WTO and IMF

INDIAN POLITY

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WTO and IMF

World Trade Organization (WTO)

History
Bretton Woods Conference:
United Nations Monetary and Financial Conference is formally known as Bretton Woods Conference was held
in Bretton Woods, USA to regulate the international monetary and financial order after the conclusion of
World War II (1939-45)

 Total 44 nations participated, including India.

 It laid the foundation for International Bank for Reconstruction and Development (IBRD) popularly known
as World Bank and the International Monetary Fund (IMF).

It proposed 3 international institutions:

 International Bank for Reconstruction and Development (IBRD), commonly known as World Bank.

 International Monetary Fund (IMF)

 International Trade Organisation (ITO) – (Proposed)

 In Havana in 1948, the UN Conference on Trade and Employment concluded a draft charter for
the ITO, known as the Havana Charter, to create rules governing trade, investment, services,
and business and employment practices. The Havana Charter never entered into force. As a result,
the ITO was stillborn.

General Agreement on Tariffs and Trade (GATT)

 An agreement, GATT signed by 23 countries in Geneva in 1947 came into force on Jan 1, 1948 to
phase out the use of import quotas and to reduce tariffs on merchandise trade

 The GATT became the only multilateral instrument (not an institution) governing international trade
from 1948 until the WTO was established in 1995.

 Despite its institutional deficiencies, the GATT managed to function as a de facto international
organization.

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General Agreement on Trade in Services (GATS)

 The General Agreement on Trade in Services (GATS) is a World Trade Organization (WTO) treaty that
entered into force in January 1995 as a result of the Uruguay Round negotiations.

 It is the first multilateral agreement covering trade in services.

 All WTO members are contracting parties to the GATS.

 The basic WTO principle of most favoured nation (MFN) treatment also applies to the GATS.

 However, after joining, members can make temporary exceptions to this rule.

 The GATS covers a wide range of service industries such as financial services, transport and shipping,
communications, construction, and distribution

World Trade Organization (WTO)

Origin of the WTO:
 The WTO is the successor organization to the General Agreement on Tariffs and Trade (GATT), created in
1947.

 The Uruguay Round (1986-94) of the GATT led to the establishment of the WTO.

 The WTO began its work on January 1, 1995.

 The agreement establishing the WTO, commonly known as the "Marrakesh Agreement", was signed in
1994 in Marrakesh, Morocco.

About WTO:
 The WTO is an international organization that deals with the rules of trade between nations.

 The main difference between the GATT and the WTO was that the GATT dealt mainly with trade in goods,
the WTO and its agreements could cover not only goods but also trade in services and other intellectual
property such as commercial creations, designs and inventions.

 Headquarters: Geneva, Switzerland.

 Members: The WTO has 164 members (including the European Union) and 23 observer governments
(such as Iran, Iraq, Bhutan, Libya, etc.).

 India has been a founding member of the GATT since 1947 and its successor, the WTO.

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Goals of WTO:
 Lower trade barriers through negotiation

 Operate under the principle of non-discrimination.

 Stimulate economic growth and employment

 Cut the cost of doing business internationally.

 Encourage good governance. Transparency — shared information and knowledge — levels the playing
field.

 Frame rules that reduce arbitrariness and opportunities for corruption.

 The WTO can help countries develop by encouraging open trade can boosting economic growth

 The WTO can give the weak a stronger voice: Differences in bargaining power are narrowed by agreed
rules, consensus decision-making and coalition building. Coalitions give developing countries a stronger
voice in negotiations.

 The WTO can support the environment and health: The WTO agreements try to make trade support a
clean and safe environment, and to prevent governments using these objectives as an excuse for
introducing protectionist measures.

 The WTO can contribute to peace and stability: When the world economy is in turmoil, the multilateral
trading system can contribute to stability.

 Trade rules stabilize the world economy by discouraging sharp backward steps in policy, deterring
protectionism and increasing certainty.

Why WTO replaced the GATT?

 The GATT was only a set of rules and multilateral agreements and lacked institutional structure.

 The GATT was concluded in 1947 and is now referred to as the GATT 1947. The GATT
1947 was terminated in 1996 and WTO integrated its provisions into GATT 1994.

 The trade in services and intellectual property rights were not covered by regular GATT rules.

 The GATT did not set out a dispute procedure with great specificity resulting in lack of deadlines, laxity in
the establishment of a dispute panel and the adoption of a panel report by the GATT Parties.

The WTO and the United Nations (UN):

 WTO is considered “Related organization of UN” as it does not meet all the requirements of the United
Nations Charter for Specialized Agencies.

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 Although the WTO is not a UN specialized agency, it has maintained strong relations with the UN and
its
agencies since its establishment.

 The WTO-UN relations are governed by the “Arrangements for Effective Cooperation with other
Intergovernmental Organizations-Relations between the WTO and the United Nations” signed on 15
November 1995.

Governance
1. Ministerial Conference:

 The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every
two years.

 It brings together all members of the WTO, all of which are countries or customs unions.

 The Ministerial Conference can take decisions on all matters under any of the multilateral trade
agreements.

2. General Council:

 The General Council is the WTO’s highest-level decision-making body located in Geneva, meeting
regularly to carry out the functions of the WTO.

 It has representatives from all member governments and has the authority to act on behalf of the
ministerial conference which only meets about every two years.

 The General Council also meets, under different rules, as

 The General Council

 Trade Policy Review Body

 Dispute Settlement Body (DSU)

The Trade Policy Review Body (TPRB): The WTO General Council meets as the TPRB to
undertake trade policy reviews of Members under the TPRM and to consider regular reports on
trade policy development.

Dispute Settlement Body (DSU): The General Council convenes as the Dispute Settlement Body
(DSB) to deal with disputes between WTO members.

The DSB has authority to:

 establish dispute settlement panels

 refer matters to arbitration

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 adopt panel, Appellate Body and arbitration reports, maintain surveillance over
the
implementation of recommendations and rulings contained in such reports,

 authorize suspension of concessions in the event of non-compliance with those

recommendations and rulings.

Three councils, each handling broad areas of trade, report to the General Council:

 Council for Trade in Goods (Goods Council)

 Council for Trade in Services (Services Council)

 Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)

The Council for Trade in Goods (Goods Council):

 The General Agreement on Tariffs and Trade (GATT) covers international trade in goods.

 The workings of the GATT agreement are the responsibility of the Council for Trade in
Goods (Goods Council)

 The Goods Council has following committees dealing with specific subjects: Agriculture,
Market access, Sanitary and Phytosanitary Measures, Technical barriers to trade,
Subsidies and countervailing measures, Rule of origin, Anti-dumping measures, Importing
licensing, Trade related Investment Measures etc.

The Council for Trade in Services (Services Council):

 It operates under the guidance of the General Council and is responsible for facilitating
the operation of the General Agreement on Trade in Services (GATS) and for furthering its
objectives.

The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council):

 It monitors implementation of the Agreement on Trade-Related Aspects of Intellectual

Property Rights (the TRIPS Agreement).

The TRIPS Agreement:

 It sets the minimum standards of protection for copyrights and related

rights, trademarks, geographical indications (GIs), industrial designs,
patents, integrated circuit layout designs, and undisclosed information.

 It establishes minimum standards for the enforcement of intellectual property rights

(IPRs) through civil actions for infringement, actions at the border and copyright
piracy and trademark counterfeiting, in criminal actions.

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3. Appellate Body:

 The Appellate Body is a standing body of seven persons that hears appeals from reports issued by panels
in disputes brought by WTO Members.

 The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and
Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the
parties to the dispute.

Achievements of WTO
 Global trade facilitation: The WTO has enabled spectacular growth in the value and scope of cross-
border business. It has also helped remove trade an non-trade barriers

 Higher economic growth: Since 1995, the value of world trade has almost quadrupled, while the real
volume of world trade has multiplied by 2.7.

 Promotion of poor countries: Least developed countries receive special attention in the WTO. All WTO
agreements recognize that they should benefit from the greatest possible flexibility, and the better-off
members should make additional efforts to remove import barriers to least developed countries' exports.

 Increase in global value chains: The foreseeable market conditions promoted by the WTO, together
with better communication, have allowed the emergence of global value chains which now represents
almost 70% of the total trade

Important Ministerial Conferences

Ministerial Conference, 2001: Doha Development Agenda:

 At the 2001 ministerial conference in Doha, Qatar, WTO members agreed to a new round of negotiations
that promised to put developing countries at the center. This became known as the Doha Development
Agenda, or the Doha Round.

 Liberalizing global agricultural trade was the linchpin of the agenda.

 The Doha agenda also sought to further reduce barriers to trade in services, such as business and finance,
and non-agricultural goods.

 However, in 2008, they proposed “special safeguard mechanism,” which would allow developing
countries to temporarily raise tariffs to protect their farmers.

Ministerial Conference, 2009: Bali Package:

 The Conference adopted the “Bali Package”, a series of decisions aimed at:

 streamlining trade

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 allowing developing countries more options for providing food security

 boosting least-developed countries’ trade and helping development more generally.

 At the Bali ministerial conference in December 2013, India secured a “peace clause”.

 Under it, if India breaches the 10% limit, other member countries will not take legal action under the
WTO dispute settlement mechanism.

 Further, in 2014, India forced developed countries to clarify that the peace clause will continue
indefinitely until a permanent solution is found.

Ministerial Conference, 2010: Nairobi Package:

 Agriculture: Special Safeguard Mechanism for Developing Country Members, Public Stockholding for
Food Security Purposes, Export Competition

 Cotton: Stressing the vital importance of cotton to a number of developing economies and particularly
the least-developed amongst them,

 LDC issues: Preferential Rules of Origin for Least Developed Countries;

Buenos Aires Summit, 2017:

 Reforms related to food subsidies were unsuccessful as neither India-China nor USA-EU were willing to
commit.

 USA-EU were more keen for a new agreement on e-commerce but India-China opposed that such
agreements will benefit 1st world countries more (because they’ve Amazon, Walmart, Facebook etc) than
3rd world

12th Ministerial Conference, 2022: The 12th Ministerial Conference (MC12) due to start on 30 November
2021 was postponed after an outbreak of a particularly transmissible strain of the COVID-19 virus led several
governments to impose travel restrictions that would have prevented many ministers from reaching Geneva.
The meeting was originally due to take place in June 2020 in Nur-Sultan, Kazakhstan.

Key Reforms to be Proposed in MC12:

 Limiting Subsidies to Fisheries: At the Buenos Aires in 2017, WTO members agreed to secure a deal on
fisheries subsidies that delivers on SDG 14.6 by the end of 2019.

 While the deadline has been missed, a meaningful agreement needs to be the core environmental
priority for the next WTO Ministerial Conference.

 If WTO members do not deliver on this mandated goal, they will undermine the credibility of the
WTO at a critical time.

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 E-Commerce and Digital Trade:

 As the COVID-19 pandemic accelerates the shift to e-commerce, rules to regulate online trade will
be more important than ever. But in contrast to trade in goods and services, few international
rules govern cross-border e-commerce.

 In 1998, members also agreed to the ‘WTO e-commerce moratorium’, which has helped to
facilitate digital trade by ensuring that tariffs are not applied to cross-border data flows. Recently,
the moratorium has been called into question by developing countries because of its implications
for collecting revenue.

 More than 75 WTO members also launched an initiative in 2019 with the aim of establishing
global rules on e-commerce.

 While the launch of these negotiations is a positive development, the format has a number of
critical shortcomings.

 For instance, India did not join the negotiations despite being one of the fastest-growing e-
commerce markets.

 Chinese approach to the internet and proposal for facilitating e-commerce reflect a state-driven
model that contrasts with the positions of the US and the EU

 Even the differences between the US and the EU around issues of data flows and privacy raise
questions about the possibility of reaching a meaningful consensus.

 For the WTO members to join down the road it will be critical to keep the negotiation process
open and inclusive.

 Investment:

 Trade and investment are closely linked, but the WTO has only dealt with the latter issue on an
incomplete basis.

 In particular, the Agreement on Trade-Related Investment Measures (‘TRIMs Agreement’) and the
GATS contain limited provisions. Ultimately, investment was dropped as a WTO negotiating issue
in 2004.

 Countries have covered investment provisions through bilateral investment treaties (BITs) and
bilateral and regional free-trade agreements.

 Focusing on investment facilitation, investment protection and investor–state dispute settlement

is the need of the hour.

 IPRs and Vaccine Issue:

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 Intellectual Property Rights (IPRs) protected using the provisions of the WTO Agreement on
Trade
-Related Aspects of Intellectual Property Rights (TRIPS) are barriers to ensuring equitable access
to vaccines.

 Pharmaceutical companies controlling the global markets have used monopoly rights granted by
their IPRs to deny developing countries access to technologies and know-how

 Thus the possibility of production of vaccines in these countries is undermined.

 The involvement of developing countries in vaccine production could have increased supplies of
affordable vaccines to the low-income countries.

 Availability of vaccines remains a critical problem in these countries

 Recent statistics show that until now, a mere 4.1% of the population in low-income countries have
received at least one dose of the vaccine.

 To remedy this situation, India and South Africa had tabled a proposal in the WTO in October
2020, for waiving enforcement of several forms of IPRs on “health products and technologies
including diagnostics, therapeutics, vaccines, medical devices and their methods and means of
manufacture” useful for COVID-19 treatment.

 By doing so, barriers created by IPRs to timely access to affordable medical products could be
removed.

Why is India Challenging the WTO Verdict on Sugar?

Introduction:
 India has appealed against a ruling of the World Trade Organisation's trade dispute settlement panel on
domestic sugar subsidies, stating that the panel has committed "certain errors of law" in its report. The
appeal was filed by India in the WTO's Appellate Body, which is the final authority on such trade disputes

Background:
 In 2019, Brazil, Australia and Guatemala dragged India into the WTO's dispute settlement mechanism
alleging that New Delhi's domestic support measures to producers of sugarcane and sugar and export
subsidies are inconsistent with global trade rules including various provisions of the WTO's Agreement on
Agriculture, Agreement on Subsidies and Countervailing Measures, and the General Agreement on Trade
and Tariffs (GATT).

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 These three countries, which are members of the WTO, had complained that India's support measures to
sugarcane producers exceeds the de minimis level of 10 per cent of the total value of sugarcane
production, which according to them was inconsistent with the Agreement on Agriculture.

 They had also flagged India's alleged export subsidies, subsidies under the production assistance and
buffer stock schemes, and the marketing and transportation scheme.

WTO Ruling:
 According to WTO rules, a WTO member or members can file a case if they feel that a particular trade
measure is against the norms of the WTO.

 The panel in its ruling on December 14, 2021 recommended India to withdraw its alleged prohibited
subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation
Schemes within 120 days from the adoption of this report.

 Ruling in favour of Brazil, Australia and Guatemala in their trade dispute against India over New Delhi's
sugar subsidies, the WTO panel has stated that the support measures are inconsistent with WTO trade
rules.

WTO’s Agreement on Subsidies and Countervailing Measures (SCM):

 The WTO Agreement on SCM disciplines the use of subsidies, and it regulates the actions countries can
take to counter the effects of subsidies.

 Under the agreement, a country can use the WTO’s dispute-settlement procedure to seek the withdrawal
of the subsidy or the removal of its adverse effects.

 The country can also, launch its own investigation and ultimately charge extra duty (“countervailing
duty”) on subsidised imports that are found to be hurting domestic producers.

India’s Stand on the Whole Issue:

 India is the world's second largest sugar producer after Brazil.

 In December 2020, the government had approved a subsidy of Rs 3,500 crore to sugar mills for as part of
its efforts to help them clear outstanding dues to sugarcane farmers

 In 2021, the Centre set the FRP at ₹290 per quintal and called it the highest ever FRP for sugarcane
procurement.

 India has appealed against a ruling of the World Trade Organization's (WTO) trade dispute settlement
panel which ruled that the country's domestic support measures for sugar and sugarcane are inconsistent
with global trade norms

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 The appeal was filed by India in the WTO's Appellate Body, which is the final authority on such
trade
disputes.

 India has stated that the WTO's dispute panel ruling has made certain "erroneous" findings about
domestic schemes to support sugarcane producers and exports and the findings of the panel are
completely "unacceptable" to it.

 The official said that the dispute panel's findings are unreasonable and not supported by the WTO rules
and also evaded key issues which it was obliged to determine.

 India has argued at the WTO that it does not offer direct subsidies to sugarcane farmers and thus doesn’t
break any international trade rule.

Resolution of the Dispute:

 Bilateral consultation is the first step to resolve a dispute.

 If both the sides are not able to resolve the matter through consultation, either can approach for the
establishment of a dispute settlement panel. The panel's ruling or report can be challenged at the World
Trade Organization's Appellate Body.

 Interestingly, the appellate body of the WTO is not functioning because the US has been blocking the
appointment of the members.

 If the appellate body also passes a ruling against India's support measures, New Delhi has to abide by that
and make appropriate changes in the way it provides those measures.

 In case India refuses to comply with the decision, it might have to face retaliatory action from other
countries. This could be in the form of additional tariffs on Indian exports and other stringent measures.

India’s Case on Limitations Posed by Developing Economy Status

 The US has claimed that India has moved up fast on economic and social ladders since the formation of
the WTO in 1995, and is still unfairly enjoying special and preferential trade treatment by “self-
designating” itself as a nation.

 New Delhi has refuted Washington’s claims at the WTO, based on key that reflect nation’s true economic
status–ranging from per capita income, human development indices (HDI) and the burgeoning BPL
population.

 For instance, on HDI, as per latest UNDP figures, India ranks 131 out of 189 countries.

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 The reality of such statistics, however, is ignored in international trade, as it only accounts for the
factors
that directly affect the GDP such as consumption, employment, and the performance of enterprises.

 Developing nations like India need a lot of support in the form export subsidies to be able to direct their
economy and continue the trajectory of growth.

 WTO, too, allows for preferential treatment to be extended out to them so long as they are still
“developing”.

 Equitable and reasonable market access can only be provided to countries that are on a level-playing
field.

 Providing export incentives can safeguard local industries to withstand pressure from a highly
competitive global market.

Changing the ‘Developing Country’ Definition: Consequences for India

 India suffers from the paradox of aggregates. On various metrics, its rankings on the global stage may
appear remarkable because of its sheer population size, however, it faces deep-seated and herculean
challenges.

 India has the world’s 3rd largest GDP on a PPP basis, yet ranks 122nd when the same is calculated per
capita.

 It boasts the 2nd largest internet subscriber base in the world, just behind China,yet has only 29-percent
internet penetration compared with, for example, China’s 54 percent.

India’s Options:
 India’s argument should be that GATT and WTO rules are prescriptions of general principles of free trade
and in the first instance, should apply on every WTO member universally, once negotiated.

 These prescriptions should thereafter be tempered for deserving countries through sectorial
accommodations, which themselves act on a spectrum rather than as binaries.

 Contrast this with the current system where every agreement defines a watertight distinction
between developed, developing, and LDCs and provides staggered timelines and concessions for
each category.

 Accommodations made for such deserving candidates should further be staggered based on the
prevailing circumstances in each country.

 For instance, in an agreement for IT services, Bangladesh deserves more support than India and
the two countries should not be weighed equally—although they may be both “developing
countries”.
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 Another view that no longer holds is that “developed” countries ought to be singularly taxed to
subsidise
the developmental needs of the rest of the world.

 The US might still be the hub of global innovation, but Asia is fast catching up.

 Therefore, a monolithic view of Asia, and of the West, no longer holds true and any economic
concession to the former on this basis is not only unfair but economically wasteful.

 WTO continues to adopt an outmoded “construct of a “North-South” division”. India was among
the few countries that made submissions countering the underlying logic of the US’s position.

US and the WTO

World Trade Organization’s Appellate Body:
 For proper enforcement of trade rules, a binding, two-stage dispute settlement system was established at
the World Trade Organization in the 1990s.

 The Appellate Body is the scaffolding of the dispute settlement system, with seven standing members

 In the first stage for adjudicating trade disputes, a panel would decide cases brought before it by the
members. Rulings issued by the panels can be appealed at the Appellate Body.

 As part of the second-stage of adjudication, the Appellate Body can uphold, modify or reverse the legal
findings and conclusions of a panel.

 Therefore, the Appellate Body’s decisions are final and adopted within 30 days by the dispute settlement
body. Sanctions can be imposed on a member in case of its failure to comply with the Appellate Body’s
rulings.

 The establishment of the Appellate Body has given teeth and credibility to the rules-based multilateral
trading system.

 Moreover, it provided security and predictability in the multilateral trading system.

 Recently, U.S. claimed that the highest appeals body for global trade disputes has gone astray.

WTO Appellate Body on Shaky Ground

 The smooth and effective functioning of the Appellate Body has posed hurdles to the U.S. for adopting
unilateral measures.

 Several U.S. provisions for imposing countervailing and anti-dumping measures were found to be
inconsistent with core provisions of the WTO agreements.
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 Finally, the U.S. chose to spike the Appellate Body by resorting to starving funds for its functioning as
well
as blocking the selection process for filling six vacancies.

 Consequently, the Appellate Body is left with only one member, who will not be able to deliver any
rulings on the pending trade disputes. A minimum of three members are required to adjudicate any
dispute.

 The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the
last few years, and the backlog of cases has prevented it from initiating proceedings in appeals that have
been filed in the last year.

USA has Crippled the Functioning of WTO:

 While the U.S. has accepted favourable rulings that served its interests in global trade, it raised
intransigent concerns about adverse decisions that struck down the U.S.’s trade measures.

 It has maintained that the Appellate Body failed to issue rulings within the 90-day deadline.

 The U.S. says the Appellate Body’s rulings failed to adhere to the provisions in the dispute settlement
understanding in cases involving countervailing (anti-subsidy) and anti-dumping measures based on the
zeroing methodology.

Effect of U.S.’s Unilateral Stand on Developing Countries:

 It is a tremendous loss for the majority of WTO members who are all developing and poor countries and
lack the political and economic clout to enforce their rights and protect their interests in a system
governed by power and not rules

Future of an Organisation that will not be able to Enforce Rules:

 The strangulation of the Appellate Body is a reflection of unilateralism and protectionism that are on a
sharp rise.

 The absence of the Appellate Body will create a jungle raj and paves the way for a steep descent into the
General Agreement on Tariffs and Trade, 1947 rules.

India’s Role:
 As the U.S. loses interest in multilateralism in trade, India should be more actively engaged to make the
WTO a more equitable organisation.

 India needs to work on persuading all members of the WTO to return to the table and negotiate on issues
like agriculture, industrial tariffs, and services.

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 India’s positions have much in common with the African nations’ stand. It must build bridges with
Africa.

 India needed to quickly forge a larger alliance to counter the moves that are against India’s interests.

 India’s journey towards achieving 5 trillion dollar economy is not possible without expansion of our
basket of global trade.

WTO and its Role in Reducing the Economic Shock of the Pandemic
 The WTO has helped in absorbing this blow in a three-pronged manner:

 First, by helping members coordinate their trade policies

 Second, by ensuring transparency with regard to pandemic-related measures

 Lastly, by monitoring members’ trade responses to the pandemic.

Co-ordinating the Trade Policies:

 As the primary forum for policy coordination and international cooperation on international trade
matters, the WTO held a General Council meeting in May 2020, where countries met virtually and
discussed their “immediate responses to COVID-19 as well as long-term strategies for addressing the
adverse impact of the crisis on national economic and development prospects, and on the
global economy as a whole.

 WTO also has been serving as a forum for coordinating policies concerning intellectual property rights
(IPRs) to enable better access to vaccines

 Serving as a ‘constructed focal point,’ the WTO continues to facilitate communication among members
during this crisis, and “reduces the transaction costs of policy coordination”.

 Another important function performed by the WTO during the crisis has been that of
maintaining transparency. Countries who are members of the WTO are required to immediately
notify any quantitative restriction (QRs) like export restrictions implemented by them. However,
given the extraordinary nature of the pandemic, a large number of countries did not immediately
notify their QR measures.

Ensuring Transparency:

 To overcome the lack of transparency, the WTO compiled a list of COVID-19 related trade measures
concerning goods, services, and IPRs that were implemented by countries, and uploaded it to its website
for stakeholders to access.

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 Additionally, the WTO also maintained an informal situation report in order “to provide
transparency
with respect to support measures taken in the context of the COVID-19 crisis.”

Trade Responses to the Pandemic:

 WTO members are able to collectively monitor the policy responses of countries through the Trade Policy
Review (TPR) Mechanism of the WTO

 The Trade Policy Review mechanism helps collectively monitor members’ policies and ensure that the
ongoing pandemic is not used as a facade to implement protectionist or trade restrictive measures which
would otherwise run afoul of countries’ trade obligations.

Key Issues for WTO 2.0

1. China and a Level Playing Field:

 IPR and State-Owned Enterprises: The nature of China’s economic system, combined with the size and
growth of its economy, has created tensions in the global trading system.

 China’s WTO accession was seen as a critical lever for promoting domestic economic reform in the
country, reducing trade and investment barriers, and bringing China into the rules-based
international trading system.

 However, by 2006, despite China having taken important steps on the road to economic reform,
the signs showed important challenges remained.

 Example: enforcement of intellectual property rights (IPRs)

 A critical part of the problem is that the rulebook of the WTO is inadequate for addressing the
challenges that China presents in respect of intellectual property, state-owned enterprises and
industrial subsidies.

 China’s state-owned enterprises present a major challenge to the global trading system. But the
WTO does not address the issue of state-owned enterprises in a comprehensive way.

 Countries such as the US have thus increasingly turned to bilateral and regional free-trade
agreements to better deal with the issue. The TPP (now the CPTPP after the US’s withdrawal from
the agreement) and the USMCA each have a chapter on state-owned enterprises.

 Industrial subsidies: The WTO Agreement on Subsidies and Countervailing Measures nominally covers
this aspect but has proven ineffective.

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 In response, in 2017 the US, the EU and Japan launched trilateral efforts to identify ways to better
deal with market- and trade-distorting subsidies and to strengthen WTO rules on them. While this
is a welcome step, it will be almost impossible to get China to agree.

 Whether China should be treated as a market economy: China contends that the other members
shouldn’t end their treatment of China as a non-market economy. But the US and the EU continue to
treat China as a non-market economy for the purposes of assessing anti-dumping duties.

 Article 32.10 of the USCMA (United States-Mexico-Canada Agreement) limits the ability of these
three parties to enter into a free-trade agreement with a non-market economy. This article is seen
as targeting China and has been dubbed the ‘China poison pill’.

Role Played by China in Reforming the WTO:

 China’s reform proposal emphasizes ‘efforts to make necessary reform to the WTO. The proposal lists
breaking the impasse over the Appellate Body, and advancing negotiations on fisheries and e-commerce.

 On the sensitive issue of special and differential treatment, China’s stance is that the rights of developing
WTO members should be safeguarded.

 Regarding state-owned enterprises, China reiterates a vague commitment to ‘fair competition’ and
stresses the ‘imperative to respect the diversity of development models among Members’.

 China is also trying to work with others on WTO reform. For instance, in 2018 it established a working
group on the issue with the EU.

China is therefore portraying itself as a guardian of the global trading system at a time when the US is
retreating from that role. This, together with China’s engagement in WTO reform, increases Beijing’s ability
to set and shape the reform agenda.

2. Agriculture and Development:

 The WTO Agreement on Agriculture, which came into force in 1995, was an important milestone that
seeks to make agricultural trade fairer and more competitive.

 In particular, WTO members are targeting reform of subsidies and high trade barriers, which distort
agricultural trade.

 In 2015, WTO members committed to abolishing agricultural export subsidies and finding solutions to the
issue of public stockholding for food security purposes (an issue that demands new attention in the
context of COVID-19).

 Agriculture notification obligation is an area in which compliance has been notoriously low.

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 Development issues and the interests of developing countries have long been a focus for the work of
the
WTO.

 But in order to move the debate forward, the problem of self-declared developing-country status must
be tackled.

3. Environmental Sustainability:

 Trade and the WTO have key roles to play in efforts to achieve the UN Sustainable Development Goals
(SDGs) and the Paris Agreement climate goals.

 Reforming fossil fuel subsidies: At the Buenos Aires Ministerial Conference in 2017, members called on
WTO ‘to achieve ambitious and effective disciplines on inefficient fossil fuel subsidies that encourage
wasteful consumption’.

 Concluding the Environmental Goods Agreement (EGA): WTO members should better address the
traditional divides between the groups and the habitual silos between policymakers and policy shapers in
the trade and environmental sustainability space by engaging with international organizations such as
UNCTAD, UNEP or civil society organizations etc.

4. Linking Trade and Non-Trade Issues:

 Linking non-trade issues to trade can be pursued to encourage greater compliance and enforcement.

 By linking non-trade issues (which are traditionally hard to enforce) to the global trading system,
countries could take advantage of a functioning dispute settlement mechanism under the WTO.

 However, this particular reason for issue linkage has become redundant as the WTO Appellate Body crisis
continues.

 It could improve alignment and policy coherence between trade and efforts to tackle climate change.

5. Building Domestic Support:

 A survey shows that only 35 per cent of respondents in the US see the WTO as an important organization,
compared to 84 per cent of respondents in China.

 In European countries, slightly more than 40 per cent of respondents have a positive perception of the
WTO. Fostering domestic support for the WTO will require greater involvement from the business
community.

 The International Chamber of Commerce and the B20 (the business arm of the G20) are also working
closely with the WTO, and have outlined recommendations for reforming the organization.

 Despite these initiatives, the business community could still play a larger role and stimulate more
vigorous public debate on WTO and rules-based international trading system.
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Challenges to the WTO

 The Development Debate and Special and Differential Treatment (SDT):

 Developing country status is self-defined rather than through objective criteria.

 The SDT became a controversial issue as many developing countries started to more firmly
integrate into the world economy and receive larger shares of global trade.

 Market-Distorting Conditions:

 WTO framework allows differences in regulatory regimes and that it needs to level the playing
field.

 Some members are regarded as implementing “state capitalism,” enabling market-distorting

practices such as subsidies, state-owned enterprise (SOEs), forced technology transfer policies and
disregarding labour and environmental standards.

 Most-Favoured-Nation Status (MFN):

 Most-favoured-nation status is an economic position in which a country enjoys the best trading
conditions from its trading partner.

 This gives the country the lowest tariff, the fewest trade barriers, and the highest import quotas.

 All WTO members are granted MFN status, which means that they all receive the same trade
advantages as all other members. However, developing countries are excluded.

 Members can currently self-designate as developing countries to receive ‘special and differential
treatment’

 The developing countries can avoid committing to opening up of markets and to protect the
domestic firms.

 The United States accuses India and China (developing countries) of using this provision despite
being classified by the IMF as the second and fifth largest economies in the world.

WTO Reforms
1. Transparency and Notification:

 One of the principal functions of the WTO, in addition to providing a forum for trade negotiations and for
the settlement of disputes, is to monitor and implement agreements.

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 In order to do this, the various WTO agreements contain transparency and notification requirements.

 However, compliance has been chronically low and late. In particular, the failure by many members to
notify their trading partners (via the WTO) of subsidies has been a serious systemic problem for years.

 This lack of compliance undermines trust in the rules-based international trading system and also has
implications for future negotiations

 Among the key ideas for reforms are the following:

 WTO members experiencing difficulties in fulfilling their notification obligations are encouraged to
request technical assistance and support for capacity-building.

 Measures to name and shame non-compliant WTO members should be introduced.

 Depending on the length of the notification delay, the suggested penalties range from the
offending party being required to offer an explanation for the delay to being designated an
inactive member of the WTO.

 Members are encouraged to provide counter-notifications (i.e. contesting the accuracy of another
WTO member’s notification).

2. Developing-Country Status:

 There is no agreed definition of what constitutes a developing country at the WTO, countries can self-
declare their status.

 Because developing countries receive so-called ‘special and differential treatment’ – consisting of more
favourable terms or extra time to fulfil their commitments –approximately two-thirds of WTO members
claim developing-country status.

 While the status and special treatment are warranted for some countries, it is questionable whether
some of the world’s largest economies legitimately qualify as developing countries.

 The fact that eight of the G20 countries – including China and India – currently claim developing-country
status at the WTO is a major point of contention.

 Brazil and South Korea (as well as non-G20 members Singapore and Taiwan) announced in 2019 that they
would no longer seek the special and differential treatment reserved for developing countries at the
WTO.

 Led by China and India, a group of countries has defended the self-declaration of developing-country
status as ‘a fundamental rule in the WTO.

 Reform Measures:

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1. Four categories of WTO member should forgo special and differential treatment:

 A member of (or a country that has begun the accession process to) the Organisation for
Economic Co-operation and Development (OECD)

 A member of the G20

 A WTO member that is classified as a ‘high-income’ country by the World Bank

A WTO member that accounts for no less than 0.5 per cent of global merchandise

trade. More than 30 countries would fall into at least one of these categories.

2. Other measures:

 Gross Domestic Product (GDP) per capita and purchasing-power parity, membership in the G20
and OECD, and shares in global exports and Foreign Direct Investment (FDI)

 Social and human development indicators created by international organizations

Conclusion
Reforming the WTO will require a multifaceted approach and take time. But it remains in the interests of the
US and its European partners to sustain the rules-based trading system which they helped to create.

Once the dust has settled, the process of rebuilding the global economy in light of the imperatives amplified
by the pandemic, combined with the presence of new leadership at the WTO, could provide much-needed
impetus for bold reform. But expectations need to be managed.

International Monetary Fund (IMF)

History
 Formed in: 1944

 Headquartered in: Washington, D.C., USA.

 The International Monetary Fund (IMF) is an organization of 189 member countries.

 India is a member.

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 Aim: Promote global monetary cooperation, ensure financial stability, facilitate international
trade,
promote high employment and sustainable economic growth, and reduce poverty around the world

 It plays a central role in dealing with balance of payments difficulties and international financial crises.

 Countries use a quota system to contribute funds to a common fund from which countries with balance
of payments problems can borrow.

Leadership
 Board of Governors:

 Each member country appoints its two governors.

 The Board normally meets once a year and is responsible for electing or appointing an executive
director to the executive board.

 Executive Board:

 Each member has representation on the IMF’s executive board in proportion to its financial
importance. Countries with large economies have their own executive director, but most
countries are grouped in constituencies representing four or more countries.

 This Board usually meets several times each week.

Advantages of IMF
International Monetary Fund (IMF) was established following World War II to help with post-war recovery
and serve as a lender to modern governments and an overseer of international financial markets.

 Provides Loans to Member Nations: Its most important function is its ability to provide loans to
member nations in need of a bailout.

 A bailout is when a business, an individual, or a government provides money and/or resources

(also known as a capital injection) to a failing company. Bailouts can be in the form of loans,
bonds, stocks, or cash.

 Fills Deficit Gaps: If a country has a balance of payment deficit, the IMF can step in to fill the gap.

 Countries with short-term balance of payment issues will apply for stand-by arrangement (SBA)
loans from the IMF.

 SBA loans are meant to help countries emerge from an economic crisis by giving them quick
access to the capital they need to restore growth.

 Technical Support and Assistance: It serves as a council and adviser to countries attempting a
new economic policy. It also publishes papers on new economic topics.
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Role of IMF in Solving Global Economic Problems

The IMF's Role in Global Economic Issues:
 For many countries, the IMF has been the organization to turn to during difficult economic times. Over
the years this organization has played a key role in helping countries turn around through the use of
economic aid.

How the IMF is Funded:

 The IMF is a quota-based institution. Quotas are the building blocks of the IMF’s financial and governance
structure.

 Each country pays based on the size of its economy and its political importance in world trade and
finance.

 An individual member country’s quota broadly reflects its relative position in the world economy. Quotas
are denominated in Special Drawing Rights (SDR), the IMF’s unit of account.

 The IMF can use the quotas from developed nations to lend aid to economically developing nations.

 India holds 2.75 per cent of SDR quota, and 2.63 per cent of votes in the IMF. The country has been
lobbying to increase the voting share in the IMF for quite some time. The decision on this is due in 2023

Multiple Role of Quotas:

 Resource Contributions: Quotas determine the maximum amount of financial resources a member is
obliged to provide to the IMF.

 Voting Power: Quotas are a key determinant of the voting power in IMF decisions. Votes comprise one
vote per SDR100,000 of quota plus basic votes (same for all members).

 Access to Financing: Quotas determine the maximum amount of financing a member can obtain from
the IMF under normal access.

 SDR Allocations: Quotas determine a member’s share in a general allocation of SDRs.

 Special Drawing Rights: SDR is an alternate reserve currency floated by the IMF, which the
member countries can freely exchange between themselves instead of relying on currency of any
one particular country. SDR is a basket of U.S. dollar, Japanese yen, euro, pound sterling and
Chinese Renminbi.

The weightage of currencies are given below:

 British Pound – 8.09%

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 Japanese Yen – 8.33%

 Chinese Yuan – Around 11%

 Euro – Around 31%

 US Dollar – Around 41.73%

Lending through the IMF:

 When a country requests a loan, the IMF will give the country the money needed to rebuild or stabilize its
currency, re-establish economic growth and continue buying imports.

 The IMF offers member countries a variety of loans tailored to meet specific uses.

 Poverty Reduction and Growth Trust (PRGT) Loans

 Exogenous Shocks Facility (ESF) Loans (natural disasters, and wars)

 Supplemental Reserve Facility (SRF) to meet short-term financing on a large scale. Example:
Asian Financial Crisis of 1997 caused enormous outflows of money and led to massive IMF
financing.

 Emergency Assistance Loans: These are designed to provide assistance to countries that have
had a natural disaster or are emerging from war.

Surveillance:
 The IMF watches the economics and economic policies of its members. There are two main components
of surveillance: country surveillance and multilateral surveillance.

 Through country surveillance, the IMF visits the country once a year to assess its economic policies and
reports its findings in the Public Information Notice

 Multilateral surveillance is when the IMF surveys global and regional economic trends. It reports these
twice a year in the World Economic Outlook and Global Financial Stability Report. These two reports
point out problems and potential risks to the world economy and financial markets.

Technical Assistance:
 Through the use of technical assistance, the IMF can perform useful surveillance and lending to help the
country avoid economic pitfalls and create sustainable economic growth.

 Technical assistance helps countries strengthen their economic policy, tax policy, monetary policy,
exchange rate system, and financial system stability.

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Levels of Influence in IMF

With 190 member countries, some members of the IMF may have more influence over its policies and
decisions than others. The United States and Europe are the major influences within the IMF.

 The United States:

 The United States has the largest percentage of voting rights in the IMF with a 17.4% share and
contributes the largest quota of any single country.

 Over the years there have been many complaints that the U.S. uses the IMF as a way to support
countries that are strategically important to them, rather than based on economic need.

 Many members feel that they should have more of a stake in what the organization does when it
determines how and in what ways to help out the different countries.

 Europe:

 Many European countries have resisted the efforts for a readjustment in voting rights and
influence at the IMF.

 In the past, a European has generally held the managing director position of this organization.

 However, as the world continues to change there is a greater demand to give more of a voice to
new emerging economies.

 There have been discussions that Europe could pool its quotas and maintain a strong voice going
forward.

 However, if the countries try to individually maintain the levels they have, their voice of influence
could continue to diminish.

India and IMF

IMF Predictions for India:

 The (IMF) slashed India's economic growth forecast for financial year 2021-22 to 9 per cent on concerns
over impact of new Covid variant.

 In the previous issue of its World Economic Outlook that was published in October 2021, IMF had
estimated India's gross domestic product (GDP) to grow by 9.5 per cent for the current fiscal year.

 For the next fiscal year 2022-23, IMF projects Indian economy to grow at 7.1 per cent.

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 According to the IMF, India's prospects for 2023 are marked up on expected improvements to credit
growth and, subsequently investment and consumption, building on better-than-anticipated
performance of the financial sector

Governance:

 Finance Minister is the ex-officio Governor on the Board of Governors of the IMF.

 RBI Governor is the Alternate Governor at the IMF.

 India is represented at the IMF by Economist Surjit Bhalla for three years (2019-2022)

Historical Relations:

 India has benefitted from the positive results of International regulation by IMF in the field of money that
contributed towards expansion of international trade.

 Post-partition period when India had serious balance of payments deficits, particularly with the dollar and
other hard currency countries, IMF came to its rescue.

 The Fund granted India loans to meet the financial difficulties arising out of the Indo–Pak conflict of 1965
and 1971.

 From the inception of IMF up to March 31, 1971, India purchased foreign currencies of the value of Rs.
817.5 crores from the IMF. Since 1970, the assistance that India, and other member countries of the IMF,
can obtain from it has been increased through the setting up of the Special Drawing Rights (SDRs created
in 1969).

 India had to borrow from the Fund in the wake of the steep rise in the prices of its imports, food, fuel and
fertilizers.

 In 1981, India was given a massive loan of about Rs. 5,000 crores to overcome foreign exchange crisis
resulting from persistent deficit in balance of payments on current account.

 India has had the benefit of independent scrutiny and advice when it availed the services of specialists of
the IMF for the purpose of assessing the state of its economy.

 When the balance of payments position of India went out of order on account of the oil price escalation
since October 1973, the IMF started making available oil facility by setting up a special fund for the
purpose.

 Early 1990s when foreign exchange reserves – for two weeks’ imports as against the generally
accepted 'safe minimum reserves' of three month equivalent — position were terribly unsatisfactory.

 Government of India's immediate response was to secure an emergency loan of $2.2 billion from the
International Monetary Fund by pledging 67 tons of India's gold reserves as collateral security.

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 India promised IMF to launch several structural reforms (like devaluation of Indian currency, reduction in
budgetary and fiscal deficit, cut in government expenditure and subsidy, import liberalisation, industrial
policy reforms, trade policy reforms, banking reforms, financial sector reforms, privatization of public
sector enterprises, etc.) in the coming years.

 The foreign reserves started picking up with the beginning of the liberalisation policies.

 India has occupied a special place in the Board of Directors of the Fund. Thus, India had played
a significant role in determining the policies of the Fund which increased India’s prestige in the
international circles.

World Economic Outlook Report (October, 2021)

Main Takeaways from the WEO in October
 Global economic recovery momentum had weakened a bit due to the pandemic-induced supply
disruptions.

 There is a dangerous divergence in economic prospects across countries.

 Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend
path in 2022 and exceed it by 0.9 per cent in 2024.

 By contrast, aggregate output for the emerging market and developing economy group (excluding
China) is expected to remain 5.5 per cent below the pre-pandemic forecast in 2024, resulting in a
larger setback to improvements in their living standards

 There are two key reasons for the economic divergences: large disparities in vaccine access, and
differences in policy support.

 Employment growth is likely to lag the output recovery (Chart 1).

 Employment around the world remains below its pre-pandemic levels, reflecting a mix of negative output
gaps, worker fears of on-the-job infection in contact-intensive occupations, childcare constraints, labour
demand changes as automation picks up in some sectors, replacement income through furlough schemes
or unemployment benefits helping to cushion income losses, and frictions in job searches and matching.

 The gap between recovery in output and employment is likely to be larger in emerging markets and
developing economies than in advanced economies.

 Further, young and low-skilled workers are likely to be worse off than prime-age and high-skilled workers,
respectively.

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What does this mean for India?

 India was already facing a deep employment crisis before the Covid crisis, and it became much worse
after it.

 As such, projections of an employment recovery lagging behind output recovery could mean large
swathes of the population being excluded from the GDP growth and its benefits.

 Lack of adequate employment levels would drag down overall demand and thus stifle India’s growth
momentum.

Why could Employment Lag Output Growth in India?

 India is witnessing a K-shaped recovery.

 That means different sectors are recovering at significantly different rates.

 And this holds not just for the divergence between the organised sector and unorganised sector,
but also within the organised sector,

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 Some sectors such as the IT-services sectors have been practically unaffected by Covid, while
e-
commerce industry is doing “brilliantly”.

 Many contact-based services, which can create many more jobs, are not seeing a similar bounce-back.
Similarly, listed firms have recovered much better than unlisted firms.

 Bulk of India’s employment is in the informal or unorganised sectors. So, a weak recovery for the
informal/unorganised sectors implies a drag on the economy’s ability to create new jobs or revive old
ones.

 IMF Chief Economist Gita Gopinath pointed out that the number of people using the MGNREGA
provisions was still 50-60% above pre-pandemic level.

 This suggests that the informal economy is struggling to recover at the same pace as some of the more
visible sectors.

IMF and COVID-19

 The IMF is providing financial assistance and debt service relief to member countries facing the economic
impact of the COVID-19 pandemic under its various lending facilities and debt service relief financed by
the Catastrophe Containment and Relief Trust (CCRT).

 Overall, the IMF is currently making about $250 billion, a quarter of its $1 trillion lending
capacity, available to member countries.

 As part of the COVID19-related rapid arrangements, borrowing countries have committed to undertake
governance measures to promote accountable and transparent use of these resources.

IMF Supported its Member Countries through:

 Emergency Financing: IMF doubled the countries’ access to its Rapid Credit Facility (RCF) and Rapid
Transfer Financing (RFI)

 Grants for Debt Relief: With this initiative, IMF has reached out to the 29 of its poorest and most
vulnerable countries through its Catastrophe Containment and Relief Trust (CCRT).

 Calls for Bilateral Debt Relief: Using its Debt Service Suspension Initiative (DSSI), IMF asked the bilateral
creditors to suspend debt service payments from the low-income countries

 Enhancing Liquidity: Establishment of Short-term Liquidity Line (SLL) for the global financial safety

 Adjusting existing lending arrangements: The IMF’s focus is also on to adjust its lending arrangements
for new needs rising amid the pandemic.

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 Policy Advice: The organization is catering to the need for policy advice to the countries to boost
the
economy in the time of the pandemic.

 Capacity Development: The organization has reached out to 160 countries to address urgent
issues such as cash management, financial supervision, cyber security and economic governance.

IMF and World Bank

 The International Monetary Fund (IMF) and the World Bank were both created at an international
conference convened in Bretton Woods, New Hampshire, United States in July 1944.

 The goal of the conference was to establish a framework for economic cooperation and development
that would lead to a more stable and prosperous global economy.

IMF and World Bank Framework for Cooperation

 Assessing financial stability: The IMF and the World Bank work together to make financial sectors in
member countries resilient and well regulated.

 The Financial Sector Assessment Programme (FSAP) was introduced in 1999 to identify the
strengths and vulnerabilities of a country's financial system and recommend appropriate policy
responses.

 Setting the stage for the 2030 development agenda: The IMF and the Bank engaged in the global effort
to support the Sustainable Development Goals 2030.

 Over the past years, the World Bank Group has made several commitments related to the 2030
Development Agenda such as $400 billion in development spending from 2016-2018, promoting
domestic resource mobilization, climate financing etc.

 The IMF:

 has expanded financial support for low-income developing countries,

 has provided financial assistance to many developing low-income countries suffering the
economic impact of the COVID-19 pandemic

 is supporting developing countries to assess the additional spending required to reach the
SDGs in five key sectors (education, health, water and sanitation, roads, electricity).

 is providing support—through an Infrastructure Policy Support Initiative —to member

countries seeking to increase public investment in infrastructure.

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 IMF is supporting the “G20 Compact with Africa” to promote private investment, including
for infrastructure, in Africa

 Climate Change: To help countries adapt and build resilience to climate change, the IMF and the World
Bank introduced on a pilot basis in 2017 joint IMF-World Bank Climate Change Policy Assessments (CCPA)

 It provided overarching assessments of preparedness, macroeconomic impact, mitigation,

adaptation, and financing strategies for small, vulnerable, and capacity-constrained countries.

 Reducing debt burdens: The IMF and World Bank have worked together to reduce the external debt
burdens of the most heavily indebted poor countries under the Heavily Indebted Poor Countries Initiative
(HIPC) and the Multilateral Debt Relief Initiative (MDRI)

HIPC and MDRI

 HIPC: The HIPC Initiative was launched in 1996 by the IMF and World Bank, with the aim of ensuring
that no poor country faces a debt burden it cannot manage.

 MDRI: In 2005, to help accelerate progress toward the United Nations SDGs, the HIPC Initiative was
supplemented by the Multilateral Debt Relief Initiative (MDRI) .

 The MDRI allows for 100 percent relief on eligible debts by three multilateral institutions—the
IMF, the World Bank, and the African Development Fund (AfDF)—for countries completing the
HIPC Initiative process.

 Countries receiving debt relief: Of the 39 countries eligible or potentially eligible for HIPC Initiative
assistance, 36 are receiving full debt relief from the IMF and other creditors after reaching their
completion points. Sudan has made tangible progress toward establishing a strong track record of policy
required to achieve this milestone and eventual debt relief.

How does Debt Relief frees up resources for social spending?

Debt relief includes aid flows, to address the development needs of low-income countries and make sure
that debt sustainability is maintained over time.

For debt reduction to have a tangible impact on poverty, the additional money needs to be spent on
programs that benefit the poor.

 Boosting social spending: Before the HIPC Initiative, eligible countries were, on average, spending
slightly more on debt service than on health and education combined. Now, they have increased
markedly their expenditures on health, education, and other social services.

 Reducing debt service: For the 37 countries receiving debt relief, debt service paid has declined by
about 1.5 percentage points of GDP between 2001 and 2015.

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 Improving public debt management. Debt relief has markedly improved the debt position of post–
completion point countries, bringing their debt indicators down below those of other HIPCs or non-HIPCs.

Difference between IMF and the World Bank

Difference IMF World Bank

The IMF promotes monetary cooperation and

provides policy advice and capacity World Bank is a global organization that works
development support to preserve global to provide developing countries with loans to
Mandate macroeconomic and financial stability help them eliminate poverty
and help
countries build and maintain strong
economies.

It provides technical and financial support to

It ensures that this system brings about help countries reform certain sectors or
sustainable growth of the economy, reduce implement specific projects—such as building
Function poverty, enable financial stability and promote schools and health centers, providing water
international trade. and electricity, fighting disease, and protecting
the environment.

The IMF also provides short- and medium-

World Bank assistance is generally long term.
term loans and helps countries design policy
The bank’s loans are not used as a type of
Lending programs to solve balance of payments
bailout, as is the case with the IMF
problems

IMF loans are funded mainly by the pool of World Bank is funded both by member country
Funding quota contributions that its members provide contributions and through bond issuance.

World Bank has 188 member countries of

International Bank for Reconstruction and
IMF has got 188 member countries Development (IBRD) and 172 member
Constituents
countries of International Development
Association (IDA).
It is made up of a group of five organizations
which are; the International Bank for
Reconstruction and Development (IBRD),
International Centre for Settlement of
Investment Disputes (ICSID), International
Finance Cooperation (IFC), International
IMF is a unitary organization and it is affiliated Development Association (IDA) and Multilateral
Organizational
with the United Nations Organization (UNO) Investment Guarantee Agency (MIGA). IBRD
Structure
and IDA are the two main constituents of the
World Bank. It is part of the World Bank Group
and it is also a member of the United Nations
Development Group.

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Criticism of IMF
1. Democratic Governance

 Structural under-representation of the Global South:

 Political power imbalances in the governance structures where poorer countries – often those
receiving loans from the BWIs – are structurally under-represented in decision-making processes.

 Distribution of voting power remains severely imbalanced in favour of the US, European countries
and Japan, in particular

 Importantly, the US still has veto power over an array of major decisions

 Undermining Democratic Ownership:

 the economic policy conditions IMF promotes as part of loans, projects, technical assistance, or
financial surveillance – undermine the sovereignty of borrower nations, limiting their ability to
make policy decisions and eroding their ownership of national development strategies.

 This is particularly the case for the IMF as ‘a lender of last resort’ for governments experiencing
balance of payment problems.

 Biased and inconsistent decision-making

 The Bank and Fund have also been heavily criticised for the role played by the political expediency
of important shareholders in its decision-making and choice of interventions, including its support
to dictatorships.

2. Environment

 Growth-Based Model Unsustainable:

 The growth-based approach to poverty reduction that the IMF promotes has immense
environmental consequences, as is evidenced by the deepening climate crisis.

 Since their inception, the BWIs have promoted economic growth as the core component of their
development model, despite mixed evidences that economic growth and poverty reduction are
linked.

 The efforts of IMF to account for environmental and climate factors in their work over recent
decades have largely been limited to attempting to integrate these concerns into a growth-based
development model.’

4. Human Rights

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 Restricting the Macroeconomic Environment for Human Rights:

 IMF’s policies are designed unevenly in favour of those already at the top of the economy and
society.

 Labour unions, have long opposed the BWIs’ systematic weakening of labour rights either directly
through conditionality or indirectly through policy advice in flagship reports and surveillance.
Example: IMF’s 2017 loan programme to Greece

 This further exacerbates inequalities within and between countries and disproportionately harms
the marginalised who already are most vulnerable to human rights violations.

 Economic and social rights, such as the right to social security, health and education, right to an
adequate standard of living, including adequate food, clothing and housing, are all undermined

 Groups that are often disadvantaged by the types of macroeconomic policies the BWIs promote
include the poor, women, immigrants, the elderly, children and youth, ethnic and religious
minorities, people with disabilities, and LGBTQI communities.

 Lacking Evidence for Positive Impacts:

 IMF claims its work to eradicate poverty and increase economic growth and stability ultimately
contributes to global welfare and the fulfilment of human rights, without clear evidence.

 There are obvious trade-offs and conflicts between ‘pro-growth’ and ‘pro-equity’ policies

 The vast majority of the poverty eradication achieved during the last 40 years is largely attributed
to China, which has certainly not followed the policy prescriptions of the IMF

 Additionally, the pace of poverty reduction is reportedly slowing, while the number of
people living in extreme poverty in Africa is increasing

 These critiques call into question the efficacy of the IMF’s policy to effectively contribute to the
fulfilment of human rights in the first place

4. Conditions of Loans:

On giving loans to countries, the IMF makes the loan conditional on the implementation of certain economic
policies. These policies tend to involve:

 Reducing government borrowing – Higher taxes and lower spending

 Higher interest rates to stabilise the currency.

 Allow failing firms to go bankrupt

 Structural adjustment, Privatisation, deregulation, reducing corruption and bureaucracy.

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The problem is that these policies of structural adjustment and macroeconomic intervention can
make
difficult economic situations worse.

5. Free Market Criticisms of IMF:

 IMF is criticised for being too interventionist.

 There is also a criticism that bailing out countries with large debt creates moral hazard. Because of the
possibility of getting bailed out, it encourages countries to borrow more.

 The IMF has been criticised for imposing policy with little or no consultation with the affected countries.

 Since the United States, Japan, and Great Britain feature prominently in IMF policies, it has been accused
of being a tool for free-market countries only

IMF Reforms
 Reforming Quota System:

 Each member’s quota determines its voting power as well as its borrowing capacity. US and China
should jointly lead the efforts on transformation of relative quota shares in the IMF and
associated reforms in the international monetary system.

 First, as China approaches or even surpasses the United States in its share of global GDP at market
exchange rates its quota share would have to be of a magnitude similar to that of the United
States.

 Second, the share of the European Union countries, including that of the UK, will have to reduce
significantly

 Third, the quota share of BRICS countries would have to increase significantly

 Focus on lower income and Developing countries:

 Article-IV Consultations: As part of its mandate for international surveillance under the Articles
of Agreement, the IMF conducts what is known as Article-IV consultations to review the economic
status of member countries.

 IMF should focus on lower income countries and support other developing countries’ market
funds raising activities, as its Article IV consultation reports are utilised by credit rating agencies,
impacting the fund raising capacity of countries like India. Most of the Asian countries including
India can now raise funds on their own on the basis of strength of their forex reserves, and do not
have to necessarily go to the IMF like in the past to tide of crisis.

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 Therefore, they should now really focus on the much lower income groups and those who are
not
able to go to the market at all to raise funds

 Management Reforms:

 In the IMF and World Bank group, there is an informal arrangement, that the head of the IMF
should be a European and the head of the World Bank should be an American.

 The time has come to reconsider this, and the IMF probably should really rethink on it

Conclusion
The IMF does serve a very useful role in the world economy. Through the use of lending, surveillance, and
technical assistance, it can play a vital role in helping identify potential problems and being able to help
countries to contribute to the global economy.

However, the United States and Europe have historically dominated the governing body, and the IMF has had
successes and failures. While no organization is perfect, the IMF has served the purposes that it was
established to do and continues to keep evolving its role in an ever-changing world.

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