Introduction: The World Trade Organization and a Changing Global Economy
According to the World Trade Organization, trade liberalization achieved since its establishment in 1995 has raised global income by as much as $510 billion. Since its creation, WTO rules, its dispute settlement mechanism, and the work of its secretariat have also become central to the management and smooth functioning of global trade. During the 2008 global financial crisis when plunging economies and rising unemployment created pressures to protect domestic industries, the WTO was credited for stopping a descent into the type of tit-for-tat protectionism that countries engaged in during the Great Depression. Despite the WTO's undeniable success, a changing international economic environment creates a series of significant challenges for the organization.
The most obvious challenge is the Doha Development Round -- the current round of multilateral trade negotiations to further liberalize trade and reform the WTO. After a decade of talks, it still remains to be concluded. The Doha round is focused on reducing important trade barriers in sectors such as agriculture, industrial goods, and services. This would encourage businesses around the world to specialize in the production of goods and services, achieve economies of scale, and increase their efficiency and productivity, which would allow them to deliver improved and cheaper products to global consumers. As importantly, the Doha round is particularly focused on providing increased market access to goods and services from developing countries. In the end, the WTO estimates that the Doha round could increase global GDP by $150 billion per year.
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However, since the launch of the Doha round, countries have turned to free trade agreements (FTAs) in order to gain significant trade access in new markets and to explore new trade-related issues that are currently not addressed within the WTO. As more FTAs have been concluded, the central role of the WTO in liberalizing trade has been called into question. In addition, the WTO has played a very limited role in helping address other global issues related to trade, such as food security, climate change, and global trade imbalances.
The economic growth of large developing countries has also created a new set of challenges for the WTO. How these countries are integrated into the global trading system and specifically how China -- as the world's second-largest economy -- engages with the WTO is crucial not only for the Doha round but for the future of the organization. China's support for a successful conclusion of the Doha round has now become indispensable.
As the world's largest economy, the United States continues to be a key source of support for the WTO and the Doha round, but rapid growth in large developing countries is testing the U.S. position on liberalizing trade and its views on the capacity of the WTO to effectively address trade disputes. In particular, the growing U.S.-China trade deficit has led to frustrations in the United States that China has not been playing by the rules. As a result, there have been domestic pressures in the United States to restrict Chinese imports. Whether these trade disputes can be resolved under WTO rules will be a touchstone for U.S. support for the WTO.
For the WTO to respond to these new challenges, it must focus on its capacity for global economic governance. This capacity is derived from the WTO's ability to exercise power, and the WTO's dispute settlement mechanism, rules, and secretariat are a central part of this process. However, as with all forms of governance, the ability of the WTO to exercise governance effectively depends largely on its own legitimacy -- its acceptance by those people or entities being governed. Thus, for the WTO to secure a key role for itself in global economic governance, it needs to address concerns regarding its legitimacy.
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