In this article, we will be talking about the World Trade Organization (WTO). A world-class organization that regulates and facilitates cross-border trade.
Maybe you often hear or talk about the WTO, especially international class entrepreneurs. World Trade Organization plays a role in international trade. We will try to review the WTO, all its ins and outs, and its impact on the world of global trade.
- 1 What does World Trade Organization mean?
- 2 When World Trade Organization established?
- 3 Who founded World Trade Organization?
- 4 Who funds World Trade Organization?
- 5 World Trade Organization function
- 6 How does World Trade Organization work?
- 7 Why WTO is important?
- 8 World Trade Organization members
- 9 What does the WTO do?
- 10 Is the WTO effective?
- 11 Final thought
What does World Trade Organization mean?
The World Trade Organization (WTO) is defined as an international organization that regulates international trade. Another meaning of WTO is an intergovernmental organization that regulates and facilitates international trade between countries.
The WTO imposes rules that regulate trade between countries include goods, services, agricultural and industrial goods, intellectual property, with the aim of reducing barriers to free trade to help producers of goods and services, as well as exporters and importers in carrying out their activities.
The WTO system uses the multilateral trading system centralized around the WTO agreements, negotiated and signed by most of the world’s trading countries, and ratified by their parliaments.
These treaties are the basic legal rules for international trade. Basically, they are contracts that guarantee the essential trading rights of member states.
They also increase the government to keep their trade policies within the limits agreed in the agreement, negotiated, and signed by the government. But with the aim of assisting the producers, exporters, and importers in running their international business.
World Trade Organization explanation
The founding principle and basis of the WTO are to seek openness of territorial boundaries, provide guarantees for the “Most-Favored-Nation principle” (MFN), and non-discriminatory treatment by and among member countries. They enforced commitment and transparency in all its activities.
The opening of national markets to international trade with appropriate exceptions or adequate flexibility is seen as encouraging and assisting sustainable development, increasing welfare, reducing poverty, and building peace and stability.
At the same time, market openness must be accompanied by appropriate national and international policies that can contribute to economic growth and development in accordance with the needs and aspirations of each member country.
When World Trade Organization established?
The World Trade Organization was formed in 1995. The organization’s establishment began with the “Uruguay Round” negotiations (1986 – 1994) and previous negotiations under the “General Agreement on Tariffs and Trade” (GATT).
The WTO member consists of 164 member countries, of which 117 are emerging countries or separate customs territories. The WTO is also a venue for negotiating a number of new agreements under the “Doha Development Agenda” (DDA), which began in 2001.
Who founded World Trade Organization?
The WTO is formed initially from General Agreement on Tariffs and Trade (GATT) which was established in 1947. GATT is an agreement that was formed because the International Trade Organization (ITO) promoted by the United States and its allies failed to be established.
At the beginning of the formation of GATT on October 30, 1947, GATT was signed by 23 nations, they became the founders of GATT as the forerunner of the WTO. The 23 countries are Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom, and the United States.
The GATT agreement was the only major agreement governing international trade until the WTO was formed. GATT Agreement continues to be expanded with additional board arrangements, interpretations, and decisions. The GATT system developed over 47 years and became the cornerstone of global trade involving around 130 countries.
Who funds World Trade Organization?
The WTO obtains funding from three sources of funding.
- WTO’s regular budget.
- Voluntary contributions from WTO members.
- Cost-sharing either by countries that are involved in an event or by international organizations.
The WTO Financial Regulations detail the financial contributions of each member. The amount of each member’s contribution is adjusted to the percentage of that member’s trade (imports plus exports) when compared to all WTO members. That allows each country to donate in different amounts.
World Trade Organization function
The establishment of the WTO had a number of purposes and roles. The following are the objectives of the establishment of the WTO:
- To enforce international trade rules.
- Provide a forum for negotiation and monitoring of trade liberalization.
- Resolve trade disputes.
- Improve trade transparency and decision-making processes.
- Cooperate with international economic institutions involved in global economic management.
- Help developing countries take full advantage of the global trading system.
How does World Trade Organization work?
To make a final decision, the WTO involves its current members, there are 164 countries and there may still be new members registering in the future.
The member state makes decisions through ministers, ambassadors, or delegates. Meanwhile, daily operations are carried out by the Secretariat, which is located in Geneva, Switzerland.
WTO employs more than 600 staff and experts, coming from a wide range of academic fields including lawyers, economists, and statisticians.
The WTO makes the highest decisions through the Ministerial Conference. The WTO body will convene every two years aimed at bringing all members together. And also make WTO trade rounds, conduct multilateral negotiations to lower free trade barriers.
WTO also establishes a General Council to run the Dispute Settlement Body and the Trade Policy Review Board. General Counsel, consists of representatives from all member governments.
Why WTO is important?
The World Trade Organization (WTO) plays an important role in international trade because it provides a framework for negotiations.
They provide a forum for member organization countries to try to resolve trade disputes that occur between them. The WTO has a “judicial authority”, a Dispute Settlement Body (DSB) which is a place where countries that feel aggrieved can complain.
They have procedures for resolving conflicts between member countries, which are principally through negotiations. Also provides independent dispute resolution to enforce member compliance with trade agreements and settlement of trade-related disputes.
Basically, WTO was established for purposes:
- To establish and enforce international trade rules.
- Provide a forum for further trade liberalization negotiations and monitoring.
- Resolve trade disputes.
- Improve the transparency of the decision-making process.
- Reviewing national trade policies.
- To assist developing countries in international trade policy issues.
World Trade Organization members
Quoting from the WTO’s official website, 164 countries have become registered members of the organization since 29 July 2016, and there are 25 observers.
All of these member countries joined mostly in 1995, and after that year other countries followed with different joining dates. For example, China joined on 11 December 2001, while Croatia joined on 30 November 2000.
You can download the complete list of WTO members and their observer countries here.
What does the WTO do?
The WTO has activities included in its efforts:
- Reducing trade barriers such as tariffs, capacity, and other barriers, as well as agreeing on rules regarding the implementation of international trade.
- Enforcing rules involves monitoring and administering the implementation of agreed rules for trade in goods and services, as well as trade-related intellectual property rights.
- Ensure transparency of bilateral and regional trade agreements, and review and monitor member trade policies.
- Resolve disputes between member states regarding the application and interpretation of treaties.
- Building the capacity of government officials, especially from developing countries on international trade issues.
- Gives access to about 30 countries that are not yet members of the World Trade Organization to join.
- As a center for research and economic analysis, the WTO forwards reports and issues news on international trade.
- Explain and educate members of the general public to be more aware of the mission and activities of the WTO.
Is the WTO effective?
Various opinions by experts for the WTO, the success of the WTO is that this organization is able to prevent trade wars. However, on the other hand, it is suspected that the WTO has failed to provide significant multilateral trade liberalization.
The organization has made little progress in finalizing the Doha Development Agenda. Its role as an international forum is also considered to be eroded by the proliferation of regional trade agreements that are the goals of the government.
According to Patrick Messerlin, a professor of economics at Sciences Po, Paris, the WTO has never been able to handle subsidies in agriculture and industry or services, which make up 70% of the GDP of developed countries. But the WTO is doing well in terms of tariffs and dispute resolution mechanisms. The WTO’s success in this area has come under fire from the Trump administration.
The WTO is the highest international organization with legislative and judicial powers with success and failure stories. However, this organization is still needed by the international community to act as a forum for negotiations to solve international trade problems.
The era of free trade allows export and import activities from one country to another to make the issue of tariff wars. If the WTO does not act as an intermediary for member countries, it will be possible for weak countries to be unable to compete with developed countries.
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