International Economic Institutions
In the post-globalisation world, almost every country thrives at the import and export of products. In an increasingly interconnected and interdependent world, some issues are complex for countries to handle on their own. As different countries have different interests and with constantly changing balances of power, negotiation, and cooperation among nations is requisite.
To understand the prevailing world scenario, we need to fathom the prime international economic institutions that provide the foundation and structural support of the world economy. International economic institutions are regarded as a major asset for the world as they deal with growing economic integration and work toward achieving social, political, or economic goals. International economic institutions are international bodies formed with an aim to stabilise economic relationships between and among member countries through monetary, fiscal, financial, and trade integration.
International economic institutions may operate on worldwide or at regional levels. The rapid international business scenario paved a way for international economic institutions that are entrusted with setting common rules and regulations for the participating countries to ensure a viable and profitable trading system across economies of different countries.
World Trade Organisation (WTO)
The World Trade Organisation is an intergovernmental organisation that regulates and facilitates international trade between nations WTO is headquartered in Geneva, Switzerland. WTO was created in 1st January, 1995 to update the General Agreement on Tariffs and Trade (GATT). GATT changed by way of WTO due to the fact GATT was biased in favour of evolved international developed countries. WTO shaped as an international worldwide employer handling the policies of international trade amongst nations.
The WTO is primarily based on agreements signed by the general public of the arena’s trade nations. The most important characteristic of the corporation is to assist manufacturers of products and services, exporters, and importers. As of 2021, the WTO has 164 member international locations, with Liberia and Afghanistan the maximum recent contributors, having joined in July 2016, and 23 “observer” nations.
In addition, its mission is to boom inventory and exchange of offerings, to assure maximum utilisation of world resources. The WTO’s main purpose is to promote worldwide trade (bilateral and multilateral) through the elimination of the tax in addition to non-tariff limitations.
Organisational Structure
World Trade Organisation is headed by the Ministerial Conference who exercises absolute authority over the institution. Not only the Ministerial Conference undertakes functions of the WTO but also initiates appropriate measures to administer the new global trade rules. It is integrated by representatives of all WTO members and shall convene a meeting at least once in every two years. The Ministerial Conference is the chief policy-making body of WTO and any crucial policy changes, such as a decision to change/amend competition policy or to rewrite the WTO agreement is done by its consent.
The WTO is headed by the Ministerial Conference, while its day-to-day activities are performed by the following administrative bodies:
- General Council: It is made of representatives of all member nations and acts as the representative of the Ministerial Conference when it comes to undertaking routine operations. General council carries out the implementation and overseeing function of the WTO.
- Dispute Settlement Body: This body is a part of the General Council and has the onus for addressing trade issues between member nations. Dispute Settlement Body also works as an Appellate Body, where member states can appeal regarding any decisions made against them while settling the issue.
- Trade Policy Review Body: This administrative body has the obligations for ensuring that member nations adhere to the goals of the WTO. Trade member countries have to apprise WTO regarding changes in their laws and trade policies. The Trade Policy Review body also helps WTO to adapt as per the evolving economic scenario.
Functions
World Trade Organisation was established on certain guiding principles which are non-discrimination, free trade, open, fair, and undisputed competition, etc. In addition,
WTO’s capabilities may be widely divided into as follows:
- Trade negotiations: The WTO helps trade negotiations amongst member nations by providing amicable solutions in addition to presenting dispute decision mechanisms. It creates a worldwide legal framework that ensures seamless business among the member countries.
- Implementation and monitoring: Once the agreements are finalised, the role of the WTO is to ascertain that the member nations abide by their commitments. It also produces research primarily based on the impact of the agreements on the economies of countries involved.
- Dispute settlement: The WTO additionally acts as a dispute settlement body to settle trade issues among its member states. The members of the WTO can document proceedings in opposition to different member states if they sense the change and economic policies of a country are divergent from their commitments. Following the grievance, there are formal hearings till a settlement is reached.
- Building trade capacity: The WTO runs unique application to assist developing countries by providing them support in building the capacity to take part in international trade. It also gives concessions to less developed nations to conduct free trade among member nation.
- Outreach: Finally, the WTO performs lobbying and outreach programmes as part of its large goals to promote loose trade. It tries to influence governments to reduce boundaries to trade and facilitate free, truthful, and open markets round the world.
Objectives
World Trade Organisation role is to review the trade policies, to ensure lucidity and transparency of trade policies through surveillance in global economic policy-making.
Some of the objectives of WTO are as follows:
- To increase the standard of living, creating employment opportunities, enlarging production and trade, and harnessing the world’s assets to the fullest.
- To ensure that developing and less developed countries have higher proportion of growth inside the global trade.
- To provide sustainable improvement wherein balanced growth of change and surroundings goes collectively.
- To receive the idea of sustainable development and make sure most appropriate utilisation of world resources. To protect the surroundings and enhance the standard of living of people of member countries.
Principles
World Trade Organisation developed framework of principles and rules to achieve all round economic prosperity.
Some of the salient principles of WTO are as follows:
- No discrimination: A country should not discriminate among its trading partners (giving them similarly “most-favoured-state” or MFN reputation); and it ought to no longer discriminate between its personal and foreign products, services, or nationals (giving them “national remedy”).
- Free trade: Mitigating trade barriers is one of the ideal way of encouraging trade among nations. Various trade barriers must be diminished gradually through continuous negotiations.
- Predictable: Foreign corporations, buyers, and governments ought to be assured that exchange barriers (which include tariffs and non-tariff boundaries) are not raised arbitrarily; tariff costs and market-access obligations are bound in WTO.
- Transparency: Various WTO member nations have to mandatorily publish their trade regulations, to allow the review of administrative decisions affecting trade, to respond to requests for information by other members and to notify changes in trade policies to the WTO.
- Safety: Under certain circumstances, member nations are able to restrict trade. WTO’s agreements allow member nations to initiate measures to safeguard not just the environment but also protect public health, flora and fauna.
International Monetary Fund (IMF)
IMF, created on 27th December 1945, consists of 187 member nations. It works to maintain financial balance, develop international monetary cooperation, facilitate worldwide alternate, reduce poverty, and preserve sustainable monetary growth around the globe. It is headquartered in Washington, D.C., the United States.
The ratio of board members from each member depends at the country’s financial status, with the financial giants getting the highest illustration. The idea behind founding IMF was to stabilise exchange rates by facilitating the removal of temporary balance of payments deficits. The IMF is a pool of central bank reserves and national currencies which are available to its members under certain conditions. It can be regarded as an extension of the central bank reserves of the member countries.
The IMF performs three main functions, which are:
- Consultation: IMF functions as a body for international cooperation and a source of counsel and technical assistance to its members. The salient function of the IMF is to provide temporary financial support to its members so that Balance of Payment disequilibrium can be rectified.
However, such granting of financial assistance is subject to strict condition. IMF engages with member nations their respective central bank to contemplate about risks to domestic and global stability as well as policies and reforms to address those risks. - Financial assistance: The IMF lends to its member nations, facing stability of bills troubles, with the intention to facilitate the adjustment process and restore member country’s economic increase and stability via numerous mortgage gadgets or “facilities”.
IMF can offer monetary assistance to member nations to support policy programs that will rectify underlying macro economic problems, minimise disruption to both the domestic and the global economy, help restore confidence, stability, and growth. IMF can also offer precautionary credit lines for member nations with viable economic fundamentals to avert economic crisis. - Technical assistance: The IMF offers technical help to member countries to support their capability to design and put in force effective rules in four regions, specifically, monetary and financial rules, financial policy and management, information and monetary, and financial law.
World Bank
The World Bank came into existence in December 1945 at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire. It opened for business in June 1946 and helped in the reconstruction of nations devastated by World War II. Since 1960s, the World Bank has altered its focus from the highly industrialised countries to emerging countries.
World Bank is made up of two institutions which are International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The first step was the setting up of the International Development Associations (IDA) in 1960. The IDA aimed to provide financial assistance to poor countries on easy terms.
The first step was the setting up of the International Development Associations (IDA) in 1960. The IDA aimed to provide financial assistance to poor countries on easy terms. It can provide developing countries financing at lower rates. Other sources of funding include the return on its investments and fees earned from advisory services provided.
World Bank is playing a key role in offering financial assistance for development work to member countries, specifically to under developed countries.
Main Functions of World Bank
World Bank is regarded as an international financial institution that offers a credit facility to developing countries for capital programs. The World Bank’s primary goal is the mitigate poverty. Some of the main functions of World Bank are as follows:
- World Bank provides various technical offerings to the member nations. For this motive, the Bank has set up “The Economic Development Institute” and a Staff College in Washington.
- The bank gives loans to a member country up to 20% of its share inside the paid-up capital.
- The quantities of loans, interest fee and phrases and situations are determined by the bank itself.
- Generally, the bank presents loans for a specific task duly submitted to the bank through the member country.
- The debtor country has to pay off both in reserve currencies or inside the currency wherein the mortgage became sanctioned.
- The bank additionally gives mortgage to personal investors belonging to member nations on its personal assure, but for this mortgage private traders should are looking for prior permission from the ones counties where this amount could be collected.
United Nations Conference on Trade and Development (UNCTAD)
UNCTAD, created in 1964, is the fundamental organ of United Nations General Assembly. It provides a forum wherein the developing nations can talk the troubles associated with economic development.
UNCTAD is headquartered in Geneva, Switzerland and has 193 member nations. Its motive is to promote trade and improvement, particularly in developing countries. The convention of these member international locations is held after every four years. The UNCTAD assists in developing economies to access the advantages of a globalised economy more fairly and effectively.
The main functions of the UNCTAD are as follows:
- To develop principles and policies on multinational trade and also negotiate trade agreements.
- To serve as a discussion board for intergovernmental discussions and deliberations, supported by means of discussions with experts and exchanges of experience, geared toward consensus building.
- To undertake studies, policy evaluation and information series so as to provide substantive inputs for the discussions of experts and authorities representatives.
- To facilitate cooperation with different organisations and donor international countries supplying technical help tailored to the wishes of the developing countries, with special attention being paid to the desires of the least advanced nations, and countries with economy in transition.
International Bank for Reconstruction and Development (IBRD)
International Bank of Reconstruction and Development was founded in 1944 to help Europe get over World War II, the International Bank for Reconstruction and Development (IBRD) is certainly one of five institutions that make up the World Bank Group.
IBRD is the part of the World Bank that works with middle-profits and creditworthy poorer nations to promote sustainable, equitable and task-developing growth, lessen poverty and cope with troubles of nearby and global importance. IBRD’s prime aim is to provide long term capital to member nations for economic reconstruction and development.
The purpose of IBRD is to provide financing and financial coverage recommendation to help the leaders of middle-income nations navigate the path toward greater prosperity. It will often help finance infrastructure initiatives that grow a countries’ economic capacity while helping governments manipulate public price range and domesticate the self assurance of foreign traders.
Regional Economic Integration and Economic Blocs
Integration between countries is the need for the hour. In the 1950s and 1960s, regional economic integration gained substantial momentum. Regional economic integration enables nations obviate divisions that hamper the flow of goods, services, capital, people, and ideas. Regional economic integration entails collaboration of individual nations into groups. This is done with the intent to eliminate trade restrictions with member countries and also may engage in other activities that promote their people’s welfare.
Regional economic integration has empowered nations to emphasise issues pertaining to their stage of development as well as augment trade with neighbours. Regional economic integration infers to the increasing economic interdependence that happens when two or more nations within a geographic area create an alliance with an intention to abridge barriers in trade and investment.
Regional Economic Integration can best be defined as an agreement between groups of nations with an aim to minimise and exterminate tariff or other barriers in the free flow of goods and services.
Some of the examples of countries engaged in regional economic integration are NAFTA (North American Free Trade Agreement) an agreement among the America, Canada, and Mexico. EU (European Union) has established the trade agreement with 15 European nations. APEC (Asian Pacific Economic Cooperation Forum) is an agreement among South Pacific nations to enhance trade and economic activity.
The free trade that happens owing to economic integration enable nations to achieve better living standards. Regional integration results from the formation of a regional economic integration bloc or, simply, an economic bloc.
Regional economic integration enables countries to seamlessly trade all types of economic resources not just tangible goods. All barriers to trade in goods, services, capital, and labour are removed in common markets. In addition to tariffs, non-tariff barriers are also diminished or removed in common markets.
The trend is based on the basis that, by means of cooperating, nations inside a not unusual geographic location related via historical, cultural, linguistic, economic, or political elements can advantage mutual advantages. The free trade alternate that consequences from monetary integration helps nations attain higher dwelling standards with the aid of encouraging specialisation, decrease expenses, greater alternatives, accelerated productiveness, and greater green use of resources. Regional economic integration among nations takes place at different levels.
There are four level of regional economic integration, which are as follows:
- Free trade area: It is the only and most common place arrangement, wherein member countries agree to steadily get rid of formal barriers to change in services and products in the bloc, whilst each member nation an independent worldwide change coverage with countries outdoor the bloc. The free change location emphasizes the pursuit of comparative benefit for a set of countries instead of for character member country.
- Customs union: It is the second one degree of local integration, similar to a free change area besides that member states harmonise their outside alternate policies and undertake not unusual tariff and nontariff barriers on imports from non-member countries. Determining the most suitable not unusual external tariff is difficult, due to the fact member international locations should agree on the extent and on how to distribute proceeds from the tariff many of the member international locations.
- Common marketplace: A common marketplace (also referred to as an unmarried market), wherein alternate obstacles are decreased or removed, commonplace external obstacles are mounted, and products, services, and factors of production consisting of capital, exertions, and generation are allowed to transport freely a number of the member nations.
- Economic union: An economic union is the fourth degree of regional integration, wherein member nations revel in all the advantages of early stages however also attempt to have not unusual economic and economic guidelines.
European Union (EU)
The European Union is regarded as the largest economic bloc of more than 100 nations. European Union is the biggest import and export marketplace in the world. EU’s common currency is the Euro, which is used by its 28 member states: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.
The EU is seeking to undertake not unusual fiscal, economic, taxation, and social welfare rules.
However, in a 2016 referendum, Britain recently voted to leave the EU. Its advent eliminated change fee hazard in a lot of the bloc and compelled member countries to improve their financial and monetary guidelines. The single foreign money allows customers and businesses to think of Europe as a single country wide entity. The EU has 4 extra institutions that perform its government, administrative, legislative, and judicial capabilities.
Some of the sub-bodies of EU are as follows:
- The Council of the European Union: It is the primary decision-making body. Composed of representatives from every member country, it makes selections regarding monetary policy, budgets, foreign policy, and admission of latest member in organ the isation. The
- European Commission: It is similarly composed of delegates from each member nation and represents the pastimes of the EU as an entire. It proposes regulation and rules and is responsible for implementing the choices of the European Parliament and the Council of the EU. The European Parliament consists of elected representatives that preserve joint classes every month.
Since 2004, twelve new states have joined, and the current addition of Bulgaria and Romania brings the whole number of member countries to 27. The new participants are important, low-cost manufacturing sites for EU firms.
The EU faces different challenges along with the anxiety between the forces for local integration and the forces for maintaining country-wide identity. EU countries understand that relinquishing autonomy in sure key areas and combining sources across national borders are necessary steps.
The Common Agricultural Policy (CAP) has long been a fixture of the European bloc. Its unique desires have been to offer a fair residing trendy for agricultural produces and meals at reasonable prices. The EU is operating to reform the CAP, however progress has been sluggish.
North American Free Trade Agreement (NAFTA)
Consisting of Canada, Mexico, and the USA, NAFTA launched in 1994. It is the most full-size economic bloc inside the Americas and corresponding to the EU in length. Its passage turned into smoothed by using the lifestyles, for the reason that 1960s, of the in-bond or maquiladora program.
NAFTA additionally mounted change policies and uniform customs strategies and regulations, while prohibiting the usage of requirements and technical guidelines as change limitations. The participants agreed to rules for investment and intellectual property rights.
NAFTA additionally provides for dispute agreement in such regions as investment, unfair pricing, labour problems, and the surroundings. NAFTA additionally includes provisions that promote sustainable improvement and environmental safety. In a recent development, Quebec is easing commerce and hard work limitations with France, and Canada is in negotiations to sign up for the EU.
Association of Southeast Asian Nations (ASEAN)
ASEAN, the Association of Southeast Asian Nations, was established in 1967 with the intention of keeping political balance and selling regional economic and social development amongst its participants. ASEAN created free change vicinity wherein many price lists were reduced to much less than five percentage. Further local integration has been slowed by huge economic differences some of the member countries.
ASEAN to become a commonplace marketplace or economic union, millions of task seekers from poor member nations might probably migrate to wealthier member nations, doubtlessly disrupting the economies of these latter international locations. Consequently, ASEAN is unlikely to strengthen beyond its unfastened change region popularity for decades to return.
In the long term, ASEAN pursuits to incorporate global trading powerhouses like Japan and China, whose membership could accelerate the improvement of substantial exchange relationships.
As on July 23, 1996, ASEAN have given advisory status to India. India has robust relation with ASEAN member nations. The strength of ties between India and ASEAN nations is reflected in the continued rise in trade figures. India’s trade with ASEAN account to around 10.6% of India’s overall trade and India’s export to ASEAN stands at 11.28% of our total exports.
ASEAN and India also signed a Joint Declaration for Cooperation in Combating International Terrorism, exhibiting collaborative initiatives to enhance cooperation in the countering terrorism. As far as trade in concerned, the trade between India and ASEAN recorded two fold increase with business activities of US$ 87 billion accounted for in 2019-20. India enjoys non-tariff barriers in ASEAN and despite covid-19 impact the trade is witnessing signs of revival.
As far as India’s counterpart China is concerned, China has remained ASEAN’s largest trading partner for successive eleven years. China-ASEAN cooperation is strengthening across various fields. Economic and scientific cooperation has become cardinal and dynamic aspect of China-ASEAN relations. China’s trade with ASEAN has been recorded to US $297.8 billion in the year 2019. China cooperation with ASEAN has sustained over the years and has maintained regional peace and stability.
Asia Pacific Economic Cooperation (APEC)
Originally recommended with the aid of Australia, APEC, or Asia Pacific Economic Cooperation, aims for more free trade and economic integration of the Pacific Rim nations. It carries twenty-one nations on both aspects of the Pacific, inclusive of Australia, Canada, Chile, China, Japan, Mexico, Russia, and the US.
Its individuals account for 85 percentage of general nearby exchange, as well as one-third of the worldwide populace and over half its GDP. APEC aspires to remove exchange and investment obstacles with the aid of 2020. Progress has been slowed through economic and political turmoil in a few member nations, in addition to failure to agree on foundational problems.
Members also have various national monetary priorities, and the inclusion of less-affluent Asian nations along sturdy worldwide buyers like Australia, Japan, and the United States complicates agreement on a variety of troubles.
Trade Wars and International Business
A trade war is an economic conflict between countries. In a trade war, the beleaguered nations enforce protectionist trade policies against each other in the form of trade barriers. Trade barriers can be enforced in various ways such as tariffs, import quotas, domestic subsidies, currency devaluation, and embargos. When a country imposes a trade restriction, the other country will hit back with another policy. This creates the “warring” concept. Trade wars are initiated when a country’s government holds a belief that another country is recoursing to unfair trading practices that are hampering the first country’s trade.
In an attempt to safeguard a country’s domestic industry or create employment opportunities they may entrust a trade barrier. Trade barrier are imposed on certain essential items imported from the other country. The other country may hit back and engage in a tit-for-tat battle which may take shape of a trade war. A tariff is a tax or responsibility imposed on the products imported into a nation. In a globalised world, trade animosity can grow to be very detrimental for both the consumers and organisation.
A trade war is an economic battle among countries. These outcomes in each country implementing trade protectionist rules against each other in the shape of trade barriers. These obstacles may be imposed in a number of extraordinary approaches, together with but no longer restrained to tariffs, import quotas, home subsidies, currency devaluation, and embargos. As every country imposes a change barrier, the alternative country will retaliate with coverage.
This creates the “war-ringing” concept. Trade wars regularly begin when a country’s authorities believe that any other us of engaging in unfair buying and selling practices which are hurting the primary country’s markets.
In order to try to shield their home enterprise or create jobs, they will impose an exchange barrier, including a tariff on a key product imported from the other country. Trade wars are usually deemed as an undesirable effect of protectionism. Protectionism pertains to government rules and policies that restrict international trade. A country will generally initiate protective actions to safeguard its domestic organisations and jobs from foreign competition.
The following are some of the common trade war tactics:
- Tariffs: Tariffs are one of the most generally used exchange protectionist regulations. This includes taxing merchandise that is being imported. Tariffs result in higher expenses for imported items, while also growing revenue for the authorities. The idea at the back of the use of price lists as a protectionist policy is that domestic producers of the good being taxed will advantage from decreased opposition with overseas goods.
- Import Quotas: An import quota is a restriction on exchange that sets a limit on the quantity of an exact product that can be imported. Unlike price lists, quotas do not create revenue for the authorities. Quotas on a particular product lower the competition home manufacturers’ face from overseas manufacturers. The quota is about to guard these home producers.
- Domestic Subsidies: The idea behind home subsidies is that, via the usage of them, the authorities can permit domestic manufacturers to decrease the fee of local items. This will increase the home business’ ability to compete with foreign markets on price. The end result of lower charges for local producers is the deterrence of imports and an increase in exports. Domestic subsidies are especially powerful whilst utilised in nations or industries that have high tiers of exports.
- Currency Devaluation: Devaluing the domestic currency with regards to foreign money can also be used as a change warfare tactic. By decreasing the trade charge, domestic exports emerge as extra competitive in different nations. At the identical time, imports from other nations end up enormously more costly and much less aggressive inside the home marketplace.
- Embargo: An embargo is an extreme coverage that formally bans the trade of a positive excellent with a particular nation. This can be used to absolutely prohibit imports and/or exports or to just restrict the economic pastime of the good. When this policy is applied, it is usually as a shape of protest.