What is... | November 27, 2017

What is the WTO?

The World Trade Organisation or WTO was set up to regulate international trade.


In 1947 following World War II the USA and UK approached the United Nations to establish an international General Agreement on Tariffs and Trade (GATT); the idea was to have an official, worldwide series of trade negotiations aimed at reducing tariffs and making it easier for countries to trade with each other.

The GATT concept stemmed from the famous 1944 Bretton Woods, USA forum that discussed international co-operation post-war on exchange rates, financial matters and trade – as did the IMF and IBRD. But by the 1980s, many felt it was time to overhaul GATT – with the World Trade Organisation (WTO) emerging in 1995 as a result.

Structure of the WTO
Initially, 123 countries joined the WTO, signing the Marrakesh Agreement in April 1994. GATT rules were incorporated into the new structure as a kind of umbrella agreement.

In 2017, the WTO remains the only worldwide organisation that looks at international exports. More than 150 countries – including those who are members of the European Union as well as the EU as a whole – have now signed up to the WTO, with a view to ensuring that businesses can trade their products and services around the world.

The organisation is based in Geneva, Switzerland and is funded by contributions from member countries. It has a budget of around 200 million Swiss francs (€171 million euros) a year.

What the WTO does
The organisation has six main tasks, including administering trade deals and providing a forum for trade negotiations. It also monitors the trade policies of individual countries as well as handles hundreds of trade disputes between the different member countries. The WTO sometimes provides training and other technical help with trade to developing countries, and it aims to cooperate with other international organisations.

The European Commission speaks for all EU member countries at most WTO meetings. Outside the EU, the UK will need to reapply as an individual WTO member, sending its own representative.

Principles of operation
According to the WTO, a country should not discriminate between its trading partners or their products. It needs to supply reasons the WTO considers acceptable if it wants to favour – or in any way protect – its own products and services on the international stage.

In the WTO, a country should not discriminate between its trading partners or their products

In this way, the WTO can be understood as in general favouring freer trade and lower trade barriers – with a view to reducing or removing customs charges and tariffs or bans and quotas regarding certain products or services that are traded.

The idea is to create a stable and predictable structure for global trade that will encourage businesses and investors to engage fully with world markets. The WTO believes the benefits of the resulting competition will trickle down to the average consumer, by providing more choice and keeping prices low.

How it can work in practice
October 2017 saw the EU become only the second WTO member, after Australia, to formally engage in a process that will eliminate farming-related export subsidies. This enables farmers all around the world to compete on much more equal terms with each other. The decision stems from a round of WTO talks that concluded in 2015, with other countries expected to follow.

The WTO works as a kind of middleman between countries and companies that wish to trade with each other. But Chicago Booth University academic Ralph Ossa argues that the WTO’s main achievement has been helping prevent trade wars.

Criticisms
Some argue that larger countries or trading blocs have more power in and can also more easily bear the costs of deciding and implementing trade deal decisions.

Others note that the way WTO trade issues are decided tends to affect national policy decisions in other areas not considered part of the trade negotiations. Meanwhile, negotiations can and do take many years, as this article explains. And some say it’s not clear if the WTO has even managed to increase trade .

Free trade lobbyists have claimed the WTO should just step back and let trading partners negotiate among themselves. They also complain that it sometimes supports the retention of tariffs or other trade barriers that protect a market. For it's part, the WTO maintains that it is about fostering the best overall deals for countries – so it is not really true to say it’s a “free trade” organisation.

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