International Business

Home Assignment 1

The Emergence of Global Institutions

SUBMITTED TO

MS.Noor-E-Zannat
LECTURER
SCHOOL OF BUSINESS & ECONOMICS
UNITED INTERNATIONAL UNIVERSITY

SUBMITTED BY
Name: Ishrat Amin
ID: 111212087
SECTION: B
 Acknowledgement

The purpose of this assignment was to understand the emergence of global institutions
and its impact on the global economy. While doing this assignment I have learnt how
significantly the global economy has changed in the past few decades and how global
institutions are monitoring and developing international trade policies to achieve
economic security through collaboration.

So I would like to convey my sincere gratitude to Ms. Noor-E-Zannat, Lecturer, School of

Business and Economics, United International University, for giving us the opportunity to
study this very important topic. Without her guidance and proper direction this study
would have been a little success.

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 Contents

1. Acknowledgement………………………………………………………………... 2
2. Contents……………………………………………………………………………3
3. Introduction…………………………………………………………………….......4
4. The Emergence of Global Institutions……………………………………………..4
5. GATT
a. Objectives of GATT………………………………………………………..6
b. Principles of GATT………………………………………………………...6
c. Functions of GATT………………………………………………………...7
d. Member Countries of GATT……………………………………………….7

6. WTO………………………………………………………………………………...8

a. Objectives of WTO………………………………………………………...8
b. Principles of WTO…………………………………………………………9
c. Functions of WTO………………………………………………………...10
d. Member Countries of WTO……………………………………………….10

7. WB………………………………………………………………………………….11

a. Objectives of WB………………………………………………………….12
b. Functions and Principles of WB…………………………………………...12
c. Member Countries of WB…………………………………………………13

8. IMF………………………………………………………………………………....13

a. Objectives of IMF…………………………………………………………..14
b. Function and Principles of IMF…………………………………………….14
c. Member Countries of IMF………………………………………………….15

9. Conclusion…………………………………………………………………………..15

10. References…………………………………………………………………………16

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Introduction

“In principle, a nation will benefit more when it adopts open economy, i.e to engage in
international trade rather than relies only on domestic production”

~Samuelson & Nordhaus, 1998

The growth of International business has increased dramatically in recent years

due to the rapid increase in global competition and consumer pressure, expansion of
technology, reduced trade barriers, saturation of domestic markets, availability of low cost
labor and opportunities in foreign markets.

The Emergence of Global Institutions

Most of the developing economies are now relaxing their trade barriers and
opening doors to foreign multinational companies and allowing them to to set-up their
organizations across the borders.

And when an increasing proportion of business activity transcends national

borders, international institutions are needed to help, regulate, manage, negotiate and
police the global marketplace in order to establish multinational treaties to govern the
global business system.

These international organizations not only play an important role in importing and
exporting but also their functions include-

● Maintaining standards and helping developing countries to achieve

economic security

● Encourage international business by reducing tariffs and other trade barriers

● Establishing multinational treaties and rules regarding how countries should

make their trade agreements and resolve conflicts.

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Over the last few decades numbers of important global institutions have been created
such as

● GATT
● WTO
● WB
● IMF

In the following paragraphs we will be focusing on the emergence of these global

institutions and their contribution in world trade and economy.

GATT
GATT stands for the General Agreement on Tariffs and Trade. It was the world's
first multilateral free trade agreement. It is a legal agreement between many countries,
whose overall purpose was to promote international trade by reducing and eliminating
trade barriers such as tariffs or quotas.

Initially, GATT was signed by 23 countries in Geneva on October 30th 1947, after
World War II, and became law on 1st January 1948.

It held eight rounds of conferences in total from April 1947 to December 1993,
each with significant achievements and outcomes such as tariff concessions and reduced
tariffs.

Later in 1995, the General Agreement on Tariffs and Trade (GATT) was absorbed
into the World Trade Organization (WTO). At that point its membership had grown to
128 countries.

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Objectives of GATT
● Boost economic recovery and eliminate the economic depression after World War
II

● Reconstruct and liberalize international trade

● Eliminate trade protectionism or preferences

● Substantial reduction of tariffs and other trade barriers on goods

● Encourage free international trade between member states

● Reduce the likelihood of war

● Improve communication and to build good relationship between member countries

● Establish a common mechanism for resolving trade disputes or conflicts

Principles of GATT

● Most-Favored-Nation (MFN) Treatment

GATT’s one of the most important principles were that of trade without any kind
of discrimination, in which each member nation opened its markets equally to
every other. MFN is designed in such a way that it ensures a secure and fair
condition for trade.
● Reciprocity

This principle indicates the rights and obligations while performing global trade. It
means that favours, benefits, or penalties that are granted by one state to the
citizens or legal entities of another, should be returned in kind.

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 ● Transparency

It means a country’s policies and regulations affecting foreign trade should be clearly
communicated to its trading partners.
● Tariff Binding and Reduction:

It is a commitment or promise not to increase a rate of duty beyond an agreed

level. Once a rate of duty or tax is fixed, it may not be raised without
compensating the affected parties.

Functions of GATT

● Expansion of international trade

● Increases the world production by ensuring full employment in the participating

nations

● Full utilisation, mobility and development of world resources

● Raising the standard of living of the world community

● Improve communication between the member countries

● Resolve trade disputes and conflicts

Member Countries of GATT

The 23 founding members were Australia, Belgium, Brazil, Burma, Canada,

Ceylon, Chile, Southern Rhodesia, China, Cuba, Czechoslovakia, France, India,
Pakistan, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Syria, South
Africa, United Kingdom and the United States.

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WTO
WTO stands for the World Trade Organization. It is responsible for regulating
international trade and is the world's largest international economic organization, with
164 member states which represent over 96% of global trade and global GDP.

The Main objective of WTO is to provide assurance that trade flows as smoothly,
predictably and freely as possible.

WTO as a successor to GATT started its official journey on 1st January 1995 under
the Marrakesh Agreement and replaced the General Agreement on Tariffs and Trade
(GATT) that had been established in 1948.

The reason why WTO took over GATT was because GATT was just a multilateral
treaty that dealt with trade in goods only; whereas WTO covers services and intellectual
properties as well. WTO’s dispute settlement system is faster, robust and more automatic
than the old GATT system and it is also a global body which has a permanent institution
along with a secretariat.

Currently, the WTO headquarter is Geneva, Switzerland and Mr. Roberto Azevado
is the director general of this organization. The official languages used in WTO are
English, Spanish and French.

Objectives of WTO
● Expanding and regulating international trade

● Acting as a global apex forum and achieving progressive liberalization of trade in

goods and services

● Establishing flexible trade opportunities for developing economies

● Providing special priority to the least-developed nations

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 ● Improving the standard of living of people in the member countries

● Respecting the needs of small and medium-sized service suppliers

● Ensuring full employment and increase in effective demand and supply

● Increase production and trade of goods.

Principles of WTO

In order to ensure trade flows as smoothly, predictably and freely as possible the
most important philosophies that WTO follows are

● Non-Discrimination

The organization prohibits discrimination between trading countries.

● Transparency

The member countries are required to publish their trade regulations and policies
in a fair and transparent means. Also WTO is to be notified in case of any change
in the agreement or in the policie

● Reciprocity

It means that favours, benefits, or penalties that are granted by one state to the
citizens or legal entities of another should be reciprocal.

● Negotiation and elimination of tariffs, quotas, and other

restrictions

It means, WTO will help in lowering trade barriers such as tariff, quotes and other
restrictions through negotiations and it will also accelerate the trading of goods,

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 services and intellectual properties among participating countries by providing
suitable trade agreements.

● Ensuring safety values

WTO also provides environmental protection, national security, and other

important measures while performing international trade.

Functions of WTO

● WTO Administers and monitors trade and tariff agreements between the member
countries in order to trade goods, services and intellectual properties.

● Acts as a forum and provides framework in trade negotiations

● Implements bilateral and multilateral trade agreements

● Settles trade conflicts and disputes between member countries about the
application and interpretation of the agreements

● It reviews and monitors international trade policies

● It helps to increase the trade capacity for developing nations

● Builds a good relationship with other international organizations

● It also collects information and conduct research in order to support its main
objectives

Member Countries of WTO

WTO is a member driven organization and all its decisions are made by its
member governments. The top ten contributing countries are the United States, Germany,
China, Japan, United Kingdom, France, South Korea, Netherlands, Hong Kong and Italy.

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WB
WB stands for The World Bank. With 189 member countries, the World Bank
aims to reduce poverty and aid long term economic development by offering assistance to
middle income and low income countries. The World Bank achieves its goals through
providing technical and financial assistance to implement specific capital projects such as
building health centers and making clean water available for everyone.

The World Bank was created in July 1944, when delegates from 44 countries met
for the United Nations Monetary and Financial Conference which was held at the Mount
Washington Hotel in Bretton Woods, New Hampshire, United States.

Initially after World War II it focused on building infrastructure in the Western

European Countries but later on it turned its focus to the underdeveloped countries.

Since the United States is the World Bank’s largest shareholder, usually the
President of the World Bank has always been elected from the United States. Currently
David R. Malpass is the president of World bank and his 5 years term started on April 9,
2019.

The World Bank is also a part of the World Bank Group and this group has 5
international financial institutions to provide loans to developing countries. These
institutions are -

1. IBRD (The International Bank of Reconstruction and Development)

2. IDA ( The International Development Association )
3. IFC ( The International Finance Corporation )
4. MIGA ( The Multilateral Investment Guarantee Agency )
5. ICSID ( The International Centre for Settlement Investment Disputes )

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Objective of The World Bank

● The World Bank provides long term capital or loans to member countries for
economic development or reconstruction.

● Ensuring equilibrium in balance of payment (BOP)

● Encouraging development of global trade

● Protecting Global Environment

● Promoting long term capital investment in members countries by following ways-

1. By providing guarantee on capital investment and private loans

2. In case capital is not available even after providing a guarantee, then IBRD
provides loans for productive activities on considerate and flexible
conditions.

3. By ensuring the implementation of development projects so that they can

bring about a smooth transference from wartime to a peaceful economy

Functions and Principles of The World Bank

● The World Bank provides technical assistance or services to its member countries

● The World Bank can grant financial aid or loans to member countries up to 20 %
of its share in paid up capital

● The World Bank also provides loans to private investors belonging to the members
on its own guarantee. In the case of private investors they need to take permission
from their native country. The Bank charges 1% to 2% interest as a service charge

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 ● The World Bank decides the quantum of loan service, interest rates, terms and
conditions are

● Generally The World Bank grants loans for particular projects duly submitted to
the bank by the member countries

● While repaying the loan the debtor nation has to repay either in reserve currencies
or in the currencies in which the loan was sanctioned initially

Member Countries of WB

Headquarter located in Washington, D.C, the United States, The World bank has
189 member countries and the top 20 member countries by voting power are the United
States, China, Japan. Germany, France, United Kingdom, India, Saudi Arabia, Canada,
Italy, Russia, Spain, Brazil, Netherlands, South Korea, Switzerland, Turkey, Australia,
Belgium and Iran. The non member countries are Cuba, Monaco, North Korea, Andorra,
Liechtenstein.

IMF
IMF stands for The International Monetary and it is an international financial
institution consisting of 190 member countries. The purpose of the IMF is to improve
global monetary cooperation, ease global trade, secure and preserve global
macroeconomy and financial stability, promote high employment and long term
economic growth, and reduce poverty around the world.

Just like The World Bank, The IMF was also created in 1945 as part of the Bretton
Woods Agreement. The World Bank works with developing countries to reduce poverty
and increase prosperity, while the IMF oversees the stability of the international monetary
system and acts as a monitor of global trade and currencies.

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 Member countries of the IMF have access to the information on economic policies
of the other member countries and the IMF also provides financial support in times of
payment difficulties faced by the member countries.

IMF is headquartered in Washington, D.C. and the current Managing Director and
Chairwoman of the The IMF is Bulgarian Economist Kristalina Georgieva, who’s term
began from October 1, 2019.

Objectives of The IMF

● Encourage International Trade
● Secure and preserve financial stability
● Promote high employment and sustainable economic growth
● Improve global monetary cooperation
● Reduce tariff and other restrictions imposed on the International Trade
● Overseeing and monitoring the monetary and fiscal policies by the member
countries
● Maintaining liquidity of its resources

Functions and Principles of The IMF

● Surveillance

It oversees and monitors the economies of member countries in order to secure

financial stability.

● Lending

It lends money to member countries with balance of payments issues.

● Technological Assistance

It Helps member countries modernize their economies through technological

assistance, policy advice and training through its various programs.

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IMF Member Countries

Headquarter located in Washington, D.C, The IMF has 190 member countries and
the top 20 member countries are The United States, Japan, China, Germany, Saudi
Arabia, India, Indonesia, France, Belgium, United Kingdom, Italy, Russia, Brazil,
Canada, Spain, Mexico, Netherlands, South Korea, Australia, Switzerland.

Conclusion

In the end it can be said that the emergence of global institutions have provided a
foundation for worldwide economic growth and have encouraged and raised
competitiveness, productivity and efficiency between countries in various markets.

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References

1. General Agreement on Tariffs and Trade

2. GATT members
3. International Business Competing in the Global Marketplace by Charles W.L. Hill
G. Tomas M. Hult
4. WTO
5. https://www.britannica.com/topic/World-Trade-Organization
6. https://en.wikipedia.org/wiki/World_Trade_Organization
7. https://www.wto.org/english/tratop_e/serv_e/objectivesandpsn.htm
8. https://www.worldbank.org/en/who-we-are
9. https://www.investopedia.com/ask/answers/043015/what-difference-between-inter
national-monetary-fund-and-world-bank.asp
10. https://en.wikipedia.org/wiki/World_Bank
11. https://www.investopedia.com/terms/w/worldbank.asp
12. https://www.worldbank.org/en/about/careers
13. https://bit.ly/3xdbLXr
14. https://www.imf.org/en/Home
15. https://www.investopedia.com/terms/i/imf.asp
16. https://en.wikipedia.org/wiki/International_Monetary_Fund
17. https://www.yourarticlelibrary.com/international-trade/international-monetary-fun
d/top-10-functions-of-international-monetary-fund-imf/63295

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