The World Trade Organisation (WTO) (DP IB Economics)
Revision Note
The role of the WTO
The World Trade Organisation (WTO) was established in 1995 to promote free trade
They believe free trade is the best way to raise living standards, create jobs and improve people's lives
Trade liberalisation is the process of rolling back the barriers to free trade e.g. removing tariffs
The WTO has two main roles in liberalising trade
It brings countries together at conferences and encourages them to reduce or eliminate protectionist trade barriers between themselves e.g. The Doha Round conferences
It acts as an adjudicating body in trade disputes. Member countries can file a complaint if they believe a trading partner has violated a trade agreement. The WTO will then run a hearing and make a judgement
The Objectives and Functions of the WTO
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Examiner Tip
WTO judgements are not legally binding. Members voluntarily submit to them (or not). A judgement in favour of a trade dispute does allow the aggrieved nation to put protectionist measures in place with the WTO's approval. The hope is that these measures will then force the nation committing the violation to back down and resolve the trade issue.
When evaluating the effectiveness of trade agreements, it is worth noting that larger economies tend to selectively choose which rulings of the WTO to abide by. Smaller (usually developing) economies tend not to have that luxury.
Factors Affecting the Influence of the WTO
In March 2022 there were 320 regional trade agreements globally
While these are beneficial to the members in the agreement (as they strengthen ties and create more trade between them), they also create conflicts with the stated aim of the WTO - to liberalise trade
Regional agreements often shift trade from a non-member who is more efficient in producing certain goods/services, to a member country who is less efficient (trade diversion)
Regional trade members then often institute common trade barriers on non-members which is the opposite of trade liberalisation (protectionism)
Two key Factors Which Continue to Undermine the Influence of the WTO
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