IBEconomicsHLRevision Notes4. The Global Economy4.4 Economic Integration 4.4.3 The World Trade Organisation (WTO)

4.4.3 The World Trade Organisation (WTO) (HL IB Economics)

Revision Note

Steve Vorster

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

  1. It brings countries together at conferences and encourages them to reduce or eliminate protectionist trade barriers between themselves e.g. The Doha Round conferences

  2. 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


Objectives of the WTO


Functions of the WTO

  • Improving people’s lives

  • Promotion of fair competition

  • Protecting the environment

  • Trade negotiations

  • Implementation and monitoring of trade agreements

  • Dispute settlement

  • Building trade capacity between nations

  • Outreach to governments and influential organisations on behalf of member countries

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


Difficulties in reaching agreement on services and primary products


Unequal bargaining power of members

  • MEDCs continue to subsidise many firms producing primary products which allows them to dominate global markets

    • LEDCs do not have the tax revenue to do the same for their firms and so they are unable to compete

  • Firms from LEDCs are frequently blocked from offering services (which generate higher profit and income) in MEDCs

    • This prevents free trade in services

  • Firms and individuals from MEDCs tend to be better networked and will unashamedly work their connections so as to gain better trading conditions

  • Larger, wealthier countries will also pressurise WTO negotiations in order to secure the outcome they want

  • It is much harder for LEDCs to gain preferential terms in trade negotiations due to this power imbalance

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Steve Vorster

Author: Steve Vorster

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Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

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