Wednesday, 6 July 2022 – 09:08

Explaining the World Trade Organization (WTO)

The World Trade Organization (WTO) is the only international organisation that deals with the global rules of trade.

Established in 1995, the organisation aims to ensure that trade flows as smoothly, predictably and freely around the world as possible.

Click through the tabs below to learn more about the World Trade Organization (WTO) and how it works.

 

{tab Why was the WTO set up?}

The WTO was officially launched on 1 January 1995 under the terms of the Marrakesh Agreement, which was signed by 123 nations on 15 April 1994. Today, the organisation has 164 member states, while a number of other states observe the organisation.

The organisation, which is the world’s largest international economic organization, replaced the General Agreement on Tariffs and Trade (GATT). GATT was a legal agreement between a group of nations, designed to promote international trade by eliminating trade barriers.

The WTO has multiple functions and activities that it carries out. Some include;

  • Overseeing the implementation and administration of agreements
  • Providing a forum for negotiating
  • Providing a forum for settling disputes
  • Providing assistance to low-income countries in transition to adjust to WTO rules

The WTO also has five key principles;

  • Non-discrimination
  • Reciprocity
  • Binding and enforceable commitments
  • Transparency of trade regulations

 

{tab How does the WTO work?}

The daily work of the WTO is handled by three many bodies;

  • The General Council
  • The Dispute Settlement Body
  • The Trade Policy Review Body

WTO rules are made by WTO member governments and are the outcome of negotiations between them. Usually, the organisation will aim for a consensus to be reached, though votes are sometimes used in the decision-making process.

As well as its day-to-day operations, the WTO holds a Ministerial Conference, usually every two years. The conferences tend to discuss key trade issues and all WTO members are usually invited to attend.

The organisation is mainly funded by contributions for its members. The contributions are designed based upon a formula of the member’s share of all international trade. In 2019, the United States contributed the highest amount at 22 million Swiss francs (around £18 million), while China contributed 19 million francs. The UK contributed 7 million francs.

 

{tab How effective is the WTO?}

Studies have shown that the World Trade Organisation has boosted international trade and it is believed to have helped reduce the amount of tariffs faced by countries on goods and services.

However, the effectiveness and fairness of the organisation is debated. A key feature of the WTO is meant to be non-discrimination and the organisation is said to help increase the equality of international trade. However, some critics have argued that the benefits from free trade are not shared equally.

There have been multiple protests against the WTO, including in Seattle, US in 1999.

 

{tab What has the WTO got to do with Brexit?}

The World Trade Organization was often mentioned around the topic of Brexit, the UK’s departure from the European Union.

The UK formally left the European Union on January 31, 2020 and later left more EU institutions on 31 December 2020. During the period between these two dates, the UK was in a transition period continued to be subject to EU rules, but no longer had any say in how they are made. The UK was still part of the Customs Union and other institutions and structures during the transition period.

During the transition period, the UK and EU negotiated a Future Relationship and Trade Agreement. There were fears that a deal would not be reached before the end of the transition period. Had this happened, the UK would have faced a ‘no-deal’ scenario. This would have meant that the UK would have had to trade with the EU on World Trade Organization terms. According to WTO terms, the same trading terms must be applied to all WTO members unless a trade agreement is in place.

The exact impacts of what a no-deal would have meant are difficult to predict, but it is thought that a no-deal could have seen prices rise for some products and delays at the border due to new checks on imports and exports. 

The UK and EU managed to agree on a trade deal on 24 December 2020, and this was passed into UK law following approval by Parliament on 30 December 2020. The deal came into effect on 31 December 2020 at 11pm UK time and is to be officially signed off by the European Union in February 2021. Under the deal, there are no tariffs (additional charges) placed on trade between the UK and EU.

 

{module UKEUTradeDealRoyalAssent}

 

{/tabs}

 

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