The World Trade Organization (WTO) impacts nations and businesses across the globe. Over the decades, it has helped smooth trade relations and remove barriers between numerous countries, with the goal of using trade to help raise living standards, create jobs, and improve quality of life around the world. Its primary function is to help protect and support producers, exporters, and importers of goods. While this may sound like high-level policy that only concerns national governments, the WTO鈥檚 work affects the operations and profit margins of businesses in multiple ways.
What is the World Trade Organization?
Founded in 1995, the WTO was created to replace the 1947 General Agreement on Tariffs and Trade (GATT) that was introduced at the end of WWII. There are currently 164 members of the WTO, which together represent more than 96% of international trade and global GDP. The international organization is run by its member governments, whose representatives meet regularly in Geneva, Switzerland. Together, these nations have made measurable impacts on both global trade and their individual economies.
One of the key missions of the WTO is to enable negotiation and mediation between nations when it comes to international trade agreements. It provides open lines of communication between members to facilitate these agreements and improve trade outlooks for those members. Frequently this results in lower barriers to trade between nations, but sometimes it means maintaining those barriers in order to protect consumers or the environment, or in other circumstances where more open trade would in fact be a detriment rather than a net gain.
There are 16 multilateral agreements (agreements between all members of the organization) and two plurilateral agreements (between only certain members) that are currently upheld by the World Trade Organization. They cover not only goods but also services and intellectual property, and include commitments to lowering tariffs and other trade barriers. They also set out procedures for settling disputes between member nations.
While the WTO agreements have been carefully negotiated, there are still occasions when it is unclear who is in the right or how a particular issue should be resolved. When a member nation believes that their rights are being infringed, it can bring its concerns to the Dispute Settlement Body to resolve it, and if that decision is not satisfactory, either party can raise an appeal to the Appellate Body. Dispute resolution is one of the primary functions of the WTO, with the focus being on reaching a fair outcome rather than passing judgment on either party. The WTO has issued over 350 rulings since its founding in 1995.
What Does the World Trade Organization Do for Individual Businesses?
The WTO offers benefits on a national scale, easing trade relations between countries, but that can seem very far away from the day-to-day operations of the average business. However, these trade agreements produce measurable benefits for companies operating in member nations, and the organization also provides useful resources relating to international commerce.
On the whole, research has found that membership in the WTO and its predecessor the GATT increased trade between member nations by over 170%, and trade between member and non-member nations by almost 90%. A German study found that as of 2019, the US had gained roughly $87 billion due to being a member of the WTO, while China gained $86 billion and the EU gained $232 billion. For individual companies, this translates to more individual business opportunities with lower tariffs and fewer barriers, meaning lower costs and higher profit margins.
Aside from limiting tariffs, WTO agreements require members to treat businesses from other member nations in particular ways. Those businesses receive 鈥渘ational treatment,鈥� meaning that they have the same rights and responsibilities as local companies, as well as 鈥渕ost favored nation (MFN) treatment,鈥� which grants them the same treatment as companies belonging to the most favorably treated country. This puts businesses on a more level playing field when competing with firms in another country for sales in that country. The WTO protects companies against arbitrary regulations or standards designed to put foreign firms at a disadvantage.
On an individual level, businesses can also benefit from the WTO鈥檚 collection of information on tariffs and other matters. Its databases include tariffs by country along with resources such as up-to-date data on trade standards and regulations. This allows companies to develop international trade strategies and keep up with changing requirements on a country-by-country basis.
Data and analysis available from the World Trade Organization includes items such as:
- Trade profiles on various industries and countries
- A statistics database
- International trade and market access data
- Tariff data
- Trade policies and practices by country
- News on trade developments
This wealth of data helps companies navigate complex situations in markets around the world, improving their global reach and helping them to operate more efficiently.
As an individual company, the World Trade Organization may feel like it鈥檚 far removed from day-to-day business concerns. But the agreements put into place and mediated by the WTO impact businesses in several ways, from leveling the international playing field to providing resources to help navigate that playing field. In a trade environment that鈥檚 constantly shifting, stability and information are invaluable to companies around the world.
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