The role of International Institutions in International Trade


Essay on The role of international institutions in international trade development.



International trade is said to happen when the goods and services are exchanged by countries along the borders internationally. With this type of trade, the pricing of products in the market becomes more competitive, and competition between companies domestically and internationally increases (Yadav, 2014). This is advantageous to the consumers as they get the products at affordable prices. The economy of the countries who indulge in international trade gets affected as the consumers get those products that may not be attainable to them otherwise. In international trade, the capital, goods, and services are exchanged across the borders and territories and the activities of people and government are involved in this. A significant share of the GDP of countries comes from trading internationally. This type of trade gives rise to a ‘world economy’ where global events affect the supply and demand of products. Then when international trade happens, the wealthy countries are able to utilize their resources more efficiently (Yadav, 2014). Also, the countries' participation in the global economy increases, and this increases the amount of FDI. Foreign direct investment is a way by which the foreign currency and expertise can come to a country and then the country is benefitted from it. Thus the employment rises, people get more jobs and the GDP of the country increases (Roe, 2007). 

The governments of all countries try very hard for promoting economic growth but their actions are complemented by the actions of some international organizations that help in the promotion of economic growth of countries by enabling them to carry out international trade successfully. Some of the institutions are the World Bank, WTO, GATT, IMF, etc.
The World Bank is an intermediary at an international level that is funded by 184 countries who are its members. The major function of this institution is that it gives loans and grants to the developing countries so that they are able to eliminate their poverty and hence the economic growth is promoted. It borrows funds from the capital markets internationally (Ahn, Khandelwal and Wei, 2011), and the member countries also give it funds (DITC, UNCTAD, n.d.). The projects that are not taken otherwise are funded by the World Bank. These projects help in the promotion of education, infrastructure, health, etc. The World Bank has created WTO along with IMF. It is the promoter of a trading system that is multilateral and a supporter of the economic development of countries. Then the World Bank also makes the competitiveness of trade as the centerpiece for establishing the development strategies of nations. The bank has some programs called ‘Aid for Trade’ the support international trade and facilitates the reforms related to it. Then in 2011, the World Bank has launched its new strategy for trade which is about “Leveraging Trade for Development and Inclusive Growth.” This was established by the Bank after its stakeholders approved it. This strategy has some themes at the priority that are: making the international trade competitive and diversified, facilitate the trade and its transport logistics and finance for trade, support the access to markets and cooperation of international trade and last is the management of shocks when greater inclusion is promoted (DITC, UNCTAD, n.d.). Apart from this, the role of the World Bank is understood in different forms. From the perspective of a bank, it helps in maintaining the financial integrity of countries on which the entire international trade depends. Then it is viewed as an instrument that helps in the growth of the national interest of nations. The national interest is related to the policies of nations towards other countries related to the goals for the procurement of funds. The third way by which World Bank is viewed is that it is a supporter of a liberal economic system that helps in the promotion of liberal trade and investment regimes (Ahn, Khandelwal and Wei, 2011). Then there are some values that are necessary for international trade, but the developing nations do not accept them as some traditional power structures exist in economies of developing countries that do not let it accept those values. But The World Bank helps in the promotion of these values and it makes sure that all those countries that enter international trade are following those values. The countries that are poor restrain themselves from entering into international trade as they feel that they will not be able to withstand the levels and requirements for international trade (DITC, UNCTAD, n.d.). So the World Bank transfers resources to these countries so that they can also enter into this trade and develop their economy. 
The aim of establishing an International Monetary Fund was to give short-term support to the countries that face financial difficulties. IMF is basically a platform and a permanent institution for the promotion of international monetary cooperation that gives the countries that trade internationally machinery for consultation and collaboration on the problems related to international money (Stiglitz, 2008). It facilitates international trade among nations to expand and maintain balanced growth. Hence, it is a contributor to the promotion and maintenance of employment and real income of nations at high levels, and it helps in developing the productive resources of its member nations. In international trade, there is a lot of foreign currency that is involved and the currency is exchanged as per the exchange rate between countries (Frankel, n.d.). So the IMF helps in promoting the stability of this exchange by maintaining orderly exchange arrangements between all the members. This also helps in avoiding the competitive exchange depreciation. The countries may establish their own rules regarding the payments in international trade that may give rise to arguments, fights among countries. So to prevent this situation, the IMF assists the countries indulging in international trade to establish a multilateral system of payments for the transactions among countries and it also tries to eliminate the restrictions on foreign exchange that is a reason for hampering the growth of world trade. In international trade, some countries import and some exports but the country who exports more are in a better position than the country which imports more (Frankel, n.d.). This is because, with more imports, the balance of payments of the country gets disturbed which hampers the economic growth of the country. So the country tries to avoid international trade. But IMF gives confidence to the countries to trade as it makes the general resources of the Fund temporarily available to them under adequate safeguards (Stiglitz, 2008). This helps the countries to rectify their balance of payments maladjustments, and they don't have to restore to measures that cause destruction to their national and international prosperity. Then the main thing that the IMF did for successful international trade was the creation of SDR or special drawing rights. These are international monetary reserve asset. It is not a currency in actual form but it is the type of IMF currency that is allocated to the countries, and it is a part of a country's reserve. The countries can exchange SDRs with each other along with the currency. This helps the countries in international trade as it serves as the unit of account of the IMF and when the countries face any economic problem, or they are in need of money, they borrow it from IMF in SDRs (Frankel, n.d.). The International Monetary Fund has given its support to many nations especially the developing countries and it has helped them to overcome their challenges related to money and funds. Thus, stability has been maintained by the IMF in the international financial system. Though the purpose of this institution is defined very clearly, its execution as very difficult and complicated. But it has been successful in delivering what it intended to (Stiglitz, 2008). 

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The rules for trade are made by the World Trade Organisation or WTO. There were earlier trade agreements between countries known as General Agreement on Tariffs and Trade that gave birth to WTO. It is the institution where the countries sort out the trade-related issues that they face with each other. Negotiations are the way by which all the activities happen in WTO (Herz and Wagner, 2011). It is one of the largest institutions internationally that help in the formulation and coordination of the policies of world economies. It has played the most significant role in the promotion of free international trade. It implements the decisions and policies that it formulates for international trade and the members of WTO approve it. This also provides assistance to the members of WTO to ensure the smooth progress of the activities and negotiations for international trade. WTO makes sure that all the member countries are correctly applying and enforcing the rules that concern an international trader. The WTO facilitates trade negotiations. These negotiations include agreements on goods and services and also intellectual property. WTO ensures through its mandate that every member country is committed to the policy of lowering their tariffs on customs duty so that barriers to trade are minimized. It also takes action when any other barrier to trade is observed to exist. But these are in sync with the already established agreements with the members and are regularly reviewed. Then WTO also makes sure that the implementation of agreements is done properly, and it continuously monitors that. It is the requirement of WTO agreement that the members have to make their policies of trade in a transparent manner. The members do this by giving WTO a notification on whatever laws and measures the members adopt. WTO has set up a mandatory requirement for all the members that they shall undergo a regular scrutiny of their trade-related policies and practices.  When so many countries trade with each other, disputes are natural to arise, but WTO settles the disputes in an effective manner (Herz and Wagner, 2011). It has laid down some procedures and guidelines for settling the disputes but still, some issues arise that cannot be settled using those guidelines. So, in that case, the WTO tries to create an understanding among members regarding the possible solutions, and there are some independent experts who are appointed for taking the judgment in such situations. It is important to build the trade capacity among members and WTO does that very effectively. It has a few special provisions for the developing nations that help in increasing their trading opportunities. It also gives support to those nations so that they can boost their trading capacity. Then these countries are assisted that how they should handle the disputes and implement the technical standards. WTO conducts some courses annually that aim to develop the countries’ skills and infrastructure requirements. As stated before that GATT is a part of WTO and the main role of it in the world trade is to regulate the contracting countries so that they achieve the aim or purpose of their agreement that is to reduce the barriers to the trade like tariffs and to achieve the liberalization in international trade (Herz and Wagner, 2011).
From the above-mentioned details, it can be concluded that these international organizations have significantly impacted the flow of products and investments and hence they have impacted the international trade. The WTO has influenced the world trade by its investment measures and rights related to intellectual property. Then it has also impacted the tariffs of countries, the import duties and other barriers to trade. These institutions have not pressured any country to follow its rules or become a member (Yadav, 2014). The members were naturally willing to be a part of them. They are happy to comply with the agreements ratified by this institution as it helps in the development of their own nation. Also, if any member goes against any policy of the institution, then they are sanctioned by it and then it is worse than monetary or police sanction (Roe, 2007). With the change in time, the policies of these institutions have also changed. The international trade is not just limited to an exchange of goods and services, but it has started exchanging knowledge too (Roe, 2007). These international institutions also helped to make things easier, more convenient and effective, in terms of trading and investment. Hence, these actions contribute to better integration of the world in order to solve common problems. 

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  • Ahn, J., Khandelwal, A. and Wei, S. (2011). The role of intermediaries in facilitating trade. Journal of International Economics, 84(1), pp.73-85.

  • DITC, UNCTAD, T. (n.d.). Developing Countries in International Trade 2005: Trade and Development Index. SSRN Electronic Journal.

  • Frankel, J. (n.d.). National Institutions and the Role of the IMF. SSRN Electronic Journal.

  • Hafner-Burton, E. (2005). Do Global Trade Institutions Marginalize the Poor?. International Studies Review, 7(3), pp.441-444.

  • Herz, B. and Wagner, M. (2011). The ‘Real’ Impact of GATT/WTO - a Generalised Approach. The World Economy, 34(6), pp.1014-1041.

  • Ossa, R. (n.d.). A 'New Trade' Theory of GATT/WTO Negotiations. SSRN Electronic Journal.

  • Roe, T. (2007). International trade as a source of economic growth: trade barriers and institutions. IJARGE, 6(2), p.277.

  • Rose, A. (2005). Which International Institutions Promote International Trade?. Rev International Economics, 13(4), pp.682-698.

  • Stiglitz, J. (2008). The Role of the IMF. New Perspectives Quarterly, 19(2), pp.88-89.

  • Yadav, N. (2014). Impact of Trade Facilitation on Parts and Components Trade. The International Trade Journal, 28(4), pp.287-310.

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