The World Trade Organization: Its Creation and Purpose

Introduction

An environment that favors international trade boosts the economic growth of the individual countries. As such, governments develop policies that support the countries economically through global trade to enhance the social and economic aspects of development. However, the policies may discriminate against other countries about matters of trade, thereby leading to uneven development.

Such a situation occurred after World War II where trade tariffs barred some countries from participating in international trade. According to Raynolds, Murray, and Wilkinson, the same situation was further demonstrated in the case of the North American Free Trade Agreement (NAFTA).1 In this concern, the World Trade Organization (WTO) intervened to foster market liberalism by performing specific functions.

Since its establishment, the WTO has promoted trade balances at the global scene, amid several challenges that it has encountered over the years. Therefore, this paper seeks to describe the WTO by specifically explaining its creation and purpose. Besides assessing whether the agency has promoted balanced global trade, the paper will also identify the challenges it experiences.

The World Trade Organization

The World Trade Organization (WTO) functions as an international agency that is made up of 162 member countries to promote international commerce. As Matsushita reveals, the WTO focuses on the rules and regulations that nations should observe when conducting international business.2 Additionally, the WTO provides a dispute settling mechanism for governments in disagreement about commercial issues.

A considerable chunk of the WTO’s recent undertakings emanates from the Uruguayan Round of negotiations that spanned between 1986 and 1984 observing the General Agreements on Tariffs and Trade (GATT) provisions. The Doha Round, initiated in 2001 through the “Doha Development Agenda” has facilitated the establishment of new negotiations concerning the aspects that would remove constraints to international commerce as Bagwell and Staiger confirm.3

The Ministerial Conference, considered as the supreme decision-making organ of the WTO, holds periodic meetings to discuss issues regarding international trade. With its headquarters in Geneva, most of the negotiations concerning international trade issues occur in the said Swiss city. According to Raynolds, Murray, and Wilkinson, the secretariat, which is composed of at least 600 staff members, implements the daily activities of the WTO under the oversight of the director-general. 4

Creation and Purpose

The emergence of the WTO gained ground from the efforts of the General Agreement on Tariffs and Trade (GATT) following the need to foster global trade after World War II. GATT sought to agitate for the reduction of tariffs that barred nations from conducting international trade as from 1947 when the agency was established. As Elsig reveals, the undertakings of GATT gained inspiration from the biased provisions of the Most Favored Nation (MFN) Clause that selectively allowed particular countries to engage in trade while excluding others that did not have the MFN trading rights.5 Therefore, there was a need for proving equitable trading opportunities for all countries. Thus, the GATT secured its spot in the frontline to ensure the realization of this goal.

The Uruguayan Round, the final and longest GATT negotiations held between 1984 and 1984 facilitated the creation of the WTO. The WTO came into existence in 1995 when it replaced the GATT. It still upholds the rules established by the latter organ.6

Therefore, since its inception, the WTO focuses on trade liberalism, provides a platform for negotiating trade agreements with various governments, and provides a forum for settling trade disputes besides operating a system of rules that govern global trade. According to Bagwell and Staiger, the purpose of the WTO is concentrated on the provision of a podium for negotiations, the reduction of hindrances to international commerce, and the administration of a system of rules that control the trade.7

Through the provision of a negotiating platform, the WTO facilitates intergovernmental bargaining to reach agreements based on reciprocity, thereby fostering nondiscrimination in international trade. Since the WTO sprout out of negotiations, it allows the concerned parties to talk before reaching any agreement based on the public good. By so doing, the international agency fosters the liberalization of trade as witnessed in the case of the establishment of customs unions and free riding. Further, unlike its predecessor (the GATT) that mainly focused on the trade of goods internationally, the WTO currently incorporates goods, services, and intellectual property.8

The WTO rules, which were developed out of agreements signed by the negotiating governments, ensure that the member countries realize their social and economic objectives, amid conducting international commerce.

Additionally, the WTO rules act as binding contracts to ensure that the member governments maintain their trade policies within the allowed limits. Thus, it allows the producing, exporting, and importing countries to conduct their trading undertakings in a conducive global environment. In this context, the WTO rules seek to streamline trade flow between countries in a manner that curtails the development of detrimental side effects. Therefore, the transparency and predictability of the rules underpinned by the WTO aim at promoting the wellbeing and economic development of different member countries besides eliminating the obstacles that may arise in the global markets as Raynolds, Murray, and Wilkinson assert. 9

Moreover, the dispute settlement aspect of the WTO’s undertakings is essential since trading processes evoke conflicting interests in some instances. Some parties could misinterpret the agreements signed through the WTO system, thereby resulting in conflicts that undermined the promotion of international trade. In resolving disputes, the WTO embraces a harmonious approach that allows neutral protocols founded on an agreed legal basis to take effect.10

Has the WTO Promoted a Balanced Global Trade?

The WTO has proved itself positively in its ambition of fostering balanced global trade since its inception, amid the criticisms that it faces. In this concern, the WTO has made considerable strides in removing the hurdles that curb the smooth running of global commerce. The WTO system has promoted international peace even in the event of conflicts that trigger impactful outcomes. According to Narlikar, the WTO trading system facilitates the development and reinforcement of confidence based on consensus agreements and the need to comply with the set rules.11

Further, over the two decades, the WTO system has facilitated the constructive handling of commerce disputes between various governments. Since its establishment in 1995, the body has handled over 300 trading disputes in a way that has curbed the escalation of the disagreements to more critical political clashes. Additionally, since the WTO operates through a system founded on rules, instead of political power, it enhances the bargaining power of the member countries, especially the smaller ones, besides simplifying trading processes encountered by the larger players. Notably, the non-discrimination principle observed in the WTO agreements undermines the development of complexities that cultivate inequalities in global commerce.12

The development of free trade areas, customs unions, and free-riding resulting from the WTO agreements has considerably assisted in cutting the cost of living globally. The reduced production costs arising from the removal of trading barriers imply that consumers acquire finished goods and services at lower prices, thereby scaling down the cost of living. As such, the aim of the WTO rules to enhance the economic and social wellbeing of individual countries is realized. For instance, the Ministerial Conference held in Doha in 2001 agitated the need for acknowledging the agriculture sector as part of the Doha Development Agenda that has seen improvements in the key areas manifested by the reduced cost of living.13

Moreover, the WTO promotes balanced global trade by protecting governments from lobbying activities based on selfish reasons. The WTO requires the member states to embrace a more balanced perspective of trade policy that is founded on the aspects of welfare evaluation and the public good.14

However, besides the WTO’s efforts to facilitate global trade, it has received criticism over several aspects of its operations. The dominance of the rich countries in the negotiations of the WTO has raised concerns over the effectiveness of the nondiscrimination principle in agreement signing. Further, through lessening the trade barriers, the WTO has cultivated inequalities as the rich countries invest in the developing countries where production costs are cheaper, thereby resulting in cases of exploitation and environmental degradation. In this regard, the trend undermines the fair application of the WTO rules, a move that has resulted in inequalities in carrying out international trade.15

Challenges Faced by the WTO

The current negotiations of the WTO that characterize the Doha Round have faced various challenges that place the success of the international agency in jeopardy, thereby undermining the efficient execution of its functions. Notably, the liberalism aspect has been weakened at a time when the world’s leading traders, including the US and the European Union, continue to develop measures that can protect their domestic industries from bleak economic situations. As such, the player’s purpose to establish Free Trade Areas (FTAs) that facilitate their entry into new markets, especially in the Asia-Pacific region, thus dominating the trading activities.16

The move poses a threat to the smaller countries since their bargaining power will be reduced to the level of weakening the spirit of mercantilism that embraces the reciprocity of commercial engagements between the developing and developed countries.

Additionally, the WTO has been reluctant in facilitating negotiations that seek to speak about other trade issues around the globe, including climate change, food security, and international trade imbalances. In this concern, the mandate of the international agency to foster economic and social wellbeing has experienced challenges, as the member governments focus on stakes in the current Doha Round negotiations.17

Conclusion

The WTO’s establishment in 1995 succeeded the GATT to promote further the spirit of liberalism in the global trading arenas. The body primarily aims to remove the barriers that curtail various countries from participating in international trade as depicted in the case of the trade tariffs that characterized international trade after World War II. Mainly, the works of the WTO revolve around negotiations, dispute resolution, and ensuring that the member states observe the rules of the international agency. The WTO has achieved several aspects of its trade liberalization efforts through the promotion of world peace, fostering economic development globally, and lowering the cost of living. However, the dominance of the world’s leading traders has rendered the WTO ineffective in creating trade balances globally.

Bibliography

Bagwell, Kyle, and Robert Staiger. “The world trade organization: Theory and practice.” Annu. Rev. Econ 2, no. 1 (2010): 223-256.

Bagwell, Kyle, and Robert Staiger. “What do trade negotiators negotiate about? Empirical evidence from the World Trade Organization.” The American Economic Review 1, no. 1, (2011): 1238-1273.

Elsig, Manfred. “The World Trade Organization at work: Performance in a member-driven milieu.” The Review of International Organizations 5, no. 3 (2010): 345-363.

Matsushita, Mitsuo. The World Trade Organization: law, practice, and policy. Oxford, UK: Oxford University Press, 2015.

Narlikar, Amrita. “New powers in the club: the challenges of global trade governance.” International Affairs 86, no. 3 (2010): 717-728.

Raynolds, Laura, Douglas Murray, and John Wilkinson. Fairtrade: The challenges of transforming globalization. Oxford, UK: Routledge, 2007.

Footnotes

  1. Laura Raynolds, Douglas Murray, and John Wilkinson, Fairtrade: The challenges of transforming globalization (Oxford, UK: Routledge, 2007), 39.
  2. Mitsuo Matsushita, The World Trade Organization: law, practice, and policy (Oxford, UK: Oxford University Press, 2015), 37
  3. Kyle Bagwell, and Robert Staiger, “What do trade negotiators negotiate about? Empirical evidence from the World Trade Organization,” The American Economic Review 1, no. 1, (2011): 1239.
  4. Raynolds, Murray, and Wilkinson, Fairtrade, 45.
  5. Manfred Elsig, “The World Trade Organization at work: Performance in a member-driven milieu,” The Review of International Organizations 5, no. 3 (2010): 345.
  6. Matsushita, The World Trade Organization, 48.
  7. Kyle Bagwell, and Robert Staiger, “The world trade organization: Theory and practice,” Annu. Rev. Econ 2, no. 1 (2010): 225.
  8. Ibid, 44.
  9. Raynolds, Murray, and Wilkinson, Fairtrade, 68.
  10. Elsig, “The World Trade Organization at work…”, 350.
  11. Amrita Narlikar, “New powers in the club: the challenges of global trade governance,” International Affairs 86, no. 3 (2010): 719.
  12. Matsushita, The World Trade Organization, 56.
  13. Elsig, “The World Trade Organization at work…”, 347.
  14. Raynolds, Murray, and Wilkinson, Fairtrade, 69.
  15. Narlikar, “New powers in the club…”, 723.
  16. Ibid, 721.
  17. Bagwell and Staiger, “What do trade negotiators negotiate about…”, 1252.