World Trade Organization (WTO)

Imagine a soccer match with no referee and no rules about tackling. The strongest team would play as rough as it liked, and the field would soon be a mess.

Trade between countries works the same way. Back when there were no shared rules, powerful countries piled huge taxes (tariffs) on other countries' goods or blocked imports altogether. This protectionism shielded their own companies. When one side raised tariffs, the other hit back with retaliatory tariffs, and world trade often froze up.

In the 1930s, this tariff tit-for-tat is widely seen as having made the Great Depression even worse. So after World War II, the General Agreement on Tariffs and Trade (GATT) took effect in 1948. It was later expanded, and in 1995 it became a formal international organization to watch over trade promises. That organization is the World Trade Organization.

The WTO's most basic principle is trade without discrimination. If a country gives one trading partner a better deal, such as lower tariffs, it must give the same deal to every other member, unless a special exception applies. This is called the most-favored-nation (MFN) principle.

Foreign goods also can't be treated unfairly once they cross the border and reach the domestic market. A country can't help its own businesses by piling unfairly heavy rules or inspections on foreign products alone.

Suppose a country hands out unfair subsidies or breaks its promises, and another country is harmed. The injured country can file a case with the WTO's dispute tribunal. Expert panelists sort out who is right and who is wrong. They issue a fair ruling that lets the injured country take lawful countermeasures against the rule-breaker.

To be a bit more precise, the WTO is not an all-powerful world government that can rewrite any country's laws. It can issue rulings, but it has no army or police of its own to enforce the rules by force.

Also, it aims for consensus among all member countries whenever it makes a new trade rule, so decision-making is very slow. Technology moves fast, and e-commerce and environmental issues have become important. Yet it's hard to pass new global rules quickly.

Since late 2019, the United States has blocked appointments to the Appellate Body, the final court of appeal, so it has stopped working. As a result, the WTO's ability to settle disputes has weakened a lot. Even so, the WTO remains one of the most important safeguards in trade, because it lets even economically weak countries sit down as equals under the same rules and stand up to the bullying of big powers.