TWN Info Service on WTO and Trade Issues (Oct26/12)
12 October 2026
Third World Network

WTO: Global trading system faces most turbulent disruption in 80 years
Published in SUNS #10531 dated 12 October 2026

Geneva, 9 Oct (D. Ravi Kanth) -- The World Trade Organization and the global multilateral trading system are navigating a period of profound instability, according to the World Trade Report 2026 - "A Critical Juncture for the World Trading System" - issued on 8 October.

The report notes "the most serious and sustained disruptions since the multilateral trading system was created 80 years ago."

The report includes a standard disclaimer: "The World Trade Report 2026 has been prepared under the responsibility of the WTO Secretariat. It does not necessarily reflect the positions or opinions of WTO members and it is without prejudice to their rights and obligations under the WTO agreements. The opinions expressed and arguments employed herein are not intended to provide any authoritative or legal interpretation of provisions of the WTO agreements and shall in no way be read or understood to have any legal implications. The terms and illustrations used in this publication do not constitute or imply an expression of opinion by the WTO Secretariat concerning the status or boundaries of any territory. The opinion pieces written by the external contributors are the sole responsibility of their respective authors that the views in the report reflect."

Yet, the report seemingly advances a narrative that appears to be more palatable to the proponents of WTO reform.

The executive summary of the report heavily emphasizes topics favoured by these proponents but omits the issue of agricultural subsidies and how they cause asymmetries in the global trading system.

The report argues that this critical juncture is not merely the result of external shocks but is deeply rooted in the structural evolution of the global economy.

Its central thesis posits that the WTO's current challenges are, paradoxically, "a consequence of the system's own achievements."

By fostering a more open, integrated, and rules-based world economy, the WTO created a landscape where trade policy is more complex, membership is more diverse, and economic power is more widely distributed.

However, the report fails to acknowledge that this open and predictable trading system emerged on the heels of economic globalization and the Washington Consensus.

These forces prepared the ground for tariff cuts, the introduction of trade in services, and, last but not least, a monopolistic intellectual property rights system.

Consequently, the report argues that the system's future effectiveness depends entirely on its ability to adapt to the multipolar, integrated global economy it helped create.

To understand the gravity of the current situation, the report suggests an appreciation of the historical success of the multilateral framework.

What began in 1947 as a modest tariff agreement among fewer than two dozen economies has evolved into a near-universal organization with 166 members, accounting for approximately 98 percent of global trade.

The system has overseen a historic reduction in trade barriers, with industrial tariffs falling from an estimated average of 22 percent in 1947 to low single digits today.

This liberalization drove significant gains, including an almost 50-fold expansion in global trade and unprecedented income convergence between low- and high-income economies.

Empirical estimates suggest that "membership in the WTO has increased trade between members by around 140 percent," while WTO accession processes involving deep domestic reforms led to growth rates averaging 1.5 percentage points higher than non-accessing economies.

Furthermore, the system provided resilience during crises like the 2007-09 financial crisis and the COVID-19 pandemic, helping constrain protectionism and maintain stability.

However, a critical examination reveals that these aggregate gains mask significant inequalities.

The report explicitly states that "not all economies have shared equally in these gains."

Least-developed countries (LDCs) still account for less than 1 percent of world trade, and many commodity- dependent economies have fallen further behind.

Regarding the travails of developed economies that embraced and forced globalization, the report notes that uneven outcomes led to sustained income losses for specific workers and regions, creating political pressure against trade openness.

It acknowledges that import competition and technological change pressured some communities, leading to "sustained income losses."

Export opportunities often create jobs "not for the same people or in the same places that were negatively affected."

The report attributes this disparity and job evaporation to a critical failure in the domestic policy frameworks accompanying trade liberalization.

It concludes that "to sustain trade openness - and ensure that it delivers the desired outcomes - it needs to be accompanied by domestic policies that allow more people and places to participate in, adjust to and benefit from changing patterns of trade."

In effect, the WTO can facilitate market access but cannot compensate for domestic distributional failures that ultimately threaten the system's political sustainability.

The economic logic underpinning the WTO is described as a mechanism to avoid a "mutually destructive prisoner's dilemma."

Without naming the United States, which has resorted to unilateral trade measures since April 2025, the report explains that when governments act unilaterally, they impose costs on trading partners they do not fully account for, leading to excessive global trade protectionism.

The WTO provides a forum for reciprocal bargaining, allowing members to exchange market access commitments to internalize these cross-border spillovers.

This logic relies on core principles: reciprocity, non-discrimination via the Most-Favoured-Nation (MFN) principle, binding commitments, transparency, and dispute settlement.

MFN treatment simplifies bargaining and prevents larger economies from capturing disproportionate advantages, encouraging smaller economies to participate.

However, the report notes that this flexibility has trade-offs. While Regional Trade Agreements (RTAs) can serve as laboratories for new rules, they risk contributing to fragmentation if not aligned with multilateral disciplines.

The proliferation of RTAs and "targeted trade deals" threatens system coherence, potentially creating a "spaghetti bowl" of overlapping regulations.

MAJOR DEVELOPMENTS

The report identifies four major developments straining the multilateral trading system, each requiring a reassessment of existing rules:

1. Dispersed distribution of economic power: There is an "increasingly dispersed distribution of economic power." Since 1995, the share of global merchandise trade accounted for by low- and middle-income economies has nearly doubled to 45 percent of trade. This shift created a gap between current market realities and Uruguay Round tariff commitments.

Developed economies, having already reduced tariffs significantly, have less market access to offer, while some large developing economies retain higher tariff bindings despite growing market power.

This misalignment complicates reciprocal bargaining, suggesting that "existing commitments could be re- calibrated, so that rights, obligations and the distribution of market power are better aligned with current realities."

In effect, the report suggests that low- and middle-income developing countries should do more, despite the proliferation of non-tariff measures imposed by developed countries.

The report implicitly critiques the rigid categorization of "developed" and "developing" countries, which no longer reflects economic reality - an observation supporting the WTO reform proponents.

It suggests that applying Special and Differential Treatment (S&DT) to economically powerful emerging markets undermines reciprocity and hampers the negotiation of meaningful new market access.

However, it omits to mention that S&DT, based on self-designation by developing countries, is a treaty-based right rooted in the 1979 Enabling Clause.

2. State trading enterprises and subsidies: Regarding the level-playing-field (LPF) issues, the report observes that the "growing prominence of government interventions" has raised significant "interface" problems.

Without naming China - the primary target of these issues - the report argues that the WTO was designed to allow different economic systems to coexist, but the scale of state intervention, particularly via industrial policies and subsidies, has increased globally. This has sparked concerns about maintaining a level playing field.

It said anti-dumping measures using methodologies to address non-market conditions have risen, and subsidy transparency remains poor, with only 59 percent of members submitting required notifications between 2015 and 2024.

This lack of clarity risks undermining confidence in the rules and driving members toward unilateral measures.

The report argues that "greater transparency, clearer analytical distinctions and continued pragmatic rules-based cooperation can help to manage that risk", in apparent support of WTO reforms.

However, this is easier said than done. The ideological divide between market-oriented and state-capitalist models creates fundamental disagreements over fair subsidies and legitimate industrial policies.

Current WTO rules are ill-equipped to handle modern industrial policies, which blend subsidies, state-owned enterprises, and regulatory preferences in ways difficult to quantify or challenge.

3. The rise of global value chains (GVCs) and digital trade: The "changing nature of trade" is creating new cross-border spillovers difficult to address with traditional tariff rules. The rise of global value chains (GVCs), digitalization, and artificial intelligence has deepened production interdependence.

Digital trade, which grew by 10 percent in 2025 alone, is increasingly dominated by services and intangible inputs, where behind-the-border regulations on data privacy, cybersecurity, and AI governance determine market access.

The report projects that "AI could increase global trade by 40 per cent by 2040," highlighting digital integration's potential. However, divergent regulatory approaches create interoperability issues and new trade costs.

Similarly, environmental policies, including carbon pricing and border adjustments, interact with WTO non- discrimination principles, requiring careful coordination to support the green transition without compromising openness.

The report said that the common challenge is that "cooperation over regulation, standards, data, subsidies, security and environmental measures that generate cross-border spillovers is inherently more complex than tariff bargaining."

4. Plurilaterals and national security: The WTO's consensus-based decision-making model is poorly suited to these fast-moving, technically complex issues, leading to a reliance on plurilateral agreements that may exclude many members and further fragment the system. Furthermore, "geopolitical tensions" are increasing pressure on rules-based cooperation.

Concerns over supply-chain concentration, technological rivalry, and national security have led governments to restrict trade and investment flows.

Without naming the US, which has justified some of its allegedly illegal measures under security exception provisions, the report suggests that while WTO rules provide flexibility for national security measures, the expanding use of security rationales blurs the line between legitimate policy space and unilateral decision- making.

In a multipolar world, measures taken by one country to reduce vulnerability can increase the perceived vulnerability of others, leading to mutually reinforcing restrictions.

The report warns that "if major economies turn away from rules-based cooperation, smaller economies will face a less predictable environment," making cooperation on global challenges significantly harder.

Ultimately, geopolitical rifts threaten to split the trading system into competing blocs, undermining the universal applicability of WTO rules.

To illustrate the economic costs of eroding the multilateral trading system, the report provides stark simulations.

In a "geo-fragmented world" scenario, global GDP would fall by 5.1 percent and global exports by 18.6 percent.

In a more extreme "FTA world" scenario, where multilateral cooperation is replaced entirely by a network of free trade agreements, global GDP would drop by 6.9 percent and exports by 26.9 percent. Conversely, an "enhanced cooperation world" could raise global GDP by 2.9 percent.

These figures illustrate that "the gap between strengthened multilateral cooperation and erosion of the WTO is equivalent to roughly 5 to 10 percent of global real GDP."

The report highlights some recent successes, such as the Agreement on Fisheries Subsidies and plurilateral initiatives on electronic commerce - which have not been multilaterally adopted - and services domestic regulation.

Dispute settlement, though impaired by the Appellate Body's suspension, continues to function, with members resolving about half of disputes through mutually agreed solutions or panel proceedings.

Transparency mechanisms, while imperfect, remain central to reducing uncertainty and building trust.

The report concludes that preserving the WTO does not mean preserving the status quo.

Instead, it said "the choice for members is not between reform and continuity. It is between adapting rules-based cooperation to today's global economy or drifting toward less predictable, less inclusive and more power-based forms of trade governance."

In summary, the WTO's founding logic remains relevant, but its application must evolve; the system must repair what is broken, update what is outdated, and preserve what works.

This involves addressing "interface" problems caused by diverse economic systems, updating rules for digital and green trade, and ensuring that the distribution of rights and obligations reflects current realities.

The report emphasizes that "the world economy that the WTO helped to create does not weaken the case for rules-based cooperation; it makes renewal of that cooperation more urgent." +