Over this past quarter century, the WTO has helped transform international economic relations. Binding rules for global trade in goods and services have facilitated dramatic growth in cross-border business activity. Since 1995, the dollar value of world trade has nearly quadrupled, while the real volume of world trade has expanded by 2.7 times. This far outstrips the two-fold increase in world GDP over that period.
Average tariffs have almost halved, from 10.5% to 6.4%. For the dozens of economies that joined the WTO after its creation, accession involved far-reaching reforms and market-opening commitments that research suggests have been associated with a lasting boost to national income.
The predictable market conditions fostered by the WTO have combined with improved communications to enable the rise of global value chains. Confident in their ability to move components and associated services across multiple locations, businesses have been able to disaggregate manufacturing production across countries and regions. Trade within these value chains today accounts for almost 70% of total merchandise trade.
Issues Related to WTO
China’s State Capitalism
The nature of China’s economic system, combined with the size and growth of its economy, has created tensions in the global trading system. China’s state-owned enterprises present a major challenge to the free-market global trading system.
The Appellate Body’s operations have effectively been suspended since December 2019, as the US’s blocking of appointments has left the body without a quorum of adjudicators needed to hear appeals. The crisis with the dispute settlement function of the WTO is closely linked to the breakdown in its negotiation function.
E-commerce & Digital Trade
While the global trade landscape has changed significantly over the past 25 years, WTO rules have not kept pace. In 1998, realizing that e-commerce would play a growing role in the global economy, WTO members established a WTO e-commerce moratorium to examine all trade-related issues relating to global electronic commerce. Recently, however, the moratorium has been called into question by developing countries because of its implications for collecting revenue. Moreover, as the Covid-19 pandemic accelerates the shift to e-commerce, rules to regulate online trade will be more important than ever. But in contrast to trade in goods and services, few international rules govern cross-border e-commerce.