ITCN13R - Midterms

• Bretton Woods Conference


  June 1944
• Founders

  • Harry Dexter White - Chief International Economist at the U.S. Treasury
  • John Maynard Keynes - U.K. Treasury Advisor
• 44 Delegate Nations
• Major Accomplishments


  • International Monetary Fund
  • International Bank for Reconstruction and Development
• Policies of Depression Era

  • High tariff barriers
  • Competitive currency devaluations
  • Discriminatory trading blocs
• These policies adopted after WW1 created an unstable international environment
• Bretton-Woods goal: sustainable peace and prosperity through economic cooperation
• Fixed exchange rates

  Restrained monetary expansion
• Loss of international reserves by foreign banks

  Banks were unable to maintain the fixed dollar exchange rate
• U.S. monetary growth

  Was hindered by its obligation to redeem foreign accumulation of dollars
• Adjustable exchange rate was not available to the U.S. dollar
• Convertible Currency


  • One that may be freely exchanged for foreign currencies
  • Increased efficiency for multilateral trade
• U.S. and Canada became convertible in 1945. While most European countries waited until 1958, Japan followed in 1964
• International Trade was conducted in dollar denominations
• Fundamental Disequilibrium

  • When a country maintained a continuing current account deficit
  • This may lead to a devaluation of currency
  • Anyone holding this currency would incur a loss equal to the amount of the exchange rate change
• When a country consistently spends more than it earns abroad

  • It's called "Fundamental Disequilibrium"
  • This can cause the country's currency to lose value, resulting in losses for anyone holding that currency equal to the change in the exchange rate
• Reasons for the Fall of Bretton-Woods

  • Increasing balance of payment crises
  • U.S. currency pressure brought about partly from cost of Vietnam War and a growing trade deficit
  • President Nixon issued an executive order in 1971 eliminating the gold standard and devaluing the dollar
  • Fixed exchange rates are replaced by floating exchange rates
• General Agreement on Tariffs and Trade (GATT)


  • Outcome of the failure of negotiating governments to create the International Trade Organization (ITO)
  • Formed in 1947 and transformed to World Trade Organization (WTO) in 1995
• Objective of GATT

  • Reduction of barriers to International Trade
  • Agreements are created through reduction of tariff barriers, restrictions, and subsidies on trade
  • To encourage free trade between member states
  • Providing common mechanism for resolving trade disputes
• GATT is a treaty not an organization
• History of GATT

  • First: from 1947 until the Torquay Round - Freezing existing tariff levels
  • Second: from 1959 to 1979 - Focused on reducing tariffs
  • Third: Uruguay Round; 1986 to 1994 - Extended agreements to intellectual property, services, capital, and agriculture
  • The creation of World Trade Organization
• Tariff


  A tax/duty on imports/exports, it is the most important type of trade restriction
• Types of Tariffs

  • ad-Valorem tariff - expressed as a fixed percentage of the value of the traded commodity
  • Specific tariff - expressed as a fixed sum per physical unit of the traded commodity
  • Compound tariff - a combination of an Ad Valorem and a specific tariff
• Trade Barriers

  • Import Tariff - a duty on the imported commodity
  • Export Tariff - duty on the exported commodity [prohibited by the U.S]
• Non-Tariff Barrier

  Safety regulations for automobile and elec. Equipment, health regulations for hygienic purposes
• Types of Subsidies

  • Domestic subsidy for import-competing goods
  • Export subsidy for producers of goods that are to be sold overseas
• Actors in International Trade Negotiations

  • States
  • International Trade Institutions
• World Trade Organization (WTO)

  • International Organization that deals with the rules of trade between nations
  • Goal is to help producers of goods & services, exporters, and importers conduct their business
• Advantages of WTO

  • Free trade cuts the cost of living
  • Trade stimulates economic growth = more employment
  • A system that allows disputes to be resolved constructively
• Disadvantages of WTO

  • WTO Is for free trade at any cost
  • Small countries are powerless in the WTO
  • It promotes competitions for the domestic markets
• Agreements under the WTO

  • The agreement establishing the WTO
  • Goods & Investment - multilateral agreements on trade in goods including GATT 1994 and Trade Related Investment Measures (TRIMS)
  • Services - the general agreement on Trade in Services
  • Intellectual property - the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
  • Dispute Settlement (DSU)
  • Reviews of governments' trade policies (TPRM)
• General Agreement on Tariffs and Trade (GATT)


  An organization or agreement aimed at removing all remaining barriers, including tariffs and other restrictions, to the flow of goods and capital between nations
• General Agreement on Trade in Services (GATS)

  The first multilateral agreement on trade in services to include all services, including important public services, which might then be subject to competition from multinational corporations and privatization
• Council for Trade-Related aspects of Intellectual Property Rights (TRIPS)


  Global rules on patents, copyrights, and trademarks that limit access to crucial medicines and allow patents on various life forms, including plants and animals, raising concerns about biopiracy and biodiversity being turned into commodities
• Trade Related Investment Measures (TRIMS)

  Dictates what governments can and can do in regulating foreign investments
• Agreement on the application of Sanitary and Phytosanitary Standards (SPS)

  Agreements or regulations that impose limitations on government actions concerning food safety, animal health, and plant health, covering a wide range of policies, including those on pesticide usage, biological contaminants, food inspection, product labeling, and genetically modified foods
• Financial Services Agreement (FSA)

  To eliminate barriers to the free movement of financial services companies such as banks and insurance firms, which can lead to large-scale mergers in the financial industry and potentially result in the loss of local economic autonomy
• Agreement on Agriculture (AoA)

  Establish regulations for international food trade and place constraints on domestic agricultural policies, covering various aspects including protection against dumping, support for small-scale farmers serving their local markets, government assistance for farmers and sustainable farming practices, maintenance of emergency food reserves, and guaranteeing citizens' access to an ample food supply
• Agreement on Subsidies and Countervailing Measures (ASCM)

  Sets limits on what governments may/may not subsidize & contains many loopholes that favors wealthy countries & agribusinesses
• Agreement on Technical Barriers to Trade (TBT)

  Set up to limit national regulations (non-tariff barriers) that interferes w/ trade, such as eco-labelling regulations