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Full Form of WTO

Updated on April 17, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Full Form of WTO – World Trade Organization

The World Trade Organization is the full form of WTO. It operates as an intergovernmental institution (international organization) responsible for handling foreign trade between two or more nations. It has its headquarters in Geneva, Switzerland. It was founded on the 1st of January 1995 to reduce tariffs and other underlying barriers to international trade. As of 2021, it has a membership of not less than 164 member states.

Full Form of WTO

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The world trade organization role has been pivotal in globalization and promoting international relationships through trade. It also acts as a secondary mediator and alternative dispute-solving entity for different countries across the globe. It has been credited for the economic growth of countries. However, it has also been criticized for increasing the wealth gap and damaging local workers.

World Trade Organization Explained

WTO is the short form for the World Trade Organization. Established in 1995, with headquarters in Geneva, Switzerland. The WTO currently has around 164 member states and 117 developing nations. WTO regulates the foreign trade that takes place between two or more nations. In addition, it introduces a better version of GATT.

The minister of every member nation runs WTO. It trades in various industrial products, agricultural goods, and services. The important objective of WTO is to enrich the standard of living of the individuals belonging to member countries, safeguard the environment, promote peace, ensure 100 percent employment, and stimulate free trade, ultimately resulting in economic growth.

The world trade organization economics has reduced barriers to trade and promoted trading activity among member nations since its inception. However, there are a few barriers in place to keep the global context of things in mind. It also acts as a mediator between countries to settle disputes, if any.

It is vital to understand that the foundational agreements from WTO act as a basis for all negotiations, mediations, and regulations between member countries. They are considered ground rules for trade internationally and are overseen by the WTO.

These agreements are curated to protect manufacturers, importers, and exporters while ensuring the world governments adhere to specific environmental and social standards while indulging in trade.

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History

The world trade organization’s role is to act as a replacement for GATT (General Agreement on Tariffs and Trade). GATT was enacted after World War 2 solely to establish global economic cooperation. GATT was created in 1947, and it consisted of 23 members. GATT’s headquarters in Geneva, Switzerland, was a part of the Bretton Woods System. The purpose behind introducing GATT was to ensure the practice of a stable trade as well as an economic world environment.

Later, the International Trade Organization (ITO) came into the picture. It believed that GATT might become a part of ITO, and it even negotiated for this reason in the year 1948 in Havana. Introducing ITO was to lay out the general basic rules regarding foreign trade and other global economic matters. Unfortunately, the submitted charter failed to receive the U.S. Congress’s approval, so WTO came into existence. WTO was established in 1995 and acted as a foolproof replacement for GATT. It is also why WTO calls the successor to the GATT. WTO is the only intergovernmental organization dealing with foreign trade rules between countries.

Objectives

Apart from reducing barriers and promoting trade, the world trade organization economics pans out for other facets of global trade too. The objectives of the World Trade Organization are below:

  • WTO aims to improve the standard of living of every individual belonging to its member nations.
  • WTO aims to ensure a hundred percent employment and a rise in demand for goods and services.
  • It aims to enlarge the production and trading of products and services.
  • WTO also aims to ensure the full utilization of national and international resources.
  • WTO even aims to safeguard the environment from depletion due to human interference.
  • It aims to ensure that all companies accept and abide by the concept of sustainable development.
  • WTO also aims to implement a new foreign trade mechanism as provided in the Agreement.
  • WTO aims to promote international trade that can certainly benefit all countries.
  • To remove the existing obstacles present in an open global trading system.
  • It even aims to take certain steps towards developing the poorest and underdeveloped countries.
  • WTO even aims to enhance competitiveness between all the member countries to benefit the maximum number of customers.

Functions

Now that we have a detailed understanding of the regulating body and its objectives, let us understand the functions curated for the world trade organization role to be fulfilled.

Functions of WTO

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  • The World Trade Organization shall administer the TPRM (Trade Policy Review Mechanism).
  • The World Trade Organization shall administer the World Trade Organization agreements.
  • The World Trade Organization shall monitor domestic trade policies.
  • The World Trade Organization shall handle trade-related disputes.
  • The World Trade Organization shall provide an open forum for trade-related negotiations.
  • The World Trade Organization shall offer technical assistance to countries that are on the developing front.
  • The World Trade Organization shall cooperate with similar intergovernmental organizations.
  • The World Trade Organization shall cooperate with the IMF (International Monetary Fund) and IBRD (International Bank for Reconstruction and Development).

Structure

Let us now dive deep into the structure of WTO which comprises the largest and most advanced economies across the globe. The structure is designed in a way that it solves common redressals and promotes innovative ideas to promote further deals.

It is vital to understand the administrative activities are managed by the general council, dispute settlement body, and trade policy review party. The ministerial conference however is scheduled every two years with representatives from all countries being present. Let us understand all of these bodies through the explanation below.

  • General Council: The council comprises representatives of the member nations. These representatives ate further divided into different groups based on different functions of the WTO such as goods, services, policies, etc.
  • Dispute Settlement Body: As the name suggests, this body is curated to ensure all issues between the member countries are settled through the right channel and negotiation. Moreover, an appellate body is also put in place to ensure the members can appeal against the decisions made in the discussion with the settlement body.
  • Trade Policy Review Body: This body is a part of the general council and is put into place to ensure the trade policies by the member countries are aligned with the goals of the organization.

Advantages

Let us discuss the advantages of world trade organization economics through the points below.

  • First, WTO helps in the promotion of peace and wellness amongs countries.
  • With WTO, one can constructively handle disputes between member nations.
  • Second, WTO helps in the stimulation of economic growth.
  • WTO assists developing nations.
  • WTO ensures an adequate level of corporate governance and free trade, reducing the cost of living.
  • Trade between nations under the governance of WTO raises employment and income opportunities for the participants.
  • WTO protects the government from attacks like lobbying.
  • The free trade ensured by the WTO offers better and more choices concerning goods and services.
  • WTO even boosts agricultural exports and international trade.
  • WTO even enhances the inflow of FDI (foreign direct investment) and helps restrict dumping.
  • WTO provides huge benefits for industries like cloth and textiles.

Disadvantages

Despite the various advantages mentioned above, there have been factors that prove to be a hassle for members and non-members across the globe. Let us understand the disadvantages of the world trade organization’s role through the points below.

  • The world trade organization is threatening the agricultural sector. It is because it reduces subsidies and leverages the import of food crops.
  • The World Trade Organization imposes a huge threat on industries that operate nationally.
  • The World Trade Organization even has significant impacts on human and employee rights.
  • World trade organization undermines national sovereignty and decision-making made at the local level.
  • WTO even increases economic instability at the national level.
  • New industries may find it difficult to establish themselves in an extensive competitive environment.

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