The world has turned into a global community where every nation relies upon the others for its political and economic prosperity. Various international organizations have emerged to foster international cooperation in various sectors. One sector that has received significant global attention is traded among different nations.
The significance of international trade has grown, and policy makers acknowledge that it plays a crucial role in promoting economic development in the participating countries. One of the international organizations established to deal with various issues about international trade is the World Trade Organization (WTO). This paper will set out to provide an informative discussion on the WTO, beginning with its history. It will then highlight its purpose, accomplishments, conflicts, and the various ways in which it is regulated.
History of the WTO
The World Trade Organization is an international body that was established to facilitate global trade by promoting liberalization and articulating globally accepted trade rules. Cooper notes that while the WTO was formed on 1 January 1995, it was not an entirely new organization but rather a successor to the General Agreement on Tariffs and Trade (GATT). As such, the history of the WTO can be traced back to the formation of the GATT.
The GATT was formed in 1948 to facilitate international trade by promoting free trade. Economists thought that tariffs were harmful to international trade and it was deemed necessary to eliminate or at least reduce this major hindrance to international trade. The ability of the GATT to facilitate international trade by eliminating tariffs was greatly hampered by its lack of a well-defined political framework for negotiations, rules implementation and conflict resolution.
Bromley (2004) notes that the GATT showed great flexibility in international bargaining by allowing member states to opt out of binding terms that did not suit their interests. This was a major weakness of the organization since it led to perceptions by developing nations that the GATT was a “Rich Nation’s setup” (Bromley, 2004, p.77). This lack of trust in the GATT led to most developing nations opting to use other bilateral and regional trading systems when carrying out international trade.
The weaknesses of the GATT led to calls for the formation of an international trading organization that would facilitate international trade more effectively. This proposed body would not suffer from the setbacks of the GATT since it would have the full support of all its member nations. A defining characteristic of the new organization would be its ability to apply binding terms indiscriminately.
The WTO was therefore formed as an enhanced GATT. Hoekman, Mattoo, and English (2002) observe that while the World Trade Organization had the same key objectives and organizational structure as the GATT, it sought to promote a sense of equality among the member states by applying its trade rules indiscriminately.
The body had a well-defined political framework for negotiations and rules implementations, and all member states had to abide by all the agreed upon rules. Hoekman et al. (2002) note that members could not opt out of binding agreements as they had done with the GATT. The WTO, therefore, emerged on January 1, 1995, as a stronger successor to the GATT.
The primary purpose of the WTO is to liberalize unnecessary regulations to develop the global economy. According to Moore (2010), there is a link between free trade and the economic prosperity of a nation. This international organization, therefore, seeks to encourage nations to do away with trade restrictions so that they may benefit from the economic prosperity fostered by free trade.
Since its creation, the WTO has embarked on numerous efforts to remove trade obstacles and facilitate the free flow of goods and services between nations. The WTO provides a platform for nations to engage in negotiations aimed at increasing trade liberalization.
The organization provides the rules that guide nations as then engage in trade with each other. International trade brings together nations that have diverse policies and practices regarding trade. The WTO facilitates trade among these divergent parties by providing uniform rules that can be used by all. Moore (2010) documents that the World Trade Organization is “the only international body dealing with the rules of trade between nations” (119).
Countries have signed numerous WTO agreements, which provide the legal ground-rules to be followed when engaging in global trade relations. The rules are negotiated and signed by the member states, and they are legally binding to all countries. Moore (2010) notes that the signatories to the WTO have to operate within the limits of the agreed upon rules.
Another important purpose of the organization is to offer a system for dispute resolution among member nations. In trading relationships, conflicting interests may arise as each nation seeks to increase its benefits. If not properly managed, the disputes might lead to a breakdown in a trade or even the adoption of retaliatory actions, which would be harmful to international trade. The WTO has a dispute settlement body that is charged with dealing with trade disputes that arise among the member countries (Kerr & Gaisford, 2008).
The body is empowered to make binding rulings on complaints that are brought to it by various members. A well-formulated legal framework is used in the dispute resolution process, ensuring that fair rulings are reached. By using the WTO dispute settlement system, world trade is promoted as potentially damaging trade grievances are addressed, and fair solutions arrived at.
The WTO has helped to open up countries to foreign and private investors. A primary objective of this organization is to promote international trade and abolish protectionist measures that might be implemented by individual countries. Over the past decade, the WTO has forced monopolistic governments to open up to foreign investors. This is especially evident in the case of China, which joined this organization in 2001.
Before joining the WTO, this Asian country was required to implement a series of important economic changes. The previously monopolistic government was made to allow private foreign investors and open up its local market to the international community.
Moore (2010) confirms that the WTO imposes several mandatory requirements that a county must meet before becoming a member of the organization. Nations are obligated to allow private foreign investors into their boundaries and make commitments to increasing access to the domestic market by the international community. These requirements are in line with the goals of the WTO to promote free trade on the global level.
A significant achievement of the WTO has been in its successful resolution of numerous disputes among member countries. The WTO contains a dispute settlement system that is based on the understanding that trade often involves conflicting interests between nations. The WTO insists that mutually agreed solutions to any dispute are preferable (Byttebier, 2007).
However, when the dispute cannot be settled amicably, it is moved to formal dispute settlement proceedings, which come up with a binding settlement after reviewing the issue. Byttebier (2007) reveals that the WTO has “power to rule on trade disputes and to enforce its decisions” (p.15). The rules are already predefined, and during disputes, members are treated according to the rules regardless of their political or economic might.
Byttebier (2007) notes that the system has been actively used by a wide variety of countries to resolve disputes. While at first, the United States and the EU were the principal complainants, the usage patterns changed, and developing countries stated to present numerous complaints. Developing countries have used the WTO’s dispute settlement system not only to resolve disputes amongst themselves but also to raise complaints against developed countries.
The WTO has achieved remarkable agricultural reforms in the world. Agricultural trade has been a contentious issue in world trade. Traditionally, trade in agricultural products has suffered from aggressive government subsidies. To promote the local agricultural sector and enhance its international competitiveness, OECD countries have engaged in export subsidies. Moore (2010) documents that the total support provided to agriculture in wealthy OECD countries are close to $1 billion every day, leading to significant trade distortion.
Thanks to efforts by the WTO, many member countries have agreed to reduce the volume and value of their subsidies to the agricultural sector. This has reduced the trade-distorting effect that pervasive subsidies traditionally caused in the sector. Furthermore, the WTO is committed to the eventual phasing out of agricultural export subsidies. The WTO has therefore enhanced fair competition in global agricultural trade.
The WTO has faced major conflicts over its Doha Round of Talks. These global trade negotiations hoped to fulfill several significant objectives, including increasing market access among member states, enhancing trading rules, and promoting development (Cooper, 2006).
A defining feature of the Doha Round is that a consensus has to be reached before the negotiations can be finalized. This means that all the nations have to agree on all the issues put on the table before they can be finalized. These Doha Rounds have been embroiled in conflict, and to date, no resolution has been reached. The talks have stalled over differences between developed nations and developing nations.
WTO has faced conflicts in the issue of food safety. Unlike other trade organizations that concentrate on primarily trade issues such as tariffs and quotas, the WTO tackles a wide variety of issues including safety standards and even investment policies. Most countries feel that these issues should be left to the individual country, but the WTO insists that its policies take priority over the national policies.
This has led to food safety conflicts as some nations feel that the WTO is not placing significant emphasis on the issue. Kerr and Gaisford (2008) reveal that countries that have high safety standards are opposed to the WTO’s uniform trading platform. This platform makes no distinction between the countries with high and those with minimal food safety standards.
The trade ministers of all the member countries to the organization regulate the WTO at the highest level. These ministers meet at least once every two years at a Ministerial Conference where they address important issues in the organization and agree on the strategic direction of the WTO. An important characteristic of the WTO is that each member country has the same voting rights. Each member country, therefore, plays an equal role in regulating the actions of the organization.
The day-to-day operations of the organizations are monitored by the General Council that is made up of senior representatives from the WTO’s member countries. The General Council receives information from several lower-level WTO bodies on important issues. From this information, the General Council can take action and make important decisions that influence the operations of the organization.
Several committees and independent councils conferred with special responsibilities further regulate the WTO. The committees supervise the various trade policies adopted by the WTO’s member states and report any issue to the General Council. The councils try to ensure that the policies adopted by the WTO suit the interests of the member states.
International trade is one of the most important drivers of economic progress in the world. The WTO stands apart as the most important international trade organization. This paper set out to discuss this organization, its accomplishments, conflicts, and how it is regulated. It began by noting that the WTO was formed on 1 January 1995 as a replacement to the GATT. The paper highlighted the main purposes of the organizations are to promote free trade, establish trade rules, and provide a mechanism for trade dispute resolution.
The major accomplishments of the organization have been in promoting free trade, successfully resolving trade disputes, and enhancing agricultural reforms. However, the organization still faces on its Doha Round of talks and food safety issues. These challenges must be effectively dealt with to ensure that the WTO continues to play a positive role in promoting international trade.
Bromley, S. (2004). Making the International: Economic Interdependence and Political Order. Sydney: Pluto Press.
Byttebier, K. (2007). WTO Obligations and Opportunities: Challenges of Implementation. London: Cameron May Publishers.
Cooper, H. (2006). Russia’s Accession to the WTO. Washington, DC: Report for Congress.
Hoekman, B., Mattoo, A., & English, P. (2002). Development, trade, and the WTO: a handbook. Geneva: World Bank Publications.
Kerr, W., & Gaisford, J.D. (2008). Handbook on international trade policy. NY: Edward Elgar Publishing.
Moore, G. (2010). Fairness in International Trade. Boston: Springer Science & Business Media.