Institutions and Trade Policy
Transactional Institutions and World Trade
® General agreement on tariffs and trade (GATT)
® World trade organization (WTO)
® International monetary fund (IMF)
® World bank
® Regional institutions
World Trade Organization
Under the GATT, there have been ten rounds of negotiations between member states, which now number over 146. The round of negotiations-known as the Uruguay Round was finally ratified in January of 1995 which is called WTO.
World Trade Organization
® GATT focused on reducing prevailing high tariffs
® Most-favored nation (MFN) clause
® “Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”.
® World trade organization (WTO) in 1995
® General agreement on trade in services (GATS).
® Trade-related aspects of intellectual property rights (TRIPS).
® Trade-related investment measures (TRIMS).
Functions of WTO
Ø Broadened the scope of international trade agreements
Ø Responsible for overseeing the implementation of all the multinational agreements negotiated in the Uruguay Round and those that will be negotiated in the future
Ø Provides enhanced protection for patents, trademarks, and copyrights
Ø Address the issues such as international rules and speedier dispute settlement procedure
International Monetary Fund (IMF)
® Developed out of the Bretton Woods agreement in 1944.
® Offers gold and constituent currencies available to members for currency stabilization.
® It was the goal originally to provide for fixed exchange rates between countries.
Role of International Monetary Fund (IMF)
IMF was designed to provide stability for the international monetary framework. It’s main purpose was a commitment not to use devaluation as a weapon of competitive trade policy. The funds are to be used to provide countries with protection against temporary fluctuations in the value of their currency.
The international bank for reconstruction and development
® Formed in 1944, it provides economic assistance for the reconstruction of war-torn countries.
® In the 1970s and 1980s, world bank helped poor nations for building infrastructure and loans to developing countries
® Now the world bank is focusing more on institution building and the development of human capital.
How can firms achieve Economies of Scale?
® By broadening its market reach and serving customers abroad
® By spreading fixed costs over its factors of production
® Through exporting a firm also benefits from market diversification
® By sharing technology, R&D, and through outsourcing
Policy Responses to Trade Problems
® Voluntary import restrictions
® Non-tariff barriers
Export Promotion Efforts Reasons
® Nations need to earn foreign currencies.
® Encouragement of domestic employment.
® Increase in domestic economic activity