REVIEW OF INTERNATIONAL ECONOMICS

After WWII western leaders sought to create a global market system based on liberal economic principles.

1944--Three institutions were created to make the Bretton Woods system--IMF, World Bank, and GATT. (look up the meaning and function of each in your text)

IMF--lends money to stabilize exchange rates, currency convertibility, monetary exchange rates, all affecting a national balance of payments.  GATT--sought to encourage nations to extend MFN-most favored nation status to one another and to reduce the use of nontarrif  protectionist strategies that serve as barriers to trade. World Bank  is a grant making institution. 

1970s: Bretton Woods as a system of international trade fell apart.  The US gov't  at the direction of Richard Nixon took the US dollar off the gold standard.  The strong dollar which heretofore supported the global trade system led to a high US balance of trade and payments deficits (explain).  From that point on currencies were placed on a floating exchange rate schedule (explain).

Reasons for collapse of Bretton Woods monetary policy:

·          Monetary interdependence made it difficult to coordinate so many nation's economic policies,

·          European and the Japan economies recovered quickly to challenge the postwar US market hegemony.

·          US (Nixon admin.) tried to stem the decline of US competitiveness in the international market.  US dollar no longer the global benchmark currency.

Managing trade politically: In an attempt to reduce the incentive for nations outside of the Communist Bloc to cooperated on trade matters three strategies were used: The use of GATT to coordinate efforts to reduce tariffs through negotiation; the conduct economic summits among the Western market economies to coordinate economic policy; the use of bilateral negotiation to overcome frictions between nation, such as, US-Japanese trade negotiations.

GATT as a treaty underwent 8 rounds of renegotiations before its final collapse and the emergence of its replacement--The World Trade Organization, WTO.   They were the Dillon & Kennedy Rounds with reduced tariff and nontariff barriers for several industrial sectors and agricultural products; The Tokyo Round which cut tariffs and launched discussions about favorable treatment of developing nations.  The Uruguay round which lasted 4 rounds from 1986-1993.  Concentrated on reducing nontariff barriers--note the list discussed in class. 

In 1995,during last round of GATT became a formal institution, the World Trade Organization.  The organization incorporated the general areas of GATT'S jurisdiction in services and intellectual property.  It meets regularly and members include states that conduct over 90% of the world's trade.  China was granted membership in 2001.

The goal of WTO is to provide a forum in which national trade disputes can be managed in a multilateral  forum, allow trade review, dispute settlement and to implement the Uruguay Round.  Unlike GATT, the WTO has to essential policy procedures.  The Trade Policy Review Mechanism allows the periodic surveillance of trade practices of member states.  States can question the trade practices of members.  The Dispute Settlement Body is an authoritative pane that hears and settles trade disputes.  It is equipped with the authority to impose sanctions against violators. 

The World Bank, WTO and IMF are the major intergovernmental economic institutions whose members are states.  They are the majors in the international political economy apart from mulitinational corporations (MNCs).