The Bretton Woods Conference
The Great Depression
The term "Great Depression" refers to one of the most catastrophic economic events in modern world history.
This economic event was the greatest and longest economic recession, lasting from 1929 to 1941.
In response to the Great Depression, the New Deal was implemented in the United States by President Franklin D. Roosevelt.
The purpose of the New Deal was to pull the U.S. economy out of the Great Depression.
It involved government-funded programs and underwent unparalleled investment in infrastructure, which created jobs and stimulated business and agriculture.
World War II Context
World War II involved conflict between the Axis Powers and the Allies.
The aftermath of the war highlighted the need for economic reforms to rebuild the international economic system.
Bretton Woods Conference
The conference took place in July 1944 and included representatives from 44 countries.
Bretton Woods is a city located in Carroll, New Hampshire, United States.
This conference is sometimes referred to as The United Nations Monetary and Financial Conference.
The primary purpose was to agree on a system of economic order and international cooperation aimed at helping countries recover from war devastation and fostering long-term global growth.
Attendees aimed to establish new rules for the post-WWII international monetary system, which has significantly shaped international trade.
The United States played a leading role, with President Franklin D. Roosevelt advocating that free trade promotes both international prosperity and peace.
The experiences of international leaders during these times led to the conclusion that economic cooperation was essential for achieving peace and prosperity, both domestically and internationally.
The conference was held over three weeks, although preparatory discussions began several years earlier.
Establishment of Key Institutions
International Monetary Fund (IMF)
Created as a forum for consultation and cooperation.
Aimed to contribute to orderly international monetary relations and the expansion of world trade by providing short-term financial assistance to countries facing temporary balance of payments deficits.
Responsible for maintaining and monitoring a system of fixed exchange rates centered around the USD to prevent currency devaluation.
Gold was used as a base for currency pegging until around 1970.
International Bank for Reconstruction and Development (IBRD)
Commonly known as the World Bank, it lends to the governments of middle-income and creditworthy low-income countries.
Over time, the focus of IBRD shifted to developing countries, which required softer borrowing terms than previously offered.
In 1960, the International Development Association (IDA) was established to provide interest-free loans (referred to as credits) and grants to the governments of the poorest countries.
IBRD + IDA together form the World Bank Group.
The International Trade Organization (ITO)
Established plans for an ITO at the Bretton Woods Conference, but issues surrounding international trade were not directly addressed.
Though recognized, the plans laid dormant for some time.
General Agreement on Tariffs and Trade (GATT)
The genesis of GATT began when the United States proposed to the United Nations Economic and Social Committee (UN ECOSOC) in February 1946 to draft a charter for ITO.
In 1947, during the Geneva Conference, three major aspects were focused on:
Continuing the preparation of a charter for the ITO
Negotiating a multilateral agreement to reduce tariffs reciprocally
Drafting the ‘general clauses’ of obligations relating to tariff obligations
Items 2 and 3 collectively formed GATT.
In October 1947, negotiators reached an agreement on the GATT.
Unfortunately, negotiations around the ITO charter failed to yield results, accepting that the charter would require additional time.
Since the GATT was intended to be attached to the ITO Charter, the urgency expressed by the U.S. government led to the decision to bring GATT into immediate force instead of waiting for the ITO.
What is GATT?
GATT is a legal agreement (a treaty) that is multilateral and focuses on promoting international trade.
Established in 1947 and entered into force on January 1, 1948.
The primary purpose of GATT was to liberalize trade by reducing tariffs and quotas among member countries.
Initially signed by 23 countries, including India.
The objectives included:
Enhancing standards of living, ensuring full employment, raising real income, and effective demand.
Developing the full use of global resources while expanding the production and exchange of goods.
Facilitating reciprocal and mutually advantageous arrangements aimed at significant tariff reductions and eliminating discriminatory practices in international commerce.
Post GATT Era (1948-1994)
From 1948 to 1994, GATT established the rules of international trade and was recognized despite being a provisional agreement.
Although an attempt was made to develop the ITO charter in Havana in March 1948, ratification faced overwhelming challenges, particularly in the U.S. Congress, which ultimately led to the ITO ceasing to exist.
The GATT emerged as the sole multilateral instrument governing international trade until the establishment of the WTO.
The GATT's success in promoting trade liberalization is undeniable, with continuous tariff reductions fueling high global trade growth.
During this period, multiple rounds of negotiations (known as trade rounds) took place for additions and refinements to GATT.
Emerging Challenges
New issues arose as world trade evolved, becoming more complex with globalization.
Instances such as services trade were not covered by GATT, drawing increasing interest from various nations, alongside increased international investment in that sector.
Agricultural sectors particularly exploited loopholes in the system, which hindered successful liberalization of agricultural trade.
Concerns also grew regarding GATT's institutional structure and dispute settlement mechanisms.
Due to these factors, GATT members recognized the need for a robust multilateral system, prompting renewed efforts that resulted in the Uruguay Round negotiations.
The Uruguay Round (1986-1994)
Initiated in Punta del Este with participation from 123 countries over a span of seven and a half years, this was the most significant trade negotiation in history.
The Uruguay Round was the biggest reform of the global trading system since GATT.
Significant subjects included:
Tariffs, non-tariff measures, rules, trade in services, intellectual property, dispute settlement, textiles, and agriculture.
The negotiation sessions occurred in multiple locations: Montreal, Washington, Geneva, Brussels, and Tokyo.
The first draft of the final legal agreement, called the draft “Final Act,” was compiled by GATT director-general Arthur Dunkel, who chaired official negotiations.
After extensive post-negotiation discussions, the agreement was signed on April 15, 1994, in Marrakesh, Morocco, referred to as the “Marrakesh Agreement.”
The agreements took effect on January 1, 1995, leading to the WTO replacing GATT as an official international organization.
The WTO Agreement
The agreement that established the WTO is concise, consisting of only eleven pages concerning critical aspects like:
Establishment
Scope
Functions
Structure
Budget and Contributions
Decision Making
Accession
It includes several annexures that delineate specific agreements related to trade.
WTO Agreement Annexures
Annexure 1: Multilateral Agreements on Trade in Goods
ANNEX 1A includes various agreements:
General Agreement on Tariffs and Trade 1994
Agreement on Agriculture
Agreement on the Application of Sanitary and Phytosanitary Measures
Agreement on Textiles and Clothing (terminated January 2005)
Agreement on Technical Barriers to Trade
Agreement on Trade-Related Investment Measures
Agreement on Implementation of Article VI of GATT 1994 – Anti-Dumping and Countervailing Duties
Agreement on Implementation of Article VII of GATT 1994 – Valuations for Customs Purposes
Agreement on Pre-shipment Inspection
Agreement on Rules of Origin
Agreement on Import Licensing Procedures
Agreement on Subsidies and Countervailing Measures
Agreement on Safeguards
ANNEX 1B: General Agreement on Trade in Services (GATS)
ANNEX 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Annexure 2: Understanding on Rules and Procedures Governing the Settlement of Disputes
Annexure 3: Trade Policy Review Mechanism
Annexure 4: Plurilateral Trade Agreements, including agreements on trade in civil aircraft, government procurement, and others that have been terminated (e.g., International Dairy Agreement, International Bovine Meat Agreement) at various points in time.