Write 200-250 words on the following topic: Briefly describe how one of the three major economic international institutions we discussed this -- the GATT/WTO, IMF, or World Bank -- has evolved since i

The 1995 establishment of the World Trade Organization (WTO) was the capstone of
a gradual process of global trade liberalization that started after World War II. Average
tariffs for many countries in 1950 were in the 20–30 percent range, complemented
by a wide variety of non-tariff barriers (NTBs). As of 2010, the average level of import
protection had dropped to the 5–10 percent range in most countries, reflecting a process
of economic liberalization that started in the 1980s. In conjunction with technological
changes that greatly reduced trade costs—telecommunications, the Internet, container-
ization, and other improvements in logistics—these reforms led to a boom in world trade.
The value of global trade in goods and services passed the US$20 trillion mark in 2011,
or 59 percent of global GDP, up from 39 percent of GDP in 1990.
The global trade regime played an important role in supporting globalization by
providing a framework for countries to exchange trade policy commitments and
establishing a mechanism through which such commitments could be enforced. The trade
regime has proved to be quite effective in sustaining cooperation between members. The
scope and coverage of policy disciplines expanded steadily from the creation of the GATT
in 1947, as did the membership. The dispute settlement mechanism has been particularly
noteworthy: over 450 disputes have been adjudicated since the establishment of the WTO
in 1995, most of which resulted in the losing party bringing its measures into compliance.
The regime proved resilient during the 2008 financial crisis—there was only limited
recourse to the type of protectionist policies that characterized the interwar period and
the global recession of the late 1970s/early 1980s. Some 30 countries have acceded to
the WTO since 1995—including China and Russia.
Most observers agree that the transparency and dispute settlement dimensions have
worked rather well. However, following the successful conclusion of the Uruguay Round 552

in 1994, Members proved unable to bring the Doha Development Round, launched in
2001, to closure. Efforts to include disciplines on investment and competition policies
failed. The WTO also came to be subject to criticism by a variety of civil society groups,
as well as developing country member governments. Concerns were raised about the
unbalanced nature of the Uruguay Round, which extended the trade regime into new
areas such as intellectual property protection, including for medicines. Ministerial
meetings of the WTO in Seattle (1999) and Cancun (2003) were accompanied by large
demonstrations against the organization.1 But business—a core constituency—also
became less enamored with the WTO in the 2000s as it became clear that issues of
concern to them could not be addressed. This helps explain why many governments
increasingly pursued bilateral and regional trade agreements in the 2000s. Over 500 such
agreements have been notified to the WTO, raising obvious questions regarding its
efficacy and relevance.
This chapter starts with a brief summary of major milestones and features of the
institutional framework governing global trade. It then discusses some of the key debates
on the governance of the multilateral trade regime, and major challenges and emerging
issues that confront the WTO.
z History and development of the trading system
The genesis of the multilateral trading system was the interwar experience of beggar-
thy-neighbor protectionism and capital controls put in place by governments as they
sought to stimulate domestic economic activity and employment. Following the adoption
of the so-called Smoot–Hawley Tariff Act, which raised average US tariffs from 38 to
52 percent, US trading partners imposed retaliatory trade restrictions. A domino effect
resulted: as trade flows were diverted to other markets, protectionist measures were
taken there, and further retaliation ensued. Even before World War II was over, polit-
ical leaders sought to establish international institutions to reduce the probability of a
repeat performance. New international organizations were created with a mandate to
help manage international relations and monetary and exchange-rate policies (the UN
and the IMF), and to assist in financing reconstruction and promoting economic
development (the World Bank). An international organization was also envisaged to
manage trade relations, the International Trade Organization (ITO). Greater trade was
expected to support an increase in real incomes, and nondiscriminatory access to markets
was expected to reduce the scope for political conflicts or trade disputes spilling over
into other domains. 2
The ITO Charter, negotiated immediately after the war, regulated trade in goods
and commodity agreements, as well as subjects such as employment policy and restrictive
business practices. In parallel to the ITO negotiations, a group of 23 countries—12
developed and 11 developing—pursued negotiations on a General Agreement on Tariffs
and Trade (GATT) and an associated set of tariff reduction commitments. The GATT
entered into force on 1 January 1948, on a provisional basis, pending the conclusion
and the entry into force of the ITO Charter. However, the ITO never was established
as a result of the unwillingness of the US Congress to ratify the Charter. Thus, the only
result of the trade negotiations was the GATT, which applied on a “provisional” basis
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The WTO has five major functions: to facilitate the implementation, administration,
and operation of the Agreement; to provide a forum for negotiations; to administer the
Dispute Settlement Understanding; to administer the Trade Policy Review Mechanism;
and to cooperate with the IMF and World Bank Group to achieve greater coherence in
global economic policy-making.
Decision-making in the WTO operates by consensus. Voting is technically possible
but in practice does not occur. Consensus implies that any motion or decision can be
blocked if any member objects. While in principle this ensures that no country can
be steamrollered into accepting decisions or agreements it objects to—giving it leverage
to seek either concessions to agree to a matter or to refuse to consent to a change in the
rules of the game—in practice the largest players carry more weight than do small ones.
One way small countries seek to increase their weight in decision-making is through
coalitions. Examples include the G20, an alliance that includes Brazil, China, and India,
and the G11, a group of developing countries that were active in the nonagricultural
market access talks in the Doha Round.4
In negotiations the analogue to consensus is the single undertaking: “nothing is agreed
until everything is agreed,” that is, the results of a multilateral round are treated as a
package deal. Note both the consensus principle and the single undertaking are practices,
not formal rules. The consensus practice has a long history in the GATT/WTO, whereas
the single undertaking is a practice that was first employed successfully in the Uruguay
Round and was central to the creation of the WTO (that is, the WTO was a package
deal, take it all or leave it).

The nondiscrimination principle—what in trade parlance is called most-favored
nation (MFN)—requires that any concession or commitment be accorded to all members.
WTO members may not grant a subset of countries with which they have negotiated
concessions better treatment than countries that have not offered such concessions.
The only exception is if members conclude free trade agreements with each other or
negotiate a so-called plurilateral agreement. Under such an agreement, a subset of WTO
members can agree to specific disciplines that apply only to them, and need not apply
the associated benefits to non-signatories. However, a plurilateral agreement can only
be appended to the WTO on the basis of consensus (and unanimity if there is recourse
to voting). Thus, the plurilateral option offers a mechanism for groups of WTO members
to agree to rules in a policy area that is not covered by the WTO or goes beyond existing
disciplines as long as the membership as a whole perceives this is not detrimental to their
interests. Plurilaterals are not without contention. Their use during the Tokyo Round
was one of the reasons why the single undertaking was pursued in the Uruguay Round,
as many countries were of the view that the Tokyo Round plurilateral agreements had
led to excessive fragmentation of the trading system.
The management of the WTO is collective. The WTO is governed by a Ministerial
Conference of all members that is scheduled to meet, but has not always, at least once
every two years. Between such meetings the WTO is managed by a General Council at
the level of officials. This meets about 12 times a year, with WTO members usually
represented by heads of delegations based in Geneva. The General Council turns itself,
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as needed, into a body to adjudicate trade disputes (the Dispute Settlement Body)
and to review trade policies of the member countries (the Trade Policy Review Body).
Three subsidiary councils operate under the guidance of the General Council: the
Council for Trade in Goods; the Council for Trade in Services; and the Council for
Trade Related Aspects of Intellectual Property Rights. Separate committees, working
parties, and subcommittees deal with specific subject areas covered by multilateral
agreements.
All councils, committees, and so forth, as well as all negotiating groups, are chaired
by a WTO member representative. The only exception is the Trade Negotiations Com-
mittee, the body that oversees multilateral trade talks, which is chaired by the director-
general. The latter does not have a defined role in the agreement establishing the WTO.
This was left to the Ministerial Conference to determine, which to date it has not done.
The main actors in day-to-day activities of the WTO are the officials that are affiliated
with the delegations of members. The member-driven and network nature of the
organization puts a considerable strain on the delegations in Geneva and officials in
capitals. There are thousands of meetings in the WTO every year. This level of activity
makes it very difficult, if not impossible, for citizens of members to keep track of what
is happening. At the time of writing there are 159 members. Few, if any, members
participate in all meetings and activities, but all committees are open to all members.
WTO practice is for members to organize in informal small groups to develop proposals
that may subsequently be put forward to the broader membership, either formally
through existing bodies and committees or informally to other members/groups. In
WTO-speak this process is described as the “concentric circles” approach to agenda
setting.
The Secretariat provides technical and logistical support when requested by
committees or councils. It has very little formal power of initiative. It is prohibited from
identifying potential violations of WTO rules by members and may not interpret WTO
law or pass judgment on the conformity of a member’s policy. These are matters that
are the sole prerogative of members. Similarly, dispute settlement panels are staffed by
members of WTO delegations or outside experts drawn from a roster that has been pre-
approved by the membership, not the Secretariat.
Dispute settlement in the WTO aims at maintaining the balance of negotiated
concessions. If a member is found to have violated a commitment, the remedy is
prospective: the offending member is simply called upon to bring its measures into
compliance. How this should be done is left to the member to determine. If a member
does not comply with the ruling of the dispute settlement bodies, retaliation may be
authorized in an amount equal in effect to the action taken by the country that violated
a commitment. This introduces a significant asymmetry in that small countries that
cannot affect their terms of trade cannot exercise much pressure through retaliation
against large countries that continue to violate their commitments.
z Current debates
The one-member, one-vote, consensus-driven modus operandi of the WTO, combined
with a binding dispute settlement mechanism that works well, helps explain why it is
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difficult to amend the WTO or to conclude multilateral trade talks on a timely basis.
There has been much discussion of the reasons for the inability of WTO members to
conclude the Doha Round.5 The failure of the Doha negotiations is a major negative
for the WTO as an institution as it is the first multilateral round to have been held under
its auspices. Not surprisingly, current debates on the WTO often focus on the reasons
for—and implications of—the difficulty of “getting to yes.” There are many strands of
argument and analysis. Is it because of the governance of the WTO—the consensus rule?
Is it a consequence of the negotiating modalities that are employed—such as the single
undertaking? Or is the deadlock and disagreement more a function of the (rapid) shifts
in relative economic fortunes—the “rise of the rest” and in particular the explosive growth
in the share of world trade that has been realized by China? Or, related, that the
membership has been expanding rapidly—standing at 159 today compared to “only”
128 in 1995—and that the resulting heterogeneity in interests, commitments, and
capacities across members is making agreement difficult to obtain?
Some proposals to address the failure to conclude a Doha deal have centered on the
single undertaking practice and consensus-based decision-making. One of the premises
of the single undertaking approach in multilateral trade negotiations is that it ensures
that all participants will obtain a net benefit from an overall deal. By allowing for issue
linkages and requiring a package deal, countries can make trade-offs across issues and
increase the overall gains from cooperation. However, the approach also creates potential
“hold-up” problems and can have the effect of inducing negotiators to devote (too) much
time to seeking exceptions and exemptions. This has led to proposals that WTO
members shift towards “variable geometry” and approaches that permit a subset of the
membership to move forward on an issue, while allowing others to abstain. Two types
of approaches have been suggested, with some advocating that agreements apply only
to signatories (as in the case of plurilateral agreements) and others arguing that any
agreements between a smaller group of WTO members should abide by the MFN
principle, implying that any such deals would need to be so-called critical mass agreements
(i.e. that a sufficiently large number of countries participate so as to address potential
concerns about free-riding by non-participants).6
While agreements among a subset of the membership would allow countries to move
forward on issues that are not yet the subject of WTO rules, it is not clear that pursuit
of either of these options would make much of a difference in addressing the problems
that have helped to hold up a Doha Round agreement. The lack of progress in the Doha
Round reflects the assessment of major players that what has emerged on the table is
not of sufficient interest to them—it is not that a small group of small countries are
holding up a deal. Trade agreements are self-enforcing treaties: if the large players do
not see it in their interest to make a deal, they will not—whether the proposed deal
involves just a small number of countries or all of the WTO membership. Any outcome,
even if endorsed by a majority, will not be implemented if one or more large countries
find it unacceptable. Because the WTO is an incomplete contract, governments have a
revealed preference for maintaining tight control over the functioning of the organization.
There are good reasons why there seems to be a “consensus on consensus.” Indeed,
economic analysis suggests that the effects of moving away from the status quo on the
incentives to cooperate may be perverse—reducing the willingness to agree to rules and
to make commitments. 7
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Another likely factor is the increasing complexity of the policy agenda that confronts
countries.8 As tariffs have come down in recent decades, the policies that create negative
pecuniary spillovers for trading partners are increasingly “behind-the-border” and
regulatory in nature. Agreeing on ways to reduce the market segmenting effects of policies
that are aimed at achieving social objectives or addressing market failures is inherently
a more complex endeavor than negotiating down tariffs or agreeing to abstain from using
quantitative restrictions. Related to this are arguments that some of the policy areas that
are critical for international business are not on the WTO table, and that the very slowness
of the processes used in the WTO makes the negotiations (and the organization) less
relevant. In the span of the decade following the launch of the Doha Round, for
example, technologies have changed dramatically, the use of mobile telephone networks
and mobile broadband has exploded, giving rise to a host of new policy issues that are
not on the table—for example relating to data security and privacy of cross-border flows
of information and data.
Another subject of debate concerns the implications of the difficulty that states are
having to agree to expand the WTO rule book and deepen their commitments to open
domestic markets to foreign competition (that is, to reduce the extent of discrimination
against foreign products). A specific focus of debate in this connection is the outside
option that is now being pursued by virtually every country in the world—preferential
trade agreements (PTAs). There is a long-standing debate among political scientists and
economists whether PTAs are good or bad for the trading system—building blocks or
stumbling blocks. 9 Much of the relevant literature tends to focus on agreements
liberalizing trade in goods, but the practice in the last decade has been for PTAs to deal
with the very issues that have proven to be controversial in the WTO. In practice PTAs
are often mechanisms for subsets of countries to move forward in liberalizing access to
markets for goods, services, and investment (FDI) and to agree on rules of the game for
policies that are not subject to WTO disciplines. Fears of large-scale trade diversion and
discrimination against non-members of PTAs have not materialized—in large part
because countries often have implemented trade reforms on a nondiscriminatory basis
as well. But the proliferation of PTAs generates significant transactions costs for businesses
as provisions differ across agreements. So far the largest trading nations/blocs (EU, US,
China) have yet to negotiate PTAs between themselves.
Yet another area of vigorous debate concerns the appropriate approach in the WTO
to economic development. Historically, differences in size and power were addressed
through “special and differential treatment” (SDT) of developing countries.10 This
involved agreement that developing countries were not expected to reciprocate fully in
trade negotiations and a promise by rich countries to provide preferential access to their
markets. As a result, developing countries have greater legal latitude to use trade policies
(sometimes called policy space). An example is the rule banning use of export subsidies,
from which the poorest countries were exempted. A major motivation for SDT was a
perception that trade policy can be a useful instrument to promote industrial development
by sheltering nascent (“infant”) industries from international competition. Technical and
managerial changes have greatly increased the importance of international production
chains and created opportunities for firms in low-income countries to specialize in a
specific part of a supply chain. These developments have greatly reduced the effectiveness
of border protection as an instrument of industrial policy because firms need to be able
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to import materials that they process into what they export. This has led to greater
emphasis on other instruments to assist developing countries, including “aid for trade”—
development assistance that is targeted towards enhancing trade capacity. The design
and impact of trade-related development assistance in low-income nations is a subject
of active debate