The World Trade Organization (WTO) is the largest multilateral trade organization in the world. It has two basic functions. First, it promotes new trade agreements which reduce tariffs, subsidies and other barriers to international trade amongst its members. Second, it provides a framework for member countries to resolve disputes when these trade agreements are violated.
The WTO is the current manifestation of a body of international trade law which began shortly after World War II as the General Agreement on Tariffs and Trade (GATT). Countries which signed on to the GATT have participated in several major “rounds” of negotiations leading to new agreements, each of which is defined by an agenda set at a major international conference. The actual institutions now called the WTO, for instance, were created as part of the Uruguay Round of negotiations, which took place between 1986 and 1994.
Following that round, the WTO has had two basic functions. First, it provides a forum for member countries to implement the agreements already reached and continue negotiations towards new international trade laws. Traditionally, there are three operating principles behind new agreements, known as national treatment, most-favoured nation status, and reciprocity. What these mean, in essence, is that under an agreement reached by the WTO, national governments should treat companies on an equal basis regardless of what country they are based in (provided that country is also a signatory to the treaty), and must treat all member countries on the same equal or “favoured” terms. Gradually, these principles have been applied in more and more sectors on the principle that free trade will, in the long term, result in the greatest efficiency and prosperity for the greatest number of people.
To that end, the WTO is currently facilitating the negotiation of the Doha Round, which was expected to focus on free trade agreements relating to intellectual property and agricultural trade. However, Doha Round talks have been stalled for nearly a decade now because of disagreements over agricultural subsidies between the United States and Europe (which heavily subsidize farmers) and developing countries (which cannot afford to, and argue that the subsidies bar them from exporting products to developed countries).
The second key function of the WTO is dispute resolution. The WTO has established a formal process to which a country can turn when it feels that another member country is violating one of the agreements which the WTO administers (these are officially known as the “covered agreements”). The review process ends with a legal ruling ordering a guilty country to cease violating the agreement and, if it continues to do so, authorization for the victim country to retaliate with trade sanctions. In practice, the majority of disputes do not go through the full dispute resolution process, and even if a small developing country is victorious at the WTO, its capacity to “punish” the European Union or the United States through trade sanctions is obviously minimal.
In addition to these central functions, the World Trade Organization also carries out a number of other less central activities. For instance, the WTO provides technical assistance to developing countries in writing trade regulations and complying with WTO rules, and employs a number of economic analysts to produce assessments of the current state and future prospects of international trade. Many of these activities are carried out jointly with the other two major international economic institutions, the World Bank and the International Monetary Fund.