No, it 'works' because of comparative advantage and government isn't getting in the way of me driving across the border and buying what I want. When a State like California imposes upon it's citizens and businesses excessive taxes, it's not allowed to tax goods at the State border from Nevada, or anywhere else that doesn't have the same dumb regulations. They're not allowed to put up a Berlin Wall and try to keep people in either.
WTO is managed trade, ie communism, it's not Free Trade.
The WTO has NO sovereign authority whatsoever. None. Zip. Nada.
It is NOT like the US House where the majority rules and the winners win and losers lose.
It is a negotiating body where two or more sovereigns can come together and bilaterally negotiate those agreements.
If we got into a WTO negotiation with France and didn't like the terms...what can the WTO do? Nothing. We can tell them to take a hike. They can impose no penalties. The WTO is a negotiation body, almost like a large scale trade show. One does not have to buy anything if they don't want to.
The WTO is also a trade dispute body. Say we enter into an agreement with Japan, via the WTO. (The WTO is a a body of trade experts basically). Now say Japan signed on the line, but 5 years later decided that they didn't like this or that.
If we complain about that we can take it to a panel who will study it out in some form of arbitration.
If that still doesn't work the WTO itself does nothing. They just say "OK America. They broke the rules you guys agreed to. We have used the proper channels of arbitration and it didn't work. As a sovereign power you are free to impose whatever retaliation you want."
It works for us, because often the problems are solved through negotiation. And if not, no one takes Japan seriously next time around. On top of that we can still retaliate as we see fit, with the blessing of the international community.
They set it up that way to avoid the numerous trade wars. They decided ultimately that arbitration (or family counciling) is ultimately better than going straight into a fist fight over things.
Again, the WTO has no authority, but it can lend legitimacy to decisions of retaliation. Thats about it.
As long as the WTO is respected by those involved it can function. As soon as that stops, its all over.