Author: Ilaria Catalano (Junior Researcher Mondo Internazionale GEO - Economia)
Introduction
While international trade is not disappearing, the institutions through which it is governed are becoming more and more fragmented. The World Trade Organization (WTO), once the main institutional embodiment of multilateralism and rules-based economic integration, is facing a profound crisis. The paralysis of its Appellate Body since 2019 has weakened the predictability and enforceability of the multilateral trading system, while growing tensions over the interpretation and enforcement of WTO rules have further undermined confidence in the institution.
However, the weakening of multilateral trade governance has not been accompanied by a comparable retreat from international economic integration. Trade continues to connect economies on a large scale, while states continue to pursue liberalization through bilateral, regional and plurilateral arrangements. WTO data, for instance, show that the share of global imports involving partners to regional trade agreements increased from 37% in 2010 to 52% in 2022, even though most global merchandise trade continued to take place on non-preferential MFN terms. Furthermore, the conclusion of the EU-India Free Trade Agreement negotiations in January 2026 also illustrates the continued pursuit of rules-based economic integration despite a more uncertain global environment.
This article therefore asks whether these developments should be understood not as deglobalization, but as a transformation in the governance of globalization. Clearly, the weakening of universal multilateral institutions has contributed to a more fragmented architecture in which states increasingly organize cooperation through smaller groups of partners. At the same time, geopolitical rivalry and growing concerns over economic security are changing the logic of interdependence: trade relationships are increasingly shaped not only by efficiency and market access, but also by resilience, supply-chain security, technology, critical resources and strategic dependence. Globalization, in other words, may be entering a different phase, in which interdependence persists but is increasingly managed through more fragmented and strategic forms of cooperation.
2. The WTO Crisis as a Manifestation of the Crisis of Multilateralism
The fragmentation of global trade governance is most visible in the crisis of the World Trade Organization itself. The WTO was designed to make international trade more predictable by embedding economic relations within a common set of rules and, crucially, by providing a mechanism through which those rules could be enforced. The weakening of this mechanism is therefore not simply an institutional problem internal to the WTO: it concerns the overall capacity of universal multilateral institutions to govern an increasingly contested global economy. Consequently, it provides an important starting point for understanding the wider transformation of multilateralism.
At the center of this crisis is the WTO’s dispute settlement system. Under the Dispute Settlement Understanding (DSU), disputes between members normally begin with consultations, through which the parties attempt to reach a negotiated solution. Where consultations fail, a panel of independent experts can examine the case and issue a ruling. Either party can then appeal the panel’s findings on questions of law to the Appellate Body (AB). Established in 1995, the AB was a standing body composed of seven members appointed for four-year terms, with three members selected to hear each individual appeal. Its powers allowed it to uphold, modify or reverse the legal findings of a panel. Its reports were then adopted by the Dispute Settlement Body unless there was consensus among members against adoption. This structure gave the WTO’s dispute settlement system a degree of legal enforceability that did not really exist under the GATT, making it a major institutional innovation. In approximately 60% of disputes, consultations were sufficient to reach a settlement; in the remaining cases, panels could issue rulings that could then be appealed. The Appellate Body therefore provided the final stage through which members could obtain an authoritative legal ruling and, where necessary, move towards implementation or authorized retaliation.
The system began to break down because the United States refused to support the appointment of new Appellate Body members. This was not a sudden decision taken in 2019: US objections had developed over several administrations and became increasingly focused on what Washington considered the AB’s judicial overreach. The United States argued that the AB had interpreted WTO agreements beyond the text negotiated by members, effectively created obligations that members had never accepted, treated previous reports as precedent despite the absence of a formal doctrine of precedent, exceeded the time limits for issuing reports, and allowed former members to continue participating in cases after their terms had expired. The main underlying problem leading to this was partly that WTO rules in areas including trade remedies were incomplete and had become difficult to update because substantive reform requires consensus among all members. The Appellate Body was therefore left to interpret ambiguous rules in areas where governments had failed to agree on new ones. From the US perspective, this shifted authority from governments negotiating collectively towards adjudicators interpreting existing agreements. In this sense, the dispute-settlement crisis was connected to a deeper institutional tension: the WTO's consensus-based negotiating system made it difficult to update rules, while the effectiveness of its judicial arm gave the Appellate Body greater importance in resolving the ambiguities created by that political deadlock.
Ultimately, the institutional design of the WTO made the AB paralysis consequential for the broader governance of multilateral order. Because Appellate Body members are appointed by consensus, the United States could prevent new appointments simply by refusing to agree to the selection process. As vacancies accumulated, the body became unable to hear new appeals and ceased functioning entirely in 2020. Since then, the WTO has been left with no institution capable of completing appeals filed by parties dissatisfied with panel rulings, which are therefore appealed “into the void.” Because an appealed panel report cannot proceed to final adoption while the appeal remains unresolved, the losing party can effectively prevent the dispute from reaching its implementation stage. The result is a system in which the rules formally remain in place, but without proper enforcement. This is why the Appellate Body crisis matters for the argument of this analysis: the WTO was not simply created to provide a forum in which states could discuss trade. Its dispute settlement system was intended to provide security and predictability to the multilateral trading system, as recognized by the DSU itself. When the final stage of enforcement becomes unavailable, the credibility of the wider system of common rules is impaired.
Looking at the US stance with respect to the WTO, it should not be reduced simply to hostility towards international trade or multilateral institutions. American dissatisfaction largely arose from a combination of concerns: the interpretation of trade-remedy rules, the inability of WTO rules to adequately address the practices of non-market economies such as China, and the difficulty of reforming those rules under consensus-based decision-making. In this regard, China’s integration into the organization was expected to bring its economic system closer to the market-oriented principles underlying the WTO. However, its continued state-led and non-market practices, together with the WTO's limited ability to address them, increasingly fueled US dissatisfaction with the effectiveness of common rules. As a result, the United States began to rely on unilateral instruments, including tariffs, rather than exclusively on multilateral dispute settlement, broadly disregarding WTO rules.
The WTO crisis therefore reflects a wider crisis of multilateralism in two ways. Institutionally, consensus has become increasingly difficult to achieve as membership has grown more heterogeneous and trade issues more politically sensitive. Major powers are less willing to accept constraints imposed by universal institutions. For instance, the US, once the principal supporter of the post-war multilateral trading order, has challenged rules that conflict with its domestic interests and strategic objectives, while the rise of China has altered the distribution of economic power underlying the system. These tensions have weakened the WTO's capacity to negotiate new rules and consistently enforce existing ones. This does not mean, however, that multilateralism has collapsed or that the WTO is its only expression. The organization continues to provide a common institutional framework for international trade, but its original design struggles to operate in the current context.
Importantly, the weakening of the WTO has occurred alongside a significant expansion of preferential and regional trade arrangements. This development is not new: the proliferation of free trade and regional trade agreements began well before the current crisis of the WTO. As Pollack shows, the number of preferential trade agreements in force increased sharply during the 1990s and 2000s, from 43 at the end of the GATT era to 219 by 2007. The creation of the WTO therefore did not replace regionalism. Rather, a strong multilateral core developed alongside an expanding network of bilateral and regional agreements. What has changed more recently is the relationship between these two levels of governance. As multilateral negotiations became increasingly difficult, preferential agreements provided an alternative channel through which groups of states could continue negotiating and developing rules. The collapse of the Doha Round after 2008 was an important turning point in this regard: while the WTO's negotiating function entered prolonged gridlock, the number of PTAs in force continued to rise, reaching 283 by 2016. The repeated failure to make progress at the multilateral level, lastly with MC14 Youndee, has created incentives for governments to redirect negotiating efforts towards PTAs, including increasingly comprehensive agreements covering areas such as digital trade, labour, environmental standards and state-owned enterprises. As of June 2026, 384 regional trade agreements are in force, while all WTO members participate in at least one such agreement and some participate in more than twenty. The growing number of agreements is also reflected in trade flows. WTO research finds that the share of global merchandise imports involving partners to regional trade agreements increased from 37% in 2010 to 52% in 2022. At the same time, the researchers find that approximately 80% of global imports remained outside preferential RTA treatment, demonstrating that the MFN-based multilateral system continues to be commercially significant.
These figures are important because they point to a transformation rather than a straightforward replacement of multilateralism as it was understood at the time of creation of the WTO. The proliferation of FTAs cannot be attributed solely to the WTO crisis, since preferential agreements were already expanding during periods when the WTO remained relatively strong. However, their continued expansion alongside the weakening of multilateral rule-making suggests that states increasingly possess, and use, alternative channels through which they pursue trade liberalization and establish rules among smaller groups of partners. In this sense, the relevant development is not simply that there are more FTAs, but that bilateral, regional and plurilateral arrangements have become a key instrument within a more fragmented trade-governance architecture.
3. Power Politics and the Transformation of Economic Interdependence
This leads directly to the next stage of the argument. The question is not simply why states are signing more trade agreements, but what these agreements are increasingly being used to achieve. If their expansion initially reflected the practical difficulty of reaching consensus at the multilateral level, their more recent development may also reflect changing strategic priorities, including the search for reliable economic partners, market access, supply-chain resilience and greater control over economic dependencies.
Understanding this requires a reflection on the intricate relationship between power politics and the multilateral order. The post-war order emerged within a particular geopolitical configuration in which the United States had both the economic weight and the political willingness to support international institutions. Andrea Colli's historical analysis emphasizes this relationship between multilateralism and the distribution of power, arguing that international institutions have historically been more resilient when a dominant power is willing to support the system and other states accept, at least to some degree, its leadership. From this perspective, the current crisis is consistent with the erosion of the conditions that sustained the post-war order in the first place: the relative rise of other major powers, growing contestation of the established order, and a reduced willingness on the part of the United States to subordinate national objectives to multilateral commitments.
At the same time, these changes in the international distribution of power have affected the way states understand economic interdependence itself. The expansion of global trade and production created extensive economic dependencies that were generally understood in terms of their economic benefits. However, growing geopolitical competition has pointed at the possibility that these dependencies may also create room for strategic vulnerabilities. This is particularly visible in the US-China dynamics, where trade and technological interdependence have increasingly become part of a broader strategic competition. As a result, governments have resorted to the use of tariffs, subsidies, export controls and investment restrictions not only to pursue conventional trade objectives, but also to protect strategic industries and reduce forms of dependence considered politically or economically risky.
Farrell and Newman describe one dimension of this shift through the concept of “weaponized interdependence”. They show how states occupying central positions in global economic networks can exploit their power to exercise political leverage over others. Dependence on foreign technologies, financial infrastructure or concentrated supply chains can become a source of vulnerability when geopolitical relations deteriorate. The significance of this development for the multilateral trading system is that the same interdependence that multilateral institutions were designed to facilitate and regulate is increasingly being viewed by states through a security lens. Furthermore, economic openness is not necessarily seen as a source of mutual gain, but also as a potential source of strategic exposure. Considering the founding principles of the WTO, there seems to be a fundamental incompatibility between the role of the organization and the new perception of interdependence. The multilateral trading system was built on the premise that common rules could make economic interdependence more predictable and allow states to benefit from international trade while limiting the use of unilateral measures. Yet, when governments regard certain economic dependencies as security risks, they may be less willing to accept common constraints on policies that they consider necessary to protect strategic interests. Export controls, investment restrictions and other measures aimed at reducing dependence are evidence of this tension. Although not all such measures fall within the WTO's mandate, their growing use changes the environment in which the organization operates and raises a question of what role is left for the WTO to play in this new stage of multilateralism.
This also helps explain why discontent within the WTO increasingly concerns not only the enforcement of existing rules, but the rules themselves. The difficulties in updating disciplines on subsidies and other forms of government support, for example, reflect general disagreement over the role that states should be allowed to play in the economy and how different economic models should coexist within a common trading system. As economic policy becomes closely linked to strategic and security objectives, governments have stronger incentives to preserve policy space rather than accept additional multilateral constraints. Ultimately, the WTO crisis is connected to a broader transformation in the political meaning of economic interdependence: the challenge is no longer how to facilitate interdependence through common rules, but how to govern interdependence when some forms of dependence are perceived as strategic vulnerabilities.
The growing interest in de-risking also follows from this shift of perception. Rather than abandoning international trade altogether, governments are trying to diversify suppliers, secure access to strategic resources and reduce excessive dependence on specific countries. While the objective is still to preserve the benefits of economic integration, they try to do so limiting exposure to potential disruptions or coercion. These efforts are creating tensions within the multilateral system: measures that governments consider necessary to strengthen their own resilience may restrict trade or provoke retaliation. In conclusion, it is difficult to envisage a multilateral order based on deep economic interdependence when dependence itself can become a source of suspicion, and when the boundary between legitimate security interests and protectionist practices become increasingly blurred.
Finally, it is against the backdrop of growing economic security concerns intersecting with unresolved questions about the scope and enforcement of multilateral trade rules that the Appellate Body and, more widely, the WTO crisis is fully understood. With post-war institutions failing to agree on a way forward, governments have stronger incentives to pursue specific objectives through smaller groups of partners. Bilateral and plurilateral agreements can provide a more manageable setting in which states deepen cooperation on market access, supply chains, technology or strategic resources without requiring agreement across the WTO's entire membership. However, such arrangements do not resolve the underlying difficulties of multilateral governance. Instead, they offer alternative channels for cooperation at a time when establishing common rules has become more politically challenging.
This does not mean that commercial interests have become secondary, or that every trade agreement is primarily motivated by geopolitical considerations. Market access, export opportunities and investment remain central objectives. Rather, economic and strategic considerations increasingly coexist, influencing both the choice of trading partners and the areas in which governments seek closer cooperation. The result is a more fragmented system in which the WTO continues to provide a common framework for international trade, while bilateral and regional agreements assume greater importance in addressing the specific priorities of individual states or groups of partners. In this regard, the European Union's recent trade initiatives illustrate this interaction between commercial interests and strategic considerations.
4. A Quick Look at the EU-India Free Trade Agreement
The EU-India Free Trade Agreement provides a concrete illustration of how growing security concerns and weakening traditional multilateralism can lead to the formation of new trade partnerships. The agreement, concluded in January 2026 after negotiations that had remained stalled for years, was finalized in a significantly different geopolitical environment from the one in which negotiations began. In fact, the growing instability related to the intensified US-China competition and the crisis of the WTO sped up the negotiation process. In this environment, both parties stand to gain from this FTA: for Europe, India is part of a broader effort to diversify its economic partnerships and reduce excessive dependence on China, while for India, expanding access to the European market provides greater room to diversify its trade relationships amid growing uncertainty regarding its access to the US market.
The agreement is highly strategic for its implications for supply-chain diversification. As a matter of fact, the FTA’s gains are expected to extend beyond a trade-liberalization agreement, and guarantee strategic diversification. Economic simulations by the Kiel Institute, for instance, estimate that bilateral trade could increase by 41-65%, while trade diversion could reduce Chinese exports to India by around 5-9%, making the agreement simultaneously supportive of both the EU's de-risking objectives and India's efforts to diversify its supply chains. Even in this case, while commercial interests are still central to the agreement, they increasingly overlap with geopolitical considerations: market access creates economic gains, while the choice of partner also responds to concerns about dependence, resilience and exposure to external shocks.
The timing of the agreement is also consistent with this trend. India was facing US tariffs of up to 50%, making diversification away from excessive reliance on the US market particularly valuable, while the EU itself was facing greater uncertainty over its traditional trading relationships. For both countries, this FTA is an attempt to provide some insurance against trade turmoil and build a relationship capable of withstanding geopolitical shocks. Finally, the EU-India case captures the broader transformation discussed throughout this article: states are not retreating from economic interdependence, but increasingly attempting to shape, diversify and manage that interdependence through selected partnerships.
Conclusion
In conclusion, the crisis of the WTO does not appear to signal the end of multilateral trade or of economic globalization, but rather a transformation in the way global economic relations are governed. The weakening of the WTO’s negotiating and dispute-settlement functions has made it increasingly difficult to develop and enforce common rules across its full membership, creating greater incentives for states to pursue cooperation through bilateral, regional and plurilateral arrangements. At the same time, the continued expansion of trade agreements and the conclusion of new partnerships such as the EU-India FTA demonstrate that states are not withdrawing from international economic integration.
What is changing, however, is the logic through which this integration is pursued. Economic interdependence is increasingly viewed not only as a source of efficiency and mutual gains, but also as a potential source of vulnerability. Concerns over supply-chain resilience, critical resources, technological dependence and economic security are therefore influencing both the choice of partners and the content of new trade relationships. The growing emphasis on de-risking reflects this shift: rather than abandoning interdependence, states are increasingly attempting to manage it by diversifying relationships and limiting forms of dependence considered strategically risky.
The emerging trade order is therefore neither a return to traditional protectionism nor a simple continuation of the post-war multilateral model. It is becoming more fragmented and selective, with the WTO continuing to provide a common institutional framework while smaller groups of states pursue specific economic and strategic objectives through alternative channels. The central challenge for the future of global trade governance will be whether these different layers of cooperation can coexist without further weakening the common rules and institutions on which an open international trading system depends.
Source Classification
Information Content | ||
1 | Confirmed | Confirmed by other independent sources; logical in itself; coherent with other information on the topic |
2 | Presumably true | Not confirmed; logical in itself; coherent with other information on the topic |
3 | Maybe true | Not confirmed; reasonably logical in itself; coherent with some other information on the topic |
4 | Uncertain | Not confirmed; possible but not logical in itself; no other information on the topic |
5 | Improbable | Not confirmed; not logical in itself; contradicts with other information on the topic |
6 | Not able to be evaluated | No basis to evaluate the validity of the information |
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