The International Council for Trade & Development

©2018 by The International Council for Trade & Development.

  • Various Authors

The World Trade Organization (WTO)

An Introduction on the WTO

One piece of news you may be hearing a lot recently are actions pertaining to the World Trade Organization (WTO). You may hear news of China or Europe taking their trade disputes with other countries to the WTO for a resolution or hear President Donald Trump rail on the WTO for being nothing but a burden to America when it comes to international trade. Either way, the WTO is getting more awareness now than ever before and to better understand the ongoing trade conflicts between China and the US now, it is good to get a quick refresher on the history and duties of the WTO.

Bringing the World Together: The Birth of the WTO

From the ashes of the second world war, national leaders throughout the world realized that one of the contributing factors leading to world war 1 and 2 were the use of protectionist policies to isolate, alienate, and disincentivize peaceful resolutions with other countries. The early days of the WTO can be seen with the creation of the General Agreement on Tariffs and Trade in a meeting between President Franklin Roosevelt and Prime Minister Winston Churchill in 1941. Through this agreement, the basic framework of multi-lateral trade serving as the anchor for world peace was set into place. 

The WTO proper was first created on January 1st, 1995 as part of the Marrakesh Agreement to replace the previous General Agreement on Tariffs and Trade treaty formulated in 1941. It was marked as one of the most comprehensive changes to global trade policy since 1941 and was designed to provide trade policy for both services as well as intellectual property laws. One of the weaknesses of the GATT was that it only focused on trade in goods. By the 1980s, many identified the weaknesses of GATT when addressing an increasingly globalized economy that emphasized services just as much as goods.

A Multilateral Trading System: The Duties of the WTO

The duties of the WTO are twofold. The first duty is to oversee the implementation, administration, and operation of global trade agreements. The second duty is to provide a forum for negotiation and the settlement of trade disputes. Further duties of the WTO include reviewing national trade policies, ensuring transparency and coherence in trade policy. Another important duty of the WTO is to aide developing countries with adapting to WTO rules through technical cooperation and training. 

The implementation, administration, and operation of global trade norms occurs after a long-winded series of negotiations known as trade rounds. These negotiation sessions are a continuation of the trade rounds that occurred under the GATT framework and serve as the forum with which countries can bring disputes and requests for changes onto the table. These disputes often serve as a proxy for international trade struggles between world powers as seen by the ongoing trade war between the US and China. The administration of agreements is also related to topics such as market economy or developing country status which determines whether a country receives special technical cooperation or training from the WTO.

The WTO also conducts research on global trade activity and publishes an assessment on the current state of play for global trade on a yearly basis. Furthermore, the WTO cooperates with existing international institutions from the Bretton Woods system: the IMF and the World Bank.

Dereliction of Duty or Disagreements on Policy? Criticisms of the WTO

There have been many criticisms levied onto the WTO by both countries and individuals. Many of these criticisms often double as criticism of globalization writ large and the level of scrutiny the organization is facing has only risen due to the rise of populism worldwide. Two criticisms include the preferential treatment of rich countries at the expense of poor countries and the lack of consideration taken to environmental damage caused by free trade.

One such example of preferential treatment of the rich over the poor is the tariffs on agriculture. The WTO has been unable to reduce tariffs on agricultural goods for rich countries while keeping tariffs low for agricultural goods in poor countries. This is one of the main sources of preferential treatment and economic inequality between rich and poor countries. This is because rich countries like Germany, France, and the US are reliant on agricultural goods as part of their economy while many developing countries are still reliant on predominantly agrarian economies to continue functioning. This leads to a deadly cycle of poverty because poor countries face structural barriers to transition out of an agrarian focused economy which means they are stuck selling agricultural goods and being outcompeted by rich countries. This is further exacerbated by the environmental damage caused by foreign investment in many developing countries further hampering growth.

Another criticism levied onto the WTO is the special treatment given to China. Despite being the 2nd largest economy in the World, China is considered a “developing country” according to WTO rules and continues to lobby to maintain this status much the chagrin of western countries. This is largely a product of lobbying from the Chinese government in the 1990s combined with efforts from the Clinton Administration to integrate China into the world trade system to democratize and defang the threat of China for the US. However, the Chinese government has begun to use its economic power to participate in and reshape aspects of the world trade system to be more favorable towards China. This includes retaining developing country status, lobbying for market economy status, and having protectionist policies that favor state-owned enterprises despite the objections made by the WTO and developing countries.

The Future of WTO: Free Trade in a Multi-Polar World

The WTO is currently in the Doha Development Round of trade negotiations. These series of talks cover the gamut on trade issues including industrial goods, intellectual property, agriculture, and trade barriers. Despite decades of talks, the round has yet to be concluded and more countries have resorted to implementing Free Trade Agreements (FTAs) to make up for the lack of coverage WTO rulings have over certain sectors of the economy.  Furthermore, several high-profile trade disputes have been brought to the WTO including the US government challenging five WTO members (the EU, China, Turkey, Canada, and Mexico) on illegal tariffs levied on US goods. Many organizations and countries have written proposals on how to modernize the WTO for the 21st century including the European Commission. These proposals include calls to improve transparency, address trade barriers on digital goods, and dealing with the effect of subsidies. Many changes like those proposed will more than likely be necessary for the WTO to remain pivotal in influencing global trade in the future.