The World Trade Organization must reform its multilateral governance framework to prevent the global economy from fragmenting into competing trade blocs, according to an analysis published by Greek economic news portal Capital.gr on Wednesday.
Dr. Victoria Pistikou, an associate professor of international economic relations at the Department of Economics of Democritus University of Thrace, wrote that existing international trade rules struggle to respond to the redistribution of global economic power, rising state intervention, rapid digitalization, and escalating geopolitical confrontations.
Pistikou explained that while the push for economic liberalization dates back to the end of World War II, global economic governance and national power competition have consistently operated alongside one another rather than as opposing forces.
Shift from GATT to World Trade Organization
Following the end of World War II, international trade moved toward trade liberalization and tariff reductions under the General Agreement on Tariffs and Trade. Successive GATT negotiating rounds achieved gradual tariff reductions across participating countries.
However, Pistikou noted that GATT negotiations always took place within an intergovernmental framework, where each participating nation evaluated costs and benefits based on its relative national power and ability to shape the agenda.
The establishment of the World Trade Organization in 1995 introduced a stronger institutional framework, but Pistikou emphasized that this transition did not automatically alter how sovereign states behave in international competition.
While establishing a global body to safeguard uninterrupted free trade was a major historical achievement, its effectiveness remains limited by the willingness of member states to accept common rules when those rules restrict their strategic goals.
Institutionalizing trade cooperation did not eliminate power politics; instead, it created a legal framework within which power dynamics could be expressed and settled, Pistikou stated. International rules themselves reflect the historical power balances and compromises through which they were created.
Consequently, even dominant powers that helped draft multilateral trade rules will seek to revise or bypass them when national strategic priorities shift, Pistikou wrote.
When market access, technological dominance, and control over strategic productive activities are evaluated primarily as components of national power, total economic gains may not be enough to sustain multilateral cooperation. Governments focus not only on their own economic gains, but on whether cooperation grants greater relative advantages to rivals, particularly when facing domestic political pressure.
Unequal Influence in WTO Agenda Setting
Pistikou identified three key fields where common trade rules coexist with unequal state power, starting with the setting of negotiating agendas within the organization.
The World Trade Organization operates on the principle of consensus among its 166 member states. Adaptation remains difficult because member countries possess widely differing development levels and conflicting economic interests.
Decision-making rests in the hands of member states, with all nations formally holding an equal voice. Standard procedure relies on consensus, achieved when no member raises a formal written objection. In specified instances, WTO agreements allow voting, usually requiring a qualified majority.
The Ministerial Conference acts as the supreme decision-making body of the organization. Meeting at least once every two years, it holds authority to make decisions on all matters under multilateral trade agreements.
Pistikou highlighted the distinction between law-based and power-based negotiation approaches. Under a law-based approach, states follow accepted procedures to negotiate market opening under balanced commitments, seeking mutual gains without leaving any participant worse off.
Under a power-based approach, powerful states leverage market scale to sway decisions in their favor. Citing a 2002 study by R. H. Steinberg published in International Organization, Pistikou noted that the European Union and the United States together represented nearly half of global gross domestic product in 1994, giving them disproportionate bargaining leverage during WTO negotiations.
Although all members are formally equal, agreements often favor powerful states and large trade blocs such as the European Union, while disproportionately burdening less developed countries.
Barriers in Trade Dispute Resolution
The second area of inequality involves the dispute settlement mechanism created during the Uruguay Round of trade negotiations, which demonstrated member commitment to binding multilateral obligations.
However, practical barriers discourage less powerful nations from using the dispute system, even when their export sectors suffer damage. Disincentives include high legal costs, limited capacity to enforce retaliatory trade sanctions, and reliance on foreign development aid.
Pistikou cited academic studies confirming that participation in dispute settlement is tied to economic inequalities, including work by C. P. Bown in 2005 for The World Bank Economic Review, C. P. Bown and K. M. Reynolds in 2015 in The Review of International Organizations, J. Wood and J. Wu in 2020 in the Journal of World Trade, and A. Bouët and J. Métivier in 2020 in the Review of World Economics.
These studies demonstrate that exporting nations with low gross domestic product, weak retaliatory capacity, preferential trade deals with respondent states, or financial dependency on bilateral aid are far less likely to file complaints or participate in disputes.
Preferential Agreements and Trade Diversion
The third area of disparity stems from preferential trade agreements, which operate as permitted exceptions to core WTO principles of reciprocity and non-discrimination.
Under standard WTO rules, member states exchange trade concessions such as mutual tariff reductions and must grant Most-Favored-Nation treatment to all WTO partners. Furthermore, imported products must not face less favorable treatment than domestic goods regarding internal taxes and regulations.
However, establishing free trade areas or customs unions grants member nations preferential access terms that third countries do not receive. This exception can cause trade diversion at the expense of more efficient external producers.
Pistikou explained that regional and sectoral agreements allow a nation to import goods from a higher-cost partner because preferential tariffs eliminate import duties, while excluding more efficient producers outside the agreement whose goods remain subject to full tariffs.
Economic Impact and the Future of Reform
Pistikou pointed to economic forecasts indicating that intensified competition between rival trade blocs could reduce global gross domestic product by 5.1 percent and shrink global exports by 18.6 percent by 2050.
By contrast, strengthening multilateral trade cooperation could increase global gross domestic product by 2.9 percent and boost global exports by 18 percent over the same period.
However, Pistikou stressed that aggregate economic forecasts fail to show how benefits and adjustment costs are distributed among countries. A trade agreement can expand total economic output while primarily reflecting the priorities of dominant powers.
Developing nations often accept unbalanced trade agreements not because their economic goals are fulfilled, but because the economic cost of being excluded from global markets is too high, Pistikou stated.
Reforming global economic governance must be judged by its structural impact: whether it expands total benefits while empowering less powerful nations to shape trade rules and secure a fairer share of global economic growth.
