International Institutions The IMF, GATT and WTO

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International Institutions The IMF, GATT and WTO

• Mikkeli 2005
• Compiled by Rulzion Rattray

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International Monetary Fund (IMF)

• IMF - key role in providing foreign currencies
  and other sources of world liquidity to support
  growth of international trade. Also stabilisation
  programmes provide support for economies in
  crisis.
• Countries with balance of trade deficits
• Low foreign exchange reserves to meet the
  deficit and likely to have low GDP per capita,
  meaning that borrowing is difficult. Likely to
  have a poor credit rating. It is for this type of
  liquidity problem that the IMF was set up.
• IMF has a pool of foreign currencies that can be
  used to finance temporary balance of payments
  deficits. This is more advantageous than
  deflation, protectionist policy alternatives.

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(IMF) Varying conditions on borrowing

• At the hard end of the spectrum are IMF
  Stabilisation Programmes. The main elements to
  these are some (or all) of the following
• Fiscal contraction - reduction in budget deficit
  via reduced public spending or increased tax.
• Monetary contraction - restrictions on credit to
  public sector and increases in interest rates.
• Devaluation of the exchange rate (often a
  pre-condition of a stabilisation programme)
• Liberalisation of the economy - supply side
  policies, privatisation
• Incomes policies - restrictions on wages,
  transfer payments and reduction of subsidies.

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The WTO and GATT

• GATT objectives were to reduce barriers to trade
  in belief that freer trade would raise living
  standards in all participating countries.
• Since 1947 (when GATT signed) there have been
  seven rounds of trade negotiations with the
  average tariff in industrialised nations falling
  from 40 in 1947 to below 5 in 1995 when GATT
  was replaced by the WTO.
• WTO has 135 member countries with Chinas
  membership bringing it to 136. Another 30 are
  waiting to join. It continues to seek a reduction
  in trade barriers and also seeks to resolve (rule
  on) trade disputes.

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WTO and Trade Disputes

• Crucially, trade disputes come under the remit of
  the WTO.
• Unlike GATT, WTO the findings of dispute panels
  cannot be vetoed. Countries in violation must
  remove the cause of the violation or pay
  compensation. If offending party fails to
  comply,WTO ruling can sanction specified
  retaliation.
• More than half of the disputes brought to the WTO
  involve the USA and Europe!

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GATT / WTO Principles-

• Non Discrimination - the benefits of any
  bilateral agreements must extend to all members
  (I.e. become multilateral).
• Progressive Reduction in Tariff and Non-tariff
  Barriers.

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Trade the World Economy
Growth in World GDP Merchandise Trade average
annual change
Source WTO Statistics, cited in Grifiths, A.,
Wall, S., 1999 pp 631
Share of Inter Regional Trade in total trade
between nations located in region
Source WTO Statistics, cited in Grifiths, A.,
Wall, S., 1999 pp 632
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GDP Gross Domestic Product

• Gross domestic product is the sum of gross value
  added by all resident producers in the economy
  plus any product taxes and minus any subsidies
  not included in the value of the products. It is
  calculated without making deductions for
  depreciation of fabricated assets or for
  depletion and degradation of natural resources.

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Some World Economies
2003
2002
2002
2001
2000
1999
1998
Above figure are based on (Euro Year on year
Exchange Rate). Source of information World
Trade Organisation
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Finland Ireland
Source of All figures WTO.
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References

• Griffiths, A., and Wall, S., (Eds), (1999),
  Applied Economics, Prentice Hall.
• Tayeb, M., (2000), International Management
  Theories and Practice, Prentice Hall.
• Shenkar, O. and Luo, Y.(2004), International
  Business, John Wiley and Sons, Inc.