The establishment and purpose of the WTO

The World Trade Organization (WTO) plays a central role in regulating international trade, building on earlier efforts to reduce trade barriers.

Origins and development of the WTO

The WTO was set up in 1995 to replace the General Agreement on Tariffs and Trade (GATT), which began in 1947 as an accord among 23 nations aimed at encouraging freer trade through gradual removal of tariffs and similar restrictions. Both GATT and WTO pacts are multilateral, involving multiple countries. A core element is the most-favoured nation (MFN) rule, which mandates that each member must grant equal treatment to all others without favouritism. The WTO is often linked to globalisation.

Key functions of the WTO in global trade

The WTO oversees various aspects of international commerce, focusing on creating a fair and predictable environment for trade.

Main responsibilities of the WTO

• Negotiation platform - Offers a space for member states to discuss and agree on rules for trading goods, services, and intellectual property.
• Promotion of open trade - Encourages nations to eliminate import duties and other obstacles to foster freer exchange.
• Monitoring compliance - Requires members to maintain clear trade policies and undergoes regular assessments to confirm adherence to pacts.
• Dispute resolution - Acts as a mediator in conflicts over trade matters, with a seven-person Appellate Body issuing binding rulings that involved parties must follow.
• Enforcement mechanisms - Can apply trade penalties to nations that violate regulations.
• Support for less developed economies - Provides aid to build skills and infrastructure for participating in global markets.

The WTO currently has 164 members, accounting for 98% of global trade.

Achievements and impacts of the WTO

The WTO has contributed to greater stability and growth in international trade, with measurable effects on the global economy.

Positive outcomes from WTO activities

• Growth in world trade - Global trade as a share of total output rose from around 25% in 1960 to over 59% by 2018, based on data from organisations like the OECD and World Bank.
• Reduced uncertainty - Establishes consistent rules that lower risks for businesses engaging in cross-border activities.
• Crisis management - Helped avoid widespread protectionist measures during the 2008-09 economic downturn, maintaining open markets.

Challenges during global disruptions

Despite its successes, events like the Covid-19 pandemic affected trade volumes, with the WTO forecasting an over 13% drop in merchandise trade for 2020. Overall, experts view the WTO's influence on global prosperity as beneficial on balance.

Criticisms and challenges facing the WTO

While the WTO has advanced global trade, it faces significant obstacles and accusations of bias or inadequacy.

Operational difficulties

• Dispute system issues - Since 2017, the USA has prevented the selection of new Appellate Body members, paralysing the full dispute process by December 2019. In response, the EU and 16 other nations formed a provisional setup for handling appeals.
• Agreement hurdles - With a large membership, consensus is hard to achieve, resulting in more bilateral or regional trade deals outside the WTO framework.

Key criticisms of the WTO

• Bias towards developed nations - Accused of prioritising richer countries' interests while overlooking those of emerging economies, such as pushing for service sector openness in poorer nations without requiring agricultural reforms in places like the USA and EU.
• Failed negotiations - The Doha Round collapsed mainly due to unresolved agricultural disputes.
• Policy imposition - Claimed to compel developing countries to alter domestic rules deemed non-compliant.
• Social and environmental oversights - Criticised for not adequately addressing job losses, wealth gaps, ecological damage, child labour, or poor working conditions in factories.

These issues underline ongoing debates about reforming the WTO to better serve all members.