About Multilateral Trade System

• Multilateral Trade System is a rules-based global trading system designed to reduce trade barriers, promote transparency, and ensure predictability in trade flows.
• Institutional Anchor: The WTO, successor to the General Agreement on Tariffs and Trade (GATT, 1947), administers agreements, resolves disputes, and provides negotiation platforms.
• Core Principles: It is based on Most Favoured Nation (MFN), National Treatment, Reciprocity, and Transparency.

Need for a Multilateral Trade System

• Prevents Protectionism: Ensures global trade is not distorted by unilateral tariffs, sanctions, and retaliatory measures.
• Promotes Stability: Provides predictability for businesses and governments in planning trade and investment strategies.
• Supports Development: Gives space for Special and Differential Treatment (S&DT), helping developing countries protect vulnerable sectors.
• Food & Energy Security: Negotiations on Public Stockholding (PSH) and subsidy disciplines are vital for sustainable growth.
• Supply Chain Resilience: Global rules enable transparent and predictable access to markets, reducing vulnerability to disruptions.

About Fair Trade System

• The Fair Trade System is an alternative trading model designed to provide equitable trading conditions, promote sustainability, and empower marginalized producers, particularly in developing countries. It challenges exploitative practices of conventional trade and emphasizes social, economic, and environmental justice.

Key Features of Fair Trade

• Fair Prices: Ensures producers, often small-scale farmers and artisans, receive a price that covers production costs and provides a living wage.
• Direct Trade and Reduced Intermediaries: Encourages direct relationships between producers and buyers, minimizing exploitation by middlemen.
• Ethical Standards: Mandates safe working conditions, prohibits child labor, and upholds human rights.
• Sustainable Practices: Promotes environmentally sustainable production methods, including organic farming and reduced carbon footprints.
• Community Development: Fair Trade premiums are reinvested in local communities for education, healthcare, and infrastructure.

Significance of Fair Trade

• Empowerment of Marginalized Producers: Provides economic security and improves livelihoods of farmers and artisans.
• Global Ethical Consumption: Encourages consumers to support socially responsible and environmentally friendly products.
• Reducing Inequality: Addresses trade imbalances between developed and developing nations.
• Promotion of Sustainable Development: Aligns with SDGs such as no poverty (SDG 1), decent work (SDG 8), and responsible consumption (SDG 12).

About Global Trade

• Definition: Global trade refers to the exchange of goods, services, capital, and technology across international borders, enabling economic interdependence among nations.
• Institutions: It is governed by frameworks such as the World Trade Organization (WTO), Free Trade Agreements (FTAs), and regional blocs like the European Union (EU), ASEAN, and SCO.
• Significance: Global trade accounts for nearly 60% of global GDP, making it a crucial driver of growth, innovation, and poverty reduction.

Need for Global Trade

• Economic Growth: Facilitates access to larger markets, enabling countries to boost production and income.
• Specialisation & Efficiency: Promotes comparative advantage, encouraging nations to specialise in sectors where they are most efficient.
• Technology Transfer: Allows flow of knowledge, innovation, and technology, particularly benefiting developing countries.
• Employment & Livelihoods: Trade-intensive sectors (IT, pharma, textiles, agriculture exports) create millions of jobs, especially in emerging economies like India.
• Consumer Benefits: Ensures variety, affordability, and quality of goods and services for consumers worldwide.
• Geopolitical Cooperation: Strengthens economic interdependence, fostering peace, diplomacy, and regional integration.

Emerging Challenges in Global Trade

• Rising Protectionism: Countries are increasingly imposing tariffs, sanctions, and trade barriers. Example: United States’ 50% tariffs on Brazil and India (2025) undermining WTO rules.
• Weak Multilateralism: Institutional paralysis at the WTO and political deadlocks at the United Nations (UN) obstruct reforms and weaken rule-based order.
• Supply Chain Fragility: Shocks from COVID-19, Ukraine conflict, selective sanctions, and Red Sea maritime crisis exposed vulnerabilities in trade and energy markets.
• Food, Energy & Fertiliser Insecurity: Developing countries face price volatility and shortages, worsening inequality in the Global South.
• Climate-linked Trade Measures: Instruments like the EU’s Carbon Border Adjustment Mechanism (CBAM) risk creating green protectionism against developing economies.
• Digital Divide: Unequal readiness in digital trade frameworks risks leaving developing nations behind in the e-commerce revolution.
• Rise of Trade Blocs: Growth of regional and bilateral agreements (RTAs/FTAs) risks bypassing multilateral platforms and fragmenting the global system.

India’s Share & Position in Global Trade (FY 2024–25)

• Total Exports & Growth: India’s total exports (goods & services) reached a record USD 824.9 billion in FY 2024–25, marking a 6.0% increase over USD 778.1 billion in FY 2023–24. 
  • This growth was largely driven by services exports (~USD 387.5 billion, increased by 13.6%), while merchandise exports remained relatively stagnant (~USD 437.4 billion, marginal growth).
• Services Exports & Global Ranking: India’s services exports now account for approximately 4.3% of global services trade, up from 1.9% in 2005. 
  • In specific sub-sectors, India holds 10.2% of global exports for telecommunications, computer, and information services (2nd largest globally) and 7.2% for other business services (3rd largest globally).
• Trade Balance & Composition: Merchandise imports rose to USD 720.24 billion, resulting in a trade deficit of USD 94.26 billion for FY 2024–25. 
  • India’s total trade (exports & imports) stood at USD 1.736 trillion, reflecting a growth of about 6.2% over the previous year.
• Share of GDP: Exports constitute roughly 22–23% of India’s Gross Domestic Product (GDP), while total trade contributes around 40–45% of GDP, highlighting the growing integration of India with global markets.

India’s Top Trading Partners (FY 2024–25)

• Top Export Destinations:
  • United States (US): Largest export market, ~USD 77–80 billion (~17–18% of exports).
  • United Arab Emirates (UAE): ~USD 33–36 billion (~8–9% share).
  • Netherlands: ~USD 21–22 billion (~5–6% share).
  • China: ~USD 13–17 billion (~3–4% share).
  • Others (Singapore, United Kingdom, Saudi Arabia): Each ~USD 10–15 billion (~2–3% share).
• Top Import Sources:
  • China: Largest import partner, ~USD 100–104 billion (~15% of imports).
  • Russia: ~USD 50–60 billion (~9% share), mainly energy and defence supplies.
  • United Arab Emirates (UAE): ~USD 45–50 billion (~7% share), mostly petroleum and precious metals.
  • United States (US): ~USD 40–45 billion (~6% share).
  • Saudi Arabia / Iraq / Indonesia: Each ~USD 25–35 billion (~3–5%), mostly crude oil and raw materials.

WTO Dispute Settlement Mechanism (DSM)

• The World Trade Organization (WTO), established in 1995, provides the only multilateral dispute settlement system for trade conflicts.
• It is often called the “crown jewel” of the WTO because it ensures that trade disputes are settled legally and predictably, rather than through unilateral action or trade wars.

Dispute Settlement Body (DSB)

• The General Council of the WTO convenes as the Dispute Settlement Body (DSB) to manage and resolve trade disputes among member countries.
• The DSB holds the authority to:
  • Establish dispute settlement panels to examine specific cases and assess compliance with WTO agreements.
  • Refer matters to arbitration for resolution in instances requiring specialized or expedited review.
  • Adopt reports from panels, the Appellate Body, and arbitration proceedings.
  • Monitor implementation of rulings and recommendations to ensure compliance by member states.
  • Authorize suspension of concessions or retaliatory measures if a member fails to comply with adopted rulings.
    • The DSB functions as the executive arm of the WTO’s dispute settlement system, ensuring an orderly, rules-based resolution of trade conflicts and maintaining the integrity of the multilateral trading system.
• How Does It Work?
  • Consultations (60 days): Parties attempt to resolve disputes through negotiation.
  • Panel Stage: If unresolved, a dispute panel of independent experts is established.
  • Appellate Review: Parties can appeal to the Appellate Body, which acts as the WTO’s supreme court.
  • Implementation: The losing party must comply, or the winning party may be authorized to impose retaliatory tariffs.
• Crisis in the Mechanism (Current Situation):
  • Since December 2019, the Appellate Body has been non-functional because the United States blocked new appointments of judges, alleging judicial overreach.
  • Without the Appellate Body, panel rulings can be appealed “into the void” (appealed but not decided), leaving disputes unresolved.
  • This has created a paralysis, undermining confidence in the WTO system.
• Current Arrangements:
  • Many members, led by the European Union, created an interim solution: the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) under Article 25 of the Dispute Settlement Understanding (DSU).
  • Around 25 members (including the EU, China, Brazil, Australia) are part of this MPIA.
  • However, India, the US, and some others are not members, meaning they have no binding appeal system at present.