India has dealt a potentially fatal blow to the World Trade Organization''s hopes of modernising the rules of global commerce and remaining the central forum for multilateral trade deals. In the short term, this is a setback for freer commerce. In the longer run, it means trade liberalisation may advance - if at all - among narrower groups of countries, denying dissenters a chance to block progress.
While the unwieldy 160-member, Geneva-based WTO will survive as a body for enforcing existing multilateral agreements, smaller clubs of like-minded nations are trying to move ahead faster to update the trade rules among themselves. "Without a serious shake-up, the WTO''s future looks like that of the League of Nations," said Simon Evenett, a professor at the Swiss Institute for International Economics. "Perhaps ultimately that''s what some governments want."
Last week India vetoed the adoption of a treaty to simplify, standardise and streamline the rules for shipping goods across borders, having previously agreed to its terms at a ministerial conference in Bali last December. It blocked the text because it wanted more attention paid to its concerns over food security.
After drawing widespread condemnation, the world''s second most populous nation now says it wants to keep the treaty alive, with stronger assurances about protecting its food security needs, until a permanent solution is found. But the genie is out of the bottle. India''s tactics reawakened a ghost from the WTO''s past that many diplomats hoped to have put behind them: the idea of "linkages".
Linking unconnected negotiations was a major reason why the Doha round of trade talks that began in 2001 collapsed. As more and more states parlayed a concession here into a pledge there, the weight of interwoven bargains eventually caused paralysis. The draft treaty on customs rules, known as "trade facilitation", was supposed to be something that everyone could agree on - "low hanging fruit" that might reinvigorate a WTO laid low by a grinding decade of failed negotiations.
But there were few illusions about the WTO''s overall health. "The Doha Round has been dead at least since the last big push in 2011 failed," said Richard Baldwin, professor of international economics at the Graduate Institute in Geneva. "The Bali package was just a way of putting fresh flowers on the grave to remind people of what passed away.
"The big trading nations like India, the United States, the European Union, China and Brazil all went along with it since they wanted to keep the WTO looking relevant." For several years, many of the bigger economies have been pouring their energies into new clubs aiming to liberalise trade in particular regions or in specific sectors of the economy. "What WTO promoters fail to understand is that their forum competes with other vehicles for reform. Through poor design, bad luck and bad tactics, the WTO has handicapped itself in this race," said Evenett.