What is the World Trade Organization (WTO)?

The World Trade Organization (WTO) is a global organization that deals with the rules of trade between nations. It is made up of 164 member countries and its aim is to ensure that trade is as smooth and predictable as possible.

If a trade dispute arises, the WTO works to resolve it. For example, if a country erects a trade barrier in the form of tariffs against a particular country or a particular product, the WTO can impose trade sanctions against the offending country. The WTO will also seek to resolve the conflict through negotiation.

As an international body that negotiates and regulates global trade issues between sovereign nations, the WTO has both supporters and detractors. Its critics often worry about transparency, sovereignty, and the unintended impacts of free trade on local economies and regimes.

Understanding the World Trade Organization (WTO)

The objective of the WTO is to guarantee global trade gets off to a smooth startfreely and predictably. The WTO creates and embodies the basic rules of global trade among member countries, providing a system of international trade. The WTO aims to create global economic peace and stability through a multilateral system based on the consent of member states.

The WTO has 164 members who have also ratified the WTO rules in their respective countries. This means that WTO rules become part of a country’s national legal system. The rules therefore apply to local companies operating internationally.

If a company decides to invest in a foreign country, for example by opening an office there, WTO rules (and therefore a country’s local laws) will govern how this can be done. Theoretically, if a country is a member of the WTO, its local laws cannot contradict WTO rules and regulations, which govern approximately 98% of all global trade in 2024.

The Director General of the World Trade Organization since March 2021 is the Nigerian Ngozi Okonjo-Iweala. Decisions are made by consensus, although a majority vote can also prevail (which is very rare). Based in Geneva, Switzerland, the Ministerial Conference meets at least every two years to make the most important decisions.

There is also a goods council, a services council and an intellectual property rights council, all of which report to a general council, in addition to numerous working groups and committees.

History of the World Trade Organization

THE World Trade Organization (WTO) was born from the General Agreement on Tariffs and Trade (GATT), established in 1947. GATT was part of the Bretton Woods-inspired family of the International Monetary Fund (IMF) and the World Bank. A series of trade negotiations around GATT began at the end of World War II and aimed to reduce tariffs to facilitate global trade.

The justification for GATT was based on the Most Favored Nation (MFN) clausewhich, when assigned to one country by another, gives the selected country privileged trading rights. As such, the GATT aimed to help all countries achieve MFN-like status so that no country could enjoy a trade advantage over others.

The WTO replaced the GATT as the world trade body in 1995, and the current set of rules stems from the GATT Uruguay Round negotiations, which took place from 1986 to 1994. GATT trade regulations established between 1947 and 1994 (and in particular those negotiated during the Uruguay Round) remain the main rules of multilateral trade in goods. Specific sectors such as agriculture were addressed, as well as issues related to anti-dumping.

Trade measures introduced by country

The Uruguay Round also laid the foundations for regulating trade in services. The General Agreement on Trade in Services (GATS) is the guideline that governs multilateral trade in services. Intellectual property rights have been taken into account in establishing regulations protecting the trade and investment of ideas, concepts, designs, patents, etc.

Trends in trade remedies at the WTO

Controversies around the WTO

As part of his broader attempts to renegotiate global trade deals with the United States, former President Donald Trump threatened to withdraw from the WTO in August 2018, calling it a “disaster.” If the United States had decided to withdraw from the organization, billions of dollars of global trade would have been disrupted. Under the Biden administration, the United States committed to the WTO but stressed that reforms were still needed.

The controversy under the Trump administration was not the first time the WTO has come under scrutiny. In 1999, protests at the gates of the Third Ministerial Conference of the World Trade Organization, held in Seattle, Washington, became known as the “Battle of Seattle.” Similar protests against the WTO also took place in Canada and Switzerland throughout the 2000s and 2010s.

The anti-WTO protests are a response to the consequences of the establishment of a multilateral trading system. Critics say the consequences of WTO policies are undemocratic due to the lack of transparency during negotiations.

Opponents also argue that because the WTO functions as a global authority on trade and has the right to review a country’s internal trade policies, national sovereignty is compromised. For example, regulations that a country wants to establish to protect its industry, workers, or environment could be seen as obstacles to the WTO’s goal of facilitating free trade.

A country may have to sacrifice its interests to avoid violating WTO agreements. Thus, a country becomes limited in its choices. Moreover, regimes that are brutal and pernicious to their own countries may inadvertently receive covert support from foreign governments who continue, in the name of free trade, to do business with these regimes. Governments unfavorable in favor of big capital therefore remain in power to the detriment of representative government.

A high-profile controversy at the WTO concerns intellectual property rights and a government’s duty to its citizens versus a global authority. A well-known example is that of HIV/AIDS treatments and their cost. patented medicines. Poor countries, such as those in South America and sub-Saharan Africa, simply cannot afford these patented medicines. If they were to purchase or manufacture these same drugs under an affordable generic label, which would save thousands of lives, these countries, as WTO members, would be violating agreements on intellectual property rights and would be subject to d possible trade sanctions.

The essentials

Free trade encourages investment in other countries, which can help boost the economy and ultimately the standard of living of all countries involved. Since most investments come from developed and economically powerful countries to developing and less influential economies, however, the system tends to give an advantage to the investor.

Regulations that facilitate the investment process are in the investor’s interest because they help foreign investors maintain an advantage 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.