Changing dynamics of global trade governance

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Picture Courtesy: The Hindu

Context:

The recent trade initiatives by the United States under President Donald Trump indicate a shift in the global trade architecture, creating a new category called Agreements on Reciprocal Trade (ARTs). These agreements differ significantly from traditional Free Trade Agreements (FTAs) and raise concerns about their compatibility with the World Trade Organization (WTO) framework.

Evolution of international trade agreements in a multipolar world:

Multilateral foundation of the global trading system: Global trade governance is primarily built on a rules-based multilateral framework under the World Trade Organization, which evolved from the General Agreement on Tariffs and Trade (GATT). This system is based on the principles of non-discrimination, transparency, and predictability, particularly through the Most-Favoured-Nation (MFN) rule and national treatment obligations. The WTO expanded the scope of global trade governance beyond goods to include services and intellectual property, while also providing a dispute settlement mechanism to resolve trade conflicts. Despite its importance, the multilateral system faces challenges such as slow negotiations, rising protectionism, and the weakening of its dispute resolution mechanism.

Growth of preferential trade agreements: In response to the limitations of multilateral negotiations, countries have increasingly turned to Preferential Trade Agreements (PTAs), including Free Trade Agreements (FTAs) and Customs Unions, which are permitted under GATT Article XXIV. These agreements aim to eliminate or reduce tariffs on substantially all trade among members and often include WTO-plus provisions covering areas such as investment protection, digital trade, labour standards, environmental safeguards, and regulatory cooperation. Large regional agreements such as the Regional Comprehensive Economic Partnership (RCEP) reflect the growing importance of regional economic integration. However, the proliferation of such agreements has contributed to the fragmentation of global trade rules and concerns about unequal obligations for developing countries.

Emergence of power-based bilateral trade arrangements: Recent developments indicate a shift toward strategic and reciprocal bilateral trade arrangements that prioritise national economic and geopolitical interests over multilateral norms. These agreements often emphasise market reciprocity, involve asymmetric concessions, and may include provisions related to data flows, digital trade, technology governance, and national security cooperation. In some cases, such arrangements operate outside the WTO framework, raising concerns about their legal consistency and their potential to weaken the global rules-based trading order.

Emerging patterns in global trade governance:

Shift from multilateralism to plurilateralism and bilateralism: The global trading system is witnessing a gradual movement away from a purely multilateral framework under the World Trade Organization toward plurilateral, regional, and bilateral trade arrangements. Due to slow progress in multilateral negotiations and institutional challenges within the WTO, countries increasingly prefer smaller group agreements that allow faster and more flexible rule-making.

Rise of strategic trade policies: Trade agreements are no longer driven solely by economic efficiency but are increasingly shaped by geopolitical and strategic considerations. Countries are using trade tools to secure supply chains, critical minerals, technology access, and economic security, reflecting the growing importance of geoeconomics in international relations.

Emergence of WTO-Plus and WTO-Extra provisions: Modern trade agreements increasingly include WTO-plus provisions (deeper commitments in existing areas) and WTO-extra provisions (new areas not covered by the WTO). These include rules on:

• Digital trade and cross-border data flows
• Investment protection
• Labour and environmental standards
• Competition policy and regulatory cooperation
  Such provisions reflect the expanding scope of global trade beyond traditional tariff reduction.

Fragmentation of the global trade architecture: The proliferation of overlapping trade agreements has created a complex regulatory landscape often described as a “spaghetti bowl” of rules. Different rules of origin, standards, and compliance requirements increase transaction costs and complicate participation, particularly for developing countries and small exporters.

Growing emphasis on reciprocity and power asymmetry: Recent trends indicate a shift toward reciprocity-based and power-driven agreements, where stronger economies negotiate asymmetric concessions from weaker partners. Some new trade arrangements operate outside established WTO disciplines, raising concerns about transparency, legality, and the weakening of the rules-based order.

Expansion of data governance issues: As the digital economy grows, trade governance is increasingly focused on data localisation, digital taxation, e-commerce, and platform regulation. Differences between countries on data sovereignty versus free data flows are emerging as a major area of negotiation and contestation.

Resilience, sustainability, and supply chain security: Post-pandemic disruptions and geopolitical tensions have led countries to prioritise resilient and diversified supply chains. Trade agreements increasingly incorporate provisions related to sustainability, climate commitments, and trusted trade partnerships.

Implications for India:

• Balancing market access with policy autonomy: The evolving nature of global trade agreements requires India to carefully balance greater market access for exports with the need to protect domestic policy space. Commitments in areas such as tariffs, subsidies, public procurement, and intellectual property must be calibrated to safeguard infant industries, agriculture, and strategic sectors.
• Protecting sensitive sectors like MSMEs: Deeper trade liberalisation under modern agreements may increase import competition, posing challenges for Micro, Small and Medium Enterprises (MSMEs) and labour-intensive industries. India needs phased tariff reductions, safeguard mechanisms, and domestic capacity-building to ensure that trade integration does not lead to deindustrialisation.
• Safeguarding data sovereignty: With trade negotiations increasingly covering digital trade, cross-border data flows, and e-commerce, India must protect its data sovereignty and regulatory flexibility. This is crucial for developing its digital economy, supporting startups, and ensuring national security and privacy standards.
• Integrating into Global Value Chains (GVCs): Strategic trade agreements can help India attract investment, diversify supply chains, and integrate into Global Value Chains. In the context of shifting global production networks and “China-plus-one” strategies, India has an opportunity to position itself as a reliable manufacturing and export hub.
• Managing geopolitical pressures: The rise of reciprocity-based and power-driven trade arrangements means India must negotiate carefully to avoid asymmetric obligations or strategic alignment pressures that may affect its strategic autonomy in foreign and economic policy.
• Addressing regulatory and standards challenges: Modern trade agreements increasingly involve non-tariff measures, quality standards, and sustainability requirements. Indian exporters must upgrade technology, quality infrastructure, and compliance systems to remain competitive in developed markets.

Conclusion:
India must navigate the evolving trade landscape with a calibrated and strategic approach that balances deeper global integration with the protection of domestic industry, policy autonomy, and digital sovereignty. By strengthening competitiveness at home while supporting a fair and rules-based global trading system under the World Trade Organization, India can maximise opportunities and minimise risks in the changing trade order.

Source: The Hindu