EASING WORLD TRADE

RESTRICTIONS
ABIGAIL M. NARAG
SUBJECT PROFESSOR
LEARNING OBJECTIVES
• Understand the meaning of World Trade Organization and its
history.
• Discuss the different types of trade blocs.
• Discuss the role of the International Monetary Fund.
 IMF ACTIVITIES
• The IMF’s major responsibility is to ensure the stability of the
international monetary and financial system.
• This system refers to the international payments and exchange
rates among national currencies that enable trade to take place
between countries.
• The IMF seeks to promote economic growth and prevent any
financial crisis. To meet this goals, it fulfills three main
functions: 1) surveillance; 2) technical assistance; and 3)
lending.
 WORLD TRADE ORGANIZATION

• In brief, the World Trade Organization (WTO)

is the only international organization dealing
with the global rules of trade. Its main function
is to ensure that trade flows as smoothly,
predictably and freely as possible.
 HISTORY OF THE WORLD TRADE
ORGANIZATION (WTO)
• The WTO which is based in Geneva, Switzerland, was established on
January 1, 1995 (IMF).
• It succeeded the General Agreement on Tariffs and Trade (GATT) which was
the interim world trade body since 1948.
• With 149 member countries as of December 11, 2005, the WTO is the only
global organization dealing with the rules of trade between or among nations.
• It is a member-driven organization as all decisions are made by member
governments.
• The WTO aims to ensure that trade flows smoothly and freely. With 630
secretariat staff headed by a Director-General, it has the following
functions:
- Administers WTO agreements;
- Serves as a forum for trade negotiations;
- Handles trade disputes;
- Monitors national trade policies;
- Provides technical assistance and training for developing countries;
- Cooperates with other international organizations.
FORMATION OF TRADING BLOCS

• A trading bloc is a group of countries that work

together to provide special deals for trading.
• This promotes trade between specific countries within
the bloc.
• The European Union (EU) is an example of a trading
bloc.
 DIFFERENT TYPES OF TRADE
1. FREE TRADE AREA
BLOCS
The members remove all trade barriers among themselves,
but their respective trade barriers to the non-member countries are
not dictated by their membership. In short, they can impose their
own tariffs on non-member countries.
EXAMPLE: European Free Trade Area
Iceland, Liechtenstein, Norway and
Sitzerland
2. CUSTOMS UNION
The members remove all trade barriers among themselves and they
have the same set of external barriers, consequently eliminating the need for
customs inspection at internal borders.
EXAMPLE:
Customs and Economic Union of Central Africa (CEUCA)
Cameroon
Gaban
Central African Republic
People’s Republic of Congo
3. COMMON MARKET
Member countries permit full freedom of factor flows (migration of
labor or capital) among themselves, in addition to having a free trade area.
EXAMPLE:
The European Union (EU)
Belgium Luxembourg Finland
France Portugal
Netherlands Denmark Austria Greece
Spain
Italy United Kingdom Ireland Germany
Sweden
Cyprus Czech Republic Estonia
Hungary Latvia Lithuania Malta
ANOTHER EXAMPLE:
The Central American Common Market (CACM)
Costa Rica
El Salvador
Guatemala
Nicaragua
Honduras
4. FULL ECONOMIC UNION
Member countries unify all their
economic policies, including monetary, fiscal
and welfare policies as well as policies
toward trade and factor migration. The
ultimate goal of the European Community is
to form one nation.
 DEGREES OF INTERNATIONAL
ECONOMIC INTEGRATION
SIZE OF ABOLITION OF COMMON REMOVAL OF HARMONIZATION
INTEGRATION TARIFFS AND TARIFFS AND RESTRICTIONS OF ECONOMIC,
QUOTAS QUOTA SYSTEM AND FACTOR SOCIAL AND
MOVEMENTS REGULATORY
PRICES
FREE TRADE YES NO NO NO
AREA
CUSTOMS YES YES NO NO
UNION
COMMON YES YES YES NO
MARKETS
FULL YES YES YES YES
ECONOMIC
UNION
 THE INTERNATIONAL MONETARY
FUND
• The International Monetary Fund or IMF was conceived in July 1994 in
the U.S. when delegates from 44 governments agreed on a framework on
economic cooperation.
• This international institution allows currency to be exchanged freely and
easily between member countries. Also, it oversees the international
monetary system and promotes both the elimination of exchange
restrictions relating to trade in goods and services, and the stability of
exchange rates.
• The IMF’s existence also prevents a repetition of the disastrous economic
policies that had contributed to the Great Depression of the 1930’s.
• The IMF was formally established in December 1945 when the first 29
countries signed its Articles of Agreement.
• The IMF’s general activities (IMF) are as follows:
- promoting international monetary cooperation;
- facilitating the expansion and balanced growth of international trade;
- promoting exchange rate stability;
- assisting in the establishment of a multilateral system of payments; and
- making its resources available (under adequate safeguards) to members

experiencing balance of payments difficulties.

 SURVEILLANCE
• This refers to the monitoring of economic and financial
developments and policies in member countries at the global
level, The IMF also gives policy advice to its members. For
example, the IMF commended Mexico in 2003 for good
economic management but advised the country to reform its tax
system, energy sector, labor market and judicial system to be
able to compete globally.
 TECHNICAL ASSISTANCE
• The IMF provides the governments and central banks of its
member countries with technical assistance and training in its
areas of expertise. For example, the IMF helped the Baltic
states, Russia and other former Soviet countries set up treasury
systems for their central banks as part of their transition from
centrally planned to market-based economic systems after the
disintegration of the Soviet Union.
 LENDING
• The IMF lends to member countries with balance of payments problems.
This pursues the two-prolonged goal of providing temporary financing
and supporting policies that will correct the balance of payments
problems. For example, the IMF loaned money to South Korea during the
Asian financial crisis in 1997, and the country paid its loans after
rebuilding its reserves.
• The IMF is the principal forum for national economic policies in a global
context and issues important to stability of the international monetary and
financial system.
• It works to strengthen the international financial system.
• Thus, it aims to reduce poverty, promote sound economic
policies and make globalization work for the benefit of all.
• Some of the IMF’s major accomplishments include:
- Increasing volume of trade and investment
- Adopting to changes in international commerce
- Allowing more international cooperation