Shen Jie: At a critical moment, WTO needs to tackle the 'hard bone' of reform

Summary: To promote the modernization reform of the world trade system, the WTO, as its main carrier, first needs to tackle the "hard bones" of the reform. Faced with multiple pressures from technological, political, and governance levels, the WTO, which is at a critical moment, needs to continue to hold high the banner of multilateralism, target problems and break through barriers, and strive to remove obstacles in the reform process.

The World Trade Organization (WTO) pointed out in its recently released "2026 World Trade Report" that global trade policies and the WTO are facing the most serious and persistent challenges since the establishment of the multilateral trading system. The latest annual important document of the WTO, titled "The World Trade System at a Critical Moment," emphasizes that if reforms are not pushed forward in a timely manner, global output may decline by up to 10% by 2050. To promote the modernization reform of the world trade system, the WTO, as its main carrier, first needs to tackle the "hard bones" of the reform.

Decision efficiency needs to be improved

In fact, since the Uruguay Round negotiations achieved comprehensive reform in 1994, the WTO has not been able to further promote systematic and holistic structural adjustments of equal magnitude in the past thirty years. Nowadays, this international organization and its representative multilateral trading system have reached a new "crossroads", which is due to both internal reasons of the system itself and the impact of many external factors.

The continuous expansion of WTO membership has increased coordination costs. The organization's predecessor, the General Agreement on Tariffs and Trade (GATT), had only 23 original contracting parties. Today, there are as many as 166 WTO members, and about 72% of global trade in goods is conducted under the WTO's most favored nation treatment framework, indicating its far-reaching impact and broad scope of benefits. In addition, the era of the General Agreement on Tariffs and Trade also shaped the most equitable negotiation mechanism on a global scale at that time: countries, regardless of their size, poverty or wealth, could enjoy the same rights at the negotiating table, and when consensus could not be reached through negotiation, voting could be conducted through the "one country, one vote" method. The WTO's retention and continuation of this practice have become synonymous with multilateralism.

However, as the number of members increases, the diversity of each member in terms of development stage, advantageous areas, key demands, etc. becomes increasingly prominent, and the coordination cost increases accordingly, posing challenges to the original decision-making mechanism. A typical example is the first round of multilateral trade negotiations launched after the formal establishment of the WTO - the Doha Round negotiations, which were deadlocked and ultimately had to be terminated. In this context, improving decision-making efficiency and promoting the formulation, implementation, and enforcement of new rules have become urgent tasks for the reform of the WTO and its multilateral trading system.

The interweaving of three major external pressures

In addition to internal reasons such as an increase in the number of WTO members and coordination costs, the reason why the report emphasizes that the present is a "critical moment" is also due to the accelerated accumulation of external risk factors.

Firstly, the current form and content of international trade have undergone significant changes, and the existing governance rules of the WTO are difficult to comprehensively coordinate and regulate the modern trade system. With the rapid development of the digital economy and the technological wave sparked by artificial intelligence, new production factors such as information, services, and knowledge can flow rapidly across borders, driving the rapid growth of digital trade. According to estimates, digital delivery services currently account for 55% of global service exports; By 2025 alone, the export value of services in this field has increased by 10%. To cope with the continuous expansion of the digital economy, governments around the world have successively introduced a series of diversified policy measures to regulate and ensure order and security in this field. However, it is evident that policy differences between countries pose new challenges for international coordination and regulation. Although the General Agreement on Trade in Services (GATS) came into effect in 1995 with the establishment of the WTO, this commitment is no longer sufficient to meet the practical needs of global digital governance.

Secondly, geopolitical and geo economic tensions have driven chaos such as "friendly shore outsourcing" and "small circles" and "small groups", leading to a sharp increase in unilateral restrictive measures and a serious impact on the multilateral trading system. The Russia-Ukraine conflict, the US Iraq confrontation and other geopolitical conflicts are frequent, and political tensions have spillover effects on regional and even international economic and trade cooperation. In recent years, unilateralism and protectionism have risen, and the tide of anti globalization has surged. Some countries have artificially built "high walls and iron curtains" to safeguard their own interests and meet their own needs, resulting in a trend of regionalization, fragmentation, and factionalism in global trade. According to institutional calculations, the number of import and export control measures declared globally citing the "national security exception" clause has almost tripled in the past decade. With the continuous increase of policy measures formulated for pan politicization and pan security considerations, how to maintain the normal and orderly operation of the rule-based international trade system is becoming increasingly challenging.

Finally, regional trade agreements have become increasingly frequent as "alternative solutions", squeezing the space for the effectiveness of the multilateral trading system. It is precisely because of the difficulties encountered in the Doha Round negotiations that many countries have begun to seek trade partners within the region. However, from an economic perspective, while regional trade agreements promote trade expansion, they may also generate trade diversion effects, where trade shifts towards partner countries within the alliance rather than more efficient producers globally, resulting in collective level loss of benefits. In addition, the superposition of regional trade agreements may create an "spaghetti bowl" effect, where the differences in rules and standards between different agreements prevent cross-border enterprises from fully and effectively utilizing the preferential policies of free trade agreements, causing inconvenience to their production and operation. Therefore, whether from a macro or micro perspective, promoting multilateralism and integrating fragmented regional trade agreements are more efficient and in line with the goal of maximizing benefits.

Strive to remove obstacles to reform

Based on the core content of this report, it is not difficult to find that the WTO's understanding of the aforementioned issues is clear and explicit. If that's the case, why is the road to reform still "blocked and long"? To answer this question, it is necessary to trace back to the three basic mechanisms of the WTO's normal operation, as well as the series of tests these mechanisms have faced in recent years.

Firstly, the mechanism of consensus through negotiation. The WTO's consensus and "one country, one vote" mechanism inherits from the General Agreement on Tariffs and Trade, which ensures equal rights among members and provides a certain degree of fallback when resolutions cannot be reached through negotiation. However, in practical operation, only the General Agreement on Tariffs and Trade period has initiated a voting process, and the WTO has never truly adopted a voting mechanism since its establishment.

Secondly, the dispute resolution mechanism. Compared to the period of the General Agreement on Tariffs and Trade, the development of a comprehensive dispute settlement mechanism is a major progress and contribution of the WTO. Simply put, when there is friction between countries over a certain trade issue, the WTO can assist in coordination, and the specific process includes two main steps: expert panel review and appellate body review. However, in recent years, the United States has continuously rejected the appointment of new judges on the grounds of "overstepping its authority" and "judges serving beyond their term", causing the appellate body to be completely paralyzed due to a shortage of personnel, which means that the final appeal process, which should have been the "final decision" in the original process, is currently unable to operate normally.

Thirdly, transparency mechanism. The WTO requires all members to publicly disclose all trade-related laws, regulations, policies, and measures they have formulated, especially to report to the WTO simultaneously. But in fact, some members are concerned about the fulfillment of transparency obligations. Between 2015 and 2024, only 59% of members submitted notifications as required regarding the implementation of subsidy policies; Among these notifications, 77% had delayed submissions, with an average delay time exceeding one year. The combination of these situations has caused serious damage to the authority and reliability of the WTO.

As WTO Director General Ivica has stated, the multilateral trading system has created enormous benefits over the past 80 years, helping to build a more integrated and resilient global economy. Trade cooperation led by the WTO not only supports economic growth, but also helps narrow the income gap between developing and developed economies, playing a role in promoting peace. The global trade pattern has undergone significant changes, but the logic behind the establishment of this system, which states that cooperation among all economies is better than unilateral action, still applies today. Therefore, in the face of multiple pressures from technological, political, and governance levels, the WTO, which is at a critical moment, needs to continue to hold high the banner of multilateralism, aim to break through problems, and strive to remove obstacles in the reform process.

Just before the release of this important annual document from the WTO, leaders of BRICS countries gathered in New Delhi, India. Promoting the correct direction of WTO reform has become one of the issues of concern at the summit. In today's world where the momentum of the global South is strong and multipolarity is accelerating, we look forward to the power of WTO reform coming from all corners of the world, and we hope that the fruits of unity and cooperation will be jointly harvested by all parties. (The author is an associate professor at the School of Economics and Finance, School of International Relations, and a researcher at the Center for Economic and Financial Security Research.)