Transcript Round 1 International Financial Organizations

Round 1 International Financial Organizations
The workings of the WTO, World Bank and IMF
World Trade Organization
(WTO)
• The World Trade Organization (WTO) is the only
global international organization dealing with the
rules of trade between nations.
• At its heart are the WTO agreements, negotiated
and signed by the bulk of the world’s trading nations
(150 as of January 2007)and ratified in their
parliaments.
• Its goal is to help producers of goods and services,
exporters, and importers conduct their business.
Fast Facts
• Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 150 countries on 11 January 2007
Budget: 175 million Swiss francs for 2006
Secretariat staff: 635
Head: Pascal Lamy (Director-General)
• Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations
History of a 50 year old multilateral trading system
• 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.
• Total trade in 2000 was 22-times the level of 1950.
• The system was developed through a series of trade negotiations, or
rounds, held under GATT dealing mainly with tariff reductions but later
including other areas such as anti-dumping and non-tariff measures. The
last round — the 1986-94 Uruguay Round — led to the WTO’s creation.
• In February 1997 agreement was reached on telecommunications
services, with 69 governments agreeing to wide-ranging liberalization
measures that went beyond those agreed in the Uruguay Round.
• 1997 40 governments successfully concluded negotiations for tariff-free
trade in information technology products, and 70 members concluded a
financial services deal covering more than 95% of trade in banking,
insurance, securities and financial information.
• In 2000, new talks started on agriculture and services, incorporated into
a broader agenda launched at the fourth WTO Ministerial Conference in
Doha, Qatar, in November 2001.
Organization
• The WTO’s overriding objective is to help trade
flow smoothly, freely, fairly and predictably.
• It does this by:
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Administering trade agreements
Acting as a forum for trade negotiations
Settling trade disputes
Reviewing national trade policies
Assisting developing countries in trade policy issues,
through technical assistance and training programmes
– Cooperating with other international organizations
Structure
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The WTO has nearly 150 members, accounting for over 97% of world
trade. Around 30 others are negotiating membership.
Decisions are made by the entire membership. This is typically by
consensus. A majority vote is also possible but it has never been used in
the WTO, and was extremely rare under the WTO’s predecessor, GATT.
The WTO’s agreements have been ratified in all members’ parliaments.
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 and
Intellectual Property (TRIPS) Council report to the General Council.
Numerous specialized committees, working groups and working
parties deal with the individual agreements and other areas such as the
environment, development, membership applications and regional
trade agreements.
The Secretariat
• Based in Geneva, has around 600 staff
and is headed by a director-general.
• Annual budget 160 million Swiss francs.
Since decisions are taken by the
members themselves, the Secretariat
does not have a decision-making role
• Main duties
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to supply technical support for the
various councils and committees and the
ministerial conferences,
to provide technical assistance for
developing countries,
to analyze world trade
to explain WTO affairs to the public and
media.
WTO Agreements
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the outcome of the 1986–94 Uruguay Round negotiations which included a major
revision of the original General Agreement on Tariffs and Trade
Since 1995, the updated GATT has become the WTO’s umbrella agreement for
trade in goods. It has annexes dealing with specific sectors such as agriculture and
textiles
Banks, insurance firms, telecommunications companies, tour operators, hotel
chains and transport companies looking to do business abroad can now enjoy the
same principles of freer and fairer trade that originally only applied to trade in
goods.
These principles appear in the new General Agreement on Trade in Services
(GATS). WTO members have also made individual commitments under GATS stating
which of their services sectors they are willing to open to foreign competition, and
how open those markets are.
The WTO’s intellectual property agreement amounts to rules for trade and
investment in ideas and creativity. The rules state how copyrights, patents,
trademarks, geographical names used to identify products, industrial designs,
integrated circuit layout-designs and undisclosed information such as trade secrets
— “intellectual property” — should be protected when trade is involved.
Dispute Settlements
• Countries bring disputes to the WTO if they think their rights
under the agreements are being infringed.
• Judgements by specially-appointed independent experts are
based on interpretations of the agreements and individual
countries’ commitments.
• System encourages countries to settle their differences
through consultation.
• Failing that, they can follow a carefully mapped out, stage-bystage procedure that includes the possibility of a ruling by a
panel of experts, and the chance to appeal the ruling on legal
grounds.
• Confidence in the system is borne out by the number of cases
brought to the WTO — around 300 cases in eight years
compared to the 300 disputes dealt with during the entire life
of GATT (1947–94).
Ten Benefits of the WTO
1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government
1. The system helps promote peace
• History is littered with examples of trade disputes turning
into war. One of the most vivid is the trade war of the 1930s
when countries competed to raise trade barriers in order to
protect domestic producers and retaliate against each
others’ barriers. This worsened the Great Depression and
eventually played a part in the outbreak of World War 2.
• Two developments immediately after the Second World War
helped to avoid a repeat of the pre-war trade tensions. In
Europe, international cooperation developed in coal, and in
iron and steel. Globally, the General Agreement on Tariffs
and Trade (GATT) was created.
• Both have proved successful, so much so that they are now
considerably expanded — one has become the European
Union, the other the World Trade Organization (WTO).
2. Disputes are handled constructively
• More trade means more possibilities for disputes to arise. Those
disputes could lead to serious conflict. A lot of international trade
tension is reduced because countries can turn to organizations, in
particular the WTO, to settle their trade disputes.
• Before World War 2 that option was not available. After the war, the
world’s community of trading nations negotiated trade rules which
are now entrusted to the WTO. Those rules include an obligation for
members to bring their disputes to the WTO and not to act
unilaterally.
• When they bring disputes to the WTO, the WTO’s procedure focuses
their attention on the rules. Once a ruling has been made, countries
concentrate on trying to comply with the rules, and perhaps later
renegotiating the rules — not on declaring war on each other.
• Around 300 disputes have been brought to the WTO since it was set up
in 1995. Without a means of tackling these constructively and
harmoniously, some could have led to more serious political conflict.
3. Rules make life easier for all
• The WTO agreements were negotiated by all members, were
approved by consensus and were ratified in all members’
parliaments.
• The agreements apply to everyone.
• Rich and poor countries alike have an equal right to challenge each
other in the WTO’s dispute settlement procedures.
– Smaller countries can enjoy some increased bargaining power.
• Without a multilateral regime such as the WTO’s system, the more powerful
countries would be freer to impose their will unilaterally on their smaller
trading partners.
• Smaller countries would have to deal with each of the major economic
powers individually, and would be much less able to resist unwanted
pressure.
• Smaller countries can perform more effectively if they make use of the
opportunities to form alliances and to pool resources. Several are already
doing this.
– The major economic powers can use the single forum of the WTO to
negotiate with all or most of their trading partners at the same time.
This makes life much simpler for the bigger trading countries.
4. Freer trade cuts the costs of living
• The system now entrusted to the WTO has been in place for over 50
years. In that time there have been eight major rounds of trade
negotiations. Trade barriers around the world are lower than they
have ever been in modern trading history.
• Food is cheaper
In 2000, new talks started on continuing the reform in agriculture. These have now been
incorporated into a broader work programme, the Doha Development Agenda, launched
at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001.
• Clothes are cheaper
If customs duties were also to be eliminated, economists calculate the result could be a
gain to the world of around $23 billion, including $12.3 billion for the US, $2.2 billion for
the EU and around $8 billion for developing countries.
• The same goes for other goods …
One of the objectives of the Doha Development Agenda (DDA) is another round of cuts
in tariffs on industrial products, i.e. manufactured and mining products. Some
economists predict that cutting these by one third would raise developing countries’
income by around $52 billion.
• … and services
Lowering services barriers by one third under the Doha Development Agenda would
raise developing countries’ incomes by around $60 billion.
5. Provides more choice (products and qualities)
• Think of all the things we can now have because we can import
them: fruits and vegetables out of season, foods, clothing and other
products that used to be considered exotic, cut flowers from any
part of the world, all sorts of household goods, books, music,
movies, and so on.
6. Trade raises incomes
• The WTO’s own estimates for the impact of the 1994 Uruguay
Round trade deal were between $109 billion and $510 billion added
to world income (depending on the assumptions of the calculations
and allowing for margins of error).
• More recent research has produced similar figures. Economists
estimate that cutting trade barriers in agriculture, manufacturing
and services by one third would boost the world economy by
$613 billion — equivalent to adding an economy the size of Canada
to the world economy.
• In Europe, the EU Commission calculates that over 1989–93 EU
incomes increased by 1.1–1.5% more than they would have done
without the Single Market.
• Trade also poses challenges as domestic producers face
competition from imports. But the fact that there is additional
income means that resources are available for governments to
redistribute the benefits from those who gain the most — for
example to help companies and workers adapt by becoming more
productive and competitive in what they were already doing, or by
switching to new activities.
7. Trade stimulates economic growth
• a reliable analysis of this poses at least two
problems.
• First, there are other factors at play. For example, technological
advance has also had a strong impact on employment and
productivity, benefiting some jobs, hurting others.
• Second, while trade clearly boosts national income (and
prosperity), this is not always translated into new employment for
workers who lost their jobs as a result of competition from
imports.
• In the United States, 12 million people owe their jobs to
exports; 1.3 million of those jobs were created between 1994
and 1998. And those jobs tend to be better-paid with better
security
• In Mexico, the best jobs are those related to export activities:
sectors which export 60 per cent or more of their production,
pay wages 39% higher than the rest of the economy and
maquiladora (in-bond assembly) plants pay 3.5 times the
Mexican minimum wage.
8. The basic principles make life more efficient
• Non-discrimination is just one of the key principles of
the WTO’s trading system. Others include:
– transparency (clear information about policies, rules and
regulations);
– increased certainty about trading conditions (commitments
to lower trade barriers and to increase other countries’ access
to one’s markets are legally binding);
– simplification and standardization of customs procedure,
removal of red tape, centralized databases of information,
and other measures designed to simplify trade that come
under the heading “trade facilitation”.
• Together, they make trading simpler, cutting
companies’ costs and increasing confidence in the
future. That in turn also means more jobs and better
goods and services for consumers.
9. Governments are shielded from lobbying
• The GATT-WTO system covers a wide range of
sectors. So, if during a GATT-WTO trade negotiation
one pressure group lobbies its government to be
considered as a special case in need of protection,
the government can reject the protectionist
pressure by arguing that it needs a broad-ranging
agreement that will benefit all sectors of the
economy.
• Governments do just that, regularly.
10. The system encourages good government
• Particular types of trade barriers provide opportunities for
corruption and bad government.
• One kind of trade barrier that the WTO’s rules try to tackle is the
quota, (restricting imports or exports to no more than a specific
amount each year).
• Quotas limit supply artificially raise prices, creating abnormally
large profits. That profit can influence policies because more
money is available for lobbying.
• It can also provide opportunities for corruption, in the allocation
of quotas among traders.
• Quotas are a particularly bad way of restricting trade.
Governments have agreed through the WTO’s rules that their use
should be discouraged.
• Nevertheless, quotas of various types remain in use in most
countries, and governments argue strongly that they are needed.
But they are controlled by WTO agreements and there are
commitments to reduce or eliminate many of them, particularly in
textiles.
World Bank
• Since 1944, the World Bank has expanded from a single
institution to a closely associated group of five development
institutions.
• Evolved from the International Bank for Reconstruction and
Development (IBRD) as facilitator of post-war reconstruction
and development to the present day mandate of worldwide
poverty alleviation in conjunction with the International
Development Association (IDA).
• World Bank has broadened its portfolio's focus to include social
sector lending projects, poverty alleviation, debt relief and good
governance.
• Today's World Bank, has sharpened its focus on poverty
reduction as the overarching goal of its work
• Voting weighted by size of annual contributions of
members
Structure of the World Bank Group
• IBRD: International Bank for
Reconstruction and Development
• IDA: International Development Agency
• IFC: International Finance Corporation
• MIGA: Multilateral Investment Guarantee
Agency
• ICSID: International Center for Settlement
of Investment Disputes
Millennium Development Goals
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Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality and empower women
Reduce child mortality
Improve maternal health
Combat HIV, malaria and other diseases
Ensure environmental sustainability
Develop a global partnership for development
Governance
• Board of Directors: one representative from each
member country that direct IBRD
• Weighted vote determined by size of annual
contribution to World Bank
• US the largest contributor with largest weight
• Daily governance of the World Bank overseen by 22
directors with five permanent spots allocated to
US, Japan, Great Britain, Germany and France
• Vice-presidents manage affairs in six regions:
Africa, East Asia and Pacific, Europe and Central
Asia, Latin America and the Caribbean, Middle East
and North Africa, South Asia
Fast Facts
• President: Paul Wolfowitz
• World Bank:
The International Bank for Reconstruction and Development
(IBRD) and the International Development Association (IDA).
• Affiliates:
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International Finance Corporation (IFC) Multilateral Investment
Guarantee Agency (MIGA)
– International Centre for Settlement of Investment Disputes
(ICSID)
• Membership: 185 countries
• Headquarters:
Washington, DC, and more than 100 country offices
• Staff: Approximately 10,000 employees in offices around the
world
• Established:
July 1, 1944 during a conference of 44 countries in Bretton
Woods, New Hampshire
Organization
• The World Bank is like a cooperative, where its 184
member countries are shareholders. The shareholders
are represented by a Board of Governors, who are the
ultimate policy makers at the World Bank.
• Generally, the governors are member countries'
ministers of finance or ministers of development. They
meet once a year at the Annual Meetings of the Boards
of Governors of the World Bank Group and the
International Monetary Fund.
• Because the governors only meet annually, they
delegate specific duties to 24 Executive Directors, who
work on-site at the bank.
• The five largest shareholders, France, Germany, Japan,
the United Kingdom and the United States appoint an
executive director, while other member countries are
represented by 19 executive directors
President of the World Bank
Paul Wolfowitz
• chairs meetings of the
Boards of Directors and is
responsible for overall
management of the bank.
• By tradition, the bank
president is national of and
is nominated by the largest
shareholder in the bank, the
United States.
• The President is elected by
the Board of Governors for a
five-year, renewable term.
International Monetary Fund
• Purpose established at Bretton Woods
Conference:
– To facilitate cooperation on monetary policy to
minimize the impact of international financial
crises
– To facilitate the liberalization of international
trade – increasing real incomes and lowering
unemployment
– To help stabilize exchange rates between
countries
– To maintain multilateral system of payments
eliminating foreign exchange restrictions
– To provide safeguards to members of the IMF
against balance of payments crises
– To reduce volatility in balance of payments
accounts without risking global depression
Policies to achieve goals
• Surveillance
– economists sent to member countries to analyze financial situation (Article
IV consultation)
– Fiscal and monetary policy, social policy (pension system), trade policy,
labor policy
– Reports submitted to IMF which then makes recommendations to leaders of
member countries
– Regional and global reports also generated
• Financial Assistance
– Central activity – credits and loans to national treasuries struggling with
balance of payments
– Letter of intent to revise national policies following IMF recommendations
– Loans dispensed in phases to ensure compliance and pyment schedule
rigorous
• Technical Assistance
– Experts and consultants sent to developing countries to assist in the
management of macroeconomic policies
Organization
• Board of Governors: 184 Finance Ministers or Heads of Central
Banks meet once a year to make decisions on major issues
• Managing Director (traditionally from Europe): elected every five
years
• Executive Board: 24 persons responsible for the day to day
operations; permanents members – US, China, Japan, Germany, Great
Britain, France, Russia, Saudi Arabia, plus 16 rotating directors elected
every two years and represent non-permanent members. Each runs a
department
• International Finance and Monetary Committee: 24 members
meets twice yearly to provide advice to IMF staff
• Voting power weighted by the size of member nations’ economy. US
the most influential in policy shaping
• Headquarters: Washington DC
Managing Director
• Rodrigo de Rato of
Spain
• Took office June 7,
2004
• Previously served on
the Board of
Governors of the IMF
World Bank and as
Minister of the
Economy for Spain
Four major criticisms of the
“Washington Consensus”
• Joseph Stiglitz (Nobel Laureate and former chief
economist for the World Bank) says policies like
conditionality are intrusive, structural and not politically
feasible
• There is no understanding of the unique conditions of the
countries receiving help. The “one size fits all” mentality
make unrealistic assumptions about how real life
economies work
• Blind faith in free market and demands to privatize ignores
preparation work necessary first
• No criticism or public oversight when policies formed