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Lecture: November 13 2007
Review: Political participation Global Governance and World Order International Politics and Relations International Organizations International Financial institutions
HammurabiRoman empireAztec empiresMing dynastiesMughal empires British empire American globalization
International politicsthinking globally and acting locally
International politics international system International relations Foreign policy
State unit of analysisstate sovereigntyinternational law
international system relative powersub-systems
International organizations (IOs) have emerged as the architecture of world orders. These include international governmental organizations as well as international non governmental organizations • After world war I the League of Nations was created to coordinate transnational security • After WWII, key structures emerged including:
United Nations Organizations (UNO) The Bretton Woods System (BWS)
– IDRB (World Bank) – IMF
GATT and World Trade Organization
United Nations Organizations (UNO)
The United Nation emerged as an international regime of governance to maintain world order in the post war period and coordinate international cooperation in the following areas:
The Bretton Woods System (BWS)
The Bretton Woods System (BWS) Objectives
•Α stable exchange rates • A reserve asset (something like the gold standard) • Control international capital flows • Availability of shortterm loans to deal with temporary balance of payments difficulties • Rules to open up trade.
Mandate of the World Bank (IBRD)
The stated objectives of the World Bank (International Bank for Reconstruction and Development) were: – to assist in the reconstruction of the global infrastructure destroyed by the war, – to facilitate the development of the emerging, newly independent, underdeveloped countries – (an objective that at the time was secondary to the first one in priority).
Mandate of the International Monetary Fund (IMF)
The stated objectives of the IMF were: • to promote and maintain high levels of employment and income through the expansion of international trade • the maintenance of exchange rate stability and currency convertibility
Mandates of World Bank and IMF
• The most relevant of the World Bank’s two branches to the Third world was therefore the IDA, which, like the IBRD was involved in providing long term low interest rate loans for development and reconstruction. • Third World countries had originally proposed the setting up of a Special United Nations Fund for Development (SUNFED) in the 1950s. It would give them more control over the fund because of their numerical clout within the UN • Industrialized countries insisted on the creation of the IDA under the World Bank which they had almost total control over. The IDA is an affiliate of the World Bank, not an agency of the UNO. • They also established the InterAmerican Development Bank, the Asian Development Bank and the African Development Bank, all governed on the basis of the contributions as opposed to membership.
• The World Bank is structured along the lines of a corporation, with member countries holding shares as the basis for the Bank’s capitalization. They make a nominal cash payment in line with the shares they hold and are given promissory notes for it. • The capital is used as the base endowment for the Bank to lever private capital from capital markets, which it then uses to issue longterm loans at rates of interest below the market rates.
International Monetary Fund
• The IMF structure is organized more like a credit union, in which members contribute funds (in gold or convertible national currency) of amounts determined by the size of their economy • They can borrow from the accumulated amount to respond to threats to their ability to maintain their rate of exchange. • The original monetary system designated the US dollar, backed by gold as the anchor currency against which all other currencies’ values were determined. • IMF loans were principally intended to provide borrowers funds to deal with short term imbalances in their current accounts.
International Monetary Fund
• The loans generally have short term maturity and carry conditions for the borrower to make some adjustments to their economy to enable them to return to a stable position. • If a member’s situation can not be fixed by those measures, the IMF would agree to permanent currency exchange rate changes – devaluation. • In the early days, it was industrialized countries that were the primary borrowers. That changed after the debt crisis in the early 1980s. • The United States was the largest contributor and subscriber so it held the largest votes at both organizations.
International Monetary Fund
• The IMF now has 183 member states whose contributions of members, each with a “quota” in proportion to the size of its economy, finance its activities. • The size of each national quota determines voting rights and the 24member Executive Board, whose members are called Executive Directors. Each country’s vote is proportional to its quota. • 8 Executive Directors for the largest economies represent only their own countries. The other 16 each represent all other countries, including some Third World countries. • A majority of 85% is required for most decisions, so the vote of the U.S. at about 18%, is an effective veto power over critical decisions. However, even with loans that require a simple majority, the US is able to exercize inordinate influence
General Agreement on Tariffs and Trade (GATT)
• As a forum for trade talks, the GATT was the site of a series of rounds of multilateral trade negotiations that aimed at the elimination of tariff barriers, which enjoyed great, but intermittent, success. • The guiding principles of the GATT were to facilitate multilateral trade bargaining, with most favoured nation status, nondiscriminatory access to markets and other concessions granted to the countries agreeing to play by the same rules and procedures set.
• It also served as an agency for resolving disputes and upholding trade rules, but was slow and impotent because it lacked of real powers to enforce its rulings, depending on the nations’ self interest. • Initially, the plan was to establish the ITO to negotiate commodity agreements. But the failure to get the US Congress to approve it led to the establishment of the GATT in 1948 to organize rounds of negotiations aimed at liberalization of trade such as the Tokyo and the Uruguay rounds.
From GATT to WTO
1) Following the last (socalled Uruguay) round (198694), GATT was replaced by the WTO at the beginning of January 1995. 3) In addition to doing what GATT did, provide a forum for negotiations and handling trade disputes, the WTO is new in many ways.
• The WTO is the most important regulator of trade at international level today and also sets the terms within which regional trade agreements can be signed. • The impact of the World Trade Organization (WTO), established in 1995, had gone largely unnoticed until Seattle 1999. • Trade is an important aspect of the current wave of globalization and its influence is felt from the global level to peoples' daily lives. • According to the proponents of the WTO, globalization needs to be managed at world level from a trade perspective.
• The WTO covers all areas of trade, not just manufactured goods, but services and intellectual property as well. • Whereas the GATT was virtually toothless when it came to enforcement powers, a first objective of the WTO is administering WTO trade agreements and monitoring national trade policies. • What this means is that an organization like the WTO which is not internally democratic, is able to override or change democratically approved national trading laws
• The result of trade negotiations in services (General Agreement on Trades in Services (GATS) has been to put pressure on governments to privatize what have historically been public services such as the delivery of water. In many countries in the Third World, the World Bank has made the privatization of water delivery a condition of its continued financial support for the government. • The result of trade negotiations on intellectual property (TradeRelated Aspects of Intellectual Property (TRIPs) have led to billions of dollars of monopoly profits being transferred worldwide from poor countries to rich countries under the guise of protecting the property rights of inventors and developers. E.G. HIV/AIDS Drugs
World Trade Organization
• In 1997, the WTO reported that world trade in goods reached $ 5.3 trillion, and trade in services an additional $ 1.3 trillion. The United Nations Conference on Trade and Development (UNCTAD) figures indicate that: • more than two thirds of world trade involves at least one multinational, much of it within the same multinational around the world (intrafirm exports) • with an estimated $7 trillion in global sales in 1995 the value of goods and services produced by some 280,000 affiliates of the world's 44,508 TNCs international production outweighs exports as the dominant mode of servicing foreign markets • TNCs were responsible for the $ 350 billion in foreign direct investment in 1995.
The problem with the distribution of trade benefits
• The WTO's basic assumption is that its rules contribute to trade and investment liberalization which leads to more competition, better allocation of resources, economic growth, more employment and better living standards, including environmental conservation. • Although the WTO, and GATT in the past, have incorporated special measures for weaker economies, there are many pitfalls in the current system
Unequal distribution of the benefits of trade
• Inequalities between skilled and unskilled workers are growing in the North as well as in the South; • Corporate restructuring, labour shedding and wage repression are on the rise; • Profit shares and the return on capital has risen much more (from 12.5% in the early 1980s to 16% in the mid 1990s in G7 countries ) than wages; • The concentration of revenues and higher company profits have not been invested so as to create more jobs; • The benefits of liberalization have been mainly reaped by traders rather than by farmers who have not received