New Delhi: In a groundbreaking move, European Commission President Ursula von der Leyen has called for the creation of a Europe-led trade initiative to establish structured trade cooperation with Asian countries, potentially laying the foundation for an alternative to the beleaguered World Trade Organization (WTO). This proposal comes at a time when the WTO, established in 1995 to regulate international trade in goods, services, and intellectual property, is grappling with significant challenges that threaten its relevance. With 166 member countries, including India, the WTO operates on a consensus-based decision-making model but has been paralyzed by issues such as a dysfunctional dispute settlement system, inequity favoring developed nations, and the rise of regional trade blocs.
The WTO’s Genesis and Mandate
The World Trade Organization was established in 1995, succeeding the General Agreement on Tariffs and Trade (GATT), which was a provisional arrangement created in 1947. Unlike GATT, the WTO was designed as a comprehensive organization tasked with regulating international trade across goods, services, and intellectual property. With 166 member nations, the WTO operates on a consensus-based decision-making process, ensuring that all members have a voice in shaping global trade rules. Its primary functions include facilitating trade negotiations, resolving disputes, and promoting fair trade practices. However, the organization has faced significant hurdles in recent years, undermining its ability to fulfill its mandate effectively.
Key Challenges Facing the WTO
The WTO’s struggles have been well-documented, with several critical issues contributing to its declining influence:
1. Dispute Settlement Paralysis
One of the most pressing challenges is the paralysis of the WTO’s Dispute Settlement System. Since 2016, the United States has blocked appointments to the WTO’s Appellate Body, the apex body for resolving trade disputes. Composed of seven members appointed by the Dispute Settlement Body (DSB) for four-year terms, the Appellate Body has been rendered non-functional due to a lack of quorum. The DSB, which includes representatives from all WTO members, relies on the Appellate Body to adjudicate disputes when bilateral consultations fail to yield a mutually agreed solution. The U.S. blockade has weakened global trade rule enforcement, leaving disputes unresolved and undermining confidence in the WTO’s mechanisms.
2. Inequity in the System
The WTO has often been criticized for favoring developed countries, leaving developing nations at a disadvantage. High trade barriers, poor infrastructure, and limited resources hinder the ability of developing countries to fully participate in international trade. Disagreements over new rules, particularly in agriculture, have further exacerbated tensions between developed and developing nations, stalling progress on critical trade negotiations.
3. Opaque Decision-Making
The WTO’s decision-making process has been criticized for its lack of transparency and limited inclusion of developing countries. This opacity fosters mistrust and raises questions about the organization’s legitimacy, particularly among Global South nations that feel marginalized in global trade discussions.
4. Rise of Regional and Bilateral Trade Blocs
The proliferation of regional and bilateral trade agreements, such as the European Union (EU), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the African Continental Free Trade Area (AfCFTA), has diminished the WTO’s centrality. These frameworks risk fragmenting global trade rules, as countries increasingly prioritize regional pacts over multilateral agreements.
5. US-China Trade Conflicts
Ongoing trade tensions between the United States and China have further strained WTO operations. Unilateral actions, such as U.S. tariffs on steel and aluminum, have challenged the WTO’s rules-based system, creating uncertainty in global trade dynamics.
Ursula von der Leyen’s Proposal for a New Trade Framework
At the EU summit in Brussels on June 27, 2025, European Commission President Ursula von der Leyen proposed a bold initiative to address the WTO’s dysfunction. She suggested that the EU collaborate with the 11 member countries of the CPTPP, along with the United Kingdom, to form a new institution that could serve as an alternative to the WTO. The CPTPP, a trade pact among Pacific Rim nations, represents a significant portion of global trade and aligns with the EU’s vision of rules-based free trade.
“Asian countries want to have structured cooperation with the EU, and the EU wants the same,” von der Leyen stated. “We can think about this as the beginning of redesigning the WTO… to show the world that free trade with a large number of countries is possible on a rules-based foundation.” Her proposal aims to learn from the WTO’s shortcomings while creating a more effective framework for global trade cooperation.
German Chancellor Friedrich Merz echoed von der Leyen’s sentiments, noting that “the WTO does not work anymore.” He suggested establishing a new institution with global trading partners to replace the WTO’s intended dispute settlement mechanism. Von der Leyen emphasized that the initiative would focus on fostering free trade with a diverse group of partners, though she declined to confirm whether the United States would be invited to join, noting that the U.S. had previously withdrawn from the CPTPP.
India’s Role and WTO Trade Policy Review
As the leader of the Global South, India has a critical opportunity to champion WTO reforms and address the concerns of developing nations. The Ministry of Commerce in New Delhi is preparing for India’s eighth WTO trade policy review, scheduled after a five-year gap. This review comes at a pivotal moment, as the United States has increasingly abandoned the WTO’s dispute settlement forum in favor of bilateral trade deals, which experts warn may not comply with WTO rules. This shift poses significant risks for the rules-based trade system and for developing countries like India, which rely on multilateral frameworks to protect their interests.
India has been actively engaged in WTO disputes, particularly with the United States. On July 10, 2025, India revised its proposal to impose retaliatory duties under WTO norms in response to U.S. tariffs on steel and aluminum. The U.S. initially imposed 25% tariffs on these products on March 12, which were later raised to 50% on June 3. India’s revised proposal, communicated to the WTO’s Council for Trade in Goods and Committee on Safeguards on July 9, reserves the right to adjust products and tariff rates in response to the increased U.S. tariffs. The proposed measures would affect $7.6 billion worth of U.S. imports, with an estimated duty collection of $3.82 billion, a significant increase from the $1.91 billion projected in India’s earlier communication on May 12.
The Multi-Party Interim Appeal Arbitration Arrangement (MPIA)
As a temporary solution to the WTO’s dispute settlement crisis, 57 member countries, including the EU, China, the UK, Paraguay, and Malaysia, have joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). This mechanism replicates the functions of the Appellate Body for participating members but covers only 57.6% of global trade. While the MPIA provides a stopgap measure, it does not address the broader institutional challenges facing the WTO, such as stalled negotiations on fisheries subsidies and agricultural reforms.
Global Trade Tensions and the EU’s Response
The EU’s proposal comes amid escalating global trade tensions, particularly with the United States. U.S. President Donald Trump’s tariffs, including a potential 10% blanket tariff on EU goods, have prompted EU leaders to explore options for preserving the international trade system. Von der Leyen noted that the EU is preparing for scenarios where no satisfactory agreement with the U.S. is reached, stating, “All options remain on the table.” The EU is also navigating internal challenges, such as Slovakia’s threat to block a new sanctions package against Russia unless concessions are made regarding Russian gas imports.
Implications for Global Trade
Von der Leyen’s proposal signals a potential shift in the global trade landscape. By aligning with the CPTPP and other willing partners, the EU aims to create a robust, rules-based trade framework that could serve as a model for future global cooperation. However, the exclusion of major players like the United States and the limited coverage of mechanisms like the MPIA highlight the challenges of replacing the WTO entirely.
For India, the EU’s initiative presents both opportunities and challenges. As a key player in the Global South, India can advocate for reforms that address the inequities in the current system while strengthening its position in global trade negotiations. The ongoing U.S.-India trade disputes underscore the importance of a functional multilateral framework, making India’s role in shaping the future of global trade critical.
Conclusion
The European Commission’s proposal to create an alternative to the WTO reflects the urgent need to address the organization’s systemic challenges. With a paralyzed dispute settlement system, inequities favoring developed nations, and the rise of regional trade blocs, the WTO’s relevance is increasingly in question. Ursula von der Leyen’s vision of a Europe-led trade initiative with Asian countries offers a potential path forward, emphasizing rules-based free trade. As India prepares for its WTO trade policy review and navigates its disputes with the United States, it has a unique opportunity to lead reforms and champion the interests of the Global South. The future of global trade hangs in the balance, and the EU’s bold proposal could reshape the international economic order for years to come.
FAQs
1. What is the European Commission’s proposal for an alternative to the WTO?
European Commission President Ursula von der Leyen has proposed a Europe-led trade initiative to establish structured trade cooperation with Asian countries, particularly the 11 member nations of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the UK. This initiative aims to create a new rules-based trade framework to address the WTO’s dysfunction, including its stalled dispute settlement system and inability to adapt to modern global trade dynamics.
2. Why is the WTO facing challenges?
The WTO, established in 1995, is grappling with multiple issues: a paralyzed dispute settlement system due to the U.S. blocking appointments to the Appellate Body since 2016, inequities favoring developed nations, opaque decision-making processes, the rise of regional trade blocs like the EU and CPTPP, and trade tensions between major powers like the U.S. and China. These challenges have weakened the WTO’s ability to regulate global trade effectively.
3. How does India play a role in the WTO and the proposed alternative?
As a leader of the Global South and one of the WTO’s 166 member countries, India is actively engaged in WTO processes, including its eighth trade policy review in 2025. India has been filing disputes against the U.S. over tariffs and is revising retaliatory duties under WTO norms. The EU’s proposed trade framework offers India an opportunity to champion reforms that address the concerns of developing nations while strengthening its position in global trade.
4. What is the Multi-Party Interim Appeal Arbitration Arrangement (MPIA)?
The MPIA is a temporary mechanism created by 57 WTO members, including the EU, China, and the UK, to replicate the functions of the WTO’s Appellate Body, which has been non-functional since 2019 due to U.S. blockades. Covering 57.6% of global trade, the MPIA serves as a stopgap but does not resolve the WTO’s broader institutional crisis.
5. How might the EU’s initiative impact global trade?
The EU’s proposed trade framework, in collaboration with CPTPP nations, aims to establish a rules-based free trade system that could serve as an alternative to the WTO. While it seeks to address the WTO’s shortcomings, challenges remain, including the potential exclusion of major economies like the U.S. and the need to integrate developing nations’ interests. The initiative could reshape global trade dynamics, with India playing a pivotal role in advocating for equitable reforms.
