When the WTO Stalls, FTAs Step In — But Can They Hold the Trade Order Together?
For decades, international trade rested on a deceptively simple idea: the same basic rules should apply to everyone.
The World Trade Organization was built around that principle.
Yet some of the most important trade rules being negotiated today are increasingly being written somewhere else — between two countries, among a regional group, or by a smaller coalition willing to move ahead without waiting for everyone.
At first glance, this looks like a retreat from multilateralism.
But there is a deeper puzzle.
If the WTO is struggling to make and enforce rules, why would countries negotiating outside it necessarily weaken the trading system? And if smaller agreements can keep trade rules moving, could they eventually create a world in which there are simply too many different sets of rules?
The answer lies in an uncomfortable possibility:
The same process that is helping trade governance adapt to a weaker WTO could also make the global trading system more fragmented.
That is the real significance of the rise of free trade agreements.
The problem is not that the WTO has disappeared
The WTO remains the central multilateral institution governing international trade.
Its importance comes from something that bilateral trade agreements cannot easily reproduce: universality.
The most-favoured-nation principle, embedded in the multilateral system, rests on non-discrimination. If a WTO member grants a particular trade advantage to one member, the basic principle is that the same treatment should extend to other members, subject to recognised exceptions.
This creates a common floor.
But a system can remain formally universal while becoming increasingly difficult to update.
Two functions are particularly important.
The first is enforcement.
The WTO’s dispute-settlement system has been severely weakened by the paralysis of its Appellate Body. Without a fully functioning appellate mechanism, the credibility of the system’s enforcement architecture is diminished.
The second is rule-making.
The WTO continues the practice of consensus-based decision-making. The Marrakesh Agreement also provides for voting where consensus cannot be reached, unless the agreement provides otherwise.
One striking indicator is the limited number of new multilateral agreements produced over roughly three decades. The WTO describes the Trade Facilitation Agreement as the first multilateral trade agreement concluded since the WTO was established, while its Fisheries Subsidies Agreement is described as the second.
The problem, therefore, is not simply that countries have stopped believing in trade rules.
It is that the universal institution has become increasingly difficult to use for producing new ones.
When the demand for rules remains but the universal mechanism for producing them becomes harder to operate, countries have an obvious alternative:
make rules with fewer countries.
Why smaller agreements become attractive
An agreement between 160-plus economies has to reconcile a vast range of interests.
An agreement between two, ten or fifteen countries faces a narrower negotiating problem.
That does not automatically make the smaller agreement better. It simply makes certain kinds of agreement easier to negotiate.
This is why FTAs have become increasingly important.
The first generation of trade agreements was largely about tariffs.
Modern FTAs can go much further.
They can contain provisions covering:
- services,
- investment,
- labour,
- environmental standards,
- digital trade,
- regulatory cooperation,
- customs procedures,
- professional mobility,
- and dispute settlement.
These are often described as WTO-plus commitments because they move beyond the traditional areas covered by the multilateral framework.
The shift is significant.
Countries are no longer using trade agreements merely to lower tariffs. They are increasingly using them to create specific institutional rules for economic relationships that the WTO has struggled to regulate collectively.
The India-New Zealand agreement, for example, includes commitments beyond tariff reduction, including services, skilled employment pathways, regulatory cooperation, customs procedures and investment facilitation. India’s Ministry of Commerce describes the agreement as covering goods, services, rules of origin, customs and trade facilitation, investment promotion and cooperation, sustainable development, MSMEs and intellectual property, among other areas.
The India-EFTA agreement similarly links market access with investment commitments, including an investment framework and mechanisms to monitor the investment commitments.
The broader pattern is important: trade agreements are becoming instruments for governing increasingly complex economic relationships, not merely instruments for cutting customs duties.
That is one reason the growth of FTAs cannot simply be interpreted as countries abandoning the WTO.
They may instead be trying to solve problems the multilateral system currently struggles to solve.
The WTO itself does not prohibit this
There is an important detail that changes the way the entire debate should be understood.
FTAs are not inherently outside the WTO system.
The multilateral framework itself permits preferential trade arrangements under defined conditions.
Article XXIV of GATT recognises free trade areas and customs unions as exceptions to the most-favoured-nation principle.
The logic is straightforward.
If the WTO is built around non-discrimination, why allow countries to discriminate in favour of selected partners?
Because the system accepts that deeper economic integration among a group of countries can coexist with the broader multilateral framework — provided certain conditions are met.
For example, a free trade area is expected to cover substantially all trade between its members.
The objective is not to make preferential agreements the alternative to multilateralism.
It is to allow deeper regional or bilateral integration to operate alongside the wider multilateral framework.
The existence of FTAs does not itself prove that multilateralism is collapsing.
The more difficult question is what happens when these agreements become the primary place where new trade rules are created.
That is where the story becomes more complicated.
The real shift is from universal rules to layered rules
Imagine the global trade system as a common road network.
The WTO provides the basic traffic rules.
An FTA can then create additional rules for a particular group of countries.
That can be useful.
Two countries with especially deep economic relationships may need rules that go beyond what everyone else has agreed to.
But as more such arrangements accumulate, the system begins to acquire layers.
One country may belong to several agreements.
Each agreement may contain different tariff schedules, standards, investment provisions, digital rules, dispute mechanisms or regulatory commitments.
The result is not necessarily chaos. It is a more complicated architecture.
The world can move from:
one universal framework + limited exceptions
towards:
one universal framework + multiple overlapping rulebooks.
That is the fragmentation risk.
The proliferation of FTAs is therefore not only a story about market access. It is also a story about who gets to write the rules of international commerce.
Plurilateralism exposes the same problem inside the WTO
The tension becomes even clearer with plurilateral agreements.
A plurilateral agreement allows a smaller group of WTO members to negotiate rules among themselves rather than waiting for every member to agree.
The attraction is obvious.
If consensus is the reason new rules cannot be produced, allow willing countries to move ahead.
Initiatives such as the Investment Facilitation for Development agreement and negotiations around electronic commerce illustrate this approach.
But there is a problem.
The WTO’s institutional framework gives all members a role in deciding whether new agreements can be incorporated into its formal rulebook. Under Article X:9 of the Marrakesh Agreement, adding an agreement to Annex 4 requires consensus among WTO members.
So the system faces a paradox.
The smaller the group, the easier rule-making may become.
But the more rule-making shifts into smaller groups, the greater the possibility that the WTO evolves into a system with different layers of obligations for different members.
Supporters can see this as a way to keep the WTO’s legislative function alive.
Critics can see it as the beginning of a fragmented, multi-tiered system.
Neither interpretation can simply be dismissed.
The institutional question is genuinely unresolved.
But not all bilateralism is the same
It is tempting to treat every bilateral trade agreement as evidence of the same trend.
They are not.
There is a fundamental difference between rules-based bilateralism and power-based bilateralism.
A conventional FTA is negotiated within a legal framework.
Its members exchange commitments, negotiate market access and establish rules for managing their economic relationship.
The India-EU and India-UK agreements, for example, illustrate the continuing attempt to build extensive bilateral economic relationships through negotiated commitments covering tariffs, standards, services, investment and other areas.
But another form of bilateralism can emerge when differences in economic power become the dominant negotiating force.
The Agreements on Reciprocal Trade, or ARTs, associated with the Trump administration represent a different model in the supplied record.
Unlike GATT Article XXIV-type FTAs, these arrangements are described as operating independently of that framework. The accompanying tariff measures have also been characterised as involving pressure on trading partners to reduce their tariffs on U.S. goods.
Whatever the merits of the underlying political arguments, the institutional distinction is important:
A negotiated preferential agreement and a trade arrangement produced through asymmetric tariff pressure are not the same phenomenon.
Treating both simply as “FTAs” would hide the more important question of how trade rules are actually being produced.
The paradox of adaptation
This leaves the global trade system in an unusual position.
Countries have strong reasons to keep creating trade rules.
Businesses need predictability.
Investors need to understand market-access conditions.
Exporters need clarity about tariffs and standards.
Governments need mechanisms for resolving disputes.
Digital commerce, investment, services and supply chains generate issues that older trade agreements were never designed to handle.
When universal negotiations struggle to keep pace, smaller agreements become a practical response.
That is the governance benefit.
But the same process creates a second effect.
Every new agreement can introduce another set of obligations.
Every new plurilateral initiative can create another layer of rules.
Every preferential arrangement creates another relationship that sits alongside the general MFN framework.
That is the fragmentation risk.
These two effects can occur simultaneously.
A country may sign an FTA because it wants more predictable trade rules while still supporting the WTO.
An FTA may strengthen rules between its members while making the overall global system more differentiated.
A plurilateral agreement may keep rule-making alive while raising questions about inclusiveness.
The choice is therefore not simply:
WTO or FTAs.
It is increasingly:
How can smaller agreements provide the rules that countries need without weakening the universal framework that makes the global system coherent?
The deeper transformation is about where rules are made
This is why the rise of FTAs matters beyond tariffs.
The traditional image of globalisation was a world in which economic integration expanded because countries progressively agreed on common rules.
The emerging model is more complicated.
Integration can continue even when universal rule-making slows.
Countries can deepen their economic relationships through bilateral agreements.
Groups of countries can negotiate plurilateral rules.
Sector-specific coalitions can cooperate around technology, digital infrastructure, semiconductors or regulatory standards.
Trade governance therefore does not simply disappear when the WTO struggles.
It migrates.
Some rule-making moves from the universal level to smaller groups.
That may make governance more functional in particular areas.
But it also changes the architecture of the system.
The central question becomes not whether trade rules will exist.
It is who will write them, for whom, and under what institutional framework.
That is the deeper significance of the FTA boom.
The trade order may therefore be adapting before it is breaking
It would be easy to look at the proliferation of FTAs and conclude that the WTO is being replaced.
The evidence does not establish that.
The WTO remains the universal institutional framework, and FTAs themselves operate partly within rules recognised by that framework. The WTO’s own regional trade agreement system records hundreds of agreements in force, including the India-United Kingdom and India-EFTA agreements, illustrating how extensive this parallel architecture has become.
Nor does the evidence establish that FTA proliferation has already produced an irreversibly fragmented global trading system.
What it does reveal is a structural tension.
The harder it becomes to create universal rules, the greater the incentive to create workable rules among smaller groups.
That adaptation can keep international economic cooperation moving.
But if the process continues without a way of reconnecting these different rulebooks to a coherent multilateral framework, the world could gradually move from one common trading architecture toward a network of overlapping regimes.
That is why the future of trade governance may not be a simple contest between the WTO and FTAs.
The more consequential question is whether the two can remain complementary.
If smaller agreements become laboratories for deeper rules while the WTO continues to provide the universal foundation, they can potentially reinforce one another.
If smaller agreements become substitutes for universal rule-making with little institutional coordination, the same process could deepen fragmentation.
The paradox is therefore simple:
FTAs are becoming more important partly because the universal system is struggling. But their success in filling that gap may itself make the universal system harder to hold together.
The future of the global trade order may depend less on whether countries sign more FTAs than on whether those agreements remain connected to a common set of rules.
Because when the universal rule-maker slows down, the world does not stop making trade rules.
It starts making them elsewhere.