WTO: Struggling for survival

Business Recorder

3 days ago

Questions are being raised about the present day relevance of the World Trade Organisation (WTO) established in 1995 subsequent to Trump administration's massive tariff upgrades on all countries the US trades with, paused for some countries by deferrals.
WTO website identifies its objectives as operating 'the global system of trade rules and helps developing countries improve their capacity to trade. It also provides a forum for its members to negotiate trade agreements and to resolve trade problems they face with each other. The overall objective of the WTO is to help its members use trade as a means to raise living standards, create jobs and improve people's lives.' There are three obvious challenges to these grandiose claims from the perspective of developing countries, including Pakistan.
First, the relevance of trade rules formed during the unipolar world are clearly no longer applicable today – rules made when the globalists predominated and supported free movement of peoples (an objective visibly abandoned by the US and European countries as they shut their borders due to a massive influx of immigrants, ironically a sizeable number attributable to Western political interference in their countries leading to crippling civil wars) and goods (with poor countries reliant on multilateral borrowing compelled to ease import restrictions in spite of severe balance of payments' episodes). Pakistan as a case in point pledged in the Memoranda of Economic and Finance Policies of the first review dated May 2025 under the ongoing Extended Fund Facility (EFF) programme: 'Building on our efforts during the Stand By Arrangement (nine months long – July 2023 till after February 2024 elections) to remove distortive import payment restrictions, we will maintain an exchange system free from restrictions on payments and transfers for current international transactions and in accordance with our commitments.' The removal of these 'distortive restrictions', an IMF condition, accounts for an import bill nearly 4 billion dollars higher in 2025 compared to the year before (a prelude to balance of payment crisis in the past) though it did allow access to funds from other multilaterals and bilaterals (including 16 billion dollar roll-overs from the three friendly countries) that remains critical to averting the looming threat of default.
WTO's objective to raise living standards of member countries is not backed by any empirical evidence. Instead, the harmonization policies, in practice amongst multilaterals, require elimination of tariff and non-tariff barriers as a standard loan condition. And the cry for fair as opposed to free trade by developing countries (including Pakistan) never received traction globally - a cry that has now been taken up by the Trump administration.
Second, WTO rules rarely if ever assist developing countries improve their capacity to trade as the major responsibility for a trade deficit can be laid at the doorstep of flawed government decisions/policies as well as a global economic environment. In documents dated October 2024 the IMF informed the Pakistan government of this in no uncertain terms: 'intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually 'infant') industries.' The wheat support price had ensured reasonable profits for farmers and availability of wheat at affordable rates for the public; subsequent to the abandonment of this policy under IMF dictation, the price of flour plummeted and, as feared, farmers have shifted to more lucrative crops and a wheat shortage is likely next season that, in turn, would necessitate imports thereby widening the trade deficit. While this does indicate a flawed IMF design yet the failure of the government to point this out to the Fund is disturbing. In addition, one would hope that the incumbent government seeks not to rely on simply exporting surplus production but encourages the establishment of export oriented industries.
And finally, the WTO provides a forum to deal with trade disputes. WTO's Dispute Settlement Body is empowered to establish dispute settlement panels, and refer matters to arbitration or adopts a panel. Rulings by panels are non-binding if one party to the dispute lodges an appeal. A seven-member Appellate Body (AB) can hear appeals and uphold, modify or reverse the legal findings and conclusions of a panel. This Body has been nonfunctional since 11 December 2019 as the terms of two of the three remaining judges necessary to decide appeals of panel reports ended. The US has since blocked the appointments expressing concern over 'judicial overreach' and argues that the system is dominated by lawyers and judicial activism, rather than trade policy experts. Only if the parties to a dispute decide not to appeal and agree to conducting appeals by arbitration, then the dispute resolution process can proceed to a conclusion.
Since 30 April 2020, the Multi-Party Interim Appeal arrangement (MPIA) has been in operation supported by the European Union and 15 other countries - a stop-gap solution in the absence of an operational WTO AB and allows participants to benefit from an appeal process in the WTO dispute settlement system. MPIA must be individually invoked in each case between MPIA parties. There are 29 MPIA members including Pakistan though, except China, no other regional country is a member and neither are Saudi Arabia and the UAE. Pakistan has not invoked the MPIA so far which begs the question as to why the country opted to become a member.
The Trump tariffs, though the US President keeps deferring the deadline in hopes of reaching a deal with individual countries – a policy that is spreading chaos, prompted the WTO to maintain that 'the volume of merchandise trade is likely to fall by 0.2 percent this year, a decline particularly steep in North America where exports are forecast to drop by 12.6 percent, with severe downside risks as the application of reciprocal tariffs may lead to a sharper decline of 1.5 percent in global trade and forecast a rise in growth of services trade by 4 percent, one percentage lower than expected.'
For Pakistan the IMF in its first review documents uploaded on 17 May noted that 'on April 2, 2025, the US announced a large increase in country-specific tariffs, including a 29 percent tariff on Pakistan. While Pakistan's export sector is relatively small (10 percent of GDP), the US is Pakistan's largest trading partner, with the export of textiles and apparel the largest segment of that trade. Although some tariffs may be changed after negotiations, many of Pakistan's competitors in these product segments also face large tariffs at this moment, including Bangladesh (37 percent), China (145 percent), India (26 percent) and Vietnam (46 percent). While there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan's exports and GDP, with growth revised down marginally in FY25 (as less than a quarter is left in the year) and around 0.3ppts in FY26. In addition to the direct impact on Pakistan's exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan's other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty. The net impact on the balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan's import bill. Pakistan's sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited, vitiating any near-term impact. Nonetheless, if outflow pressures intensify, it will be critical that the exchange rate is allowed to adjust. The net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth.'
WTO has an annual budget of 232 million dollars and this amount is paid proportionately amongst the 166 members according to their share of world trade the preceding year. This implies a very small amount payable by Pakistan. Be that as it may, it is critical to assess the multilaterals usefulness to Pakistan especially as its core function of dispute resolution has been redundant since 2019, six years ago. If WTO remains powerless to amend the rules of engagement/appointment of the Appellate Body members that hear appeals or to proactively engage with Trump administration to ease global consternation over tariffs it is time to consider its formal disbandment.
Copyright Business Recorder, 2025