Lawrence L. Herman

December 24, 2025

The future of the World Trade Organization as steward of the multilateral trading order is in serious doubt.

It faces challenges on a number of fronts, two of the most fundamental being: one, China’s disregard for WTO rules with its system of rampant state capitalism as well as Beijing’s internal degradation of the organization itself; and two, the progressive withdrawal of the U.S. from its commitment to the WTO under both Trump administrations. These factors have, predictably, had a damaging impact on the institution itself and on the rules-based trading order in general.

The U.S. position, which had been percolating for some time, was set out in a bombshell WTO communication on December 15th; a tough, hard-hitting message that was clear and direct. Echoing the same Trump administration disdain for global entanglements that imbued the recent National Security Strategy, it says:

“The actions of Members with economic systems that are incompatible with the principles of the WTO have tilted the playing field away from free market economies and have eroded trust in the ability of this organization to ensure fair treatment in global trade. . . .

“The MFN principle, which seeks to prevent discriminatory trade practices and promote equal treatment among trade partners, was designed for an era of deepening convergence among trading partners. During that era, countries were expected to adopt open, market-oriented trade policies, as stated by the founding Members of the WTO in the preamble to the Marrakesh Declaration. That expectation was naïve, and that era has passed. It has been replaced by an era of deepening divergence, rooted in some countries’ unwillingness to pursue and uphold fair, market-oriented competition, some countries’ insistence on maintaining economic systems that that are fundamentally incompatible with WTO principles, and many countries’ pursuit of chronic trade surpluses that have adverse economic and political consequences in deficit countries. To face these challenges, trading nations must be able to treat different trading partners differently.”

The communication concludes by saying:

“If the WTO does not reform by making tangible improvements in those areas that are central to its mission, it will continue its path toward irrelevancy. If, however, the WTO recognizes its limitations and focuses on tangible steps to improve its core functions, then it will be on a better path to credibility and relevance.”

In addition to the organization’s serious internal, institutional challenges, the abandonment of U.S. leadership, together with China’s cynical contravention of WTO principles make it difficult to see what “tangible improvements” can be taken to restore the WTO to its former position as steward to the global trading system. Added to these difficulties, the WTO’s trade negotiating function has faced roadblocks, given lack of members’ agreement on plurilateral trade talks that involve less than full WTO membership.

Historically, Canada has been a strong supporter of the GATT/WTO system, per the government’s own web page: “The WTO is at a crossroads and faces many challenges that are stressing the multilateral trading system. Canada is among the most active WTO Members working to reshape the organization to ensure its rules function effectively and the multilateral trading system stays stable, fair, open, and transparent for businesses and workers.” Given Canada’s position, here are some ideas for the federal government to consider, taking into account the sombre political factors discussed above.

While the WTO will not disappear as an international body, even with the existential challenges described and even with the lessening of American commitment, the broader question is whether it should recalibrate its operational role, by focusing on the less politicized elements, avoiding the contentious, time-consuming and ultimately self-defeating efforts involved in trade negotiations and in large-scale reform of the organization. What are these elements?

These factors have, predictably, had a damaging impact on the institution itself and on the rules-based trading order in general.

First, there is the work in global trade monitoring and analysis through various reports, two major ones in particular – the Global Trade Outlook and Statistics and the World Trade Report. There are other periodic reports compiled on discrete trade issues, all of which provide value to the global community.

Second, there is in the WTO’s review of the trade policies of individual members, done through the Trade Policy Review Mechanism (TPRM) that turns the public spotlight on how well each is doing in discharging their WTO obligations. Another area of valuable work.

A third area is in the work of the various WTO councils and committees that, even with the level of dysfunction described earlier, continue to operate as forums for discussion on trade-related subjects.

A word about the WTO dispute settlement system and the absence of a functioning Appellate Body that has rendered the dispute resolution process moot in a formal, legalistic sense. Under the voluntary Multi-Party Interim Appeal Arbitration Arrangement (or MPIA), close to 50 WTO members have agreed to use this to settle disputes that would otherwise be appealed to the Appellate Body. This provides for a two-step process, starting with WTO panels and ending with arbitration decisions that apply GATT/WTO rules. This helps to vindicate the value of a rules-based order.

Regarding the change in orientation, the evolution of the United Nations Conference on Trade and Development (UNCTAD) is one illustration. Once highly politicized in its attempts in the 1960s and 1970s to negotiate multilateral economic agreements and facing resistance from industrialized countries and the disappointing outcomes in these efforts, UNCTAD gradually changed course and today is a much different organization, analyzing global developments and issuing well-researched reports on economic trends, climate change, sustainability and other issues of relevance to developing countries. While the UNCTAD experience is not perfectly transferable to the WTO, there are similarities.

The conclusion is that less political energy should be expended by Canada and its allies in trying to resolve the WTO’s intractable political and institutional problems discussed earlier. The antagonism of the Trump administration to the multilateral trading order will continue as the driver of American trade policy going forward, even after Donald Trump leaves office, perhaps less ideological but resistant to trade liberalization nonetheless. We have seen how protectionism has become much more bipartisan in Washington over the recent period.

In response, attention needs to be paid by Canada and like-minded governments to ensuring the WTO continues as a public forum for discussing trade concerns, issuing analytical reports on world trade and reporting regularly, not only on these global trends, but on members’ performance in complying with WTO rules.

That is because those rules remain embedded in the corpus of public international law and members can be held to account in their application, both through panel decisions and, as noted, under the voluntary arbitration system. These activities add value, and confirm the validity of global rules, notwithstanding the broader institutional — largely tactical — paralysis afflicting the Organization.

The corollary to all of this is that — based on the activities of anti-democracy actors over the first quarter of this century, including Trump’s abandonment of American leadership — the world is undergoing an historic shift away from multilateralism as the foundation of global order.

The result is that agreements involving contemporary issues like climate change, artificial intelligence, digitization, and security related issues will be done on a bilateral level, through negotiations between like-minded countries. How this will evolve for humanity in a post-democratic world is the overhanging question.

Policy contributor Lawrence Herman is an international lawyer with Herman & Associates, a senior fellow at the C.D. Howe Institute in Toronto and a member of the Expert Group on Canada-U.S. Relations. He is a former foreign service officer, having served in Canada’s Permanent Mission to the United Nations and the GATT.