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Driving Forces of World Economy

The three major multilateral economic organizations established post-World War II were the World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank. These organizations were created to promote global economic cooperation, facilitate international trade, provide financial assistance, and establish international trade rules and dispute resolution. The WTO works to liberalize trade, the IMF provides monetary support and financial cooperation, and the World Bank funds development projects in poorer nations. Together these three institutions have shaped the global economy since the 1940s.

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Lalit Singh
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109 views10 pages

Driving Forces of World Economy

The three major multilateral economic organizations established post-World War II were the World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank. These organizations were created to promote global economic cooperation, facilitate international trade, provide financial assistance, and establish international trade rules and dispute resolution. The WTO works to liberalize trade, the IMF provides monetary support and financial cooperation, and the World Bank funds development projects in poorer nations. Together these three institutions have shaped the global economy since the 1940s.

Uploaded by

Lalit Singh
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© © All Rights Reserved
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Driving Forces of Global Economy: WTO,

IMF & World Bank

History
During the period of Great Economic Depression of 1930s, multilateral
economic agencies came into existence to counter trade barriers
erected by nations, created due to lack of economic opportunities,
devaluation of currencies and mistrust as a direct fallout of the first
World War.
As the world was still reeling under severe economic crisis, it once
again found itself plunged into the horrific second World War (193945). The aftermath of the war required major reconstruction and
rehabilitation effort.
In order to provide an environment conducive for sustainable growth
and balanced expansion of international trade, following three new

multilateral economic organisations were proposed to operate under


the umbrella of United Nations system:

a) International Trade Organisation The aim of ITO was to remove


trade barriers, by liberalisation of international trade and cooperation
in market development through win-win collaborations. The ITO
Treaty was not approved by United States and few other signatories,
and hence never came into effect.

b) International Monetary Fund (IMF) and World Bank


IMF came into existence to provide monetary support and financial
cooperation for the process of rebuilding and development of nations
as an aftermath of the Second World War and came into existence in
1944.
IMF is based in Washington, USA, and started off as a 29 member
organisation in 1944, which today has 188 members.

Presently, IMF functions as a global economic regulatory body that


facilitates world commerce by reducing foreign exchange restrictions
and using its reserves of funds to lend to countries experiencing
temporary balance of payments problems, so they could continue to
trade without interruption. Salient aspects of its functioning include:

Monitor the international monetary system.

Promotes currency exchange stability and orderly currency


exchange relations among its member countries.

Assists all members during temporary balance of payments


difficulties, by providing short to medium term credits.

Supplements the currency reserves of its members through the


allocation of SDRs (special drawing rights), which are given to
the member nations in proportion to their quotas.

Financial resources for lending are principally drawn from the


quota subscriptions of its member countries.

In the recent economic meltdown, countries like Greece and Cyprus


secured bailout fund from IMF. In March 2014 IMF secured an $18
million fund to the provisional government of Ukraine to tide over its
financial crisis.

World Bank
Concurrent to the establishment of IMF, the World Bank also came into
existence in 1944. The Bank and the IMF are twin intergovernmental
pillars supporting the structure of the worlds economy and financial
order. Both are based in Washington DC.
The primary difference between these two organisations is that while
the World Bank is a Development institution, the IMF is a cooperative
institution that seeks to keep an orderly system of payments and
receipts between nations.
Formerly the Word Bank was known as the International Bank for
Reconstruction and Development and extended its initial loans for the
purpose of reconstruction work as an aftermath of the world war.
Once these nations achieved self sufficiency, World Bank directed its
focus towards the poor nations of the world and since, 1940, a total of
$330 billion dollars of loan has been granted to under developed and
developing nations. Salient aspects about the World Bank are given
below:

Contributes by providing loans for the economic development of


the world's poorer countries.

Finances long-term development projects and programs


undertaken by developing countries.

Provides financial assistance to the poorest developing countries


whose per capita GNP is less than $865 an year,

Promotes entrepreneurship by encouraging private enterprises in


developing countries through its affiliate, the International
Finance Corporation (IFC).

The financial source of World Bank is through borrowing at lower


rates and lending at a slightly higher rate on the international
bond market.

Presently, it has an authorized capital of $184 billion; of which


members pay in is about 10 percent.

c) General Agreement on Trade and Tariff (GATT)


The major task of GATT was facilitating post World War reconstruction
and rehabilitation and promotion of economic development in the new
states.
GATT continued as a semi-institutionalised multilateral international
trade governing body from 1946 to 01 January 2005, when it was
replaced by an institutionalised body, called the World Trade
Organisation (WTO).
Seven rounds of negotiations occurred under GATT. The prominent
decisions taken during these negotiations include: In mid sixties
during the Kennedy Round an agreement was made on firm Antidumping policy; in seventies during the Tokyo Round efforts were
made for the first time to tackle trade barriers and a series of
agreements on non tariff barriers were adopted.
The biggest mandate on trade ever agreed upon was during the
Uruguay Round launched in September 1986. In this Round a lot of big
ticket trade reforms were introduced, to name a few:

Extending the trading system into many new areas, notably,


service sector and intellectual property.

Reform trade in sensitive sectors of Agriculture and Textiles. It


was proposed that Public procurement of Agro-products
must not exceed 10% of its total production value. This is
considered as an anti-farmer proposal and hurts agrarian
economies like India, Brazil, etc.

All original GATT Articles came up for review.

The GATT members also concluded during this Round that the
structural deficiencies of GATT was straining to keep up with the
Globalisation of the world economies, and required a major
improvements in its provisions and design.

Final act of concluding the Uruguay Round and establishing the


WTO regime was ushered in formally by signing of the Marrakesh
Agreement on 15 April 1994.

GATT still exists as WTOs umbrella treaty for trade in goods and
the agreements arrived at in GATT 1947, duly amended from time
to time latter, are still the heart of GATT 1994.

World Trade Organisation (WTO)


Aim
WTO is an organization that deals with regulation of trade between
participating countries by providing a framework for negotiating and
formalizing trade agreements and a dispute resolution process aimed
at enforcing participant's adherence to WTO agreements.
Most of the issues that the WTO focuses are derived from previous
trade negotiations, especially from the Uruguay Round(19861994).
Member Countries and Headquarter A total of 160 members and 24
observers; EU is also a member. The location of the General Council of
WTO is at Geneva, Switzerland.

Organisational Structure
The highest decision making body of WTO is the Ministerial
Conference. The General Council of WTO is headed by a Director
General; the present incumbent is Mr Roberto Azevedo of Brazil.
The General Council has the following subsidiary bodies (which have
further internal committees for better functioning):
Council for Trade in Goods. It has 11 committees under
the jurisdiction of Trade Council, each with a specific task.
Council for Trade Related to Aspects of Intellectual
Property Rights To collect, collate and record information
pertaining to intellectual property.
Council for Trade and Services This council oversee the
functioning of General Agreement on Trade and Services
(GATS).
Trade Negotiation Committee This committee deals with
the negotiations of the current Trade Round. It was tasked
in June 2012 for working on negotiations of the Doha
Round.
Dispute Settlement Body (DSB). Dispute Settlement Panel
is the Appellate body for dispute settlement. The process
includes the participation of WTO Secretariat, arbitrators,
independent experts and specialised institutions.
Principles of Trading.WTO works on five principles for trading, which
are:

Non Discrimination WTO follows the following two rules of non


discrimination:

Most Favoured Nation (MFN) This rule requires that a WTO


member must apply the same policy of trading with all member
nations without discriminating against any member.

National Treatment Policy (NTP) This rule compels the member


nations not to discriminate against imported goods vis-a-vis their
domestic goods.
It needs to be understood here, that the NTP rule is
detrimental to the interests of emerging economies
like India, as the quality and cost of products
manufactured/raised in India are not competitive to
imported products. This unfair competition hurts the
domestic market.

Reciprocity. This principle is a safeguard against the MFN rule


so that some nations may look for unilateral gains only from their
transactions. Hence, this rule mandates that the gains from
transactions must be reciprocal.

Binding and Enforceable Commitment The commitments made


by member nations during multi-lateral trade agreements are
enforceable by and any infringement will have to be compensated
to make up for loss of trade.

Transparency. WTO members are required to publish their trade


regulations, so that other member states can review their
administrative decisions affecting trade. To ensure internal
transparency, country specific trade reviews are published by
Trade Policy Review Mechanism (TPRM).

Safety Valve In special circumstances governments can restrict


trade, without breaking the Commitment Principle, enunciated
above, in case the matter involves, public health, environmental
issues, like, plant/animal health.

Ministerial Conferences
The Ministerial Conference of WTO happens once in two years. The
inaugural conference took place in Singapore in 1996. Since, then
regular meets have been held and one of the most prominent ones was
the fourth Ministerial Conference held in Doha, Qatar in 2001, called
the Doha Development Round.

This was to be an ambitious effort to make globalization more


inclusive and help the world's poor, particularly by slashing barriers
and subsidies in farming.
The initial agenda comprised both further trade liberalization and
commitments to strengthen substantial assistance to developing
countries.
The negotiations reached a deadlock, and continues to do so till date,
between exporter countries of agricultural bulk commodities
(Developed countries) and countries with large numbers of
subsistence farmers, like India, China and Brazil, on the precise terms
of a 'special safeguard measure' to protect farmers from imports of
cheaper and better quality agro products from the developed
countries.
The developed countries feel that developing economies are trying to
be protectionist, while emerging economies, like India wish to safe
guard the domestic interests of its agrarian society.
During the Ninth Ministerial Conference held at Bali in December
2013 consensus was reached on the Trade Facilitation Treaty for
greater transparency and simplification of custom procedures. The
same was also endorsed by India. The high points of the Treaty
include:

Easy and comprehensible norms in terms of publication of laws,


regulations and procedures, including Internet publication for
speedy dissemination.

Provision for advance rulings to cut down on red tapism and early
knowledge of rulings being passed.

Discipline and parity on fees / charges and on penalties.

Pre-arrival processing of goods to speed up delivery.

Use of electronic payment to cut down transaction time.

Guarantees to allow rapid release of goods to gain traders trust.

Use of "authorized operators" schemes to prevent frauds and


impose a regulatory mechanism.

Procedures for expedite shipments for faster delivery of goods.

Faster release of perishable goods to reduce wastage and ensure


health safety norms.

Reduce documentation and formalities with common customs


standards to prevent confusion.

Promotion of the use of a single window clearance to prevent


harassment and red tapism.

Uniformity in border procedures to facilitate transit.

Temporary admission of goods in case of procedural delays.

Simplified transit procedures to encourage traders.

Provisions for customs cooperation and coordination to bring


about standardisation in their procedures.

Trade Negotiation Committee (25 - 31 July 2014)


On 25 July 2014 at the World Economic Forum, India made a statement
in the WTO General Council conveying that the adoption of the Trade
Facilitation (TF) protocol must be postponed till a permanent solution
on public stockholding for food security is found.
As per WTO rules negotiated in the Uruguay Round, Government
procurement from farmers for public stock holding must be kept within
a limit of 10 per cent of the value of total production of the product in
question. This cap can constrain procurement and food aid
programmes in developing countries like India.
India also offered suggestions on the procedure to be followed in order
to ensure time bound delivery of food grain procured for public

stockholding to meet the demand of food security. However, the issue


still remains to be debated and no conclusive outcome came out
during the July TNC.
The next Ministerial Conference of WTO is slated to be held in
December 2015. Perhaps this controversial issue will be taken up
during the ensuing Conference.

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