GATT Principles and the Evolution of the Global Monetary System

GATT: Characteristics

• Provisional: Born with the hope of ratifying the Havana Charter.
• Flexibility: The agreement has adapted to circumstances and trade problems at every moment.
• Pragmatism: A trade agreement where rules are interpreted with ease. Parties have reached negotiated solutions, avoiding the politicization of conflicts.
• Limits: A legal instrument agreed upon between sovereign States.

GATT: Principles

• Most-Favored-Nation (MFN): Every member must treat every other member as it treats its most-favored trading partner.
• Equal Treatment: Imports are given similar treatment in the domestic market as domestically produced goods. This principle prevents counteracting the benefits of the MFN principle.
• General and Progressive Reduction of Tariffs: Carried out on a reciprocal basis through three techniques: product-by-product negotiation, lineal reduction, and harmonization of rights applied in different States.

Topic 5: International Monetary Fund (IMF)

Origins of the Gold Standard

• The gold standard originated from the use of gold coins as a medium of exchange, unit of account, and store of value.
• External balance was maintained under the gold standard.
• Many governments adopted a laissez-faire attitude toward the current account.

Bretton Woods (1944–1973)

• 44 countries met in 1944 to design a new system.
• Established:
  • IMF: To maintain order in the monetary system.
  • World Bank: To promote general economic development.
  • Fixed exchange rates: Pegged to the US Dollar.
  • US Dollar: Pegged to gold at $35 per ounce.
  • Currency bands: Countries maintained their currencies within ± 1% of the fixed rate by buying and selling currency to maintain the level.

The Post-Bretton Woods Era

The devaluation of the dollar in relation to gold between 1971 and 1973 signified the breaking of agreements, leading to:

• The creation of financial resources in excess of the rate of growth of international trade.
• Displacement of capital flows toward emerging markets.
• Chronic financial crises.
• Drastic changes in national financial markets.
• Accumulation of reserves in emerging economies.