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World Trade Organisation

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Economics

Trade is an activity that occurs in the daily activities of every individual, every company and every country. We all buy things from brands from our country and from brands from abroad. Have you ever wondered how this is possible? Is there an organisation that makes international trade between countries possible?

What is World Trade Organisation? What are the duties and responsibilities of the World Trade Organisation? What are the benefits of a World Trade Organisation? Does the World Trade Organisation play a role when it comes to trade?

World Trade Organisation: What is trade?

Trade can be defined as a transaction involving the transfer of goods and services between entities in exchange for money. Trade can occur between individuals, businesses, and even nations.

Trade is a transaction that involves the transfer of goods and services between entities in exchange for money.

Domestic trade is the exchange of goods and services within the same geographic location, i.e., a country.

International trade is the exchange of goods and services between two or more countries.

International trade occurs between countries operating in an open world economy. A country with a closed economy has only a limited production capability for goods and services that its resource base can cover. However, a country with an open economy that trades with other countries has unlimited production and consumption opportunities for goods and services that come from its resources and imports from other countries.

Read our explanation on free trade to learn about trade in detail!

World Trade Organisation definition

The World Trade Organisation (WTO) is an intergovernmental organisation established in 1995.

This organisation was set up to regulate and facilitate international trade between nations. It deals with trade between countries and is tasked with ensuring the smooth flow of trade between nations. This intergovernmental organisation establishes rules that members must follow. The rules ensure trade is stimulated and that barriers to the smooth exchange of goods and services are reduced or eliminated.

The World Trade Organisation’s economic objective is to benefit members by improving living standards and creating jobs through trade. It provides a forum for members to improve trade by resolving potential trade disputes and negotiating trade agreements.

The World Trade Organisation, whose headquarters and headquarters are in Geneva, Switzerland, stands for principles that form the basis for international trade that benefits all. The current director-general of the World Trade Organisation is Ngozi Okonjo-Iweala, the first woman and the first African to hold this post.

Members of the World Trade Organisation

The World Trade Organisation has member countries that trade with each other. Currently, the World Trade Organisation has 164 members, with the last country to join in 2016 representing 98% of world trade.1 You can see some member countries in Figure 1 below. The World Trade Organisation has not only members but also countries listed as ‘observers’.” They follow discussions on matters of interest to them. Observer countries include Algeria, Belarus, Iran, and Libya.

Role of the World Trade Organisation

Some notable roles of the World Trade Organisation are:

  1. It operates a global system of trade rules that its members must abide by.

  2. It provides a platform for negotiating trade agreements.

  3. It plays a role in resolving disputes and disagreements among member countries.

  4. It supports developing countries in their area of need.

The trade rules established by the World Trade Organisation help consumers and producers obtain raw materials, finished goods, and services and provide them with a wide range of options. The World Trade Organisation is a body that enforces agreements made by members to ensure transparency.

World Trade Organisation Members of the world trade organisation StudySmarterFigure 1: Some World Trade Organisations member countries, Nanret Dawuk - StudySmarter (Created with icons from Flaticon)

History of World Trade Organisation

Trade has existed long before the introduction of the official medium of exchange. Trade took the form of barter, where people exchanged goods and services without a medium of exchange. For example, they exchanged a piece of fish for a piece of meat instead of paying for it with money. People engaged in informal trade long before there were trade organisations. Trade played an important role in economic development.

Before the World Trade Organisation was established, there was a precursor, the General Agreement on Tariffs and Trade (GATT), which was established in 1947, after World War II, by 23 countries through a multilateral treaty.2 Institutions such as the World Bank and the International Monetary Fund (IMF) were established. During 1947–1979, the GATT focused on reducing tariffs, anti-dumping agreements, and combating non-tariff barriers, although not all members accepted the plurilateral agreement. The GATT was created as a provisional institution for trade, but was used until the creation of the World Trade Organisation.

A plurilateral agreement is a legal or trade agreement between two or more countries. A plurilateral agreement in the World Trade Organisation is an agreement that allows member countries to agree on new rules voluntarily.

The World Trade Organisation was officially established in 1995 when GATT member countries determined that the system was unable to adapt its policies and structure to globalisation. The World Trade Organisation has witnessed the growth of world trade and economic development through the multilateral trading system created by GATT.

In 1997, agreements went beyond traditional agreements, such as telecommunications services and financial services, covering more than 95% of banking, insurance, securities, and financial information trade.2 By 2000, agricultural services were discussed and included in the World Trade Organisation’s work programme, allowing for negotiations on non-agricultural tariffs and trade, anti-dumping, and transparency in government procurement.

In 2013, members agreed at a conference on trade facilitation aimed at reducing delays at borders, and by 2027, an amendment to the World Trade Organisation’s Intellectual Property Agreement was signed to provide access to affordable medicines.3

World Trade Organisation policy and structure

The World Trade Organisation is divided into different bodies within the organisation that have different objectives. The World Trade Organisation has 164 member countries responsible for 98% of world trade. The consensus of the members makes decisions of the World Trade Organisation. A high-level body, the Ministerial Conference, is responsible for decision-making and usually meets every two years.

The General Council is a post-Ministerial Conference body led primarily by ambassadors from member countries in Geneva. This body is responsible for trade policy review and dispute settlement. Another body reports to the General Council: the Council for Goods, the Council for Services, and the Council for Intellectual Property (TRIPS). Within the World Trade Organisation, some other dedicated groups and parties deal with individual agreements, applications for accession, and regional trade agreements. The hierarchy can be seen in Figure 2 below.

The World Trade Organisation relies on six principles and tenets to guide its activities to achieve its goals and fulfil its obligations to its members:

  1. Trade without discrimination

  2. Free trade through negotiation

  3. Promotion of transparency

  4. Promotion of fair competition

  5. Promotion of development

  6. Promotion of the economic forum

World Trade Organisation World trade organization policies and structure StudySmarterFigure 2: Structure of the World Trade Organisation - StudySmarter

Agreements of the World Trade Organisation

Some of the agreements or global rules The World Trade Organisation has been able to establish since its inception are namely:

  1. Tariffs: closer to zero

  2. Agriculture: a fair market for farmers

  3. Standards and safety

  4. Textiles

  5. Services: rules for investment and growth

  6. Intellectual property: protection

  7. Anti-dumping and subsidies

  8. Non-tariffs barrier: red tape

  9. Plurilateral

  10. Trade policy review: transparency

Advantages and purpose of The World Trade Organisation

The World Trade Organisation was established to promote and facilitate free trade among countries with open economies. Some of the benefits of membership in the World Trade Organisation are:

  1. Member countries enjoy free trade, which is channelled through tariff reductions.

  2. The World Trade Organisation promotes trade without discrimination between countries.

  3. Members of the World Trade Organisation enjoy fair competition.

  4. The World Trade Organisation promotes economic development by creating jobs and raising living standards through free trade.

  5. Rules are established to protect member countries from becoming dumping grounds for other members.

Functions and objectives of the World Trade Organisation

Some of the functions and objectives of The World Trade Organisation are:

  1. Administering world trade agreements and enforcing the rules governing international trade
  2. Providing a forum for trade negotiations
  3. Handling and resolving trade disputes
  4. Monitoring trade policy and increasing trade transparency
  5. Engaging and cooperating with other economic institutions to promote economic development
  6. Assisting developing countries by ensuring they benefit from global trade and promoting economic growth

World Trade Organisation - Key takeaways

  • The World Trade Organisation was established in 1995 after the GATT and still operates under the GATT umbrella.
  • The World Trade Organisation has 164 members and 25 observers.
  • The World Trade Organisation was established to ensure smooth trade between countries.
  • Only countries with open economies can participate in international trade.
  • The members of the World Trade Organisation set and agree upon global rules.
  • The World Trade Organisation enforce global trade rules.
  • The main goal of the World Trade Organisation is to ensure economic development and growth through trade.

SOURCES

1. World trade organisation, About the organisation, 2022

2. World trade organisation, History of the multilateral trading system, 2022

3. World trade organisation, WTO IP rules amended to ease poor countries’ access to affordable medicines, 2017

World Trade Organisation

The World Trade Organisation was officially established in the year 1995, it was established under the umbrella of the General Agreement on Tariffs & Trade (GATT) which stopped existing in the year 1994. The work and foundation of the World Trade Organisation are built on the work and achievement of the GATT.

The role of the world trade organisation is to aid in regulating and facilitating trade between countries through trade rules, providing a forum for negotiating trade agreements and settling trade disputes.

The main goal of the World Trade Organisation is to aid its members through its global trade rules to improve the standard of living, create jobs, and improve people’s lives through trade.

The World Trade Organisation has 164 countries as members and 25 countries registered as observers as of 2016.

The  United States, European Union, and Japan heavily criticised the World Trade Organisation for its members’ ability to self-identify as developing countries to enjoy benefits. They also blamed it for its failure to sanction some member countries who fail to inform the World Trade Organisation of government subsidies following trade agreement rules.

Final World Trade Organisation Quiz

Question

What is trade?

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Answer

Trade is the exchange of goods and services with the use of money, considered the medium of exchange.

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Question

What is the World Trade Organisation?

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Answer

It is an intergovernmental organisation created to ensure smooth trade between nations.

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When was the World Trade Organisation formed?

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Answer

1995

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Who is the precursor of the World Trade Organisation?

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Answer

World Bank

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How many member countries are in the World Trade Organisation?

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Answer

160

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What is a closed economy?

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Answer

A closed economy is an economy that is not open to trade with other countries.

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What is an open economy?

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Answer

An open economy is an economy that is open to trade with other countries.

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What type of economy do members of the world trade organisation operate in?

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Answer

Closed economy

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Is the United Kingdom a member of the World Trade Organisation?

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Answer

Yes

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Question

All of the following are some agreements of the world trade organisation except _____.

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Answer

Anti-dumping and subsidies

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Resolving trade disputes is one of the functions of the World Trade Organisation. True or false? 

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Answer

True

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Is the World Trade Organisation concerned with the growth and development of developing countries?

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Answer

True 

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Reducing tariffs, introducing fair market agreement for farmers, preventing countries from becoming dumping grounds are all parts of the functions of the World Trade Organisation.

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Answer

True

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Question

Who sets global rules for trade?

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Answer

World Trade Organisation members set and agree on global rules.

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Who enforces and ensures the global rules for trade are followed?

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Answer

The World Trade Organisation.

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