{"id":343087,"date":"2025-07-18T20:52:45","date_gmt":"2025-07-18T15:22:45","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=343087"},"modified":"2025-07-19T09:29:26","modified_gmt":"2025-07-19T03:59:26","slug":"psir-power-50-day-34-capsule-international-economic-system-practice-qs","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/psir-power-50-day-34-capsule-international-economic-system-practice-qs\/","title":{"rendered":"PSIR Power 50 \u2013 Day 34 Capsule: International Economic System + Practice Qs"},"content":{"rendered":"

Download PDF<\/a><\/p>\n

Hello aspirants,<\/p>\n

 <\/p>\n

Today\u2019s revision capsule of PSIR optional preparation covers International Economic System<\/strong>.<\/strong>There are three 20-markers, four 15-markers, and three 10-markers<\/strong> from this topic in the last 12 years.<\/p>\n

\u00a0<\/strong><\/p>\n

International Economic System <\/u><\/strong><\/h1>\n

 <\/p>\n

From Bretton Woods to the WTO<\/u><\/strong><\/p>\n

 <\/p>\n

Origins & Role of the IMF and World Bank (IBRD)<\/strong><\/p>\n

Bretton Woods Conference (July 1944, USA; 44 Allied nations):<\/strong> Designed a post\u2011WWII international economic order<\/em> to prevent a return to the competitive devaluations, trade wars, and debt spirals that deepened the Great Depression and fed extremism.<\/p>\n

[John Maynard Keynes:<\/strong> \u201cIdeas of economists\u2026 are more powerful than is commonly understood.\u201d (This quote signals intellectual ambition of Bretton Woods.<\/em>)]<\/strong><\/p>\n

Twin outcomes = Bretton Woods Institutions (BWIs):<\/strong><\/p>\n

    \n
  • IMF:<\/strong> Exchange\u2011rate stability; short\u2011term balance\u2011of\u2011payments<\/em> (BoP) finance; macro surveillance.<\/li>\n
  • World Bank \/ IBRD:<\/strong> Long\u2011term reconstruction & development<\/em> lending to war\u2011torn \/ poor economies.<\/li>\n<\/ul>\n

    Governance asymmetry \/ Western dominance:<\/strong><\/p>\n

      \n
    • IMF quota voting shares tied to economic weight<\/strong> \u2192 U.S. ~16.5%<\/strong> vote; major decisions need 85%<\/em>, giving the U.S. de facto veto.<\/em><\/li>\n
    • Gentleman\u2019s Agreement:<\/strong> IMF Managing Director (always European); World Bank President (always American) since 1946\u2014institutionalised trans\u2011Atlantic primacy.<\/em><\/li>\n<\/ul>\n

      Analytical angle:<\/strong> Institutional design encoded the structural power<\/em> of the post\u2011war West; agenda\u2011setting and conditionality reflect that power. (Use Susan Strange<\/strong>: \u201cThe sheer mobility of capital has stripped governments of a large part of their power.\u201d<\/em> Connect with BWI leverage over capital\u2011scarce South.)<\/p>\n

       <\/p>\n

      Conditionality & the Sovereignty Trade\u2011off<\/strong><\/p>\n

      From the 1980s debt crisis era onward<\/strong>, both IMF & World Bank loans were tied to policy conditionalities<\/strong> that became the core of what was later labelled the \u201cWashington Consensus.\u201d<\/strong> Typical reform package:<\/p>\n

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

        Critiques (Global South):<\/strong><\/p>\n

          \n
        • Sovereignty erosion:<\/strong> External technocrats dictate domestic policy sequencing.<\/li>\n
        • Social costs:<\/strong> Cuts to food\/ fuel subsidies, wage freezes, user fees in health\/education.<\/li>\n
        • Distributional bias:<\/strong> Opens markets for Western creditors, investors, agribusiness & pharma while shrinking state development space.<\/li>\n
        • Pro\u2011cyclicality:<\/strong> Tight austerity during recession deepens contraction.<\/li>\n
        • One\u2011size\u2011fits\u2011all macro approach-<\/strong> insensitive to institutional capacity.<\/li>\n<\/ul>\n

          [Joseph Stiglitz<\/strong> (Globalization and Its Discontents<\/em>): IMF macro-orthodoxy \u201cone\u2011size\u2011fits\u2011all,\u201d worsened social outcomes; sequencing errors and premature capital account opening contributed to contagion in the 1997 Asian Financial Crisis.]<\/strong><\/p>\n

          Representation deficit:<\/strong> Under\u2011weight voting shares for the Global South compounds legitimacy problems; quota reform slow. Christine Lagarde (2014):<\/strong> \u201cThe IMF must adapt or risk becoming less relevant.\u201d<\/p>\n

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

           <\/p>\n

          World Trade Organization (WTO)<\/strong><\/p>\n

           <\/p>\n

            \n
          1. GATT (1947): Principles & Limitations<\/strong><\/li>\n<\/ol>\n

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

            Core Principles:<\/strong><\/p>\n

              \n
            • MFN (Most\u2011Favoured\u2011Nation) \/ non\u2011discrimination<\/strong> among trading partners.<\/li>\n
            • National Treatment:<\/strong> Imported goods must receive treatment no less favourable than like domestic goods once inside border.<\/li>\n<\/ul>\n

              Structural Limits:<\/strong><\/p>\n

                \n
              • Provisional<\/em>, not a full IO.<\/li>\n
              • Weak, easily blocked dispute system.<\/li>\n
              • Sectoral carve\u2011outs (agriculture, textiles, garments).<\/li>\n
              • \u201cWaivers\u201d culture; variable geometry; grey\u2011area measures (VERs, MFA quotas).<\/li>\n<\/ul>\n

                By mid\u20111980s:<\/strong> Globalisation of services, IP, and agriculture distortions exposed GATT\u2019s reach gap \u2192 Uruguay Round (1986\u201194)<\/strong> launched to comprehensively update trade rules.<\/p>\n

                 <\/p>\n

                  \n
                1. Birth of the WTO (1995)<\/strong><\/li>\n<\/ol>\n

                  The WTO<\/strong> replaced the ad\u2011hoc GATT secretariat with a formal, treaty\u2011based, member\u2011driven organisation<\/strong> (HQ Geneva). ~164 members (almost universal coverage).<\/strong><\/p>\n

                  Institutional Layers:<\/strong><\/p>\n

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

                    Agreement Bundle Under One Roof:<\/strong><\/p>\n

                      \n
                    1. GATT 1994<\/strong> (goods; updated & legally bound schedules).<\/li>\n
                    2. GATS<\/strong> (services mode commitments).<\/li>\n
                    3. TRIPS<\/strong> (minimum global IP standards; patents, copyrights, trademarks, enforcement).<\/li>\n
                    4. Agreement on Agriculture (AoA)<\/strong> (market access; export subsidy disciplines; domestic support \u201cboxes\u201d).<\/li>\n
                    5. Plus: SPS<\/strong>, TBT<\/strong>, TRIMS<\/strong>, customs valuation, subsidies & countervailing, safeguards, anti\u2011dumping, plurilateral codes, etc.<\/li>\n<\/ol>\n

                      Analytical angle:<\/strong> The WTO judicialised<\/strong> trade (stronger law, weaker unilateralism), universalised<\/strong> coverage (services + IP), and locked in reciprocity<\/strong> through schedules\u2014deep legalization<\/em> compared to GATT.<\/p>\n

                       <\/p>\n

                        \n
                      1. Dispute Settlement Understanding (DSU) \u2014 \u201cCrown Jewel\u201d<\/strong><\/li>\n<\/ol>\n

                        Why famous:<\/strong> Replaced diplomatic persuasion with quasi\u2011judicial, time\u2011bound, binding<\/em> enforcement; prevents power politics from wholly dominating trade conflicts.<\/p>\n

                        Steps:<\/strong><\/p>\n

                          \n
                        1. Consultations<\/strong> (mandatory cooling\u2011off).<\/li>\n
                        2. Panel formation<\/strong> if unresolved; fact + law finding under WTO rules.<\/li>\n
                        3. Appellate Body (AB)<\/strong> (legal appeals; 3 members drawn from standing 7; interpret WTO law).<\/li>\n
                        4. Adoption<\/strong> by reverse consensus<\/em> (report stands unless all<\/em> oppose\u2014hard to block).<\/li>\n
                        5. Reasonable period<\/strong> to comply.<\/li>\n
                        6. Retaliation \/ compensation<\/strong> authorised if non\u2011compliance (suspension of concessions).<\/li>\n<\/ol>\n

                          Compliance record:<\/strong> Between 1995 and mid\u20112010s, hundreds<\/em> of disputes; even great powers complied<\/em> in many cases\u2014proof that legalization constrained raw power.<\/p>\n

                          Access by Developing Countries:<\/strong> Roughly 57% of WTO disputes (1995\u20112020) involved at least one developing\u2011country complainant<\/strong> (Brazil vs US Cotton; India vs EU, etc.) \u2192 DSU gave legal leverage to the weaker.<\/em> Major mark\u2011fetch illustration.<\/p>\n

                           <\/p>\n

                            \n
                          1. Contemporary Challenges to the WTO<\/strong><\/li>\n
                          2. Resurgent Protectionism & Unilateralism<\/strong>
                            \nU.S. trade war tariffs (Section 232 steel\/aluminum; Section 301 China), safeguard surges; mirror responses; \u201cweaponised interdependence.\u201d Even original architect now tests system. Re\u2011shoring, industrial policy (chips, EVs), security exceptions invoked.<\/li>\n
                          3. Dispute Settlement Crisis (Appellate Body Paralysis)<\/strong><\/li>\n<\/ol>\n
                              \n
                            • AB = 7 members; quorum 3 per case; new appointments need consensus.<\/li>\n
                            • U.S. blocks appointments since 2017<\/strong> (alleged \u201cjudicial overreach\u201d).<\/li>\n
                            • By Dec 2019<\/strong> quorum lost; last AB term expired 30 Nov 2020 <\/strong>\u2192<\/strong> zero sitting members.<\/strong><\/li>\n
                            • Parties can now file \u201cappeals into the void.\u201d<\/strong> JustSecurity<\/em> tracks 25+ such appeals (by 2023)<\/strong>; e.g., U.S. auto tariffs case appeal stalled.<\/li>\n
                            • Result: Panel rulings hang unenforced; power politics re\u2011enters; DSU credibility erodes.<\/li>\n<\/ul>\n
                                \n
                              1. Negotiating Stagnation<\/strong><\/li>\n<\/ol>\n
                                  \n
                                • Doha Development Round (2001\u2011 )<\/strong> deadlocked (agriculture, S&DT).<\/li>\n
                                • \u201cSingle Undertaking\u201d fatigue; shift to mega\u2011regionals<\/strong> (CPTPP, RCEP, USMCA) and plurilaterals\/JSIs<\/strong> (e\u2011commerce, services domestic regulation). Risks fragmented<\/em> rulebook (\u201cspaghetti\u2011bowl 2.0\u201d).<\/li>\n<\/ul>\n
                                    \n
                                  1. Fisheries Subsidies Negotiations<\/strong><\/li>\n<\/ol>\n
                                      \n
                                    • 20+ years; overfishing & IUU crisis.<\/li>\n
                                    • June 2022 partial deal:<\/strong> bans subsidies supporting IUU fishing<\/em>; enforcement frameworks.<\/li>\n
                                    • Unresolved:<\/em> overcapacity, fuel subsidies, discards.<\/li>\n
                                    • India & South Africa<\/strong> push artisanal exemptions<\/em>; India asks 25\u2011yr transition<\/strong> for developing fisher support; argues historical responsibility of developed subsidisers. Deadlock slows comprehensive agreement.<\/li>\n<\/ul>\n
                                        \n
                                      1. India\u2019s Development Coalitions & Policy Space Agenda<\/strong><\/li>\n<\/ol>\n
                                          \n
                                        • Special & Differential Treatment (S&DT)<\/strong> for developing countries.<\/li>\n
                                        • Public Food Stockholding<\/strong> shield pressed at Bali 2013<\/strong> \u2192 Peace Clause to protect food security programs from subsidy litigation.<\/li>\n
                                        • TRIPS Waiver (COVID)<\/strong> with South Africa in response to vaccine inequity (Africa <2% of 5.7B early doses 2021).<\/li>\n
                                        • G\u201133<\/strong> coalition on agriculture; broader Global South caucusing.<\/li>\n
                                        • Western media: \u201cspoiler\u201d; India\u2019s counter\u2011narrative:<\/strong> defending subsistence farmers, food security, and development sequencing\u2014reforming, not abandoning<\/em> WTO.<\/li>\n<\/ul>\n
                                            \n
                                          1. Structural Equity Gaps Feeding Disillusion<\/strong><\/li>\n<\/ol>\n
                                              \n
                                            • Trade & Poverty:<\/strong> Global merchandise trade ~\u00d75 since 1990; extreme poverty ~38% \u2192 ~10% (World Bank series; cited in Cato summary). Shows globalization upside (esp. Asia) but<\/em>\u2026<\/li>\n
                                            • LDC marginalisation:<\/strong> LDCs ~0.91% world exports (2022; ~0.5% excl. oil)<\/strong>; poorest still excluded; capacity & preference erosion; marks case for S&DT + Aid\u2011for\u2011Trade.<\/li>\n
                                            • Tax base erosion:<\/strong> Profit\u2011shifting drains $100\u2011200B\/yr<\/strong> from developing budgets; need for global minimum tax \/ UN tax role.<\/li>\n
                                            • Climate finance gap:<\/strong> Need $2.4T\/yr by 2030<\/strong> vs ~$80B delivered 2020; places trade, IP, and finance justice on one agenda.<\/li>\n
                                            • External debt distress:<\/strong> ~60% low\u2011income countries high risk\/in distress (IMF 2022); Common Framework progress minimal.<\/li>\n<\/ul>\n

                                               <\/p>\n

                                                \n
                                              1. Conclusion on the WTO<\/strong><\/li>\n<\/ol>\n

                                                Despite gridlock, the WTO remains irreplaceable<\/strong> 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<\/em> public goods. Yet centrality at risk<\/strong> from AB paralysis + mega\u2011regional bypass.<\/p>\n

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

                                                Ngozi Okonjo\u2011Iweala (2021):<\/strong> \u201cWTO rules have to deliver for people\u2014development must be central.\u201d
                                                \nIndia\u2019s stance:<\/strong> Reform, don\u2019t exit.<\/em> Institutions must serve development, not only the West.<\/p>\n

                                                 <\/p>\n

                                                  \n
                                                1. Council for Mutual Economic Assistance (CMEA \/ Comecon)<\/strong><\/li>\n<\/ol>\n

                                                  Founded 1949<\/strong> by the Soviet Union<\/strong> and East European socialist allies\u2014Cold War economic counter\u2011bloc<\/em> to U.S.-led Marshall Plan + Bretton Woods order.<\/p>\n

                                                  Institutional form:<\/strong> Loose coordinating forum<\/em>; far less supranational<\/strong> than the BWIs or later EU. Heavy bilateralism<\/strong>: USSR\u2011individual satellite deals dominated flows.<\/p>\n

                                                  Economic logic of a planned bloc:<\/strong><\/p>\n

                                                    \n
                                                  • Deliberate production specialisation<\/strong> (e.g., heavy machinery in one state; chemicals in another).<\/li>\n
                                                  • Administrative prices<\/strong> and non\u2011market clearing<\/em> exchange; often denominated in transferable rubles \/ clearing arrangements.<\/li>\n
                                                  • Direct transfers & subsidies<\/strong> from USSR (esp. cheap energy) in lieu of market financing.<\/li>\n
                                                  • Trade flows driven by political allocation<\/strong>, not comparative advantage signals.<\/li>\n<\/ul>\n

                                                    Key contrasts vs Bretton Woods capitalist system:<\/strong><\/p>\n\n\n\n\n\n\n\n\n
                                                    Dimension<\/strong><\/td>\nBretton Woods (IMF\/WB)<\/strong><\/td>\nComecon<\/strong><\/td>\n<\/tr>\n
                                                    Price mechanism<\/td>\nMarket\u2011linked (managed)<\/td>\nAdministered prices<\/td>\n<\/tr>\n
                                                    Finance<\/td>\nConditional loans<\/td>\nSubsidised transfers<\/td>\n<\/tr>\n
                                                    Governance<\/td>\nWeighted voting (U.S. veto)<\/td>\nSoviet dominance via bilateral leverage<\/td>\n<\/tr>\n
                                                    Reach<\/td>\nGlobal (eventually universal)<\/td>\nClosed socialist bloc<\/td>\n<\/tr>\n
                                                    Adjustment<\/td>\nDevaluation + reforms<\/td>\nPlan re\u2011targets; chronic imbalances<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

                                                    Limitations & stresses:<\/strong><\/p>\n

                                                      \n
                                                    • Price distortions masked inefficiency; soft budget constraints.<\/li>\n
                                                    • Technological lag vs West; consumer shortages.<\/li>\n
                                                    • Small members wary of Soviet over\u2011reach; lacked binding supranational enforcement.<\/li>\n<\/ul>\n

                                                      Collapse:<\/strong><\/p>\n

                                                        \n
                                                      • Marshall Plan vs Comecon divergence<\/strong> widened over decades.<\/li>\n
                                                      • 1989 revolutions; market transition; Soviet fiscal squeeze; bloc unravelled.<\/li>\n
                                                      • Formal dissolution 1991.<\/strong><\/li>\n<\/ul>\n

                                                        Aftermath & analytic lesson:<\/strong><\/p>\n

                                                          \n
                                                        • Ex\u2011Comecon states joined IMF\/World Bank<\/strong>, later WTO<\/strong>; embraced market reforms.<\/li>\n
                                                        • Demonstrated higher adaptive capacity<\/em> of mixed \/ market systems vs rigid central planning.<\/li>\n
                                                        • India\u2019s 1991 liberalisation<\/strong> unfolded as the Soviet model failed\u2014policy learning moment across the developing world.<\/li>\n<\/ul>\n

                                                           <\/p>\n

                                                            \n
                                                          1. The New International Economic Order (NIEO)<\/strong><\/li>\n<\/ol>\n

                                                            Definition:<\/strong> A collective project of developing \/ Third World states<\/em> to dismantle economic colonialism \/ dependency<\/strong> and restructure rules of trade, finance, technology, and sovereignty. Claims the existing order is neo\u2011colonial<\/strong>: wealth and decision power flow North; poverty & vulnerability persist in South.<\/p>\n

                                                             <\/p>\n

                                                            3A. History of NIEO<\/strong><\/p>\n

                                                            Late 1960s\u20111970s:<\/strong> Newly independent African & Asian states confront the development gap<\/em>\u2014political decolonisation without economic transformation. Commodity dependence + import of high\u2011priced manufactures widen North\u2013South divide.<\/p>\n

                                                            1964:<\/strong> Establishment of United Nations Conference on Trade and Development (UNCTAD)<\/strong>; formation of Group of 77 (G\u201177)<\/strong> as developing\u2011country caucus.<\/p>\n

                                                            1960s UNCTAD Rounds:<\/strong> Persistent complaints: deteriorating commodity terms, tariff escalation against processed goods, MNC dominance, aid conditionality.<\/p>\n

                                                            1974 UNGA Special Session:<\/strong> Adoption of the Declaration on the Establishment of a New International Economic Order<\/strong> + Programme of Action<\/strong> (G\u201177 led). Slogan crystallised: \u201cTrade not Aid.\u201d<\/strong><\/p>\n

                                                            2018 UNGA Resolution \u201cTowards a New International Economic Order\u201d:<\/strong> Reiterates unfinished structural inequities; keeps NIEO alive as normative banner.<\/p>\n

                                                             <\/p>\n

                                                            3B. The Need for NIEO (Problem Diagnostics)<\/strong><\/p>\n

                                                            Shared structural burdens across the Global South:<\/strong><\/p>\n

                                                              \n
                                                            • High population growth, unemployment, poverty, illiteracy, and political instability.<\/li>\n
                                                            • Colonial era resource drain<\/strong> & extractive institutions produced under\u2011development legacies.<\/li>\n
                                                            • Export basket skew: primary commodities\/raw materials<\/strong> exported; manufactures\/technology<\/strong> imported at high cost \u2192 income gap widens.<\/li>\n
                                                            • Post\u2011colonial trade patterns<\/strong> remain skewed in favour of developed markets; tariff escalation blocks value addition in South.<\/li>\n
                                                            • Globalisation deepens interdependence<\/strong> but locks hierarchy: finance, technology, and standards controlled by North.<\/li>\n
                                                            • Perception of WTO capture:<\/strong> Rules used by developed states to pry open markets; IP rules (TRIPS) tighten technology access; farm subsidy asymmetries.<\/li>\n<\/ul>\n

                                                              Quantitative disparities (mark fetchers):<\/strong><\/p>\n

                                                                \n
                                                              • Global South ~88% world population<\/strong> but ~42% global GDP.<\/strong><\/li>\n
                                                              • LDCs ~0.91% world exports (2022; ~0.5% excl. oil)<\/strong> \u2014 negligible integration despite preference schemes.<\/li>\n
                                                              • Commodity dependence:<\/strong> 45\/55 African states rely on only 2\u20113 commodities for >60% export earnings; price crashes (oil \u221250% 2014\u201116) trigger fiscal collapses.<\/li>\n
                                                              • External debt distress:<\/strong> ~60% low\u2011income countries at high risk \/ in distress (IMF 2022); Common Framework processed ~1 full case.<\/li>\n
                                                              • Climate finance gap:<\/strong> Need $2.4T\/yr by 2030<\/strong>; only ~$80B delivered in 2020\u2014no green transition without redistribution.<\/li>\n
                                                              • Tax avoidance losses:<\/strong> $100\u2011200B\/yr lost to profit shifting; Northern MNC transfer pricing drains fiscal space.<\/li>\n
                                                              • COVID vaccine inequity:<\/strong> Africa <2% of first 5.7B doses (2021) \u2192 triggered India\/South Africa TRIPS waiver<\/strong> mobilisation; emblematic of technology access injustice.<\/li>\n<\/ul>\n

                                                                Antonio Guterres (2022):<\/strong> \u201cThe global financial system is morally bankrupt \u2013 designed by rich for rich.\u201d
                                                                \nNelson Mandela:<\/strong> \u201cOvercoming poverty is not a gesture of charity, it is an act of justice.\u201d<\/p>\n

                                                                Analytical Frame:<\/strong> Structural inequality + volatility + external constraint<\/em> = development trap. NIEO = project of global distributive justice + policy space recovery.<\/strong><\/p>\n

                                                                 <\/p>\n

                                                                3C. NIEO Reform Agenda (try to Memorise This List)<\/strong><\/p>\n

                                                                Economic Self\u2011Determination Principles:<\/strong> End economic subordination as political colonialism ended.<\/p>\n

                                                                Key Demands:<\/strong><\/p>\n