WTO and International Trade

What is the WTO?

World Trade Organization (WTO) was established in 1995 as the successor to GATT (General Agreement on Tariffs and Trade, 1948). There are 164 member states (covering 98% of world trade). Headquarters — Geneva.

WTO principles:

1. Non-discrimination: Most-Favored Nation (MFN) and National Treatment
2. Transparency: Trade rules must be transparent and predictable
3. Reciprocity: Mutual reduction of trade barriers
4. Binding: Tariff commitments are fixed in schedules

Key WTO Agreements

GATT — General Agreement on Tariffs and Trade

Foundation: regulation of trade in goods. Eight rounds of negotiations led to a reduction in average tariffs from ~40% in 1947 to ~5% in the 1990s.

Doha Round (since 2001): Still not completed — disagreements between developed and developing countries (agriculture, industrial tariffs) have deadlocked negotiations.

GATS — General Agreement on Trade in Services

Regulation of international trade in services (financial services, telecommunications, education, tourism).

Important for business: Financial services — the GATS annex determines conditions of access for foreign financial institutions to national markets.

TRIPS — Agreement on Trade-Related Intellectual Property Rights

Minimum standards of intellectual property protection (patents, copyrights, trademarks) for all WTO members.

Patent protection term: Minimum 20 years (according to TRIPS).

Hot issues: Access of developing countries to generics (especially pharmaceuticals) vs. patent protection of pharmaceutical companies.

Dispute Settlement Mechanism

Dispute Settlement Understanding (DSU) — the “pearl” of the WTO. Over 600 cases have been considered since 1995.

Procedure:

1. Consultations (60 days)
2. Panel: 3 independent experts → report with conclusions
3. Appellate Body: appeal of panel decisions
4. Implementation: losing party must bring policy into compliance
5. Retaliation: in case of non-implementation — authorization of countermeasures

Appellate Body crisis: Since 2019, the WTO Appellate Body has been paralyzed — the US blocks appointment of new members, dissatisfied with a number of decisions. Over 100 cases are “stuck” without appellate review.

Bilateral and Regional Free Trade Agreements

FTA (Free Trade Agreement): Bilateral or multilateral agreement on abolishing/reducing tariffs and other trade barriers.

Largest trading blocs:

• EU — Single Market: No tariffs, no restrictions on movement of goods, services, capital, and people
• USMCA (USA, Canada, Mexico): Replaced NAFTA (2020)
• RCEP: Regional Comprehensive Economic Partnership — the world’s largest FTA, includes 15 Asia-Pacific countries (~30% of world trade)
• CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific Partnership (11 countries without the US)

GCC and the WTO: All 6 GCC countries are WTO members. GCC has a Customs Union with a unified external tariff (5% standard tariff). UAE actively concludes bilateral CEPA (Comprehensive Economic Partnership Agreements): with India, Israel, Indonesia, Turkey, Georgia, UK (under negotiation).

Trade Wars and Their Impact on Business

US-China trade war (2018–present):

• 2018: US imposed 25% tariffs on $34 billion of Chinese imports → China responded symmetrically
• Tariff escalation: tariffs covered hundreds of billions of dollars in mutual imports
• Impact on supply chains: shifting production out of China (reshoring, nearshoring, friend-shoring)
• Biden administration: retained most of Trump’s tariffs, added restrictions on semiconductors

For business: Need to analyse tariff exposure and develop mitigation strategies: sourcing diversification, FTA usage, tariff engineering.