World Trade Organization (WTO)

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World Trade Organization (WTO):

The World Trade Organization (WTO) is an organization with the intention of


liberalizing and supervising international trade. The organization deals with
trade regulation between countries. Its main function is to ensure that trade flows as
smoothly, predictably, and freely as possible.The functions of the World Trade
Organization (WTO) was formed officially on the first of January in 1995
under the Marrakesh Agreement with goals of liberalizing and supervising
international trading among countries participating. A framework is provided
by the WTO to negotiate and formalize agreements of trade and a process of
dispute resolution aimed at enforcing adherence of participants to signed
WTO agreements by member governments representatives. Negotiations on
the Doha Development Round is attempted to be completed by the
organization, launched in 2001 with a focus explicitly to address developing
countries needs. The future remains uncertain for the Doha Round as of June
2012.
Functions of WTO:

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to
ensure the coherence and transparency of trade policies through surveillance in global economic
policy-making. Another priority of the WTO is the assistance of developing, least-developed and
low-income countries in transition to adjust to WTO rules and disciplines through technical
cooperation and training.
1. The WTO shall facilitate the implementation, administration and operation and further
the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also
provide the frame work for the implementation, administration and operation of the
multilateral Trade Agreements.
2. The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to
this Agreement.
3. The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.
4. The WTO shall administer Trade Policy Review Mechanism.

5. With a view to achieving greater coherence in global economic policy making, the WTO
shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the
International Bank for Reconstruction and Development (IBRD) and its affiliated
agencies

WTO Goals
The goals behind the functions of WTO were set out in the Marrakech Agreement preamble, and
these include:

Expanding the trade production in services and goods

Ensuing large real incomes and demand are steadily growing

Ensuring employment that is full

Raising living standards.

Principles of the trading system


The WTO establishes a framework for trade policies; it does not define or specify outcomes.
That is, it is concerned with setting the rules of the trade policy games.Five principles are of
particular importance in understanding both the pre-1994 GATT and the WTO:
1. Non-discrimination. It has two major components: the most favoured nation (MFN)
rule, and the national treatment policy. Both are embedded in the main WTO rules on
goods, services, and intellectual property, but their precise scope and nature differ across
these areas. The MFN rule requires that a WTO member must apply the same conditions
on all trade with other WTO members, i.e. a WTO member has to grant the most
favorable conditions under which it allows trade in a certain product type to all other
WTO members."Grant someone a special favour and you have to do the same for all
other WTO members. National treatment means that imported goods should be treated no
less favorably than domestically produced goods (at least after the foreign goods have
entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical
standards, security standards et al. discriminating against imported goods).
2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise
because of the MFN rule, and a desire to obtain better access to foreign markets. A related
point is that for a nation to negotiate, it is necessary that the gain from doing so be greater
than the gain available from unilateral liberalization; reciprocal concessions intend to
ensure that such gains will materialise.

3. Binding and enforceable commitments. The tariff commitments made by WTO


members in a multilateral trade negotiation and on accession are enumerated in a
schedule (list) of concessions. These schedules establish "ceiling bindings": a country can
change its bindings, but only after negotiating with its trading partners, which could mean
compensating them for loss of trade. If satisfaction is not obtained, the complaining
country may invoke the WTO dispute settlement procedures.
4. Transparency. The WTO members are required to publish their trade regulations, to
maintain institutions allowing for the review of administrative decisions affecting trade,
to respond to requests for information by other members, and to notify changes in trade
policies to the WTO. These internal transparency requirements are supplemented and
facilitated by periodic country-specific reports (trade policy reviews) through the Trade
Policy Review Mechanism (TPRM). The WTO system tries also to improve
predictability and stability, discouraging the use of quotas and other measures used to set
limits on quantities of imports.
5. Safety valves. In specific circumstances, governments are able to restrict trade. The
WTO's agreements permit members to take measures to protect not only the environment
but also public health, animal health and plant health.

Advantages of WTO
The WTO is a body designed to promote free trade through organizing trade negotiations and act
as an independent arbiter in settling trade disputes. To some extent the WTO has been successful
in promoting greater free trade.
Free trade has many advantages, such as:
1. Lower prices for consumers. Removing tariffs enables us to buy cheaper imports
2. Free trade encourages greater competitiveness. Firms face a higher incentive to cut costs.
For example, a domestic monopoly may now face competition from foreign firms.
3. Law of comparative advantage states that free trade will enable an increase in economic
welfare. This is because countries can specialise in producing goods where they have a
lower opportunity cost.
4. Economies of scale. By encouraging free trade, firms can specialise and produce a higher
quantity. This enables more economies of scale, this is important for industries with high
fixed costs, such as car and aeroplane manufacture.
5. Free trade can help increase global economic growth.

Disadvantages of WTO

However, the WTO has often been criticised for ignoring the plight of the developing
world.

It is argued the benefits of free trade accrue mostly to the developed world.

Free trade may prevent developing economies develop their infant industries. For
example, if a developing economy was trying to diversify their economy to develop a
new manufacturing industry, they may be unable to do it without some tariff protection.

In response to this the WTO may say that free trade has been an important engine of growth for
developing countries in Asia. Although there may be some short term pain, it is worth it in the
long run.

International Monetary Fund:


The International Monetary Fund and the World Bank were created in 1944 at
a conference in Bretton Woods, New Hampshire, and are now based in
Washington, DC. The IMF was originally designed to promote international
economic cooperation and provide its member countries with short term
loans so they could trade with other countries (achieve balance of
payments). Since the debt crisis of the 1980's, the IMF has assumed the role
of bailing out countries during financial crises (caused in large part by
currency speculation in the global casino economy) with emergency loan
packages tied to certain conditions, often referred to as structural
adjustment policies (SAPs). The IMF now acts like a global loan shark,
exerting enormous leverage over the economies of more than 60 countries.
These countries have to follow the IMF's policies to get loans, international
assistance, and even debt relief. Thus, the IMF decides how much debtor
countries can spend on education, health care, and environmental
protection. The IMF is one of the most powerful institutions on Earth.

Membership:
There are two types of members of the Fund

1) ORIGINAL MEMBERS:
All those countries whose representatives took part in Bretton Woods Conference
and who agreed to be the member of the fund prior to 31st December,1945, are
called Ordinary Members
2) ORDINARY MEMBERS:

All those countries who became its member subsequently are called Ordinary
Members. Any country can cease to be its member after giving a notice in writing
to that effect. Fund can terminate the membership of such a country which does
not observe its rules. In 1945, the number countries were in 44, in year 2007 the
number of member countries was 185.

Objectives:

IMF seeks to achieve the following objectives:

To promote international monetary cooperation.

To facilitate the expansion of international trade.

To ensure stability to foreign exchange rates.

To reduce disequilibrium in the international balance of payments of member countries.

To promote capital investment in backward and underdevelopment countries.

To assist in the establishment of a multinational system of payments in respect of current


transactions between the member countries.

To secure multilateral convertibility (i.e., to convert the currency of any member into the
currency of any other member).

To provide short term monetary help to members during emergency.

To achieve balanced economic growth and high level of employment in member countries.

SUCCESS OF IMF:

International Monetary Cooperation.


Reconstruction of European Countries.

Multilateral System of Foreign Payments.


Increase in International Liquidity.
Increase in International Trade.
Special Aid to Developing Countries.
Providing Statistical Information.
Helpful in Times of Difficulties.
Easiness & Flexibility in Making International Payments.

FAILURES OF IMF:

Lack of Stability in Exchange Rate.


Lack of Stability in the Price of Gold.
Inability to Remove Restrictions on Foreign Trade.
Rich Nations Club.
No help for development projects.
No Solution of International Liquidity.
Interference in Domestic Economies.
Inability to tackle the Monetary Crisis of August 1971.
Less Aid for Developing Countries.
High Rate of Interest.

World Bank
The World Bank provides financial and technical assistance to emerging market countries. The
World Bank is not a bank in the conventional sense of the word. Instead, it consists of two
development institutions, the International Bank for Reconstruction and Development (IBRD)
and the International Development Association (IDA). These are owned by the Bank's 186
member countries.
The Bank works closely with three other organizations that support its goal of reducing
worldwide poverty. They are the International Finance Corporation (IFC), the Multilateral

Guarantee Agency (MIGA), and the International Centre for the Settlement of Investment
Disputes (ICSID). All five organizations make up the World Bank Group.
The World Bank was created at Bretton Woods in 1944 to lend to European countries to help
them rebuild after World War II. It was the world's first multilateral development bank and was
funded through the sale of World Bonds. Its first loans were to France and other European
countries. In the 1070s, it lent money to Chile, Mexico, and India to build power plants and
railways. By 1975, the Bank also lent money to countries to help with family planning, pollution
control, and environmentalism.

Objectives:
The following objectives are assigned by the World Bank:
1. To provide long-run capital to member countries for economic reconstruction and
development.
2. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium
and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other projects of member
countries.
4. To ensure the implementation of development projects so as to bring about a smooth
transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides loans
for productive activities on considerate conditions.

Functions:
World Bank is playing main role of providing loans for development works to member countries,
especially to underdeveloped countries. The World Bank provides long-term loans for various
development projects of 5 to 20 years duration.
The main functions can be explained with the help of the following points:
1. World Bank provides various technical services to the member countries. For this purpose, the
Bank has established The Economic Development Institute and a Staff College in Washington.

2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.
3. The quantities of loans, interest rate and terms and conditions are determined by the Bank
itself.
4. Generally, Bank grants loans for a particular project duly submitted to the Bank by the
member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the loan
was sanctioned.
6. Bank also provides loan to private investors belonging to member countries on its own
guarantee, but for this loan private investors have to seek prior permission from those counties
where this amount will be collected.

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