The World Trade Organisation

The World Trade Organisation (WTO), which began life in 1995, was a product of the eighth and final round of talks of the GATT (General Agreement on Tariffs and Trade, 1948) held in Uruguay between 1986 and 1993.

GATT itself was one of the pillars of the post-war reconstruction of the global economy. The other two main pillars emerged out of the Bretton Woods conference in 1944, and included the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (now referred to as the World Bank).

The main WTO trade principles are:

  WTO principles

  1. Trade without discrimination - the Most-favoured-nation (MFN) principle:

    This is the fundamental 'first' principle of the WTO - that countries should treat each other equally. While there are exceptions, countries cannot grant another country a special favour without granting it to all other countries (such as a lower customs duty rate for one of their products).

    While the MFN principle was initially concerned with physical trade in goods, it also underpins new initiatives in both services and intellectual property rights (the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

    The exceptions include free trade agreements between groups (blocs) of countries, which can discriminate against non-members, preferential trade agreements where developing countries can be given special access to markets in developed countries, and where countries can put up barriers to cheap goods resulting from unfair competition. their markets. A related principle is that of 'national treatment' where 'foreigners' should not be treated less favourably than 'locals'.

  2. The principle of freer trade through negotiation.

    Trade liberalisation means lowering trade barriers such as customs duties (tariffs) and non-tariff barriers such as import bans and quotas. More recently, attention has focused on the reduction of other restrictions on trade, such as red tape, border delays, and exchange rate manipulation where export prices are reduced and import prices increased. Tariffs on industrial goods are now, on average, less than 4%. Opening-up markets requires adjustment, and WTO agreements allow countries to make changes gradually.

  3. The final principle is predictability.

    WTO agreements are transparent, and implementation gradual which allows countries to adjust to changes. This is designed to create certainty for traders, which enables firms to invest with confidence. This also encourages job creation as well as allowing consumers to benefit from great choice, lower prices, and higher quality.


Criticisms of the WTO

World trade flows much more freely as a result of the work of the WTO, bringing benefits to consumers in terms of price, choice, and quality, and to economies in terms of growth and employment. However, WTO members have increasingly turned to separate bilateral and regional free trade agreements, and the WTO is not without criticism.

  1. The infant industry argument

  2. The 'infant industry' criticism points to the fact that many developed countries, and the multinationals they contain, deployed protectionist measures to derive their power long before the impact of the WTO kicked-in.

    Many developed economies ring-fenced their infant industries by erecting 'traditional' tariff barriers, but following the push for liberalisation, simply switched from tariff to non-tariff barriers. Many of the protected firms have turned into powerful global multi-nationals, and do not now need protection.

    Developing and emerging economies cannot now erect the same level of protection for any of their 'potential', infant industries and, perhaps, can never 'catch-up' with the developed world.

    Developing countries are generally defined as those which have not fully industrialised and rely heavily on agriculture and other primary industries. Consequently, they have low growth levels, and commonly require aid. Emerging countries are those that have or are going through industrialisation and rapid growth.

    This argument can also be applied to the problem of the over-reliance on primary products by developing countries. It is more difficult to diversify into manufacturing or into more niche primary markets without the ability to protect the emerging industries.

  3. Agricultural protection

  4. Another criticism of the WTO is its failure to resolve the problem of the protection of agriculture by the powerful nations – especially the US and EU, who both retain high tariff levels on food imports. The Doha round of talks (the development agenda) was never fully concluded, which would have resulted in resolutions to issues not previously dealt with, especially on agricultural subsidies.

  5. Are the original rules still appropriate?

  6. The WTO has been criticised for its apparent failure to update its rules to deal with ‘non-market based’ economies - notably China - and its 'state capitalism' approach, with firms heavily subsidies by the state.

    However, when China joined the WTO in 2001 it was treated as a non-market economy for a significant period and the EU and US were allowed to hit China with much higher tariffs than would be allowed against market-based economies.

  7. Institutional and procedural issues

  8. The WTO’s dispute settlement system has two tiers – the first hearing is by an appointed panel. Some 70% of these rulings are appealed, which then go to the Appellate Body (AB).

    Since 2019, the AB has been unable to operate effectively given US President Trump’s blocking of new appointments. President Obama also blocked appointments to the AB, and while President Biden has shifted policy back towards a more multilateral approach, there is a consensus in the US that some of the AB rulings have treated the US unfairly.

    The wider criticism is that, to achieve predictability, AB rulings are seen as precedents for future rulings, so that one (perhaps unfair) ruling ‘against’ a specific country’s position has too much influence on future rulings regarding the same country or issue. Hence, the concern is that in the desire for more predictability, one instance of ‘unfairness’ is locked into future rulings. Also, a common criticism is that how disputes are dealt with does not consider how the world has changed since 1995, including the use of new technologies. [1]

  9. Trade and affordable medicine

  10. The COVID-19 crisis has highlighted the difficulties faced by developing countries in terms of access to affordable medicines. While some vaccine manufacturers have provided vaccines at cost (notably, AstraZeneca), the global free-for-all during the early months of the pandemic highlights the need for trade and healthcare to be better integrated to enable much freer movement of medicines. This issue goes back well before the COVID crisis, with large pharmaceutical multinationals able to control much of the (legal) drugs market.

  11. Trade and sustainability

  12. The same could also be said about the WTO and environmental sustainability in that trade and its impact on the environment need to be clearly ‘coupled’, with, perhaps, new rules to support the various environmental goals, especially of the UN, and those emerging from the Paris Agreement of 2015.

[1] Marc Busch (2021), Opinion Contributor, The Hill, https://thehill.com/opinion/international/564839-the-one-thing-biden-must-do-if-hes-serious-about-reforming-the-wto