With over 160 member countries, the World Trade Organization is central to the trading relationships between most of the world’s commercially active nations.
And, as the UK prepares to leave the EU, our relationship with the WTO could come into sharper focus in the coming months.
What is the World Trade Organization?
The World Trade Organization (WTO) is a global body that facilitates trade between its member nations. Established on 1 January 1995 following the Uruguay Round negotiations that took place between 1985 and 1994, the WTO has a membership of 164 countries (as of 29 July 2016) and employs some 640 people. It’s headquartered in Geneva, Switzerland.
The main functions of the WTO are to:
- Administer trade agreements;
- Provide a forum for trade negotiations;
- Handle trade disputes;
- Monitor national trade policies;
- Provide technical assistance and training for developing countries; and
- Cooperate with other international organisations.
As the only organisation of its kind, the WTO focuses on agreements negotiated by the majority of the world’s trading nations and ratified in their parliaments. The ultimate goal of the WTO is to promote international trade between producers, importers and exporters of goods and services.
The WTO’s member countries are represented by ministers, who usually meet at least once every two years, and by ambassadors or delegates, who meet regularly in Geneva. Between them, these people make the WTO’s major decisions, while the secretariat coordinates its activities. Meanwhile, lawyers, economists, statisticians and communications experts at the WTO are on hand to help members manage their negotiations and comply with the rules of international trade.
How does a country join the WTO?
The WTO uses the term ‘accession’ to describe the process of becoming a member. This process begins with the prospective member country and existing WTO members negotiating terms of accession for the acceding government. These talks take place both formally and informally and can involve several WTO members.
When the Terms of Accession have been agreed, the next stage is to form a working party to manage the rest of the process. Bilateral, plurilateral and multilateral negotiations will now start taking place, often in parallel, with a view to drafting the Terms of Accession/Entry for the new member. The working party will put these terms before the WTO’s General Council or Ministerial Conference for their approval and adoption.
Next, the acceding government has to accept the Terms of Accession/Entry. Depending on that country’s constitution, this could be by way of parliamentary ratification or the head of state’s signature. Either way, the country becomes a full-fledged WTO member 30 days after it accepts its Protocol of Accession and informs the WTO Director-General.
The diagram below shows the how this process works in more detail.
You’ll find the current status of WTO accessions here.
How does the WTO affect trade?
The WTO is the focal point and driving force behind trading agreements negotiated and signed by most of the world’s trading nations. These agreements bind governments to keep their trade policies within agreed limits. As well as creating fair and predictable trading conditions for manufacturers, importers, exporters and service providers, these agreements are designed to help governments meet their social and environmental goals. In other words, to promote trade, yet minimise any negative consequences of that trade.
The WTO also aims to improve the flow of trade by breaking down barriers and ensuring governments, companies and trade associations across member states understand the requirements and benefits of trading with each other.
The WTO has helped lower trade barriers and open new markets for many countries. However, there are exceptions to this objective. It will support restrictions on trade if it feels they’ll protect consumers, prevent the spread of disease or avoid any other socially unacceptable outcome.
The WTO’s core activities cover five key areas:
1. Trade negotiations. The WTO negotiates trade agreements for
- Goods;
- Services; and
- Intellectual property.
These agreements set out the principles of liberalisation and any permitted exceptions or restrictions. It works with individual countries to lower customs tariffs and other trade barriers and to open markets for services - and keep them open.
Of course, these agreements are not static. As economic, political or technological climates change, so must trading agreements. The WTO takes the lead in renegotiating these deals from time to time, adding new agreements and clauses to existing contracts.
Many such contracts are being renegotiated currently under the Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar in November 2001.
2. Implementation and monitoring. All member countries of the WTO are required to make sure their trade policies are fully transparent. They must inform the WTO about their laws and any changes or new measures they pass.
Monitoring these laws at the WTO are numerous councils and committees. Their roles are to ensure that laws, as communicated to foreign traders, are being followed and that member countries are adhering to the rules of their membership. As a matter of course, every WTO member is subject to periodic scrutiny of its trade policies, laws and practices. This involves a review, together with reports prepared by the member country itself and the WTO secretariat.
3. Dispute settlement. Conflicting interests frequently characterise trade relations and agreements. This means even the most carefully constructed contracts – including those negotiated through the WTO – sometimes need to be interpreted.
The WTO provides a neutral procedure for this, based on a legal foundation. Its dispute settlement procedure helps members enforce its contracts and, where there’s been a disruption, gets trade flowing smoothly again. Any member country can bring its case to the WTO if it believes another is infringing its rights or breaching its contract. Independent experts, specially appointed by the WTO, examine each case in detail and base their judgements on their interpretations of the agreements in question and the commitments of the countries concerned.
4. Working with developing countries. The WTO makes special provisions for developing countries. These include:
- Longer time periods to implement agreements and commitments than those imposed on developed economies;
- Measures to maximise their trading opportunities; and
- Support to help them build their trade capacity, handle disputes and implement technical standards.
Every year, the Organization holds hundreds of technical cooperation missions in developing countries as well as numerous courses at its Geneva headquarters for government officials. The WTO-led Aid for Trade initiative, meanwhile, helps developing countries gain the skills and infrastructure they need to expand their trade and build relationships with other WTO members.
5. Outreach. As a major player on the global stage, the WTO aims to enhance cooperation between stakeholders and increase awareness of its work, particularly in relation to the ongoing Doha negotiations. For these reasons, it maintains a dialogue with:
- Governments;
- Non-governmental organisations;
- Parliamentarians;
- Other international organisations;
- The media; and
- The general public.
The WTO’s guiding principles
Forming the foundation of the WTO’s multilateral trading system are these principles:
- Equality. A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products or services;
- Access. Lowering trade barriers is one of the most obvious ways of encouraging trade. Barriers include customs duties or tariffs and measures such as import bans or quotas that selectively restrict quantities;
- Predictability and transparency. Foreign companies, investors and governments should be confident that trade barriers won’t be raised arbitrarily. Stability and predictability encourage investment, help create jobs and enable consumers to enjoy choice, lower prices and other benefits of genuine and fair competition;
- Fairness. The WTO discourages unfair practices, such as export subsidies and dumping products at below cost to gain market share;
- Special help for less developed countries. Over three quarters of WTO members are developing countries and countries in transition to market economies. The WTO agreements give these countries longer periods to adjust to the unfamiliar and, perhaps, difficult WTO provisions; and
- Ethics. While the WTO’s agreements permit members to protect their environment, public health, animal health and plant health, they must apply them in the same way to both their own and foreign businesses. Member countries must not use environmental protection as a disguise for protectionist policies.
Conclusion
The World Trade Organization (WTO) negotiates trade agreements between most of the world’s trading nations. It helps member countries draft contracts, monitors the enforcement of trading law in member countries and provides a dispute settlement service. The organization makes special provision for developing nations, giving them extra time to implement their commitments and provides training to their government officials. To join the WTO, a country’s government must participate in accession negotiations and accept the Terms of Accession/Entry by way of parliamentary ratification or the signature of its head of state.