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Hello aspirants,

Today’s revision capsule of PSIR optional preparation covers International Economic System.There are three 20-markers, four 15-markers, and three 10-markers from this topic in the last 12 years.

International Economic System

From Bretton Woods to the WTO

Origins & Role of the IMF and World Bank (IBRD)

Bretton Woods Conference (July 1944, USA; 44 Allied nations): Designed a post‑WWII international economic order to prevent a return to the competitive devaluations, trade wars, and debt spirals that deepened the Great Depression and fed extremism.

[John Maynard Keynes: “Ideas of economists… are more powerful than is commonly understood.” (This quote signals intellectual ambition of Bretton Woods.)]

Twin outcomes = Bretton Woods Institutions (BWIs):

• IMF: Exchange‑rate stability; short‑term balance‑of‑payments (BoP) finance; macro surveillance.
• World Bank / IBRD: Long‑term reconstruction & development lending to war‑torn / poor economies.

Governance asymmetry / Western dominance:

• IMF quota voting shares tied to economic weight → U.S. ~16.5% vote; major decisions need 85%, giving the U.S. de facto veto.
• Gentleman’s Agreement: IMF Managing Director (always European); World Bank President (always American) since 1946—institutionalised trans‑Atlantic primacy.

Analytical angle: Institutional design encoded the structural power of the post‑war West; agenda‑setting and conditionality reflect that power. (Use Susan Strange: “The sheer mobility of capital has stripped governments of a large part of their power.” Connect with BWI leverage over capital‑scarce South.)

Conditionality & the Sovereignty Trade‑off

From the 1980s debt crisis era onward, both IMF & World Bank loans were tied to policy conditionalities that became the core of what was later labelled the “Washington Consensus.” Typical reform package:

• Fiscal austerity / deficit reduction,
• Currency devaluation & external liberalisation,
• Trade liberalisation & tariff cuts,
• Financial deregulation & capital account opening,
• Privatisation of state enterprises,
• Deregulation & subsidy rationalisation,
• Market pricing of public utilities.

Critiques (Global South):

• Sovereignty erosion: External technocrats dictate domestic policy sequencing.
• Social costs: Cuts to food/ fuel subsidies, wage freezes, user fees in health/education.
• Distributional bias: Opens markets for Western creditors, investors, agribusiness & pharma while shrinking state development space.
• Pro‑cyclicality: Tight austerity during recession deepens contraction.
• One‑size‑fits‑all macro approach- insensitive to institutional capacity.

[Joseph Stiglitz (Globalization and Its Discontents): IMF macro-orthodoxy “one‑size‑fits‑all,” worsened social outcomes; sequencing errors and premature capital account opening contributed to contagion in the 1997 Asian Financial Crisis.]

Representation deficit: Under‑weight voting shares for the Global South compounds legitimacy problems; quota reform slow. Christine Lagarde (2014): “The IMF must adapt or risk becoming less relevant.”

Exam Analysis Angle: Development vs Discipline. Bretton Woods sought monetary stability as a collective good, but conditionality translated that goal into discipline for the weak rather than insurance for the vulnerable. Use to pivot to NIEO demand for voice & fair credit.

World Trade Organization (WTO)

1. GATT (1947): Principles & Limitations

Created in parallel with the IMF/World Bank to lock in trade openness. General Agreement on Tariffs and Trade (GATT) became cornerstone of multilateral trading system through the Cold War.

Core Principles:

• MFN (Most‑Favoured‑Nation) / non‑discrimination among trading partners.
• National Treatment: Imported goods must receive treatment no less favourable than like domestic goods once inside border.

Structural Limits:

• Provisional, not a full IO.
• Weak, easily blocked dispute system.
• Sectoral carve‑outs (agriculture, textiles, garments).
• “Waivers” culture; variable geometry; grey‑area measures (VERs, MFA quotas).

By mid‑1980s: Globalisation of services, IP, and agriculture distortions exposed GATT’s reach gap → Uruguay Round (1986‑94) launched to comprehensively update trade rules.

2. Birth of the WTO (1995)

The WTO replaced the ad‑hoc GATT secretariat with a formal, treaty‑based, member‑driven organisation (HQ Geneva). ~164 members (almost universal coverage).

Institutional Layers:

• Ministerial Conference (supreme authority; ~biennial).
• General Council (regular decision body; also acts as Dispute Settlement Body & Trade Policy Review Body).
• Subsidiary Councils (Goods, Services, TRIPS) + committees (Agriculture, SPS, TBT, etc.).
• Consensus decision norm (de facto; formal voting rarely used).

Agreement Bundle Under One Roof:

1. GATT 1994 (goods; updated & legally bound schedules).
2. GATS (services mode commitments).
3. TRIPS (minimum global IP standards; patents, copyrights, trademarks, enforcement).
4. Agreement on Agriculture (AoA) (market access; export subsidy disciplines; domestic support “boxes”).
5. Plus: SPS, TBT, TRIMS, customs valuation, subsidies & countervailing, safeguards, anti‑dumping, plurilateral codes, etc.

Analytical angle: The WTO judicialised trade (stronger law, weaker unilateralism), universalised coverage (services + IP), and locked in reciprocity through schedules—deep legalization compared to GATT.

3. Dispute Settlement Understanding (DSU) — “Crown Jewel”

Why famous: Replaced diplomatic persuasion with quasi‑judicial, time‑bound, binding enforcement; prevents power politics from wholly dominating trade conflicts.

Steps:

1. Consultations (mandatory cooling‑off).
2. Panel formation if unresolved; fact + law finding under WTO rules.
3. Appellate Body (AB) (legal appeals; 3 members drawn from standing 7; interpret WTO law).
4. Adoption by reverse consensus (report stands unless all oppose—hard to block).
5. Reasonable period to comply.
6. Retaliation / compensation authorised if non‑compliance (suspension of concessions).

Compliance record: Between 1995 and mid‑2010s, hundreds of disputes; even great powers complied in many cases—proof that legalization constrained raw power.

Access by Developing Countries: Roughly 57% of WTO disputes (1995‑2020) involved at least one developing‑country complainant (Brazil vs US Cotton; India vs EU, etc.) → DSU gave legal leverage to the weaker. Major mark‑fetch illustration.

4. Contemporary Challenges to the WTO
5. Resurgent Protectionism & Unilateralism
   U.S. trade war tariffs (Section 232 steel/aluminum; Section 301 China), safeguard surges; mirror responses; “weaponised interdependence.” Even original architect now tests system. Re‑shoring, industrial policy (chips, EVs), security exceptions invoked.
6. Dispute Settlement Crisis (Appellate Body Paralysis)

• AB = 7 members; quorum 3 per case; new appointments need consensus.
• U.S. blocks appointments since 2017 (alleged “judicial overreach”).
• By Dec 2019 quorum lost; last AB term expired 30 Nov 2020 → zero sitting members.
• Parties can now file “appeals into the void.” JustSecurity tracks 25+ such appeals (by 2023); e.g., U.S. auto tariffs case appeal stalled.
• Result: Panel rulings hang unenforced; power politics re‑enters; DSU credibility erodes.

3. Negotiating Stagnation

• Doha Development Round (2001‑ ) deadlocked (agriculture, S&DT).
• “Single Undertaking” fatigue; shift to mega‑regionals (CPTPP, RCEP, USMCA) and plurilaterals/JSIs (e‑commerce, services domestic regulation). Risks fragmented rulebook (“spaghetti‑bowl 2.0”).

4. Fisheries Subsidies Negotiations

• 20+ years; overfishing & IUU crisis.
• June 2022 partial deal: bans subsidies supporting IUU fishing; enforcement frameworks.
• Unresolved: overcapacity, fuel subsidies, discards.
• India & South Africa push artisanal exemptions; India asks 25‑yr transition for developing fisher support; argues historical responsibility of developed subsidisers. Deadlock slows comprehensive agreement.

5. India’s Development Coalitions & Policy Space Agenda

• Special & Differential Treatment (S&DT) for developing countries.
• Public Food Stockholding shield pressed at Bali 2013 → Peace Clause to protect food security programs from subsidy litigation.
• TRIPS Waiver (COVID) with South Africa in response to vaccine inequity (Africa <2% of 5.7B early doses 2021).
• G‑33 coalition on agriculture; broader Global South caucusing.
• Western media: “spoiler”; India’s counter‑narrative: defending subsistence farmers, food security, and development sequencing—reforming, not abandoning WTO.

6. Structural Equity Gaps Feeding Disillusion

• Trade & Poverty: Global merchandise trade ~×5 since 1990; extreme poverty ~38% → ~10% (World Bank series; cited in Cato summary). Shows globalization upside (esp. Asia) but…
• LDC marginalisation: LDCs ~0.91% world exports (2022; ~0.5% excl. oil); poorest still excluded; capacity & preference erosion; marks case for S&DT + Aid‑for‑Trade.
• Tax base erosion: Profit‑shifting drains $100‑200B/yr from developing budgets; need for global minimum tax / UN tax role.
• Climate finance gap: Need $2.4T/yr by 2030 vs ~$80B delivered 2020; places trade, IP, and finance justice on one agenda.
• External debt distress: ~60% low‑income countries high risk/in distress (IMF 2022); Common Framework progress minimal.

5. Conclusion on the WTO

Despite gridlock, the WTO remains irreplaceable for transparency, notification, dispute norms, and a universal legal roof linking goods, services, and IP. Pandemic TRIPS flex debates and the fisheries outcome show it can still deliver incremental public goods. Yet centrality at risk from AB paralysis + mega‑regional bypass.

Reform priorities: Restore enforceable dispute system; deliver development gains (food security, fisheries equity, digital divide support); reconcile industrial policy & climate policies with WTO rules.

Ngozi Okonjo‑Iweala (2021): “WTO rules have to deliver for people—development must be central.”
India’s stance: Reform, don’t exit. Institutions must serve development, not only the West.

2. Council for Mutual Economic Assistance (CMEA / Comecon)

Founded 1949 by the Soviet Union and East European socialist allies—Cold War economic counter‑bloc to U.S.-led Marshall Plan + Bretton Woods order.

Institutional form: Loose coordinating forum; far less supranational than the BWIs or later EU. Heavy bilateralism: USSR‑individual satellite deals dominated flows.

Economic logic of a planned bloc:

• Deliberate production specialisation (e.g., heavy machinery in one state; chemicals in another).
• Administrative prices and non‑market clearing exchange; often denominated in transferable rubles / clearing arrangements.
• Direct transfers & subsidies from USSR (esp. cheap energy) in lieu of market financing.
• Trade flows driven by political allocation, not comparative advantage signals.

Key contrasts vs Bretton Woods capitalist system:

Limitations & stresses:

• Price distortions masked inefficiency; soft budget constraints.
• Technological lag vs West; consumer shortages.
• Small members wary of Soviet over‑reach; lacked binding supranational enforcement.

Collapse:

• Marshall Plan vs Comecon divergence widened over decades.
• 1989 revolutions; market transition; Soviet fiscal squeeze; bloc unravelled.
• Formal dissolution 1991.

Aftermath & analytic lesson:

• Ex‑Comecon states joined IMF/World Bank, later WTO; embraced market reforms.
• Demonstrated higher adaptive capacity of mixed / market systems vs rigid central planning.
• India’s 1991 liberalisation unfolded as the Soviet model failed—policy learning moment across the developing world.

3. The New International Economic Order (NIEO)

Definition: A collective project of developing / Third World states to dismantle economic colonialism / dependency and restructure rules of trade, finance, technology, and sovereignty. Claims the existing order is neo‑colonial: wealth and decision power flow North; poverty & vulnerability persist in South.

3A. History of NIEO

Late 1960s‑1970s: Newly independent African & Asian states confront the development gap—political decolonisation without economic transformation. Commodity dependence + import of high‑priced manufactures widen North–South divide.

1964: Establishment of United Nations Conference on Trade and Development (UNCTAD); formation of Group of 77 (G‑77) as developing‑country caucus.

1960s UNCTAD Rounds: Persistent complaints: deteriorating commodity terms, tariff escalation against processed goods, MNC dominance, aid conditionality.

1974 UNGA Special Session: Adoption of the Declaration on the Establishment of a New International Economic Order + Programme of Action (G‑77 led). Slogan crystallised: “Trade not Aid.”

2018 UNGA Resolution “Towards a New International Economic Order”: Reiterates unfinished structural inequities; keeps NIEO alive as normative banner.

3B. The Need for NIEO (Problem Diagnostics)

Shared structural burdens across the Global South:

• High population growth, unemployment, poverty, illiteracy, and political instability.
• Colonial era resource drain & extractive institutions produced under‑development legacies.
• Export basket skew: primary commodities/raw materials exported; manufactures/technology imported at high cost → income gap widens.
• Post‑colonial trade patterns remain skewed in favour of developed markets; tariff escalation blocks value addition in South.
• Globalisation deepens interdependence but locks hierarchy: finance, technology, and standards controlled by North.
• Perception of WTO capture: Rules used by developed states to pry open markets; IP rules (TRIPS) tighten technology access; farm subsidy asymmetries.

Quantitative disparities (mark fetchers):

• Global South ~88% world population but ~42% global GDP.
• LDCs ~0.91% world exports (2022; ~0.5% excl. oil) — negligible integration despite preference schemes.
• Commodity dependence: 45/55 African states rely on only 2‑3 commodities for >60% export earnings; price crashes (oil −50% 2014‑16) trigger fiscal collapses.
• External debt distress: ~60% low‑income countries at high risk / in distress (IMF 2022); Common Framework processed ~1 full case.
• Climate finance gap: Need $2.4T/yr by 2030; only ~$80B delivered in 2020—no green transition without redistribution.
• Tax avoidance losses: $100‑200B/yr lost to profit shifting; Northern MNC transfer pricing drains fiscal space.
• COVID vaccine inequity: Africa <2% of first 5.7B doses (2021) → triggered India/South Africa TRIPS waiver mobilisation; emblematic of technology access injustice.

Antonio Guterres (2022): “The global financial system is morally bankrupt – designed by rich for rich.”
Nelson Mandela: “Overcoming poverty is not a gesture of charity, it is an act of justice.”

Analytical Frame: Structural inequality + volatility + external constraint = development trap. NIEO = project of global distributive justice + policy space recovery.

3C. NIEO Reform Agenda (try to Memorise This List)

Economic Self‑Determination Principles: End economic subordination as political colonialism ended.

Key Demands:

• Sovereign equality & non‑interference as operative, not decorative, norms.
• Permanent sovereignty over natural resources (nationalisation legitimacy; renegotiable contracts).
• Fair / stable terms of trade for raw materials; commodity agreements; price stabilisation funds; indexation to manufactures.
• South‑South cooperation for collective bargaining clout (cartels, producer groups, preferential pacts).
• International Codes of Conduct on Multinational Corporations (local content, profit‑sharing, technology transfer, taxation).
• Technology access at affordable cost; IP relaxation; tech cooperation (today’s issues: TRIPS waiver; digital public goods).
• Development‑friendly financial reform: Greater Global South voting share in IMF/World Bank; concessional long‑term development finance; fairer credit; SDR redistribution; debt restructuring.
• Special & Differential Treatment (S&DT) in trade—longer phase‑ins, higher subsidy ceilings, safeguards for food security & livelihoods.
• Collective & individual autonomy: Strengthen regional banks; pooled reserves; preferential trade arrangements; commodity funds.
• Guiding values: Sovereign equality, interdependence, common interest, cooperation.

UNCTAD banner phrase: “Trade not Aid.” (Systemic change > charity transfers.)

Analytical lens: NIEO asks high‑income states to cede relative advantage → distributional politics at system level; explains why adoption in UNGA (majority) never fully implemented in weighted IFIs.

3D. India and the NIEO

India = lead architect & persistent champion of NIEO themes; reflects civilisational ethic Vasudhaiva Kutumbakam (“the world is one family”).

Roles:

1. NAM leadership: Economic decolonisation central to NAM agendas; India foregrounded 3rd‑world economic issues in multilateral diplomacy.
2. UNCTAD midwife (1964): India instrumental in establishing the platform for Global South trade/finance bargaining.
3. GATT amendments: India lobbied for development flexibilities—import restrictions, infant‑industry protection, export promotion.
4. WTO Development Agenda activism:

• S&DT
• Public Food Stockholding (Bali 2013 Peace Clause) to protect food security subsidies.
• Coalitional diplomacy: G‑33 (agri), alliances with South Africa & others on TRIPS waiver for medicines/vaccines.
• Fisheries negotiations: 25‑year transition demand; artisanal fisher exemption; historical responsibility argument.

1. Narrative leadership: Narendra Modi (2023): “India is the voice of the Global South; when India speaks, the world listens.”

Important pointer: Present India as bridge actor—reformist multilateralist: India’s emphasis –change the rules, don’t quit the system.

New Development Finance Ecologies: Beyond Bretton Woods (Context for NIEO 2.0)

(Use these data points to show institutional diversification & South agency.)

Connect to NIEO: New lenders dilute conditionality monopoly of BWIs; broaden bargaining space; support green transition; complement climate finance gap.

3E. Scholars’ / Leaders’ Perspectives)

4. Data bank for Substantiation (try to use it in PSIR ATS questions itself)

• Global trade growth & poverty: Merchandise trade ~×5 since 1990; global extreme poverty ~38% → ~10%. Shows potential inclusive gains under stability & openness but not automatic; distribution matters.
• DSU access: ~57% WTO disputes (1995‑2020) involve ≥1 developing complainant—legal avenue for weaker states.
• AB void: 25+ appeals “into the void” (as of 2023); e.g., U.S. auto tariff appeal; enforcement freeze.
• LDC exports: 0.91% of world exports (2022); ~0.5% excl. oil—marginalisation persists.
• NDB lending: ~$30B for ~80 projects (66% renewable/transport) by 2022—South finance scaling.
• AIIB vs ADB: AIIB ~$35B in first 5 yrs (mostly co‑financed); ADB (50+ yrs old) ~$24B annual—underscores infrastructure finance gap.
• Climate finance need vs flow: $2.4T/yr required (to 2030) vs ~$80B delivered 2020.
• Debt distress: 60% low‑income at high risk/in distress (IMF 2022); Common Framework slow (1 full case).
• Vaccine inequity: Africa <2% of first 5.7B COVID doses → triggered India/SA TRIPS waiver.
• Tax losses: $100‑200B/yr developing‑country revenue lost to profit shifting.
• Commodity dependence: 45/55 African economies >60% exports in 2‑3 commodities; price swings devastate fiscal capacity (oil price halved 2014‑16 case).

5. Tables important for Answers (Cause → Consequence → Concept)

Use these mini tables to write analytical paragraphs.

1. BWIs: Stability vs Sovereignty

1. WTO: Legalisation vs Power Return

1. Comecon vs Bretton Woods

Scholars Index;

Samir Amin | Antonio Guterres | John Maynard Keynes | Christine Lagarde | Nelson Mandela | Narendra Modi | Jawaharlal Nehru | Ngozi Okonjo-Iweala | Dani Rodrik | Amartya Sen | Joseph Stiglitz | Susan Strange | Robert Zoellick

Practice Questions

Question 1 Sketch the journey of global political economy from Washington Consensus to the present. [2013/10 m]

Question 2. The return of trade barriers and economic sanctions has diminished the spirit of GATT. In this context, discuss the factors contributing to the decline of WTO in recent times.? [2024/15 m]

Question 3. Explain the significance and importance of the demand raised by the developing countries for a New International Economic Order (NIEO). Are they likely to achieve their objectives of NIEO in foreseeable future? [2020/15m]

📌 Model answers available on the Telegram channel: https://t.me/psirbyamitpratap – keep notifications on.

See you tomorrow on Day 35. Keep practicing!

—Amit Pratap Singh & Team

A quick note on submissions of copies and mentorship

• 2025 Mains writers: Cohort 4 of ATS starts on 27th July. The above practice set will serve as your revision tool, just do not miss booking your mentorship sessions for personalised feedback especially for starting tests. Come with your evaluated test copies.
• 2026 Mains writers – Cohort 4 of PSIR O-AWFG & ATS starts on 24^th July 2025. keep uploading through your usual dashboard. Act on the feedback and improve consistently.
• Alternate between mini-tests (O-AWFG) and full mocks (ATS) has been designed to tackle speed, content depth, and structured revision—line-by-line evaluation pinpoints your weaknesses and errors. Follow your PSIR O-AWFG & ATS schedule and use the model answers to enrich your content, as rankers recommended based on their own success.