World Trade Organization. The World Trade Organization (WTO) promotes free trade between all of its member countries. The WTO provides a forum for free trade negotiations by conducting rounds, a series of negotiations designed to lead to major free trade agreements. The WTO also settles trade disputes between member countries and sets trade rules.
The WTO has two principles behind its agreements. The first is the ‘most favoured nation principle’, any WTO member who reduces a tariff on another member’s goods must reduce the tariff for all other members. The second is ‘national treatment’, member countries must treat their own goods and imports from other member countries the same, they cannot discriminate.
Let’s say the US and Germany are two member countries of the WTO and Germany puts up a tariff on cars imported from the US. The US can appeal to the WTO who should then either make Germany remove the tariff or let the US put up a tariff against cars imported from Germany to cause an equal amount of damage as the original German tariff.
The WTO’s powers, however, are fairly weak. The WTO can only influence the trade actions of member countries. Also, fines may be more effective but the WTO are not allowed to fine members. Moreover, the WTO may favour rich countries over LDCs. Rich countries may be treated differently than LDCs, for example, many rich countries have tariffs against imports from LDCs.