Trade multilateralism, institutionalized by the World Trade Organization (WTO), is facing a grave crisis. Although the situation has accentuated after Donald Trump became President of the United States for the second time in 2025, the crisis began much earlier. The WTO crisis involves multiple issues. First, a critical factor plaguing the WTO is a weakened rule-making function, stemming from countries' inability to agree on new or amended rules. 

A key function of the WTO is to provide a global platform for creating new rules governing international trade. However, the WTO has not done well on this front. It has essentially implemented the rules governing global trade that countries adopted during the Uruguay Round of negotiations from 1986 to 1994, which led to the creation of the WTO. Since 1995, only two major multilateral trade agreements have been negotiated and concluded by member countries: the Trade Facilitation Agreement and the Agreement on Fisheries Subsidies. Negotiations on creating new rules, such as those related to digital trade and investment facilitation, and on amending existing rules, including those governing trade in agriculture, have been stalled for the last several decades. This crisis in the rule-making has been called the WTO’s legislative crisis.

Consensus versus Plurilateralism

At the root of the WTO’s legislative crisis is the practice of consensus-based decision-making. Given the vast differences in interests among developed, developing, and least-developed countries, forging consensus is arduous. Given the slowness of consensus-based decision-making in the WTO, there has been a shift away from this principle toward plurilateral discussions on select issues, such as investment facilitation and digital trade, since 2017. However, the plurilateral approach remains challenging for several reasons, including the lack of clarity regarding how to integrate the plurilateral rule-making process into the WTO’s overall law-making process.

Furthermore, as Bernard Hoekman argues, there is a need to develop a multilateral governance framework for plurilateral agreements. This governance framework should include key principles of non-discrimination, transparency, and inclusivity in incorporating the results of plurilateral negotiations in the WTO rulebook. Compelling plurilateral agreements on unwilling members will exacerbate the trust deficit between developed and developing countries.

Whither Dispute Settlement?

The second major crisis the WTO faces is the crippling of its dispute settlement function. The WTO’s dispute settlement system (DSS) – hailed as its crown jewel and one of the boldest experiments in international dispute settlement - has two tiers. First, an ad hoc WTO panel hears a dispute between two countries and issues a report, which the dispute settlement body (DSB) – an organ that comprises all WTO member countries - adopts. Under Article 16.4 of the dispute settlement understanding (DSU), a country may appeal the panel’s report. If an appeal is filed, the DSB does not adopt the report until the appeal is resolved, triggering the second tier: the appellate mechanism or an Appellate Body (AB), which comprises seven permanent members, with three members hearing each case.  The WTO’s DSS has been a resounding success since its creation in 1995. Between 1 January 1995 and 31 December 2024, a mammoth number of 631 disputes have been referred to the WTO’s dispute settlement body (DSB). A panel has been formed on 376 occasions, resulting in a panel report on 297 instances. An appeal was filed to the AB in 195 cases. These numbers are substantial compared with those of any other international dispute settlement system, whether the International Court of Justice or the International Tribunal for the Law of the Sea.

Sadly, the AB became a victim of its own success. Upset over losing key cases, the US started blocking the appointment of new AB members to replace the retiring ones. As a result, the AB soon became a body without judges to hear appeals. Although the WTO law still provides for an AB, the AB has not functioned since December 2019 due to a lack of members. This has created a situation in which any country that loses a case at the panel stage appeals to a non-functional AB. Since the AB cannot hear and decide appeals, the member country is not obligated to comply with the panel report. This has derailed the WTO’s efficacious DSS. Wrecking the WTO’s DSS is part of America’s broader strategy to weaken the enforcement of multilateral trade rules, thereby enabling unilateralism to address what it believes is a threat from rising China.

Impact of Reciprocal Tariffs

The third crisis the WTO faces is an onslaught on its core non-discrimination rule, the most-favoured-nation (MFN) principle. The MFN rule is enshrined in Article I of the General Agreement on Tariffs and Trade (GATT) and is widely regarded as a cornerstone of the multilateral trading system. The MFN rule, subject to certain exceptions, ensures that any trade preferences a WTO member grants to another member are automatically and unconditionally extended to the entire WTO membership. President Donald Trump’s reciprocal tariffs – a system where the US imposes the same tariffs on a country that the concerned country imposes on the US – have discarded the MFN rule. Thus, the US seeks to replace a multilateral trading arrangement with a bilateral one in which each country is expected to negotiate tariff rates with the US individually. This obviously puts smaller and developing countries in jeopardy.

India’s Options

At this critical juncture, developing countries such as India need to forge alliances to rescue multilateral trade. This would require a vociferous championing of multilateral trade at all forums and the use of all means to challenge American unilateralism. Sadly, India has not done much in this regard. It has looked the other way as the Trump administration has been systematically dismantling the WTO system. Policy makers in the developing world would do well to remember that imperfect multilateralism is always preferable to unilateralism or to forging politically expedient bilateral deals.

(The author is Professor and Vice Dean (Research), Jindal Global Law School, O P Jindal Global University. Views expressed are personal. He can be contacted at pranjan@jgu.edu.in, This series is curated by Prof Avinash Godbole and Prof Sreeradha Datta, JGU)