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Introduction to Political Science

16.3 The Bretton Woods Institutions

Introduction to Political Science16.3 The Bretton Woods Institutions

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Table of contents
  1. Preface
  2. Introduction to Political Science
    1. 1 What Is Politics and What Is Political Science?
      1. Introduction
      2. 1.1 Defining Politics: Who Gets What, When, Where, How, and Why?
      3. 1.2 Public Policy, Public Interest, and Power
      4. 1.3 Political Science: The Systematic Study of Politics
      5. 1.4 Normative Political Science
      6. 1.5 Empirical Political Science
      7. 1.6 Individuals, Groups, Institutions, and International Relations
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  3. Individuals
    1. 2 Political Behavior Is Human Behavior
      1. Introduction
      2. 2.1 What Goals Should We Seek in Politics?
      3. 2.2 Why Do Humans Make the Political Choices That They Do?
      4. 2.3 Human Behavior Is Partially Predictable
      5. 2.4 The Importance of Context for Political Decisions
      6. Summary
      7. Key Terms
      8. Review Questions
      9. Suggested Readings
    2. 3 Political Ideology
      1. Introduction
      2. 3.1 The Classical Origins of Western Political Ideologies
      3. 3.2 The Laws of Nature and the Social Contract
      4. 3.3 The Development of Varieties of Liberalism
      5. 3.4 Nationalism, Communism, Fascism, and Authoritarianism
      6. 3.5 Contemporary Democratic Liberalism
      7. 3.6 Contemporary Ideologies Further to the Political Left
      8. 3.7 Contemporary Ideologies Further to the Political Right
      9. 3.8 Political Ideologies That Reject Political Ideology: Scientific Socialism, Burkeanism, and Religious Extremism
      10. Summary
      11. Key Terms
      12. Review Questions
      13. Suggested Readings
    3. 4 Civil Liberties
      1. Introduction
      2. 4.1 The Freedom of the Individual
      3. 4.2 Constitutions and Individual Liberties
      4. 4.3 The Right to Privacy, Self-Determination, and the Freedom of Ideas
      5. 4.4 Freedom of Movement
      6. 4.5 The Rights of the Accused
      7. 4.6 The Right to a Healthy Environment
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 5 Political Participation and Public Opinion
      1. Introduction
      2. 5.1 What Is Political Participation?
      3. 5.2 What Limits Voter Participation in the United States?
      4. 5.3 How Do Individuals Participate Other Than Voting?
      5. 5.4 What Is Public Opinion and Where Does It Come From?
      6. 5.5 How Do We Measure Public Opinion?
      7. 5.6 Why Is Public Opinion Important?
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  4. Groups
    1. 6 The Fundamentals of Group Political Activity
      1. Introduction
      2. 6.1 Political Socialization: The Ways People Become Political
      3. 6.2 Political Culture: How People Express Their Political Identity
      4. 6.3 Collective Dilemmas: Making Group Decisions
      5. 6.4 Collective Action Problems: The Problem of Incentives
      6. 6.5 Resolving Collective Action Problems
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
    2. 7 Civil Rights
      1. Introduction
      2. 7.1 Civil Rights and Constitutionalism
      3. 7.2 Political Culture and Majority-Minority Relations
      4. 7.3 Civil Rights Abuses
      5. 7.4 Civil Rights Movements
      6. 7.5 How Do Governments Bring About Civil Rights Change?
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
    3. 8 Interest Groups, Political Parties, and Elections
      1. Introduction
      2. 8.1 What Is an Interest Group?
      3. 8.2 What Are the Pros and Cons of Interest Groups?
      4. 8.3 Political Parties
      5. 8.4 What Are the Limits of Parties?
      6. 8.5 What Are Elections and Who Participates?
      7. 8.6 How Do People Participate in Elections?
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  5. Institutions
    1. 9 Legislatures
      1. Introduction
      2. 9.1 What Do Legislatures Do?
      3. 9.2 What Is the Difference between Parliamentary and Presidential Systems?
      4. 9.3 What Is the Difference between Unicameral and Bicameral Systems?
      5. 9.4 The Decline of Legislative Influence
      6. Summary
      7. Key Terms
      8. Review Questions
      9. Suggested Readings
    2. 10 Executives, Cabinets, and Bureaucracies
      1. Introduction
      2. 10.1 Democracies: Parliamentary, Presidential, and Semi-Presidential Regimes
      3. 10.2 The Executive in Presidential Regimes
      4. 10.3 The Executive in Parliamentary Regimes
      5. 10.4 Advantages, Disadvantages, and Challenges of Presidential and Parliamentary Regimes
      6. 10.5 Semi-Presidential Regimes
      7. 10.6 How Do Cabinets Function in Presidential and Parliamentary Regimes?
      8. 10.7 What Are the Purpose and Function of Bureaucracies?
      9. Summary
      10. Key Terms
      11. Review Questions
      12. Suggested Readings
    3. 11 Courts and Law
      1. Introduction
      2. 11.1 What Is the Judiciary?
      3. 11.2 How Does the Judiciary Take Action?
      4. 11.3 Types of Legal Systems around the World
      5. 11.4 Criminal versus Civil Laws
      6. 11.5 Due Process and Judicial Fairness
      7. 11.6 Judicial Review versus Executive Sovereignty
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 12 The Media
      1. Introduction
      2. 12.1 The Media as a Political Institution: Why Does It Matter?
      3. 12.2 Types of Media and the Changing Media Landscape
      4. 12.3 How Do Media and Elections Interact?
      5. 12.4 The Internet and Social Media
      6. 12.5 Declining Global Trust in the Media
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
  6. States and International Relations
    1. 13 Governing Regimes
      1. Introduction
      2. 13.1 Contemporary Government Regimes: Power, Legitimacy, and Authority
      3. 13.2 Categorizing Contemporary Regimes
      4. 13.3 Recent Trends: Illiberal Representative Regimes
      5. Summary
      6. Key Terms
      7. Review Questions
      8. Suggested Readings
    2. 14 International Relations
      1. Introduction
      2. 14.1 What Is Power, and How Do We Measure It?
      3. 14.2 Understanding the Different Types of Actors in the International System
      4. 14.3 Sovereignty and Anarchy
      5. 14.4 Using Levels of Analysis to Understand Conflict
      6. 14.5 The Realist Worldview
      7. 14.6 The Liberal and Social Worldview
      8. 14.7 Critical Worldviews
      9. Summary
      10. Key Terms
      11. Review Questions
      12. Suggested Readings
    3. 15 International Law and International Organizations
      1. Introduction
      2. 15.1 The Problem of Global Governance
      3. 15.2 International Law
      4. 15.3 The United Nations and Global Intergovernmental Organizations (IGOs)
      5. 15.4 How Do Regional IGOs Contribute to Global Governance?
      6. 15.5 Non-state Actors: Nongovernmental Organizations (NGOs)
      7. 15.6 Non-state Actors beyond NGOs
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 16 International Political Economy
      1. Introduction
      2. 16.1 The Origins of International Political Economy
      3. 16.2 The Advent of the Liberal Economy
      4. 16.3 The Bretton Woods Institutions
      5. 16.4 The Post–Cold War Period and Modernization Theory
      6. 16.5 From the 1990s to the 2020s: Current Issues in IPE
      7. 16.6 Considering Poverty, Inequality, and the Environmental Crisis
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  7. References
  8. Index

Learning Outcomes

By the end of this section, you will be able to:

  • Describe the context of the creation of the Bretton Woods Institutions.
  • Explain the origins and missions of the IMF, World Bank, GATT, and WTO.

At the end of World War II, the United States had a huge surplus in the balance of trade. Exports of military equipment and consumer goods to the Allied powers grew the American economy toward a pronounced recovery from the Great Depression, a severe financial crisis sparked by the 1929 stock market crash in New York that led to bank closures and high unemployment. The US government was aware of its military capabilities and advantageous economic position, especially in relation to destroyed Europe and Japan. As a result, the United States took a leading role in creating the post–World War II international order, an order that was expected to maintain peace and economic prosperity in the world.

As the end of World War II was imminent, representatives of the United States and Great Britain met to discuss the post-war international order. One of these meetings took place in July 1944 in Bretton Woods, New Hampshire, and became known as the Bretton Woods Conference. Harry Dexter White, assistant secretary of the Treasury in the United States, led the US delegation, and John Maynard Keynes, adviser to the Treasury in the United Kingdom, led the delegation from Great Britain. The United States, Great Britain, and 42 Allied nations sent representatives to the conference. Yet, the participation of these 44 states was only relevant to the extent that they supported either the American or the British side.19

During the conference, the US and British delegations presented proposals for the establishment of the world economic system. The United States wanted to create an international order that was strong enough to promote international economic stability. Their main objective was to avoid another economic crisis like that of 1929. Great Britain’s proposal was more focused on reconstruction, but the British had difficulty garnering support. In the end, the US proposal prevailed, with compromises. As a result, the Bretton Woods System reflected US concerns in the post–World War II period. For instance, the United States accepted the British suggestion that governments should stimulate their economies and promote international trade without competitive currency devaluations. According to the British delegation, if state governments followed this prescription, the world economy would be in balance and a future crisis like the one of 1929 would be averted.

In the end, the Bretton Woods Conference created two international financial institutions, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, which became known as the World Bank. These two institutions were based on the belief that global collective action was necessary to guarantee international economic stability and rebuild Europe.

Video

What’s the Difference Between the IMF and the World Bank?

In this clip, CNBC’s Elizabeth Schulze explains the differences between the IMF and the World Bank.

During the conference, there were also attempts to create a third institution to promote and regulate international trade. However, trade is a highly sensitive issue, especially to weaker states. Therefore, the third institution was not created in the conference, but discussions continued, and in 1947, the Havana Letter established the General Agreement on Tariffs and Trade (GATT). In 1995, the GATT gave way to the World Trade Organization (WTO).

The International Monetary Fund

At the time of the Bretton Woods conference, it was commonly believed that competitive devaluations among major international currencies had caused the 1929 financial crisis. Competitive devaluations happen when a country devalues its currency in relation to other countries to gain trade advantage, but other countries devalue their currencies in response. Though more recent evaluation has determined that other factors were responsible for the stock market crash,20 the US delegation at Bretton Woods insisted on the creation of a strict international monetary system (as a way to prevent future economic crises) and a return to the gold standard, the monetary system in which the standard unit of account is a fixed quantity of gold.

The US economy had maintained a substantial surplus in the balance of trade during the war years and controlled a significant part of the world’s gold reserves. As a result, confidence in the value of the US dollar was widespread. Capitalizing on the situation, the US delegation proposed a system backed by the US dollar and assured that the US government would guarantee that every dollar was backed by gold—one ounce of gold per 35 US dollars (USD). Other currencies would have a fixed parity with gold and also with the US dollar. The IMF would be responsible for monitoring the value of other currencies against the dollar.

After much deliberation, it was agreed that international currencies could deviate 1 percent from their fixed rates without previous consultation with the Fund. Yet, the Fund should be notified of any deviations greater than 1 percent but smaller than 10 percent. Only in cases of fundamental imbalance could the IMF authorize devaluations greater than 10 percent.21

Though this arrangement seemed to solve the problem of competitive devaluations, there was still the problem of a lack of international liquidity, that is, a lack of money or gold in the international market. Much of the liquidity problem was solved through the Marshall Plan, a program through which the United States sent USD 26 billion in war recovery aid to Europe and Japan between 1946 and 1949.

Even with the disbursement of the grants and loans, the American balance of payment, or the difference in value between all payments made to a country and the payments the country has made to the rest of the world, maintained a surplus of USD 6 billion,22 which helped extend the high confidence in the US dollar.

Yet, in order to establish the international monetary system, governments had to hold reserves, or money, gold, and other highly liquid assets that a country’s central bank or other monetary authority could use to meet financial obligations. In the United States, the Federal Reserve System (commonly referred to as the Fed) is the central bank, and it works to promote the effective operation of the economy. Reserves help to keep currencies at a fixed, or pegged, exchange rate, in which a currency’s value is fixed against the value of another currency, basket of currencies, or gold. For example, when a country runs a deficit in the balance of payment—that is, when payments a country makes exceed payments it receives and there is a shortage of money—the supply of its currency in the foreign exchange market exceeds the demand. If the forces of supply and demand were free, the price of the currency would fall to adjust to the market. However, to maintain the proposed fixed (or pegged) exchange rate, a government could not allow its currency to devalue or appreciate more than 1 percent. Thus, in cases when the forces of supply and demand threaten the price beyond the 1 percent margin, the government should intervene in the international market to buy back its currency, using its reserves in dollars or gold, until the price of supply and demand restabilize. So, under the Bretton Woods guidelines, governments should keep reserves and act to correct the devaluation or appreciation of their currency.

In reality, those currencies that maintained surpluses and appreciated were not corrected while the fixed exchange rate regime was in place. As a result, devaluations are often seen as synonymous with economic problems rather than as a mechanism for regulating the system. Over time, even the IMF began to discourage the practice of valuation.

The IMF’s original role was to maintain the parity between the US dollar and other currencies while eliminating currency exchange restrictions and thus facilitating the expansion of international trade. This was called the Bretton Woods System.

Delegates to the Bretton Woods conference decided that when a country joins the IMF, an initial quota would be assigned. The IMF has used a quota formula to assess a country’s position in relation to members of comparable economic size and characteristics and thus establish the quota. The quota determines the member’s maximum financial commitment to the IMF and its voting power, and it has a bearing on the member’s access to IMF financing.

The IMF in Practice

During its first years of operation, from 1949–1958, the Bretton Woods system was favorable to the United States, as the United States was the only country in the Western world with surpluses. The United States, backed by its economic superiority and concerned with communism, rushed to guarantee conditions for restructuring and growth for the Western European and Japanese economies.

In 1949, the United States was categorical in its recommendation of a restructuring of the exchange rate against the US dollar. The restructuring was massive. The devaluation allowed gains in relation to exports since, by inducing a reduction in costs and prices against the dollar, the devaluation allowed for a trade surplus. The result was that the United States ran deficits throughout the 1950s. Initially, such deficits were not a cause of worry; the United States had understood that deficits were necessary for rebuilding the European economy and stopping communism.

Nevertheless, in 1958 the weakness of the dollar became evident. The first sign of concern came in the form of the establishment of conversion rates between European currencies. Until then, there was a conversion rate between each currency and gold as well as the dollar, but not between the currencies themselves. The adoption of conversion rates made it easier to transfer credit between European countries and thus increased the flow of investments and international trade in Europe.

Between 1958 and 1965, American corporations made huge investments in the European market, raising US concerns about the deficit and worries about foreign direct investment (FDI)—one company’s investment in a business based in another country. American deficits and investments in Europe resulted in an overabundance of US dollars in the international system, and with that abundance the dollar lost its credibility in the international market, and several countries that kept their reserves in dollars exchanged them for gold.

As countries exchanged their dollars for gold, the demand for gold increased, and when the supply did not meet the demand, the price of gold increased. As the gold standard was in place at that time, backing the US dollar by gold became more expensive. In an attempt to stop gold from appreciating on the international market, the United States briefly put its gold reserves on sale, stopping after the level of gold reserves decreased considerably. Likewise, as the demand for dollars decreased and the supply exceeded the demand, the price of the dollar decreased—that is, the excessive supply of the dollar in the international market led to a devaluation, and without the option to sell more gold on the international market, the United States was pressured to devalue its currency but met this pressure with considerable resistance.

In 1964, President Lyndon Johnson increased American participation in the Vietnam War. In the long run, this increased participation proved disastrous not only for the US economy, but also for the world economy. Although American economists urged the government to increase the tax burden to pay for war expenses, taxes were only readjusted in 1967, when the debt was already quite large.

All of these difficulties led the United States to pressure the IMF to create special drawing rights (SDR) in 1969. Member countries’ quotas have been translated to SDRs, the IMF’s unit of account. SDRs represent a claim to currency held by IMF member countries for which they may be exchanged. These units of account, issued by the IMF, were intended to increase the liquidity of the monetary system and reduce the world’s dependence on gold and the dollar, its main reserves. Initially, USD 3.5 billion in SDRs were issued. The SDRs emerged when the world was already drowning in excessive liquidity of dollars.23

Faced with this situation, in August 1971, President Richard Nixon announced a reform package that unilaterally ended the conversion of the dollar into gold and devalued the American currency by 7 percent. With these measures, the Bretton Woods system came to an end. In 1972, the dollar suffered another devaluation, further reducing the US debt.

With the end of the Bretton Woods system, the functions of the IMF were revised. At that moment, the world was going through a new phase.

Conditionalities

Under pressure from the United States in the new economic order of the 1970s, the IMF began attaching conditionalities, policy actions a country agreed to take in exchange for the receipt of financial support, to IMF loans.24 New York University professor Adam Przeworski and Princeton University professor James Raymond Vreeland suggest that conditionalities are a penalty.25 This conception makes sense if you consider that the poorest countries seek the IMF’s assistance more often than the richest ones.26 These countries’ pressing needs for credit put them in a vulnerable position, especially when conditionalities follow a “one size fits all” approach that forces strict monetary and fiscal policies on every borrower, irrespective of a particular borrower’s circumstances, as critics like Columbia University professor Joseph E. Stiglitz27 contend. However, more recent literature has shown that the IMF does tailor conditionalities to each borrower.28 According to University of Rochester professor Randall Warren Stone, there is evidence that the more problematic a country’s economic situation, the looser the conditionalities the IMF will impose. Regardless of how well the IMF tailors conditionalities, because borrower countries cannot opt out of them, they can be seen as a way IMF programs limit these countries’ sovereignty.

In the early 1990s, developing countries facing balance of payments problems, currency devaluation, and macroeconomic instability turned to the IMF seeking credit and advice.29 IMF bureaucrats and representatives of member countries responded with a program designed to promote economic stability. The program, which became known as the Washington Consensus, was intended to promote fiscal balance, sound macroeconomic indicators, increased participation in the international flow of goods and services, and, ultimately, growth and development.

Conditionalities function as a guarantee that a loan will be repaid, but the IMF is not an ordinary creditor, and developing countries with economic imbalances seek more than the Fund’s credit. They seek credibility since the IMF’s decision to lend sends a message to the international community, including financial markets, about its trust in the borrower’s ability to overcome the crisis. For that reason, when the Fund disburses a loan, it has high expectations that borrowers’ economic performances will improve. Such expectations appease financial investors’ uncertainties about the market, and investments are more likely to return. Nevertheless, the Fund puts its reputation at risk. Although the Fund’s image and reputation suffer from eventual disastrous outcomes of the implementation of market and financial reforms in certain countries, it is not always clear whether the IMF’s policy recommendations or domestic governments’ ability to implement economic policies are to blame. In any case, such disastrous outcomes represent obstacles in the pathway to a prosperous global economy.

Video

A (Brief) History of the World’s Trade Wars

In this video, Princeton professor and IMF historian Harold James talks about the history of trade wars in the 20th century and how the IMF was set up to deal with them.

The World Bank

The IMF was the apple of the United States’ eye, and its creation consumed a majority of the time at the Bretton Woods conference. The creation of the World Bank was only discussed in the last few days. Under John Maynard Keynes’s guidance, it was established that the Bank’s original role would be to help rebuild the economies of countries devastated by war and to promote the economic development of developing countries. The Bank’s first loan was to France, and loans to other European countries ensued.30 However, in 1947, as the Marshall Plan ended up taking the lead in the reconstruction effort in Europe, the World Bank had to adapt, and it swiftly shifted to funding development projects around the world in sectors such as power, irrigation, and transportation. In 1948, Chile was the recipient of the Bank’s first loan to a non-European country in the amount of USD 13.5 million for hydroelectric power generation.31

In the 1970s, about 780 million people in developing countries (excluding China and other centrally planned economies) were living in extreme poverty, without basic human necessities like food, clean drinking water, sanitation, and shelter. In a speech in 1973, World Bank President Robert McNamara first described this condition as absolute poverty.32 In response to the situation, the World Bank turned its focus to directly helping the poor. In the same speech, McNamara communicated the World Bank’s twin goals of accelerating economic growth while reducing poverty. The incorporation of these concepts in the Bank’s mission transformed it into the institution focused on poverty alleviation and development promotion that it is today.33

The 1980s and 1990s presented the world with new challenges related to oil shocks, shortages of oil and oil derivatives in the Western world that resulted from oil exporting countries’ decision to reduce oil production; debt crises, as countries were unable to pay their debts; and environmentalism. The Bank responded by incorporating new skills and safeguards into its work. As a result, the Bank began to provide loans for structural adjustments, with the approval of the IMF. In other words, the Bank’s loans were linked to the Fund’s conditionalities, such as fiscal discipline, tax reform, and liberalization of foreign direct investment. The overall effectiveness of these loans was the target of criticism from the international community.34

In the 1990s, with the end of the Cold War and the collapse of the Soviet Union, the Bank started to assist former Soviet nations in transitioning their economies, and many of these recently recognized nation-states became World Bank members. During this time, the Bank also started to focus more closely on safeguarding the environment through sustainable development and poverty reduction.

A graphical visualization shows the number of people in the world who lived in extreme poverty between 1820 and 2015. In 1820 there were just under 1.1 billion people in the world, of which the large majority lived in extreme poverty. By 2015, there were just over 7 billion people in the world; less than 1 billion of these people were living in extreme poverty. For this graph, extreme poverty is defined as living on less than 1.90 international dollars per day.
Figure 16.3 The number of people living in extreme poverty has been declining since the 1990s. (credit: “World population living in extreme poverty, World, 1820 to 2015” by Our World in Data, CC BY 4.0)

In the late 1990s, the World Bank refocused its efforts on conflict prevention, post-conflict reconstruction, and development promotion. The period brought concern about the impact of corruption on the success of lending operations, which led the Bank to sponsor an anti-corruption strategy.

The mid-2000s brought the idea of the World Bank as a knowledge institution, an institution that collects and publishes data and reports, and by 2010, the Bank initiated a more transparent approach to development by providing policy makers in borrowing countries with reliable debt information to help them make informed borrowing decisions. For instance, following the Millennium Development Goals in 2000 and the Sustainable Development Goals in 2015, the World Bank stressed community-driven development, the safeguard of vulnerable groups, and the impact of, mitigation of, and adaptation to climate change.35

From the GATT to the WTO

The Bretton Woods conference was expected to establish a third institution, the International Trade Organization (ITO), to promote international trade and economic cooperation. Even though the institution was not created during the conference, negotiations aimed at its creation continued.

In December 1945, following the end of World War II, 15 countries engaged in talks to move away from protectionist policies, which had been the norm since the early 1930s, and to promote trade liberalization. The talks produced an agreement with about 45,000 tariff concessions, preferential rates on taxes or duties to be paid on imports, which marked the beginning of the General Agreement on Tariffs and Trade (GATT).36 At the time the deal was signed in October 1947, the team had expanded to include 23 members. The deal came into effect in June 1948.

Negotiations to establish the ITO continued at the UN Conference on Trade and Employment in Havana, Cuba, in late 1947, less than a month after the GATT was signed. Curiously, the GATT included provisions for the relationship between the GATT and the ITO, but also for the GATT’s role in the case that the ITO ended up not being established.

All 23 GATT signatories participated in the Havana Conference. Their initial goal was to create the ITO as a specialized agency of the United Nations. The plan envisioned a powerful ITO that would regulate trade and labor and engage in commodity and international investment negotiations, among other responsibilities.

The ITO Charter was agreed to in Havana in March 1948, but it was never ratified in some relevant countries, including the United States. Though the US government had been a driving force during negotiations, the ITO faced serious opposition in the US Congress.37 In 1950, when the US government announced that it would no longer pursue congressional ratification of the ITO Charter, the ITO was dead. As a result, the GATT became the multilateral instrument regulating international trade from 1948 until the WTO was established, almost 50 years later, in 1995.38 During this period, the GATT’s principles remained faithful to its origins, and the efforts to reduce international tariffs were unabated. GATT signatories met in a series of multilateral negotiations, commonly known as trade rounds (Table 16.1). Some of the most relevant advances in international trade liberalization were agreed to in these rounds.

Sections on anti-dumping, or tariffs imposed on imports to increase their prices to market value, and development promotion were included in the 1960s and in plurilateral agreements, agreements between a small number of signatories,39 in the 1970s. In fact, the Tokyo Round (1973–1979) was the first major attempt to confront non-tariff trade barriers—trade restrictions such as quotas, embargos, or sanctions. The last round, the Uruguay Round (1986–1994), resulted in a new set of agreements, including the creation of the World Trade Organization.40

The GATT was a relevant instrument to international trade liberalization from the late 1940s to 1995. While the GATT was in place, there was a continuous reduction of tariff and non-tariff barriers across the globe. The increase in the volume of international trade surpassed production growth; that is, more unfinished products were traded among countries. The participation of developing countries in the Uruguay Round indicated that the GATT was recognized as relevant to multilateral trade.

Year Location Subjects Discussed Participating Countries
1947 Geneva, Switzerland Tariffs 23
1949 Annecy, France Tariffs 13
1951 Torquay, England Tariffs 38
1956 Geneva, Switzerland Tariffs 26
1960-1961 Geneva, Switzerland (Dillan Round) Tariffs 26
1964-1967 Geneva, Switzerland (Kennedy Round) Tariffs, anti-dumping measures 62
1973-1979 Geneva, Switzerland (Tokyo Round) Tariffs, non-tariff measures, framework agreements 102
1986-1994 Geneva, Switzerland (Uruguay Round) Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO 123
Table 16.1 GATT Trade Rounds (source: https://www.researchgate.net/figure/The-GATT-Trade-Rounds_tbl3_5056860)

Nevertheless, there were problems. Economic recessions throughout the Western world in the 1970s and 1980s led to increases in protectionist measures, especially for sectors facing increased international competition. Resulting high unemployment and constant factory closures led governments in developed countries to seek bilateral agreements with competitors, discarding multilateralism. Agricultural trade has never been discussed during the GATT rounds. Governments adopted subsidies—grants to individuals or firms, usually in the form of a cash payment from the government or a tax cut. Trade in services, which was not covered by GATT rules, had increased throughout the 1980s and 1990s. Moreover, GATT’s institutional structure and its dispute settlement system were the cause of concern.

These and other factors convinced GATT members to renew attempts to establish an institution to promote trade liberalization. Their efforts resulted in the World Trade Organization (WTO).

The Uruguay Round and earlier GATT negotiations form the basis of the WTO’s current work. WTO agreements cover goods, services, and intellectual property. The institution establishes governing principles of liberalization and permitted exceptions for member countries. It sets procedures for settling disputes, prescribing special treatment for developing countries.

A person stands at a podium, giving a speech. Behind this person, another person in a military uniform stands at attention. The wall in the background reads “M C 10 Nairobi 2015” and “Kenya.”
Figure 16.4 In 2015, Kenyan president Uhuru Kenyatta spoke during the opening of the 10th World Trade Organization (WTO) ministerial conference in the Kenyan capital, Nairobi, the first to be held on African soil. (credit: “10th WTO Ministerial Meeting Opening_0016” by Make It Kenya/Stuart Price/Flickr, Public Domain)

Where countries have sought to lower trade barriers, negotiations have helped to liberalize trade. The system’s overriding purpose is to help trade flow as freely as possible so long as there are no undesirable side effects.

An important task of the WTO is managing the dispute settlement process. Trade relations often involve conflicts, and having an international institution to manage these conflicts in accordance with an agreed-upon legal foundation has proven beneficial. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. Dispute settlement is the central pillar of the multilateral trading system and one of WTO’s main contributions to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because there would be no way to enforce those rules.

Meet a Professional

Laíssa Vasconcelos, International Trade Coordinator

International grain commerce feeds the world. During the COVID-19 pandemic, the Latin American grain industry worked hard to adapt in order to ensure the maintenance of the supply of grains to the world population.

Ensuring international grain supply is part of Laíssa Vasconcelos’s day-to-day work. Laíssa is an international trade coordinator at a subsidiary of a multinational corporation in Brazil that exports grains produced in Latin America all over the world.

Please explain what you do for your organization.
I’m an international trade coordinator. I coordinate grain purchase contracts and export operations at a subsidiary of a large corporation in Brazil. In addition to managing internal purchases and exports, I support offshore operations and international arbitration panels, and I have an advisory role on the company’s Environmental, Social, and Governance (ESG) committee. ESG analyses look at how companies affect the environment and society and also how governance within the company occurs—for example, if the company is promoting equity and diversity. Investors are increasingly relying on ESG indicators to make investment decisions.

How did you get involved in your position?
I have a degree in International Relations from PUC Goiás, Brazil and an MBA from FGV, also in Brazil. I entered the company to perform technical tasks, but I was interested in learning more, so in parallel I tried to understand the connections between the activities of my department and those of other departments. Eventually, I become a reference in problem solving and got promoted.

What advice would you give students who are interested in your line of work?
Try to get a job where you want to work, even if you have to start at the bottom. Do your job well and pay attention to what’s going on around you. Learn how what you’re doing fits into the bigger picture. When you work hard and learn, people will see the value you bring to the company, and you’ll be able to advance to the point where you can do work that you really enjoy. Be proactive and develop skills that put you in a position to be considered for roles in different areas.

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