What Is the World Trade Organization (WTO)?

Created in 1995, the World Trade Organization (WTO) is an international institution that oversees the global trade rules among nations. It superseded the 1947 General Agreement on Tariffs and Trade (GATT) created in the wake of World War II.

The WTO is based on agreements signed by the majority of the world’s trading nations. The main function of the organization is to help producers of goods and services, exporters, and importers protect and manage their businesses. As of 2019 the WTO has 164 member countries, with Liberia and Afghanistan the most recent members, having joined in July 2016, and 23 “observer” countries.

Key Takeaways

  • The WTO oversees global trade rules among nations.
  • The WTO has fueled globalization with both positive and negative effects.
  • The main focus of the WTO is to provide open lines of communication concerning trade among its members.

Understanding the World Trade Organization

The WTO is essentially an alternative dispute or mediation entity that upholds the international rules of trade among nations. The organization provides a platform that allows member governments to negotiate and resolve trade issues with other members. The WTO’s main focus is to provide open lines of communication concerning trade between its members.

For example, the WTO has lowered trade barriers and increased trade among member countries. On the other hand, it has also maintained trade barriers when it makes sense to do so in the global context. Therefore, the WTO attempts to provide negotiation mediation that benefits the global economy.

Once negotiations are complete and an agreement is in place, the WTO then offers to interpret that agreement in the event of a future dispute. All WTO agreements include a settlement process, whereby the organization legally conducts neutral conflict resolution.

No negotiation, mediation, or resolution would be possible without the foundational WTO agreements. These agreements set the legal ground rules for international commerce that the WTO oversees. They bind a country’s government to a set of constraints that must be observed when setting future trade policies. These agreements protect producers, importers, and exporters while encouraging world governments to meet specific social and environmental standards.

President Trump has threatened to withdraw from the WTO, an act that could disrupt trillions of dollars in global trade.

Advantages and Disadvantages of the World Trade Organization (WTO)

The history of international trade has been a battle between protectionism and free trade, and the WTO has fueled globalization with both positive and adverse effects. The organization’s efforts have increased global trade expansion, but a side effect has been a negative impact on local communities and human rights.

Proponents of the WTO, particularly multinational corporations (MNCs), believe that the organization is beneficial to business, seeing the stimulation of free trade and a decline in trade disputes as beneficial to the global economy. Skeptics believe that the WTO undermines the principles of organic democracy and widens the international wealth gap. They point to the decline in domestic industries and increasing foreign influence as negative impacts on the world economy.

As part of his broader attempts to renegotiate U.S. international trade deals, President Trump has threatened to withdraw from the WTO, calling it a “disaster.” A U.S. withdrawal from the WTO could disrupt trillions of dollars in global trade.