Historical Dimension of International Trade:

International trade has often played a major role in world history. The rise and fall of the
Roman Empire and the emergence of feudalism can be attributed to trade. Since 1945, the
Western nations have made intensive efforts to improve the trade environment and expand
trade activities. In order for them to do so, various multinational organizations, such as the
WTO, the IMF, and the World Bank, were founded. In addition, several economic blocs such
as the EU, NAFTA, and Mercosur were formed. Many of these organizations have been very
successful in their mission, yet new realities of the trade environment demand new types of
action. The last few decades have been marked by tremendous growth in world trade. In
addition, there have been significant changes in the trade positions of many countries. For
example, the United State’s share of world exports has declined abruptly from 25 percent in
the 1950s, while China’s share in world trade has risen substantially in the last few years
alone. Furthermore, foreign direct investment has come to play an important role in the world
economy. The WTO has increasingly become a forum for trade disputes and negotiations.
The 2005 negotiations that took place in Hong Kong highlighted the tensions between
developed and developing countries, particularly in the sphere of agriculture. Despite calls for
trade liberalization, some policymakers intend to enhance trade performance by threatening
the world with increasing protectionism. The danger of such a policy lies in the fact that
world trade would shrink and standards of living would decline. Protectionism cannot, in the
long run, prevent adjustment or increase productivity and competitiveness. It is therefore
important to improve the capability of firms to compete internationally and to provide an
international trade framework that facilitates international marketing activities.

Transnational Institutions affecting World Trade

 World Trade Organization(WTO):

The World Trade Organization has its origins in the General Agreement on Tariffs and Trade
(GATT), to which it became the successor organization in January of 1995. GATT began in
1947 as a set of rules for non-discrimination, transparent procedures, and settlement of
disputes in international trade and then later it merged in WTO in January, 1995. Over time,
the, it evolved into an institution that sponsored successive rounds of international trade
negotiations with a key focus on a reduction of prevailing high tariffs. It also reduced trade
barriers and developed improved dispute settlement mechanisms, better provisions dealing
with subsidies, and a more explicit definition of rules for import controls. As of December
2005, the WTO had 149 members, with Saudi Arabia being the newest. It has greatly
broadened the scope of international trade agreements. Many of the areas left uncovered by
the GATT, such as services and agriculture, are now addressed at least to some degree by
international rules, speedier dispute settlement procedures have been developed. The WTO
makes major contributions to improved trade and investment flows around the world.

 International Monetary Fund (IMF)

The International Monetary Fund (IMF), conceived in 1944 at Breton Woods in New
Hampshire, was designed to provide stability for the international monetary framework. It
obtained funding from its members, who subscribed to a quota based on expected trade
patterns and paid 25 percent of the quota in gold or dollars and the rest in their local
currencies. These funds were to be used to provide countries with protection against
temporary fluctuations in the value of their currency. Therefore, it was the original goal of the
IMF to provide for fixed exchange rates between countries. IMF as an institution has clearly
contributed toward providing international liquidity and to facilitating international trade.
  World Bank
The World Bank, whose official name is the International Bank for Reconstruction and
Development, has had similar success. It was initially formed in 1944 to aid countries
suffering from the destruction of war. After completing this process most successfully, it has
since taken on the task of aiding world development. With more and more new nations
emerging from the colonial collapse of the world powers of the early twentieth century, the
bank has made major efforts to assist the suffered economies to participate in a modern
economic trade framework. More recently, the bank has begun to participate actively with the
IMF to resolve the debt problems of the developing world and may also play a major role in
bringing a market economy to the former members of the Eastern bloc. The World Bank is
now trying to reorient its outlook, focusing more on institution building and the development
of human capital through investments into education and health. Under its President, Paul
Wolfowitz, the World Bank strengthens its dedication to helping people overcome poverty
with a new emphasis on transparency and increased cooperation and communication with
private sector organizations and investors.

 Regional Institutions
The WTO, IMF, and World Bank operate on a global level. Regional changes have also taken
place, based on the notion that trade between countries needs to be encouraged. Of particular
importance was the formation of economic blocs that integrated the economic and political
activities of nations. The concept of regional integration was used more than 100 years ago
when Germany developed the Zollverein. Its modern-day development began in 1952 with
the establishment of the European Coal and Steel Community, which was designed to create
a common market among six countries in coal, steel, and iron. The European Union (EU)
now represents a formidable market size internally and market power externally, and the
well-being of all EU members has increased substantially since the bloc’s formation. Similar
market agreements have been formed by other groups of nations. Examples are the North
American Free Trade Agreement (NAFTA), the Mercosur in Latin America, and the Gulf
Cooperation Council (GCC). These unions were formed for different reasons and operate
with different degrees of cohesiveness as appropriate for the specific environment. They
focus on issues such as forming a customs union, a common market, an economic union, or a
political union. Simultaneous with these economic bloc formations, the private sector has
begun to develop international trade institutions of its own.