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World Trade Organization
History of the multilateral trading system

• From the early days of the Silk Road to the creation of the General
Agreement on Tariffs and Trade (GATT) and the birth of the WTO,
trade has played an important role in supporting economic
development and promoting peaceful relations among nations. This
page traces the history of trade, from its earliest roots to the present
day.
• Created in 1995, the World Trade Organization (WTO) is an
international institution that oversees the rules for global trade
among nations. It superseded the 1947 General Agreement on Tariffs
and Trade (GATT) created in the wake of World War II.
• The WTO is based on agreements signed by a majority of the world’s
trading nations. The main function of the organization is to help
producers of goods and services, as well as exporters and importers,
protect and manage their businesses.
• On 26 February 2024, at the 13th Ministerial Conference in Abu
Dhabi, Comoros and Timor Leste were approved to became the 165th
and 166th members.
10 things the WTO can do
cut living costs and raise living standards
settle disputes and reduce trade tensions
stimulate economic growth and employment
cut the cost of doing business internationally
encourage good governance
help countries develop
give the weak a stronger voice
support the environment and health
contribute to peace and stability
be effective without hitting the headlines
Principles of the trading system
• The WTO agreements are lengthy and complex because they are legal
texts covering a wide range of activities. They deal with: agriculture,
textiles and clothing, banking, telecommunications, government
purchases, industrial standards and product safety, food sanitation
regulations, intellectual property, and much more. But a number of
simple, fundamental principles run throughout all of these
documents. These principles are the foundation of the multilateral
trading system.
Trade without discrimination
1. Most-favoured-nation (MFN): treating other people equally
Under the WTO agreements, countries cannot normally discriminate between their trading
partners. Grant someone a special favor (such as a lower customs duty rate for one of their
products) and you have to do the same for all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment (see box). It is so important that it
is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in
goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and
the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although
in each agreement the principle is handled slightly differently. Together, those three agreements
cover all three main areas of trade handled by the WTO.
Some exceptions are allowed. For example, countries can set up a free trade agreement that applies
only to goods traded within the group — discriminating against goods from outside. Or they can
give developing countries special access to their markets. Or a country can raise barriers against
products that are considered to be traded unfairly from specific countries. And in services, countries
are allowed, in limited circumstances, to discriminate. But the agreements only permit these
exceptions under strict conditions. In general, MFN means that every time a country lowers a trade
barrier or opens up a market, it has to do so for the same goods or services from all its trading
partners — whether rich or poor, weak or strong.
Trade without discrimination
2. National treatment: Treating foreigners and locals equally
Imported and locally-produced goods should be treated equally — at least
after the foreign goods have entered the market. The same should apply to
foreign and domestic services, and to foreign and local trademarks,
copyrights and patents. This principle of “national treatment” (giving others
the same treatment as one’s own nationals) is also found in all the three
main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of
TRIPS), although once again the principle is handled slightly differently in
each of these. National treatment only applies once a product, service or
item of intellectual property has entered the market. Therefore, charging
customs duty on an import is not a violation of national treatment even if
locally-produced products are not charged an equivalent tax.
Freer trade: gradually, through negotiation
• Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers
concerned include customs duties (or tariffs) and measures such as import bans or quotas that
restrict quantities selectively. From time to time other issues such as red tape and exchange rate
policies have also been discussed.
• Since GATT’s creation in 1947-48 there have been eight rounds of trade negotiations. A ninth
round, under the Doha Development Agenda, is now underway. At first these focused on lowering
tariffs (customs duties) on imported goods. As a result of the negotiations, by the mid-1990s
industrial countries’ tariff rates on industrial goods had fallen steadily to less than 4%.
• But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods, and to the
new areas such as services and intellectual property.
• Opening markets can be beneficial, but it also requires adjustment. The WTO agreements allow
countries to introduce changes gradually, through “progressive liberalization”. Developing
countries are usually given longer to fulfil their obligations.
Predictability: through binding and
transparency
• Sometimes, promising not to raise a trade barrier can be as important
as lowering one, because the promise gives businesses a clearer view
of their future opportunities. With stability and predictability,
investment is encouraged, jobs are created and consumers can fully
enjoy the benefits of competition — choice and lower prices. The
multilateral trading system is an attempt by governments to make the
business environment stable and predictable.
Promoting fair competition
The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The
system does allow tariffs and, in limited circumstances, other forms of protection. More accurately,
it is a system of rules dedicated to open, fair and undistorted competition.
The rules on non-discrimination — MFN and national treatment — are designed to secure fair
conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and
subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how
governments can respond, in particular by charging additional import duties calculated to
compensate for damage caused by unfair trade.
Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual
property, services, for example. The agreement on government procurement (a “plurilateral”
agreement because it is signed by only a few WTO members) extends competition rules to
purchases by thousands of government entities in many countries. And so on.
What we do?
• The WTO operates the global system of trade rules and helps
developing countries improve their capacity to trade. It also provides
a forum for its members to negotiate trade agreements and to resolve
the trade problems they face with each other. The overall objective of
the WTO is to help its members use trade as a means to raise living
standards, create jobs and improve people’s lives.
Why Is the World Trade Organization
Important?
• The World Trade Organization (WTO) is the body that keeps global
trade running smoothly. It oversees the rules and mediates disputes
among its member nations. It now has 164 member nations and 25
observer nations (out of a total 195 nations in the world).

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World Trade Organization

History of the multilateral trading system

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