WTO Warns Trade System at Critical Juncture, Urges Reform to Avert Fragmentation
WTO urges members to reform global trade rules, warning that fragmentation could cut global GDP by up to 6.9% and hurt least-developed countries most.
The World Trade Organization has called on its members to overhaul global trade rules, warning that the system is at a critical juncture and that a slide into fragmentation would carry steep economic costs, particularly for poorer countries.
In its annual report, the Geneva-based body said existing rules have failed to keep pace with shifts in economic power, the growing use of industrial policy, the expansion of digital trade and mounting political tensions among major economies.
The warning follows the failure of the WTO's 166 members to agree on a reform package at a ministerial meeting in Yaounde, Cameroon, in March. Talks have since resumed in Geneva on issues including decision-making, dispute settlement, and the challenges posed by subsidies and state intervention. Reaching consensus remains difficult in an organisation whose members span different stages of development and often hold conflicting interests.
WTO economists modelled a scenario in which the world splits into competing geopolitical blocs, finding that global GDP would be 5.1% lower and exports 18.6% lower by 2050 than they would otherwise be. Under a more severe scenario in which multilateral cooperation collapses and is replaced by a patchwork of free trade agreements, global GDP would fall 6.9% and exports by nearly 27%.
Stronger multilateral cooperation, by contrast, could lift global GDP by 2.9% and boost exports by almost 18%. Least-developed countries stand to gain the most from such cooperation, but would also suffer the largest losses if the system fragments.
WTO Chief Economist Rob Staiger described the trading system as being at a critical juncture, pointing to four major challenges identified in the report: a broader distribution of economic power, growing state intervention in economies, changes in the nature of trade driven by digitalisation and global value chains, and rising political friction. He said the rules are under strain and having a real impact, and that the modelled costs of a breakdown at the global multilateral level would be quite large.
The findings come as countries increasingly turn to regional and sector-specific trade arrangements amid rising trade tensions and sweeping U.S. tariffs. In March, a group of WTO members agreed to advance the organisation's first baseline digital trade rules through a plurilateral agreement, bypassing opposition from some members.
Staiger said regional trade agreements and plurilateral initiatives could strengthen the multilateral system, but warned they could also undermine it if they evolved into competing blocs. Without a strong WTO framework, he said, such arrangements risk diverting trade towards preferred partners rather than the most efficient producers and encouraging blocs to raise barriers against outsiders. WTO rules help limit discrimination against non-members and constrain how free trade agreements are structured, he added.
The report also noted that trade policy uncertainty has reached unprecedented levels in recent years as governments increasingly deploy tariffs, subsidies, export controls and industrial policies. About 72% of global merchandise trade still takes place under WTO most-favoured-nation tariff terms, down from roughly 80% in 2022. Staiger called the decline a worrisome trend that underscores the risk of a gradual erosion of the multilateral trading system.