WTO: The Guardian Angel of Trade

Following World War II, the USA and the UK took the lead in establishing a system of multilateral institutions which would guarantee peaceful and prosperous development: The UN was founded in 1945 to maintain international peace and security. The World Bank and the International Monetary Fund were set up in 1944 at the Bretton Woods conference with the aim of rebuilding the postwar economy and promoting international economic cooperation. 

Delegates in New Hampshire also recommended the establishment of a complementary institution to govern international trade, recognizing the growing importance of trade in an increasingly interlinked world as well as drawing lessons from the Great Depression. Prior to the war, international trade had significantly declined due to massive increases in tariffs which had led to a slowdown in the global production of goods and services. 

Negotiations were launched to set up an International Trade Organization as a third pillar of the economic order of the free world (the Soviet Union chose a different development model in which participation in global trade long played a negligible role and imposed its will on the countries in its sphere of influence). However, the effort eventually failed as the US Senate refused to ratify the 1948 Havana Charter as the founding document of such an international trade body. 

Attention then turned to the General Agreement on Tariffs and Trade (GATT), which aimed to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its goal was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”. 

Initially signed by 23 countries in 1947 and in force since 1948, GATT developed over the course of nine “rounds”, which gradually reduced or eliminated tariffs, before later covering areas such as anti-dumping and nontariff measures. While the average tariff levels for major participants were about 22 percent in 1947 they had fallen below 5 percent when the final “Uruguay” Round started in 1986. 

Lasting until 1994, the Uruguay Round would become the most ambitious GATT negotiation, covering new areas such as services, capital, intellectual property, textiles and agriculture – some of the most politically sensitive sectors given politicians’ protective instincts. The wide scope reflected developments in the global economy as well as the political push to promote free trade as an engine of growth and prosperity. 

The facts supported this approach: The past 75 years have seen exceptional growth in world trade. Merchandise exports have grown on average by 6 percent annually. On average trade grew by 1.5 times more than the global economy each year. Total exports in 2023 were 250 times the level of 1948. 

With 123 participating countries the Uruguay Round was also the largest GATT negotiation and the first in which developing countries played an active role. It concluded with an agreement in Marrakesh on the “Establishment of the World Trade Organization (WTO),” which came into existence on January 1, 1995. Today the WTO has 166 members, accounting for 98 percent of world trade, and is based in Geneva with some 800 staff. 

WTO members operate a nondiscriminatory trading system that spells out their rights and obligations. Each member receives guarantees that its exports will be treated fairly and consistently in other members’ markets; and each member promises to do the same for imports into its own market. The system also gives developing economies some flexibility in implementing their commitments. 

A cornerstone of the multilateral trading system is the most-favored nation status, called Permanent Normal Trade Relations in the USA. It says that the best access conditions that have been granted to one country must automatically be extended to all other participants in the system. This allows everybody to benefit, without additional negotiating effort, from concessions that may have been agreed between large trading partners with bigger negotiating leverage. 

In case of trade disputes, WTO members may invoke the Dispute Settlement Understanding. Since 1995, 634 disputes have been brought to the WTO and over 350 rulings have been issued. The most recent submission was filed by China on March 5, 2025 regarding the US decision to increase tariffs on goods originating from the People’s Republic from 10 to 20 percent. A ruling at first instance can be appealed by either side. However, the body has not been able to form a quorum to hear cases since end-2019 and has long been attacked by the USA – even before the current administration – citing infringements of national sovereignty. 

WTO decisions are typically taken by consensus among all members and ratified by their legislatures. While this has led to criticism about the efficiency and time-effectiveness of the system, the current WTO Director-General Ngozi Okonjo-Iweala recently said in a Financial Times podcast: “We’re a little bit proud that this is one organization where the voice of the smallest member is as impactful and important as the biggest. We don’t have a system where big shareholders decide what happens. There’s equality of treatment.” 

She also rejected claims that current political developments will cause lasting damage to global trade: “We need to not hyperventilate over the issue of trade policy and tariffs and take a deep breath, because the WTO has mechanisms with which to deal when members have issues with one another… We do have evidence that globalization may have slowed down, but it is still there.” 

Instead, she predicts the emergence of “more regionalized supply chains,” especially in the Global South, with regional and bilateral trade agreements: “Even the big ones like the African Continental Free Trade Area are based largely on WTO rules,” she said. “We welcome them.” 

This is already happening, following recent shocks such as the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine. These were major blows, but it seems that the Trump administration’s apparent aim of enforcing a whole new global economic order will have even deeper consequences. Professor Cédric Dupont of the Geneva Graduate Institute, expert in trade, law and the WTO, says: “The future of multilateralism in trade is clearly in question. Essentially it will depend not on the United States, but on other countries: to what extent are other countries going to continue working together within the WTO? There might be danger for the WTO with an inflationary spiral of customs duties, but maybe it’s also an opportunity for other countries to show this is not how problems should be resolved.”