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The World Trade Organization (WTO)

Authors: Mohammed Aly Sergie, Senior Online Writer/Editor, and Eben Kaplan
Updated: December 9, 2013
This publication is now archived.

Introduction

The World Trade Organization (WTO) has brought 159 member nations, responsible for 97 percent of world trade, under its fold over the past eighteen years, and helped reduce tariffs on goods and services and boost global economic output. But since the Doha Round was launched, in 2001, negotiations have stalled on further trade liberalization and efforts to provide better access for developing countries to global markets. Dozens of bilateral and regional trade agreements have been signed as multilateral trade talks languished, raising concerns about the relevance of the WTO as a viable forum to reach multilateral pacts and its ability to push the global trade agenda forward. Yet a new trade agreement did boost the organization at a conference in Bali at the end of 2013. Billed by WTO Director-General Roberto Azevêdo as a last chance to salvage the Doha round, officials concluded the WTO's first multilateral deal at the conference, and agreed to implement the Bali Package.

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What is the WTO?

The WTO is the body responsible for overseeing the rules of international trade. Its duties include monitoring trade agreements, settling disputes, and facilitating trade talks. Established in 1995 and based in Geneva, Switzerland, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT), a twenty-three–member organization founded in 1948 whose rules provided the principal foundation for international trade in goods.

A delegate waits for the opening of a session of the Trade Negotiation Committee at the WTO in Geneva, July 22, 2013. (Denis Balibouse/Courtesy Reuters)

Although the GATT provides the foundation for the operation of the WTO, the WTO encompasses several aspects of trade that the GATT did not. The most significant of these is the global trade in services, such as banking and telecommunications. This has become the fastest-growing sector of the world's economy, representing some two-thirds of global output. The WTO also sets rules for protecting intellectual property rights and has binding procedures for settling international trade disputes, which the GATT did not.

Who runs the WTO?

The organization is headed by Director-General Roberto Azevêdo, and its daily operations are overseen by a General Council, elected at biennial conferences of member-state representatives. The General Council then elects a director-general. WTO ministerial conferences also serve as a forum to negotiate agreements that set the legal ground rules for international commerce. Decisions are binding and made by consensus. Member nations enforce WTO rules by imposing trade sanctions on states that break them.

Who benefits from the WTO?

Nations that rely heavily upon trade are the most likely to benefit. The WTO establishes rules and structure for international trade, providing stability for these nations' commerce. The rules are intended to make trade as free and fair as possible. Free-trade advocates say freer, fairer trade can lower the cost of living while providing consumers with more choices. It can also stimulate growth, fueling development and making people more prosperous.

Opponents of the WTO say that negotiations conducted without public scrutiny end up benefiting wealthy nations. They say the organization infringes on the sovereignty of member states and trade deals don't consider the impact on the environment. Developing countries, which often have uncompetitive industries that rely on government support, can be hurt by opening up to global trade as their companies struggle against more efficient foreign rivals. Many economists view this dislocation as a temporary setback that reverses as companies in developing countries adapt to global competition.

Russia provides an extreme example of the political and economic considerations facing countries that wish to join the club. The last large economy to join the WTO, which it did in 2012, Russia spent almost two decades negotiating its accession. Moscow implemented necessary custom reforms relatively quickly when it first began negotiations in 1993, but the government was reluctant to reduce state control of the oil and gas sectors. Inadequate protection of intellectual property rights also damaged its candidacy, writes CFR Senior Fellow Stewart Patrick. Political reluctance stemmed from Cold War provisions in a U.S. trade act that prevented the establishment of normal trade relations with the Soviet Union.

Although U.S. presidents used a built-in waiver to skirt the law from 1994 until 2012, when Congress repealed it, a new measure was introduced that aimed to blacklist Russian human rights violators. Still, the economic incentives won out, and Russia's WTO membership is expected to boost the country's gross domestic product by 3.3 percent ($49 billion) in the medium-term and 11 percent in the long-term, Patrick adds.

What is the Doha Development Agenda and why has it stalled?

At the November 2001 ministerial conference in Doha, capital of the Persian Gulf state of Qatar, the WTO agreed to a new round of negotiations aimed at furthering trade liberalization while giving developing nations more access to the global markets. Dubbed the Doha Development Agenda and billed by rich nations as a way to address global poverty, the Doha agenda was to be negotiated in September 2003 at a ministerial conference in Cancún, Mexico. But the conference devolved into four days of wrangling between rich and poor nations over a range of issues, including manufacturing and farm subsidies, causing the talks to collapse. Meetings were held and deadlines were missed over the next decade, as negotiations over major issues such as agriculture, industrial tariffs, barriers to trade, and services stalled between the United States, the European Union, and developing countries.

Agriculture, a sticking point in trade negotiations, serves as an example of why the Doha round has stalled. Many of the world's poorest nations have few exports to offer besides basic agricultural products. These countries are hard-pressed to compete against richer nations, such as the United States, the EU, and Japan that support farmers with subsidies. This assistance—estimated by the Organization for Economic Cooperation and Development to be around $300 billion annually—increases the supply of basic agricultural goods on the world market, thus lowering their prices. Critics of subsidies explain them in these terms: The average EU cow is said to receive a $2.20 daily subsidy, more than the daily wage of 20 percent of the world's population.

Poorer nations cannot afford to subsidize, but they try to protect their farmers in other ways. For example, tariffs on agricultural goods are often even higher in poor countries than in rich ones. Getting rid of tariffs would help increase agricultural trade between poor nations, free-trade advocates say, just as dropping tariffs and reducing subsidies in the developed world would expand trade by opening more markets to third-world goods. The World Bank estimates that loosening trade barriers could increase developing nations' exports by $190 billion over the next ten years.

Wealthier nations stand by their subsidies, and some economists argue that many farmers in the developed world would go out of business without them. Farmers and corporations that engage in farming have considerable political clout in the United States and other developed nations, and have convinced lawmakers to maintain the subsidies. Some governments subsidize farms for national security reasons, saying they do not want to rely on other nations for food. Others mention cultural concerns, including a desire to keep traditional styles of agriculture alive. This is especially true in parts of Europe, where some farm products—French cheeses, for example—have become entwined with the national cultural identity.

What’s new in the Bali Package?

Trade facilitation, agriculture, and duty- and quota-free market access led the agenda at the December 2013, ninth WTO ministerial, conference in Bali. That fell short of completing the full Doha Round, but by salvaging only parts of Doha, the WTO was able to seal its first new multilateral trade agreement since its inception.

The Bali Package, expected to be adopted by July 31, 2014, aims to speed up custom procedures and make trade easier, faster, and cheaper; allow developing countries to stockhold agricultural products for food security; and implement other provisions that help least developed countries. Trade facilitation measures alone are expected to bolster the global economy by $400 billion to $1 trillion, according to the WTO. Azevêdo, the WTO chief, said the agreement demonstrates a commitment to ultimately complete the Doha Round and should be seen as "stepping stones" toward that goal.

Are regional trade agreements a threat to the WTO?

Many countries have accelerated bilateral and regional trade negotiations as the Doha process has stalled, and pacts have been signed that include more ambitious attempts to integrate trade and legal frameworks among signatories. The largest regional negotiations in late 2013 include: the Trans-Pacific Partnership (TPP), comprising Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Japan, the United States, and Vietnam, which together make up roughly 40 percent of global gross domestic product and about a third of world trade; and the Transatlantic Trade and Investment Partnership (TTIP), which aims to enhance trade between the United States and the EU. Smaller regional trade blocs under consideration include a common customs union between Russia, Belarus, Kazakhstan, and the Regional Comprehensive Economic Partnership, a free-trade agreement that includes China, India, Australia, South Korea, Japan, and New Zealand.

If the TPP and TTIP are successful, they would divide the world into two types of countries: "those willing to engage in substantive liberalization and those not ready to go much further than the WTO's current rules," according to a CFR Expert Brief by Jaime Zabludovsky Kuper, the president of the Mexican Council on International Relations, and Sergio Gómez Lora, the chief executive of IQOM.

The rise of new bilateral and regional free-trade agreements with the continued impasse at the WTO could further weaken negotiations as countries review offers that were already on the table. Additional trade agreements complicate global commerce by creating a "'spaghetti bowl' of multiple tariffs depending on the source of a product and, in turn, a flood of rules of origin to determine which source is to be assigned to a product," writes CFR Senior Fellow Jagdish Bhagwati in Foreign Affairs (cited in a Congressional Research Service report).

Have stalled trade negotiations weakened the WTO’s dispute mechanism?

One of the hallmarks of the WTO is that it provides a mechanism for countries to settle trade disputes, which has been repeatedly tested over the past two decades. Stalled negotiations at the WTO and the proliferation of regional and bilateral free-trade agreements haven't weakened this aspect of the organization. Some analysts are concerned that the mechanism might be stressed because disputes on agreements outside the WTO are brought by members to the organization to be settled.

The United States has been a complainant or respondent in almost half of the 456 disputes brought to the WTO by the end of 2012. Some of the settlements are reached relatively quickly, while others, like the dispute between the United States and the European Union over aircraft subsidies for Boeing and Airbus, dragged on for decades and the WTO ruled that both sides would receive extensive subsidies, but the scale was larger for Airbus than Boeing. Members can also join together in a challenge, such as the 2012 joint U.S.-EU-Japanese effort to force China to lift its restrictions on exports of rare earth and other minerals which are important ingredients in smartphones and other emerging industries.

Additional resources

Foreign Affairs
"After Doha"

Congressional Research Service
"WTO Negotiations: The Doha Development Agenda"

World Trade Organization
World Trade Report 2013

Congressional Research Service
"Dispute Settlement in the WTO: An Overview"

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