What is the WTO?

The WTO is the only global trading organization and includes members from nearly all nations. The WTO also includes members from customs unions, such as the European Union (i.e., European nations that have eliminated trade barriers between its members).

The principal goal of the WTO is free trade. WTO members promote free trade by lowering or eliminating trade barriers (such as tariffs). The WTO agreements, subject to exceptions, require members to accord each other "most-favored nation" status (meaning, a nation must accord every nation the same treatment that it accords to its most-favored trading partner) and "national treatment" (which is a principle that forbids a nation from treating foreign goods and services differently than it treats its own).

The WTO serves three important functions: formulating trade rules and policy, providing a forum for negotiating lower trade barriers, and settling trade disputes between members. A General Council, comprised of all members, carries out the functions of the WTO. It does so on behalf of the Ministerial Conference, which only meets every two years.

The General Council acts by consensus of all members, or by a vote (depending upon the action being taken). The General Council also meets as two separate bodies: the Dispute Settlement Body and the Trade Policy Review Body. These bodies, like the General Council, are comprised of all WTO members. When acting as a particular body, members meet under the particular rules and procedures specific to that body.

The Trade Policy Review Body (TPRB) gathers information about trade policies and regulations of WTO members. It aims to increase the transparency of such information to assist international trade participants, such as businesses.

The Dispute Settlement Body (DSB) performs the important role of managing and resolving trade disputes among WTO members. Typically, a dispute arises when a member believes another member is not following agreed-upon rules regarding trade. Members pledge to take any such grievance to the DSB, instead of acting unilaterally. The dispute settlement rules emphasize the importance of consultation between disputing members and the mediation of disputes. Consultation and mediation are required, but do not have an end result imposed upon the parties by a decision-maker. When those procedures fail, trade disputes are resolved in a timely manner through binding adjudication, which promotes stability in the global trading system.

A finding of a violation of the WTO agreements may lead to an authorization for the aggrieved member to erect retaliatory sanctions (which are usually limited to the area of trade in which the dispute arose). The effectiveness of sanctions, however, often depends on the economic power of the offending member.