The rise of trade-related disputes in the Asia-Pacific

For more than two decades, businesses in the Asia-Pacific (APAC) region operated in an era of unprecedented stability in global trade. That period is now ending. Tariffs, sanctions, regulatory change and geopolitical risk are reshaping the foundations of regional supply chains. The implications for companies are immediate and strategic.

A period of trade stability in the Asia-Pacific

Until recently, APAC benefited from the most comprehensive and stable trading environment in history. Interlocking trade agreements steadily reduced barriers to trade, while dispute resolution mechanisms such as under the WTO and investor-state dispute settlement (ISDS) provided predictable avenues for dispute resolution. This stability underpinned deep supply chain integration.

In 2024, Asia accounted for 38.9% and 36.7% of global nominal exports and imports, respectively. The Americas contributed 26.3% of global GDP and under 20% of merchandise exports. In 2024, China was the largest exporter (US $3.58 trillion) while the United States remained the largest importer (US $3.36 trillion). Australia remains heavily exposed: although only 2.4% of businesses export directly, exports represent about 24% of GDP.

A shifting bedrock in trade conditions

The conditions that delivered this stability are fracturing:

• Tariffs and sanctions: Both are once again instruments of industrial and foreign policy, disrupting established trade flows.
   
• Energy transition regulation: Policies such as mine decommissioning requirements and subsidies for critical minerals and manufacturing are redrawing competitive rules.
   
• Industrial policy and subsidies: The US Inflation Reduction Act of 2022 and EU Green Deal Industrial Plan proposed in 2023 are funnelling billions into domestic supply chains, creating global distortions.
   
• Export controls and investment screening: The United States, European Union, Japan and Australia have tightened trade restrictions on semiconductors and rare earths. China has since introduced controls on rare earths and graphite.
   
• Digital and carbon trade regulation: Divergent rules on data, cybersecurity and digital services, along with carbon border measures, similar to the EU Carbon Border Adjustment Mechanism, are effectively new trade barriers.
   
• Geopolitical and environmental shocks: Shipping disruptions, conflict and extreme weather are adding further volatility.
   
• Supply chain ‘friend-shoring’: Governments and companies are re-routing production to ‘trusted partners’, fracturing previously integrated networks.

These are structural shifts, not short-term headwinds, and they are redefining the environment for cross-border trade.

Exposure in APAC

The region is acutely vulnerable to these changes:

• Cross-border supply chains: APAC is the world’s most trade-integrated region. Manufacturing hubs in China, Japan, Korea and Southeast Asia depend on inputs sourced worldwide, with Australia supplying much of the region’s energy and minerals. If there is a disruption in one part of this network, it can quickly affect industries, including electronics, automotives, and natural resources, throughout the region.
   
• Commodity dependence: Many APAC economies rely heavily on commodity exports, leaving them exposed to price volatility, shifting demand and new environmental restrictions.
   
• Regulatory volatility: Frequent changes in regional energy, climate and industrial policy complicate long-term investment decisions and raise compliance costs.
   
• Concentration risks: Heavy reliance on a handful of partners – particularly China, the US, Japan and the EU – amplifies the impact of geopolitical shifts.
   
• Financial and reputational exposure: Sanctions compliance, ESG obligations and supply chain due diligence are increasingly tied to access to finance. Companies that fail to anticipate shifts face both enforcement risk and exclusion from capital markets.

The depth of APAC’s integration into global trade, combined with its reliance on exposed sectors, means that companies must treat legal and regulatory preparedness as central to their commercial strategy.

Rising disputes affecting trade

The erosion of stability is already translating into a surge of disputes:

Contractual disputes

Supply chain disruptions and regulatory change are driving claims over force majeure, frustration and long-term delivery contracts, especially in energy and resources.

Investor-state disputes

Climate and environmental measures are now common grounds for ISDS claims. Investors from China, Korea and others have commenced arbitration against states such as Australia, Canada and the UK, alleging treaty breaches linked to energy transition policies.

Sanctions and compliance disputes

Companies caught between competing regimes, such as US secondary sanctions and Chinese counter-measures, face significant legal exposure.

Trade remedy actions

Anti-dumping and countervailing duty cases are proliferating in sectors such as steel, aluminium, batteries and solar, often escalating into WTO disputes or bilateral trade tensions.

WTO and state-to-state disputes

Despite the paralysis of the Appellate Body, governments continue to bring panel cases over subsidies, tariffs and discriminatory regulations, with APAC economies frequent litigants.

Regulatory and ESG disputes

Litigation linked to ESG commitments, greenwashing and supply chain failures is growing. Investors and consumers are testing corporate claims in courts and arbitral forums.

Renegotiations under pressure

Governments are recalibrating trade and investment commitments in response to political pressure, creating uncertainty and sometimes triggering treaty-based claims.

Disputes are no longer peripheral risks. They are becoming central strategic considerations for trade and investment planning.

How companies can navigate trade-related challenges

To navigate this environment, businesses should:

• Draft nimble contracts that adapt to regulatory and market shocks.
   
• Include robust dispute resolution clauses, anticipating both litigation and treaty arbitration.
   
• Structure investments to maximise ISDS protections under available treaties.
   
• Engage proactively with governments to anticipate and influence regulatory change.
   
• Strengthen compliance systems around sanctions, ESG and supply chain due diligence.

Looking ahead in the trade landscape

The era of exceptional trade stability has passed. For companies in APAC, agility and legal preparedness are essential. Businesses that adapt quickly will be best placed to manage volatility and to capture opportunities as the global trading system evolves.