World Trade Organization

Overview

The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. Established on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, it succeeded the General Agreement on Tariffs and Trade (GATT), which was created in 1948. As the world's largest international economic organization, the WTO has 166 members, representing over 98% of global trade and global GDP. It is headquartered in Geneva, Switzerland. The WTO's primary functions are to provide a framework for negotiating trade agreements and to resolve trade disputes among its members. Its agreements, which are negotiated and signed by the majority of the world's trading nations and ratified in their legislatures, cover trade in goods, services, and intellectual property. The organization operates on the principle of non-discrimination—enshrined in the most-favoured-nation and national treatment provisions—but allows for exceptions for environmental protection, national security, and other objectives. The WTO's highest decision-making body is the Ministerial Conference, which convenes biennially and makes decisions by consensus. Day-to-day business is managed by the General Council, composed of representatives from all member states. The organization is administered by a Secretariat led by the Director-General; since 2021, this position has been held by Ngozi Okonjo-Iweala of Nigeria. The WTO's annual budget is approximately 200 million CHF ($263 million USD), contributed by members based on their share of international trade. Economic studies generally find that the WTO has boosted trade and reduced trade barriers. Criticisms of WTO include that the benefits of WTO-facilitated free trade are not shared equally, that its agreements may disadvantage developing countries, and that commercial interests have been prioritised over environmental and labour concerns. The organization has also been central to major trade disputes and stalled negotiations, such as the Doha Development Round and the paralysis of its Appellate Body, which have raised questions about its future efficacy.

History

The WTO precursor, General Agreement on Tariffs and Trade (GATT), was established by a multilateral treaty of 23 countries in 1947 after the end of World War II, in the wake of other new multilateral institutions dedicated to international economic cooperation—such as the World Bank (founded 1944) and the International Monetary Fund (founded 1944–1945). A comparable international institution for trade, named the International Trade Organization (ITO), never started, since the United States and other signatories did not ratify the establishment treaty, and so the GATT slowly became a de facto international organization.

GATT negotiations before Uruguay

Seven rounds of negotiations occurred under the General Agreement on Tariffs and Trade (1949 to 1979). The early GATT trade rounds concentrated on further reducing tariffs. Then the Kennedy Round in the mid-sixties brought about a GATT anti-dumping agreement and a section on development. The Tokyo Round during the seventies represented the first major attempt to tackle trade barriers that do not take the form of tariffs, and to improve the system, adopting a series of agreements on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others broke entirely new ground. Because not all GATT members accepted these plurilateral agreements, they were often informally called "codes". (The Uruguay Round amended several of these codes and turned them into multilateral commitments accepted by all WTO members. Only four remained plurilateral (those on government procurement, bovine meat, civil aircraft, and dairy products), but in 1997 WTO members agreed to terminate the bovine meat and dairy agreements, leaving only two.) Despite attempts in the mid-1950s and 1960s to establish some form of institutional mechanism for international trade, the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty régime on a provisional basis.

Uruguay Round: 1986–1994

Well before GATT's 40th anniversary (due in 1987–1988), GATT members concluded that the GATT system was straining to adapt to a globalizing world economy. In response to problems identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade which GATT could not manage, etc.), a meeting in Punta del Este, Uruguay, launched the eighth GATT round—known as the "Uruguay Round"—in September 1986. In the biggest negotiating mandate on trade ever agreed, the Uruguay Round talks aimed to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed on 15 April 1994, during the ministerial meeting at Marrakesh, Morocco—hence known as the Marrakesh Agreement. The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994). GATT 1994 is not, however, the only legally binding agreement included via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions, and understandings was adopted. The agreements fall into six main parts:

the Agreement Establishing the WTO the Multilateral Agreements on Trade in Goods, including the GATT 1994 and the Trade Related Investment Measures (TRIMS) the General Agreement on Trade in Services (GATS) the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) dispute settlement reviews of governments' trade policies In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3), the Uruguay Round has been successful in increasing binding commitments by both developed and developing countries, as may be seen in the percentages of tariffs bound before and after the 1986–1994 talks.

Ministerial conferences

The highest decision-making body of the WTO, the Ministerial Conference, usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. Some meetings, such as the inaugural ministerial conference in Singapore (1996) and the inaugural ministerial conference in Cancún, Mexico (2003) involved arguments between developed nations and low-income and lower-middle income countries, referred to as the "Singapore issues", such as agricultural subsidies; while others such as the Seattle conference in 1999 provoked large demonstrations. The fourth ministerial conference in Doha, Qatar in 2001 approved China's entry to the WTO and launched the Doha Development Round which was supplemented by the sixth WTO ministerial conference in Hong Kong, which agreed to phase out agricultural export subsidies and to adopt the European Union's Everything but Arms initiative to phase out tariffs for goods from the least developed countries. At the sixth WTO Ministerial Conference of 2005 in December, WTO launched the Aid for Trade initiative and it is specifically to assist developing countries in trade as included in the Sustainable Development Goal 8 which is to increase aid for trade support and economic growth. The Twelfth Ministerial Conference (MC12) was due to be held in Nur-Sultan, Kazakhstan, in June 2020, but was canceled because of the COVID-19 pandemic. It was later held in Geneva, Switzerland from 12–17 June 2022. The Thirteenth Ministerial Conference (MC13) was held in Abu Dhabi, UAE on 26–29 February 2024, and extended to Friday 1 March 2024 to complete deliberations. The 14th Ministerial Conference (MC14) took place from 26 to 30 March 2026 in Yaoundé, Cameroon. Actually, after a lengthy but eventually fruitless preparatory process, outcome expectations were rather limited, especially for the oldest and most difficult issues. Only three decisions were adopted and transmitted for finalisation to the General Council in Geneva. It came as no surprise that, as in earlier conferences, no formal Ministerial Declaration was adopted after four lengthy days without formal negotiations. Chairperson Luc Magloire Atangana Mbarga (Cameroon) had to conclude the conference with a personal summary. The three decisions were endorsed by the ministers. The Chairman and the Director General distributed a couple of texts for further treatment in Geneva. On 26 June 2026, the General Council adopted guidelines for the next stages towards a substantive reform and appointed five ambassadors as facilitators for fundamental issues (Malaysia), consensus-based decision-making (Japan), development (Botswana), level playing field, subsidy rules and unfair competition (Peru), and new issues (Kazakhstan).

Doha Round (Doha Agenda): 2001–present

The WTO launched the current round of negotiations, the Doha Development Round, at the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries. Progress stalled over differences between developed nations and the major low-income and lower-middle income countries on issues such as industrial tariffs and non-tariff barriers to trade particularly against and between the EU and the US over their maintenance of agricultural subsidies—seen to operate effectively as trade barriers. Repeated attempts to revive the talks proved unsuccessful, though the adoption of the Bali Ministerial Declaration in 2013 addressed bureaucratic barriers to commerce. As of June 2012, the future of the Doha Round remained uncertain: the work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round remains incomplete. The conflict between free trade in industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sectors (requested by developed countries) and the substantiation of fair trade on agricultural products (requested by developing countries) remain the major obstacles. This impasse has made it impossible to launch new WTO negotiations beyond the Doha Development Round. As a result, there have been an increasing number of bilateral free trade agreements between governments. As of July 2012 there were various negotiation groups in the WTO system for the current stalemated agricultural trade negotiation.

Functions

The WTO has several functions:

Overseeing the implementation, administration and operation of the covered agreements (with the exception that it does not enforce any agreements when China came into the WTO in December 2001) Providing a forum for negotiations and for settling disputes. Reviewing and documenting national trade policies. Assisting developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training. Cooperating, as appropriate, with the International Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies to coordinate global economic policies.

Differences between GATT and WTO

Decisions in GATT were, in practice, made through consensus, and member states were allowed numerous exceptions for not complying with GATT rules if GATT conflicted with legitimate domestic objectives. Many of the GATT's rules were ambiguous and flexible. GATT members could also block a dispute settlement if it was unlikely to lead to a mutually acceptable ruling. These organizational design decisions reflected a wariness among member states to delegate too much power to the international organization and fears that GATT would not allow member states to respond to domestic political pressures. Cooperation in GATT tended to be the outcome of shared norms, rather than explicit rules and threats of punishment. WTO was created in order to accommodate more issue areas (such as services and intellectual property) and a vastly enlarged membership. In comparison to GATT, the WTO included vastly more numerous and more precise obligations on member states. Member states that were non-compliant were subject to punishment or to dispute settlements that could produce adverse outcomes. The consensus-based nature of rule changes has contributed to deadlock in the WTO and discontent among member states, as they are unable to resolve problems.

Key publications

The WTO is recognized for producing authoritative annual reports that provide clarity on the complexities of global trade, such as:

World Trade Report, which explores current trade trends and policy challenges. WTO Annual Report, which compiles a complete overview of the organization's activities and operations. World Trade Statistical Review, which compiles annual trade data.

Principles of the trading system

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of "trade policy". Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

Non-discrimination. It has two major components: the most favored nation (MFN) treatment and the national treatment. Both are embedded in the main WTO agreements on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e., a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favor and you have to do the same for all other WTO members." Some exceptions exist, such as when states participate in a free trade agreement or for preferential treatment given to developing countries. National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize. Binding and enforceable commitments. The tariff commitments made by WTO members in multilateral trade negotiations and on accession are enumerated in a legal instrument known as a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system also tries to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. Safety valves. In specific circumstances, governments are able to restrict trade. The WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health. There are three types of provision in this direction:

Articles allowing for the use of trade measures to attain non-economic objectives. Articles aimed at ensuring "fair competition"; members must not use environmental protection measures as a means of disguising protectionist policies. Provisions permitting intervention in trade for economic reasons. Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unions.

Organizational structure

The highest authority of the WTO is the Ministerial Conference, which must meet at least every two years. The Ministerial Conference met most recently in June 2022 in Geneva. In between each Ministerial Conference, the daily work is handled by three bodies whose membership is the same; they only differ by the terms of reference under which each body is constituted:

The General Council The Dispute Settlement Body The Trade Policy Review Body The General Council, whose Chair as of 2020 is David Walker of New Zealand, has the following subsidiary bodies which oversee committees in different areas:

Council for Trade in Goods. Council for Trade-Related Aspects of Intellectual Property Rights. Council for Trade in Services. Trade Negotiations Committee. The Service Council has three subsidiary bodies: financial services, domestic regulations, GATS rules, and specific commitments. The council has several different committees, working groups, and working parties. There are committees on the following: Trade and Environment; Trade and Development (Subcommittee on Least-Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions; and Budget, Finance and Administration. There are working parties on the following: Accession. There are working groups on the following: Trade, debt and finance; and Trade and technology transfer. As of 31 December 2022, the number of WTO staff on a regular budget is 340 women and 283 men.

Decision-making

The WTO describes itself as "a rules-based, member-driven organization—all decisions are made by the member governments, and the rules are the outcome of negotiations among members". The WTO Agreement foresees votes where consensus cannot be reached, but the practice of consensus dominates the process of decision-making. Richard Harold Steinberg (2002) argues that although the WTO's consensus governance model provides law-based initial bargaining, trading rounds close through power-based bargaining favoring Europe and the U.S., and may not lead to Pareto improvement.