What Is the World Trade Organization?
3 Ways the WTO Keeps Your Prices Low
The World Trade Organization is a global membership group that promotes and manages free trade. It does this in three ways. First, it administers existing multi-lateral trade agreements. Every member receives Most Favored Nation Trading Status. That means they automatically receive lowered tariffs for their exports.
Second, it settles trade disputes. Most conflicts occur when one member accuses another of dumping.
That's when it exports goods at a lower price than it costs to produce it. The WTO staff investigates, and if a violation has occurred, the WTO will levy sanctions.
Third, it manages ongoing negotiations for new trade agreements. The biggest would have been the Doha round in 2006. That would have eased trade among all members. It emphasized expanding growth for developing countries.
Since then, countries have negotiated their own trade agreements. The two largest are:
- Trans-Pacific Partnership linking the United States. and 11 other countries bordering the Pacific Ocean. It includes Japan, Australia, and Chile, but excludes China and Russia. In 2017, President Trump withdrew the United States from the TPP. But the other countries are moving forward with their own agreement.
- Transatlantic Trade and Investment Partnership links two of the world's largest economies, the United States and the European Union. If successful, it would quadruple trade between them to four trillion dollars. President Trump has not moved forward with negotiations.
The success of these deals reinvigorated WTO efforts for a deal for all its members. On December 19, 2015, the WTO took steps to help its poorest members. Members agreed to end agricultural export subsidies. Developed countries will do so immediately, emerging markets will do so by 2018, and poor nations will have much longer.
Countries that subsidize their farming industries undercut local farmers in underdeveloped countries. When trade deals are signed, the local farmers are put out of business. That happened in Mexico after NAFTA.
Members governments are allowed to stockhold food in case of famine. This issue came up because India refused to give up its food security program. India wants to continue paying its farmers above-market prices so it can sell subsidized food to its poor. They agreed to find a solution in 2017. These food security programs violate the WTO's membership agreement.
Major information technology exporters agreed to eliminate tariffs on 201 IT products valued at over $1.3 trillion per year. The next step is to work on the schedule (Source: "Nairobi Package," WTO.)
On December 7, 2013, WTO negotiators concluded a four-day meeting in Bali, Indonesia. They agreed to streamline customs for all members. Once ratified, the Bali package would add $1 trillion to global trade and create 18 million jobs. (Source: "WTO Pact Revives Free Trade," TIME, December 9, 2013.)
Here are the deal's five components.
- Trade Facilitation - Simplify customs procedures to speed shipping. Reduce bureaucracy and corruption. Clarify rules for goods being shipped through ports by other countries. The WTO will assist developing countries update their technology and train customs officials.
- Development - Grant developing countries greater access to developed markets.
- Food Security - Temporarily allow poor countries to stockpile as much food as needed to get them through famines. Find a long-term solution so that these countries don't abuse the practice and distort the free market price of food.
- Cotton - Quotas on cotton imports (by developed countries) will be removed, along with deep subsidies (from emerging market countries). The specific amount of subsidy was negotiated during the Nairobi Round.
- Agriculture - Reduce export subsidies and obstacles to trade.
The Bali package has been inserted into the WTO Membership Protocol. More than 50 members have ratified it. That's nowhere near the two-thirds needed.
The WTO's origins began with trade negotiations after World War II.
In 1948, the General Agreement on Tariffs and Trade focused on reducing tariffs, anti-dumping, and non-tariff measures. From 1986 - 1994 the Uruguay Round round of negotiations led to the formal creation of the WTO.
In 1997, the WTO brokered agreements promoting trade in telecommunications services among 69 countries. It also removed tariffs on information technology products between 40 members. It improved trade of banking, insurance, securities and financial information between 70 countries.
The Doha round began in 2000. It focused on improving trade in agriculture and services. It expanded to include emerging market countries at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. Unfortunately, the Doha talks collapsed in Cancun, Mexico, in 2003. A second attempt also failed in 2008 at Geneva, Switzerland. (Source: "History," WTO.)
- Why Is WTO Membership So Important?
- How Does a Country Become a WTO Member?
- How Does the WTO Resolve Trade Disputes?
- What Is the Doha Round of Trade Talks?