What is the World Trade Organization?
The World Trade Organization was founded in 1995 to promote and regulate international trade between the countries of the world. It replaced the General Agreement on Tariffs and Trade which had regulated international trade since World War II.
Prior to 1945, when countries had trade disputes with each other they could only solve them through bilateral negotiations. If diplomacy failed, the only means to resolve disputes was war. After World War II, it became apparent that international trade required an impartial organization to mediate disputes. The World Trade Organization was created to enforce the world’s agreed upon rules for trade and to punish nations who violate the rules.
What Does the WTO Do?
The World Trade Organization ensures that trade between countries is equal and fair. It prohibits countries from treating each other differently. If China has a tariff on steel, it must apply the same tariff to all countries — it cannot favor some countries by charging a lower tariff. If Germany has import restrictions on products from Japan, it must apply the same restrictions to products imported from France.
When countries violate these rules by treating countries unequally, the wronged nation can appeal to the WTO to mediate the case. The organization will hear both sides arguments and deliver a verdict, although most cases are a clear-cut decision for the hearing panel. The WTO then issues a fine to the offending nation which, when paid, is used to offset the financial losses suffered by the affected countries. If the country refuses to pay, it may face punitive sanctions from other nations or expulsion from the WTO.
The WTO’s Future Direction
The World Trade Organization is currently negotiating future policies about agricultural policies and assisting developing nations. Currently, the developed countries of the world subsidize their farmers to make them more competitive. This makes it harder for farmers in developing countries to compete: they cannot export their produce as cheaply and they face inexpensive imports from developed nation’s farmers. The nations of the world are currently at an impasse over this issue, as removing farm subsidies in developed nations is politically unpopular.