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Fahmida Khatun
Fahmida Khatun
VISUAL: SALMAN SAKIB SHAHRYAR
The global trading system has been experiencing significant transformation since the World Trade Organization (WTO) was created in 1995. The rules-based trade framework and export-oriented growth model that defined the WTO era were suited for a world in which trade liberalisation, global value chains, and economic efficiency fuelled growth. In today’s world, however, trade is increasingly influenced by geopolitical divisions, industrial policies, tariffs and trade disputes, climate regulations, digital advances, artificial intelligence, and security concerns. The main challenge is not just to reform the WTO but to redesign the trading system to foster development amid a rapidly evolving global landscape.
The WTO-era trading system was built on a simple proposition: accelerating economic growth by lowering trade barriers, expanding market access, and deepening integration into global value chains. This strategy delivered remarkable results: global merchandise trade expanded rapidly. Developing economies significantly increased their share of world exports and became more deeply integrated into global value chains, which contributed to faster growth, industrialisation and significant poverty reduction in many parts of Asia.
However, the conditions underpinning that success have changed. The 2025 World Development Report by the World Bank argues that international standards have become a defining feature of modern trade. Nearly 90 percent of global trade is now covered by non-tariff measures, many linked to technical, environmental, and quality standards. This means that competitiveness increasingly depends not just on market access but also on the countries’ ability to meet complex regulatory and standards requirements.
Today, competitiveness is increasingly shaped by industrial policies, technological capabilities, climate-related regulations, digital transformation, and supply chain resilience, not just tariffs alone. Governments are investing heavily in strategic industries, environmental standards are becoming conditions for market access, and AI is reshaping production and services. At the same time, geopolitical fragmentation is creating new uncertainties for trade and investment.
The Trade and Development Foresights 2026 report by the United Nations Conference on Trade and Development (UNCTAD) argues that the greatest risk to the global economy has shifted from trade uncertainty to geopolitical instability. After a 2.9 percent growth in 2025—driven by robust trade, resilient industrial output in developing nations, and AI-enhanced manufacturing—the global outlook worsened due to conflicts in the Middle East. These conflicts have disrupted energy supplies, shipping lanes, and financial markets, likely reducing global growth to 2.6 percent in 2026. UNCTAD cautions that the ongoing geopolitical tensions could have broad impacts on trade, investment, energy security, financial stability, and the world economy.
Per the UNCTAD report, developing economies are expected to grow by 4.1 percent in 2026, surpassing the 1.5 percent growth forecast for developed economies. However, their outlook has significantly weakened: these nations will face the greatest impact from geopolitical instability due to their reliance on fuel, food, and fertiliser imports. Rising import costs, falling export demand, increasing global interest rates, capital outflows, and currency depreciation are intensifying macroeconomic vulnerabilities and debt levels. In response, countries such as Bangladesh, India, Pakistan, Sri Lanka, Indonesia, Thailand, Vietnam, Egypt, and Ethiopia have implemented measures like fuel subsidies and price controls—initiatives that strain their already limited fiscal resources.
Meanwhile, the July 2026 World Economic Outlook Update by the International Monetary Fund forecasts a decline in global economic growth from an average of 3.5 percent in 2024-25 to 3 percent in 2026, before slightly rising to 3.4 percent in 2027. It also anticipates world trade volume growth to drop to 3.5 percent in 2026 from 5 percent in 2025, before rebounding to 4.3 percent in 2027. Ongoing geopolitical tensions, trade fragmentation, tariffs, and supply chain disruptions continue to hinder global commerce. Nevertheless, technology-driven trade—especially semiconductors, AI hardware, and digital services—is expected to significantly drive growth.
Per the IMF forecasts, in 2026, crude oil prices could increase by 32 percent, natural gas by 22 percent, fertiliser by 26 percent, and food by 8 percent. For countries like Bangladesh, which relies heavily on energy imports, this will lead to higher import costs, strain on foreign exchange reserves, increased need for subsidies, rising production expenses, and renewed inflation risks. All these factors will complicate macroeconomic management.
Furthermore, Bangladesh is not yet a significant part of the global AI and advanced technology value chain, which is considered to be the main driver of growth in the coming years. Countries like Vietnam, Malaysia, Thailand, South Korea, and the territory of Taiwan benefit from exporting semiconductors, electronics, and AI hardware or by attracting large data centre investments. In contrast, Bangladesh’s exports are still mostly focused on ready-made garment (RMG) products. While the RMG sector has become more advanced than before, it has not yet tapped into the productivity improvements from AI-enabled manufacturing or digital hardware exports. As a result, the country incurs higher energy costs but does not benefit from the ongoing technology cycle.
The challenge, therefore, is not just reducing trade barriers but also ensuring that trade fosters development. This requires the understanding that market access alone is insufficient. Many developing countries are constrained by issues in productivity, infrastructure, technology, skills, energy, and finance access. Without tackling these structural problems, trade liberalisation alone cannot lead to lasting economic transformation.
This highlights the limitations of the current trading structure. The WTO remains essential as the backbone of a rules-based multilateral trade system. But it needs a more effective dispute settlement process, revised rules for digital trade, and increased transparency around subsidies and trade measures.
In addition to WTO reforms, development should be placed at the centre of international trade by better aligning trade governance with finance, technology, and sustainability. First, trade policy should be more closely linked with development finance as export competitiveness increasingly depends on infrastructure, energy, digitalisation, and industrial capabilities. Second, developing countries need sufficient policy space to diversify exports, upgrade industries, and build productive capacity within transparent multilateral rules. Third, climate-related trade measures should be accompanied by increased climate finance, technology transfer, and capacity-building to ensure that developing countries can compete in the emerging green economy, not be excluded from it. Bangladesh shows why an integrated approach is crucial. Over the past 40 years, export-driven growth has transformed its economy and significantly reduced poverty. As the country awaits LDC graduation and faces a rapidly evolving global trade landscape, its future competitiveness will rely less on preferential market access and cheap labour and more on productivity improvements, technological advancements, renewable energy, digital infrastructure, regulatory reforms, and innovation. Developing these capabilities will be key not only to maintaining export growth but also to attracting high-quality investments, integrating into advanced global value chains, and creating better-paying jobs. Essentially, Bangladesh’s journey reflects a common challenge for many developing nations: succeeding in the next phase of globalisation requires building the skills and capabilities to compete in a world driven by technology, knowledge, and sustainability.
Dr Fahmida Khatunis an economist and executive director at the Centre for Policy Dialogue (CPD).
Views expressed in this article are the author’s own.
Views expressed in this article are the author’s own.
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