World Trade Organization (WTO)

The World Trade Organization (WTO) is an important player in the global economy. Its unprecedented coverage as well as its strengthened institutional structure have given the WTO a multifaceted role in the governance of international trade. In the 21st century, it has become the principal multilateral forum for negotiating, administering, and refereeing the legal rules that underpin trade across borders.

Building on its predecessor, the General Agreement on Tariffs and Trade (GATT), the WTO came into being in January 1995. In the following 15 years, it garnered more than 150 sovereign members from advanced and developing economies, which together account for almost 97% of global trade flows. Unlike the GATT, which covered only trade in goods, the WTO agreements also cover trade in services and intellectual property. The distinguishing feature of the WTO is its legal character in governance: The WTO agreements are binding on all members as a single body of law. The basic principles and rules in WTO law, their role in resolving trade disputes, and the controversies associated with them are examined in this entry.

Although WTO law defies easy categorization, at least two elements should be singled out. First, it has two cornerstone principles that focus on nondiscrimination: the most favored nation treatment obligation, which obliges a member to extend any favorable treatment given to one country to all other members; and the national treatment obligation, which obliges members to extend no less favorable treatment to foreign products than to like domestic products. Second, from the standpoint of economic relations, the WTO rules are designed to ensure market access for developed and developing countries alike. Market access rules fall into four main groups, all of which focus on measures that can become hurdles for global trade flows: customs duties (i.e., tariffs), duties and financial charges, quantitative restrictions, and nontariff barriers (e.g., technical regulations, sanitary and phytosanitary measures, standards, customs formalities, etc.). Breaches in these underlying principles and rules can become the basis for activating the dispute settlement machinery of the WTO. Over time, sovereign members have used these kinds of violations to challenge foreign measures and, conversely, defend domestic ones.

Such activities have led to a focus on perhaps the most important innovation in the multilateral history of global trade relations, namely, the dispute settlement understanding (DSU) of the WTO. In contrast to the old GATT, the DSU eliminates the veto with which especially powerful states could block adverse dispute settlement proceedings and rulings. The DSU also sets up a two-level review process through ad hoc arbitral panels and a standing tribunal in the form of an appellate body. Finally, the DSU allows for remedies in the form of elimination of the offending measure and, to the extent that it is not so eliminated, also for compensation and retaliation, both on a temporary basis. These institutional innovations have legitimized the role played by the DSU, leading to a remarkable increase in litigant activities. Between 1948 and 1990, there were 207 legal complaints filed under the old GATT; between January 1995 and July 2009 alone, the WTO had already overseen close to 400 disputes. [Page 1825]From the GATT to the WTO, developing countries have also substantially increased their use of the DSU, although the heaviest users still remain the advanced industrial countries.

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