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What is the World Trade Organization (WTO)?
The World Trade Organization (WTO) is a global organization that regulates trade rules between countries. It consists of 164 Member States and aims to ensure that trade flows are as smooth and predictable as possible.
When a trade dispute arises, the WTO tries to resolve it. For example, if a country imposes a trade barrier in the form of customs duties against a particular country or good, the WTO can issue trade sanctions against the offending country. The WTO will also work to resolve the conflict through negotiations.
As an international body that negotiates and regulates matters of global trade between sovereign nations, the WTO has both supporters and detractors. Opponents often express concerns about transparency, sovereignty, and the unintended consequences of free trade for local economies and regimes.
Key Takeaways
- The World Trade Organization is a global organization consisting of 164 member states that deals with trade rules between countries.
- The purpose of the WTO is to ensure that trade flows are as smooth and predictable as possible.
- The WTO was created out of the General Agreement on Tariffs and Trade (GATT), which was established in 1947.
- When a trade dispute arises, the WTO tries to resolve it.
Understanding the World Trade Organization (WTO).
The purpose of the WTO is to guarantee this world trade is getting off to a smooth startfree and predictable. The WTO creates and embodies the basic rules for global trade between member states, and provides a system for this international trade. The WTO seeks to create economic peace and stability in the world through a multilateral system based on consenting member states.
The WTO has 164 members who have ratified the WTO rules in their individual countries. This means that WTO rules become part of a country’s domestic legal system. The rules therefore apply to local companies doing business in the international arena.
If a company decides to invest abroad by, for example, setting up an office in that country, WTO rules (and therefore a country’s local laws) will determine how that can be done. Theoretically, if a country is a member of the WTO, its local laws cannot conflict with the rules and regulations of the WTO, which will govern approximately 98% of all global trade as of 2024.
The Director-General of the World Trade Organization as of March 2021 is Ngozi Okonjo-Iweala of Nigeria. Decisions are made by consensus, although a majority vote can also decide (this is very rare). The Ministerial Conference, based in Geneva, Switzerland, meets at least every two years to make key decisions.
There is also a goods council, a services council and an intellectual property rights council, all reporting to a general council, in addition to many working groups and committees.
History of the World Trade Organization
The World Trade Organization (WTO) was created from the General Agreement on Tariffs and Trade (GATT), founded in 1947. GATT was part of the Bretton Woods-inspired family, which included the International Monetary Fund (IMF) and the World Bank. A series of trade negotiations surrounding the GATT began at the end of World War II and focused on lowering tariffs to facilitate global trade.
The rationale for the GATT was based on the most favored nation (MFN) clause.which, when assigned to one country by another country, gives the selected country privileged trading rights. As such, the GATT aimed to help all countries obtain MFN-like status so that no country would have a trade advantage over others.
The WTO replaced the GATT as the global trading body in 1995, and the current set of governing rules stems from the Uruguay Round of GATT negotiations, which took place from 1986 to 1994. The GATT trade rules established between 1947 and 1994 (and in particular those negotiated during the Uruguay Round) remain the main rulebook for multilateral trade in goods. Specific sectors such as agriculture have been discussed, as well as issues related to them anti-dumping.
Trade measures introduced by countries
The Uruguay Round also laid the foundation for regulating trade in services. The General Agreement on Trade in Services (GATS) is the guiding principle for multilateral trade in services. Intellectual property rights were addressed in establishing regulations to protect trade and investment in ideas, concepts, designs, patents, and so on.
Trends in WTO trade remedies
Controversies surrounding the WTO
As part of his broader efforts to renegotiate the United States’ global trade deals, former President Donald Trump threatened to withdraw from the WTO in August 2018, calling it a “disaster.” If the US had withdrawn from the organization, trillions of dollars of global trade would have been disrupted. Under the Biden administration, the United States has committed to the WTO but emphasized that reforms are still needed.
The controversy during the Trump administration was not the first time the WTO has come under scrutiny. In 1999, the protests at the doors of the World Trade Organization’s Third Ministerial Conference, held in Seattle, Washington in 1999, were later dubbed the “Battle of Seattle.” Similar demonstrations against the WTO also took place in Canada and Switzerland in the 2000s and 2010s.
Protests against the WTO are a response to the consequences of setting up a multilateral trading system. Critics say the aftereffects of WTO policies are undemocratic due to the lack of transparency during negotiations.
Opponents also argue that national sovereignty is at risk because the WTO functions as a global authority on trade and has the right to review a country’s domestic trade policies. For example, regulations that a country might want to introduce to protect its industry, workers, or environment could be seen as an obstacle to the WTO’s goal of facilitating free trade.
A country may have to sacrifice its interests to avoid violating WTO agreements. In this way, a country is limited in its choices. Moreover, cruel regimes that are harmful to their own countries may inadvertently receive covert support from foreign governments that, in the name of free trade, continue to do business with these regimes. Unfavorable governments in favor of big business therefore remain in power, at the expense of representative government.
One high-profile WTO controversy involves intellectual property rights and a government’s duties to its citizens versus a global authority. A well-known example is HIV/AIDS treatments and their costs patented medicines. Poor countries, such as those in South America and sub-Saharan Africa, simply cannot afford to purchase these patented drugs. If they were to purchase or produce the same drugs under an affordable generic label, which would save thousands of lives, these countries, as members of the WTO, would be in violation of intellectual property rights agreements and subject to possible trade sanctions.
The bottom line
Free trade encourages investment in other countries, which can help boost the economy and ultimately the living standards of all countries involved. However, as most investments flow from the developed and economically powerful countries to the developing and less influential economies, there is a tendency for the system to give an advantage to the investor.
Regulations that facilitate the investment process are in the interest of the investor because these regulations help foreign investors maintain an edge over local competition. As several countries, including the United States, strengthen their protectionist stance on trade, the future of… The World Trade Organization remains complex and unclear.