January 1, 2020 marks the 25th anniversary of the founding of the World Trade Organization. Whether it is looking forward to a rosy future is however uncertain. Their largest members, the US and China escalate their tariff disputes outside the organization. At the same time, the US’s blocking of the Appellate Body risks damaging the whole institution. The US and China should think twice though: together with Germany, they are among the largest beneficiaries of the rules-based trading system.
A membership that pays off: The USA, China and Germany are the countries that benefit the most worldwide from their accession to the WTO. They achieve by far the largest income gains, which are directly attributable to their membership in the trade organization. For the United States, income gains amount to about 87 billion US dollars per year (measured in gross domestic product, GDP). The Chinese generate income gains of about 86 billion US dollars and the Germans about 66 billion US dollars. These are the results of a recent study commissioned by the Bertelsmann Stiftung, on which the President of the Kiel Intitute for the World Economy, Gabriel Felbermayr, worked with. He and the other authors Mario Larch (University Bayreuth), Yoto V. Yotov (Drexel University Philadelphia) and Erdal Yalcin calculated the wealth effects of WTO membership for 180 countries worldwide, including all 164 member states.
The WTO achieved a total annual increase in prosperity of around 855 billion US dollars for all its members worldwide. This corresponds to about average gain of 4.51 percent of GDP per member country. But membership in the world trade club is also good business for most countries, in addition to the top winners. For example, EU members benefit together with 232 billion and OECD countries with a total of 480 billion US dollars. But the success story also has its downsides: Countries that are not members of the WTO are losing out—on average –0.96 percent per country—due to the greater economic integration of WTO members.
"A collapse of the WTO would make us all poorer"
„It is extremely worrying that bilateral agreements are increasingly undermining the multilateral system of the WTO and accelerating its disintegration, most recently the trade agreement between the US and Japan. For the prosperity that the WTO brings to the world is immense and cannot be achieved by small-scale individual agreements. A collapse of the WTO would make us all poorer, especially an exporting nation like Germany would suffer noticeable losses of prosperity,“ said Kiel Institute President Felbermayr.
He therefore strongly advises the WTO to undertake reforms, including a reorganization of the arbitration process and the establishment of a core WTO, so that the decision-making process is no longer blocked by the enormously heterogeneous interests of its 164 member states and their partial political system competition. His reform proposals have recently been published as Kiel Focus ("25 Years WTO: Causes of Decay and Proposals for Reforms for the Future").
The complete study can be downloaded at the following link: https://www.bertelsmann-stiftung.de/de/publikationen/publikation/did/the-world-trade-organization-at-25/