Russia Joins The WTO

Dec 21, 2011 By Anita Ramachandran
Anita R's picture

Last month, Russia finally joined the World Trade Organization (WTO) making it the last G20 nation to do so. Russia is the world’s 11th biggest economy and it took the country over 18 years, to overcome opposition from Georgia, Kazakhstan and Belarus to be admitted into this elite club.

What is the WTO?

WTO is an international organization based in Geneva Switzerland. It ensures that trade flows smoothly, freely and predictably between members. WTO help members begin trade negotiation, sort out problems with each other, prescribe rules that usually become part of a country’s domestic legal system and resolves trade disputes that occur between members.

Membership to the WTO is sort of like a seal of approval for members to trade with each other. WTO consists of agreements agreed and signed by members and later accepted by their parliaments. The agreements are meant to help private producers, manufacturers, exporters, and importers in these countries conduct international trade.

WTO came into existence in 1995 after an earlier body - the GATT (General Agreement on Tariffs and Trade) was wound up. Presently 154 countries are members of the WTO and they represent 97% of World trade.

What is Trade and why is it important?

Trade is the lifeblood of every economy. When goods and services change hands– i.e. buying and selling takes place, it is called trade. Humans have figured out that they cannot possibly do everything themselves - imagine growing and farming your own food, making your own clothes and building your own house. You may have noticed that your parents have made a career of the tasks they are best at (specialize) and prefer to leave the rest to experts. They can still enjoy most things by paying or trading for those services. Dividing up tasks to specialize doing those we are best at is division of labor.

Similar to individuals, different countries have different advantages. Saudi Arabian refineries supply oil to the world, Chinese companies manufactures products at low cost, while Chile produces copper. These countries and companies want the goods made in other countries. It is possible only when trade takes place between countries - International Trade.

Where does WTO fit in?

Sometimes, countries do not play fair and may cut “sweetheart” deals with friendly nations while trading. In other cases, tariffs, duties or levies (taxes on certain products), may be used by certain countries to protect their own industry or for political reasons – e.g., sanctions by the US against Iraq and Cuba or the embargo (isolation of trade) by the UN against North Korea.  The role of the WTO is to help resolve disputes between nations to prevent a break in trade relations. Consumers in member countries benefit from lower prices of goods and services encouraging more trade.

The case for and against WTO

Believers in free trade say that WTO removes barriers between nations and promotes investment into other countries. Investments help member nations boost their economy and eventually the standard of living of all countries involved, promotes fair competition and encourages economic development and reform in the lesser developed member countries.

Critics however argues that WTO dictates policy on poorer nations and forces rules of free trade on countries, sometimes at the cost of health and environment. WTO has destroyed jobs and worsened poverty when smaller countries have had to bow to the powerful lobbies of developed countries.