The World Trade Organization (WTO) has often been heavily criticized over the last few decades, and with good arguments. At one point it was about the wealthy industrialized countries having set up a set of rules that protected their agriculture from cheap producers from the south. One time it was about the accusation that the organization in the health sector would rather protect the holders of patents than sick people.
Most of these criticisms were justified. However, the Geneva-based organization is consistently deeply misunderstood. She has been completely paralyzed for several years. This does not bring about any improvement in world trade, quite the opposite.
The later WTO was founded shortly after the end of the Second World War, together with the IMF and the World Bank. Luxembourg was among the 23 founding members.
The philosophy behind the treaties was simple: a deep global economic crisis such as the one the world experienced in 1930, and whose consequences indirectly led to the Second World War, should never be repeated. At that time, many countries tried to strengthen their own economies through exports to other countries. At the same time, they relied on protectionism and shielded their own market from imports. As a result, world trade collapsed and the economic crisis deepened. The core of the WTO agreements is the principle that every country must also offer tariff advantages to one trading partner to all others.
And it worked: thanks to this order, hundreds of millions of people have escaped bitter poverty in the past few decades. The expansion of world trade and access to export markets have triggered huge development processes, especially in Asia. The WTO not only stood for deregulation, but also for predictability: rules instead of arbitrariness, negotiations instead of trade wars. This was an enormous advantage, especially for small and open economies, because they could rely on the rules of the game.
The beginning of the end came in December 2021. China became a member of the WTO. But the organization was not prepared for a member where the state controls the economy. And China played the game better than expected. The country managed to use the rules to promote its own exports while at the same time shielding its own market. However, making changes to the rules is almost impossible because the principle of unanimity prevails in the WTO. Each of the 166 countries must give its consent.
Since the administration of Barack Obama, the USA has been moving sideways. The country stopped appointing judges to the WTO Appellate Body. Since then there has been a standstill. The arbitration system is blocked. Complaints can no longer be dealt with. Every process can be put on the back burner. The organization has lost the very authority that once made it strong: the ability to resolve conflicts in a binding manner.
As a result of the general paralysis, regional trading blocs to which the WTO guarantees exemptions are gaining in importance. It goes back to power politics and protectionism. And that’s exactly why she will be missed, especially by her critics. Because even those who consider the WTO to be unfair or inadequate now realize that what is replacing it is not a better order, but often no order at all.
