History of the WTO
The WTO was founded in 1995 but its predecessor organisation – the General Agreement on Tariffs and Trade (GATT) dates back to the end of the Second World War. The GATT itself grew out of discussions for an International Trade Organisation (ITO) that was to be the third pillar of the Bretton Woods Institutions, along with the International Monetary Fund and the World Bank. The purpose of the Bretton Woods Institutions was to boost economic recovery following the war and promote international economic cooperation. Trade was important in this because spiraling tariff increases during the 1930s had contributed to the economic depression that, in turn, contributed to the outbreak of war. Torn between those in the US Congress who believed the ITO would not do enough and those that thought it would do too much, the plan for an international organisation to manage trade problems was eventually abandoned. While the ITO did not proceed, negotiations to reduce tariffs, originally envisioned as part of the ITO, did survive and became the GATT. There were 23 member states at GATT’s inception. It wasn’t an organisation but a mutually agreed set of commitments to reduce tariffs.
The principal obligations GATT members agreed to when negotiating tariff reductions were non-discrimination, or ‘most-favoured-nation’ and national treatment.
• Non-discrimination or ‘Most-favoured-nation’ – If a GATT member removes or lowers a tariff for one member, they must offer the same to all members.
• National Treatment – GATT members must treat goods imported from other GATT members (and later services) the same as domestically produced goods.
These core obligations carried over to the WTO in 1995 when the organisation was created.
Between 1948 and 1995, eight rounds of GATT multilateral trade negotiations were held. The GATT was seen as such a success that by the Tokyo Round in 1973 the number of member economies had increased to 102. The final round of the GATT was the Uruguay Round held between 1986 and 1994. By the Uruguay Round, the issues negotiated in the GATT had expanded well beyond tariffs on manufactured products to include trade topics as diverse as services, intellectual property, agriculture and textiles. The Uruguay Round also revised and updated many of GATT’s original provisions. By the end of the negotiations, a new set of rules, including an updated dispute settlement process, had been agreed upon and the WTO was born.
Functions of the WTO
The new WTO created a permanent Secretariat that supports day-to-day implementation of the WTO agreements.
The Secretariate is based in Geneva where most WTO members are represented by permanent ambassadors. Around once every two years, ministers from WTO members come together to decide on forward work plans, conclude new agreements and resolve larger problems at the WTO Ministerial Conference.
The key functions of the WTO are to:
1. negotiate new, and update existing, agreements to improve trade between WTO members
2. increase understanding of each WTO members’ trade measures and provide opportunities to discuss them through the Trade Policy Review Mechanism and WTO Committees
3. resolve trade disputes and,
4. support developing and least developed countries to maximise the benefits of trade for their economies.
Negotiations
Negotiations within the WTO (and before it the GATT) were conducted in the past in what was called a multilateral trade negotiation or Trade Round. Each round aimed to update existing agreements and improve access to markets through new agreements. The rounds involved multiple representatives from each GATT/WTO member coming together, often over years, with proposals and counterproposals for new and updated provisions until all could agree on a single package of new provisions and market access obligations. The Trade Rounds held under the GATT and WTO, and the primary subjects they covered were:
1947 – Geneva: Tariffs
1949 – Annecy: Tariffs
1951 – Torquay: Tariffs
1956 – Geneva: Tariffs
1960-1961 – Dillon Round: Tariffs
1964-1967 – Kennedy Round: Tariffs and anti-dumping measures
1973-1979 – Tokyo Round: Tariffs, non-tariff measures, Civil Aircraft, bovine meat, dairy and government procurement
1986-1994 – Uruguay Round: Tariffs, non-tariff measures, rules, services, intellectual property, textiles, agriculture, anti-dumping, safeguards, least developed countries and the creation of WTO
2001-incomplete – Doha Round: Tariffs, non-tariff measures, agriculture, labour standards, environment, competition, investment, transparency, patents, least developed countries, e-commerce, services, dispute settlement, country groupings and special and differential treatment.
The WTO has only held one round since it was established in 1995 which was the Doha Round. The Doha Round started in November 2001 and effectively ended without resolution at the Nairobi Ministerial Conference in 2015. It was the largest round held to date with 159 participants.
TheDoha Round failed for a range of reasons including deep divisions between developing and developed members and the large number of parties, with diverse interests, making consensus more difficult to achieve. Prior trade rounds had dealt with issues that were relatively easier to resolve which left more complex and difficult issues for the Doha Round. The nature and environment of world trade too had changed drastically from the start of the round to when it ended. Developing countries like India and China were relatively minor players in international trade at the launch of the Doha Round but were large economies and important trading countries by 2015 when negotiations broke down. Agriculture remained a complex and contentious issue for both developing and developed countries. Traditional trade issues were also increasingly overshadowed by digital trade, services trade and investment issues. Fundamentally, the issues that were the focus of negotiations at the start of the decade seemed less relevant by the end of the decade.
In place of big rounds, negotiations in the WTO today progress through the biannual Ministerial Conference (MC) as well as through ‘plurilateral’ negotiations. Recent MCs have been able to conclude negotiations on some important agreements such as the Trade Facilitation Agreement concluded at MC9 in Bali, Indonesia in 2013, and the Fisheries Agreement concluded at MC12 in Geneva in 2022. Some WTO members have also progressed ‘Joint Initiative’ or ‘plurilateral’ negotiations on electronic commerce, investment facilitation for development, micro, small and medium-sized enterprises (MSMEs) and services domestic regulation. These are not ‘multilateral’ negotiations where a consensus of all WTO members is required to conclude. Rather, they are open to all WTO members to join but can be concluded through the agreement of those members who decide to join the negotiations. This avoids the ‘consensus’ rule in WTO decision making that requires every member to agree (or at least not object) to conclude an agreement. In July 2024, 82 WTO members agreed to the text of the Joint Statement Initiative on Electronic Commerce – probably the most significant multilateral outcome since the conclusion of the Uruguay Round.
WTO Trade Policy Review Mechanism and Committee System
The WTO committee system ensures there is regular discussion on domestic trade polices to increase policy transparency. Members undergo a regular policy review process in which the member being reviewed provides a report on their own trade policies and programs alongside a report drafted by the WTO secretariat. Both reports are presented to the relevant WTO committee and can be discussed by all interested members. This promotes transparency and, in theory, policy learning.
Dispute Settlement
A key strength of the WTO has been its dispute settlement system. The ability to levy financial penalties against members who are found to breach their WTO commitments has been a key element in its effectiveness.
Dispute settlement in the WTO begins with consultations between the disputing parties. If consultations fail to resolve an issue, the matter can be taken to a WTO Dispute Panel for adjudication. Once the panel rules on an issue, if one or more of the parties to the dispute challenges the finding (which is usual) the dispute is sent to the Appellate Body. This is a group of seven people who are tasked with reviewing the legality of dispute reports issued by dispute panels. If the Appellate Body finds a member to be in breach of the trade obligation(s) in question, they will be required to bring the offending measure(s) in line with their trade commitments. If the member does not agree to do so, the member(s) that lodged the initial complaint are permitted to impose trade restrictions either until the measure is removed or in compensation for the damage caused by the measure. This dispute settlement process is crucial in supporting an effective rules-based system for international trade.
Current headwinds
As at January 2025, the WTO is facing major challenges. On the trade negotiation front, minor progress in some areas has been made at Ministerial Conferences. But no major trade round has been successfully concluded since the Uruguay Round in 1994. This means most trade rules are dated, and new trade areas lack any WTO rules.
The United States’ decision to withhold consensus on the appointment of new Appellate Body members has disabled the full functioning of the WTO Dispute Settlement System. While an interim body was established by some WTO members to play the role of the Appellate Body (the Multi-Party Interim Appeal Arbitration Arrangement (MPIA)), not all WTO members have signed on.
National security concerns are leading many countries to introduce new trade barriers that are contrary to their WTO commitments. Climate change measures are also, in many cases, inconsistent with commitments to remove obstacles to trade. Geopolitical competition between the United States and China is the root cause of many of these measures, with major spill overs for other economies.
The return of President Trump to the White House, and his use of trade policy to try and achieve national security and domestic manufacturing objectives, is further eroding the rules-based trade system.
Written by Lochlan Ferrington, ACITI Research Assistant, and update on 3 February 2025 by Dr Prudence Gordon, ACITI Executive Director.
