of the WTO, its Dispute Settlement Understanding, began to erode over many years. The United States knee-capped the system, perhaps fatally, when it refused to agree to new appointments to the Appellate Body, rendering panel decisions generally null and void with a limited pathway to formally adopt them.
The WTO can still lean into its advantages
While the WTO may be pretty much down for the count in recovering several of its core functions, namely tariffs, agricultural reform, and dispute settlement, it can continue to promote and even improve its wide range of specific agreements, such as Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) Measures. These agreements often serve as the foundational rules for provisions negotiated in bilateral and regional agreements, including FTAs and even the Trump administration’s agreements. Those that have been formally concluded, including with Malaysia, Cambodia, Indonesia, Taiwan, Bangladesh, El Salvador, and Guatemala, explicitly reference and reinforce these WTO agreements.
The WTO also has an existing institutional structure of committees that cover the day-to-day operation of these rules and that occasionally develop authoritative guidance on their implementation. Many of the reform proposals that will be brought to MC14 deal directly with making these institutional bodies more effective. Even though the ultimate arbiter of the legality of member actions under these rules, the WTO’s Appellate Body, has been rendered toothless for the moment, the WTO’s committees remain important venues for airing problems and engaging in consultations.
Another area of the WTO that continues to hold promise is negotiation of plurilateral agreements among subsets of WTO members. There have been important examples over the years: the Information Technology Agreement and protocols on basic telecommunications and financial services in the early days of the WTO, and, more recently, joint statement initiatives (JSIs) in areas such as electronic commerce, investment facilitation, and domestic regulation of services. Unfortunately, a small group of WTO members, led by India, have put roadblocks in the way of allowing the JSIs to be incorporated legally into the WTO’s rulebook, but hope springs eternal that this resistance will be eventually lifted. In fact, future plurilateral agreements in the WTO might even draw inspiration from novel approaches initially undertaken in FTAs and the Trump trade agreements.
These will not bring the WTO back to the central role it played in global trade in the late 1990s, but they could interrupt the bleeding in the WTO’s relevance and provide a healthy platform for the WTO to build on. These unique advantages are generally seen by the full WTO membership as valuable. They remain so even as the nostalgia for the good old days of the multilateral trading system fades. Mutually supportive connections between WTO agreements and institutions and bilateral and regional agreements done outside the organization could keep the WTO from slowly fading away or being definitively tossed on the dump heap of history.
The roles of the four big trading powers
China has been conspicuously absent from this analysis, but it certainly is relevant to these questions. China has benefited immensely from WTO rules and MFN principles since its accession in 2001, and it regularly expresses strong support for the system. However, China’s dominance in global export markets and its state-led economic model, complex trade regulations, non-tariff barriers, and non-market practices have been important contributors to the perception that the WTO cannot handle current challenges and imbalances and the penchant for other WTO members to now go elsewhere outside the organization to negotiate trade agreements. Until China faces up to its role in undermining the WTO, it will be difficult for the organization to get back on its feet. For the moment, however, it may be more realistic to hope that China will contribute positively toward implementation of important WTO rules and pursuit of plurilateral approaches, as it has with the Investment Facilitation for Development JSI.
The United States in Trump 2.0 has shown surprising willingness to engage in charting a course for the WTO, even though its perspective focuses on all the ways the multilateral trading system was misguided and lost its way, even going back to pre-WTO days in the General Agreement on Tariffs and Trade (GATT). For the WTO to transition through this existential moment, it will be crucial for the United States to remain in the picture and offer constructive proposals on committee work, transparency, and JSIs.
The EU has long been a cheerleader for maintaining a central role for the WTO while it has not always acknowledged the shortcomings and destructive dynamics that have led to the WTO’s drift. The EU’s recent submission to the WTO on reform, which included reference to problems with MFN tariffs, is a welcome signal that it is ready to identify practical steps forward.
Finally, India is a crucial player in global trade and will become even more so as its economy grows and it continues to move up the ranks of the largest economies in the world. A true gamechanger would be for India to move from its hard-wired instinct to block compromise at the WTO — even agreements that would not affect its own economy — and to leverage differences that make compromise more difficult. India agreeing to a pathway to approve WTO JSIs and renewal of the global moratorium on tariffs on electronic transmissions would be very welcome steps forward.
Stay calm and carry on
All signs point to the multilateral rules-based order remaining under siege for the foreseeable future, with many already assessing that it has effectively collapsed. The WTO started its descent well before the first Trump administration, yet it still manages to hang on. In fact, even though Trump jettisoned US membership in 66 international organizations, the United States remains a (paying) member of the WTO.
This is a moment for key players, including the United States, China, the EU, and India, to do their part in finding a path forward that allows the WTO to adapt, temper expectations among members, and play to the organization’s strengths. If these goals are pursued deftly, the WTO may still survive in the new world order on trade.
To read the full article as it was published by The Hinrich Foundation, please click here.