International Economic Institution and Agreements: WTO, IMF, world Bank, UNATED
- 1. U N I T 4 D R . K A VIT A D IVE A S S O C IA T E PR O F E S S O R S A G E U N I VE R S I T Y, I N D O R E International Economic Institution and Agreements: WTO, IMF, world Bank, UNATED
- 2. There are three major international economic institutions, namely, WTO, IMF, and UNCTAD. World Trade Organization: WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade (GATT), which was started in 1948. GATT was replaced by WTO because GATT was biased in favor of developed countries.
- 3. INTRODUCTION In the lesson, we would learn about the various International Economic Institutions that help to promote and develop trade among various nations on fair and healthy grounds. The lesson introduces GATT, WTO, UNCTAD, GSP, GSTP, etc., with their functions, objectives, and achievements. These institutions help to create a conducive international business environment and multilateral international trade system.
- 4. GENERAL AGREEMENT ON TRADE AND TARIFFS (GATT) During the great depression of 1993, the international trade was badly affected and various countries imposed import restrictions for safeguarding their economies. This resulted in a sharp decline in world trade .in 1645, the USA put forward many proposals for extending international trade and employment. On 30 October 1947, 23 countries at Geneva, signed an agreement relater to tariffs imposed on trade. This agreement is known as the general agreement on tariffs and Trade (GATT). It came in to force on January 1, 1948. Initially, GATT was established in the form of a temporary agreement but later on it took the shape of a permanent agreement. GATT headquarters are in Geneva.
- 5. Objectives of GATT Expansion of International Trade 1. Increase in world production by ensuring full employment in the participating nations. 2. Development and full utilization of resources. 3. Rising standard of living of the world community as a whole
- 6. Principles of GATT For the realization of its objectives GATT adopted the following principles: 1. Non-discrimination: This principle requires that no member country should discriminate between the members of GATT in the conduct of international trade. 2. Prohibition of quantitative restriction: GATT rule also seeks to prohibit quantitative restrictions as far as possible and limit restriction on trade to the less rigid tariffs. 3. Consultations: The GATT sought to resolve the disagreement through consultation, by providing a forum for consultation.
- 7. Achievements of GATT The General Agreements on Tariffs and Trade (GATT) aimed at liberalization of world trade and extension and reinforcement of multilateral trade system. As the major achievement of GATT is that by the end of the seventh round of negotiations tariffs were reduced from 40% to 5%, and 9 times increase in world trade with 4 times increase in world output. The eighth round of GATT negotiations, known as Uruguay Round, has been most determined by bringing in for the first time agriculture, textiles and services within the framework of GATT. Another highlight of Uruguay Round has been agreement on ratifications of non-tariff barriers in agriculture, the abolition of voluntary export restraints and strengthening the rules governing international trade. Another important aspect of the Uruguay Round is the inclusion of TRIPs (Trade-Related Intellectual Property Rights) and TRIMs (Trade-Related Investment Measures) the negotiations ended with the formation of WTO (World Trade Organization) as powerful enforcement body of rules governing international trade
- 8. Role of GATT: The rules and principles of GATT except the non- discriminatory were very general and allowed protectionist measures in the developed countries, particularly in respect of agriculture. These did not help the developing countries and the principle of reciprocity in granting tariff concession benefited only the developed countries. The less-developed countries continued to face the problem of inadequate exports and fluctuations in the export earnings due to discrimination and barriers of trade imposed by the developed countries. Therefore, the objective of GATT could not be achieved fully.
- 9. CONVERSION OF GATT INTO WTO : Between 1947 and the last year of GATT, there were 8 rounds of negotiations between the participating countries, the 8th round known as "URUGUAY ROUND" of GATT, was the longest and most controversial round. As a result of the Uruguay round, the GATT was converted into the World trade organization (WTO) in January 1995
- 10. WORLD TRADE ORGANISATION (WTO) The World Trade Organization (WTO) is an international, multilateral organization, which sets the rules for the global trading system and resolves disputes between its member states, who have signed to its approximately 30 agreements. The headquarters of the WTO is located in Geneva.
- 11. Formation of WTO The members of GATT signed on an agreement of Uruguay round in April 1994 in Morocco, for establishing a new organization named WTO. It was officially constituted in January 1995, which took the place of GATT as an effective formal organization
- 12. Objectives of WTO 1. To improve the standard of living of people in the member countries. 2. To ensure full employment and a broad increase in effective demand. 3. To enlarge production and trade. The above three objectives were also included in GATT, but WTO also includes: some other objectives which are: 4. To enlarge the production and trade of services. 5. To ensure optimum utilization of world resources. 6. To accept the concept of sustainable development. 7. To protect the environment.
- 13. FUNCTIONS OF WTO: 1. To provide facilities of implementation, administration, and operation of a multilateral and bilateral trade agreement of the world trade. 2. To provide a platform to member countries to decide future strategies related to trade and tariff. 3. To run the rules and processes related to dispute settlement. 4. To implement the rules and provisions related to the trade policy review mechanism. 5. To assist IMF and IBRD for establishing consistency in universal economic policy determination. 6. To ensure the optimum use of world resources
- 14. ACHIEVEMENTS OF WTO Following are the achievements of WTO: 1. WTO has helped in making greater market orientation a general rule. 2. Tariff based protection has become the rule. 3. Restrictive measures, which were being used for the balance of payment purpose, have declined markedly. 4. WTO has brought services trade into a multilateral system. 5. Many underdeveloped countries have promoted economic growth in their countries. 6. The trade policy review mechanism has created a process of continuous monitoring of trade policy developments
- 15. Role of WTO The WTO has played an important role in the country, which are as follows: 1. It has benefited by reducing tariffs on exports. 2. Improved prospects for agricultural exports because the prices of agricultural products in the world market will increase due to a reduction in domestic subsidiaries and barriers on trade, 3. Increase in the exports of textiles and clothing. 4. Advantages from the greater security and predictability of the international trading system. 5. Compulsion imposed on us to be competitive in the market.
- 16. INTERNATIONAL MONETARY FUND (IMF): IMF is an international monetary organization. It was established on December 27, 1945, in Washington on the recommendation of Breton wood conference, for promoting international financial cooperation in the matter of exchange rates, the balance of payment, reconstruction of war-ravaged nation and promotion of economic development and commenced its operation on March 1947
- 17. Objectives of IMF: According to an article of agreement of IMF, its main objectives are as follows: 1.To promote international monetary cooperation. 2.To ensure the balance of international trade. 3.To ensure exchange rate stability. 4.To help in the widest extension of multilateral trade and payments. 5.To lend confidence to the members. 6.To shorten the degree of duration and lessen the degree of disequilibrium.
- 18. Functions of IMF The functions of the IMF are as follows: 1. The IMF functions as a short-term credit institution. 2. It provides machinery for the orderly adjustment of the exchange rate. 3. It is the reserve of the currencies of all member countries for which a borrower nation can borrow the currency of other nations. 4. It is a sort of lending institution in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions. 5. It provides machinery for altering sometimes the par value of the currency of a member country. 6. It tries to provide an orderly adjustment of exchange rates, which will improve the long term balance of payments positions of the member countries. 7. It also provides machinery for international consultations. 8. The fund contributes to the promotion and maintenance of a high level of employment and real income to the development of the productive resources of all member nations
- 19. ROLE OF IMF IMF has played an important role in the economy. IMF has provided economic assistant from time to time and has also provided appropriate consultancy in the determination of various policies in the country. India is the founder member of the IMF. The finance minister is the ex- officio governor in the IMF board of governors. Till 1970, India was among the first five nations having the highest quota with IMF and due to this status India was allotted a permanent place in the executive board of directors. But now after the 12th general quota review, India has been placed as the 13th largest quota holding country
- 20. ACHIEVEMENTS OF IMF IMF has made a remarkable success in achieving most of its principles objectives: 1. The measure of exchange stability in the IMF era is remarkably superior to the interwar period or gold standard regime. 2. The IMF also served as an expert institution for consultation and guidance in international monetary matters. 3. The fund has also contributed in many ways to the expansion of world trade. It also works for facilitating multilateral trade and payments. 4. It has also simplified the multilateral exchange system. 5. The IMF has changed its conservative credit policy by accepting a more liberal credit policy. Hence increase the quantum of borrowing from the fund.
- 21. 6. The developing countries have been receiving adequate assistance from the fund in determining their monetary, export-import and exchange policies. 7. The fund has helped a lot in the rehabilitation of war-distressed countries
- 22. THE WORLD BANK The World Bank is also known as the international bank for reconstruction and development (IBRD). The Second World War damaged the economies of most of the countries particularly of those who were directly involved in the war. In 1945 it was realized to concentrate on reconstructing these affected economies. Besides, it was also given a thought to develop underdeveloped economies in a planned way. IBRD was established in Dec. 1945 with the IMF based on the recommendation of the Brettonwood conference. That is the reason why the IMF and IBRD are called "Bretton Wood Twins IBRD started functioning in June 1946. World Bank and IMF are complementary institutions The purpose of the World Bank was to provide temporary assistance in correcting the balance of payment difficulties, and the IBRD was established for promoting long-term investment loans on reasonable terms.
- 23. OBJECTIVES OF WORLD BANK 1. To provide long-term capital to member countries for economic reconstruction and development. 2. To induce long-run capital investment for assuring BOP equilibrium and balanced development of international trade. 3. To promote capital investment in countries by the following ways: a. To provide a guarantee on private loans or capital investment. b. If private capital is not available even after providing a guarantee, then IBRD provides loans for productive activities on considerate conditions. 4. To promote guarantee for loans to small and large units and other projects of member countries. 5. To ensure the implementation of the development projects to bring about a smooth transference from wartime to peace economy.
- 24. ROLE OF THE WORLD BANK The World Bank has made a valuable contribution in various countries‘ projects by providing long term capital investment for accelerating the countries economic development, the bank has given long term loans for various projects relating to transportation and communication, irrigation, education water supply, power population control, road construction, etc.
- 25. India has received a lot of technical and financial assistance, time to time from the World Bank for its development. India's shares have been 5.4% in 1993 and 5.2% in 2000 out of total loans granted by IBRD. It has also played a valuable role in solving the Indus water dispute between India and Pakistan.
- 26. United National Conference on Trade and Development (UNCTAD) The widening gap trade between the developed and developing countries, the general dissatisfaction of developing countries with GATT and the need for new organization for international economic cooperation in the field of trade, and designs to reduce the trade gap between the developing countries encouraged the establishment of United Nations Conference on Trade and Development (UNCTAD) I 1954 as a permanent organ of UN general assembly.
- 27. FORMATION In 1961 UNO attempted to increase the income of developing countries. In July 1962, a conference of developing countries was held at Cairo to organize a world conference. For this purpose, the Economic and Social Council of UNO organized a world trade and development conference from March 31, 1964, to June 16, 1964. Worldwide international trade policy was determined at this conference. This conference came to be known as UNCTAD-I and has become a permanent organization for promoting international trade.
- 28. PRINCIPLES OF UNCTAD 1. Every country has the right to dispose of its natural resources in the interest of economic development and well being of its people and to freely trade with other countries. 2. Economic relations including trade relations between the countries shall be based on the principles of (1) sovereign equality of status (2) self-determination of people. (3) Non- interference in the internal affairs of the business. 3. There shall be no discrimination on the bases of difference in socioeconomic system and the adaptation of various trading methods and training policies will be consistent with this principle.
- 29. FUNCTIONS OF UNCTAD The principal functions of UNCTAD are: 1. To promote international trade to accelerate economic development. 2. To facilitate principles and policies on international trade and related problems of economic development. 3. To negotiate multinational trade agreements. 4. To make proposals for putting its principles and policies into effect. 5. To review and facilitate the coordination of activities of other institutions with the UN system in the fields of international trade
- 30. GENERALIZED SYSTEM OF PREFERENCES Under GSP schemes of preference-giving counties, selected products originating in developing countries are granted reduced or zero tariff rates over the MFN rates. The least developed countries (LDCs) receive special and preferential treatment for wider coverage of products and deeper tariff cuts. GSP is designed to promote economic growth in the developing world, provides preferential duty-free entry for more than 4,650 products from 144 designated beneficiary countries and territories. The GSP program was instituted on Jan. 1, 1976, and authorized under the Trade Act of 1974 for 10 years. It has been renewed periodically since then, most recently in 2002, when President George Bush signed legislation that reauthorized the GSP program through 2006
- 31. Objectives of GSP The objective s of GSP is as follows: 1. To increase the export earnings of less developed countries. 2. To promote their industrialization and 3. To accelerate their rate of economic growth
- 32. THE GLOBAL SYSTEM OF TRADE PREFERENCES (GSTP) In UNCTAD IX, a new system was launched to promote world trade among the developing countries, namely the global system of trade preferences (GSTP) from the group of 77 countries, 48 members signed the GSTP agreement and became the member. The rules and procedures of GSTP are drawn by UNCTAD in GSTP. Tariff concessions are given by one developing country to another developing country.
- 33. GSP and GSTP The basic objective of both GSP and GSTP is the development of trade of the developing countries through tariff and non-tariff concessions. Under GSP, the concessions are given by a developed country to a developing country. Whereas under GSTP, the concessions are given by a developing country to another developing country.
- 34. Objectives of GSTP: The main objectives of GSTP are: 1. To promote and develop mutual trade between the countries. 2. To promote economic cooperation between the developing countries. 3. To make special efforts for the development of least developed countries 4. To enhance production and employment in developing countries by establishing a new economic order
- 35. Functions of GSTP: The GSTP functions through a GSTP committee. The main functions of the committee are: 1. Reviewing and monitoring the results of the negotiations. 2. Carrying out consultations. 3. Making various adversary recommendations. 4. Taking the final decision.
- 36. Principles of GSTP The GSTP functions according to the following principles: 1. For becoming a participant in GSTP, the developing country has to be a member of G-77. 2. The GSTP is based on the principle of mutual benefit to all the participants, taking into account their respective levels of economic and industrial development. 3. The GSTP is not to replace G-77 but to supplement and reinforce it. 4. The least developed countries would not be required to make concessions on a reciprocal basis
- 37. 5. GSTP would include all the products i.e. raw materials, finished goods, and manufactured goods. 6. Preferential measures should be given to recognized less developed countries; these measures will include the elimination of tariff and non-tariff barriers and long-term contracts for the sustainable growth of exports of these countries.
- 38. Achievements of GSTP All participant countries under GSTP have agreed to extend tariff and non-tariff Concession for agriculture and industrial products. At present, there are 1626 products, which are eligible under GSTP. At present GSTP is offering preferential treatment to 1626 items exported from one developing country to another participant country .for utilizing the preferential treatment, the product must be in the list of committee and comply with the rules of GSTP
- 39. COUNTER TRADE Counter trade is a modernized form of barter system. It is a bilateral trade agreement between two countries, under which one country imports products from the other country on the condition that the other country will also import products from them of the same value. No foreign exchange will be given in such types of agreement and hence the countries do not face the problem of balance of payment. Counter trades transaction generally takes place when the countries facing foreign exchange crises find it more convenient to exchange goods rather than using foreign exchange as a medium of exchange.
- 40. Types of Countertrade There are five main types of countertrade: Barter:: Exchange of goods or services directly for other goods or services without the use of money as a means of purchase or payment. Switch trading: Practice in which one company sells to another its obligation to purchase in a given country. Counter purchase: Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country. Buyback: Export of industrial equipment in return for products produced by that equipment. Offset Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future.
- 41. Benefits of countertrade Counter trade is very beneficial for some countries because of the following reasons: 1. Counter trade does not put any burden on the balance of payment of a country 2. Counter trade helps the countries who are facing foreign exchange and debts crisis. 3. The developing countries can develop their exports also with the help of counter trade. 4. Increased exports of developing countries will lead to the expansion of production of better quality
- 42. Role of counter trade in the world market The volume of countertrade is growing. In 1972, it was estimated that countertrade was used by businesses and governments in 15 countries and it was increased in 1979 to 27 countries and by the start of the 1990s it had gone up to 100countries. More than 80 countries nowadays regularly use or require countertrade exchanges. Officials of the GATT organization claimed that countertrade accounts for around 5% of the world trade.
- 43. Thanks
- 44. Agreement and Textiles and Clothing's ( ATC), GSP, GSTP and other international Agreement