Polscience Assignment 2.docx

Name: Pintu Ram SAP ID: 500060941 Roll No. R450217075

INTERNATIONAL RELATION ASSIGNMENT World Trade Organization is now busy, more than ever, in settling trade disputes. The volume of disputes is increasing every passing day. As protectionism has started to rule the roost, member nations are increasingly imposing new trade restrictions, including tariff increases, stricter customs procedures, imposition of taxes and export duties. Between mid October last year and mid May this year, the G20 countries introduced 39 new trade restrictions, double than the previous period, affecting trade in iron and steel, plastics and vehicles, according to WTO’s latest monitoring report. Protectionism refers to government actions and policies that restrict or restrain international trade, often with the intent of protecting local business and jobs from foreign competition. The merits of protectionism are the subject of fierce debate. Critics argue that over the long term, protectionism often hurts the people it is intended to protect by slowing economic growth and pushing up prices, making free trade a better alternative. Proponents of protectionism argue that the policies provide competitive advantages and create jobs. India has dragged US to WTO over the imposition of import duties on steel and aluminium. The latter has also dragged the former to WTO’s dispute settlement mechanism alleging that export subsidies were harming the American companies. China has filed a second complaint to the WTO against US after the latter imposed 25% duties on $34 billion of imports from China. Beijing retaliated with tariffs on a similar amount of goods. Russia imposed higher tariffs on US products in retaliation for US duties on metals imports. As protectionism tightens grip, these flashpoints are fast emerging, and it is a serious threat to growth in all the countries, according to WTO. After all these the main question which comes in everyone minds, are countries losing faith in WTO? While reports are already doing rounds about Trump having plans to pull the US out of WTO, and the US drafting a new trade policy to bypass international rules, the UK is also

not very certain about its future with WTO after Brexit. Being an EU member state, the UK had, so far, been insulated by WTO rules that dictate the size of subsidies and how they are paid. India has its own battle to fight over discriminatory WTO subsidy regime. It has been continuously targeted by the US over agriculture special safeguard mechanism and food subsidies. While no one is writing obituaries of WTO yet, some WTO member countries are questioning the accepted trading norms. The organisation has often been sidelined in regards to major trade agreements, like EU ignoring WTO ruling on stopping illegal subsidies for Airbus. Countries are now getting into bilateral or regional trade deals as opposed to global agreements. The concern of the only global international organisation, which was formed to ensure that global trade flows smoothly and freely, is evident. At a juncture where the global economy is finally beginning to generate sustained economic momentum following the global financial crisis, the uncertainty created by a proliferation of trade restrictive actions could place economic recovery in jeopardy. What’s worse, even the dispute settlement system is under pressure at the momentum, not just because the volume of disputes has grown significantly, but also because of the ongoing impasse over the filling of the Appellate Body vacancies. The Bretton Woods Agreement is the landmark system for monetary and exchange rate management established in 1944. It was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Under the agreement, currencies were pegged to the price of gold, and the US dollor was seen as a reserve currency linked to the price of gold. The Bretton Woods Agreement remains an important part of world financial history. The creation of the International Monetary Fund (IMF) and valuation of gold and foreign exchange rates remain important to this day.The agreement also made currencies convertible for trade and other current account transactions. The strong value of the US dollar eventually led to the collapse of this system more than 20 years. US President Richard Nixon called for a suspension of the Bretton Woods Agreements in 1971 when it collapsed. The agreement was dissolved between 1968 and 1973. In 1973, the agreement officially ended. One of the major items that came about from the Bretton Woods Agreement was the creation of the IMF. It was created to monitor exchange rates and lend reserve currencies to nations. It was formally introduced in December 1945 when 29 members signed the Articles of Agreement. The Bretton Woods Agreement also created the World Bank Group, which was

set up to provide financial assistance for countries during the reconstruction post World War I phase. The Bretton Woods Agreement was dissolved between 1968 and 1973. An overvaluation of the US dollar led to concerns over the exchange rates and their tie to the price of gold. President Richard Nixon called for a temporary suspension of the dollar’s convertibility. Countries were then free to choose any exchange agreement, except the price of gold. In 1973, foreign governments let currencies float, which put an end to the Bretton Woods system. The Great Depression and World War II shaped Bretton Woods by profoundly affecting the forces that created it: the prevailing state of theories and values, the condition of markets, and the balance of power among actors. These events made economic growth and global peace the twin values sought most ardently by policymakers. By discrediting protectionism, they also strengthened liberal theory as a model of how to structure economic relations in order to achieve these values. The disastrous state of the global economy especially the collapse of the trade markets contributed to the belief that the international system required greater management along liberal lines. It also convinced policymakers everywhere that a prosperous nation economy was impossible without a well designed international system. Finally, World War II left the United State as the dominant global power, capable of mobilizing other nations to create such a global system and willing to provide the leadership required to make it a success. The result is Bretton Woods, the most liberal global trading order the world has yet seen, created in the wake of the most protectionist period in the modern era. The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other. Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union.

Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external shocks ever since. The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its lending instruments. To help oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices, it set up the first of two oil facilities.