The World Trade Organization and How It Works

3 Ways the WTO Keeps Your Prices Low

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An Indonesian activist wraps his face during a protest against the World Trade Organization meeting on December 3, 2013 in Denpasar, Indonesia. Thousands of farmers, trade unions, students, women and youth from more than 30 countries gather outside the WTO conference to protest against the free trade regime. Photo: Photo by Agung Parameswara/Getty Images

The World Trade Organization is a global membership group that promotes and manages free trade. It does this in three ways. First, it administers existing multilateral trade agreements. Every member receives Most Favored Nation Trading Status. That means they automatically receive lowered tariffs for their exports.

Second, it settles trade disputes. Most conflicts occur when one member accuses another of dumping. That's when it exports goods at a lower price than it costs to produce it. The WTO staff investigates, and if a violation has occurred, the WTO will levy sanctions.

Third, it manages ongoing negotiations for new trade agreements. The biggest would have been the Doha round in 2006. That would have eased trade among all members. It emphasized expanding growth for developing countries. 

Since then, countries have negotiated their own trade agreements. The two largest are:

  1. The Trans-Pacific Partnership (TPP) links the United States and 11 other countries bordering the Pacific Ocean, or at least it did when President Obama was in office. Despite the deal already being signed, President Trump withdrew the U.S. from the TPP in 2017. Other countries moved forward with the deal without the U.S.
  2. The Transatlantic Trade and Investment Partnership planned to link two of the world's largest economies, the United States and the European Union. However, like the TPP, President Obama favored the deal while President Trump did not. President Trump halted negotiations, and the European Commission later declared negotiating directives obsolete.

Key Takeaways

  • The World Trade Organization is a global organization that manages commerce between its member nations.
  • The WTO has 164 member countries and 23 observer governments.
  • The WTO’s primary function is to manage the smooth flow of global trade by ensuring countries abide by their signed trade agreements. As such, it also investigates and resolves trade disputes.
  • The WTO was born out of GATT, an international trade agreement signed by 23 countries in 1947. 

Nairobi Package

The success of these deals reinvigorated WTO efforts for a deal for all its members. On December 19, 2015, the WTO took steps to help its poorest members. Members agreed to end agricultural export subsidies. Developed countries will do so immediately, emerging markets will do so by 2018, and poor nations will have much longer. Countries that subsidize their farming industries undercut local farmers in underdeveloped countries. When trade deals are signed, the local farmers are put out of business. That happened in Mexico after NAFTA

Member governments are allowed to stockpile food in case of famine. This issue came up because India refused to give up its food security program. India wants to continue paying its farmers above-market prices so it can sell subsidized food to its poor. They agreed to find a solution in 2017. But these food security programs violate the WTO's membership agreement.

Major information technology exporters agreed to eliminate tariffs on 201 IT products valued at over $1.3 trillion per year. The next step is to work on a schedule.

Bali Package

On December 7, 2013, WTO negotiators concluded a four-day meeting in Bali, Indonesia. They agreed to streamline customs for all members. Once ratified, the Bali package would add $1 trillion to global trade and create 18 million jobs. Below are the deal's five components:

  1. Trade Facilitation: The aim is to simplify customs procedures to speed shipping, reduce bureaucracy and corruption, and clarify rules for goods being shipped through ports by other countries. The WTO will assist developing countries to update their technology and train customs officials.
  2. Development: The WTO aims to grant developing countries greater access to developed markets
  3. Food Security: The WTO temporarily allows poor countries to stockpile as much food as needed to get them through famines. The aim here is to find a long-term solution so that these countries don't abuse the practice and distort the free market price of food.
  4. Cotton: Quotas on cotton imports (by developed countries) will be removed, along with deep subsidies (from emerging market countries). The specific amount of subsidy was negotiated during the Nairobi Round.

Agriculture: The WTO generally aims to reduce export subsidies and obstacles to trade.

The Bali package has been inserted into the WTO Membership Protocol. More than 50 members have ratified it, but that's nowhere near the two-thirds needed.

WTO History

The WTO's origins began with trade negotiations after World War II. In 1948, the General Agreement on Tariffs and Trade focused on reducing tariffs, anti-dumping, and non-tariff measures. From 1986 to 1994, the Uruguay round of negotiations led to the formal creation of the WTO.

In 1997, the WTO brokered agreements promoting trade in telecommunications services among 69 countries. It also removed tariffs on information technology products among 40 members. It improved trade of banking, insurance, securities, and financial information among 70 countries.

The Doha round began in 2000. It focused on improving trade in agriculture and services and expanded to include emerging mark, including countries at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. Unfortunately, the Doha talks collapsed in Cancun, Mexico, in 2003. A second attempt also failed in 2008 at Geneva, Switzerland.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Council on Foreign Relations. "What Is the Trans-Pacific Partnership (TPP)?"

  2. European Commission. "Transatlantic Trade and Investment Partnership (TTIP)."

  3. The Wall Street Journal. “India’s Trade Minister Defends Decision to Block WTO Agreement.”

  4. World Trade Organization. “WTO Members Secure ‘Historic’ Nairobi Package for Africa and the World.”

  5. World Trade Organization. “Days 3, 4 and 5: Round-the-Clock Consultations Produce ‘Bali Package’.”

  6. World Trade Organization. “Briefing Note: Cotton Negotiations – Commitment and Regret in Bali.”

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