The World Trade Organization was created in 1995 out of the final round of GATT negotiations. It essentially formalized the GATT into an international institution with a permanent secretariat and organizational structure. The agreements negotiated in the various rounds of GATT talks provided the foundational structure for the WTO, and the text of those agreements was incorporated into the WTO framework.
The primary goal of the WTO was similar to that of GATT, namely their elimination of trade barriers. As of 2020, the TWO has 164 member states, represented in green and blue on this map, and 24 observer governments shown in yellow. Most of the observer governments are in various stages of ascending to full membership in the organization. Collectively, the member states and observer states represent more than 99 percent of the world's trade, gross domestic product, and population. There are only 13 United Nations member states who have not applied to WTO membership. They are represented in red on this map. Most of these countries are relatively small in economic terms. Many are small island developing states like Kiribati, the Marshall Islands, Micronesia Palau, and Tuvalu, Others are countries in crisis, like Eritrea, Somalia, or East Timor And still, others are philosophically opposed to WTO--for example, North Korea, and Turkmenistan. Collectively, however, the non-member states represent less than 1/2 of 1 percent of global trade and gross domestic product and about 7/10th of 1 percent of the global population.
The WTO operates according to several key principles, which are binding on member states. The first and perhaps most important for member states themselves the principle of nondiscrimination. This principle encompasses two separate but related ideas.
- The first is the most favored nation or MFN Most favored nation status refers to the trade status given to your closest trading partners--the lowest tariffs and highest export quotas, for example. Under the rules of the WTO, all states that are members of the WTO must be extended the most favored nation status by all other members of the WTO. In other words, you cannot offer preferential market access to one state in the WTO without giving it to all members of the WTO.
- The second is national treatment. This means that goods produced by other WTO member states and imported into your country must be treated according to the same rules, or in WTO parlance, no less favorably than goods produced domestically. In other words, you cannot impose different technical standards, safety or security requirements, or other measures that may disadvantage foreign producers. Taken together, the most favored nation and national treatment are the two most important carrots for WTO membership and explain why so many countries seek to join the organization.
- The second key principle is that of reciprocity. WTO members agree to work towards the elimination of non-tariff barriers--things like quotas or restrictive state safety standards--and instead to use tariffs to regulate international trade. They also agree to move towards the elimination of tariffs through reciprocal agreements.
- Third, the WTO ensures transparency by requiring members to publish trade regulations. The WTO also conducts and publishes regular reviews of administrative regulations in member states.
- Fourth, the WTO provides safety valves that permit member states under certain specific circumstances to restrict trade to attain non-economic objectives. These usually focus on the protection of public health and national security.
- Fifth and finally, the WTO maintains a dispute settlement process that can hear cases brought by WTO member states against other member states for violation of WTO rules. If a state is found to have violated WTO rules, monetary fines and countervailing tariffs can be imposed to bring the violating state into line.
The WTO's dispute settlement mechanism has been widely used. Between 1995 and 2019, nearly 600 disputes had been filed with the WTO, and more than half of those had been successfully resolved. The number of disputes filed has gradually albeit unevenly declined over time. The United States and the European Union have been the most active in their use of the mechanism. The United States has been involved in 279 cases either as the lead complaint or the lead respondent, and the European Union's been involved in 191 cases, with many of those cases brought against one another. Other actively involved countries include China, which has been involved in 65 cases mostly as a respondent, Canada with 63 cases, and India with 56 cases.
The most common subject issues brought for dispute settlement in recent years include accusations of dumping and disputes over environmental food safety and labor regulations.
While the dispute settlement mechanism functioned reasonably well, it's been subject to some criticisms. The US government has asserted that the organization was biased against the United States, despite the fact that the United States has won more cases on average than did other countries. Developing countries often claimed that the mechanism was biased against them. The enforcement mechanism available in most cases--namely the use of countervailing tariffs against countries that violate trade rules-- certainly privileged the countries with larger economies. But at least in principle, the playing field was equal, and any country could initiate a complaint and receive a hearing. But perhaps the most dramatic development in the WTO's dispute settlement mechanism was the decision by the Trump administration to block the appointment of new judges to the appellate body. Under the WTO's rules, judges are appointed to four-year terms, and at least three judges must sit to hear any appeal. By blocking the appointment of new judges and permitting the current judge's terms to expire, the United States effectively depopulated the pool of available judges, and by December of 2019, only one judge remained. The WTO could no longer hear any cases. The WTO has also seen protests from outside the organization.
When the World Trade Organization was established in 1995, it was originally envisioned that it would continue to liberalize international trade just as the GATT had done through successive rounds of trade talks, producing new agreements.
The first round of trade talks was scheduled to be launched in Seattle in 1999. However, something different happened. Unlike previous rounds of talks, which had largely been viewed as technical affairs, the domain of trade ministers and their ilk, the World Trade Organization meetings in Seattle were met by massive popular protests, called the Battle in Seattle. An estimated 40,000 protesters took to the streets. They drew from all areas of civil society and came from countries from around the world.
The protests brought together a fascinating mix of global civil society: labor unions like the AFL-CIO, anti-debt and religious charity groups like Jubilee, non-governmental organizations focused on labor issues and the environment especially in the global south, student groups, anti-capitalist groups, all converged on Seattle, barring entrances to buildings and blockading streets to shut down the negotiations.
And inside the WTO talks themselves, there were also interesting developments taking place. The World Trade Organization, like the GATT before it, operated based on consensus, meaning that any single country could block the agreement. In practice, however, this was rarely the case. Indeed in many previous rounds of talks, the Quadrilateral Group, comprised of the United States, the European Union, Canada, and Japan, would meet well ahead of formal negotiations to develop agreement among themselves.
Once they were able to agree on a framework, it was presented to the rest of the organization-- and the rest of the world, mostly small developing countries--could choose to sign on or leave the group.
As a result, trade liberalization had tended to focus on free trade and manufactured goods, where the developed countries had an advantage while permitting more protectionist measures including subsidies in areas like agriculture, where developing countries had a comparative advantage.
The uneven negotiating power of countries in international forums like the World Trade Organization or even the United Nations has long been the subject of criticism from the global south. International trade talks are complicated, and there may be multiple issues being negotiated simultaneously. At the World Trade Organization, a single session may have concurrent trade negotiations in different parts of the city, simultaneously addressing issues like agricultural liberalization, health and safety measures, access to essential medicines, intellectual property, and liberalization of trade and manufactured goods.
Negotiating teams from the most powerful countries might include dozens of lawyers, economists, policy wonks, diplomats, professional negotiators, and others. Many developing countries, by way of contrast, may be able to only send a single representative to negotiate on their behalf. The Seattle round was different because, for the first time, the developing world presented a unified front.
Led by the Africa group, the developing countries collectively refused to consider any new international trade agreement that did not include what they called development issues. They met well ahead of the conference and assigned each country a lead responsibility for a particular area of negotiation, based on a common position agreed to ahead of time. In doing so, they were able to force negotiations to shift to areas where they were concerned or to block them altogether. So between the popular protests in the street and the refusal of the developing countries to go along with the proposed negotiation framework, the Seattle round collapsed. Negotiators were sent home without an agreement, and the future of the world World Trade Organization appeared to be in question.
As a result of the coordinated position put forward by the global south at Seattle, the World Trade Organization was forced to cancel the Seattle round. It relaunched a new round of trade talks two years later, dubbed the Doha development agenda.
The new round of trade talks looked dramatically different than the proposed agenda at Seattle. Instead of focusing on strengthening intellectual property rights or expanding protections for investors, Doha looked at a central focus catering to issues of concern in the global south. While it included the perennial issues of liberalizing trade and industrial goods through tariff reductions and proposed new anti-dumping measures, it also included areas of particular interest to the developing world, including liberalization of trade in services, measures to phase out agricultural subsidies and liberalize international agricultural trade, something the little south had been demanding for years.
For the first time, it also included measures considering public health. Specifically, during the Uruguay round of GATT talks, the Trade-Related Intellectual property rights or (TRIPs) agreement had been negotiated. The TRIPs agreement imposed stronger intellectual property protection across a number of areas. But the greatest concern for most developing countries was the impact that this had on access to pharmaceuticals.
Because TRIPs imposed 20-year patent protection on new medicines, developing countries feared they would not be able to access them to address public health concerns. Remember that this was the era when HIV/AIDS was at its peak across Sub-Saharan Africa and around the world. And so during the Doha round, developing countries were seeking to negotiate exemptions to patenting of medicines in times of public health emergencies. They also sought greater clarification on environmental protection measures. And finally, the Doha round carried overprotections for foreign investors as a topic that had been a concern of the global north as they entered the Seattle round. This measure, however, was withdrawn from negotiations in 2004, among popular protests and expanding anti-globalization sentiment.
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So while the Doha round was launched with great hope, the hope quickly faded and proved to be misguided. Talks stalled. The United States and Europe could not agree on a process of liberalizing agricultural production or removing subsidies. The global north and south could not agree on public health exceptions for intellectual property rights protections. And there was little appetite for discussing foreign investment protections.
Despite efforts by successive heads of the World Trade Organization to relaunch the talks, they've been stalled since 2008, and there appears to be little interest or ability to move forward.
So where are we today? The current framework--that is, all of the GATT agreements and the WTO's institutional structure--remain in place. But there doesn't appear to be much appetite in progress or expansion. Instead, the most powerful countries appear to be shifting to bilateral trade negotiations where they can exercise greater power over their trading partners. The World Trade Organization's dispute settlement mechanism is also breaking down.
China and the European Union have proposed changes to the system which would permit it to continue to operate, but the United States blocks all proposed changes, and many countries appear to be turning to regional or bilateral trade mechanisms for dispute resolution.
And more broadly, the globalization boom of the 1990s and early 2000s appears to be drawing to a close, as the united states and other countries are making more frequent use of neo-mercantilist policies to limit free trade. What the or what the future of the organization looks like, in short, is uncertain. And from outside, the organization continues to be subject to widespread criticism, particularly from the left. Concerns include its lack of focus on issues of the global environment, public health, and human welfare, and its excessive focus on economic concerns, its failure to address development, issues raised during the Doha round, and its closed negotiation structures which facilitate unequal participation, and a general lack of transparency within the negotiation process.
As a result, the WTO appears to be an organization that is stalled and whose relevance is increasingly challenged in the contemporary international environment. Despite the success of the GATT and the WTO in establishing an open international trading system. The ability of the organization to continue to operate appears to be in doubt. But we'll have to see what the future holds.
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