World Trade Organisation

UNIT-V: World Trade Organization – Objectives, Organization Structure and Functioning, WTO and
India, International liquidity: Problems of liquidity; International Financial institutions - IMF, IBRD,
IFC, ADB – Their role in managing international liquidity problems

World Trade Organization
World Trade Organization

• WTO is the international organization dealing with the global rules of trade
between nations.
• Its main function is to ensure trade flows as smoothly, predictably & freely as
possible
• Heart of the system – known as the multilateral trading system – is the
WTO’s
• Agreements, negotiated and signed by a large majority of the world’s trading
nations, and ratified in their parliaments.
• Goal is to improve the welfare of the peoples of the member countries.
• The basic purpose of the WTO is to promote international trade without any
discrimination-1st Jan, 1995
• The World Trade Organization came into being in 1995. One of the youngest
of the international organizations, the WTO is the successor to the General
Agreement on Tariffs and Trade (GATT) established in the wake of the
Second World War.

Functions of WTO

• WTO shall facilitate the implementation, Administration and operation of the
plurilateral trade agreement.

• WTO shall provide a forum for the negotiation among its members
concerning their multilateral trade relations

• WTO shall administer the understanding on rules and procedures governing
the settlement of disputes

• WTO shall administer the trade policy review mechanism and

• WTO shall co operate as appropriate with IMF AND IBRD and with the
affiliated agencies
• WTO administers the 28 agreements contained in the final act and the no of
plurilateral agreements and the government procurement through various
councils and committees
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• It oversees the implementations of issues related to tariff cut an non tariff
measures agreed to in the trade negotiations
• It examines the trade regimes of the individual member countries
• WTO provides dispute settlement courts and panel
• It acts as a management consultant for world trade
• It provides technical co-operations and training
• It can be used as a forum for continuous negotiations
• It co-opts with the international institutions like IMF,IBRD etc for making
global economic policy
• And it oversees the national trade policies of member governments.

Organization Structure of WTO

• Ministerial Conference-policy and strategy making body

• General Council-executive body of WTO-disputes settlement and trade
related policy

• Councils-trade in goods , trade in services and trade related aspects of
intellectual property bodies

• Committees and Management Bodies-committee on trade and development,
balance of payment and budget, finance and administrations

• The WTO has 153 members, accounting for over 97% of world trade. Around
30 others are negotiating membership.
• The WTO’s top level decision-making body is the Ministerial Conference which
meets at least once every two years.
• Below this is the General Council (normally ambassadors and heads of
delegation in Geneva, but sometimes officials sent from members’ capitals)
which meets several times a year in the Geneva headquarters. The General
Council also meets as the Trade Policy Review Body and the Dispute
Settlement Body.
• At the next level, the GOODS COUNCIL, SERVICES COUNCIL, &
INTELLECTUAL PROPERTY (TRIPS) COUNCIL report to the General
Council.

• Numerous SPECIALIZED COMMITEES, WORKING GROUPS and
WORKING PARTIES deal with the individual agreements and other areas


such as the environment, development, membership applications and
regional trade agreements.

WTO AND INDIA

India

• India is a founder member of the General Agreement on Tariffs and Trade
(GATT) 1947 and its successor, the World Trade Organization (WTO), which
came into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of
Multilateral Trade Negotiations.
• India’s participation in an increasingly rule based system in the governance
of international trade is to ensure more stability and predictability, which
ultimately would lead to more trade and prosperity for itself and the 134
other nations which now comprise the WTO.
• India also automatically avails of MFN and national treatment for its exports
to all WTO Members.

• INDIA’s ranking in leading exporters and importer in world merchandise
trade,2007 is 26 , & in leading exporters and importer in world commercial
services 2007 is 9.
• This fourth Trade Policy Review of India has greatly improved our
understanding of India’s trade and trade related policies and the challenges it
faces in sustaining, and indeed improving, its economic growth.
• Members all agreed that India’s economic performance has been impressive,
with GDP growth averaging over 7% between 2001/02 (fiscal year, April-
March) and 2006/07; growth has been particularly rapid since 2003,
averaging over 8.5% and has translated into improved social indicators,
including a reduction in the percentage of the population living below the
poverty line.

Additional (Optional to write)

• While import tariffs have declined, the export regime remains highly
complex, partly as a consequence of various measures to neutralize duties
levied on imported inputs used in exports; export processing zones and
special economic zones also offer tax holidays to investors.
• India’s active role in the multilateral trading system was commended, and
members encouraged it to continue to show leadership in bringing the Doha
Round to a successful conclusion.


• India remains a major user of anti-dumping measures, although the number
of investigations and measures in force has been declining. Members urged
India to exercise maximum restraint in initiating anti-dumping and safeguard
actions and in imposing such measures.
• Members commended India for taking steps to align its national standards
with international norms. They expressed concerns on SPS (sanitary and
phytosanitary measures), but welcomed measures adopted to streamline SPS
procedures.
• Members noted continued government intervention in agriculture through;
inter alia, high tariffs, price support, and direct subsidies to inputs. Moreover,
agricultural growth remains slow and erratic, causing considerable distress,
especially among small and marginal farmers. Some concerns were
expressed about the development of the manufacturing sector, which is
being held back by the complex customs duty structure, as well as the
relatively high tariffs in textiles and clothing, and automobiles.
• This Review has been very informative and has given a useful overview of
India’s trade policies and practices and the challenges it faces.


International Monetary Fund
• IMF is a post war international monetary institution.

• It came into existence to promote economic and financial cooperation among
member countries
• The International Monetary Fund (IMF) is an international organization
that oversees the global financial system by following the macroeconomic
policies of its member countries, in particular those with an impact on
exchange rates and the balance of payments.
• It is an organization formed to stabilize international exchange rates and
facilitate development.[2]
• It also offers financial and technical assistance to its members, making it an
international lender of last resort.
• Its headquarters are located in Washington, D.C., USA.
• The International Monetary Fund was created in 1944 [1], with a goal to
stabilize exchange rates and assist the reconstruction of the world's
international payment system.
• Countries contributed to a pool which could be borrowed from, on a
temporary basis, by countries with payment imbalances. (Condon, 2007)
• The IMF describes itself as "an organization of 185 countries (Montenegro
being the 185th, as of January 18, 2007), working to foster global monetary
cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty".

Objectives of IMF

• Avoid the competitive devaluation and exchange control

• Establish and maintain currency convertibility with stable exchange rate

• To promote international monetary cooperation

• To facilitate balance growth rate

• To lend confidence to members by making the fund’s resources available

• To provide short term assistance to correct the balance of payment


Additional

Today

The IMF's influence in the global economy steadily increased as it accumulated
more members. The number of IMF member countries has more than quadrupled
from the 44 states involved in its establishment, reflecting in particular the
attainment of political independence by many developing countries and more
recently the collapse of the Soviet bloc.

• In 2008, faced with a shortfall in revenue, the International Monetary Fund's
executive board agreed to sell part of the IMF's gold reserves. On April 27,
2008, IMF Managing Director Dominique Strauss-Kahn welcomed the board's
decision April 7, 2008 to propose a new framework for the fund, designed to
close a projected $400 million budget deficit over the next few years. The
budget proposal includes sharp spending cuts of $100 million until 2011 that
will include up to 380 staff dismissals.[5]
• At the 2009 G-20 London summit, it was decided that the IMF budget will be
tripled to $1 trillion, to better meet the needs of the global community
amidst the late 2000s recession.[6][7]

International Liquidity and Special Drawing
rights
• Assets like bullion, commercial credit , currencies, foreign securities and
SDR’s maintained by the countries to settle the deficit in the BOP and the
aggregate total of such stock of all the central banks in the world is known as
international liquidity,.
• What Is ‘International Liquidity’?
• It used to be that the term ‘international liquidity’ meant the relative amount
of resources available to a nation’s monetary authorities that could be used
to settle a balance of payments deficit.
• In the days of the gold standard, this would mean access to gold that could
be used to redeem a nation’s currency held by foreigners.
• After Breton Woods and the advent of the dollar-gold exchange
standard, liquidity came to mean access to dollars, either held as reserves
or as credit lines, or the SDR system maintained by the International
Monetary Fund.
• After 1971, with the abandonment of the dollar-gold exchange
standard, as the world entered an era of ‘managed’ exchange rates, some
‘floating’, some ‘pegged’, ‘international liquidity’ came to mean the resources

available to national monetary authorities to maintain the value of their
currencies as required by their exchange management programs.
• Today, the international reserves of a national central bank is often less
important than the credit and reserves available to residents of that country
that permit them to import goods whatever the reserve position of the
monetary authorities.

Additional
• Liquidity In A Post-Gold-Standard World
•
• After the Asian financial crises of 1997, it became clear that with
globalization and open economies, national monetary authorities often no
longer had even nominal control over their exchange rates.
•
• As countries abandoned the licensing of imports, exports, and international
credit and investment operations, control of foreign exchange assets passed
to the private sector.
•
• For countries operating without exchange licensing, the access to resources
needed to settle a ‘balance of payments deficit’, no longer were managed by
central banks, but were controlled by private businesses and individuals.
•
• Under liberal trading systems, Central banks often do not even have a way to
accurately measure foreign exchange assets controlled by private citizens,
much less the ability to determine the access of the private sector to
international lines of credit.
• Individualized ‘Balance of Payments’
•
• Today, the international reserves of a national central bank is often less
important than the credit and reserves available to residents of that country
that permit them to import goods whatever the reserve position of the
monetary authorities.
•
• If a country is not trying to peg its exchange rate to a specific foreign
currency, the aggregate ‘trade deficit’ of that country is not necessarily
relevant to an individual businessperson who controls his or her own assets
and credit.


International Liquidity Is A Fuzzy Concept

• Consequently, ‘international liquidity’ sometimes retains the older meaning,
related to the foreign currency assets of the monetary authority, for
countries that manage exchange rates and exercise various degrees of direct
control over international transactions of residents.
•
• However, for countries with free trading regimes and floating exchange rates,
‘international liquidity’ may more properly be thought of as the foreign
exchange assets and credit available to residents of a country that would
allow them to import from abroad at their discretion.
•
• Today’s international economy is supported by monetary authorities with
varying degree of control over their nation’s balance of payments and foreign
currency reserves.
•
• Consequently, the meaning of ‘international liquidity’ is somewhat vague,
relative to the particular foreign exchange policies of a specific country.

Problems of international liquidity

• Imports, Globalization and structural shifts


International Bank for Reconstruction and
Development
• IBRD was established to provide long term assistance for the reconstruction
and development of economies of the economies of the member countries
• The International Bank for Reconstruction and Development (IBRD) is
institutions that comprise the World Bank Group.
• The IBRD is an international organization whose original mission was to
finance the reconstruction of nations devastated by World War II.
• Now, its mission has expanded to fight poverty by means of financing
states.
• Its operation is maintained through payments as regulated by member
states.
• It came into existence on December 27, 1945 following international
ratification of the agreements reached at the United Nations Monetary and
Financial Conference of July 1 to July 22, 1944 in Bretton Woods, New
Hampshire.
• The IBRD provides loans to governments, and public enterprises, always with
a government (or "sovereign") guarantee of repayment subject to general
conditions (pdf).
• Commencing operations on June 25, 1946, it approved its first loan on May
9, 1947 ($250m to France for postwar reconstruction, in real terms the
largest loan issued by the Bank to date).
• The IBRD was established mainly as a vehicle for reconstruction of Europe
and Japan after World War II, with an additional mandate to foster economic
growth in developing countries in Africa, Asia and Latin America. Originally
the bank focused mainly on large-scale infrastructure projects, building
highways, airports, and power plants.

Functions of IBRD

• To assist in the reconstruction and development and development of its
member countries

• To promote private foreign investment by means of guarantees

• To promote long range balanced growth of international trade and the
maintenance of equilibrium in the BOP of member countries

Additional


• The funds for this lending come primarily from the issuing of World Bank
bonds on the global capital markets—typically $12–15 billion per year.
• These bonds are rated AAA (the highest possible) because they are backed
by member states' share capital, as well as by borrowers' sovereign
guarantees. (In addition, loans that are repaid are recycled, or relent.)
Because of the IBRD's credit rating, it is able to borrow at relatively low
interest rates. As most developing countries have considerably lower credit
ratings, the IBRD can lend to countries at interest rates that are usually quite
attractive to them, even after adding a small margin (about 1%) to cover
administrative overheads.
• As Japan and its European client countries "graduated" (achieved certain
levels of income per capita), the IBRD became focused entirely on developing
countries. Since the early 1990s the IBRD has also provided financing to the
post-Socialist states of Eastern Europe and the republics of the former Soviet
Union.

International Development Association
• Established in 1960 as an affiliate to IBRD

• Objectives –

• To provide development finance on easy terms to less developed member
countries

• To provide assistance for poverty alleviation in the poorest countries

• To provide finance at concessional interest rates


International Finance Corporation (IFC)

 The International Finance Corporation (IFC) promotes sustainable private
sector investment in developing countries as a way to reduce poverty and
improve people's lives.
 IFC is a member of the World Bank Group and is headquartered in Washington,
DC.
 It shares the primary objective of all World Bank Group institutions: to
improve the quality of the lives of people in its developing member countries.
 Established in 1956, IFC is the largest multilateral source of loan and equity
financing for private sector projects in the developing world.
 It promotes sustainable private sector development primarily by:

1. Financing private sector projects and companies located in the developing
world.
2. Helping private companies in the developing world mobilize financing in
international financial markets.
3. Providing advice and technical assistance to businesses and governments.

Ownership and management

 IFC has 181 member countries , which collectively determine its policies and
approve investments.
 To join IFC, a country must first be a member of the International Bank for
Reconstruction and Development (IBRD).
 ADDITIONAL
 IFC's corporate powers are vested in its Board of Governors, to which member
countries appoint representatives.
 IFC's share capital, which is paid in, is provided by its member countries, and
voting is in proportion to the number of shares held.
 IFC's authorized capital (the sums contributed by its members over the years)
is $2.45 billion; IFC's net worth (which includes authorized capital and retained
earnings) was $9.8 billion as of June 2005. [2]

[edit] Funding

 The IFC's equity and quasi-equity investments are funded out of its paid-in
capital and retained earnings (which comprise its net worth).
 Strong shareholder support, triple-A ratings and a substantial capital base allow
the IFC to raise funds on favorable terms in international capital markets.
 As of June 30, 2006, retained earnings represented almost three-quarters of the
IFC's $9.8 billion net worth.

Activities

Private sector financing is IFC's main activity, and in this respect is a profit-
oriented financial institution (and has never had an annual loss in its 50-year
history). Like a bank, IFC lends or invests its own funds and borrowed funds to its
customers and expects to make a sufficient risk-adjusted return on its global
portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in
poverty in line with its mandate.

In practice, this is broadly interpreted, but considerable time and effort is devoted
to both (i) selecting projects with positive developmental outcomes,

(ii) improving the developmental outcome of projects by various means.

Apart from its core investment activities, IFC also carries out technical cooperation
projects in many countries to improve the investment climate.


Asian Development Bank
• The Asian Development Bank (ADB) is a regional development bank
established in 1966 to promote economic and social development in Asian
and Pacific countries through loans and technical assistance.
• It is a multilateral development financial institution owned by 67 members
(as of 2nd February 2007)[1], 48 from the region and 19 from other parts of
the globe. ADB's vision is a region free of poverty.
• Its mission is to help its developing member countries reduce poverty and
improve the quality of life of their citizens.
• The work of the Asian Development Bank (ADB) is aimed at improving the
welfare of the people in Asia and the Pacific, particularly the 1.9 billion who
live on less than $2 a day. Despite many success stories, Asia and the Pacific
remains home to two thirds of the world are poor.
• The bank was conceived with the vision of creating a financial institution
that would be "Asian in character" to foster growth and cooperation in a
region that back then was one of the world’s poorest.
• ADB raises funds through bond issues on the world's capital markets, while
also utilizing its members' contributions and earnings from lending. These
sources account for almost three quarters of its lending operations.

Organization

• ADB is headquartered in Mandaluyong City, Philippines.
• Traditionally, and because Japan is one of the largest shareholders of the
bank, the President has always been Japanese. The current President is
Haruhiko Kuroda.

ADDITIONAL

• The highest policy-making body of the bank is the Board of Governors
composed of one representative from each member state.
• The Board of Governors, in turn, elect among themselves the 12 members
of the Board of Directors and their deputy. Eight of the 12 members come
from regional (Asia-Pacific) members while the others come from non-
regional members.
• The Board of Governors also elect the bank's President who is the
chairperson of the Board of Directors and manages ADB.
• The president has a term of office lasting five years, and may be reelected.


Notable ADB projects and Technical Assistance

1. Afghan Diaspora Project
2. Funding Utah State University led projects to bring labor skills in
Thailand[citation needed]
3. Earthquake and Tsunami Emergency Support Project in Indonesia
4. Greater Mekong Subregional Program[2]
5. ROC Ping Hu Offshore Oil and Gas Development
6. Solar energy development funds in India
7. Strategic Private Sector Partnerships for Urban Poverty Reduction in the
Philippines
8. Trans-Afghanistan Gas Pipeline Feasibility Assessment
9. Loan of $1.2 billion to bail it out of an impending economic crisis in
Pakistan[3]


World Trade Organisation

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