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unit of analysisstate sovereigntyinternational law
international system
relative powersub-systems
International Institutions
International organizations (IOs) have emerged as the
architecture of world orders. These include international
governmental organizations as well as international non
governmental organizations
• After world war I the League of Nations was created to
coordinate transnational security
• After WWII, key structures emerged including:
United Nations Organizations (UNO)
The Bretton Woods System (BWS)
– IDRB (World Bank)
– IMF
GATT and World Trade Organization
United Nations Organizations (UNO)
The United Nation emerged as an international
regime of governance to maintain world order in
the post war period and coordinate international
cooperation in the following areas:
The Bretton Woods System (BWS)
The Bretton Woods System (BWS)
Objectives
• Αstable exchange rates
• A reserve asset (something like the gold
standard)
• Control international capital flows
• Availability of shortterm loans to deal with
temporary balance of payments difficulties
• Rules to open up trade.
Mandate of the World Bank
(IBRD)
The stated objectives of the World Bank
(International Bank for Reconstruction and
Development) were:
– to assist in the reconstruction of the global
infrastructure destroyed by the war,
– to facilitate the development of the emerging, newly
independent, underdeveloped countries – (an objective
that at the time was secondary to the first one in
priority).
Mandate of the International
Monetary Fund (IMF)
The stated objectives of the IMF were:
• to promote and maintain high levels of
employment and income through the
expansion of international trade
• the maintenance of exchange rate stability
and currency convertibility
Mandates of World Bank and
IMF
World Bank
• The most relevant of the World Bank’s two branches to the Third
world was therefore the IDA, which, like the IBRD was involved in
providing long term low interest rate loans for development and
reconstruction.
• Third World countries had originally proposed the setting up of a
Special United Nations Fund for Development (SUNFED) in the
1950s. It would give them more control over the fund because of their
numerical clout within the UN
• Industrialized countries insisted on the creation of the IDA under the
World Bank which they had almost total control over. The IDA is an
affiliate of the World Bank, not an agency of the UNO.
• They also established the InterAmerican Development Bank, the
Asian Development Bank and the African Development Bank, all
governed on the basis of the contributions as opposed to membership.
World Bank
• The World Bank is structured along the lines of a
corporation, with member countries holding shares
as the basis for the Bank’s capitalization. They
make a nominal cash payment in line with the
shares they hold and are given promissory notes
for it.
• The capital is used as the base endowment for the
Bank to lever private capital from capital markets,
which it then uses to issue longterm loans at rates
of interest below the market rates.
International Monetary Fund
• The IMF structure is organized more like a credit union, in
which members contribute funds (in gold or convertible
national currency) of amounts determined by the size of
their economy
• They can borrow from the accumulated amount to respond
to threats to their ability to maintain their rate of exchange.
• The original monetary system designated the US dollar,
backed by gold as the anchor currency against which all
other currencies’ values were determined.
• IMF loans were principally intended to provide borrowers
funds to deal with short term imbalances in their current
accounts.
International Monetary Fund
• The loans generally have short term maturity and carry
conditions for the borrower to make some adjustments to
their economy to enable them to return to a stable position.
• If a member’s situation can not be fixed by those
measures, the IMF would agree to permanent currency
exchange rate changes – devaluation.
• In the early days, it was industrialized countries that were
the primary borrowers. That changed after the debt crisis
in the early 1980s.
• The United States was the largest contributor and
subscriber so it held the largest votes at both
organizations.
International Monetary Fund
• The IMF now has 183 member states whose contributions
of members, each with a “quota” in proportion to the size
of its economy, finance its activities.
• The size of each national quota determines voting rights
and the 24member Executive Board, whose members are
called Executive Directors. Each country’s vote is
proportional to its quota.
• 8 Executive Directors for the largest economies represent
only their own countries. The other 16 each represent all
other countries, including some Third World countries.
• A majority of 85% is required for most decisions, so the
vote of the U.S. at about 18%, is an effective veto power
over critical decisions. However, even with loans that
require a simple majority, the US is able to exercize
inordinate influence
General Agreement on Tariffs and
Trade (GATT)
• As a forum for trade talks, the GATT was the site
of a series of rounds of multilateral trade
negotiations that aimed at the elimination of tariff
barriers, which enjoyed great, but intermittent,
success.
• The guiding principles of the GATT were to
facilitate multilateral trade bargaining, with most
favoured nation status, nondiscriminatory access
to markets and other concessions granted to the
countries agreeing to play by the same rules and
procedures set.
The GATT
• It also served as an agency for resolving disputes
and upholding trade rules, but was slow and
impotent because it lacked of real powers to
enforce its rulings, depending on the nations’ self
interest.
• Initially, the plan was to establish the ITO to
negotiate commodity agreements. But the failure
to get the US Congress to approve it led to the
establishment of the GATT in 1948 to organize
rounds of negotiations aimed at liberalization of
trade such as the Tokyo and the Uruguay rounds.
From GATT to WTO
1) Following the last (socalled Uruguay) round
(198694), GATT was replaced by the WTO
at the beginning of January 1995.
3) In addition to doing what GATT did, provide
a forum for negotiations and handling trade
disputes, the WTO is new in many ways.
• The WTO is the most important regulator of trade at
international level today and also sets the terms within
which regional trade agreements can be signed.
• The impact of the World Trade Organization (WTO),
established in 1995, had gone largely unnoticed until
Seattle 1999.
• Trade is an important aspect of the current wave of
globalization and its influence is felt from the global level
to peoples' daily lives.
• According to the proponents of the WTO, globalization
needs to be managed at world level from a trade
perspective.
• The WTO covers all areas of trade, not just manufactured
goods, but services and intellectual property as well.
• Whereas the GATT was virtually toothless when it came to
enforcement powers, a first objective of the WTO is
administering WTO trade agreements and monitoring
national trade policies.
• What this means is that an organization like the WTO
which is not internally democratic, is able to override or
change democratically approved national trading laws
• The result of trade negotiations in services (General Agreement on
Trades in Services (GATS) has been to put pressure on governments
to privatize what have historically been public services such as the
delivery of water. In many countries in the Third World, the World
Bank has made the privatization of water delivery a condition of its
continued financial support for the government.
• The result of trade negotiations on intellectual property (TradeRelated
Aspects of Intellectual Property (TRIPs) have led to billions of dollars
of monopoly profits being transferred worldwide from poor countries
to rich countries under the guise of protecting the property rights of
inventors and developers. E.G. HIV/AIDS Drugs
World Trade Organization
• In 1997, the WTO reported that world trade in goods reached $ 5.3
trillion, and trade in services an additional $ 1.3 trillion.
The United Nations Conference on Trade and Development (UNCTAD)
figures indicate that:
• more than two thirds of world trade involves at least one multinational,
much of it within the same multinational around the world (intrafirm
exports)
• with an estimated $7 trillion in global sales in 1995 the value of
goods and services produced by some 280,000 affiliates of the world's
44,508 TNCs international production outweighs exports as the
dominant mode of servicing foreign markets
• TNCs were responsible for the $ 350 billion in foreign direct
investment in 1995.
The problem with the distribution
of trade benefits
• The WTO's basic assumption is that its rules
contribute to trade and investment liberalization
which leads to more competition, better allocation
of resources, economic growth, more employment
and better living standards, including
environmental conservation.
• Although the WTO, and GATT in the past, have
incorporated special measures for weaker
economies, there are many pitfalls in the current
system
Unequal distribution of the
benefits of trade
• Inequalities between skilled and unskilled workers are
growing in the North as well as in the South;
• Corporate restructuring, labour shedding and wage
repression are on the rise;
• Profit shares and the return on capital has risen much more
(from 12.5% in the early 1980s to 16% in the mid 1990s in
G7 countries ) than wages;
• The concentration of revenues and higher company profits
have not been invested so as to create more jobs;
• The benefits of liberalization have been mainly reaped by
traders rather than by farmers who have not received