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The World Trade Organization: Definition, History, Purpose & Members

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  • 0:01 The World Trade Organization
  • 1:03 History
  • 2:14 Purpose
  • 4:16 Members
  • 5:12 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Find out what the World Trade Organization is and what it hopes to accomplish. Learn about the history of this organization and who some of the current members are.

The World Trade Organization

Have you ever wondered who helped make all the rules and regulations for how businesses and countries trade goods with each other? Today's global marketplace is extremely complex, with thousands of moving parts. Many of the electronics, clothes you wear, or food you enjoy may be partly made possible by the agreements and policies that the World Trade Organization has helped establish.

The World Trade Organization (WTO) is a global organization that helps countries and producers of goods deal fairly and smoothly with conducting their business across international borders. It mainly does this through WTO agreements, which are negotiated and signed by a large majority of the trading nations in the world. These documents act as contracts that provide the legal framework for conducting business among nations. There are several groups within the WTO, with the highest decision-making authority going to a group known as the Ministerial Conference, which can make decisions on all matters and trade disputes among members.

History

The WTO was officially created in January of 1995 and essentially replaced the General Agreement on Tariffs and Trade (GATT), which had been in force since 1948, a few years after the Second World War. Before the WTO was created, an initiative to start something similar known as the International Trade Organization (ITO) took place. Unfortunately, the ITO treaty was not approved by the U.S. and a few other countries and ultimately never went into effect.

In the 1980s, as the world economies became more global in trade and business, it became evident that GATT was not built or structured to address many of the new global trading challenges that were arising. As a result, the biggest trade negotiating event on record began in 1986. It was known as the Uruguay Round, seeing as it took place in Punta del Este, Uruguay. One of the final accomplishments of this round was the creation of the WTO. The WTO is currently working on new negotiations and agreements, known as the Doha Development Agenda, and these started in 2001.

Purpose

As stated earlier, the WTO is a complex international organization with many moving parts. Simply stated though, its main purpose is to help trade flow smoothly for all member nations so that they may increase the well-being of their countries and standards of living for their citizens. It works to educate and inform companies and governments on the acceptable rules that govern trade (i.e., imports and exports). When issues arise, it works to settle disputes based on the legal agreements that the countries have adopted and ratified in their governments.

In short, the WTO does many things. Here are just a few of its main focuses:

  • Cut living costs and raise living standards through more economic trade and competition among countries - As more trade happens, consumers will have more choices for low cost and higher quality products.
  • Settle disputes and reduce trade tensions - This is by acting as a governing body and discouraging unfair practices, such as export subsidies and dumping products at below cost to gain market share.
  • Stimulate economic growth and create jobs - This is by lowering trade barriers such as customs duties, tariffs, import bans, and quotas that countries may have. This allows companies to enter new markets and grow their business, often resulting in higher revenues and more jobs.
  • Give smaller countries a voice - Over three-quarters of WTO members are developing countries and countries in transition to market economies. The WTO works to ensure that these countries are heard from and it is not just the top seven to ten economies of the world driving agreements and policy.
  • Contribute to peace and stability - Many political and government tensions can arise from economic disputes between countries. By helping develop agreements that ensure free and smooth trade, countries should experience more peace and stability among each other.

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