Obituaries for the World Trade Organisation have been prepared many times over the past decade but proved premature. This time they may be needed.

Make no mistake, the failure of WTO members to ratify a deal designed to streamline customs procedures by preventing needless delays and corruption at borders is a huge setback to the multilateral trading system. It paves the way for countries to cut their own bilateral or regional deals. For the WTO, it threatens to be fatal.

Here's the situation. It is more than 20 years since the last global trade deal was done and dusted. A new round of talks began with an ambitious agenda in Doha in 2001 but went nowhere fast. The issues – including services, manufacturing and agriculture – were too complex and contentious; big developing countries were no longer prepared to be pushed around by Brussels and Washington. Eventually, under a new director general, a deal was finally agreed in Bali last December. Rather than see the talks collapse completely, the WTO's 160 members put the hard bits of the Doha agenda to one side and decided to pick the low hanging fruit instead. This was the seemingly uncontroversial commitment to reform customs rules, with a pledge of money to help poor countries.

There was one other part of the Bali agreement. India secured an agreement allowing it to stockpile more food than is allowed under WTO rules. This was due to come into force in 2017, after the trade facilitation deal.

All that was needed to clinch the first multilateral trade deal since 1994 was for the Bali accord to be ratified by WTO members before a 31 July 2014 deadline. Wrongly, it was assumed this would be a rubber-stamping exercise. India's new nationalist government said it would not ratify the agreement unless action on the food deal, seen as important in feeding the country's rural poor, was speeded up and was backed by three other countries – Cuba, Bolivia and Venezuela.

Trade diplomats in Geneva have now gone on their annual summer holiday. That will give them time to work out what to do next. It is possible that India will soften its line given that New Delhi has been one of the most vociferous opponents of bilateral and regional deals, on the grounds that they make it easier for rich countries to call the shots.

An alternative would be for the remaining WTO members to go ahead without India. This, though, would harden the belief in some capitals that multilateral deals are simply too hard to negotiate and not worth all the trouble. It would make Brussels and Washington even keener on their transatlantic trade and investment partnership (TTIP).

So, this really is make or break time. The WTO's members have to decide whether there is a future in global trade talks. If they decide there isn't, the WTO is in effect finished.