Global trade was once built on the simple promise that countries would compete under agreed rules rather than raw economic power. That promise is under ever-increasing strain. The challenge lies in the weakening of the institutions that have long governed international commerce. It is amid this global instability that the Asia Pacific emerges as one of the few regions capable of preserving economic integration and upholding the rules-based trading system.
The World Trade Organization (WTO) remains the cornerstone of the multilateral trading system. Yet two of its essential functions have steadily eroded — the credibility of dispute settlement and the discipline against unilateral tariff coercion. These developments have pushed the trading system away from rules and towards power.
For decades, the WTO dispute settlement mechanism enabled economies of all sizes to resolve disputes under common rules, reducing the risk that trade conflicts would become power politics. Since the Appellate Body ceased functioning in 2019, that final layer of enforceability has largely disappeared.
In the years prior to the paralysis of the Appellate Body, some major economies — particularly the United States — had argued that the system had exceeded its mandate through judicial overreach and was not adequately responding to new forms of state-driven industrial competition. Many members also questioned whether existing WTO disciplines had kept pace with the growing role of industrial subsidies, state intervention and economic coercion. These concerns underscored the need for stronger and updated multilateral rules.
Without timely and credible judgments, the deterrent effect of WTO rules weakens. For small and medium-sized economies, which rely more on law than on leverage, this is particularly damaging. As confidence in WTO rules declines, governments resort to bilateral pressure, retaliation and domestic industrial measures. The collapse of dispute settlement changes behaviour throughout the trading system.
The rise of aggressive unilateralism and tariff disputes demonstrates the global shift away from WTO principles. Tariffs have become increasingly tied to geopolitical rivalries, domestic politics and industrial policy. Export restrictions and subsidies now reinforce strategic competition over technology, supply chains and industrial leadership. When tariffs are imposed outside a credible multilateral framework like the WTO, firms respond by delaying investment, diversifying suppliers and restructuring production networks.
This pattern is increasingly evident across the Asia Pacific, where governments and firms are responding to growing geopolitical uncertainty by diversifying production networks and reducing excessive dependence on individual markets. With aggressive unilateralism inviting retaliation, the cumulative effect is a less efficient and more fragmented trading landscape marked by exceptions, exemptions and tit-for-tat measures.
These problems are mutually reinforcing. When dispute settlement weakens, unilateralism becomes easier to justify and trust in multilateral institutions declines.
Few regions have a greater stake in preserving a rules-based trading order than the Asia Pacific, whose economic success depends on open trade, cross-border production networks and predictable market access. The region also accounts for a substantial share of global manufacturing, intermediate goods trade and regional value chains, making predictable trade rules especially important for sustaining growth and investment.
Beyond its economic importance, the Asia Pacific also possesses institutional assets that could contribute to broader multilateral reform. Many trade agreements — including ASEAN-centred arrangements and wider regional frameworks — were originally built on WTO principles and disciplines. Through the Asia–Pacific Economic Cooperation, the region has also built decades of experience in promoting policy dialogue, voluntary cooperation, regulatory convergence and integration across diverse economies. Together, these arrangements have developed practical mechanisms for dispute management, trade facilitation, regulatory coordination and supply chain integration, which could inform efforts to modernise multilateral trade rules and procedures.
If major economies remain locked in strategic rivalry, middle and regional powers will need to play a larger role in preserving institutional continuity. With its dense network of economic interdependence and trade agreements, the Asia Pacific is one of the few regions capable of generating such critical mass. The region’s experience also demonstrates that economic integration can advance even among countries with differing political systems, stages of development and strategic interests.
A priority for governments invested in revitalising the rules-based trading system is to restore a credible system of dispute settlement. WTO members should expand interim mechanisms such as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) while continuing negotiations on a reformed Appellate Body. Although the MPIA cannot substitute for a fully restored Appellate Body, broader participation would help preserve the practice of binding appellate review, maintain legal predictability among participating members and reduce the risk that unresolved appeals further undermine confidence in the rules-based trading system. Such temporary arrangements cannot replace permanent reform, but they can prevent further erosion of WTO principles and disciplines.
Countries will justifiably continue to adopt trade-related measures in pursuit of their strategic interests. The challenge is ensuring that they remain subject to stronger multilateral disciplines. Greater transparency, timely notification and more effective multilateral review would allow for concerns to be addressed before they escalate into broader trade disputes.
Amid the global erosion of rules-based trade, Asia Pacific governments must strengthen institutional resilience at both the national and regional levels. Governments in the region need to diversify their export markets, strengthen industrial capacity and reduce excessive dependence on vulnerable supply chains. Regional arrangements can help fill some of the governance gaps in the meantime, while broader multilateral reform continues to evolve. The goal is to preserve openness under stronger institutional conditions. Countries that value long-term prosperity should defend rules even when those rules constrain short-term tactical advantages.
The core crisis in global trade is the combination of weakened enforcement and normalised coercion. Without enforceable rules, the trade system risks becoming a contest of power disguised as commerce. Until broader consensus returns, interim mechanisms, regional arrangements and plurilateral initiatives can help preserve rules-based cooperation by moving institutional cooperation forward while gradually rebuilding a broader multilateral consensus. The Asia Pacific region is a key partner in this global effort.
Iman Pambagyo is former director general of international trade negotiations at the Ministry of Trade, Indonesia and former Indonesian Ambassador to the World Trade Organization.