3.2A International Organisations

International political and economic organisations (P: role of World Trade Organization (WTO), International Monetary Fund (IMF), World Bank)  have contributed to globalisation through the promotion of free trade policies and foreign direct investment. 


World Trade

  • The amount of world trade increased fairly slowly from the 1970s to the mid 1990s. 
  • There was a huge growth in export trade after 2002
  • A sharp dip in 2008-2009 due to the global recession / global financial crisis
  • It returned to 'normal' levels in 2011, but growth has been slow ever since. 
  • In 2014, there is about US $19 trillion world trade in goods, compared with less than $1 trillion in the early 1970s. 

A number of organisations have helped to promote free trade and end 'protectionism'. In the past, many countries protected their own industries and businesses by:
  • Demanding payment of taxes and tariffs on imported goods, so making them more expensive than home-produced goods.
  • Using quotas to limit the volume of imports, protecting home producers from foreign competition.
  • Banning foreign firms from operating in services like banking, retail and insurance. 
  • Restricting, or banning, foreign companies from investing in their country. 

Protectionism reduces total trade volume, whereas free trade (no taxes, tariffs, or quotas) increases it. Certain international economic or political organisations promote free trade policies and foreign direct investment (FDI). 

At the Bretton Woods Conference in the USA in 1944, Allied Powers agreed to set up three IPEOs, the World Bank, the International Monetary Fund and the World Trade Organisation (although this was not founded until 1995). They had the economic objective of rebuilding the world economy following WW2. 
They also had the political objective in promoting free-market democracy in the face of the looming cold war thread of command economy one-party communism. 


​World Bank (International Bank for Reconstruction and Development)

  • Has the role of lending money and giving grants to the developing world to fund economic development and reduce poverty.
    • In 2014 it gave a US $470 million loan to the Philippines for a poverty reduction programme and a $70 million grant to the Democratic Republic of Congo for the Inga 3 mega-dam HEP project
  • The World Bank requires recipients to adopt trade liberalisation policies and to open up to FDI by removing legal restrictions and capital controls. It also requires them to adopt structural adjustment programmes to reduce government budget deficits.
  • Developing countries may therefore prefer to borrow from China, or the Chinese-led Asian Infrastructure Investment Bank, which doesn't impose such conditions.
    • in 2010 China loaned $110 billion - more than the World Bank
  • Deals with flows of capital
  • Often involves government spending cuts, privatisation of state owned firms and opening up to foreign competition.
  • Has helped developing countries develop deeper ties to the global economy but has been criticised for having policies that put economic development before social development.
  • In theory it had the least to do with free trade, but in practise it requires people to open up to it.


International Monetary Fund (IMF)

  • Aims to maintain a stable international financial system, and this promotes free trade and globalisation.
  • The IMF provides loans to countries facing short-term balance of payment difficulties.
    • e.g. in 2008 Greece received the first in a series of IMF loans when its foreign currency earnings were insufficient to pay its existing debt obligations.
  • Recipients must adopt structural adjustment and trade liberalisation programmes, including measures opening up the economy to FDI and free trade.
  • The IMF has been criticised for promoting a 'western' model of economic development that works in the interests of developed countries and their TNCs.
  • Deals with flow of capital.
  • Since 1945 the IMF has worked to promote global economic and financial stability, and encourage more open economies.


​World Trade Organisation (WTO)

  • An international organisation that works to reduce trade barriers (both tariff and non-tariff) and create free trade.
  • Headquartered in Geneva, Switzerland
  • WTO was created to replace GATT rounds (General Agreement on Tariffs and Trade) in 1995.
  • A series of global agreements has gradually reduced trade barriers and increased free trade, although the latest round of talks began in Doha in 2001, seeking to reduce tariff on agricultural products, to benefit developing countries, and have not been agreed yet. 
  • WTO's 'most favoured nation' requires a country to treat all WTO members to the same low barriers as the most favoured. 
  • GATT Rounds agreed repeated reductions on tariffs on manufactured goods. Mainly benefits developed and emerging countries. 
  • Deals with the flow of goods and services (commodities), not specifically about FDI


Foreign Direct Investment (FDI)

Foreign Direct Investment is the financial capital flow from one country to another for the purpose of constructing physical capital, i.e. building a factory in another country.


​Other

  • Tariff is tax on goods entering or leaving the country
  • Non-tariff trade barriers include quotas, quantitative limit on imports or exports, and subsidies to domestic producers. 
  • IMF encourages government spending cuts, however these might slow economic growth, making the country less able to pay debts. Cuts are inappropriate for developing countries, since they need to invest in health and education.
  • The government budget records payment to the government from taxation and privatisation, and expenditure on health, military &c. Policies to reduce government deficit are known as austerity programmes.
  • A balance of payments records inflows of money into the country as payments of exports or as FDI, and outflows like payments for imports or FDI by domestic firms.