Introduction
Keita is selling cookies around his neighborhood for a class fundraiser, but some other students have the same idea. After several days of working independently, his grade forms a group of everyone selling cookies. This way, each person will know what houses to focus on, and they won’t accidentally try selling cookies to the same people.
Explanation
The World Trade Organization functions similarly, but on a much larger scale. It works with various countries to ensure that individual companies can sell their goods to an international market with fewer barriers and restrictions. The World Trade Organization helps ensure that trade flows smoothly and with few disputes, like Keita’s cookie-selling group.
World Trade Organization
The World Trade Organization, or the WTO, is an intergovernmental organization that deals with global trade rules. It provides a framework for countries to negotiate trade agreements. It also works to promote free trade by reducing barriers to trade, like tariffs, which are taxes on imports or exports from other countries. The WTO is the world’s largest international economic organization.
The History
The General Agreement on Tariffs and Trade, or the GATT, was a legal agreement written in 1945 with the goal of reducing tariffs, which are taxes on imports or exports between countries. In 1994, the Marrakesh Agreement took up that goal and expanded upon it by establishing the WTO. Signed by 123 countries, it created a legally binding method of dispute regulation for trade disagreements and reduced tariffs. Additionally, the WTO covered trade in services and intellectual property, while the GATT mostly covered goods. The WTO began operations on January 1, 1995.
How It Works
The WTO has several functions: overseeing the implementation and operation of agreements, providing a forum for negotiations and disputes, reviewing national trade policy, and ensuring transparency in these policies, among other functions. It also contains an infant industry clause, which allows developing countries to deviate from their obligations to establish new industries with fewer restrictions. Additionally, the WTO’s trading system operates based on several principles, establishing a framework for trade agreements and policies. These principles include non-discrimination, reciprocity, binding and enforceable commitments, transparency, and safety values. Safety values refer to circumstances where governments can take measures to restrict trade to protect the environment or public health.
Various bodies and councils make up the WTO. The highest authority is the Ministerial Conference, which meets at least every two years. Beneath the Ministerial Conference is the General Council, which operates as the General Council, the Dispute Settlement Body, and the Trade Policy Review Body. The same people make up the three councils. They simply meet under different terms to work on specific issues.
Beneath the General Council are three councils that handle an area of trade, and six committees that cover smaller areas of trade. These three councils are the Council for Trade in Goods, the Council for Trade in Services, and the Council for Trade-Related Aspects of Intellectual Property Rights. Each of the three councils has subsidiary bodies that include issues of agriculture and domestic regulations. Additionally, the General Council also has two subsidiaries: panels of experts to resolve disputes and the Appellate Body that deals with appeals.
Member countries make all decisions by voting through ministers, ambassadors, or delegates. Getting around 150 countries to agree takes time, but also allows for greater equality within the organization. Still, while a consensus makes decisions, much of the bargaining behind the scenes favors richer countries that use their power as leverage. Due to how long it can take to reach a decision, informal groups can also meet. Heads of Delegations, often gathered by a committee chair, meet to discuss issues and reach an agreement. However, because these are smaller and informal groups, countries can be left out.
Applying It
The WTO has grown from 23 countries participating in the GATT to 164 countries participating in the WTO as of 2016. This increase in membership has resulted in a significant reduction in trade barriers globally. Studies show that the WTO boosts trade by encouraging countries to reduce tariffs. Research suggests that the average country would see a 32% increase in tariffs on its exports without the WTO.
However, there are also criticisms of the organization. The infant industry argument says that developing countries need trade protections to develop new industries. Since many developed countries previously used some tariff protections when they were developing, some argue that the WTO’s free trade rules disadvantage developing countries. An opposing criticism of this argument is that the WTO allows countries to self-identify as “developing,” an identification that grants them more lenient treatment, which critics argue is unfair preferential treatment.
WTO’s non-discrimination principle has also come under attack. The principle, also known as the most favored nation principle, states that a government must use the most favorable conditions it extends to another country to all countries it trades with. While this sounds like a fair idea, it also means that a company cannot protect its industries against foreign countries’ cheaper goods. In the past, this principle has resulted in local agricultural workers being forced out of business, unable to compete with the subsidized food prices from Europe and the United States.
The WTO also has an impact on the environment. Free trade allows imports to be made in countries with the least amount of environmental protections, often resulting in companies moving their factories to wherever is cheapest. This decision results in toxic waste and environmental degradation in countries with fewer environmental protections. The WTO’s focus on economic growth over environmental protection, especially as climate change worsens, has been criticized by various groups.
The increasing amount of globalization and growth of the international market has resulted in the desire for fairly regulated trade among various countries. Studies show that the WTO has boosted trade and that trade barriers would be higher without it. But, are these benefits worth the cost?
