What is the World Trade Organization - and does it still have a future?

Legislation | | MIC Customs Solutions |

As criticism of the World Trade Organization mounts, where will it go from here?

An emergency meeting recently took place in Canada with a host of world leaders present. Neither China nor the United States were invited.

However, this meeting was not to do with trade tariffs or free trade agreement but the World Trade Organization (WTO) and its future.

Why was this necessary and what might its implications be for world trade going forward? Let's take a look in a little more detail.

What is the WTO?

The WTO was the successor to the General Agreement on Tariffs and Trade (GATT) and came into force in 1995. As GATT's mandate broadened, the members decided to replace it with something more effective and the WTO has been the centrepiece of the global trading system ever since.

It was created to provide basic international trade rules that allow the implementation and operation of multilateral trade agreements and negotiations. Importantly, it also has the power to handle trade disputes through its Dispute Settlement Body (DSB). 

The idea was that rather than requiring different rules for each market, a multilateral system would bring a common set of rules that each 164 member countries would adhere to.

Growing criticism

Unfortunately, while this system had been working without a hitch, the WTO is now facing growing criticism from a range of key players.

For instance, China has called for the closing of legal loopholes that it claims are damaging global trade and has warned that the WTO faces a "profound crisis" if it fails to do so.

The US has also complained that the WTO is failing to punish alleged Chinese rule-breaking, with president Donald Trump even threatening a withdrawal if American interests are not protected.

Even the European Union has stepped in to suggest that the appellate body requires reinforcement in its "independence and impartiality to improve its efficiency" through the adding of two new appellate body members to the seven-member panel and greater administrative and legal support.

These criticisms have largely arisen around the DSB, which has largely been left to function without new rules since its inception. Instead of dealing with issues through new political agreements, the DSB has been required to apply old rules to a rapidly modernizing economy and deal with increasingly politically-charged disagreements such as those between China and the US.

No new negotiated agreements are being put into practice and efforts to do so are being thwarted.

For example, the US has prevented vacancies in the appellate body from being filled for two years and membership is dwindling. If numbers go down further, DSB could be paralyzed at a time when it is needed most.

As the WTO becomes less effective, members are turning to their own regional free trade agreements to further their own interests, which only serves to reinforce the problem.

What next for the WTO?

The EU has now unveiled a new proposal that it says will unblock the appointment of appellate body members, which has the backing of Australia, Canada, China, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland.

It will be presented to the WTO General Council in early December 2018, although it won't advance until the other members including the US agree to amend the WTO dispute settlement understanding.

Some analysts believe that it may be necessary for the other members to take the unprecedented step of adopting reforms without US consensus in the hope that a model can be used when a future administration is in the White House.

If reforms are to be successful and the WTO is to remain relevant, it will be necessary to remember its creation for the common good and to make changes that apply to the global trade model in the 21st century, not that of 20 years ago.