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Policies drafted by the World Trade Organization aim to cut red tape at borders, expedite the movement of goods, and lower the cost of international trade.

The WTO and International TradeARTICLE

By Karen Lynch

The early months of 2017 have been eventful for the World Trade Organization (WTO): from cementing its director-general’s leadership in an unchallenged reelection, to the ratification of the biggest trade deal in the organization’s history, to a wide-ranging debate about the future of trade itself. And in March, the international business community called on the WTO to do even more to break down barriers to global trade and keep new ones from being erected. This article puts the WTO in perspective for companies conducting international trade – where it is today, how it got here, and what’s at stake.

WTO 101: Smoothing the Flow of International Trade

The WTO’s primary goal is to take the friction out of global commerce, ensuring that trade among nations can flow across borders in a smooth and predictable manner. That’s not an insignificant endeavor, given the various tariffs, quotas, embargoes, sanctions and other measures that nations impose. Almost as challenging are administrative hindrances to the movement of goods through customs and other border procedures.

This friction further slows trade in an already low-growth global economy. The net result is that international trade in goods among the G20 nations is still about 10 percent lower than it was 10 years ago, before the 2008 Financial Crisis, with exports growing at 1.5 percent and imports up 0.8 percent in the fourth quarter of 2016.1 Prospects for faster growth are colored by the fact that, from mid-October 2015 to mid-May 2016, “the overall stockpile of restrictive measures introduced by G20 economies grew by 10 percent,” according to the WTO.2

“The problems in global trade have been piling up,” the International Chamber of Commerce (ICC) concurred in March.3 The ICC represents the international trade interests of 6.5 million businesses worldwide, at the WTO and other international policy-making bodies.

What is the goal of the WTO?

The WTO itself puts business at the heart of its mission. “The goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives,” the organization says.4

The WTO works toward this goal in five ways.

1. It provides a forum for its 164 member nations to negotiate global trade agreements on goods, services, and intellectual property (IP).
2. It seeks to ensure the implementation of these agreements in transparent national policies, through a review and reporting system.
3. It provides independent experts before which countries can bring international trade disputes for judgement.
4. It helps build the trade capacity of developing countries.
5. And it acts as a bully pulpit for trade liberalization and globalization rather than national protectionism.5

In this last role, the WTO adds its voice to those emphasizing business benefits such as growth, innovation, productivity, knowledge exchange, and risk mitigation across a wider range of suppliers and markets.

WTO’s Roots

The Geneva-based organization traces its roots to the end of World War II, when the General Agreement on Tariffs and Trade (GATT) was signed as a mechanism for helping to bring nations together peacefully through international trade. The WTO was formed to replace the GATT in 1995, though the GATT remains the core of the WTO’s rules on trade in goods. Those rules have since been expanded to include the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

In all three areas, the WTO operates on the principle of non-discrimination,6 with two mechanisms that aim to prevent discriminatory international trading practices among member countries: the most favored nation (MFN) clause and the national interest clause.

MFN status ensures that any member of the WTO grants any other member equal treatment in trade relations. Grant one member a lower customs fee, for example, and the same must be offered to all other members. It is such a fundamental principle that it is the first article in the GATT. The national interest clause aims to ensure that member countries treat foreign nationals the same way they treat their own nationals. It stipulates that locally made goods, services and IP must be regarded the same as similar imports.

Lengthy GATT and GATS schedules list commitments that individual countries have made to allow different products and service providers into their markets. For merchandise trade, these lists include the tariffs to be applied to goods. For services trade, they include cases in which MFN will not be applied. (One-time exemptions were permitted to countries during the conclusion of GATS negotiations in 1995 – and they still are granted whenever a new country becomes a member, subject to later negotiations). TRIPS sets minimum standards of protection for copyrights, trademarks, patents, and other types of IP. All these agreements are subject to renegotiation over time, and TRIPS is one in which observers see a need for updates today to catch up with the global digital economy.7,8

Countries not participating in the WTO could put their local companies at a disadvantage, as described in a Bloomberg report. The report points out, for example, that other countries would be able to unilaterally raise tariffs on imports from companies in non-participating countries, or impose other burdensome requirements – with no recourse to overturning unfair trade practices via the WTO dispute settlement system.9

WTO and Global Trade Futures

Roberto Azevêdo pointed to considerable global trade challenges ahead in a press conference following his recent reelection to a second four-year term as WTO director-general. “Global economic growth is low. Trade growth is low. The threat of protectionism cannot be ignored. Multilateralism faces momentous hardships. And we struggle with the persistent challenges of poverty, inequality and under-development,” he said.10

The Brazilian will begin his second term in September 2017, three months before the WTO holds the 2017 Ministerial Conference, its highest decision-making assembly, in Buenos Aires. While the official agenda is yet to be published, proposed items include domestic agricultural support,11 e-commerce,12 a global investment pact,13 trade in services and the rise of national protectionism.

The ICC included many of these items in its recently released report titled Building for Success: A World Trade Agenda for the Buenos Aires Ministerial. “There is no shortage of issues for negotiators to attend, nor is there a shortage of economic research to support which issues would be particularly important,” the report said. It presses for discussion of such matters as a digital trade agenda, concerns over local content requirements favoring domestic production, and renewed interest by the global business community in a WTO investment facilitation role.

At the press conference, Azevêdo said he intended to extend a string of recent WTO accomplishments. Among the most significant, he said, is the Trade Facilitation Agreement (TFA), a pact originally agreed in 2013 that came into force recently, after ratification by the required threshold of 110 member countries. The biggest trade deal in the history of the WTO, the TFA aims to cut red tape at borders, expedite the movement of goods, and eventually lower the cost of doing import-export trade. Under the agreement, developed countries will also provide technical assistance and capacity-building to developing countries to enable them to implement and benefit from the agreement. The WTO sees the TFA giving a $1 trillion boost in annual global trade by 2030, though some observers see it as more aspirational, with a less dramatic impact.

Azevêdo noted that greater inclusiveness is another of his goals for the next four years. “I think we must work harder to ensure that the benefits of trade reach more people, especially in the most vulnerable countries.”14

Also reflecting on the future of the WTO are the diminished expectations among world leaders for the proposed Trans-Pacific Partnership (TPP), a regional trade pact among Pacific Rim countries. Some see a possible shift in emphasis toward the WTO in the wake of problems besetting the TPP and other regional trade agreements. For the record, however, WTO rules do nothing to preclude such agreements, provided they don’t introduce new trade restrictions.15

The Takeaway

International trade is facing challenges, and leaders in business and government are engaged in a fundamental review of its policies and institutions, including the WTO.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. "International Trade Statistics: Trends in Fourth Quarter 2016", Organization for Economic Co-operation and Development; http://www.oecd.org/std/its/international-trade-statistics-trends-in-fourth-quarter-2016.htm
2. "WTO Report: ‘G20 Trade Restrictions Reach Highest Monthly Level Since the Crisis’", World Trade Organization; https://www.wto.org/english/news_e/news16_e/trdev_21jun16_e.htm
3. Building for Success: A World Trade Agenda for the Buenos Aires Ministerial, International Chamber of Commerce; https://iccwbo.org/publication/building-success-world-trade-agenda-buenos-aires-ministerial/
4. "What is the World Trade Organization?", World Trade Organization; https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm
5. "What We Do", World Trade Organization; ; https://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm
6. “Principles of the Trading System”, World Trade Organization; https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
7. "Panels: WTO Could Play Crucial Role in Challenges Facing Global Digital Trade", Intellectual Property Watch; https://www.ip-watch.org/2015/10/08/panels-wto-could-play-crucial-role-in-challenges-facing-global-digital-trade/
8. “E-Commerce Returns to WTO TRIPS Council Agenda”, International Centre for Trade and Sustainable Development; http://www.ictsd.org/bridges-news/bridges/news/e-commerce-returns-to-wto-trips-council-agenda
9. “Will Trump Kill the WTO and Spark Trade Chaos?: QuickTake Q&A”, Bloomberg; https://www.bloomberg.com/politics/articles/2017-03-02/will-trump-kill-the-wto-and-spark-trade-chaos-quicktake-q-a
10. Audio presentation of WTO press conference, World Trade Organization; https://www.wto.org/audio/2017_02_28_pressconference.mp3
11. “The Next Round of the WTO Will Be Held in Argentina”, Fresh Plaza; http://www.freshplaza.com/article/170632/The-next-round-of-the-WTO-will-be-held-in-Argentina
12. "’Financial Inclusion’ Key to Delivering Full Development Potential of e-Commerce", World Trade Organization; https://www.wto.org/english/news_e/spra_e/spra161_e.htm
13. “Investment Facilitation, e-Commerce to Top BRICS Meet Agenda”, The Hindu; http://www.thehindu.com/business/Industry/investment-facilitation-e-commerce-to-top-brics-meet-agenda/article17462719.ece
14. "Roberto Azevêdo reappointed WTO Director-General; second term begins in September", World Trade Organization; https://www.wto.org/english/news_e/news17_e/dgra_28feb17_e.htm
15. “General Agreement on Tariffs and Trade 1944”, World Trade Organization; https://www.wto.org/english/res_e/booksp_e/analytic_index_e/gatt1994_09_e.htm

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