From a recent CEPR paper by Richard Baldwin:
The rise of 21st century regionalism is not yet a disaster for the world trade system. It has kept trade liberalisation and trade booming despite the WTO’s slow progress. But the present course of events seems certain to undermine the WTO’s centricity – RTAs will take over as the main loci of global trade governance. Over the past ten years, WTO members have “voted with their feet” for the RTA option. Without a reform that brings existing RTA disciplines under the WTO’s aegis and makes it easier to develop new disciplines inside the WTO system, the RTA trend will continue, further eroding WTO centricity and possibly taking it beyond the tipping point where nations ignore WTO rules since everyone else does.34
This scenario runs the risk that global trade governance drifts back towards a 19th century Great Powers world. In the best of cases, the WTO would continue to thrive as the institution that underpins 20th century trade flows. The Marrakesh agreements would form a ‘first pillar’of a multi-pillar trade governance system. All the new issues would be addressed outside the WTO in a setting where power asymmetries are far less constrained. This is what has happened with the BITs – they established a parallel system of disciplines without substantially undermining the WTO’s authority on Marrakesh disciplines. But this is not the only scenario. It is also possible that the WTO’s inability to update its rules gradually undermines the authority of the Dispute Settlement Mechanism.
If the RTAs and their power asymmetries take over, there is a risk that the GATT/WTO would go down in future history books as a 70-year experiment where world trade was rules-based instead of power-based. It would, at least for a few more years, be a world where the world’s rich nations write the new rules-of-the-road in settings marked by vast power asymmetries. This trend should worry all world leaders. In the first half of the 19th century, attempts by incumbent Great Powers to impose rules on emerging powers smoothed the path to humanity’s greatest follies – the two world wars.