Almost every country exports and imports products to benefit from the growing international trade.
The growth of international trade can be increased, if the countries follow a common set of rules, regulations, and standards related to import and export.
These common rules and regulations are set by various international economic institutions. These institutions aim to provide a level playing field for all the countries and develop economic cooperation.
These institutions also help in solving the currency issues among countries related to stabilizing the exchange rates. There are three major international economic institutions, namely, WTO, IMF, and UNCTAD.
World Trade Organization:
WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade (GATT), which was started in 1948. GATT was replaced by WTO because GATT was biased in favor of developed countries. WTO was formed as a global international organization dealing with the rules of international trade among countries.
The main objective of WTO is to help the global organizations to conduct their businesses. WTO, headquartered at Geneva, Switzerland, consists of 153 members and represents more than 97% of world’s trade.
The main objectives of WTO are as follows:
a. Raising the standard of living of people, promoting full employment, expanding production and trade, and utilizing the world’s resources optimally
b. Ensuring that developing and less developed countries have better share of growth in the world trade
c. Introducing sustainable development in which balanced growth of trade and environment goes together
The main functions of WTO are as follows:
a. Setting the framework for trade policies
b. Reviewing the trade policies of different countries
c. Providing technical cooperation to less developed and developing countries
d. Setting a forum for addressing trade-related disputes among different countries
e. Reducing the barriers to international trade
f. Facilitating the implementation, administration, and operation of agreements
g. Setting a negotiation forum for multilateral trade agreements
h. Cooperating with the international institutions, such as IMF and World Bank for making global economic policies
i. Ensuring the transparency of trade policies
j. Conducting economic research and analysis
WTO has the following advantages:
(a) Promoting peace within nations:
Leads to less trade disputes. WTO helps in creating international cooperation, peace, and prosperity among nations.
(b) Handling the disputes constructively:
Helps in lesser trade conflicts. When the international trade expands, the chances of disputes also increase. WTO helps in reducing these trade disputes and tensions among nations.
(c) Helping consumers by providing choices:
Implies that by promoting international trade, WTO helps consumers in gaining access to a large number of products.
(d) Encouraging good governance:
Accelerates the growth of a country. The rules formulated by WTO encourage good governance and discourage the unwise policies that lead to corruption in a country.
(e) Stimulating economic growth:
Leads to more jobs and increase in income. The policies of WTO focus on reducing trade barriers among nations to increase the quantum of import and export.
International Monetary Fund:
IMF, established in 1945, consists of 187 member countries. It works to secure financial stability, develop global monetary cooperation, facilitate international trade, and reduce poverty and maintain sustainable economic growth around the world. Its headquarters are in Washington, D.C., United States.
The objectives of IMF are as follows:
a. Helping in increasing employment and real income of people
b. Solving the international monetary problems that distort the economic development of different nations
c. Maintaining stability in the international exchange rates
d. Strengthening the economic integrity of the nations
e. Providing funds to the member nations as and when required
f. Monitoring the financial and economic policies of member nations
g. Assisting low developed countries in effectively managing their economies
WTO and IMF have total 150 common members. Thus, they both work together where the central focus of WTO is on the international trade and of IMF is on the international monetary and financial system. These organizations together ensure a sound system of global trade and financial stability in the world.
United Nations Conference on Trade and Development:
UNCTAD, established in 1964, is the principal organ of United Nations General Assembly. It provides a forum where the developing countries can discuss the problems related to economic development. UNCTAD is headquartered in Geneva, Switzerland and has 193 member countries.
The conference of these member countries is held after every four years. UNCTAD was created because the existing institutions, such as GATT, IMF, and World Bank were not concerned with the problem of developing countries. UNCTAD’s main objective is to formulate the policies related to areas of development, such as trade, finance, transport, and technology.
The main objectives of UNCTAD are as follows:
a. Eliminating trade barriers that act as constraints for developing countries
b. Promoting international trade for speeding up the economic development
c. Formulating principles and policies related to international trade
d. Negotiating the multinational trade agreements
e. Providing technical assistance to developing countries specially low developed countries
It is important to note that UNCTAD is a strategic partner of WTO. Both the organizations ensure that international trade helps the low developed and developing countries in accelerating their pace of growth. On 16th April, 2003, WTO and UNCTAD also signed a Memorandum of Understanding (MoU), which identifies the fields for cooperation to facilitate the joint activities between them.
Regional Economic Integration:
Economic institutions, such as WTO, IMF, and UNCTAD aim at promoting economic cooperation worldwide. A similar effort is made regionally through regional economic integration that is an agreement between the countries to
expand trade with mutual benefits. Regional economic integration involves removing trade barriers and coordinating the trade policies of the countries.
It occurs because of various reasons, which are mentioned as follows:
(a) Shared culture:
Involves similarity in language, religion, norms, and traditions of the countries that prompt them to trade with each other. This commonality facilitates the smooth flow of communication among countries. Same language of the countries helps the organizations to understand the complexities of the targeted markets.
(b) History of political and economic dominance:
Affects the integration among the countries. For instance, the rule of Britishers has introduced the English language in India that later became a widely used language. Thus, former colonial power facilitates the shared culture and language. It is easy for organizations to target the markets, if culture and language is similar.
(c) Regional closeness:
Helps in maintaining strong economic relationships among the countries. The countries with same border have access to effective and direct transportation that increases the probability of trade between them.
Regional economic integration is done through various agreements.
These agreements are called as trade blocs, which are shown in Figure-5:
The discussion of these agreements is given as follows:
(a) Customs Union:
Allows the trade of goods and services among the member countries without any custom duties and tariffs. In customs union, a group of countries forms common trade policies that decide the common tariff for trading goods and services from rest of the world and ensures no tariff for participating countries.
In customs union, the import duties and regulations are same for all the member countries. It can be said that customs union is a free trade zone with a common tariff for rest of the world.
(b) Common Market:
Refers to an agreement where countries join together to eliminate the trade barriers. The unique feature of common markets is that they allow free movement of goods, labor, and capital among the countries. Common markets are formed to eliminate the physical and fiscal barriers, where physical barriers include borders and fiscal barriers include taxes. These barriers hamper the freedom of movement of the labor and capital within the nations.
The formation of common markets helps in increasing employment opportunities and gross domestic product of the participating nations. In a common market, the organizations benefit from economies of scale, lower costs, and high profitability; whereas, consumers benefit from increased choice of products and low prices.
The aims and objectives of the common market are as follows:
i. Attaining sustainable development of the participating nations
ii. Promoting mutual development in all fields of economic activities
iii. Adopting policies and programs for raising the standard of living of the residents and fostering closer relations among participating nations
iv. Facilitating cooperation among participating nations to maintain peace, security, and stability