The WTO is an international organisation that has focused on the regulation of global trade and economic relations since its foundation. It was established as a successor to the General Agreement on Tariffs and Trade (GATT), but with a broader objective. Since 1995, it has been based in Geneva and has functioned as an independent organisation working closely with the United Nations. It currently has 164 member states, including the largest economic areas in the world: the European Union, China, the United States and Japan. The youngest member is Afghanistan, which joined in 2016.
From agreement to organisation: The creation of the WTO
The fundamental principles of the WTO are anchored in decisions that were already taken in 1947 in connection with the GATT as an international treaty. After the Second World War, the so-called Western powers agreed that protectionism should be a thing of the past, given that it was one of the causes of economic ructions in the early 1930s, when many countries attempted to strengthen their domestic industries by means of import bans, state aid and higher customs duties. A global recession followed, along with mass unemployment and political unrest, all of which prepared the ground for the Second World War. The GATT was designed to guarantee a reduction in customs duties between the trade partners, to the benefit of all 23 founding states. New countries also joined, including Germany, which became a full member in 1951.
The goal of the WTO, as the successor to the GATT, was to ensure global trade was legal, non-discriminatory and open. The aim was to dismantle trade barriers. This meant that one WTO member could not disadvantage another WTO member by favouring other countries or domestic producers. The WTO’s rules and regulations for global trade were gradually extended - to cover new products, for example.
This development led to the establishment of the WTO as an organisation for international trade. Today, its overarching purpose is still to ensure transparency in trade relations as well as to reduce and eliminate customs duties and other trade barriers. Its long-term goal is a free international trade system that boosts the prosperity of participating economies, ensures the economic development of all WTO members and increases real income and demand at home and abroad. The WTO’s remit was expanded to do justice to these ambitious goals: subsidies in agriculture, trade in services and compliance with minimum intellectual property standards are now all part of the organisation’s competencies. Additionally, topics such as sustainability and development also play an increasingly important role.
Structures of a multilateral trade order
The creation of a multilateral trade order has helped many economies achieve rapid growth and develop their economies over past decades. Today, the World Trade Organization remains a crucial factor in safeguarding open, fair and rules-based trade.
However, changing global parameters have created a need for reform within the WTO. Inflexible procedures and clashes of interest between individual WTO members are hindering the organisation. Additionally, there are protectionist tendencies and market-distorting activities through, for instance, subsidies, that the WTO’s rules cannot adequately address. Its role as a supervisory body is also under threat as a result of a lack of transparency from some members, particularly those who do not subscribe to a free-market system. This is why a reform agenda for the WTO is a key priority for the European Union and its member states. This would include, for example, the formulation of rules for digital trade and the restoration of full functionality to the WTO’s dispute settlement mechanism.
Decisions of the WTO are usually taken by consensus. The Dispute Settlement Body, in its role as a platform to resolve disputes between members, is one of the most important organs within the WTO. Other important organs inside the WTO are the Ministerial Conference, which is made up of economic affairs and trade ministers, and which convenes at least every two years, the General Council and the Secretariat.
Challenges for the multilateral order and the EU
During its Presidency of the Council of the European Union and beyond, Germany will work to actively drive forward reform within the WTO. This includes suggestions for new rules that could close loopholes which are preventing fair conditions for competition.
It is also crucial that Europe plays a leading role in strengthening open and rules-based international trade order to overcome the health and economic consequences of the COVID-19 pandemic. The latter crisis has revealed the vulnerability of global supply chains, for example, with regard to personal protective equipment. A strong WTO is an important basis for the further development and diversification of rules-based trade and reliable trade and supply relationships.
Besides strengthening the WTO as the foundation of open and rules-based international trade, it will also be important to modernize WTO rules in the future, and to establish new regulations that deal with subsidisation and trade practices that distort competition.