What are the Three Major International Institutions?
The First World War and the Second World War adversely affected almost all the world's economies. Lack of resources prevented countries from starting reconstruction and development work. Even international trade between nations got affected adversely because of the disruption in the world’s monetary system. That's when a meeting was held at Bretton Woods, New Hampshire, to identify measures to restore peace and normalcy in the world.
The meeting concluded with the setting up of three major international institutions, namely The International Monetary Fund, The International Bank for Reconstruction and Development and the International Trade Organisation. They considered these three organisations as pillars of the world's economic development.
International Monetary Fund (IMF)
The IMF was established in 1945. As of 2005, 191 countries are its members. The main idea underlying the creation of the IMF was the development of an orderly international monetary system, i.e., facilitating global payment systems and adjusting exchange rates between national currencies.
Objectives of IMF
Promotion of international monetary cooperation.
To Promote the expansion of balanced growth in international trade.
Promoting and maintaining high levels of employment and real incomes.
promoting exchange rate stability to maintain orderly exchange arrangements among member countries.
Assist in setting up multilateral payment systems for ongoing transactions between members.
Functions of IMF
Some of the functions of the international monetary fund are described below-
Role as a short-term credit institution.
Acts as a hoard of currency for all member countries from which borrowing countries can borrow currencies of other countries.
Function as a credit institution for foreign currency and current transactions.
World Bank
The International Bank for Reconstruction and Development is also known as the World Bank. The main goal behind this international organisation was to help rebuild the economies of war-affected Europe and to assist the development of the world's developing countries. The World Bank then turned its attention to developing countries.
Objectives of World Bank
The objectives of the world bank include providing long-term capital to member countries for economic development and reconstruction.
It helps to guide long-term capital and improve the balance of payments, thereby balancing international trade.
It ensures that development projects are delivered. Thus it brings transparency to the country from wartime to a peaceful economy.
It also helps by providing guarantees against loads imposed on large and small units and other projects in the Member States.
It also encourages capital investment in member countries by providing guarantees for capital investments and loans.
Functions
The Functions of the world bank are-
To support war-torn countries by providing loans for reconstruction. In doing so, they provide a wealth of experience, and World Bank resources help poor countries boost economic growth, reduce poverty, and achieve better standards of living.
It also supports developing countries by providing development loans. As such, it provides loans to various governments for irrigation, agriculture, water supply, health, education, and more.
It encourages foreign investment in other organisations by guaranteeing loans.
The World Bank also provides economic, financial and technical advice to member countries on all projects. In this way, introducing various economic reforms promotes industrial development in developing countries.
World Trade Organisation (WTO) and Important Trade Agreements
Let’s discuss some of the most important trade agreements of the World Bank.
The General Agreement on Tariffs and Trade (GATT) was signed on January 1, 1948, liberating the world from high tariffs and other restrictions. Establishing a permanent body to promote free trade between countries is one of the most outstanding achievements of the GATT negotiations. This is one of the WTO's most important trade agreements. On January 1, 1995, the World Trade Organisation replaced the GATT organisation.
Objectives
To ensure that various countries' tariffs and other trade barriers are removed.
It is improving living standards and creating employment opportunities.
To increase income and effective demand, facilitating increased production and trade.
Ensure efficient use of the earth's resources for sustainable development.
Promote a more integrated, sustainable and durable trading system.
Functions
Promote an environment that encourages Member States to turn to the WTO to alleviate grievances.
Establishing generally accepted codes of conduct aimed at removing barriers to trade, including tariffs, and eliminating discrimination in international trade relations.
Acting as a Dispute Resolution Body Ensuring proper compliance with all regulations required by law for the Member States to resolve disputes.
Case Study:
The commerce ministry has conducted several meetings to finalise the foreign trade policy. Several steps were considered, such as announcing the new WTO- complaint export incentive scheme and the new foreign trade policy for the next five years in 2022 to push the country’s export. Explain the role that needs to be performed by WTO here. Explain the part that needs to be completed by WTO here
Ans. The commerce ministry conducted a series of meetings, made several announcements, and took steps to finalise the foreign trade policy. So the role that needs to be performed by WTO for its successful implementation is discussed below-
To offer a platform for members to negotiate global trade agreements.
To Facilitate the settlement of trade disputes among the members.
Oversee national trade policy.
To Cooperate with other international institutions that are involved in global policy making.
To administer and implement the multilateral trade agreements.
Summary
The 1944 Bretton Woods Conference, which established the International Monetary Policy Organisation, recognized the need for an equivalent international trading organisation to complement the International Monetary Fund and the World Bank. The Bretton Woods Conference was attended by representatives of the Treasury Department rather than the Department of Commerce, suggesting why no trade deal was negotiated at the time. World Trade Organisations and other reforms carried out by the governments of different countries have also been significant contributors to the increased interaction and business relations amongst the nations.
FAQs on International Trade: Institutions and Agreements
1. What are international trade institutions, and why are they necessary?
International trade institutions are organisations that establish rules and provide a framework for commercial activities between countries. Key examples include the World Trade Organisation (WTO), the International Monetary Fund (IMF), and the World Bank. They are necessary to promote stable, predictable, and fair economic relations globally. Their functions include facilitating trade negotiations, resolving disputes, and providing financial and technical assistance to member nations, thereby fostering economic growth and cooperation.
2. What is the core difference between the World Bank and the International Monetary Fund (IMF)?
The primary difference lies in their core objectives and functions. The World Bank is a development institution focused on providing long-term financial and technical assistance to developing countries for reconstruction and development projects, such as building infrastructure. In contrast, the International Monetary Fund (IMF) aims to ensure the stability of the international monetary system. It provides short-to-medium-term loans to countries facing balance of payments problems and oversees its members' economic policies. You can learn more about the distinct roles of the IMF and WTO in international trade.
3. What is the main role of the World Trade Organisation (WTO) in global commerce?
The World Trade Organisation (WTO) is the only global international organisation dealing with the rules of trade between nations. Its main role is to ensure that trade flows as smoothly, predictably, and freely as possible. Key functions include:
- Administering trade agreements negotiated by its members.
- Acting as a forum for trade negotiations.
- Settling trade disputes between member countries.
- Providing technical assistance and training for developing countries.
- Cooperating with other international organisations.
4. How do international trade agreements actually work?
International trade agreements are contracts between two or more countries designed to reduce or eliminate barriers to trade, such as tariffs (taxes on imports) and non-tariff barriers (like quotas and regulations). They work by establishing a set of mutually agreed-upon rules that govern commerce. This creates a more predictable and transparent trading environment, encourages investment, and allows businesses to access larger markets, ultimately lowering costs for consumers and fostering economic growth.
5. What is the difference between a bilateral and a multilateral trade agreement?
The key difference is the number of participating countries. A bilateral agreement is a trade pact between two countries. It is designed to grant preferential trading conditions to each other. A multilateral agreement involves three or more countries and establishes rules of trade for all members. The agreements under the WTO are the most prominent examples of multilateral agreements, aiming to create a level playing field for all participants in global trade.
6. How does the General Agreement on Tariffs and Trade (GATT) relate to the WTO?
The General Agreement on Tariffs and Trade (GATT) was the predecessor to the WTO. Signed in 1947, GATT was an agreement, not an organisation, focused on reducing tariffs on goods. Over several rounds of negotiations, its scope expanded. The final round, the Uruguay Round (1986-1994), led to the creation of the World Trade Organisation (WTO) in 1995. The WTO absorbed the original GATT principles but expanded its scope to include trade in services, intellectual property, and a more robust dispute settlement mechanism, making it a permanent institution. These topics are often covered in important questions for CBSE Class 11 Business Studies Chapter 11.
7. How can international trade agreements impact a country's domestic industries?
International trade agreements can have both positive and negative impacts. On the positive side, they can open up new export markets for efficient domestic industries, leading to growth and job creation. However, they also increase competition from foreign companies. This can challenge less competitive domestic industries, potentially leading to job losses or the need for restructuring. Therefore, governments often implement safeguard measures or provide support to help domestic industries adapt to the increased global competition.
