What Is the WTO? How the World Trade Organization Functions

The World Trade Organization (or WTO) is an international organization that facilitates trade between member countries. There are currently 164 states—including the United States, China, the European Union, Japan, and Mexico—that make up the WTO membership, representing around ninety-six percent of all global trade.

The WTO has several different bodies at its headquarters in Geneva, Switzerland, that meet and make decisions. At the top is the WTO director-general who leads the WTO through day-to-day operations. (In 2021, Ngozi Okonjo-Iweala became the first woman and first African to hold the position.) Other bodies within the WTO include the general council, secretariat, appellate body, textiles monitoring body, and dispute settlement body.

The main purpose of the World Trade Organization is to facilitate healthy international trade. The WTO’s rules aim to create a free trade environment with fewer barriers to trade, like tariffs, restrictions, quotas, and trade wars.

The World Trade Organization has its roots in the twentieth century:

• Precursor: Before the World Trade Organization, many of the world’s countries were a part of an international trade agreement called the General Agreement on Tariffs and Trade, or GATT. GATT began in 1947 after World War II and served as the home of several rounds of trade negotiations, notably as the venue for anti-tariff barriers but eventually expanding into non-tariff barriers like anti-dumping and government-procurement agreements. However, by the late 1970s, several members started to feel as though GATT was struggling to keep up with the globalization of the global economy. The members of GATT agreed to one final trade round, colloquially referred to as the Uruguay Round, in 1986.
• Formation: The Uruguay Round wrapped up in 1995 with the signing of a new organization called the World Trade Organization. The official birth of the WTO came during a ministerial meeting in Marrakesh, Morocco, and is now sometimes called the Marrakesh Agreement. At the time of signing, there were 123 member governments in the WTO.
• Continued growth: The WTO uses a format of biannual “Ministerial Conferences,” or rounds of multilateral agreements every two years, similar to the structure and decision-making process of the old GATT format. The Fourth Ministerial Conference, called the Doha Round, kicked off in 2001 in Qatar. As the WTO operates, more states continue to apply for membership. The WTO is a major proponent of trade liberalization (or the lifting of trade barriers). However, some critics argue that liberating trade does not necessarily equate to increased economic development.

The World Trade Organization has several key functions:

• Facilitates free trade agreements: The WTO’s main function is trade facilitation. The entity oversees agreements between trading partners, ensuring that all countries trade according to the established rules of the trading system, namely non-discrimination, reciprocity, binding and enforceable commitments, transparency, and safety values. The organization oversees around sixty established WTO agreements, which function like international legal texts. These agreements include the Agreement on Agriculture (which governs domestic support, market access, and export subsidies), the Information Technology Agreement, and the Agreement on Trade-Related Aspects of Intellectual Property Rights.
• Provides a forum for negotiations and disputes: The WTO is an international stage where member states can enter into mediated multilateral trade negotiations. In the case of trade disputes, the WTO offers a venue—called the “Understanding on Rules and Procedures Governing the Settlement of Disputes” or WTO dispute process—through which each party can air their trade issues and, ideally, come to an agreement.
• Reviews trade policies of nations: The WTO monitors the trade policies of member states, called the “Trade Policy Review Mechanism,” including reviewing any trade-distorting restrictions like safeguards, technical barriers, or import licensing.
• Trains developing countries in international trade: The organization offers resources to developing and least-developed countries that want to become members, helping them engage in healthy international trade.
• Serves as a center of economic research: The WTO is a hub of economic research and study for economists and other researchers. The organization also publishes an annual report on the state of international trade.
• Cooperates with other economic entities: The World Trade Organization works closely with many other economic or global entities, including the International Monetary Fund (IMF), the World Bank, and the United Nations (UN).

Get the MasterClass Annual Membership for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.