GENEVA — The World Trade Organization (WTO) has called on its members to reform the global trade system to prevent fragmentation that could cause widespread economic harm, particularly to developing countries. In its annual report released on September 15, the Geneva-based organization highlighted the challenges faced by existing trade rules amid shifting economic power, increased state intervention, rapid growth in digital trade, and rising geopolitical tensions.
The WTO’s warning follows the failure of its 166 members to reach consensus on a reform package during a ministerial meeting held in March in Yaounde, Cameroon. Since then, negotiations have resumed in Geneva, focusing on key issues such as decision-making processes, dispute settlement mechanisms, and the impact of subsidies and state support on trade dynamics.
The organization emphasized the difficulty of achieving reforms within its consensus-driven framework, given the diverse economic development levels and sometimes conflicting interests among member countries. WTO economists presented models depicting potential futures for global trade. In one scenario where the world divides into competing geopolitical blocs, global gross domestic product (GDP) could decline by 5.1%, with exports falling 18.6% by 2050 compared to a baseline projection. A more severe outcome, involving the collapse of multilateral cooperation replaced by a web of bilateral or regional free trade agreements, could lead to a 6.9% reduction in GDP and a nearly 27% drop in exports.
Rob Staiger, the WTO’s Chief Economist, described the current state of global trade as at a “critical juncture.” He pointed to four main pressures on the system: a wider dispersion of economic power, greater state involvement in economies, transformation of trade through digitization and integrated global value chains, and mounting political friction between major powers. Staiger noted that while regional trade agreements and plurilateral initiatives, such as the recent effort to establish baseline digital trade rules among a subset of members, might support the multilateral system, they also carry the risk of fragmenting global trade if they evolve into competing blocs.
Such fragmentation could divert trade toward preferred partners rather than to the most efficient producers and create incentives for trade blocs to raise barriers against outsiders. The WTO’s rules are designed to limit discrimination against non-members and regulate the structure of free trade agreements, mechanisms that could be weakened if the global framework erodes.
The WTO report also underscored unprecedented levels of trade policy uncertainty in recent years, driven by the increasing use of tariffs, subsidies, export controls, and industrial policies by governments worldwide. This environment, the organization cautioned, threatens to undermine the stability and predictability crucial for international trade and economic growth.