[Narrator] The World Trade Organization is a multilateral body which pops up
frequently in discussions of development economics.
Let's look at this a little more closely.
The World Trade Organization, or WTO as it's often called,
has two primary functions.
The first is it oversees a series of trade agreements
which individual nations sign onto when they join the WTO, and furthermore, the
WTO is a forum for negotiating disputes, settling disputes, and then enforcing a
trade dispute. In other words, the WTO is also a court and it has a kind
of police power; namely, the ability to levy fines.
A typical WTO case involves the United States and the European Union.
The United States has charged that European governments gave unfair subsidies
to Airbus, the major European maker of large planes, and that this placed the
United States company of Boeing at a disadvantage.
The initial ruling was in favor of the United States
although the case continues and the question now is
whether the European governments have, in fact, stopped those subsidies.
In general, WTO cases tell countries they need to lower their tariffs
or stop subsidizing their exporters or in other ways abide by the rules
of what is considered under the agreement to be some kind of world trading order
A few other facts about the WTO:
As of 2012, it has 155 members with 156th, Russia, on the way.
These members include the world's major trading nations.
The WTO dates from 1995, but before then, something quite
similar was called GATT, General Agreement on Trade and Tariffs,
and this was constructed in the immediate aftermath of World War II
as a way of keeping the global trading order relatively free.
Over time, more and more nations have entered into GATT
and now WTO. There's something called the Doha Development Round
that was launched in 2001, and the purpose of those talks
has been to try to lower tariffs even further, but keep in mind
that since World War II, a lot of tariffs have already come down quite a bit
except for the area of agriculture, and getting further gains on lowering
tariffs at this point actually has proven fairly difficult.
The WTO is based in Geneva, Switzerland, and there's also a part of it
which overlooks intellectual property, and that's called TRIPS,
which is an acronym for
Council for Trade-Related aspects of Intellectual Property Rights.
Let's look at some of the general principles embodied initially
in GATT, and they have essentially been carried over
into WTO. First is the idea of non-discrimination, that a trade break
or tariff reduction extended to one nation should as much as possible
be applied to other countries as well. There's the idea of reciprocity,
mainly that countries would mutually bargain for greater trade and
reduction in tariffs. Commitments are considered binding and enforceable
and trade policy is supposed to be as transparent as possible.
Note finally that both under GATT and now WTO if a trade restriction
survives WTO, in some ways, this strengthens that trade restriction,
because it's shown it's okay under international rules of order,
and the clear example here would be restrictions on trade and agricultural products.
Sometimes the very process of joining WTO can be quite important.
The process can take a long time, five years or more, and when
China applied to join WTO, they had to make a lot of economic and
legal changes in order to be eligible. According to one estimate, they had
to dismantle at least 7,000 different barriers to trade. Russia, which is now
seeking to join the WTO, is having to reform its economy in similar ways.
These are considered some of the benefits of having WTO, namely
that it gives developing nations some reason to move toward
freer trade policies. Of course, for the same reason,
the WTO has its share of critics. Most economists are strong advocates
of free trade, but not all commentators and observers agree with this perspective,
and those individuals who favor trade protectionism for developing nations
tend to be strong critics of WTO. Over time, the WTO seems to matter
somewhat less. The first key point is that a lot of progress in reducing
trade barriers today, it comes in the form of bilateral agreements
rather than multilateral agreements for the entire world.
So, the United States and Costa Rica may make a deal.
The United States and South Korea or Colombia may make a deal,
but these are country-to-country deals, and over time, we've seen
more and more progress coming in that form rather than through WTO.
A second point is that the major remaining areas of trade barriers
for a lot of countries are agricultural subsidies and sometimes tariffs,
and those seem to be persisting. WTO has not really been able to crack those.
Finally, there's a paper by economist Andrew Rose, and the title
of his paper is, "Do We Really Know That the WTO Increases Trade?"
And he looked at the numbers, and he argued that there's actually
an ambiguity here. Most countries are reducing tariffs and trade barriers
over time anyway, and it's not clear that joining earlier GATT and now WTO
makes that big a difference. There's been a lot of debate around this paper,
and economists disagree as to what's the correct statistical model here,
but the mere fact that a serious paper could be written challenging whether
the WTO makes a difference at all is here the important point.
When you read the popular press, when you read some of the critics, you often
see a quite sensationalistic treatment of the WTO as if it is some major force
ruling the world order and destroying democracy and forcing developing nations
to do all kinds of things they don't want to do. When you look at the evidence,
it seems the WTO really may have some marginal impact on freer trade and
encouraging countries to join and encouraging countries to get rid of
their trade barriers, but in general, a lot of the popular discussions
of the WTO, especially the negative ones, have an exaggerated sense, simply, of
how much power the WTO has. By the way, for more information on all these topics,
just Google the words on these various slides, starting with
"World Trade Organization." You can also read Andrew Rose's paper, but
there's plenty about the WTO online, and if you go to news.google.com and
put in "World Trade Organzation," you can see what's new with the latest cases.