Chapter 4
INSTITUTIONS AND
INTERNATIONAL BUSINESS
INSTITUTIONS AND INTERNATIONAL BUSINESS
•
•
•
•
World Trade Organization
International Monetary Fund
World Bank
Organization for Economic Cooperation and
Development
• The World Trade System
• an international organization established to
supervise and liberalize world trade.
• based on agreements signed by a majority of
the world’s trading nations. The main function
of the organization is to help producers of
goods and services, as well as exporters and
importers, protect and manage their
businesses.
• Based in Geneva, Switzerland
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General Agreement on Tariffs and Trade
• Legal agreement between many countries whose
overall purpose was to promote international trade
by reducing or eliminating trade barriers such as
tariffs or quotas
• was
first
discussed
during
the
United
Nations Conference on Trade and Employment and
was the outcome of the failure of negotiating
governments to create the International Trade
Organization (ITO).
• was signed by 23 nations in Geneva on October 30,
1947 and remained in effect until January 1, 1995
• Came to existence in 1995 as successor to
the General Agreement on Tariffs and Trade (GATT),
which was created in 1947 in the expectation that it
would soon be replaced by a specialized agency of
the United Nations (UN) to be called the International
Trade Organization (ITO). Although the ITO never
materialized, the GATT proved remarkably
successful in liberalizing world trade over the next
five decades.
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• By the late 1980s there were calls for a
stronger multilateral organization to monitor
trade and resolve trade disputes. Following the
completion of the Uruguay Round (1986–94) of
multilateral trade negotiations, the WTO began
operations on January 1, 1995 as a result of
the successful completion of the Uruguay
Round Agreements by 123 nations in
Marrakesh on April 15, 1994
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• As of 2021, the WTO has 164 member countries, with
Liberia and Afghanistan the most recent members,
having
joined
in
July
2016,
and
25
“observer” countries and governments.
On Feb. 15, 2021, the WTO’s General Council
selected two-time Nigerian finance minister Ngozi
Okonjo-Iweala as its director-general. She is the first
woman and the first African to be selected for the
position. She took office on March 1, 2021,
for a four-year term.
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1. to set and enforce rules for international trade
2. to provide a forum for negotiating and monitoring
further trade liberalization
3. to resolve trade disputes
4. to increase the transparency of decision-making
processes
5. to cooperate with other major international economic
institutions involved in global economic management,
and
6. to help developing countries benefit fully from the global
trading system.
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Although shared by the GATT, in practice these
goals have been pursued more comprehensively by
the WTO. For example, whereas the GATT focused
almost exclusively on goods—though much
of agriculture and textiles were excluded—the
WTO encompasses all goods, services, and
intellectual property, as well as some investment
policies.
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The history of international trade has been a
battle between protectionism and free trade, and
the WTO has fueled globalization, with both positive
and adverse effects. The organization’s efforts have
increased global trade expansion. There are side
effects to globalization, including a negative impact
on local communities and human rights.
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Stimulation of free trade
Decline in trade disputes
 Undermines the principles of organic democracy
 Widens the international wealth gap
 Decline in domestic industries
 Increasing foreign influence
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Minsterial Conference
• top decision-making body
• composed of all member
usually convenes biennially
states
and
General Council
• Handed the day-to-day functions of the WTO
• Made up of representaitves from all members
Principles of the Trading System
1. Non-discrimination
It has two major components:
the most favored nation (MFN) rule and the national
treatment policy. Both are embedded in the main
WTO rules on goods, services, and intellectual
property, but their precise scope and nature differ
across these areas. The MFN rule requires that a
WTO member must apply the same conditions on all
trade with other WTO members, i.e., a WTO member
has to grant the most favorable conditions under
which it allows trade in a certain product type to all
other WTO members
Principles of the Trading System
2. Reciprocity
It reflects both a desire to limit the scope of
free-riding that may arise because of the MFN
rule and a desire to obtain better access to foreign
markets. A related point is that for a nation to negotiate,
it is necessary that the gain from doing so be greater
than the gain available from unilateral liberalization;
reciprocal concessions intend to ensure that such gains
will materialize
Principles of the Trading System
3. Binding and enforceable commitments
The tariff commitments made by WTO
members in multilateral trade negotiation and on
accession are enumerated in a legal instrument known as a
schedule (list) of concessions.[62] These schedules
establish "ceiling bindings": a country can change its
bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade. If
satisfaction is not obtained, the complaining country may
invoke the WTO dispute settlement procedures.
Principles of the Trading System
4. Transparency
The WTO members are required to publish their trade
regulations, to maintain institutions allowing for the review of
administrative decisions affecting trade, to respond to requests
for information by other members, and to notify changes in
trade policies to the WTO. These internal transparency
requirements are supplemented and facilitated by periodic
country-specific reports (trade policy reviews) through
the Trade Policy Review Mechanism (TPRM).[63] The WTO
system tries also to improve predictability and stability,
discouraging the use of quotas and other measures used to set
limits on quantities of imports.
Principles of the Trading System
5. Safety Values
In specific circumstances, governments are able
to restrict trade. The WTO's agreements permit
members to take measures to protect not only the
environment but also public health, animal health
and plant health.
The WTO's annual budget is roughly 220
million USD, which is contributed by
members based on their proportion of
international trade
• works to achieve sustainable growth and
prosperity for all of its 190 member countries. It
does so by supporting economic policies that
promote financial stability and monetary
cooperation, which are essential to increase
productivity, job creation, and economic wellbeing. The IMF is governed by and accountable to
its member countries.
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• What does the IMF do?
furthering international monetary cooperation
encouraging the expansion of trade and economic
growth
discouraging policies that would harm prosperity.
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• Policy Advice
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• _____________
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• Capacity
Development
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• As of 2021, the WTO has 164 member countries, with
Liberia and Afghanistan the most recent members,
having
joined
in
July
2016,
and
25
“observer” countries and governments.
On Feb. 15, 2021, the WTO’s General Council
selected two-time Nigerian finance minister Ngozi
Okonjo-Iweala as its director-general. She is the first
woman and the first African to be selected for the
position. She took office on March 1, 2021,
for a four-year term.
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World Bank
• One of the Bretton Woods Institutions that was
Established on July 22, 1944 during a Monetary
And Financial Conference held at Bretton Woods, New
Hampshire, United State of America
• Establsihed to ensure reconstruction of European
State immediately after the devastating effects of the
World War II with Articles of Agreement formally
accepted by a majority of the participants on
December 27, 1945.
World Bank
 Only countries that are members of the
IMF can be considered for membership
in the World Bank
 Based on each country's relative economic
strength, subscriptions by member countries to
the capital stock of the World Bank are related
to each member’s quota in the IMF. Each
country can subscribe to shares in an amount
based on its relative economic strength.
Lending Criteria of World Bank
 The Bank lends out strictly only on economic
consideration, not on political character of a
member country. Therefore, it does not lend in
support of military or political objectives
 Its loan could be used to purchase goods and
services from member countries.
Lending Criteria of World Bank
 World Bank criteria for borrowing are a replica of
IMF conditionalities which include:
Trade liberalization
Debt servicing
Establishment of a foreign exchange market to
determine the current value of the recipient’s
currency
• An international organization that is saddled
with
the
responsibility
of
promoting
international cooperation and to create and
maintain international order
• Replaced the League of Nations that was
considered to be ineffective
• Established on October 24, 1945 after World
War II in order to prevent another conflict
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• The name “United Nations” was coined by US
President , Franklin D. Roosevelt in the
Declaration by UN on January 1, 1942 during
the 2nd World War when 26 representatives of
different nations pledged to continue fight
together against the Axis powers
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• Originally, representatives of 50 countries met
in San Francisco at the UN Conference in
order to draw up the UN Charter, which was
signed on June 26, 1945. However, Poland
which was not represented at the conference
signed it later and became one of the original
51 member states.
• Currently, made up of 193 member states
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AIMS:
To maintain international peace and security
and to develop friendly relations among nations
To ensure international cooperation in solving
problems of economic, social and humanitarian
nature
To promote and encourage respect for human
rights and fundamental freedom
To be a center for harmonizing the actions of
nations
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ORGANS:
 The General Assembly
- Main organ of the UN
- Holds regular annual session in September
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ORGANS:
 The Secretary Council
- Comprise of five permanent members (such as
USA, the United Kingdom, Russia, France and
China) and elected ten non-permanent members
with the following allocation:
1. 5 – Afro-Asian region
2. 2 – Latin America
3. 1 – Eastern Europe
4. 2 – Western Europe and others
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ORGANS:
 The Secretary Council
- Settle disputes among member states,
requisitioning military forces from the members
for peace keeping operations
- Approve the admission of countries as new
members
- Recommend the admission to the General
Assemble on appointment of Secretary General
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International Court of Justice
- Established in 1945 by the UN Charter which
serve as the main judicial organ of the UNO
- Headquarters is located at Hague, the
Netherland
- Composed of 15 judges elected to six yeat
terms by the UN General Assembly and the UN
Security Council
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• An international organization that is saddled
with
the
responsibility
of
promoting
international cooperation and to create and
maintain international order
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European Union (EU)
• Established in 1993
• Headquarters: Brussels, Belgium
• Mission: To help member countries cooperate
on economic, political and security matters
1.
2.
3.
4.
UN Children’s Fund (UNICEF)
UN Educational Scientific and Cultural Organization (UNESCO)
World Bank
World Health Organization
Organization for Economic Cooperation and
Development
• Established in 1993
• Headquarters: Brussels, Belgium
• Mission: To help member countries cooperate
on economic, political and security matters
1.
2.
3.
4.
UN Children’s Fund (UNICEF)
UN Educational Scientific and Cultural Organization (UNESCO)
World Bank
World Health Organization
World Trade System
• Established in 1993
• Headquarters: Brussels, Belgium
• Mission: To help member countries cooperate
on economic, political and security matters
1.
2.
3.
4.
UN Children’s Fund (UNICEF)
UN Educational Scientific and Cultural Organization (UNESCO)
World Bank
World Health Organization