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 is 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.
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
The case continues and the question now is whether the European governments
have indeed stopped those subsidies.
In general, WTO cases tell countries they need to lower 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 called GATT, General Agreement on Trade and Tariffs.
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 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 since World War II, tariffs have 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
Counsel 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, namely 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 it strengthens
that trade restriction because its shown it's ok 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 5 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 reason to move towards 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.
The second point is that 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 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, 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,
google the words on these various slides starting with "World Trade Organization".
You can also read Andrew Rose's paper.
There's plenty available about the WTO online
and if you go to news.google.com and put in World Trade Organization,
you can see what's new with the latest cases.