The World Trade Organization (WTO) celebrates its 20th anniversary in 2015. The WTO began life on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. (The second WTO ministerial meeting, held in Geneva in May 1998, included a celebration of the 50th anniversary of the system.)
It did not take long for the General Agreement to give birth to an unofficial, de facto international organization, also known informally as GATT. Over the years GATT evolved through several rounds of negotiations.
The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and led to the WTO’s creation. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now cover trade in services, and in traded inventions, creations and designs (intellectual property).
The WTO replaced the GATT which had been set up over 40 years earlier to oversee the rules of trade. The aim of the WTO is to ensure that trade flows as smoothly, predictably and freely as possible. Whereas the GATT only dealt with trade in goods, the WTO covers trade in goods and services as well as trade-related intellectual property rights. It also oversees strengthened rules for the settlement of disputes between members.
Through rounds of trade negotiations, the WTO seeks to reduce barriers to trade by lowering tariffs and tackling non-tariff measures, such as import licensing restrictions or the use of trade measures for protectionist purposes. The WTO also seeks to ensure that existing trade rules are respected by its 161 members around the world and that the needs of developing countries remain central to its work.
To appreciate how far the WTO has advanced it is important to remember where – and why – it began. Today’s system was a response to the economic chaos of the 1930s – the escalating protectionism, rival trade blocs and competitive currency devaluations that did so much to fuel the economic insecurity and international tensions that led to the Second World War.
The initial post-war plan was to create an International Trade Organization (ITO) – alongside the then recently established International Monetary Fund (IMF) and
World Bank – to rebuild an open and prosperous global economy as an essential foundation for world peace. But the United States declined to ratify the ITO charter, and the international community had to make do instead with the much more limited General Agreement on Tariffs and Trade (GATT) for the next five decades. When the WTO was created in 1995, it was not only the realization, in an updated form, of that failed attempt to create a global trade body: it also signaled the biggest reform and expansion of the international trading system since the Second World War.
Consider the system’s widening membership. Whereas the GATT started with just 23 members in 1947, the WTO now has 161 — a fifth of whom have joined since its launch. With the accession of giants like China in 2001, Saudi Arabia in 2005 and Russia in 2012, all of the world’s major economies are now part of a single economic system – covering 98 percent of global commerce – for the first time. And while industrialized countries dominated the GATT, developing countries play a key role in managing the WTO, shaping its agenda and negotiating its agreements.
That the WTO is successfully integrating a fast-rising developing world – easily the biggest economic transformation in history – into an open global economy represents one of its most significant achievements.
Consider too the system’s success in bringing the rule of law to international economic relations. Now when countries clash over anti-dumping duties or
aircraft subsidies, they battle it out, not in destructive trade wars, but in the WTO’s dispute settlement system, its trade court. The WTO has dealt with five times as many disputes in 20 years – some 500 cases – as the GATT in almost 50 years. Use of the system is increasing fastest among developing countries – a reflection not only of their growing share of world trade, but of the importance they attach to the WTO’s rules-based system for their continued trade-driven growth and development. Even
members of regional agreements – such as the North American Free Trade Agreement (NAFTA) – often turn to the WTO to resolve their trade differences.
Then there is the system’s success in lowering trade barriers. Average applied tariffs have been cut in half over the last twenty years to less than 8 per cent from 15 per cent in 1995; and from almost 40 per cent after the war. The declines have been especially dramatic for certain countries: India’s average tariff has fallen from 38.6 per cent to 13.5 per cent in two decades; Morocco’s from 33.5 per cent to 12.5 per cent; Indonesia’s from 25.6 per cent to 7.1 per cent. Today almost 60 per cent of world trade flows tariff free, while another fifth is subject to tariffs of less than 5 per cent. The accession of 33 new WTO members represented major market access negotiations in themselves, as did the negotiation of the first Information Technology Agreement (ITA) in 1996. The financial services and telecommunications agreements have opened up key services sectors to international trade. In the same way, the WTO’s fast-expanding Government Procurement Agreement (GPA) is opening up public procurement markets – representing 15 per cent or more of countries’ GDP – to global suppliers and competition.