The World Trade Organization (WTO)

The World Trade Organization replaced the General Agreement on Tariffs and Trade (GATT), which was a series of meetings between member states’ finance ministers. GATT reduced tariff barriers and made sure that any preferential trading agreements had to be extended to other member states. Also members could not impose asymmetrical tariffs – higher trading costs on one state than another.

The General Agreement on Tariffs and Trade (GATT) was the third of the institutions created at the Bretton Woods Conference in 1944. In 1995, this agreement was established as what we know today to be the WTO, and it is responsible for agreeing the rules of trade between states. In the Second World War era there was no international forum for states to negotiate with each other, but there was a desire to simplify negotiations by creating a specific and permanent institution.

Based in Geneva, the WTO’s key goal is to reduce barriers on trade in both goods and services, which usually include tariffs that states might impose on imports. The WTO is not the only means by which states can reduce tariff barriers — states are free to enter into agreements with one or more other states. What the WTO does offer is the opportunity to put together extremely comprehensive trade agreements that will involve nearly all international trade.

The WTO also:

■ checks that states are following trade agreements

■ produces research on global trade and economic policy

■ helps to resolve trade disputes between states

The WTO has 164 member countries, fewer than both the IMF and the

World Bank. The member states account for 97% of world trade. It can take years to go through the process of joining the WTO — Algeria applied to join in 1987 and still has not become a full member. States currently applying to join include Iraq, Libya, Somalia and Sudan, all of which have recently seen a change in leadership. The EU is a member of the WTO and its member states are also members in their own right, but EU member states have to act together as a unified bloc of states.

The WTO was created as a permanent organisation with a wider focus. It settles trade disputes between member states and enforces international trade rules, making it the primary instrument of international trade law. The WTO also oversees the trade in services (via GATS, the General Agreement on Trade in Services), protection of intellectual property (via TRIPS, the Trade-Related Aspects of Intellectual Property Rights) and non-tariff barriers (which states put in place to protect domestically produced products).

Decision-making in the WTO prioritises speed over democracy. Whole packages of reform, known as a Single Undertaking, are presented at Ministerial Conference meetings to be accepted or rejected in full by members. Single Undertakings are negotiated before Ministerial Meetings, typically by members of the Quad, informal alliances of groups of four states that share the same interests on key trade issues. Historically, the US, the EU, Japan and Canada have formed the dominant Quad in the WTO. The US and EU represent the main trading nations, while Japan represents Asian countries and Canada the interests of NAFTA and states that want liberalisation of the trade in agricultural products. More recently, a competing Quad has emerged consisting of the US, EU, Brazil and India, which better represents the developing world.

WTO rules

At its simplest, the WTO is a set of rules that its members agree to abide by. The founding rules of the WTO, agreed in the original GATT in 1947, still stand today and have been added to in subsequent years through specific negotiating ‘rounds’. Every member must agree for the round to be successful. There have been nine negotiating rounds, some of which have taken many years to agree, the most recent being in 2001. The WTO has not been able to agree a new set of rules since then.

Membership of the WTO involves both:

■ rights, such as the right to export to other countries

■ obligations, such as the need to limit restrictions on imports

The topmost decision-making body of the WTO is the Ministerial Conference, which meets every 2 years. Decisions are made by consensus and are binding, so every member has to agree to a trade deal or there is no trade deal.

The WTO operates on six key principles.

1 Non-discrimination: states should treat their trading partners equally and fairly, and should not discriminate between their own and foreign products.

2 More open: there is commitment to free trade in the sense of lowering trade barriers, such as import bans or quotas where the amount of imports is restricted.

3 Predictable and transparent: states should not raise trade barriers without warning or arbitrarily. A predictable system of international trade helps with stability and job creation, and allows for steady competition and lower prices.

4 More competitive: states should not interfere in order to give themselves an unfair competitive edge, for example by subsidising exports that would otherwise be uncompetitive or unsustainable.

5 More benefits for less-developed countries: allows scope for less- developed countries to catch up and transition to becoming full participants in international trade.

6 Protection of the environment: environmental protection must be respected both nationally and internationally.

General Agreement on Tariffs and Trade (GATT), 1947

45,000 tariff removals were agreed, which still stand today and impacted US$10 billion worth of international trade.

Kennedy Round, 1962–67

Expanded the removal of tariff barriers worth US$40 billion. For the first time, this negotiating round dealt with an issue not related to tariffs — that of states ‘dumping’ products cheaply in other states to dominate the market in that state.

Uruguay Round, 1986–94

The longest successfully concluded negotiating round of the WTO. This was also the WTO’s largest trade agreement, as 123 countries were involved. The WTO was formally created in this round. There was a particular focus on reducing agricultural subsidies, although the EU’s system of agricultural subsidies, the Common Agricultural Policy (CAP), was largely unaffected.

Doha Round, 2001–

The WTO’s current negotiating round has been ongoing since 2001. A so-called Development Round, it was intended to make progress in widening free trade with developing countries. The talks are in gridlock due to disagreements over further reductions in agricultural subsidies, which developed states are defending in the face of a perceived threat from cheaper agricultural imports. The Organisation for Economic Co-operation and Development (OECD) has estimated that the agricultural subsidies give an unfair advantage worth US$300 billion annually. The USA in particular has been criticised for not challenging its powerful farming lobby.

The World Trade Organization is facing its biggest crisis since it was founded a quarter century ago. WTO Director General Roberto Azevedo had hoped to resolve an impasse in the trade body. But instead, the organization can no longer deliver rulings on trade disputes, because Washington has blocked the appointment of new judges to its appelate panel. Critics fear world trade is now facing "the law of the jungle." 

Criticisms and gridlock: the Doha Round

The failure of the Doha Round to reach agreement has raised criticism of the WTO’s effectiveness. Critics say that the powerful nations, including the EU and the USA, are blocking less-developed nations and attempting to preserve the status quo for protectionist reasons. In recent decades, this has led the WTO to become gridlocked (since the WTO was created in 1994, it has successfully agreed only one major international trade deal). Negotiations in the Doha Round have agreed improvements to customs procedure, but reductions on agricultural subsidies remain a sticking point.

The Doha Round was effectively abandoned without agreement in 2015. The Financial Times commented that ‘having failed to save Doha in the WTO, its members must now save the WTO from Doha’, referring to the risk that the failure to agree a new comprehensive trade deal since 2001 has put the entire framework and effectiveness of the WTO in jeopardy. Until new WTO efforts are made, states must resort to negotiating with as many other states as possible in order to agree further liberalisation of tariff barriers.

Other criticisms of the WTO include the following:

■ Political power resides with Western powers, and they tend to gain most from deals.

■ Decision making is biased towards those countries with large representation in Geneva.

■ Workers’ rights and environmental protection (sustainable development) is disregarded.

■ The WTO is unable to make decisions quickly, its Ministerial Conferences are too infrequent and the need for consensus among all members further slows decision making.

The difficulties in reaching agreement at the WTO might be seen as the reason for states seeking to agree trade deals outside of its forums. The TPP) and the agreement between the EU and the USA, the Trans-Atlantic Trade and Investment Partnership (TTIP), are examples of states bypassing the WTO.