27/12/2019 World Trade Organization (WTO) Definition

ECONOMY GOVERNMENT & POLICY

World Trade Organization (WTO)

By SANDRA LIM | Updated Sep 12, 2019

What Is the World Trade Organization (WTO)?

Created in 1995, the World Trade Organization (WTO) is an international institution that
oversees the global trade rules among nations. It superseded the 1947 General Agreement
on Tariffs and Trade (GATT) created in the wake of World War II.

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The WTO is based on agreements signed by the majority of the world’s trading nations. The
main function of the organization is to help producers of goods and services, exporters, and
importers protect and manage their businesses. As of 2019 the WTO has 164 member
countries, with Liberia and Afghanistan the most recent members, having joined in July
2016, and 23 “observer” countries.

KEY TAKEAWAYS
The WTO oversees global trade rules among nations.
The WTO has fueled globalization with both positive and negative effects.
The main focus of the WTO is to provide open lines of communication concerning
trade among its members.

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Understanding the World Trade Organization

The WTO is essentially an alternative dispute or mediation entity that upholds the
international rules of trade among nations. The organization provides a platform that allows
member governments to negotiate and resolve trade issues with other members. The WTO’s
main focus is to provide open lines of communication concerning trade between its
members.

For example, the WTO has lowered trade barriers and increased trade among member
countries. On the other hand, it has also maintained trade barriers when it makes sense to
do so in the global context. Therefore, the WTO attempts to provide negotiation mediation
that benefits the global economy.

Once negotiations are complete and an agreement is in place, the WTO then offers to
interpret that agreement in the event of a future dispute. All WTO agreements include a
settlement process, whereby the organization legally conducts neutral conflict resolution.

No negotiation, mediation, or resolution would be possible without the foundational WTO

agreements. These agreements set the legal ground rules for international commerce that
the WTO oversees. They bind a country’s government to a set of constraints that must be
observed when setting future trade policies. These agreements protect producers,
importers, and exporters while encouraging world governments to meet specific social and
environmental standards.

Important: President Trump has threatened to withdraw from the WTO, an act
that could disrupt trillions of dollars in global trade.

Advantages and Disadvantages of the World Trade Organization

(WTO)
The history of international trade has been a battle between protectionism and free trade,
and the WTO has fueled globalization with both positive and adverse effects. The
organization’s efforts have increased global trade expansion, but a side effect has been a
negative impact on local communities and human rights.

Proponents of the WTO, particularly multinational corporations (MNCs), believe that the

organization is beneficial to business, seeing the stimulation of free trade and a decline in
trade disputes as beneficial to the global economy. Skeptics believe that the WTO
undermines the principles of organic democracy and widens the international wealth gap.
They point to the decline in domestic industries and increasing foreign influence as negative
impacts on the world economy.

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As part of his broader attempts to renegotiate U.S. international trade deals, President
Trump has threatened to withdraw from the WTO, calling it a “disaster.” A U.S. withdrawal
from the WTO could disrupt trillions of dollars in global trade.

Related Terms
General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) is an international trade treaty designed to boost
member nation’s economic recovery after WWII. more

What Is an Embargo?
An embargo is a government order that restricts commerce or exchange with a specified country
usually as a result of political or economic problems. more

Brexit Definition
Brexit refers to Britain's leaving the European Union, which was slated to happen at the end of
October, but has been delayed again. more

What is a Trade War?

A trade war—a side effect of protectionism—happens when country A raises tariffs on country B's
imports in retaliation for them raising tariffs on country A's imports. This continuing cycle of increased
tariffs may lead to injuring the businesses and consumers of the involved nations, as the prices of
goods increase due to increased import costs. more

Trade Liberalization Explained

Trade liberalization is the removal or reduction of restrictions or barriers, such as tariffs, on the free
exchange of goods between nations. more

Multifiber Arrangement (MFA)

The Multifiber Arrangement - MFA was an international trade agreement on textiles and clothing that
was active from 1974 till 2004. more

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