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The Biden Administration shifted trade policy away from traditional trade deals to 鈥溾�� that environmental sustainability and equitable growth. These are laudable goals, particularly as we consider creative ways to 鈥済reen鈥� the world鈥檚 economies and to address inequities in the labor force. 

But while reforming many out-of-date trade rules is necessary, it is important to not overlook the benefits of formal treaties. Here are three underappreciated facts about the World Trade Organization (and other trade deals) that show the value of a rules-based system. 

1. Trade deals promote stability 

It doesn鈥檛 take a pandemic or a war to . Most shocks are caused by the introduction of unilateral trade barriers that disrupt the natural flow of goods and services among partner economies. New barriers create volatility by , , and . 

Trade deals markets because they lower the likelihood that member governments raise barriers against one another. And when trade barriers are erected, they the agreement鈥檚 flexibility system. Flexibility provisions, such as anti-dumping and safeguards, the size and scope of the barriers. That means trade-distorting measures, when necessary, are created in a more controlled, transparent fashion. The result is less disruption to the market. 

Terms of trade volatility 鈥� i.e., shocks to the relative prices of traded goods 鈥� is a particularly toxic form of instability that hurts , , and . Membership in the GATT/WTO system has had a clear, stabilizing effect. The average member saw its terms of trade volatility drop 45 percent in the 20 years after joining the system. 

That reduction is important. When prices are unstable, trade-dependent countries steady gains from trade. It is no coincidence economists find that terms of trade volatility and . By reducing volatility, a rules-based system does much more than promote trade 鈥� it makes trade safer. 

Prices are twice as stable after joining the GATT/WTO

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2. Countries generally follow the rules

Of course, a rules-based system only works if the players don鈥檛 cheat. In recent years, the facing the WTO (and other trade deals) is that some members their commitments. Despite some prominent exceptions, that criticism is not entirely accurate. 

Compliance rates at the WTO are , hovering around 72 percent through the first 400 disputes. That may seem like a low number by some standards. In domestic settings, something would be terribly wrong if we only obeyed theft or murder laws 72 percent of the time. But international law is different. There is no world police force and compliance is always voluntary. 

That鈥檚 important in the context of trade because compliance can be costly. Governments must be willing to dismantle trade barriers that when those policies are struck down in Geneva or elsewhere. Overcoming those is not easy. So, when viewed in that light, compliance rates of 72 percent are not as bad as they may seem. 

There are certainly exceptions. The elephant in the room is , whose willingness to comply, on average, after a key 2008 ruling on steel. Despite the frustrations of some key members, the system appears to work according to plan. In fact, that 72 percent may understate the dispute system鈥檚 effectiveness. The record looks even better if one counts the more than 100 disputes withdrawn or settled through private consultations. 

Countries comply with WTO rulings over 70 percent of the time

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3. Trade deals curb retaliation 

Legal processes are not just about punishing violators, they also make sure the sentence fits the crime. That鈥檚 why countries often have domestic safeguards against cruel and unusual punishment. 

Controlling punishment is particularly important in the context of trade. The whole point of formal dispute settlement is to avoid trade wars. The rules limit the extent to which a country may reply to another member鈥檚 discriminatory actions. At the WTO, countries have to to retaliate against a respondent in the event of non-compliance. But it turns out this doesn鈥檛 often happen.

There have been as of July 1, 2023. Complainants have requested the right to retaliate against respondents on , and ended with retaliation authorized. That is a mere 1.5 percent of all cases. 

As a result, formal dispute settlement takes trade relations out of an economic Wild West and places them in a system of relative law and order. 

Moving forward

There are certainly caveats to the effectiveness of the rules-based system. Compliance rates used to be better than they are today, and there are widespread concerns that dispute settlement the behaviors of the largest markets. It鈥檚 also true that countries frequently accuse one another of , using the opportunity to escape for traditional tariffs. 

Those worries help explain why there is so little momentum in Washington to save the WTO. But at a time so rife with economic uncertainty, we should also not ignore the benefits rules can provide.