Uncertain future

Seven months after reaching an initial trade deal, which was hailed as a landmark moment in the organization's almost two-decade history, the World Trade Organization is once again facing a crisis.

The trade facilitation agreement (TFA), which was agreed upon by all WTO member states in Bali last year, had to be ratified by all signatories by July 31 to come into force. The deal was designed to reduce trade barriers by lowering import tariffs and standardizing customs, and was expected to boost trade and add an estimated 1 trillion USD to the global economy.

However, hopes of a last-minute compromise were dashed when India's new government, led by Prime Minister Narendra Modi, made a U-turn, vetoing the deal over disagreements on New Delhi's food subsidies.

Attempts by WTO Director General Roberto Azevedo to allay India's concerns and save the deal ahead of the deadline failed to bear fruit. "I am very sorry to report that despite these efforts I do not have the necessary elements that would lead to me to conclude that a breakthrough is possible. We got closer - significantly closer - but not quite there," Azevedo said. "We tried everything we could. But it has not proved possible," he added.

India's about-face has left many countries fuming and accusing it of destroying the consensus position that was reached last year, when the previous administration in New Delhi had signed the deal. US Secretary of State John Kerry, who embarked on a three-day visit to India on July 30, has reportedly taken up the issue with Modi.

"Failure to sign the trade facilitation agreement sent a confusing signal and undermined the very image Prime Minister Modi is trying to send about India," a US State Department official told reporters after Kerry's meeting with the PM.

'Full of uncertainties'

New Delhi's resistance has reignited doubts over the ability of the WTO - founded in 1995 - to lead global trade talks, jeopardizing the organization's future in its present form. Experts say that India's veto is a "major blow" for the trade body.

Gary Hufbauer, an international trade expert at the Washington-based Peterson Institute for International Economics, said in a DW interview that if India continued to block the TFA, that would probably be "the end of the WTO's role as a negotiating forum for big multilateral agreements."

Director General Azevedo himself said that "the fact we do not have a conclusion means that we are entering a new phase in our work - a phase which strikes me as being full of uncertainties."

More regional blocs

Apart from promoting global trade, the organization also acts as an international trade watchdog. It is a dispute settlement body with the power to adjudicate on trade discords and issue binding judgments, as well as ensure that all countries adhere to the rules. The WTO's power is evidenced by the fact that even countries such as the US and China have complied with its verdicts.

Stephen Woolcock, a trade expert and associate professor at the London School of Economics, is of the view that, in the short term, India's decision may not have much impact. However, the analyst adds that if a compromise to revive the failed agreement is not reached in the next few months, then the chances of making progress is slim. A long delay would result in more talks about plurilateral approaches to trade - involving several countries, but not many - which would have "adverse systemic effects" on multilateral negotiations, Woolcock told DW.

Analysts believe the current standoff could accelerate momentum towards the formation of regional trade blocs. Although this may not be a bad thing, it could undermine the WTO's position, resulting in a weakening of its authority to negotiate and enforce rules governing international commerce, they say.

This trend, in turn, could result in a fragmentation of global trade. In fact, many countries across the world have been shifting their focus from a global trade pact to regional free trade agreements.

For instance, the US and the EU bloc are engaged in discussions over the Transatlantic Trade and Investment Partnership (TTIP), while a host of Pacific-rim countries, including the US, Japan and Malaysia, among others, are negotiating the Trans-Pacific Partnership (TPP).

Who will lose?

Regretting that a handful of members failed to adhere to their commitment to implement the TFA, US trade representative Michael Froman said in a statement that Washington would consult with its trading partners on potential paths forward. Although Froman reiterated US' support for the multilateral negotiations, he added that the WTO system "relies on its members to implement the commitments to which they have agreed."

"Geneva will be quiet for the next several weeks. This is a good time for all of us to reflect on these developments and to consider the implications going forward," the statement read.

Referring to the multilateral system as a "powerful force for openness, cooperation and peace," the WTO's Azevedo warned that if the system fails to function properly then the smallest nations will be the biggest losers.

The major economies will have other avenues to negotiate trade deals, but the smaller and more vulnerable economies may not. "They're the ones with fewer options, who are at risk of being left behind. They're the ones that may no longer have a seat at the table," he said.