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The WTO: Useless for Trade, Useful for the State

Tags Protectionism and Free Trade

On Monday, WTO officials will gather in Buenos Aires for their 11th ministerial conference. There is very little hope that any of the deals on the agenda will be reached, as both the WTO’s negotiations and its dispute settlement system have long been paralyzed by political bickering and a deep-seated inefficiency in the organization itself. Anxious WTO ministers (such as the EU’s trade commissioner) are now grasping at straws and blaming Trump and his lack of support for the WTO’s troubles.

Yet twenty-two years after its creation, the organization has almost nothing to show for it as far as trade liberalization is concerned. Juggling 164 member countries, each with its own protectionist agenda, was never likely to bring about ‘more open trade’, ‘more competitive markets’, or ‘market stability and predictability’. Especially not after trade rules, services, intellectual property, and environmental protection were brought to the negotiations table alongside tariffs and non-tariff barriers. Countries started by holding agreements hostage to their demands, continued with disregarding agreements completely, and now end on quibbling over the language used in joint statements.

An easy, albeit crude, depiction of WTO’s failure can be seen in the figure below, where the world tariffs effectively applied (which include unilateral liberalization and preferential trade agreements) have been consistently lower than those achieved via multilateral negotiations (most favored nation) in the first twelve years after WTO’s creation—when it was allegedly most successful. 

Other research offers the same story, and we’ve seen in detail before the reason why bottom-up, unilateral trade liberalization tends to work, and top-down, multilateral trade agreements never do (here, here, and here).

The WTO’s end seems nearer now, and not a moment too soon. So it did a few years ago, though, and yet it lingers on because governments have a few reasons to keep it alive.

First of all, once bureaucratic spending machines are set in motion, there’s little that can be done to rein them back in. The less efficient they are and the less they do, the more their budgets are increased for meetings, summits, and conferences meant to tackle precisely their inefficiencies. Had a private company been so utterly unproductive in its main activity, it would have long ago filed for bankruptcy. But the WTO, like the IMF, the World Bank, and all the other national and international governing bodies, does not operate on a profit and loss basis, but on political partisanship. As such, the WTO can easily reinvent itself during expensive lunches in exotic locations, and squander almost $200 million of taxpayers’ money every year.

Second, and more importantly, the WTO is actually useful to governments, even though it is detrimental to free trade and consumers. It provides a forum ripe with opportunities to satisfy domestic interest groups by hurting international competition, create political alliances with favored countries, or use trade as a strategic asset in a game of political tic-tac-toe.

Will we ever see the WTO dismantled? I’m not holding my breath. It will continue, in other shapes or forms, to waste money and facilitate trade: not merchandise trade, mind you, but the exchange of political favors.



Contact Carmen Elena Dorobăț

Dr. Carmen Elena Dorobăț is a Fellow of the Mises Institute and Senior Lecturer (Associate Professor) at Manchester Metropolitan Business School in the United Kingdom. 

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