Reforming WTO rules: adapting substance to new realities
Sep 2026
Lesson 5
The WTO needs updates in four areas: giving developing countries a better deal through genuine reciprocal bargaining; setting clearer boundaries around state involvement and security justifications; preventing environmental policies from becoming disguised trade barriers; and keeping digital markets open as technology evolves.
This is your guide to one of the most consequential forces shaping the global economy. In six lessons, UZH Professor of Economics and former WTO Chief Economist, Ralph Ossa takes you inside the multilateral trading system: how it was built, how it works, where it’s holding, and where it's beginning to crack. The series is based on UBS Center Public Paper #16 The Multilateral Trading System.
The analysis above suggests that sustaining cooperation does not require abandoning the multilateral trading system, but adapting its substantive rules to the problems they are now asked to address. The sources of strain identified – unresolved development bargains, state-driven competition, regulatory spillovers, and digitalization – do not point to a single grand solution. Instead, they highlight a set of areas where the gap between existing rules and economic reality has become most pronounced. This section therefore focuses on how WTO rules could be adapted in key policy domains, with the aim of preserving the system’s core principles while restoring its capacity to support cooperation under new economic and political conditions.
Reframing the development bargain
The analysis above points to a clear implication: sustaining cooperation requires a rethinking of the development bargain, not its abandonment. The issue is no longer whether development concerns belong in the multilateral trading system – they do – but how they can be addressed in ways that restore bargaining space and prevent development-related flexibilities from becoming binding constraints on cooperation.
A first priority is to resolve developmentrelated issues that have become systemic bottlenecks, with public stockholding for food security being the most prominent example. While such programs serve legitimate domestic objectives, their operation in economies that are also major participants in global agricultural markets raises concerns about spillovers beyond food security. In the absence of a durable multilateral solution, this narrowly defined issue has repeatedly stalled progress across otherwise unrelated areas of the agenda. From a systemic perspective, the problem is less public stockholding per se than the way unresolved development flexibilities paralyze cooperation. A pragmatic way out may therefore be to accept limited, well-defined departures from agricultural disciplines – anchored in transparency and credible limits on export use – rather than allowing a single unresolved issue to block progress in areas where cooperation can still deliver substantial gains.
More fundamentally, the experience of Doha highlights a persistent tension between flexibility and commitment. Developing economies have consistently emphasized the need for policy space and special and differential treatment, often supported by capacity-building assistance. At the same time, the core economic gains from trade agreements arise from binding commitments that reduce uncertainty and secure market access. Flexibility can limit exposure to adjustment costs, but on its own it does not generate new gains. A rebalanced development agenda therefore needs to place greater weight on commitments – differentiated according to economic weight, market power, and institutional capacity, and supported by capacity building – rather than on open-ended exemptions based on self-designated development status that limit the scope for reciprocal exchange.
Restoring momentum on development ultimately requires reopening space for reciprocal bargaining. As South–South trade has expanded, tariff barriers among developing economies remain one of the few areas where substantial liberalization potential still exists. In a system built on reciprocity and most-favorednation treatment, durable market-access gains arise from negotiated commitments rather than from spillovers of others’ liberalization. Reciprocal tariff reductions among developing economies, agreed within the multilateral framework and extended on an MFN basis, could therefore generate meaningful new gains while preserving the system’s integrity. Such an approach would allow developing economies to participate not only as recipients of past liberalization, but as active contributors to rule-making and cooperation going forward.
Taken together, these elements point toward a development strategy rooted in the multilateral system’s core principles. Reciprocity, MFN, and negotiated commitments remain central, but they must be applied in ways that reflect today’s distribution of trade and development. Reframing the development bargain along these lines would not resolve all tensions overnight, but it would address one of the most persistent sources of strain and help reanchor development within a functioning, forward-looking multilateral trading system.
Adapting disciplines to state-driven competition and security concerns
The analysis above suggests that the strain associated with China’s rise does not stem primarily from systematic noncompliance with multilateral rules. By most accounts, China has largely operated within the formal constraints of the World Trade Organization. The deeper problem is one of design. Existing rules have struggled to discipline the scale and scope of state involvement associated with China’s role in the global economy, or to manage the re-emergence of securitydriven trade policy among major powers. As a result, the limits of the rulebook have become increasingly salient. Reform therefore needs to focus less on stricter enforcement of existing disciplines and more on adapting those disciplines to new economic and geopolitical realities.
A first implication concerns subsidies and state support. In an environment characterized by pervasive and multifaceted state involvement, attempts to discipline industrial policy solely by targeting specific instruments – as under the current Agreement on Subsidies and Countervailing Measures – are unlikely to be fully effective. In a limited number of politically sensitive sectors, it may therefore be necessary to complement such rules with disciplines that focus on outcomes. Such managed trade arrangements could be embedded in reciprocal bargains that rebalance market access across policy domains – for example, by pairing constraints on subsidy-driven outcomes with improved access to service markets.
More fundamentally, it is important to recognize the limits of trade policy as a tool for addressing aggregate imbalances. Persistent trade surpluses or deficits ultimately reflect underlying imbalances between saving and investment at the macroeconomic level. This points to a core design constraint: subsidy disciplines and trade remedies are ill-suited to correct economywide imbalances that originate outside the trade policy domain. Expecting the multilateral trading system to manage such imbalances risks overloading it with objectives it was not designed to deliver, underscoring the importance of coherence with macroeconomic policy-making, including through institutions such as the IMF.
A second implication concerns the treatment of security-related trade measures. As trade and technology have become increasingly intertwined with national security concerns, governments have made greater use of security exceptions to justify unilateral action. Left unchecked, this trend risks hollowing out the multilateral system from within. At the same time, it is neither realistic nor desirable to deny the legitimacy of security considerations altogether. The challenge is therefore to establish clearer guardrails around the invocation of security exceptions – clarifying their scope, strengthening transparency, and distinguishing measures motivated by genuine security concerns from those that primarily serve economic or industrial objectives. Such guardrails would not depoliticize trade policy, but they could help contain escalation and preserve a meaningful domain for rules-based cooperation.
Against this background, some have argued that effective responses to statedriven competition require greater flexibility in most-favored-nation treatment. This view reflects frustration with gaps in the current rulebook, but it points the response in the wrong direction. The challenge posed by China does not arise because MFN applies, but because existing multilateral disciplines do not adequately address the scale and forms of state intervention that now shape competitive outcomes. Weakening MFN would therefore not remedy these shortcomings. It would instead legitimize selective discrimination, lower the threshold for unilateral action, and accelerate fragmentation – ultimately weakening the system’s ability to discipline state-driven distortions through rules rather than power.
Taken together, these directions reflect a broader shift in emphasis. In a world marked by the return of power politics, sustaining cooperation requires accepting that the multilateral trading system can no longer fully neutralize power, as it once aspired to do. Its role must increasingly be to channel power through rules – limiting its most destabilizing effects while preserving space for economic integration. For this to be credible, multilateral disciplines must better reflect the realities of state involvement and security concerns, rather than assuming them away.
Managing sustainability-related regulatory spillovers
Addressing sustainability-related strains requires adapting the multilateral trading system to a world in which domestic regulation increasingly shapes trade outcomes. The objective is not to constrain environmental or social ambition, but to ensure that such policies are implemented in ways that preserve market access and avoid unnecessary fragmentation of cross-border trade. This calls for forms of coordination that manage regulatory spillovers without encroaching on domestic regulatory autonomy.
Border carbon adjustments provide a prominent illustration. When a carbon price raises the cost of domestic production, competitive neutrality can be restored by applying an MFN border charge that raises the domestic price of imports by the same amount. Such an approach offsets domestic cost increases, limits carbon leakage, and preserves relative market access between domestic and foreign suppliers – without attempting to export domestic carbon pricing regimes to other economies. By contrast, border measures that levy charges based on the measured emissions intensity of individual foreign producers go beyond neutralization. They systematically restrict market access for more carbon-intensive exporters and entail substantial administrative complexity. From an economic perspective, anchoring border measures in simple, cost-offsetting MFN mechanisms offers the cleanest way to reconcile carbon pricing with open trade.
A related challenge arises where climate objectives are pursued through instruments other than explicit carbon pricing, such as production subsidies or regulatory standards. In such cases, interoperability across policy regimes becomes critical. The relevant benchmark is not equivalence of instruments or environmental outcomes, but equivalence in market-access terms. Ensuring that different policy mixes impose comparable burdens on foreign suppliers’ access to domestic markets allows diverse climate strategies to coexist within an open trading system, while limiting the scope for disguised protectionism. This logic is consistent with the architecture of the Paris Agreement, which deliberately accommodates heterogeneous national policy choices in pursuit of shared climate objectives.
Other sustainability-related measures, including those targeting deforestation or corporate sustainability due diligence, raise a different set of issues. While their objectives are legitimate, these measures often rely on detailed requirements related to production methods and supply-chain governance that are complex to implement and difficult to verify across borders. They have also encountered significant resistance from developing economies, where they are frequently perceived as unilateral extensions of domestic regulatory frameworks rather than as outcomes of jointly agreed approaches. In such areas, translating complex domestic regulation into binding multilateral disciplines is unlikely to be effective. A more proportionate response is to emphasize transparency, information-sharing, common principles, and targeted capacitybuilding.
Fisheries subsidies illustrate how sustainability concerns can nevertheless be addressed through focused multilateral disciplines. The Agreement on Fisheries Subsidies represents an important first step, but its limited scope reflects the political and institutional constraints under which it was negotiated. With the agreement now in force, extending and deepening its disciplines is a necessary next step to address the full range of trade-distorting subsidies that contribute to overcapacity and overfishing. Fisheries thus underscore that effective sustainability cooperation in the WTO is inherently iterative: progress is more likely through sequenced agreements that build over time than through comprehensive, oneoff deals.
Taken together, these elements point toward a pragmatic approach to sustainability within the multilateral trading system. Rather than adjudicating regulatory objectives, the system should focus on managing their trade-related crossborder effects in ways that preserve market access and contain fragmentation. Emphasizing market-access equivalence, procedural coordination, and transparency allows ambitious sustainability policies to coexist with an open and cooperative trading system.
Preserving market access in digital trade
The diagnosis above suggests that digitalization is straining the multilateral trading system not because digital trade lacks economic importance, but because existing rules offer limited traction over the trade effects of data-related regulation. As digital services expand and modes of supply evolve, domestic regulatory choices have become the primary determinants of market access. In this environment, the central contribution of the multilateral trading system is not to resolve questions of data governance as such, but to ensure that regulatory responses to new technologies do not unnecessarily restrict access to digital markets or foreclose emerging forms of cross-border trade.
A first priority is therefore to anchor cooperation in the digital domain in the logic of market access rather than in abstract notions of openness. From a trade perspective, the relevant question is not whether data are free to flow, but whether data-related regulation unduly restricts access to digital markets and new modes of service delivery. This shifts attention away from harmonizing regulatory models and toward identifying measures that, in effect, limit how digitally delivered services can be supplied across borders. Within its existing mandate, the multilateral system can add value by promoting transparency, proportionality, and non-discrimination in the application of data-related regulation, without seeking to adjudicate underlying policy objectives such as privacy, security, or industrial policy.
A second priority is to differentiate more clearly between degrees of restrictiveness in data-localization measures. Economic evidence suggests that their trade effects vary widely depending on scope and design. Requirements that mandate local storage while continuing to allow crossborder data transfers tend to raise costs but leave market access largely intact. By contrast, measures that combine localization with restrictions on data flows or local processing mandates can fundamentally alter competitive conditions. This distinction points to a pragmatic role for multilateral disciplines: not to prohibit data localization per se, but to focus on its most trade-restrictive forms, particularly where they operate in practice as barriers to cross-border digital services.
A third priority concerns predictability in a rapidly evolving domain. In this context, the long-standing moratorium on customs duties on electronic transmissions plays a stabilizing role. Even if reasonable questions can be raised about its economic justification, allowing the moratorium to lapse would introduce new uncertainty and raise trade costs in the most dynamic segment of global trade. Maintaining the moratorium should therefore be understood as an exercise in restraint by the multilateral system, preserving baseline predictability while deeper regulatory challenges remain unresolved.
Beyond the moratorium, sustaining cooperation in the digital domain also requires reinvigorating the WTO’s longstanding Work Programme on Electronic Commerce. Regardless of differences over specific instruments, it would be difficult to justify allowing multilateral engagement on digital trade to lapse at a time when digitalization is reshaping trade more rapidly than any other area. A more active work program can provide a forum for transparency, evidence- building, and deliberation on the trade effects of data-related regulation, even where consensus on binding rules remains out of reach. In this sense, reinvigorating the work program is not an alternative to plurilateral initiatives, but a necessary complement that preserves a multilateral anchor for ongoing dialogue and learning.
Taken together, these elements point toward a restrained but economically coherent role for the multilateral trading system in the digital domain. Rather than attempting to govern data or harmonize regulation, the system should focus on preserving and expanding market access as technologies evolve, addressing the most trade-restrictive regulatory responses, and sustaining predictability under regulatory diversity. In an area characterized by rapid change and limited scope for consensus, such an adaptive and procedural role is likely to be both the most feasible and the most valuable contribution the system can make.
In this series, Prof. Ralph Ossa distills his experience from academia and policy making into something rare: a clear, honest assessment of where the system actually stands today. Each lesson offers insights that stand on their own. Follow all six, and you'll come away with a complete picture – and a much sharper understanding of what holds the global economy together, and what happens when it starts to fray.
The WTO needs updates in four areas: giving developing countries a better deal through genuine reciprocal bargaining; setting clearer boundaries around state involvement and security justifications; preventing environmental policies from becoming disguised trade barriers; and keeping digital markets open as technology evolves.
This is your guide to one of the most consequential forces shaping the global economy. In six lessons, UZH Professor of Economics and former WTO Chief Economist, Ralph Ossa takes you inside the multilateral trading system: how it was built, how it works, where it’s holding, and where it's beginning to crack. The series is based on UBS Center Public Paper #16 The Multilateral Trading System.
The analysis above suggests that sustaining cooperation does not require abandoning the multilateral trading system, but adapting its substantive rules to the problems they are now asked to address. The sources of strain identified – unresolved development bargains, state-driven competition, regulatory spillovers, and digitalization – do not point to a single grand solution. Instead, they highlight a set of areas where the gap between existing rules and economic reality has become most pronounced. This section therefore focuses on how WTO rules could be adapted in key policy domains, with the aim of preserving the system’s core principles while restoring its capacity to support cooperation under new economic and political conditions.
Image: Getty Images / Unsplash
Full series
Public Paper 16
The multilateral trading system is widely perceived to be in crisis, undermined by geopolitical tensions, unilateral trade policies, and growing skepticism toward global cooperation. UZH Professor of Economics Ralph Ossa, who served as Chief Economist of the World Trade Organization (WTO), argues in our latest UBS Center Public Paper, that such narratives are both overstated and insufficiently precise. While the system faces real and structural pressures, it continues to govern the majority of global trade and to deliver significant economic value.
The multilateral trading system is widely perceived to be in crisis, undermined by geopolitical tensions, unilateral trade policies, and growing skepticism toward global cooperation. UZH Professor of Economics Ralph Ossa, who served as Chief Economist of the World Trade Organization (WTO), argues in our latest UBS Center Public Paper, that such narratives are both overstated and insufficiently precise. While the system faces real and structural pressures, it continues to govern the majority of global trade and to deliver significant economic value.
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Author
Former WTO Chief Economist, Professor of Economics (UZH/CEPR)
Ralph Ossa, who served as Chief Economist of the World Trade Organization (WTO) from January 2023 to June 2025, took up the UBS Foundation Professorship of Economics at the Department of Economics of the University of Zurich (UZH) as of July 1, 2025. Before joining the WTO, Ralph Ossa was already teaching and conducting research at UZH in the field of international economics, with a particular focus on policy-relevant questions. He was chairman of the Department of Economics from 2019 to 2022 and coeditor of the Journal of International Economics from 2016 to 2022. Prior to Zurich, he was on the faculty at the University of Chicago Booth School of Business. He holds a PhD in Economics from the London School of Economics.
Former WTO Chief Economist, Professor of Economics (UZH/CEPR)
Ralph Ossa, who served as Chief Economist of the World Trade Organization (WTO) from January 2023 to June 2025, took up the UBS Foundation Professorship of Economics at the Department of Economics of the University of Zurich (UZH) as of July 1, 2025. Before joining the WTO, Ralph Ossa was already teaching and conducting research at UZH in the field of international economics, with a particular focus on policy-relevant questions. He was chairman of the Department of Economics from 2019 to 2022 and coeditor of the Journal of International Economics from 2016 to 2022. Prior to Zurich, he was on the faculty at the University of Chicago Booth School of Business. He holds a PhD in Economics from the London School of Economics.