International Economic

Institutions since World War II

UNICOLLEGE MANTOVA A.A. 2017/2018

STORIA DEI TRATTATI E DELLE RELAZIONI INTERNAZIONALI

Prof.ssa ISABELLA QUERCI, Ph.D.

13 aprile 2018

Outline

Barriers to trade vs. Liberalism

Bretton Woods

History and functions of international

institutions in world economy

World Trade Organization

International Monetary Fund

World Bank

Criticism towards international

economic institutions

Barriers to trade

«Government induced reastriction to international trade»

The imposition of cost on trade that raises the price of the

traded products /services

Economists agree that B2T are detrimental and decrease the

overall economic efficiency.

Examples:

1. Tariff: tax on imports or exports between sovreign States.

2. Non-tariff: any measure restricting trade, other than tariffs

import licenses, export licenses, sanitary controls, labelling, etc

Liberalism

Belief in progress and optimistic interpretation of

human nature.

Priorities : freedom reassurance and human needs

satisfaction

Democracy inside the state and cooperation

outside

Belief that nternational institutions can assume

responsibilities States are not able to assume

Postwar economic system: multilateralism and

principle of non discrimination -> international

institutions Copyright © 2002 Pearson Education, Inc.

Since the end of WWII gradual

reopening of the international

economy and strenghtening of

international institutions

According to some, Bretton Woods

institutions and GATT established a

shallow globalization

Globalization promoted economic

growth and social welfare

Liberalism

In July 1944

Aim: to design an international monetary system administered by an international organization

delegates from 44 countries met in a small town named after the conference “Bretton Woods” (New Hampshire)

In the conference, the countries drafted and signed the Articles of Agreement of the International Monetary Fund (IMF), thus the Bretton Woods system was created.

6 Bretton Woods

The Bretton Woods System

- A stable and fixed but adjustable exchange rates regime

- Allied countries fix their exchange rates by tying their

currencies to the U.S. dollar (dollar-pegged exchange rate)

- The U.S. dollar linked to gold; per ounce - Currencies to be kept within 1% of the fixed rate - Golden age of the U.S. dollar

- The system’s stability required price stability in the US

1. Exchange rate stability and the IMF (27 December 1945),

2. Recovery and development (International Bank for Reconstruction and Development, now known as the World Bank),

3. Liberalization of trade via the General Agreement on Tariffs and Trade (GATT) in 1947.

Three pillars

International Economic Institutions

The three global organizations

playing a major role in international

economic relations are:

The International Monetary Fund (IMF)

The World Bank

The World Trade Organization (WTO)

- Through capital controls, the countries would

pursue the full employment and price stability

(low inflation) and the external balance

(keeping exchange rates stable)

simultaneously.

Expected Benefit from the New System

The IMF was established to:

Promote international monetary cooperation;

Promote exchange stability and orderly exchange arrangements

To foster growth and high levels of employment, and

to provide temporary financial assistance to countries to help ease balance of payments adjustment

The International Monetary Fund

The International Monetary Fund

Each of the 184 members charged a quota

Special Drawing Right(SDRs) or convertible currencies

US quota is SDR 37,149.3 million (largest)

Palau quota is SDR 3.1 million (smallest)

The size of the quota determines the member‟s voting power

US has 371,743 votes (17.11%) Palau 281 votes.

IMF conditionality – requirement

for the borrowing member to

carry out economic reforms in

exchange for a loan

The International Monetary Fund

The World Bank

Founded as the International Bank for Reconstruction and Development (IBRD)

World Bank has 184 members

Main functions: development lending

Today, IBRD is one of the five subgroups making up the World Bank Group

IDA (International Development Assn.),

IFC (International Finance Corp.),

MIGA (Multilateral Investment Guarantee Agency),

ICSID (Int‟l Cent. For Settlement of Investment Disp.)

The General Agreement on Tariffs and

Trade

The GATT functioned through trade

rounds – inter-state negotiations to

reduce tariffs and other barriers to trade

After the Tokyo Round of the 1970s, tariffs

were brought to record lows

Uruguay Round was launched in 1986 to

address previously neglected trade issues,

such as agriculture and textiles, as well as

new trade issues, such as intellectual

property rights and trade in services

From GATT to WTO

Uruguay Round Agreement signed in 1994

established the WTO:

144 members as of 1 January 2002

reaches beyond GATT to new trade issues;

has a more effective dispute settlement

mechanism;

GATT only regulated merchandised goods

WTO covers issues such as trade in services,

telecommunications, banking, and even

intellectual property rights

WTO’s main tasks

Focuses on trade negotiations,

implementation/monitoring, dispute settlement,

building trade capacity for developing countries,

outreach

Helps mediate

Guarantees no sudden changes in policy amongst

countries

Assists in meeting social/environmental objectives

Sometimes rules to maintain barriers if it involves

protecting consumers or preventing the spread of

disease

Who’s Involved?

153 members including UK, Mexico,

Nigeria, and China

31 observers, including Russian

Federation and Mexico

128 GATT signatories joined at the end of

1994

Interdependence

Principles

- Liberalization – negotiations to reduce

protection.

- Nondiscrimination – enshrined in the

concept of most favored national status

(MFN): every WTO member must treat

each of its trading partners as it treats its

most favored partner

- National treatment – imports must be

given a similar treatment on the

domestic market as domestically

produced goods

Sovereignty Principles

Reciprocity – negotiations proceed

in terms of exchange of

“concessions” of substantially

equivalent value.

Safeguards – right of government to

preserve economic stability through

(nondiscriminatory) protection

recognized.

WTO Dispute Settlement—the Process

If a member believes their rights under the agreements are being infringed, it should bring the case to the WTO—instead of acting unilaterally.

Initially, governments try to settle their differences through consultation.

If the case is not settled during the consultation period, a stage-by-stage procedure is initiated.

A panel of independent experts, judging each case based on interpretations of the agreements and individual countries‟ commitments, makes the final ruling.

.

Advantages of Membership

Maintains peace by helping trade and trying to

deal with disputes

Promotes international cooperation

Forum for countries to peacefully and fairly deal

with disputes

Attempts to lower prices/cost of living

Provides more choices for products

Stimulates economy and raises income

Creates efficiency: Similar rules in many countries

makes trading easier

Disadvantages of Membership Criticized for ignoring the developing countries

Benefits of free trade help developed countries more than developing countries

Not necessarily democratic because WTO created by and for corporations

May not promote peace because its dominated by businesses in wealth countries

Some say WTO puts corporations before human rights

Said to be harmful to the environment because it attempts to deregulate logging, fishing, water utilities

Example: Turtle/Shrimp case

Labor and Environmental Standards

2 different perspectives:

1- „Free trade is not compatible with

reasonable labor standards and environment

protection.‟

2- International trade effects‟ on labor and

environmental regulations are by all accounts,

positive. Typically, as income grows, demand

for tighter standards increases; since trade

normally increases income

The “Race-to-the-Bottom” Problem

The government faces pressure from import-competing interests to offer additional

protection from imports.

If its WTO commitments prevent the government

from responding with a tariff increase, then it

might instead choose to relax a labor or an

environmental standard or place the

productive activities where these standard are

already relaxed.

The Future of the WTO

Presently negotiating the Doha round

Deep conflict between developing countries and industrial countries

Costs of current commitments

TRIPs problems

Developing countries seem to be the real supporters of trade liberalization these days

Crisis of multilateralism – resort of bilateral agreements

Opposition to International Institutions

International institutions receive two

types of criticism

1. Globalization is dangerous and

should be limited;

2. International institutions are

undemocratic: decision-making is

closed to participation by civic and

social groups, and thus doesn‟t focus

on the most vulnerable groups