The World Trade Organisation (WTO) has warned that a breakdown of global trade cooperation could significantly weaken the world economy, with global GDP potentially falling by 6.9 per cent and exports by almost 27 per cent by 2050.
The WTO gave the warning in its annual report on Tuesday, urging its 166 members to reform global trade rules to prevent the trading system from becoming fragmented.
The Geneva-based organisation said existing rules had struggled to keep pace with changes in the global economy, including shifts in economic power, increased government intervention, digital trade and rising political tensions among major powers.
The WTO economists modelled a scenario in which the world economy fragments into competing geopolitical blocs. Under the scenario, global GDP would be 5.1 per cent lower and exports 18.6 per cent lower by 2050 than they would otherwise be.
In a more severe scenario, where multilateral cooperation collapses and is replaced by a patchwork of free trade agreements, global GDP would fall by 6.9 per cent and exports by nearly 27 per cent.
The report said stronger multilateral cooperation, however, could increase global GDP by 2.9 per cent and boost exports by almost 18 per cent.
It added that least-developed countries stood to gain the most from stronger global trade cooperation but could also suffer the largest losses if the system became fragmented.
The warning followed the failure of WTO members to reach agreement on a reform package at a ministerial meeting in Yaoundé, Cameroon, in March.
Members have since resumed talks in Geneva on issues including decision-making, dispute settlement, subsidies and state intervention in economies.
The WTO has struggled to secure agreement on reforms because its members are at different stages of economic development and often have conflicting interests.
WTO Chief Economist Rob Staiger said the global trading system was at a "critical juncture", pointing to four major challenges: a broader distribution of economic power, growing state intervention in economies, changes in trade driven by digitalisation and global value chains, and increasing political friction.
"The rules are under strain and they really are having an impact. And if things fell apart at the global multilateral level, our scenarios are saying these would be the costs, and those costs would be quite large," Staiger told Reuters.
The findings come as countries increasingly pursue regional and sector-specific trade arrangements amid rising trade tensions and sweeping US tariffs.
In March, a group of WTO members agreed to move ahead with the organisation's first baseline digital trade rules through a plurilateral agreement, despite opposition from some members.
Staiger said regional trade agreements and plurilateral initiatives could strengthen the multilateral trading system but warned that they could also undermine it if they developed into competing blocs.
Without a strong WTO framework, he said, such arrangements could divert trade towards preferred partners rather than the most efficient producers and encourage blocs to impose higher barriers on outsiders.
WTO rules help limit discrimination against non-members and place constraints on how free trade agreements are structured, Staiger added.
The WTO said trade policy uncertainty had reached unprecedented levels in recent years as governments increasingly deployed tariffs, subsidies, export controls and industrial policies.
It said about 72 per cent of global merchandise trade still takes place under WTO most-favoured-nation tariff terms, down from roughly 80 per cent in 2022.
Staiger described the decline as a "worrisome trend", saying it highlighted the risk of a gradual erosion of the multilateral trading system.
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