International Economic Environment

8/7/2019 International Economic Environment

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International Economic Environmentand evolution of International

Financial Institutions.


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W orld W ar II 1939 to 1945


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The WW2 began with invasion of Poland by Germany on 01.09.1939.

Almost entire Europe wasconquered by Germany in 1941.Britain and the Cwealth remainedthe only major force continuingthe fight against the Axis.In December 1941, Japan, whichhad already been at war withChina since 1937, and which aimedto establish a dominance over East

Asia and South East Asia, attackedthe Pearl Harbor in US.


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The next day the United Statesdeclared war on Japan resultingin their entry into World War II.For six months, the United Stateshad made use of intense strategicfire-bombing of 67 Japanesecities.The U.S. dropped the nuclear weapon on the city of Hiroshimaon Monday, August 6, 1945,followed by the detonation of "FatMan" over Nagasaki on August 9.Six days after the detonation overNagasaki, on August 15, Japanannounced its surrender ending

WW2


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Th e Bretton W oods Conference - 1944


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The BWC was a gathering of 730 delegates from all

44 Allied nations.The conference was held from 1-22 July 1944, whenthe agreements were signed to set up theInternational Bank for Reconstruction and

Development (IBRD), the General Agreement onTariffs and Trade (GATT), and the InternationalMonetary Fund (IMF).

As a result of the conference, the Bretton Woodssystem of exchange rate management was set up,

which remained in place until the early 1970s.


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G eneral Agreement on T ariffs and T rade


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The General Agreement on Tariffs and Trade(GATT) was negotiated during the UN Conferenceon Trade and Employment and was the outcome of the failure of negotiating governments to createthe International Trade Organization (ITO).

GATT was formed in 1949 and lasted until 1993, when it was replaced by the World TradeOrganization in 1995.

The original GATT text (GATT 1947) is still ineffect under the WTO framework, subject to themodifications of GATT 1994.


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N AME. DA T E. NO . O FCOUN TR IES

ACHIEVME N T S.

Geneva 1947 23 Signing of GATT, 45000tariff concessions affecting

$10 billion of trade

Annecy 1949 13 Countries exchanged some

5000 tariff concessionsTorquay 1950 38 Countries exchanged 8700

tariff concessions, cutting

the 1948 tariff levels by 25%

GenevaII

1956 26 $2.5 billion in tariff reductions and admission

of Japan.


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N AME. DA T E. NO . O FCOUN TR IES

ACHIEVME N T S.

Dillon 1960 26 Tariff concessions worth$4.9 billion of world trade

Kennedy 1964 62 Tariff concessions worth$40 billion of world trade

Tokyo 1973 102 Tariff reductions worthmore than $300 billion

dollars achieved


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N AME. DA T E. NO . O FCOUN TR

IES

ACHIEVME N T S.

Uruguay 1986 123 The round led to the creation of WTO, and extended the range of trade negotiations, leading to

major reductions in tariffs (about40%) and agricultural subsidies, an

agreement to allow full access fortextiles and clothing from

developing countries, and anextension of IPR.

Doha 2001 141 Tariffs, non-tariff measures,agriculture, labor standards,environment, competition,

investment, transparency, patents,

etc.


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W orld T rade O rganization


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The WTO came into existence in 1995 as asuccessor to GATT.

It has more than 150 member countries and other30 countries are negotiating membership.

WTO agreements have been ratified in all membercountries parliaments.


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Functions of WT O


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Facilitate the implementation, administration andoperation of the Trade Agreements.

Forum for further negotiations.

Settlement of disputes among member countries.

Periodic reviews of trading policies of members.

Provide assistance to developing countries throughtechnical assistance and training programs.


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Protection of intellectual property rights (IPR).

Covers the procedural aspects of export-importsuch as import restrictions, customs valuation,pre-shipment inspection, etc.

Impose discipline on pricing issues.

Every decision made by WTO is binding on allmember countries.


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Basic Principles of WT O


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T rade wit h out discrimination

Most Favored N ation (MF N) treatment Countries cannot normally discriminate betweentheir trading partners. If a country grantssomeone a special favor then it has to do thesame to all member countries.N ational T reatment Imported and locally produced goods should be treated equally. At

least after the foreign goods have entered themarket.


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Moving towards free marketsL

owering trade barriers to encourageinternational trade.Since GATTs creation focus is on loweringtariffs.

Developing countries are given more time.Predictability of IM environment.

Ensure that ad hoc restrictions are not imposedand tariffs are not increased (Tariff Binding).Stability gives clearer view to businesses.


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Promoting fair competition WTO is described as free trade institution which is not entirely correct.Tariffs and other forms of protection are allowedin certain circumstances.It is a system of rules to promote open, fair andundistorted competition.T ariffication of N on T ariff Barriers.

In Uruguay round members agreed to replace

Quotas, L icensing and other restrictive measures with Tariffs and further reduce them.Developed countries 36% in six years.Developing countries 24% in Ten years.


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Structure and Levels of WT O


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Umbrella Agreement which established WTOlays down the basic principles.

Agreements on broad areas covered GATT forgoods, GATS for services and TRIPS forintellectual property rights.Dispute settlement.

Review of governments trade policies

Structure .


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Ministerial Conference Top most level- Meetsat least once in two years.General Council Day to day handling of activities. Consists of General Council, Dispute

settlement body, Trade policy review body- Allreporting to Ministerial Conference.Council For Trade Reporting to GeneralCouncil Consisting of Trade in Goods Council,Trade in Services Council, Trade RelatedIntellectual Property Rights ( TRIPS).Subsidiary Bodies Dispute Settlement Bodies.

Levels .


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Th e W orld Bank G roup.


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IB R D International Bank for

R econstruction and Development.Established in 1945 and has presently 184members.Objective is reduce poverty in creditworthy poorcountries through loans, advisory and analyticalservices.Cumulative lending of around 500 billion

Dollars.India is one of the founder members and alsoone of the highest borrowers.


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IDA International Development

Association.Established in 1960 and has presently 165members.Objective is provide highly concessional (Interestfree) financing to worlds 81 poorest countries.Cumulative lending of around 151 billion Dollars.India, Bangladesh, Congo and Uganda are major

borrowers.Th e T erm W orld Bank collectively refers to IB R D and IDA only


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IFC International Finance Corporation.

Established in 1956 and has presently 176members.Objective is promote economic developmentthrough private sector lending.It invests in sustainable private enterprises indeveloping countries without govt. guarantees.It provides finance in markets deemed too risky

by commercial financers.It implements corporate governance,environmental and social welfare in projects.


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MI G A Multilateral Investment

G uarantee Agency.Established in 1988 and has presently 164members.It promotes FDI in developing countries by proving guarantees against non commercial riskslike war, civil disturbance, breach of contract,etc.It provides comprehensive investment insurance

worldwide.It has committed guarantees worth 394 billiondollars.


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ICSID International Centre forSettlement of Investment Disputes.

Established in 1966 under the convention of settlement of investment disputes.Its basic objective is to establish institutionalmechanism to settle investment disputes

between governments and foreign investors.


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International Monetary Fund (IMF ) .


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The IMF was conceived in 1944 during theBretton Woods conference. Its objectives are:

1. Promote international monetary cooperation2. Expansion and balanced growth of

international trade.3. Promote exchange stability.4. Establishment of multilateral system of

payments.5. Making its resources available to countriesexperiencing BOP difficulties.


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The IMF performs the following 3 functions toachieve its objectives:

1. Surveillance Macro economic situation incountries which includes govt. spending,output, employment, inflation, BOP, etc.

2. T ec h nical Assistance Offered free of charge to member countries. It includestraining in Fiscal policy, Monetary andExchange rate policies.

3. Special Drawing R ig h ts (SD R ) It is aninternational reserve asset also known aspaper gold. SDR of 29 billion dollars wereallocated to needy members in 1981.

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International Economic Environment