WTO warns of trade fragmentation as India steps up FTA push

Reports coming in for today mention that India’s strategy of securing more free trade agreements (FTAs) is gaining importance as the global trading system becomes increasingly fragmented, the World Trade Organization stated in its World Trade Report 2026 on September 15.

The WTO warned that deeper trade fragmentation could leave global GROSS DOMESTIC PRODUCT 5.1 percent softer by 2050 in a world divided into geopolitical blocs, while a shift to an FTA-led trading system could result in a 6.9 percent loss.

The WTO stated in its report that a “geo-fragmented world”, where trade cooperation is organised around geopolitical blocs, could leave global GROSS DOMESTIC PRODUCT 5.1 percent softer and exports 18.6 percent softer by 2050. In an “FTA world”, where multilateral cooperation is replaced by a network of FTAs, global GROSS DOMESTIC PRODUCT could decline 6.9 percent and exports 26.9 percent.

The WTO stated a strengthened multilateral trading system, in contrast, could raise global GROSS DOMESTIC PRODUCT by 2.9 percent and global exports by 17.9 percent by 2050. FTA world could be costlier

The findings are particularly relevant as countries increasingly rely on preferential trade agreements amid geopolitical tensions.

The WTO stated its modelling reveals that the costs of fragmentation would be unevenly distributed, with smaller and poorer economies particularly vulnerable to discriminatory deals and unilateral trade measures.

“The choice for members is not between reform and continuity. It is between adapting rules-based cooperation to today’s global economy or drifting toward less predictable, less inclusive and more power-based forms of trade governance,” the note stated.

Developing economies gain greater weight

The share of low- and middle-income economies in global trade has nearly doubled, rising from 23 percent in 1995 to 45 percent in 2024, the WTO stated.

The note stated the shift in economic power has created a gap between existing WTO commitments and current economic realities, but additionally “creates new opportunities”. At the same time, governments’ increasing use of industrial strategies and subsidies has brought “level-playing-field questions” to the centre of WTO discussions.

AI could reshape services trade

The report additionally identifies artificial intelligence (AI) as a major force reshaping global trade.

WTO simulations suggest AI could gain global trade by 40 percent by 2040, with the largest upside concentrated in digitally deliverable services. AI could additionally add more than 13 percent to global GROSS DOMESTIC PRODUCT over the next 15 years.

The WTO stated digitalisation, global value chains and the environmental transition are changing “what is traded, how it is traded and how policy spillovers move across borders”.

WTO stays central despite fragmentation

Despite the growing use of FTAs and unilateral trade measures, around 72 percent of global merchandise trade still takes place under WTO most-favoured-nation terms, the note stated.

WTO Director-General Ngozi Okonjo-Iweala stated: “The global trading landscape has changed significantly but the founding logic of the system, that all economies are better off cooperating rather than acting unilaterally, stays as relevant today as ever.”

The note stated preserving the WTO “does not mean preserving the status quo”, but adapting its rules to a more integrated, multipolar and diverse global economy.