Why we need the WTO

The World Trade Organization is an odd institution. Its mandate is to govern and expand the global trading system, but it relies on an inherently mercantilist logic to do so. During negotiating rounds, countries essentially barter over ‘concessions’; that is, access to their domestic markets. By the same token, if the WTO rules that one country has neglected its trade obligations to another country, the WTO can grant the offended country scope to apply retaliatory sanctions, which essentially amount to the revocation of the concessions discussed above. If you think about it, negotiating over market concessions and threatening to revoke them to enforce compliance only make sense if you view exports as good and imports as bad.

In truth, unilateral liberalization is probably the best economic policy decision a government can make, in terms of aggregate gain. But it is also an unlikely policy outcome for many governments: the short-term dislocation is too severe, and the political pressure or even civil unrest risks from well-organized domestic interests are too large. While perhaps less economically palatable, multilateral liberalization is far more politically feasible, precisely because many people do view trade as competition. This is why the WTO must use mercantilist logic to advance free trade, and it is also why the world needs the WTO. By binding our trade liberalizing commitments in international treaties, they become much more difficult to backtrack on. This is especially critical in countries with weaker governance structures. I was reminded of this simple but powerful fact today when I read a new study on voxeu.org, which finds that rigorous accession commitments matter when determining a country’s benefits from joining the WTO.

This is an important way to understand the WTO, and it gets to the heart of arguments about why the WTO’s legitimacy is more important than ever. In a sense, the WTO is a painstakingly-constructed barrier against protectionism. But if it loses its legitimacy as the arbiter of international trade, this 60+ year old barrier would weaken significantly.

With that in mind, what happens to the WTO’s authority if the Doha Round ever completely collapses? It’s worth remembering that Doha has ceased to be only about the deal that’s on the table. In a broader sense, it’s now also about whether the WTO can “deliver” on trade. If it can’t, then it’s hard to imagine a scenario where the organization doesn’t lose a good deal of legitimacy.

The WTO saves governments from their worst and most short-sighted impulses. In these turbulent times, I would argue that we need it to be as strong and vigorous a force as possible.

UPDATE: see this post from last summer on why the Doha Round matters. What I wrote then has gained an even greater sense of urgency since.