Question

15. Describe the main tasks/functions of each of the following: - The International Monetary Fund - The General Agreement on Tariff and Trade - The World Trade Organization

Answer 1

IMF

Some of the main functions of International Monetary Fund are as follows:

1. Exchange Stability:
The first important function of IMF is to maintain exchange stability and thereby to discourage any fluctuations in the rate of exchange. The Found ensures such stability by making necessary arrangements like—enforcing declaration of par value of currency of all members in terms of gold or US dollar, enforcing devaluation criteria, up to 10 per cent or more by more information or by taking permission from IMF respectively, forbidding members to go in for multiple exchange rates and also to buy or sell gold at prices other than declared par value.

2. Eliminating BOP Disequilibrium:
The Fund is helping the member countries in eliminating or minimizing the short-period equilibrium of balance of payments either by selling or lending foreign currencies to the members. The Fund also helps its members towards removing the long period disequilibrium in their balance of payments. In case of fundamental changes in the economies of its members, the Fund can advise its members to change the par values of its currencies.

3. Determination of Par Value:
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IMF enforces the system of determination of par values of the currencies of the members countries. As per the Original Articles of Agreement of the IMF every member country must declare the par value of its currency in terms of gold or US dollars. Under the revised Articles, the members are given autonomy to float or change exchange rates as per demand supply conditions in the exchange market and also at par with internal price levels.

As per this article, IMF is exercising surveillance to ensure proper working and balance in the international monetary system, i.e., by avoiding manipulation in the exchange rates and by adopting intervention policy to counter short-term movements in the exchange value of the currency.

4. Stabilize Economies:
The IMF has an important function to advise the member countries on various economic and monetary matters and thereby to help stabilize their economies.

5. Credit Facilities:
IMF is maintaining various borrowing and credit facilities so as to help the member countries in correcting disequilibrium in their balance of payments. These credit facilities include-basic credit facility, extended fund facility for a period of 3 years, compensatory financing facility, lociffer stock facility for helping the primary producing countries, supplementary financing facility, special oil facility, trust fund, structural adjustment facility etc. The Fund also charges interest from the borrowing countries on their credit.

6. Maintaining Balance Between Demand and Supply of Currencies:
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IMF is also entrusted with important function to maintain balance between demand and supply of various currencies. Accordingly the fund can declare a currency as scarce currency which is in great demand and can increase its supply by borrowing it from the country concerned or by purchasing the same currency in exchange of gold.

7. Maintenance of Liquidity:
To maintain liquidity of its resources is another important function of IMF. Accordingly, there is provision for the member countries to borrow from IMF by surrendering their own currencies in exchange. Again for according accumulation of less demand currencies with the Fund, the borrowing countries are directed to repurchase their own currencies by repaying its loans in convertible currencies.

8. Technical Assistance:
The IMF is also performing an useful function to provide technical assistance to the member countries. Such technical assistance in given in two ways, i.e., firstly by granting the members countries the services of its specialists and experts and secondly by sending the outside experts.

Moreover the Fund has also set up two specialized new departments:

(a) Central Banking Services Department and

(b) Fiscal Affairs Department for sending specialists to member countries so as to manage its central banks and also on fiscal management.

9. Reducing Tariffs:
The Fund also aims at reducing tariffs and other restrictions imposed on international trade by the member countries so as to cease restrictions of remittance of funds or to avoid discriminating practices.

10. General Watch:
The IMF is also keeping a general watch on the monetary and fiscal policies followed by the member countries to ensure no flouting of the provisions of the charter.

GATT

In fulfillment of its objectives, GATT adopted certain measures. These may be discussed under the following headings.

Most favored nation clause
Trade negotiations
Tariff and non-tariff measures
Safeguards
Complaints and waivers
Settlement of disputes
1. Most Favored Nation clause

The “Most favored Nation clause is one of the significant provisions adopted by GATT. Under the concept of Most Favored Nation, all contracting parties of the agreement would be treated as most favored nations. The principal objective is that the benefits extended to one should also be extended to all contracting parties. There should be no discrimination among nations. Trading should be carried on the principle of non-discrimination and reciprocity. This clause discouraged the member countries from granting any new trade concessions unless those were mutually agreed upon. However, many escape clauses were found. Under specific circumstances, less developed countries were allowed to exercise the right to discriminate. For example, dumping and export subsidy might be countered by trade measures only against the offending country. Moreover, special concessions were allowed for trade with former colonies of less developed western countries.

2. Trade negotiations under GATT

From 1947 to 2001, GATT has organized 12 trade negotiations. The following table shows various negotiations of GATT and WTO since 1947.

Working group was also formed on Government procurement, Trade facilitation added to WTO age
3. Tariff and Non-tariff measures

Tariff measures:

Tariffs were the important obstacle to international trade. Therefore, GATT encouraged negotiations for the reduction of hig4 tariffs, The participating countries agreed to cut tariff of thousands of industrial products. Reduction of tariff was on reciprocal and mutually advantageous basis. Article 11 of the GATT provided that all concessions granted by contracting parties must be entered in a schedule of concessions. Once a concession was included in the schedule of concessions, it could not be withdrawn except under specified circumstances.

Non-tariff measures

Post-World War II witnessed reduced distorting effects of non-trade barriers world trade. The Tokyo Round held during 1973 — 1979 tackled the problems of non-tariff barriers under more effective international discipline. All the agreements provide for special and more favorable treatment for developing countries. The negotiations led to the following non-tariff measures:

restriction on use of subsidies,
technical barriers,
import licensing procedures,
government procurement,
custom valuation,
permission of anti-dumping code.
To read more about the non-tariff measures of GATT, refer this article: Non-tariff measures of GATT

5. Complaints and waivers

Article XXII of the GATT entertains complaints from contacting party relating to the operation of the agreement. The contracting party who is likely to be deprived of the benefits under GATT agreement can request the other party for consultation. The basic principle of GATT is that member countries should consult one another on trade matters and problems. Article XXV of the GATT provides the procedure for granting waiver to some contracting party from the application of the provisions of the GATT. Waivers are granted on the approval by two thirds of voting contracting parties.

6. Settlement of disputes

GATT aimed at the smooth settlement of disputes among the contracting parties. GATT allows the member countries to settle problems among them by consulting one another on matters of trade. Initially, the contracting parties should resolve the disputes by holding talks on bilateral basis. In case of failure, the dispute may be referred to panels of independent experts formed under GATT council. The panel members are drawn from countries which have no direct interest in the disputes. If the offending parties does not act upon the panel’s decision, the aggrieved party is authorized to withdraw all concessions offered to the offending party. Since the panel procedure ensures mutually satisfactory settlement, members make increased use of the panel.


WTO

The main functions of WTO are discussed below:

1. To implement rules and provisions related to trade policy review mechanism.

2. To provide a platform to member countries to decide future strategies related to trade and tariff.

3. To provide facilities for implementation, administration and operation of multilateral and bilateral agreements of the world trade.

4. To administer the rules and processes related to dispute settlement.

5. To ensure the optimum use of world resources.

6. To assist international organizations such as, IMF and IBRD for establishing coherence in Universal Economic Policy determination.