How a new generation of trade barriers is reshaping global services

While the trade in goods is slowing rapidly, falling from 4.6% growth in 2025 to just 1.9% in 2026, the services trade continues to expand steadily at around 5%, a major form of resilience for the global economy.

This shows that services, particularly digitally delivered services, can be a stabilizing force as the goods trade faces increasing geopolitical and supply chain pressures.

Technological advances have helped drive much of this transformation, enabling new business models and expanding the ways services are delivered.

Simultaneously, regulatory frameworks have adapted, often unevenly across jurisdictions, leading to differences in how rules are applied and enforced.

The World Trade Organization (WTO) estimates that trade costs in services are roughly twice as high as goods, due to friction caused by domestic regulations. Nowadays, these frictions arise in areas such as data, technology, climate and security.

Many of these rules serve legitimate policy objectives and protect consumers, ensuring financial stability, safeguarding data and advancing climate and security objectives.

However, when they diverge, they can effectively function as trade barriers, fragment markets, exclude players, raise compliance costs and create uncertainty for foreign investment.

Such regulatory divergence constitutes the core of a new generation of barriers to services trade.

Traditional services trade barriers, such as quotas and foreign equity restrictions, are visible and well-covered under the WTO.

However, the new generation of barriers, which appear non-discriminatory on paper, gives rise to new rules that firms must comply with in each market, leading them to use non-interoperable systems or duplicate processes to meet local requirements. This slows down expansion and raises the cost of scaling internationally.

Existing trade frameworks only partially capture these dynamics. Within the multilateral system, the WTO’s Services Domestic Regulation primarily focuses on transparency and procedural fairness to improve how regulations are administered, rather than to guide the substance of domestic rules.

Yet many of today’s frictions arise in these substantive areas, including data governance, artificial intelligence (AI) regulation, climate-related compliance and geoeconomic risk. Progress toward broader multilateral disciplines in these areas, while important, has been partial.

Some progress is emerging through regional and bilateral trade agreements, most notably in digital trade.

Agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Digital Economy Partnership Agreement and the African Continental Free Trade Area Protocol on Digital Trade include provisions on data flows, digital ID, AI and emerging technologies.

However, coverage is uneven, recognition is limited and scaling a digital service globally still often requires navigating multiple compliance systems.

Beyond digital trade, progress is much slower. For example, the Agreement on Climate Change, Trade and Sustainability signals growing alignment between trade and sustainability objectives, though it is largely focused on cooperation and principles.

In practice, firms still face divergent disclosure requirements, taxonomies and transition frameworks across markets.

Geoeconomic and security-related measures also largely fall outside the scope of trade agreements, leaving businesses to navigate increasing uncertainty.

Taken together, fragmented efforts across agreements mean there is not yet a coherent global framework for addressing the full spectrum of new-generation barriers.

Across sectors, four particular categories of new-generation barriers are emerging, impacting how firms deliver, scale and invest globally.

For digitally delivered services, a key challenge is the lack of interoperability in trust infrastructure, such as digital ID systems, e-signatures and cross-border recognition of authorizations.

The World Bank’s Digital Trade Regulatory Readiness work finds that about half of the economies in its database [is that right?] have some restrictions on cross-border data flows.

While e-signature laws are spreading, the implementation of cross-border recognition remains rare, creating a practical challenge for remote contracting, onboarding and service delivery. Firms must also maintain multiple compliance systems rather than scaling a single trusted model globally.

AI governance is becoming a horizontal regulatory layer that affects nearly all sectors, from finance and logistics to healthcare and professional services.

Differences in data use, liability and compliance can limit the deployment of AI-enabled services across borders. In practice, such divergence can act as a de facto market access barrier, even when no explicit restriction exists.

For instance, an AI-enabled service used in insurance underwriting may need to be redesigned in each market due to differing liability rules and risk classifications, limiting the ability to scale solutions.

Climate-related rules increasingly shape cross-border activities, as sustainability requirements affect capital flows and supply chains.

The same financial product or green infrastructure project may need to be classified differently across jurisdictions due to varying green taxonomies or disclosure frameworks, leading to duplicated reporting and different timelines, creating complexity and delays.

Geoeconomic and security-related measures are typically addressed through exceptions in trade agreements rather than through regulatory cooperation.
They emerge in two ways, both of which create uncertainty and affect how firms structure operations and manage risk.

Firstly, in the context of acute geopolitical tensions or conflict, sanctions or trade restrictions may be temporary yet highly disruptive, limiting policy options until stability is restored.

When security concerns are more long-term, governments may introduce measures around investment screening that reflect longer-term strategic priorities. Aside from the resulting fragmentation, they often provide clearer compliance pathways for firms and may benefit from greater transparency, predictability and coordination over time.

The good news is that tools to address these challenges already exist; the priority is to apply them more deliberately to new barriers.

Many new-generation barriers can be addressed through greater coordination and cooperation. Geoeconomic and security-related measures are key exceptions, particularly those linked to acute geopolitical tensions.

Still, there remains scope to reduce fragmentation where regulatory divergence primarily causes trade frictions.

This includes designing for interoperability and aligning technical and procedural interfaces, such as digital standards, risk frameworks and reporting formats, even when underlying regulations differ.

It also involves targeted regulatory cooperation through outcomes-based mutual recognition and equivalence frameworks. Examples of this include consumer protection or supervisory effectiveness. This should then be supported by information sharing and supervisory coordination.

Innovation could be facilitated through cross-border regulatory sandboxes, allowing firms to test inherently cross-border services.

Also important is developing a common baseline in emerging areas to address regulatory divergence. In goods trade, regulatory differences have often been managed through international standards, providing a shared basis for regulation while allowing flexible implementation.

In many of today’s new-generation issues, including data governance, AI and climate-related compliance, such baselines are still evolving or absent. Strengthening international dialogue and when possible, advancing common reference frameworks could help reduce divergence over time.

Lastly, better measurement and classification, including the gradual adoption of CPC 3.0, which classifies goods and services, would help ensure that trade negotiations and commitments more accurately reflect modern services, such as cloud computing, AI and climate-related services, with less ambiguity.

Without greater cooperation and coordination, regulations designed for legitimate policy objectives could continue to fragment markets.

At the same time, there is an opportunity to unlock the full potential of services trade as a driver of growth, innovation and resilience in the global economy through cooperation.