What is the World Trade Organization (WTO) and what is it for?

President Lula said he will appeal to the World Trade Organization (WTO) in response to U.S. President Donald Trump's threat to increase import tariffs on Brazilian products by 50%, starting August 1st. The chances of this appeal having any practical effect, however, are slim.

The WTO is an organization that groups countries together to arbitrate rules among them. Its role is to promote fairer trading conditions and reduce barriers, such as tariffs or sanitary barriers. The organization was created in 1995, replacing the General Agreement on Tariffs and Trade (GATT), which had existed since 1947.

The WTO can be said to have its roots in the Bretton Woods Conference held in 1944. . "On this occasion, a new monetary order was created that established the dollar as the currency conversion method in exchange, replacing the other currency used until then," says economist and academic coordinator at FGV, Mauro Rochlin:

At this time, the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), now part of the World Bank Group, and the General Agreement on Tariffs and Trade (GATT), the precursor to the current World Trade Organization (WTO), were also created.

The Brazilian government is still considering its course of action. Lula has signaled that he may use the so-called Reciprocity Law to respond to the US, which allows Brazil to adopt equivalent countermeasures in the event of trade retaliation from other countries. One alternative is to appeal to the WTO.

Trump and the weakening of the WTO since 2019

For economist and academic coordinator at FGV, Mauro Rochlin, the WTO continues to be relevant and prestigious on the international stage, however, Trump ignores the role of the institution. .

"Brazil can seek legal action at the WTO. The point is that Trump is invalidating the organization and making decisions despite being a WTO signatory and the restrictions it imposes," says Rochlin.

For the former WTO director , Roberto Azevêdo, the organization has lost relevance since 2019 – and precisely because President Trump, in his first term, blocked the appointment of new judges to the WTO Appellate Body to push for reforms.

The Appellate Body is the WTO's main resolution system. Without new appointments, it becomes bogged down and ineffective. Trump alleges that China engages in unfair practices that disadvantage the United States. Beyond American retaliation, Azêvedo points out that the organization needs to update itself in other areas:

"The world has changed a lot, and not only has it changed the way we do business (with digital technology), it's also changed who does the business. Today, the world's largest trading power is China, no longer the United States, no longer Europe. Today, China is the world's leading trading partner. All of this has changed, and the system needed to be updated, the system needed to be modernized," Azêvedo said in an interview with the Ao Assunto podcast.

What are the limits of the WTO?

According to Volnei Eyng, CEO of asset management firm Multiplike, the WTO still plays an "important role as a normative reference and forum for diplomatic pressure," but when a superpower imposes unilateral tariffs for political reasons, as it does now, the system shows its limitations.

"Brazil can activate multilateral mechanisms, but the most effective response will come from the capacity for direct negotiation and firm defense of our productive sectors, especially those that support export chains that are intensive in employment and technology," he says.

Following the same line of thought that Trump breaks with traditional commercial diplomacy through a model of asymmetric bilateral coercion, João Alfredo Lopes Nyegray, professor of International Business at PUCPR, believes that Brazil must seek alternatives.

"Brazil needs to adopt a strategic, firm, and coordinated stance. Tariff retaliation requires diplomatic responses within the WTO and possibly the opening of formal consultations at the Dispute Settlement Body, as well as joint actions with other affected countries," he says. , who is also coordinator of the International Business Observatory at PUCPR.