8.World Trade Organization (WTO)

economy study material 8

World Trade Organization (WTO)

Seven rounds of negotiations occurred under the GATT and the eighth round is known as ‘Uruguay Round’ started in 1989 and concluded in 1994 with the establishment of the World Trade Organization (WTO) in 1995.

The principles and agreements of GATT were adopted for the WTO, along with new ones. There are 150 member countries in WTOwhich was charged with administering and resolving trade disputes between the members. Unlike the GATT, the WTO has a substantial and effective organizational structure.

Pascal Lamy is the Director-General of the WTO since 2005 for a term of four years. The WTO aims for a trading system free of any discrimination and with more freedom, that is, toward fewer trade barriers (tariffs and nontariff barriers).

It also aims for a trading system with greater competition but with more accommodation for less developed countries, giving them more time to adjust, greater flexibility, and more privileges.

Major Functions of WTO: 

  1. Administering WTO trade
  2. Forum for trade
  3. Handling trade
  4. Monitoring national trade
  5. Technical assistance and training for developing
  6. Cooperation with other international

All members of the WTO will meet once in two years in the Ministerial Conference which can make decisions on all matters of the multilateral trade agreements. The Fourth Ministerial Conference held at Doha, The Fifth at Cancun (Mexico) The Sixth at Hong Kong. The Seventh round to discuss the Doha Development Agenda negotiations were suspended due to persisting disagreements between developed and developing countries.

International Bank for Reconstruction and Development (IBRD)

 The International Bank for Reconstruction and Development (IBRD) better known as World Bank was set up in 1944.

Since IMF was designed to provide temporary assistance in correcting balance of payments difficulties, an institution was needed to assist long-term investment purposes. Thus IBRD was established for promoting long term investment loans on concessional terms.


To assist in the reconstruction and development in the member countries by providing capital support.

To promote private foreign investment.

To promote growth of international trade in the long run and improve Balance of Payments of member countries.

To arrange for loans through for small and large projects.

Membership and Organization

All the members of the IMF are members of IBRD. It had 182 members in 2000. Like IMF, IBRD has a three-tier structure with a president, Executive Directors and Board of Governors.

The Board of Governors is the supreme body. Every member country appoints one Governor and an alternate Governor for a period of 5 years. The voting power of each Governor is related to the financial contribution of its Government.

Capital Structure

 It was started with an authorized capital of $10 billion . In July 1992, it has risen to $184.1 billion.

Funding strategy

The IBRD seeks to maintain unutilized access to funds in the markets in which it borrows. Its objective is to minimize the effective cost of those funds to its borrowers. It is to provide an appropriate degree of maturity transformation between its borrowing and lending. Maturity transformation refers to the Bank’s capacity to lend at longer maturities than it borrows.

Special Action Programme (SAP)

Special Action Programme (SAP) was started in 1983 to strengthen IBRD’s ability to assist member countries in adjusting to the current economic environment.

Structural Adjustment Facility (SAF)

The Structural Adjustment Facility was introduced in 1985 in order to reduce the balance of payments deficits of its members while maintaining or regaining their economic growth.

Conditions for lending

  • An efficient regulating mechanism for ensuring transparent policies and depoliticised environment.
  • Adequate risk management. Provision for long-term finance.
  • Increase in the share of the private sector in the country’s GDP.

Bank borrowing

The IBRD is a corporate institution whose capital is subscribed by its members. It finances its lending operations primarily from its own medium and long term borrowing in the international capital markets and currency swap agreement (CSA). The Bank also borrows under the discount note programme. It has enabled two new borrowing instruments. Central Bank Facility (CBF) borrowing inflating rate notes is meant to help IBRD to meet some of the objectives of its funding strategy.

Lending activities:

  • The Bank lends member countries in the following ways. By marketing or participating in loans out of its own funds.
  • By making or participating in direct loans out of funds raised in the market of a member.
  • By guaranteeing loans made by private investors.
  • The Bank also provides facilities to member countries through SAF and SAP. The Bank is laying greater emphasis on developing human resources such as education, population, health, nutrition and environment.

International Finance Corporation (IFC):

 The IFC was set up in July 1956, as an affiliate of the World Bank. It was set up with the objective of assisting the private enterprises in developing countries by providing them risk capital.

The IFC provides debt and equity finance to projects sponsored by the private sector developing countries. Though IFC is affiliated to World Bank, it is a separate legal entity with a separate fund and functions. Members of IBRD are eligible for its membership.


In association with private investors, to invest in productive private enterprises without government guarantee of repayment.

It serves as a clearing house, to bring together investment opportunities, private capital and experienced management.

To help in stimulating productive investment of private capital both at home and abroad. Industrial, agricultural, financial, and commercial and other private enterprises are eligible for IFC financing. Their operations are productive and contribute to the development of the economy. It does not follow a policy of uniform interest rate for its investment. It is subject to negotiation.

International Development Association (IDA)

 IDA was set up in September 1960, as a subsidiary of the World Bank. The establishment of IDA was another step in the direction of increasing international liquidity in the world.

The IDA was set up particularly to provide finance to less developed countries on a soft loan basis ie. on terms imposing lower servicing charge on loans than the conventional bank charges.


  •  To promote economic development To increase productivity
  • To raise standard of living in the member countries
  • Furthering the developmental objectives of the World Bank and supplement its activities.
  • To provide finance to the member countries to meet their important development requirements. IDA loans can be utilized to finance both foreign exchange and local currency costs.

The Multinational Investment Guarantee Agency (MIGA)

 MIGA is the new affiliate of the World Bank family and was established in 1988. It has an authorized capital of $ 1.08 billion.


  • To encourage the flow of direct foreign investment into developing member countries.
  • It provides insurance cover to investors against political risks. It insures only new investments.
  • Promotional and advising services are provided to increase the attractiveness of the investment climate.
  • MIGA’s guarantee serves as a catalyst for multinational investments.


Please enter your comment!
Please enter your name here