The World Trade Organization (WTO) is the principal forum for setting the rules of international trade. Consisting of 164 member countries, which together account for over 97 percent of world trade, the WTO has expanded steadily over the past two decades, helping to reduce barriers to trade in both goods and services and boosting global economic output.
However, the WTO’s efforts to advance its trade liberalization agenda have been beset by controversy. Since the launch of the so-called “Doha Development Agenda” in 2001, advanced and developing economies have disagreed on topics ranging from agricultural subsidies to intellectual property rights. As negotiations stalled, countries turned to signing dozens of separate bilateral and regional free trade agreements (FTAs), raising questions about the relevance of the WTO. While the WTO’s leadership billed the agreements reached at WTO meetings in Bali in 2013 and Nairobi in 2015 as breakthroughs for the Doha agenda, experts remain divided over the WTO’s role in advancing trade liberalization, regulatory cooperation, and deepening economic integration.
What is the WTO?
The WTO is responsible for overseeing the rules of international trade. It facilitates trade negotiations among its members, which have increased from 123 in 1994 to 164 in 2016. The organization also monitors the implementation of those trade agreements, produces research on global trade and economic policy, and serves as a forum for settling trade disputes between nations.
Established in 1995 and based in Geneva, Switzerland, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT), an organization founded in 1948 whose rules created the modern multilateral trading system. WTO decision making happens at the Ministerial Conferences, generally held every two years. There have been ten such ministerials since the inaugural conference in Singapore in 1996. With a few exceptions, agreements reached at these conferences are made by consensus, meaning that all members must agree, and decisions are binding. WTO rules are enforced by individual member nations, which can impose retaliatory trade sanctions on states that break them.
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While the specifics of the WTO’s trade rules are hashed out in negotiations, the organization is based on several founding principles. The most basic is a commitment to openness, meaning reducing tariffs as well as limiting quotas, import bans, distorting subsidies, and other barriers to trade. Another central plank is non-discrimination, in which WTO members must treat trade from all other members equally. The WTO also seeks transparency and predictability in trade-related regulations and promotes the use of international standards, to give citizens, companies, and investors stability. And the WTO is also committed, in principle, to giving less developed countries greater flexibility and accommodations in order to help them adjust to new rules.
How does the WTO deal with conflicts?
Perhaps the WTO’s most successful attribute has been its trade dispute mechanism, a forum that has been used extensively over the past two decades, helping to avoid unilateral responses to disputes and potential trade wars. Since 1995, members have filed more than five hundred disputes (PDF) with the WTO. Most of these are settled by consultations or mutual agreement before advancing to litigation.
Upon joining, all members agree to a Dispute Settlement Mechanism (DSM) in which WTO-appointed trade experts can render a binding judgment. When one member files a complaint against another, the countries must first attempt to resolve the issue through consultation, and only if that fails is a panel chosen by the WTO’s Dispute Settlement Body (PDF) to hear the case. A panel ruling’s recommendations, if not overturned on appeal, must be implemented by the offending country. If a country fails to respond, the plaintiff can then take targeted retaliatory measures such as blocking imports or raising tariffs.
The United States is the most active participant in the system, having filed 110 complaints and served as defendant in 126 cases. (See map.) Since 2009, the Obama administration has filed twenty disputes, eleven of them against China, which quickly became a target for disputes after it joined the WTO in 2001. China has drawn thirty-six complaints, more than any other developing country. The United States, in particular, has used the WTO process to challenge Chinese government support for domestic industries, restrictions on imports, and other state-led trade policies. Eleven of the eighteen total U.S. complaints against China have been settled.
Despite the success of the DSM, there are also signs that the system is under pressure. The United States drew criticism from many members for a May 2016 decision to block the reappointment of a South Korean judge to the WTO’s Appellate Body, the first time any country blocked the appointment of a judge from another country. For some experts, this pressure has exemplified a worrisome politicization of the system.
What is the Doha Development Agenda?
The 1999 meeting of the WTO in Seattle—convened with the goal of launching a new round of trade negotiations—fell apart without agreement after developing countries accused the more powerful developed countries of marginalizing their concerns. Some developing countries threatened to withdraw (PDF) from any future talks that didn’t include a focus on developing-country interests.
At the next ministerial conference in Doha, Qatar, in 2001, WTO members agreed to a new round of negotiations that promised to put developing countries at the center. This became known as the Doha Development Agenda, or the Doha Round.
Liberalizing global agricultural trade was the linchpin of the agenda. Many of the world’s poorest nations depend on exporting basic agricultural products, but struggle to compete against richer nations that support their farmers with subsidies. The Organization for Economic Cooperation and Development (OECD) estimates that these subsidies total nearly $300 billion annually. Agricultural lobbies in the United States, Europe, and Japan have consistently exercised their considerable political clout to convince lawmakers to maintain such subsidies, says Center for Global Development economist Kimberly Elliott. “The United States is very reluctant to negotiate anything that would require a change to the farm bill. That would be very unpopular in Congress,” she says.
Many of the world’s poorest nations depend on exporting basic agricultural products, but struggle to compete against richer nations that support their farmers with subsidies.
Developing countries argue that without a reduction in developed-country subsidies, they must maintain tariffs and engage in their own domestic support. A major sticking point has been the terms of a proposed “special safeguard mechanism,” or SSM, that would allow developing countries to temporarily raise tariffs to protect their farmers from sudden price drops or import surges. Developing-country subsidies for agriculture producers have climbed from under $20 billion in 2001 to nearly $200 billion by 2012, the OECD reports.
In addition to agriculture, the Doha agenda sought to further reduce barriers to trade in services, such as business and financial services, and non-agricultural goods. The Doha talks operated on the principle of “special and differential treatment,” promising to give developing countries more time to implement changes and the financial and technical support to help them do so.
However, the talks got off to a bad start at the 2003 ministerial in Cancún, Mexico, which ended without agreement. Over the next decade, negotiators missed deadline after deadline for concluding the round. In 2008, negotiations collapsed over disagreement on reducing agriculture subsides and the special safeguard mechanism.
What is the status of the Doha Round?
Negotiations continued after 2008 with low expectations following the global financial crisis. But the 2013 ministerial in Bali, Indonesia, delivered a significant achievement with the first multilateral agreement since the creation of the WTO. This was the Trade Facilitation Agreement (TFA), which aims to speed up customs procedures and make trade easier, faster, and cheaper. The WTO estimates (PDF) this could increase global trade by some $1 trillion. The talks also reached an interim agreement on “public stockholding,” continuing exceptions that allow developing countries to stockpile agricultural products to protect against food shortages.
The TFA was only a small slice of the larger Doha agenda, but the successful deal was a cause for optimism: Director-General Ricardo Azevêdo proclaimed that the WTO was “back in business.” Bali also underscored the extent to which developing countries acted as a single bloc, with many, including Brazil, Russia, and China opposing India’s efforts to stall the talks to get better terms on food security.
The latest ministerial conference, held in Nairobi in 2015, made progress on a number of issues, including the phasing out of agriculture export subsidies and an agreement among some members to cut tariffs on IT products. However, for many members, Nairobi signaled the end of the Doha talks. U.S. Trade Representative Michael Froman argued that Nairobi was the “end of the line” and that the world needed to “free itself from the strictures” of Doha. Peterson Institute trade expert Gary Clyde Hufbauer has argued, that the round is a “zombie” since completing fully multilateral talks based on consensus agreements is no longer possible.
For the CGD’s Elliott, the goal of a comprehensive package is likely out of reach. “Nairobi is probably the model for how trade talks move forward: incrementally, and on an issue-by-issue basis,” she says.
What are the criticisms of the WTO?
Critics persistently allege that wealthy country interests are overrepresented at the WTO. Many unions, developing world farmers, and grassroots activists accuse the WTO of abandoning the original development-oriented vision of the Doha round in favor of more narrowly focused corporate interests.
The WTO’s intellectual property provisions, the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), also draw criticism. The WTO says that enforcing patent protections is central to expanding global trade, but some experts have argued that WTO rules on drug patents have limited access to medicines in poorer countries. Other studies, however, have found little to no effect to date.
Other critics say WTO rules overrule national sovereignty, and in doing so erode environmental and labor protections. Environmental groups have criticized WTO decisions on genetically modified food, as well as recent WTO rulings against what it considers discriminatory environmental labeling, as in the case of U.S. dolphin-safe labeling. Labor unions in the United States argue that the WTO is inadequate for protecting U.S. wages from being undercut by unfair labor practices abroad (PDF), alleging for instance that China violates basic workers’ rights that lower the cost of its exports. Developing countries counter that attempts to include labor standards in the WTO are a form of protectionism in disguise.
Trade proponents say that increased trade with China also benefited the U.S. economy by lowering prices, increasing productivity, and expanding exports.
The WTO has come under increased fire in the 2016 U.S. political season, with Republican presidential nominee Donald Trump threatening to pull out of the organization. Trump and other critics of U.S. trade deals allege that by promoting imports and encouraging firms to move operations abroad, WTO-led tariff reductions hurt U.S. jobs and wages. Some economists on the left, such as the Economic Policy Institute’s Robert E. Scott and Will Kimball, estimate that China’s entrance into the WTO in 2001 led to the loss of over three million U.S. jobs, as U.S. firms were forced to compete with China’s much cheaper imports. Some estimates find (PDF) a smaller, but still substantial, loss of around two million jobs, while other experts contend that technological changes, not China, were responsible for these losses.
However, trade proponents like Dartmouth College economist Douglas Irwin say that increased trade with China also benefited the U.S. economy by lowering prices, increasing productivity, and expanding exports. U.S. exports to China increased rapidly (PDF) after 2001, rising from 2 percent to over 10 percent of the country’s total exports. Experts also say this “China shock” was a one-time effect as China went through the industrialization process, and that returning to high tariffs would only harm the economy and thus U.S. workers and consumers. Some pro-trade analysts, like the Peterson Institute’s C. Fred Bergsten, believe that the WTO should better address currency manipulation, which many experts say China carried out in the 2000s. China has also drawn criticism for continuing to claim “developing country” status, and the privileges that come with it, despite its rapid rise to become the world’s second largest economy.
Finally, some experts criticize the WTO for being too consensus-driven, allowing for small groups of countries to veto progress. “There’s always going to be someone to block a deal,” says Dartmouth’s Irwin.
What are the alternatives to the WTO system?
Even as Doha stalls, WTO talks continue on what are known as “plurilateral” negotiations, or agreements between smaller subsets of WTO members. Plurilateral deals are easier to negotiate, as they focus on narrower issues and not all members need to be bound by their terms.
At the 2015 Nairobi talks, for instance, fifty-three WTO members concluded an expansion of the Information Technology Agreement, or ITA, which reduces trade tariffs on a raft of IT products. The agreement means that over 97 percent of all global IT trade is now covered by WTO rules. Another major potential plurilateral currently in progress is the Trade in Services Agreement (TISA), under negotiation since 2013 (PDF) by twenty-three members, including the EU but not including China. Backers of TISA hope to use the talks to further the WTO’s liberalization of the global services trade, the rules for which haven’t been updated since the WTO’s 1995 General Agreement on Trade in Services (GATS).
The TPP may be faltering in the U.S. Congress, and the TTIP is facing growing opposition in Europe, raising serious doubts about the future of the trade liberalization agenda.
In 2012, nineteen members agreed to update the Government Procurement Agreement (GPA), which seeks to further open government procurement markets. And in 2014, fourteen members, including the United States, China, the EU, and Japan, opened negotiations on a proposed Environmental Goods Agreement (EGA), which would liberalize trade in environmental products such as wind turbines and solar technology.
Many countries have also turned to bilateral free trade agreements (FTAs), or larger regional agreements. The United States has pushed for so-called “mega-regional” deals, such as the twelve-member Trans-Pacific Partnership (TPP) and the U.S.-EU Transatlantic Trade and Investment Partnership (TTIP). But while regional deals once appeared easier to complete, the TPP may be faltering in the U.S. Congress, and the TTIP is facing growing opposition in Europe, raising serious doubts about the future of the trade liberalization agenda.
Mohammed Aly Sergie and Eben Kaplan also contributed to this report.
The WTO process could help improve global regulatory cooperation, writes CFR Senior Fellow Thomas J. Bollyky in this paper.
The WTO’s decision-making process requires significant reforms to serve the interests of the poorest nations, writes economist Amrita Narlikar in Foreign Affairs.
In this essay in Foreign Affairs, trade expert Douglas Irwin argues that the benefits of global trade are consistently misunderstood.
This 2014 Congressional Research Service investigation explores the implications of the WTO’s Doha round for U.S. agriculture.
A U.S. withdrawal from the WTO would upend decades of rule-based diplomacy, write Pedro Nicolaci da Costa and Cathleen Cimino-Isaacs in this Peterson Institute of International Economics analysis.