Economics 151 International Economic Issues International Economic Institutions

Economics 151 International Economic Issues

International Economic Institutions

• Three global organizations play major role in international economic relations:
• International Monetary Fund (IMF)
• World Bank (WB)
• World Trade Organization (WTO)
• WTO is successor to GATT (General Agreement on Tariffs and Trade)

Bretton Woods Conference, 1944

• Bretton Woods, New Hampshire
• 44 nations participated, led by U.S., U.K.
• Established IMF, World Bank
• GATT started up soon thereafter

International Monetary Fund

• Over 180 members
• Oversees exchange rate policies
• Monitors international payments imbalances
• Provides temporary loans for balance-of-payments financing

International Monetary Fund

• Main function: help countries overcome international payments crisis
• Crisis occurs when country runs out of foreign exchange reserves – a major currency or gold that can be used to pay for imports and international borrowings
• IMF conditionality – requirement for the borrowing member to carry out economic reforms in exchange for a loan

Global Financial Crises and the IMF

• IMF bailouts for troubled economies
• Mexico (1995)
• Thailand, Indonesia, Korea (1997)
• Russia, Brazil (1998)
• Turkey (2001)
• Argentina (2001-present)

World Bank

• Founded as the International Bank for Reconstruction and Development (IBRD)
• Over 180 members

World Bank

• Main functions: provide loans to developing countries for projects aimed at:
• poverty reduction
• improvement of health and education systems
• infrastructure for private sector development (bridges, dams, etc.)

GATT

• GATT was beginning of large-scale multilateral trade negotiations
• First “round” in 1947 in Geneva - Eight rounds altogether through 1993

GATT

• Five Key Principles in GATT:
• 1. trade barriers should be lowered in general and quotas should be eliminated
• 2. trade barriers should be applied on MFN basis – no discrimination among trading partners
• 3. national treatment – imported goods treated same as domestic goods

GATT

• Five Key Principles in GATT
• 4. tariff concessions, once made, cannot be rescinded without compensating trade partners, and new barriers cannot be erected in place of lowered tariffs
• 5. trade disputes to be settled by consultation

GATT

• Major GATT Negotiating Rounds
• First Round, Geneva, 1947, 21% Average Cut in Tariffs
• Kennedy (6th) Round, Geneva, 1964-67, 36% Average Cut in Tariffs
• Tokyo (7th) Round, Geneva, 1974-79, 30% Average Cut in Tariffs
• Uruguay (8th) Round, Geneva, 1986-93, 33% Average Cut in Tariffs

Uruguay Round, 1986-93

• Over 100 Nations Participated
• Very Contentious Because Issues Went Far Beyond Tariff Reduction
• Nontariff Barriers, Intellectual Property Rights, Services Trade, Agriculture Polices, Improving How GATT Functions
• Created WTO as successor to GATT, beginning in 1995

World Trade Organization

• WTO continues with all five key principles of GATT
• WTO continues two main roles of GATT
• 1. enforcing existing trade agreements and
• 2. serving as forum for new talks to liberalize trade

World Trade Organization

• Over 140 Countries Belong - More Seek to Join
• Member Countries Account for Over 90 Percent of World Trade
• Membership Requires Acceptance of All Agreements and Rules From Uruguay Round