After World War II in 1945, “The General Agreement on Tariffs and Trade” (GATT), was established along with other institutions such as the World Bank and the IMF. GATT was the governing body for trade around the world until 1995 when the World Trade Organization (WTO) was established replacing GATT.
The WTO is an intergovernmental organization that regulates international trade. In 1995, 124 nations signed the agreement. It is the largest international economic organization in the world. The WTO deals with regulation of trade in goods, services and intellectual property between participating countries by providing a framework for negotiating trade agreements and most important, providing a “dispute resolution process” aimed at enforcing members’ adherence to WTO agreements.
Each country, through a series of WTO negotiations, sets their individual tariffs on various goods and services using a common HS code (Harmonized Item Description and Coding System). Through WTO negotiations, country tariffs are continuing to be reduced and eliminated. For example, the average Tariff for goods entering the US is 2.5%.
In addition to participating in WTO negotiations, each country may also negotiate and sign separate trade agreements under the general guidelines of the WTO. For example, Canada, the US and Mexico signed the North American Free Trade Agreement (NAFTA) in 1997. In 2017, Europe and Canada signed the Comprehensive Economic and Trade Agreement (CETA). These agreements are designed to reduce and then eliminate all Tariffs between the participating countries. However, they use the WTO guidelines as a basis for their agreement, including dispute settlement mechanisms which are usually referred back to the WTO dispute system. WHO’s decision is final on participating WTO members but may also be appealed which can take many years to render a final decision.