The Role International Institutions Played in Leberating Free Trade

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Colin Powell once said
“Free trade is a powerful instrument of freedom; a vibrant and dynamic market is the most powerful force for economic growth and sustainable development. This is not ideology talking. Facts speak for themselves and they tell us that free trade means bread, bread for the neediest of our people” (Quotations, 2009).

Although there are number of legislations and policies that regulate globalization, the way those regulations have been implemented is a major debate subject till date. Some say they were very effective in liberating free trade while others say they were just used as a legal excuse to make more money from the poor people. This essay will attempt to examine the different aspects of this controversy and the way it will affect the future negotiation rounds.

In order to fully comprehend the issue, the first part of this essay will define the free trade concept and give a brief historical background of the international institutes, followed by the role they play in the world economy and the principles by which they operate. Finally, it will evaluate the success of the World Trade Organization in achieving the objective it was formed for through some examples.

A study by Beardshaw (2001) indicates that imposing restrictions on the movement of products and labor in addition to currency fluctuation not only raises economic depression levels in the world, but also helps fascism movements grow which can, and have, led to war. For this reason, establishing international institutions that set rules to encourage and promote free trade was necessary to maintain peace after the Second World War was over. Arising from this was the conference at Bretton Woods, which, after 22 days of negotiations, came to the decision of creating two international institutions. These were the International Monetary Fund (IMF) and the World Bank (Griffins & Wall, 2007). The IMF objective is to maintain economic stability and to tackle or preferably prevent financial crisis. Over time, its aim changed into helping to develop the world economy. Its main funding comes from a charge collected from the member countries called ‘Quota’. The amount of Quota each country has to pay is determined by its wealth. The higher the Quota of a country the higher voting rights for that nation. On account of this, the IMF acts as a last resort short period lender to any nation experiencing temporary balance of payments difficulties (BBC News, 2009). Likewise, the World Bank was set up in 1947 as the sister organization to the IMF. It consists of two development institutions owned by 185 member countries, which are; the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).The IBRD’s objective is to assist low and middle income countries, while the IDA concentrates on those countries who are in most need of financial assistance. Both of these organizations render long term loans with low interests and grants to build infrastructure, develop health services and fortify education (World Bank, 2009). However, it was found that in order to get the world out of the post war economic distress, not only international funding institutions were necessary, but also an institution that helped set law for trade of goods and products between countries without tariffs, thus helping countries help each other. But this was not possible as the United States strongly opposed it. Thus the second best option was to have an agreement that would pave the path to a future international trade organization. Hence, the GATT was born (Evans, 1999). The General Agreement on Tariffs and Trade (GATT) could be defined as a framework that was signed by 23 nations in 1948, including the United States, Canada and France for guiding the conduct of trade agreements among members (Griffins & Wall, 2007). According to Beardshaw et al (2001), GATT’s two main objectives could be...
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