Is The WTO Losing Relevance?


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Without traffic rules, movement on the world’s roads, rails and ports would be chaotic. In a similar way, global trade would be disorderly in the absence of the World Trade Organization (WTO), which has set the traffic rules of the global trading system for more than twenty years.

But amid rising nationalism and protectionism, multilateral organizations like the International Monetary Fund (IMF)are facing an uncertain future. Hence, it is not surprising to see the WTO fighting to sustain its mandate. If the WTO loses this battle, the resulting chaos in the trade arena could be damaging to the world economy.

The WTO was established in 1995, succeeding the General Agreement on Tariffs and Trade that was first set in 1947. The WTO aims to open trade for the benefit of all, without any discrimination. All members abide by the most-favored-nation clause, which forbids preferential treatment to local goods or undue protection of local firms. The WTO defines the rules of trade between countries, acts as a forum for negotiating trade pacts, settles trade disputes and supports the interests of developing economies.

Most of the funding for the WTO’s annual budget comes directly from member contributions using a formula based on each member’s share of international trade. The U.S. is the largest contributor (11.4%), followed by China (9.8%). Combined, European Union (EU) members represent 33.6% of the WTO’s total funding. But this doesn’t translate to voting power. Unlike the IMF, the WTO is a member-driven body, run by its 164 member governments with a consensus-driven decision-making structure. Reaching that consensus has become increasingly difficult in the current environment.

All WTO members, irrespective of size or the status of their economies, agree to a trade dispute mechanism to avoid unilateral responses to differences and potential trade conflicts. This is intended as a defense against capricious tariffs, quotas, or other ungrounded restrictions. But the dispute settlement process entails several steps that can last up to 15 months (with appeal). And the WTO lacks the ability to impose penalties, which can limit its authority.