WTO warns of fragmentation in global trade and its cost

At the same time, the organization emphasizes that the current problems are not evidence of the failure of the system it created, but rather a consequence of its complexity and of the contradictions accumulated over decades between countries at different levels of development.

The paradox noted in the report is that the crisis has been largely generated by the organization’s own successes. It was precisely thanks to negotiations within the WTO that import tariffs in the largest economies fell over nearly 50 years—from 20–25% in 1947 to about 3% by 1995—which made deep integration of world trade possible. However, the increasing complexity of trade disputes and the growing stratification among the organization’s members—from advanced economies to countries on the periphery of the system—have reduced its governability. The temptation of unilateral actions, which major economies have resorted to increasingly often in recent years, provides short-term tactical advantages but undermines the predictability of the entire system and restricts market access for all participants.

The authors of the report calculated three scenarios for the further transformation of the trading system, and the range between them is crucial for understanding what is at stake. The “Geographically Fragmented World” scenario implies losses of 5.1% of global GDP with exports falling by 18.6%. A shift to a system of bilateral agreements under the “Free Trade World” scenario would be more costly: a GDP decline of 6.9% and an export contraction of almost 27%. And only strengthening the WTO’s institutions, described as an “Expanded World of Cooperation,” could, on the contrary, add 2.9% to global GDP and nearly 18% to export volumes. In other words, institutional cooperation is assessed by the organization’s experts not merely as a safer path, but as an economically more advantageous one compared with fragmentation.

The distribution of costs deserves special attention. The consequences of a reduction in multilateral trade, according to the WTO’s forecast, will fall on countries extremely unevenly. Small and poor economies will be the most vulnerable. Their losses will be more than three times those of developed countries. This also calls into question progress on broader global challenges in the areas of the environment, digitalization, and the resilience of supply chains, which require coordinated rather than fragmented efforts.

Thus, the WTO report records a change of era in world trade—from a unified multilateral system to a more fragmented and regionalized order. The economic price of this transition has been calculated and is quite high, and the least developed countries prove to be the most vulnerable. The main issue that will determine the development of global trade in the foreseeable future is whether the World Trade Organization will be able to adapt its internal rules and approaches to new realities, or whether the tendency toward the breakup of a single economic space will become final and irreversible.

Author: Candidate of Economic Sciences, Associate Professor, Department of World Economy and World Finance, Financial University under the Government of the Russian Federation Tatyana Aleksandrovna Gorbacheva.