International Trade Institutions and Trade Agreements

The First World War (1914-1919) and the Second World War (1939-45) were accompanied by massive destruction of life and property the world over. Almost all the economies of the world were adversely affected. Due to scarcity of resources, countries were not in a position to take up any reconstruction or developmental works. Even the international trade amongst nations got adversely affected because of the disruption of the world’s currency system.

There was no system of generally accepted exchange rate. It was at that juncture that representative of forty-four nations under the leadership of J.M. Keynes — a noted economist joined together at Breton Woods, New Hampshire to identify measures to restore peace and normalcy in the world. The meeting was concluded with the setting up of three international institutions, namely the International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD) and the International Trade Organization (ITO). While the World Bank was assigned with the task of reconstructing war-torn economies — especially the ones in Europe, the IMF was entrusted with the responsibility of ensuring stabilisation of exchange rates to pave way for the expansion of world trade. The main objective of the ITO as they could foresee at that time was to promote and facilitate international trade among the member countries by overcoming various restrictions and discriminations that were being practiced at that time. The first two institutions, viz., IBRD and IMF, came into existence immediately.

The idea of setting up of ITO, however, could not materialise due to stiff opposition from the United States. Instead of an organisation, what eventually emerged was an arrangement to liberalise international trade from high customs tariffs and various other types of restrictions. This arrangement came to be known as the General Agreement for Tariffs and Trade (GATT). GATT came into existence with effect from 1st January 1948 and remained in force till December 1994. Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non-tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of duration of negotiations which lasted over a period of seven years from 1986 to 1994. Since 1st January 1995, GATT has been transformed into World Trade Organisation (WTO).

Unlike GATT, WTO is a permanent body and has a global status similar to that of IMF and World Bank. WTO agreements cover trade in not only goods but also in services and intellectual property through various agreements such as Agreement on Textiles on Clothing (ATC), General Agreement on Trade in Services (GATS), Agreement Relating to Trade in Intellectual Property (TRIP) and Agreement on Agriculture (AoA).

• World Bank- its Objectives and Functions