Chapter 2: International Institutions
Class Notes: these count for 1% of your total grade
1. List the primary international institutions and their main goals
World Trade Organization (WTO):
Goal: To facilitate international trade by establishing and enforcing rules and resolving
trade disputes among member countries.
International Monetary Fund (IMF):
Goal: To promote global financial stability, provide short-term financial assistance to
countries facing economic crises, and offer policy advice to member countries.
World Bank:
Goal: To reduce poverty and promote sustainable economic development by providing
financial and technical assistance to developing countries.
United Nations (UN):
Goal: To promote peace and security, foster international cooperation, and address global
issues such as human rights, health, and the environment.
Organization of the Petroleum Exporting Countries (OPEC):
Goal: To coordinate and unify the petroleum policies of member countries and ensure the
stabilization of oil markets.
International Labor Organization (ILO):
Goal: To promote social justice and fair labor practices by setting international labor
standards and promoting decent work conditions worldwide.
2. List the different rounds of GATT/WTO and identify one major goal of each round
Geneva Round (1947):
Goal: Establish the General Agreement on Tariffs and Trade (GATT) to reduce tariffs
and promote international trade.
Dillon Round (1960-1961):
Goal: To further reduce tariffs and trade barriers, focusing on agricultural and industrial
products.
Kennedy Round (1964-1967):
Goal: Major tariff reductions, focusing on non-tariff barriers and anti-dumping measures.
Tokyo Round (1973-1979):
Goal: To address non-tariff barriers and improve international trade rules, including
subsidies, customs procedures, and government procurement.
Uruguay Round (1986-1994):
Goal: Expansion of trade rules beyond traditional goods to include services, intellectual
property rights, and agricultural subsidies. It led to the creation of the WTO.
Doha Round (2001-present, stalled):
Goal: Focus on development issues and reducing trade barriers for developing countries,
but the round has faced significant challenges and slow progress.
3. What does it mean to confer most favored nation status?
Conferring Most Favored Nation (MFN) status means that a country is granted the same trade
benefits (such as lower tariffs and better market access) as the best-performing country in terms
of trade with another country. Essentially, if a country receives MFN status, it will be treated no
worse than any other country in terms of trade relations.
4. Why are international capital flows greater today than a century ago?
Globalization and Technology: Technological advancements in communication,
finance, and transportation have made it easier to move capital across borders in real-
time.
Liberalization of Financial Markets: Many countries have reduced restrictions on
foreign investments, making it easier for capital to flow internationally.
Increased Integration of Economies: As economies become more interconnected,
multinational companies and investors seek to take advantage of new opportunities in
emerging markets and different sectors.
Financial Innovation: The development of new financial products, such as exchange-
traded funds (ETFs), and financial institutions has made it easier for investors to move
capital across borders.
Higher Investment Returns: Investors often seek better returns in foreign markets,
which drives increased international investment.
5. Definitions
IMF Conditionality:
The policy changes or economic reforms that a country must implement in order to
receive financial assistance from the International Monetary Fund (IMF).
National Treatment:
A principle under international trade law where a country treats foreign products or
services no less favorably than domestic products or services once they have entered the
market.
Nondiscrimination:
The principle that countries should not discriminate against foreign goods, services, or
investment, and treat them equally to domestic counterparts. This includes principles like
MFN and national treatment.
Nonexcludable:
A good or service that cannot easily exclude others from using it, such as clean air or
national defense. It typically refers to public goods that are available to everyone.
Nonrival:
A good or service where one person's use does not diminish another person's ability to
use it, like a public park or a broadcast TV signal.
6. What are the five types of regional trade agreements?
Free Trade Area (FTA):
Countries remove tariffs and trade barriers among themselves but maintain their own
independent trade policies with non-members (e.g., NAFTA, now USMCA).
Customs Union:
Countries remove tariffs and trade barriers among themselves and establish a common
external tariff toward non-members (e.g., European Union before the common market).
Common Market:
Countries remove trade barriers and establish a common external tariff, along with
allowing the free movement of labor, capital, and services (e.g., European Economic
Area).
Economic Union:
A deeper integration where countries harmonize their economic policies, including
monetary and fiscal policies (e.g., European Union with the Eurozone).
Monetary Union:
Countries adopt a common currency and harmonize monetary policies (e.g., the
Eurozone).
7. List the criticisms of international institutions
Bias Toward Developed Countries: Critics argue that institutions like the IMF and
World Bank often favor the interests of developed nations over those of developing
countries, which may have limited influence in decision-making processes.
Imposition of Austerity: IMF conditionality often requires countries to implement
austerity measures, which critics argue can worsen economic conditions in the affected
countries.
Lack of Accountability and Transparency: Many international institutions are
criticized for a lack of transparency and accountability in their decision-making
processes, leaving many developing countries with little say.
Cultural and Economic Homogenization: Global institutions sometimes promote
policies that undermine local cultures, industries, and economies by pushing for a one-
size-fits-all approach to development.
Environmental Concerns: Some international financial institutions are criticized for
supporting projects that damage the environment or contribute to climate change,
especially in developing countries.