Britton Woods System

Anwesha Saikia
Assistant Professor,Dept of Economics
MDKG College, Dibrugarh
 Introduction
• The Bretton Woods conference of July 1944 aimed to set up
the World Bank, International Trade Organization (ITO), the
International Monetary Fund (IMF) and post-war monetary
arrangements by which the US dollar took the place of gold as
the medium of international exchange.
• It may be seen that the primary function of the United States
after World War II was establishing and maintaining the rules
and instructions of a “liberal” world economy.
• The pre-1914 gold system worked but emphasized the
elements of the crisis that was brewing within the system
during the 25 years before the outbreak of World War I via an
increasing damaging collapse to its destruction in 1914
 Continue…
• Idea is to establish a post-war economic order based on
notions of consensual decision-making and cooperation in the
realm of trade and economic relations.
• It was felt by leaders of the Allied countries, particularly the US
and Britain, that a multilateral framework was needed to
overcome the destabilising effects of the previous global
economic depression and trade battles.
• Proponents of the new institutions felt that global economic
interaction was necessary to maintain international peace and
security. The institutions would facilitate, in the creation of a
dynamic world community in which the peoples of every
nation will be able to realise their potentialities in peace”.
 Continue…
• The International Monetary Fund (IMF) and the World Bank was
launched as the two pillars of the new international financial system.
They both originated in World War II following the United Nation
Monetary and Financial Conference at Bretton Woods, New Hampshire in
1944,with the participation of 44 nations which was ultimately concerned
with formulating a regulatory international financial system.
• The Charter of the IMF represented the post-war monetary order‟’
written constitution and what later became known as the Bretton Woods
system.
• The Bretton Woods system originated as a compromise between the rival
ideology of Harry Dexter White of the United States Treasury and Lord
Keynes of Britain. All agreed that the interwar experience had taught
them several lessons, and there was a determination to prevent a
repetition of previous.
 Continue…
• Conference was held in Bretton Woods town, New Hampshire in
USA after the WW2 (1939-45) to restore the global economy.
• Total 44 nations participated, incl. India. It proposed 3
international institutions:
Outcome :
• 1) International Bank for Reconstruction and Development (IBRD),
commonly known as World Bank.
• 2) International Monetary Fund (IMF) - to maintain exchange rate
stability
• 3) (Proposed) International Trade Organization (ITO). But could
not materialize due to American opposition. Instead, nations later
setup GATT → WTO
Note:What is International Monetary System?
• An international monetary system (sometimes referred to as an international
monetary order or regime) refers to the rules, customs, instruments, facilities, and
organizations for effecting international payments.
• International monetary systems can be classified according to the way in which
exchange rates are determined or according to the form that international reserve
assets take.
• Under the exchange rate classification, we can have a fixed exchange rate system
with a narrow band of fluctuation about a par value, a fixed exchange rate system
with a wide band of fluctuation, an adjustable peg system, a crawling peg system,
a managed floating exchange rate system, or a freely floating exchange rate
system.
• Under the international reserve classification, we can have a gold standard (with
gold as the only international reserve asset), a pure fiduciary standard (such as a
pure dollar or exchange standard without any connection with gold), or a gold-
exchange standard (a combination of the previous two)
• The various classifications can be combined in various ways. For example,
the gold standard is a fixed exchange rate system. However, we can also
have a fixed exchange rate system without any connection with gold, but
with international reserves comprised of some national currency, such as
the U.S. dollar, that is no longer backed by gold.
• Similarly, we can have an adjustable peg system or a managed float with
gold and foreign exchange or with only foreign exchange as international
reserves.
• Under a freely floating exchange rate system, there is theoretically no
need for reserves since exchange rate changes automatically and
immediately correct any balance-of-payments disequilibrium as it
develops. Throughout the period of our analysis, most of the
international monetary systems possible were in operation at one time or
another or for some nations, as described in this chapter
 WORLD BANK
• WORLD BANK, WASHINGTON, 1945, JULY
• originally focused on reconstructing war-torn
European countries. After 50s focusing on
poor countries of Asia and Africa.
• World Bank Group = comprises of 5
institutions.
.
• Organization
• The World Bank is similar to a cooperative of 189 member countries.
• These member countries like shareholders are constituted by a Board
of Governors, who are the topmost policymakers at the World Bank.
• Generally, the governors are member countries’ finance ministers or
development ministers.
• They come together once in a year at the Annual Meetings of the
Boards of Governors of International Monetary Fund as well as the
World Bank Group.
• The World Bank Group President is a chairperson meetings of the
Boards of Directors and looks after the management of the Bank.
• The Board of Executive Directors elect the president for a five-year,
renewable term.
 Objective of the World Bank

• To supply long-run capital to member countries for economic

reconstruction and development.
• Focusing on social development, governance and institution-
building as the major elements of equitable growth.
• It helps in inducing long term capital for improving the balance of
payments and thereby balancing international trade.
• To promote capital investment in member nations by the
following ways:
» To provide guarantee on capital investment.
» Provide loans for productive activities on considerate conditions.
1)International Bank for Gives development loans with interest.
Reconstruction and
Development (IBRD)

2) International Assists the poorest countries via interest-free loans

Development Association ( “Concessional Loans” or “soft loans”).
(IDA)

3) International Finance supports enterprise of developing countries.

Corporation (IFC)

4) Multilateral Investment offers (foreign) investors insurance against non-

Guarantee Agency (MIGA) commercial risk (such as political instability, regime
change etc.). This helps 3rd world nations attract foreign
investment.

5) International Centre for Helps in dispute resolution related to foreign

the Settlement of investment / foreign companies in 3rd world countries.
Investment Disputes India is not a member of this organization.
(ICSID)
• International Bank for Reconstruction and
Development (IBRD) −
 It finances only sovereign governments directly or
projects backed by sovereign governments.
 IBRD focuses its services on middle income countries
or countries where the per capita income ranges from
$1,026 to $12,475 per year.
 These countries include Indonesia, India, and Thailand
etc. which are among the fast-growing economies and
are also home to 70% of world poverty.
• International Finance Corporation (IFC)
 IFC is the largest global development
institution aimed exclusively on the private
sector in developing countries.
 It is a private-sector arm of the World Bank
Group, to advance economic development by
investing in for profit and commercial projects
for poverty reduction and promoting
development.
• International Development Association (IDA)
 The World Bank's part IDA helps the world's poorest
countries.
 IDA supports a range of development activities that
pave the way toward equality, economic growth, job
creation, higher incomes, and better living conditions.
 IDA's work covers primary education, basic health
services, clean water and sanitation, agriculture,
business climate improvements, infrastructure, and
institutional reforms.
• Multilateral Investment Guarantee Agency (MIGA)
 The Multilateral Investment Guarantee Agency (MIGA) is
international financial institution which provides political
risk insurance as well as the credit enhancement
guarantees.
 The guarantees support investors protect foreign direct
investments against political and non-commercial risks in
developing countries.
 MIGA was formed in 1988 as an investment insurance
facility to encourage confident investment in developing
countries
• International Center for Settlement of Investment
Disputes (ICSID)
 ICSID is international adjudication institution
structured in 1966 for legal dispute resolution as well
as conciliation between international investors.
 The ICSID does not direct arbitration or conciliation
proceedings itself but only provides institutional as
well as procedural support to conciliation
commissions, tribunals, and other committees which
conduct such matters.
 IMF
• IMF,WASHINGTON, 1945,DEC.
• HQ: Washington DC, USA.
• International Monetary Fund (IMF) helps mainly in,
i) global currency exchange stability
ii) Manage balance of payment crisis.
• Acts as a reservoir of the currencies of all the member
countries, from which a borrower nation can borrow the
currency of other nations- using the Special Drawing Rights
(SDR) mechanism.
• IMF important decisions need to be passed with 85% majority.
USA has 16.52% voting power so it can effectively block/veto it.
 Objectives
1. To promote international monetary
cooperation.
2. To establish a system of multilateral payment.
3. To maintain stability in the rate of exchange.
4. The fund’s mandate was undated in 2012 to
include all the macroeconomic and financial
sector issues that bear on global stability.
 Functions
1. It provide for improving short term BOP
crisis.
2. It provides a machinery for international
consultations.
3. Technical assistance,imparts training,etc.
 Structure
1. Board of governors
2. IMFC
3. Executive board
4. Managing Director
• Out of 189 countries,35 powerful countries are in Board
of Governors(their central bank governor or finance
ministers are members of board of governor).This is the
main decision making body.
• To advice members, a committee names International
Monetary and Financial Committee(IMFC) is constituted,
which constitutes of experts of different counties.
• Board of Governor has deligated their powers to
executive boards(those who have largest quota,i.e.
power,5members).
• IMFC advice both these committee.
• Executive boards take advices from G7,G20,etc. as well. It is
the final decision making body.
• Every member country gives an amount to IMF to be its
member.(250 million dollar- called Tranche).
• To get voting right under IMF, again country has to give
money. Different country has different voting weightage. For
this ‘Review Meeting’ is held in every 5 years.
• India is in the 8th position in terms of quota.(in 15 th meeting
held in 2015, India’s quota was decided to increase by review
committee, but it is not accepted yet by Executive Board.)
• America – 1st position.
• Every country has to give some money to IMF
to get the membership of IMF, which
constitutes the fund of IMF.
• Review meeting takes place in every
5years,which decides whether a country’s
quota should be increased or reduced or
changed.
 EXCHANGE RATE REGIME: HISTORIC
Gold Standard system
• Fixed exchange rate system → Gold Standard; (1870-1914)
• The gold standard was a fixed exchange rate system with gold as the only international
reserve asset. Each nation defined the gold content of its currency and passively stood
ready to buy or sell any amount of gold at that price. Since the gold content in one unit
of each currency was fixed, exchange rates were also fixed
• USA would issue $1 note, if only it has 14 grams of gold in reserve, whereas England
would issue one pound note if only it has 73 grams of gold in its reserve. Accordingly,
their exchange rate will be 1 Pound =73/14 = ~5 USD.
• And, each Central Bank Governor has promised to convert their currency into gold at a
fixed amount. So, a person could walk with paper currency & demand gold coins/biscuits
in return.
• When the gold mining production declined, nations gradually shifted to ‘bimetallism’ e.g.
$1 promised with 14 gm gold or 210 gm of silver whichever available with their Central
Bank.
• This system collapsed during the First World War (WW1) because the nation’s currency
printing capacity was limited by their gold reserve, but their governments where more
eager to print more money to finance the war (soldiers’ salaries, rifles’ ammunition etc.)
 Continue…
• The exchange rate was determined within the gold points by the forces of demand and
supply and was prevented from moving outside the gold points by gold shipments.
• These gold outflows represented the deficit in the nation’s balance of payments.
Conversely, the tendency of a nation’s currency to appreciate past the gold import
point was halted by gold inflows.
• These gold inflows measured the surplus in the nation’s balance of payments.
• Since deficits were supposed to be settled in gold and nations had limited gold
reserves, deficits could not go on forever but had to be corrected quickly. The
adjustment mechanism under the gold standard, as explained by Hume, was the
automatic price-specie-flow mechanism.
• Since each nation’s money supply consisted of either gold itself or paper currency
backed by gold, the money supply would fall in the deficit nation and rise in the surplus
nation. This would cause internal prices to fall in the deficit nation and rise in the
surplus nation (the quantity theory of money). As a result, the exports of the deficit
nation would be encouraged and its imports discouraged until its balance-of-payments
deficit was eliminated. The opposite would occur in the surplus nation
 Interwar period
• interwar experience with flexible exchange
rates between 1919 and 1924 and the
subsequent attempt to reestablish the gold
standard. (This attempt failed with the
deepening of the Great Depression in 1931.)
 Bretton Woods System (1946-1971)

• Fixed exchange rate system → Bretton Woods System (1946-1971)

• The Bretton Woods system was a gold-exchange standard.
• The United States was to maintain the price of gold fixed at $35 per ounce and be ready to
exchange on demand dollars for gold at that price without restrictions or limitations. Other
nations were to fix the price of their currencies in terms of dollars (and thus implicitly in terms
of gold) and intervene in foreign exchange markets to keep the exchange rate from moving by
more than 1 percent above or below the par value. Within the allowed band of fluctuation, the
exchange rate was determined by the forces of demand and supply.
 Bretton Woods System (1946-1971)
• Here, USA agreed to fix price of its $1 = (1/35) ounces of gold. [1
ounce = 28 grams]. USA allowed free convertibility of Dollar to Gold.
So if a person walked into the US Federal Reserve with $35, their
chairman (Governor) will give him one ounce of gold.
• Then IMF fixed the exchange rate of every country's currency against
USA. e.g.₹ 1= $0.30 = ~0.24 grams of Gold.
• So, that implied India can’t issue more currency If Indian RBI does
not have proportionately sufficient gold reserve of its own. Still if RBI
issues more ₹ currency, International Monetary Fund will order India
to devalue its rupee exchange rate against dollar.
• Benefit of this system: Different countries can’t supply notes
according to their will. So there will be no inflationary problem and
also there will be stability in exchange rate
 Bretton Woods System (1946-1971)
• The Bretton Woods System has been
characterised as a “much diluted form of a
gold exchange standard”.
• While America’s gold reserves were comprised
by its gold stock, other countries enjoyed the
option of holding reserves in either dollar or
gold, thus gold played a number of related
roles in the post war gold-dollar standard, as
Bretton Woods was sometimes called.
 Bretton Woods System (1946-1971)
• In Real life, up and down can happen depending on
supply and demand. But it should be move above or
below 1%.If it moves above or below 1%, then it would
be the responsibility of central bank these countries to
buy or sell dollar or gold from its forex reserve
depending on whether to appreciate or depreciate the
currency.
• Say there is currency in an economy and the country’s
central bank can’t maintain the rate within this limit and
they doesn’t have gold or dollar in their forex reserve,
then they have to borrow from IMF.
 Bretton Woods System (1946-1971)
• American Economist Robert Triffin claimed this system
will collapse eventually because gold is a finite
commodity and its price will continue to rise (from 1
ounce of gold = $35 to $40).
• So there is always danger of people converting the local
currency into dollars and then converting dollars into
gold at $35, then selling it in open market and earn
profit, then US Feds Chairman can’t continue honouring
his promise.
• It was called “Triffin Dilemma”. He therefore suggested
an alternative SDR (Paper gold) system for IMF.
 1971 onwards
• 1971: USA President Robert Nixon pulled out of
Bretton Woods gold convertibility system, mainly
because he wanted freedom to print more dollars to
finance the Cold War and arms race against the USSR.
• Thus, USA shifted to “Floating Exchange System”(i.e.
the exchange rate of dollar and rupee will not be
decided by US Federal Researve or US Government,
but it will be decidd by the market forces of demand
and supply.) Eventually most of the nations also shifted
in that either floating / managed-floating system.
 What is SPECIAL DRAWING RIGHTS
(SDR)?

• In gold standard system, IMF has made one different currency of it- SDR,
its value was packed with dollar’s value and at that time, Dollar was
packed with gold. So, SDR is said paper gold.
• creation of Special Drawing Rights (SDRs) is considered as a significant
change introduced into the Bretton Woods system to supplement the
international reserves of gold, foreign exchange, and reserve position in
the IMF.
• Sometimes called paper gold, SDRs are accounting entries in the books
of the IMF. SDRs are not backed by gold or any other currency but
represent genuine international reserves created by the IMF.
• Their value arises because member nations have so agreed.
• SDRs can only be used in dealings among central banks to settle balance-
of-payments deficits and surpluses and not in private commercial
dealings.
 SPECIAL DRAWING RIGHTS

• The SDR is an international reserve asset. The SDR is not a currency, but its
value is based on a basket of five currencies—the US dollar, the euro, the
Chinese renminbi, the Japanese yen, and the British pound sterling.
• The IMF created the SDR as a supplementary international reserve asset in
1969, when currencies were tied to the price of gold and the US dollar was the
leading international reserve asset. The IMF defined the SDR as equivalent to a
fractional amount of gold that was equivalent to one US dollar.
• When fixed exchange rates ended in 1973, the IMF redefined the SDR as
equivalent to the value of a basket of world currencies. The SDR itself is not a
currency but an asset that holders can exchange for currency when needed. The
SDR serves as the unit of account of the IMF and other international
organizations.
(Note:Reserve assets are currencies or other assets, such as gold, that can be
readily transferable and used to balance international transactions and payments.
A reserve asset must be available, physical, and controlled by policymakers.)
 SPECIAL DRAWING RIGHTS
• Who can hold SDRs?
• Individuals and private entities cannot hold SDRs. IMF members – and
the IMF itself – hold SDRs and the IMF has the authority to approve
other holders, such as central banks and multilateral development
banks, while individuals and private entities cannot hold SDRs. As of
February 2023, there were 20 organizations approved as prescribed
holders. Participating members and prescribed holders can buy and
sell SDRs. However, prescribed holders do not receive allocations of
SDRs, and they may not request an exchange of SDRs in transactions
with designation as members do.
• SDR value
• The SDR value in terms of the US dollar is determined daily based on
the spot exchange rates observed at around noon London time.
 SPECIAL DRAWING RIGHTS

IMF SPECIAL DRAWING RIGHTS

• After the collapse of Bretton Woods Exchange Rate System, IMF was
converted into a type of ‘deposit bank’, where the members would deposit
currencies in the proportion of quotas allotted to them (depending on size of
their economy, openness, etc.).
• IMF will pay them a small interest rate for their deposits. And IMF would
lend this money to a member facing balance of payment crisis.
• To operationalize this mechanism, IMF would allot an artificial currency /
accounting unit called SDR to the members based on their deposits.
• By applying a formula involving (weight * exchange rate), IMF will obtain
value of 1 SDR = …………dollars.
• Presently, 1 SDR = $1.40 = ₹ 98 (assuming $1 is trading @ ₹ 70).
• SDR is called ‘Paper Gold’ because it’s merely an accounting entry or
artificial currency, without any gold involved.
• At the 1967 meeting of the IMF in Rio de Janeiro, it was
agreed to create SDRs in the amount of $9.5 billion to be
distributed to member nations according to their quotas
in the IMF in three installments in January 1970, 1971,
and 1972.
• Further allocations of SDRs were made in the 1979–
1981 period.
• The value of one SDR was originally set equal to one U.S.
dollar but rose above $1 as a result of the devaluations
to the dollar in 1971 and 1973. Starting in 1974, the
value of SDRs was tied to a basket of currencies,
 Continue…
• SDR can be traded among the members, it can be
converted into members’ currencies as per above
method & be used to settle their Balance of Payment
Transactions / Crisis.
• If the BoP crisis is so big, that a country’s entire SDR
quota exhausts, then member country may borrow
more SDR from IMF (and then convert it into dollar,etc.
to pay off the import bill), but eventually member will
have to repay this loan to IMF with interest. - Individual
nations’ central Banks keep some of the SDR as Reserve
Tranche Position (RTP).
 Continue…
• The IMF would create a stable climate for
international trade by harmonising its members’
monetary policies, and maintaining exchange
stability. It would be able to provide temporary
financial assistance to countries encountering
difficulties with their balance of payments.
• The World Bank, on the other hand, would serve to
improve the capacity of countries to trade by lending
money to war-ravaged and impoverished countries
for reconstruction and development projects.
 WTO
• Initially, Bretton Woods conference proposed set up the
International Trade Organisation (ITO) But USA opposed → the
idea could not materialize.
• 1948: General Agreement for Tariffs and Trade (GATT)
• 1986-1993: Uruguay Round of GATT negotiations → set up a
permanent institution to encourage international trade in goods
& services and Intellectual Property Rights (IPR)
• 1994: Marrakesh treaty → WTO started functioning from
1/1/1995 at Geneva, Switzerland. India is a founding member.
• Aim: promote international trade and reduce barriers of
international trade – reduce tariff and non-tariff barrier
• (Check what is tariff and non-tariff barrier).
 Why WTO replaced GATT?
There were certain limitations of GATT, like
• It lacked institutional structure. GATT by itself was only the
set of rules and multilateral agreements.
• It didn’t cover trade in services, Intellectual Property Rights
etc. Its main focus was on Textiles and agriculture sector.
• A strong Dispute Resolution Mechanism was absent.
• By developing countries it was seen as a body meant for
promoting interests of wests. This was because Geneva
Treaty of 1946, where GATT was signed had no
representation from newly independent states and socialist
states.
• Under GATT countries failed to curb quantitative restrictions
on trade. (Non-Tariff barriers)
 Structure:
• 3pillars:
1. Ministerial conference: all members 160 countries. They appoint director
general by voting. To promote international trade, they make their tariff
aggrement. Meeting in every 2 years

2.General council: for day to day activities. Functions:

a) It plays role as DSB(Dispute settlement body) sometimes.
b) Act as ‘Trade policy review body ‘ when it discuss on trade policy of any
country.
c) When it looks at other administrative work,negotiation on other things
then known as ‘General Council’.
HQ: Geneva, Switzerland.

3. Secretariat: DG: appointed by Ministerial Conference- term 4 years-

reappointment is possible.
• Under GC, 3 councils:
1. Council for trade in goods(GATT)
2. Council for trade in services(GATS)
3. Council for TRIPS(Trade Related Intellectual
Property Rights Council)
 Functions:

• Promote international trade and for this reduce

the barrier to trade: tariff and non-tariff.
• LDC get benefit from trade/help them to
promote trade in LDC.
• Make agreements to implement 1 and 2
• Dispute settlement if 3 violated
• Cooperate the other sustainable development,
environment protection goals.
 Promote international trade and for this reduce the
barrier to trade: tariff and non-tariff

• reduce the barrier to trade: both tariff and non-tariff barriers.

• Example:

1. Indian car, its export to America. Say In India, no excise duty is imposed,
but in USA, 30% custom duty, 12% Counter veiling duty, sales tax+VAT etc.
And 0% excise on their car. In this way when a country put tax to stop the
import of foreign good, then its called tariff barrier.
2. Secondly, America can impose quota, eg. from India, only 1 lack car can
be exported to USA in 1 year. Similarly from Europe,x lacks,etc. So without
imposing tax, if barrier is placed on trade, called non-tariff barrier.
3.Let, automobiles makers of ford, etc. are given subsidy by US govt, like
electricity subsidy, cheap loan, etc. So low cost of production of ford will
reduce, so they will sell car at a low price – non tariff barrier.
 Council for trade in goods(GATT)

• There are many agreements within this. One of these is-

• AoA(Agreement on Agriculture):
As per the provisions of the Agreement,
1. Developed countries would complete their reduction commitments
within 6 years, i.e., by the year 2000.
2. Commitments of the developing countries would be completed within
10 years, i.e., by the year 2004.
3. The least developed countries are not required to make any reductions.
4. The WTO Agreement on Agriculture contains provisions in 3 broad areas
of agriculture and trade policy viz.
a)market access,
b)domestic support, and
c)export subsidies.
 Market Access

• This constitutes tariffication(A process that converts non-tariff barriers

into tariffs, which are considered to be more transparent than non-tariff
barriers and are subject to negotiation downwards), tariff reduction and
access opportunities.
• Ordinary tariffs constituting those resulting from their tariffication are to
be reduced by an average of 36% with a minimum rate of reduction of
15% for each tariff item over a 6-year period.
• Developing countries were maintaining Quantitative Restrictions(Specific
numerical limits on the quantity or value of goods that can be imported
(or exported) during a specific period) due to balance of payment
problems were allowed to offer ceiling bindings instead of tariffication.
• Members countries to provide preferential market access to agriculture
product to tariff-rate quota. It should be at least 5% of domestic
consumption
 Export Subsidies

• The Agreement consists of the provisions regarding

members commitment to lower the Export
Subsidies.
• Developed countries are needed to lower their
export subsidy expenditure by 36% and volume by
21% in 6 years, in equal installment (from 1986 –
1990 levels).
• For developing countries, the percentage cuts are
24% and 14% respectively in equal annual
installment over 10 years.
 Domestic Support
• It includes the use of subsidies and other
support programs that directly stimulate
production and distort trade
• Trade distorting subsidies to be maintained
within the limit.
• Aggregate Measure of Support (AMS) comes
under domestic support
• Categories of domestic support:
1. Green box subsidy
2. Blue box subsidy
3. Amber box subsidy
 Green Box Subsidy
• It includes non-trade distorting subsidies or
minimal trade-distorting subsidies i.e. these
are decoupled (or separated) on production.
• For example, subsidy on research and
development, environment protection,
regional development, disease control, direct
cash transfer to farmers etc.
 Amber Box Subsidy
• It includes trade-distorting subsidies i.e. linked with the production.
• For example, Subsidies on input, fertilizers, seeds, pesticide,
procurement subsidies like MSP, etc
• Under amber box subsidy, quota will be fixed in this way-
in 1986-87, what was the agricultural production? Say America $100
billion, India $10 billion. This level is called de-minimus level. For America
and developed nation, they can give amber box subsidy up to 5% of the
de-minimus level.(5billion)
• India and other developing country: 10% of the de-minimus
level(1billion).
• i.e., The ceiling for AMS (Aggregate Measure of Support ):
» Developed Countries: up to 5% value of domestic output.
» Developing Countries: up to 10% of value of domestic output
• India opposed it because;
1.’86 production was low
2. US’s 5%>india’s 10%
3.inflation unaccounted
4. food security for poor's will have to curtail
5. income support for farmers

Bali agreement,9th MC-DEC,13

• Least developed country duty free quota free market access(for countries like Somalia)
• Peace clause
• TFA

PEACE CLAUSE:
• Developed 5%, developing 10%, didn’t like India and oppose.
• So America and other DC has cease fire this quota norms – this agreement is called peace clause. WTO
won’t hear cases for 4 years(2017) if developing countries give subsidy more than 10%
• Permanent solution by 11th conference.
• But subsidies only for food security/public stockholding
 Blue Box

• It includes trade-distorting subsidies which are

not included in AMS under certain condition.
• For example, subsidies that require farmers to
limit production.
 Other agreements related to agriculture:

Non-Agricultural Market Access (NAMA)

• NAMA refers to the trade liberalization rules
about major non-agricultural goods under
WTO.
• It covers laws for the trading of items like
manufacturing and other industrial goods,
mining, jewelry, forestry etc.
 General Agreement on Trade in Services
(GATS)
• GATS is an agreement of the World Trade Organization (WTO)
that came into action in January 1995 as an outcome of the
Uruguay Round negotiations.
• The agreement was created to extend the multilateral trading
system to the service sector, similarly, the General Agreement
on Tariffs and Trade supported such system for merchandise
trade.
• GATS objective is establishing a sound multilateral framework
or principles and rules for trade in services.
• All members of the WTO are parties to the GATS. Under this,
members have to liberalize trade-in service in a progressive
manner.
• According to GATS services are classified into:
» Mode 1 (Cross Country Supply) − Services supplied from
one country to another. − For example, BPO, KPO etc.
» Mode 2 (Consumption Abroad) − Consumer/firms making
use of service in another country. − For example, Tourism.
» Mode 3 (Commercial Presence) − Foreign companies
abroad include MNCs.
» Mode 4 (Movement of Natural Person) − Individual
traveling from their native place to supply services in other
countries. − For example, Job Visa etc.
 Trade Related Intellectual Property Rights
(TRIPS)
• The Agreement on TRIPS is a worldwide legal agreement allying all the
member countries of the World Trade Organization (WTO).
• It records minimum standards for the direction by the national governments
of many forms of the intellectual property (IP) as claimed to the nationals of
other WTO member nations.
• TRIPS was moderated at the end of the Uruguay Round of the General
Agreement on Tariffs and Trade (GATT) from 1989 to 1990 and managed by
the WTO.
• The TRIPS agreement established intellectual property law into the
multilateral trading system for the first time that remains the most
comprehensive multilateral agreement on intellectual property to date.
• TRIPS also specifies enforcement procedures, remedies, and dispute
resolution procedures.
(Intellectual property rights (IPR) refers to the legal rights given to the inventor or
creator to protect his invention or creation for a certain period of time)
It includes:
• Copyright rights
• Industrial designs
• Layout of Integrated Circuit
• Patent
• Geographical indications
• Trademarks
• Trade Secrets
• Trade names
Doha Development Round (Qatar 2001)
• 3rd world countries wanted following:
✓ 1st world should liberalize their trade regulation further so that 3rd
world’s goods and services can enter more easily in the first world’s
domestic markets.
✓ 3rd world should be allowed to keep various barriers to slow down the
entry of 1st worlds agriculture, manufactured goods and service exports in
their domestic market.
✓ 1st world should give financial , technical assistance to 3rd world.
Obviously, USA and European countries would not like this. So, Doha round
of negotiation continues without conclusion. And in future summits the
USA/EU would want WTO officials to begin negotiations on the new matters
lucrative to their MNCs (like ICT, E-Commerce) whereas 3rd world nations
will continue to insist that Doha round negotiations must be concluded first.
Bali Package & Trade Facilitation Agreement
/ TFA (2013)
• Bali Package is the trade agreement / outcome resulting from the
WTO ministerial conference 2013 at Bali, Indonesia. Its two significant
components are :
1. Trade Facilitation Agreement (TFA):
a. requires member countries to reduce their bureaucratic delays, red
tapes, inspector raj in import-export of goods.
b. They’ve setup online portals where traders can seek permissions,
pay fees, custom duties, self declaration forms (like e-way bill)etc.
c. India & others ratified in 2016 → TFA became effective from 2017.
d. India set up a National Committee on Trade Facilitation (NCTF) under
Cabinet Secretary .

2. Peace Calause
 Nairobi Package & SSM (2015)
Nairobi Package resulted from the WTO ministerial conference 2015 @Nairobi,
Kenya
1. extended the Peace Clause for another “x” years.
2. Members must stop the subsidy on Agriculture Exports: 1st world countries
must comply immediately while 3rd world countries given a relaxed deadline.
3. If there is a surge of cheap agro exports from 1st world to 3rd world, then
3rd world countries will have the right to temporarily increase tariff / taxes on
them, to protect their local farmers. It’s called “ Special Safeguard Mechanism”.
4. 1996 → Information Technology Agreement (ITA) plurilateral agreement ( not
signed by all member nations) → It aims to abolish import export taxes on ~200
IT products. WTO discussions to try to get more members sign this, so global IT-
trade can increase. India signed in 1997 but could not benefit due to low
capacity of local manufacturing.
5. Technical reforms to help the exports from Least Developed Countries (LDC).
 Buenos Aires Summit (2017)
• The 11th WTO Ministerial conference 2017 at Buenos Aires, Argentina failed to deliver
any notable outcome because :
1.Food subsidy related reforms remained inconclusive because neither India-China nor
USA-EU were willing to compromise.
a. So, in reality ‘Peace clause’ is extended for infinite period
b. which is not a good thing because large amount of food subsidies given on (chemical)
fertilizers harm the environment.
2. USA-EU were more keen for a new agreement on e-commerce
c. but India-China opposed that such agreements will benefit 1st world countries more
(because they’ve Amazon, Walmart, Facebook etc) than 3rd world.
b. India-China insisted that first finish negotiations of the original Doha agenda subjects,
before proposing such new topics like e-commerce.
3. Members also failed to conclude negotiations related to Special Safeguard Mechanism
(SSM), investment facilitation, MSME etc.

As a result, this conference ended without a joint declaration by the members.

Kazakhstan Summit (2020-June)- cancelled

• ⇒ 2020-June: WTO ministerial conference was

to held at Kazakhstan’s Astana (new name of
this city: Nur-Sultan) But, cancelled by Corona.
⇒ 2021-Dec: Summit will take place in
Geneva, Switzerland. (But postponed by
Omicron-fear)
*Gold is considered a safe-haven asset and can
provide a hedge against inflation and currency
fluctuations. By buying more gold, RBI can diversify
its foreign exchange reserves and reduce its
dependence on other,
• Reserve assets include currencies, commodities,
or other financial capital held by monetary
authorities to finance trade imbalances and check
the impact of foreign exchange fluctuations.