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 committeesIt oversees the implementations of issues related to tariff cut an non tariff measures agreed to in the trade negotiations

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It examines the trade regimes of the individual member countriesWTO provides dispute settlement courts and panelIt acts as a management consultant for world tradeIt provides technical co-operations and trainingIt can be used as a forum for continuous negotiations It co-opts with the international institutions like IMF,IBRD etc for making global economic policyAnd 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 countriesThe 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





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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







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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 liquidityImports, 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 countriesThe 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





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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





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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]





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[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.





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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 Project2. Funding Utah State University led projects to bring labor skills in

Thailand[citation needed]3. Earthquake and Tsunami Emergency Support Project in Indonesia4. Greater Mekong Subregional Program[2]5. ROC Ping Hu Offshore Oil and Gas Development6. Solar energy development funds in India7. Strategic Private Sector Partnerships for Urban Poverty Reduction in the

Philippines8. Trans-Afghanistan Gas Pipeline Feasibility Assessment9. Loan of $1.2 billion to bail it out of an impending economic crisis in

Pakistan[3]





World Trade Organisation

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