World Trade Organization (WTO) Study Guide© London International Model United Nations 2015 !LIMUN | Charity No. 1096197 ! Tableof!Contents!

World Trade Organization (WTO)

Study Guide

© London International Model United Nations 2015 LIMUN | Charity No. 1096197 www.limun.org.uk

Table of Contents Table of Contents ......................................................................................................................................... 2

Welcome Letter ............................................................................................................................................ 3

Introduction to the WTO ........................................................................................................................... 4 Topic A: The future of Free trade: Application of agricultural and related subsidies in the global economy ............................................................................................................................................ 6

Introduction .............................................................................................................................................................................. 6 Defining and Explaining the Key Terms ........................................................................................................................ 6 The History of Agricultural and Related Subsidies .................................................................................................. 8 The Status Quo: The Doha Round (2001 – Present) and the 2013 Bali Ministerial Declaration .......... 9 Executive Summaries of WTO Actions ......................................................................................................................... 12 Proposed Reform Ideas: World Trade Organization and Beyond ................................................................... 14 Conclusion ................................................................................................................................................................................ 16

Topic B: Reforming the International Monetary System: Promoting Growth and Stability in Least Developed Countries (LDCs) ................................................................................................ 20

Introduction ............................................................................................................................................................................ 20 Defining and Explaining the Key Terms ...................................................................................................................... 20 The History of the International Monetary System ................................................................................................ 21 The Status Quo: Free Floating Exchange Rates (1971 – Present) .................................................................... 23 Executive Summaries of UN Action ............................................................................................................................... 25 Proposed Reform Ideas: United Nations and Beyond ........................................................................................... 27 Conclusion ................................................................................................................................................................................ 29 Bibliography ............................................................................................................................................................................ 30


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Welcome Letter

Dear Delegates,

As director of the World Trade Organization (WTO) I warmly welcome you to LIMUN 2015! My

name is Ann-‐Kristin Matthé and I will chair the WTO together with James Theuerkauf as assistant

director.

I am currently studying a double master in Public Policy and Human Development at the United

Nations University and the Maastricht School of Governance. Since my first MUN about six years

ago, I have contributed to several conferences across Europe, for example in Rome, The Hague or

Berlin and most recently in Oxford.

At this conference you will be diplomats in the most important body dealing with international

trade. Since 20 years, the WTO it is not only committed to enhancing free trade but also serves as

forum for international dispute settlement in the field.

I am looking forward to seeing you in February for a WTO of LIMUN 2015 that results in effective

policy solutions, an awesome MUN experience and some lasting friendships!

Please feel free to ask any remaining questions via email!

Ann-‐Kristin Matthé


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Introduction to the WTO

The goal of the WTO is to “improve the welfare of the peoples of the member countries” by

ensuring “that trade flows as smoothly, predictably and freely as possible.” 1 Within this

organization Member States can negotiate trade agreements and settle their trade disputes. All

actions are based on the cooperation of Member States and their consent. This implies that votes

are taken by consensus, giving every country an equal say in negotiations. The WTO is the most

important organ on the international level in regard to trade and it serves the following purposes:2

-‐ Monitoring national trade policies -‐ Administration of WTO trade agreements

-‐ Technical assistance for developing countries

-‐ Forum for trade negotiations

-‐ Cooperation with other international organizations

-‐ Dispute settlement

Its predecessor is the General Agreement on Trade and Tariffs (GATT), a multilateral trading system

that hold several rounds of trade negotiations and was concluded by the Uruguay Round

negotiations in 1986-‐94. Following this round, the WTO was established on January 1. 1995. Until

today, membership has grown to 160 countries and in 2001, the new negotiation round, the Doha

Round, was opened. At the end of 2013, Member States adopted the Bali Ministerial Declaration, a

milestone and intermediary result of the present negotiation round, which served to further

advance the WTO system.

“At the heart of the system — known as the multilateral trading system — are the WTO’s

agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in

their parliaments. These agreements are the legal ground-‐rules for international commerce.

Essentially, they are contracts, guaranteeing member countries important trade rights. They also

bind governments to keep their trade policies within agreed limits to everybody’s benefit.”3

1 WTO, “The WTO… in Brief,“ http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm. 2 List of purposes, see: WTO, “Understanding the WTO – Who we are?“ http://www.wto.org/english/thewto_e/whatis_e/who_we_are_e.htm. 3 WTO, “The WTO... in Brief.“


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The two basic principles of the WTO are the most-‐favourite-‐nation principle and the national

treatment principle. The most-‐favourite-‐nation principle demands not to discriminate or

differentiate between different trading partners. This means that the most favourable standards of

trade granted to one trading partner has to be expanded to all trading partners. Secondly, the

national treatment principle refers to the idea of ensuring the same treatment for foreign goods

and services as for national ones.4

The WTO cooperates closely with the International Momentary Fund (IMF) and the World Bank

(WB) with the aim to advance coherence in global economic policy-‐making.5 The concept of

coherence lies also at the core of its relations with other international organizations like the United

Nations (UN). Within the UN system, the WTO cooperates closely with sub-‐organs like the United

Nations Conference on Trade and Development (UNCTAD), the Food and Agricultural Organization

(FAO), the World Health Organization (WHO) and the United Nations Environment Program

(UNEP).6 Moreover, it participates regularly in the activities of the UN Economic and Social Council

(ECOSCO) and is part of the UN’s Chief Executive Board. 7

At LIMUN 2015, you have the honour to celebrate the 20th anniversary of the WTO by developing

solutions to two very important and pressing issues of world trade. Topic A focuses on the future of

free trade in the context of agricultural subsidies and related subsidies in the global economy. The

challenging dilemma between more free trade and constant attention to other concerns like

welfare or environmental policies will lie at the heart of discussions on this agenda item. Secondly,

topic B will discuss reforms of the international monetary system with the aim of promoting growth

and stability in least developed counties (LDCs). How can LDCs’ interests be taken into account in

reforming the current system of free-‐floating exchange rates and which alternatives could be

implemented? These and further challenges are to be tackled under agenda item B.

4 WTO, “Principles of Trading Systems,“ http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm. 5 See amongst others: General Council Decision, “Agreements Between the WTO, IMF and World Bank,” November 1996. 6 For further information, see: WTO, “The WTO and Other International Organizations,“ http://www.wto.org/english/thewto_e/coher_e/coher_e.htm. 7 More information on the WTO-‐UN cooperation: WTO, “The WTO and the United Nations,” http://www.wto.org/english/thewto_e/coher_e/wto_un_e.htm.


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Topic A: The future of Free trade: Application of agricultural and related subsidies in the global economy

Introduction

The core idea of the World Trade Organization (WTO) is to enhance world trade by reducing not

only tariffs but also non-‐tariff barriers and other distortions to free trade. Governments often

desire to influence the amount of agricultural production, the way it is produced or the kind of

output. These goals can be reached amongst others by using subsidies. In this regard, the work of

the WTO is important because “[o]ne distortion invites another, which creates the need for a

third.”1 This statement refers to the European common agricultural policy (CAP), a well-‐known and

often criticized scheme of agricultural subsidies to European Union (EU) Member States. The EU

supports farmers with subsidies, so that even less-‐competitive farms can be maintained. This

additional source of revenue to agricultural producers leads to overproduction within the EU. Since

the resulting prices would be too high to be competitive on the world market, the EU supplies

export subsides that lower the price for consumers outside the EU. This increase in supply at low

prices contributes to lower world market prices for agricultural products. In order to shield the EU

farmers against these low prices, the EU imposes import tariffs. Given the complexity of this

mechanism it is not surprising that agricultural subsidies still make up the largest share of the EU’s

budget. Thus, the EU’s agricultural subsidy scheme is a case in point to call for more free trade in

the global economy.

This study guide will provide you with definitions and explanations of the key terms, paying

particular attention to the different types of subsidies. Subsequently, an overview of the historical

development of the topic will be given. Thereafter, the status quo and the current country groups

in the WTO will be described. This will be followed by a summary of previous actions by the WTO.

Finally, some reform proposals and future challenges will be discussed in order to provide you with

an overview of the state of the art in this field, followed by a brief conclusion.

Defining and Explaining the Key Terms

The WTO defined the term “subsidy” for the first time in the Agreement on Subsidies and

Countervailing Measures (SCM Agreement). The definition includes three elements and only if all

three are fulfilled and subsidies are “specific” they are subject to WTO procedures. The first


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element is financial contributions, which establishes that governments have to spend financial

resources for the definition to hold. The financial contribution can take forms like “grants, loans,

equity infusions, loan guarantees, fiscal incentives, the provision of goods or services [as well as]

the purchase of goods.”2 The second element is that the financial contribution has to be made by or

at the direction of a government or any public body within the territory of a WTO Member State.

Thereby, the definition covers direct support by governments, as well as, actions conducted by

bodies like regional state organs or state-‐owned businesses.3 The third element of the definition is

that the financial contribution must confer a benefit. The exact application of this requirement is

still open, however, in the case Canada-‐Aircraft, the Appellate Body has ruled that benefits are to

be assessed in comparison to what the beneficiary could have obtained on the market.4

The rules on subsidies are more refined in the field of agriculture. While general subsidies are

classified as prohibited or actionable, meaning challengeable under WTO procedures, agricultural

subsides form a third separate category. General subsidies are classified in three groups, so-‐called

boxes.5 A green box signifies a permitted subsidy, an amber one a subsidy that should be reduced

and a red one a forbidden subsidy. In the case of agriculture, the red box does not exist and instead

a blue one is added to the classification. Each of these categories is explained in the Agreement on

Agriculture (AoA).6

The green box contains subsidies that do not distort trade or result only in minimal distortions

(AoA, Annex 2).7 Thus, these subsidies are permitted within restrictions and do not have to be

reduced.8 They have to be government funded, in order to not increase consumer prices and may

not be provided through price support. Thus, usually this type of subsidies consists of support to

the overall income of farmers, which does not focus on one product, so it is “decoupled” from

production levels and prices. An important second class of subsidies are government service

programs like public stockholding programs, infrastructural services and research in relevant areas,

as well as, environmental and regional development subsidies.9

Amber box agricultural subsidies are defined as distortion to production and trade, for example in

the form of price support or subsidies targeting production quantities (AoA, article 6).10 Contrary to

green box subsidies, amber box support shall be reduced by governments over time in order to

enhance free trade.

Blue box subsidies fall in a middle category and refer to the same class of subsidies as the amber


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category; however, these subsidies are contained by a requirement to reduce production if a

subsidy is received (AoA, article 6.5).11 Governments are currently not limited on their spending in

this category and the future of this type of subsidies is still open.

Additionally, a distinction between domestic and export subsidies is made. Export subsidies refer to

“a benefit conferred on a firm by the government that is contingent on exports” (see also AoA

article 9), while and a “domestic subsidy is a benefit not directly linked to exports” and can be

found in the context of this guide under the term “domestic support.”12

Free trade is defined as “[i]nternational trade unhampered by government-‐imposed constraints,

such as tariffs, quotas, restrictions on foreign ownership, and other barriers.”13 The reference to

other barriers, includes subsides as potential form of other barriers to trade.

The global economy refers to the globalized structure of trading partners and trading routes around

the world. Connected to this is the process of economic globalization, which describes two aspects:

“the mobility of goods, services, capital, technology, and people in the world economy as a whole;

and a given country’s integration into the world economy.”14

The History of Agricultural and Related Subsidies

The initial General Agreement on Trade and Tariffs (GATT) was established in 1947 to rebuild

international trade after World War II and included only limited provisions on subsidies, while

focusing instead primarily on reducing tariff barriers. However, after having reduced tariff barriers

without cutting subsidies, the latter were increasingly seen as obstacles to trade. In case two

countries have negotiated mutual market access, while one of them maintains a subsidizing scheme

to national import-‐competing companies, this is an example for a trade distortion. The underlying

reasoning is that the subsidized production yields higher revenue or leads to lower prices for the

products of the subsidies’ beneficiaries. Moreover, domestic subsidies to exporting producers can

divert bilateral trade towards third counties that apply the export subsidies, since trading with

them can be more favourable for the original bilateral trading partners.15

Agricultural subsidies are a very sensitive topic of great importance to many countries. Therefore,

separate regulations were found for agricultural products in most initial rounds of negotiations.

First incremental steps to liberalize the agricultural sector were taken in the Kennedy Round in the

1960s. During the subsequent negotiations in the Tokyo Round in the 1970s, a multilateral

“Subsidies Code” was established and only in the Uruguay Round in 1986, the abovementioned AoA


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was agreed upon after lengthy negotiations.16

The AoA is the central document resulting from the Uruguay Round Protocol, also called GATT

1994, which will be described in more detail in the section summarizing WTO actions. However, the

Uruguay protocol entails further relevant provisions on agricultural topics. Firstly, Appendix I covers

tariff concessions on a most-‐favoured nation basis and tariff quotas for agricultural products.17

Secondly, Appendix V specifies commitments limiting subsidization of agricultural products. Thirdly,

the final provision includes a schedule for the implementation of the newly agreed steps towards

the reduction of trade barriers. As reflected in the outcome, the Uruguay Round was the first one

where developing countries became more involved in international trade negotiations.

The Status Quo: The Doha Round (2001 – Present) and the 2013 Bali Ministerial Declaration

The Doha Round was initiated in 2001 and pays particular attention to developing countries.

Agriculture is one of its key issues and covers the three themes: “domestic support (subsidies),

market access (import regime, including tariffs), and export competition (export refunds, export

credits, food aid and state-‐trading enterprises).”18 After slow and temporarily stalled negotiations,

from 2012 onwards a limited agenda was pursued and at the end of 2013, Member States finally

agreed to the Bali Ministerial Declaration, which signalled their overall willingness to proceed with

the WTO’s agenda.19 It was the first agreement adopted under the WTO and provided new impetus

also with regard to agricultural matters. Nevertheless, the agreements in the field of agriculture

were limited to the selected agenda of four issues plus the discussion of cotton subsidies. These

four issues were: reducing export subsidies and “export competition” policies, tackling persistently

under-‐filled “tariff quotas” for imports, allowing for developing countries’ food stockholding for

food security and finally, adding general services of particular interest to developing countries to

the “Green Box.”20 Prior to the Bali Ministerial Decision, India had raised concerns about stricter

regulations in the field of agriculture out of concerns they would hamper its food aid programs that

include storing large amounts of food. Many developing countries wish to shield their public

stockholding programs for food security against the possibility of law suits in case they find

themselves unable to comply with the newly established WTO rules. So far, only an interim solution

has been found, thus, a permanent solution still has to be negotiated until the end of this year.21

Under the interim provision, India was given four years in which it does not have to comply with

the new rules and during the next round of negotiations the issue will be reviewed.


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With regard to the global difference of interest between developing and developed countries, a

prominent example is the dispute between Brazil and the United States of America (USA) over

American cotton subsidies. This case was filed in 2002 and decided in 2004, although, it could not

be resolved until 2014. The WTO dispute settlement supported Brazil’s claim that the “US support

for cotton farmers – Including direct payments, crop insurance and export credit programmes –

was illegal under WTO agreement.” 22 This is an exemplary expression of the discontent of

developing countries with the agricultural subsidies provided by developed countries and a success

for developing countries to have their point of view recognized by the WTO. Nevertheless, it also

demonstrates the potential problems that evolve in such a setting. The USA used appeals and

further methods to prevent cutting its subsidies, so that “Brazil was granted the right to retaliate

against US [United States] export for up to $829m annually.”23 In order to prevent retaliatory

measures being taken by Brazil, the USA proposed a temporary deal to pay monthly allowances of

$12.2m to Brazilian farmers until the US law on subsidies could be changed. However, the judicial

change was stalled in Congress for several years and automatic federal budget cuts terminated the

payment of allowances in 2013. Brazil was reluctant to initiate a trade war with the USA and finally

last year, both were able to negotiate a lump sump payment of $300m from the USA to Brazil. With

this compromise, no new distortions are introduced, as would have been the case if Brazilian had

retaliated against the USA. Thereby, this case has come to and end, while, the underlying issue

remains to be solved in future negotiations.

This year in December, the WTO will hold its 10th Ministerial Conference in Nairobi, which means

that a Ministerial Meeting will take place for the first time in Africa. In this meeting the focus lies on

the implementation of the Bali Ministerial Declaration, with special regard to finding a sustainable

solution on public stockholding.24

Country groups in the field of agriculture

As previously mentioned cases have demonstrated, the influence of countries within the WTO has

changed over time and changed the decisions taken by this organization. For a long time, the USA

and the EU have been the two most important actors with regard to free trade. However, over the

past decade the developing countries have gained importance. One group of growing economies

with expanding influence are the BRICS countries, which have begun to promote their own


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interests also against established actors’ positions.25 In many instances, countries like India or Brazil

have demanded from the US and EU to contribute more to advance international free trade, while

promoting less ambitious goals for developing countries.26 Nevertheless, as shown in the graphic

above, the composition of the “block” of developing countries is by no means unitary and clearly

defined. Instead, in many instances varying coalitions form per topic area.

Figure 2 – Visual representation of how the agriculture groups intersect 27

One of the groups in the graphic is the Cairns Group, named after the Australian city of its first

meeting in 1986 at the beginning of the Uruguay Round, which requires additional explanation. It

consists of a coalition of 19 developing as well as developed countries and has proven to be an

influential power in the negotiations regarding the liberalization of agricultural trade. Most

members are food-‐exporting countries and highly in favour of trade liberalization in the agricultural

sector, which leads this group to continuously criticizes the high level of protectionism in the USA,

the EU and Japan.28 With regard to another group, please note that the EU Commission negotiates

on behalf of the EU, while the EU as well as its single Member States are members of the WTO.29


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Executive Summaries of WTO Actions The Agreement on Agriculture (January 1. 1995)

This international treaty was negotiated during the Uruguay Round and forms part of the WTO

treaty system.30 The same round led to the conclusion of three other related agreements, one in

the area of market access, a second regarding sanitary and pythosanitary measures and a final one

with regard to least-‐developed and net food-‐importing countries. In the interest of advancing

“predictability and stability for importing and exporting countries,” the AoA is seen as the first step

in a process of negotiations on agricultural trade.31 In order to facilitate compliance in the early

stages of agricultural liberalization, exceptions have been introduced. These include for example

some leeway in the implementation of the new rules or the permission to apply less distorting

domestic support measures in order to maintain rural economies.32 The three main points of the

AoA are market access, domestic support and export competition, as mentioned earlier in the

context of the Doha round.

Market access deals with “trade restrictions confronting imports” and refers to the decision to

transform non-‐tariff border measures into tariffs with the aim of subsequently gradually lowering

the level of protectionism.33 Since the focus of our session will lie on subsidies, tariffs are not the

main point to be discussed.

Domestic support refers to subsidies and other support measures contributing to the income of

farmers or guaranteeing certain price levels.34 This kind of subsides is classified in the boxes that

were introduced in the section on definitions and will be analysed here in more detail.

Governments may continue to pay agricultural subsidies in the green box category, since their trade

distorting effect is seen as negligible. Nevertheless, this group of support measures has been

subject to criticism. The controversy around the green box evolves from the argument that many

subsidies mentioned in Annex 2 of the AoA might result in more than minimal distortions of trade.

If this were the case, the subsidies would no longer qualify for the green box. Cases in point here

are for example “direct payments to producers (paragraph 5), including decoupled income support

(paragraph 6), and government financial support for income insurance and income safety-‐net

programmes (paragraph 7).“35 The opposite claim is that present regulations are still too strict in

order to properly account for non-‐trade objectives such as environmental protection. So far, the

Doha round has not found a solution to this problem.


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The amber box can be seen the opposite of the green box because measures that fall into the

amber box are considered distortive to trade and have to be reduced. In more detail this means

that states have to

reduce the excess

subsidies above a 5%

or respectively 10%

threshold, by 20%

(developed countries),

13.3% (developing

countries) or 0%

(LDCs) respectively

during the implemen-‐

tation period. 36 All

calculations for reduc-‐

tion requirements are

based on the above-‐

Figure 1 – Domestic Support in the Agreement on Agriculture37 mentioned Total

Aggregate Measurement of Support (Total AMS; AoA, article 1 and Annex 3 and 4).38 The Total AMS

includes all product-‐specific and non-‐product-‐specific subsidies of a country taken together and

thus, provides “an index that measures the monetary value of the extent of government support to

a sector.”39 Current negotiations concern the idea to disaggregate this measure to demand more

specified reductions, for example separately targeting product and non-‐product-‐specific subsidies.

Despite green box subsidies, further options exclude governmental support from the reduction

requirements of the amber box. Firstly, blue box subsidies are of the same kind as the amber

category but come with requirements to reduce production if a subsidy is received (AoA, article

6.5).40 With regard to the future of this type of subsides two points of view exist. On the one hand,

they can be seen as subsidies really similar to the first amber category, which should consequently

be further reduced, while on the other hand, they can be seen as beneficial alternative to subsidies

in the amber category that should be maintained to reduce the volume of subsides in the amber

box. Secondly, “developmental measures” are permitted and allow for assistance to developing


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countries’ agricultural sectors in a direct or indirect way with the aim to foster rural development in

these countries (AoA, article 6.2).41 And finally, “de minimis” allowances permit trade-‐distorting

subsidies that would otherwise be subject to reductions to remain in place as long as they do not

exceed 5% of agricultural production in the case of developed countries and 10% in case of

developing countries (AoA, article 6.4, calculation with Total AMS).42

The third topic is export subsidies, which are used to artificially ensure competitiveness of

exports.43 In this regard:

“Members are required to reduce the value of mainly direct export subsidies to a level 36

per cent below the 1986-‐90 base period level over the six-‐year implementation period, and

the quantity of subsidised exports by 21 per cent over the same period. In the case of

developing countries, the reductions are two-‐thirds those of developed countries over a

ten-‐year period (with no reductions applying to the least-‐developed countries) and subject

to certain conditions, there are no commitments on subsidies to reduce the costs of

marketing exports of agricultural products or internal transport and freight charges on

export shipments.”44

Moreover, the AoA provides regulations for the donation of food aid (AoA, article 10.4) and for the

application of export credits (AoA, article 10.2). 45 To further accommodate the interests of

developing countries and LDCs, so-‐called “peace” provisions are included in the AoA. Among them

the earlier mentioned exemption in calculating the reduction requirements based on the Total AMS

and a restriction termed “due restraint” in the use of WTO procedures against less well performing

countries (AoA, article 13 and 18.4). WTO procedures include the for example option to impose

countervailing duties as reaction to violations of the subsidy reduction requirement. The duration

of these peace provisions is limited to nine years.46

A committee supervises the implementation of these decisions, which are seen as initial steps to

the liberalization of agricultural trade.

Proposed Reform Ideas: World Trade Organization and Beyond

Reforms towards the long-‐term objectives of the Uruguay Round

The AoA strives to work towards the long-‐term objectives of the Uruguay Round as stated in its

preamble. In this regard, the problems and unsolved conflicts of interest as mentioned in the prior

section provide an important starting point for future reforms. Thus, regarding domestic support


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and green box subsidies, the question arises up to which level the exemptions in Annex 2 can be

regarded as minimally distorting to trade. The current definition of the minimally distorting

element in the AoA has been criticized as being too open to interpretation. However, negotiations

determining this level should go beyond the consideration of its effects on free trade and also look

at non-‐trade concerns. With regard to amber box subsidies, the calculation of reduction

requirements using the Total AMS has been questioned for relying on a total sum, instead of

yielding a targeted reduction demand. And with regard to blue box subsidies, the existence of the

entire category was called into question based on the idea that it provides excuses not to reduce

obsolete subsidies. The opposing point of view justifies blue box subsidies as viable alternative for

subsides that would otherwise be even more distortive support belonging in the amber box.

Public Stockholding for Food Security Purposes

Regarding the Decisions taken by the Special General Council on Public Stockholding for Food

Security Purposes, in 2015 a detailed version for permanent solution should be established.47 The

main challenge will be to reconcile the interest in fair trade of developing countries with the

concerns of developed countries that feel a necessity to protect domestic producers. In this regard

the WTO rules on special and differentiated treatment offer a starting point to discussing the

developing countries’ position in the WTO system. 48 A similar situation evolves in the case of the

post-‐Bali agenda and cotton subsidies.

Post-‐Bali: decisions on agriculture with a focus on cotton

One of the results of the conference on Bali was the commitment to implement the Bali Ministerial

Decision. In the agricultural sector this means implementing the Bali decision on agriculture, which

pays particular attention to cotton. Additionally, a work program for the remaining issues of the

Doha Development Agenda (DDA) should be established. In the context of developing a new

agenda tackling the remaining points of the DDA Roberto Azevêdo, Director-‐General of the WTO,

said in January this year: “So I think this is an important moment — and a real opportunity. The big,

tough issues of agriculture, services and industrial goods will all be back on the table. So I urge you

all to be prepared and to engage proactively in this work.”49 The topic of cotton has evolved as a

case in point where developed countries have long maintained high subsidies even if some are


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contrary to WTO rules. Additionally, recently cotton prices on the world market have fallen, which

provides further incentives to subsidize local producers to be able to compete on the world

market.50 And while the case between Brazil and the US has been resolved, the general issue of

subsidies by developed countries remains an important topic for the future negotiations in the

Doha round.

Conclusion

This study guide offers you an overview of the field of agricultural subsidies. To shape the future of

free trade it is up to you to resolve the presented challenges. After an introduction to the WTO and

the topic, definitions and explanations of key terms have been provided. Thereafter, an outline of

the historical development of the topic was given, flowed by an explanation of the present

situation. In addition to this, the current grouping of countries in the WTO was outlined.

Subsequently, previous actions by the WTO, particularly the Agreement on Agriculture, were

described. In conclusion, some proposed reform ideas and future challenges were presented. As

Director-‐General Roberto Azevêdo requests: “We have to make sure that Bali is just the beginning

— and use that momentum to deliver even more. […] As instructed by Ministers in Bali, delegations

in Geneva have started work to prepare, by the end of this year, a clearly defined work programme

to conclude the Doha Round. And there are some really important issues on the table. In my view,

any engagement here will have to tackle the really tough areas upfront: industrial goods, services,

and agriculture.“51 Finding solutions to the future of agricultural subsidies will be your task in the

WTO of LIMUN 2015.


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Endnotes/Bibliography (particularly useful sources are highlighted)

1. The Economist, “The Sword and the Shield,” September 12, 2003, http://www.economist.com/node/2064132?zid=293&ah=e50f636873b42369614615ba3c16df4a.

2. An introduction to multilateral disciplines regulating the provision of subsidies and the use of countervailing measures to offset injury caused by subsidized imports: “Agreement on Subsidies and Countervailing Measures (“SCM Agreement”),” http://www.wto.org/english/tratop_e/scm_e/subs_e.htm For original text, see: http://www.wto.org/english/docs_e/legal_e/24-‐scm.pdf.

3. Ibid. 4. Ibid. 5. This paragraph is based on: WTO, “Domestic Support in Agriculture – The Boxes,”

http://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm. 6. WTO, Agreement on Agriculture, http://www.wto.org/english/docs_e/legal_e/14-‐

ag.pdf. 7. This paragraph is based on: WTO, “Domestic Support in Agriculture – The Boxes.”

8. For more information on the restrictions, see: Annex 2 of the Agriculture on Agreement.

9. WTO, “Agriculture: Explanation – Domestic Support,“

http://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm. 10. This paragraph is based on: WTO, “Domestic Support in Agriculture – The Boxes.”

11. For details see: Paragraph 5 of Article 6 of the Agriculture on Agreement.

12. WTO, “Glossary,“ http://www.wto.org/english/thewto_e/glossary_e/glossary_e.htm.

13. Financial Times, “Lexicon: Free Trade,“ http://lexicon.ft.com/Term?term=free-‐trade.

14. Financial Times, “Lexicon: Economic Globalization,“

http://lexicon.ft.com/Term?term=free-‐trade.

15. WTO, “B Defining Subsidies,“ http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr06-‐2b_e.pdf.

16. Ibid.

17. For the statements regarding the Uruguay Protocol’s Annexes see: WTO, “Legal Texts the WTO Agreements,” http://www.wto.org/english/docs_e/legal_e/ursum_e.htm.


18

18. The European Commission, “Agriculture and Rural Development – Agriculture in the

Doha Round,” http://ec.europa.eu/agriculture/wto/doha-‐round/index_en.htm. 19. WTO, “Bali Ministerial Declaration,“

http://www.wto.org/english/thewto_e/minist_e/mc9_e/balideclaration_e.htm.

20. WTO, “Briefing Note: Agriculture Negotiations — the Bid to ‘Harvest’ some ‘Low Hanging Fruit’,” http://www.wto.org/english/thewto_e/minist_e/mc9_e/brief_agneg_e.htm#trq.

21. WTO, “The Bali Decision on Stockholding for Food Security in Developing Countries,”

http://www.wto.org/english/tratop_e/agric_e/factsheet_agng_e.htm.

22. Aaron Stanley, “US and Brazil Reach Accord on Cotton Subsidies,” http://www.ft.com/intl/cms/s/0/b7f7e78c-‐4984-‐11e4-‐80fb-‐00144feab7de.html#axzz3POkw7r5W.

23. Ibid.

24. WTO, “Azevêdo: India’s Support “vital” in WTO Negotiations this Year,” http://www.wto.org/english/news_e/spra_e/spra46_e.htm. And: WTO, “Post-‐Bali,” http://www.wto.org/english/thewto_e/minist_e/mc9_e/nov14postbali_e.htm.

25. The BRICS countries are Brazil, Russia, India, China and South Africa.

26. The Economist, “The Sword and the Shield.“ 27. Negotiations Coalitions in Agriculture,

http://www.wto.org/english/tratop_e/dda_e/groups_e.pdf. For a comprehensive table of group membership, see: WTO; “Agriculture: Negotiations -‐ Groups in the Agriculture Negotiations” http://www.wto.org/english/tratop_e/agric_e/negoti_groups_e.htm.

28. The Carnis Group, “Background on the Cairns Group and the WTO Doha Round,”

http://cairnsgroup.org/Pages/wto_negotiations.aspx 29. European Commission, “How the EU Works with the WTO,”

http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150988.pdf. 30. WTO, Agreement on Agriculture. 31. WTO, “Agriculture Negotiations: Backgrounder-‐ Developing Countries,”

http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd14_devopcount_e.htm. 32. Ibid. 33. WTO, “Agriculture: Fairer Markets for Farmers,“

http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm. 34. Ibid.


19

35. WTO, “Domestic Support in Agriculture – The Boxes.” 36. As mentioned earlier, 5% for developed countries and 10% in case of developing

countries. The reduction of 20% applies to developed countries, the reduction of 13.3 % to developing countries and the requirement for no reduction to least-‐developed countries (LDCs).

37. WTO, “Agriculture: Explanations – Summary,”

http://www.wto.org/english/tratop_e/agric_e/ag_intro07_summary_e.htm. 38. See for definition AoA, article 1(a) and for more details and example calculation: WTO,

“Agriculture Explanation – Domestic Support.” 39. Foreign Trade Information System, “Dictionary of Trade Terms,”

http://www.sice.oas.org/dictionary/AG_e.asp. 40. WTO, Agreement on Agriculture. 41. WTO, “Agriculture Explanation – Domestic Support.” 42. Ibid. 43. WTO, “Agriculture: Fairer Markets for Farmers.“ 44. “Where subsidised exports have increased since the 1986-‐90 base period, 1991-‐92 may

be used, in certain circumstances, as the beginning point of reductions although the end-‐point remains that based on the 1986-‐90 base period level. The Agreement on Agriculture provides for some limited flexibility between years in terms of export subsidy reduction commitments and contains provisions aimed at preventing the circumvention of the export subsidy commitments.” See: WTO, “Agriculture Negotiations: Backgrounder-‐ Developing Countries.”

45. Ibid. 46. Ibid. 47. WTO, “The Bali Decision on Stockholding for Food Security in Developing Countries.“ 48. WTO, “Agriculture Negotiations: Backgrounder-‐ Developing Countries.” 49. WTO, “Azevêdo: India’s Support “Vital” in WTO Negotiations this Year.“ 50. WTO, “Summary of the General Council Meeting of 10 December 2014,”

http://www.wto.org/english/news_e/news14_e/sum_gc_dec14_e.htm. 51. WTO, “Azevêdo cites China’s “crucial role” in trade liberalization,”

http://www.wto.org/english/news_e/spra_e/spra22_e.htm.


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Topic B: Reforming the International Monetary System: Promoting Growth and Stability in Least Developed Countries (LDCs)

Introduction

“The World has changed – the International Monetary System needs some serious rethinking”52

Alessandro Magnoli wrote in anticipation of the World Economic Forum’s 2012 Meeting in Davos,

Switzerland. The reform of the international currency system is an issue of paramount importance

that has received special attention since the Global Financial Crisis, from academics, technocrats,

and politicians alike. Despite this continued dialogue, a definite proposal is yet outstanding. And,

among the current proposals, one fundamental factor seems to be missing: a focus on the Least

Developed Countries (LDCs). Therefore, and following from WTO Director-‐General Pascal Lamy’s

speech in 2012, in which he outlined that “we need an international monetary system which

facilitates international trade (…) [,] the international community needs to make headway on the

issue of reform of the international monetary system. Unilateral attempts to change or retain the

status quo will not work”53, the WTO is asked to propose a resolution on the reform of the

international currency system, while taking into account the goals of promoting growth, as well as

stability, in the Least Developed Countries.

In the following study guide we will firstly provide a definition and explanation of the topic’s key

terms, in order to set the scope for debate. Thereafter, we will elaborate on the history of the

international monetary system, and its importance on the present, as well as on any future design

of an international monetary system. Following this, we will then examine the present international

currency system, placing special emphasis on the problems that it is currently encountering.

Subsequently, we will be providing an executive summary of the most important resolutions and

publications from the United Nations bodies on the issue. Finally, we will briefly touch upon some

of the proposed reforms for the international monetary system that have emerged, highlighting

their main points, in order to then end with a brief conclusion.

Defining and Explaining the Key Terms

Farhi, Gourinchas, and Rey (2011) define the International Monetary System as “the set of rules,

conventions, and institutions that govern the conduct of monetary policies, their coordination (or


21

non-‐coordination), exchange rates, and the provision of international liquidity”. It is essentially the

means by which buyers and seller in different countries with different national currencies accept to

pay one another, facilitating international trade and cross border investments.

Least Developed Countries (LDCs) are the 48 countries54 as classified by the UN as being least

developed in terms of their (i) level of Gross National Income (GNI), (ii) level of human assets, and

(iii) degree of economic vulnerability.

Economic stability is defined as the absence of any excessive fluctuations in a fairly constant output

growth and low and stable inflation in the macroeconomy, whereas economic growth mirrors the

increase in the market value of the goods and service produced in an economy over time.

The History of the International Monetary System

While one could trace back the history of the international monetary system as far back as

centuries BC, the interesting periods for the reader and for a resolution on this topic, will be

starting in the late 19th century, with the informal introduction of the so-‐called “Gold Standard”.

The Gold Standard: 1870 – 1914 and 1918 – 1933

The world experienced two periods where the international monetary system was subjected to the

discipline of the Gold Standard: the Gold Standard of the years 1870 – 1914, as well as the Gold

Exchange Standard of the inter-‐war years55. The 19th century Gold standard was supported by the

fact that the British Sterling was quintessentially the international currency, which supported

international commerce. What the Gold Standard means, is that the monetary system is based

upon a fixed quantity of gold. According to Bordo and Rockoff (1996) the Gold standard proved to

be the foundation of the first age of globalization, as adherence to it was interpreted as a “seal of

approval” to international markets of the creditworthiness of emerging markets. The financing of

WWI, however, led to the suspension of the Gold Standard as the international monetary system.

After the War, there was widespread desire to reinstall the Gold Standard; however, the monetary

expansion had led to inflationary pressures, which led some countries to enter at pre-‐war prices,

while others adopted new valuations. Germany, which had no more Gold reserves following its

defeat in the War, issued “virtually limitless amounts of marks without any backing to buy foreign

currency” (Astrow, 2012), leading to hyperinflation. The inter-‐war Gold standard hence did not last

for long: the new financial conditions required price deflation in order to achieve economic growth,


22

accompanied by politically unpalatable increased unemployment56. Research has demonstrated the

impact of the Gold Standard on the Great Depression57, as it limited the ability of central banks to

fall back on monetary policy as a tool to fight falling prices. The United States, committed to the

Gold Standard, actually increased interest rates in 1931, at a time when the economy was in free

fall – only in 1933 did the United States, after suffering from the devastating effects of deflation,

abandon the Gold Standard58.

Bretton Woods: 1945 – 1971

The 1944 Bretton Woods conference, which was formally known as the United Nations Monetary

and Financial Conference, saw the 44 attending countries endorsing a plan that set out rules,

institutions and procedures to govern the international monetary system after WWII, based on

plans drawn up from mostly British and American policy-‐makers, notably including John Maynard

Keynes and Harry Dexter White. The arrangement was backed by the creation of two new

international institutions, namely the International Monetary Fund (IMF) and the World Bank (WB),

which were created in order to replace private finance for a more reliable development financing

mechanism. The Bretton Woods agreement involved nations agreeing on a system of fixed (yet

adjustable) exchange rates, where the currencies would be pegged against the US Dollar, which in

itself would be convertible into Gold at a set price of $35/oz., de facto pegging the national

currencies to the US Dollar, and in turn essentially establishing the US Dollar as the primary

international reserve currency. Moreover, Bretton Woods introduced a system of capital controls,

in order to protect countries from capital flights and allow independent macroeconomic policies.

Furthermore, the Bretton Woods framework introduced some flexibility, as countries facing

economic hardship were allowed to devalue their currencies vis-‐à-‐vis the Dollar in a limited way.

Despite the Bretton Woods era underpinning a post-‐war economic boom in the 1950s and 1960s,

the Yale Economist Robert Triffin identified the pitfalls of the Bretton Woods framework59, as the

use of one national currency would lead to a conflict between the short-‐run domestic and the

longer-‐term international objectives, as the incessant demand for the reserve currency leads to

that country persistently running account deficits, which in turn leads to a declining value of the

reserve currency and a loss of credibility in the emitting country, undermining confidence in the

Dollar60. Simultaneously, a parallel market for gold had emerged, which soared above the US


23

mandated price, thus leading to a steady decrease in US Gold reserves. All of this eventually led US

President Richard Nixon to end all convertibility into gold on the 15th of August of 1971, thus

marking an effective end to the Bretton Woods system61.

The Status Quo: Free Floating Exchange Rates (1971 – Present)

Since the breakdown of the Bretton Woods, the international monetary system has been one of

free floating exchange rates, as well as a series of unilateral pegged exchange rates, which means

that a particular government (e.g. that of Panama) essentially gives up monetary policy by pegging

its exchange rate to a certain currency, in most cases the US Dollar (as is the case with Panama).

The problem of free floating exchange rates with one national currency (the USD) serving as reserve

currency has received great critical attention, especially since the Great Financial Crisis that hit the

World Economy in 2007, as the current system (or non-‐system62) had led to large financial

imbalance, which may have triggered the crisis. Moreover, the current system leads to a large

amount of exchange rate volatility, which is particularly harmful to LDCs and to exporters in non-‐

OECD countries63. The chart below shows the extent of this volatility, using swings in the US Dollar

rate64.

Figure 1 – Swings in the US Dollar65


24

Moreover, the current system has encourage the abrupt reversal of capital flows, as well as

persistent and “upstream” external imbalances, as net capital flows have been moving from

emerging to richer economies (Astrow, 2012).

The increased occurrence of crisis is a notable feature of the post-‐Bretton Woods International

Monetary System, and may be seen as causal evidence for the malfunction of the current system.

As can be seen in the following table, the period of 1973 – 1989 was even more prone to banking

crises that the inter-‐war period, whereas the subsequent period from 1990 – 2010 still shows a high

incidence by historical standards.

Figure 2 – Incidence of Crisis per International Monetary System Period

While this is clearly not conclusive evidence for the failure of the International Monetary System, it

does provide a clear symptom of the malfunction that our current system is suffering. The central

IMF report on the international monetary system in 2013 concludes that “arguably, the post-‐

Bretton Woods system of flexible/floating exchange rates, freer capital flows and the practice of

independent monetary policy has not brought financial stability to the global economy.”66

Furthermore, the trend towards a multipolar world that the world economy is currently going

through undermines the role of the United States as the world’s principal issuer of the reserve

currency. This is complemented by the fact that an enormous amount of US dollars are held by

central banks around the world, with the People’s Republic of China alone holding about

$3.8trillion67, as well as doubts about the worth of the currency. There is, however, no real national

currency alternative, as neither the Euro nor the Yen have a sufficient deep and liquid financial

market, and there is no rival to the US Treasury and bond market. The emergence of the Euro,

especially, has led to a diversification of global reserves, but the Eurozone crisis has strongly

weakened international confidence in the currency68. The rise of China has led commentators to


25

look at the Renminbi as a medium-‐ to long-‐run alternative as an international reserve currency; yet,

it still has very little international exposure, is not fully convertible, and lacks a sounds institutional

framework. As pointed out by World Bank President Robert Zoellick69, China will need to rebalance

its economy towards boosting demand, reducing savings, and increasing consumptions, which will

require it to lift restrictions on the Renminbi. In 2009, Xiaochuan Zhou, the Governor of China’s

Central Bank, called for the creation of “an international reserve currency that is disconnected from

the individual nations (…) [which] should be a gradual process that yields win-‐win results for all,”70

clearly distancing himself from the idea of the Renminbi replacing the dollar as the international

reserve currency.

Therefore, and as concluded by Astrow (2012):

Thus the dollar may be suffering from long-‐term weakness, but its role as an international

currency is certainly far from over, while the prospects for another global currency to replace

it in the near future are not bright

Meanwhile, there have been a series of calls for a rethinking of the international monetary system,

coming from the IMF, the Eurozone, the ECB, independent think tanks, politicians, and academics

alike.

And what about the LDCs? There is some fear that, with the international monetary system being a

struggle between the superpowers (be it the United States, China, the G-‐20, or the Eurozone) that

the interests of the LDCs are forgotten. The last comprehensive study of the impact of the

international monetary system on LDCs was done by Graham Bird in 1982 with his book The

International Monetary System and the Less Developed Countries, in which he alerts how vulnerable

the LDCs are to the flaws of the international monetary system, and points out the strong

relationship between LDCs and the system. As explained above, the current volatility is particularly

harmful to LDCs, and any design of a reformed system needs to take into account the impact it will

have on the stability and the growth of the LDCs.

Executive Summaries of UN Action

On the 18th of October of 2008 the President of the 63rd Session of the General Assembly, Mr.

Miguel D’Escoto Brockmann, announced his intention of establishing a taskforce71, which then

turned into a commission, in order to review the global financial system, in the light of the collapse

of Lehman Brothers on September 15th, 200872 and the subsequent offset of the Global Financial


26

Crisis. The commission, which would be chaired by the Nobel Laureate in Economic Sciences of the

year 2001, former chief economist of the World Bank, and Professor at Columbia University, Joseph

Stiglitz, would produce the “Report of the Commission of Experts of the President of the United

Nations General Assembly on Reform of the International Monetary and Financial System”,

published in its entirety on the 21st of September of 200973. The Report, which goes beyond

treating with the international monetary system, and also examines a reform of the global financial

system, focuses on the role of regulation, institutions – including the World Bank and the IMF –, as

well as international financial innovations, both in a positive and normative manner. It observes

that the crisis has been exacerbated by flawed institutions and institutional arrangements. It recalls

the fact that a large reason for the crisis and the current problems in the international monetary

system are global imbalances, which have been tackled by asymmetric rules, which, instead of

solving the problem, actually make it worse. Next to elaborating on some ideas for a reform of the

international monetary system, which we will be developing on in the next section, the report also

analyses the historic evolution of the international monetary system, as well as the problem it

currently faces74. We would like to highlight one of the central points (31, Chapter 5) of the report,

which summarizes its key concern with regards to the international monetary system:

31. The current crisis provides, in turn, an ideal opportunity to overcome the political

resistance to a new global monetary system. It has brought home problems posed by global

imbalances, international instability, and the current insufficiency of global aggregate

demand. A global reserve system is a critical step in addressing these problems and in

ensuring that, as the global economy recovers, it moves onto a path of strong growth without

setting the stage for another crisis in the future. It is also a propitious moment because the

United States may find its reserve currency status increasingly costly and untenable. The

dollar can be a reserve currency only if others are willing to hold it as such, and as the return

falls and the risk increases, greater reservations about the dollar as a reserve currency are

being expressed. The dollar reserve system is likely to fray, if it is not already doing so.

Moreover, the U.S. has embarked on a response to the crisis that will involve large domestic

imbalances and also potentially large external imbalances, with unpredictable implications for

the international reserve system. Thus, both the United States and foreign exchange reserve

holding countries may actually find it acceptable to introduce a new system. The former


27

would be able to take policy decisions with less concern about their global impact; the latter

would be less concerned about the impact of U.S. policies on their reserve holdings.75

And while the report has offered a series of analyses and policy proposals, little action on the side

of the UN or national governments has been taken, increasing the importance of a potential

resolution from the WTO.

Proposed Reform Ideas: United Nations and Beyond

In the following section, we will be elaborating both on proposals set forward by the “Report of the

Commission of Experts of the President of the United Nations General Assembly on Reform of the

International Monetary and Financial System” (2009), as well as offering the reader further ideas

about potential reforms of the international monetary system.

Multiple currency reserve system

The default option, i.e. the one that is most likely to occur given no real reform of the international

monetary system, will be the move towards a system of flexible exchange rates, with a multiple

currency reserve system replacing the US Dollar as the global reserve currency. Dailami (2011)

predicts that by 2025 the Euro, the US Dollar, and the Renminbi will all be reserve currencies. The

proponents of this idea, including the Eurozone and the United States76, and lately China too, see

this option as viable due to a greater stability and a more even distribution of the lender-‐of-‐last-‐

resort responsibilities, while permitting LDCs to reduce the risk of depreciation on their reserve

stocks. Moreover, one could argue that the geopolitical advantage of a multiple currency reserve

system under flexible exchange rates allows an increased possibility to aid LDCs, if countries who

are the main issuers combine the provision of global liquidity with growth and investment, while

also stabilizing bilateral exchange rates, which, under the current system, has not occurred.

There has however also been criticism of this idea, most notable from the UN Report that we have

featured in this study guide. It reads

It should be emphasized that a system based on multiple, competing reserve currencies

would not resolve the difficulties associated with the current system, since it would not solve

the problems associated with national currencies—and, particularly, currencies from major

industrial countries—being used as reserve assets. 77


28

The problem with a multiple currency reserve system is, of course, that exchange rate volatility

among issuing countries could provide another source of instability, which is exactly what a reform

is looking to tackle.

Special Drawing Rights (SDRs)

SDRs, essentially a “super-‐sovereign” currency, issued by the IMF, are proposed by many, including

Zhou Xiaochuan, the governor of China’s central bank, to be the cornerstone for the reform of the

international monetary system, or, as Mr Zhou put it, the “light in the tunnel for the reform of the

international monetary system.”78 For a basic yet solid overview of SDRs, we encourage the reader

to watch the video in Figure 3, produced by the IMF itself.

Figure 3 “Making Sense of SDRs”, International Monetary Fund79 (click

image to open the video in an internet browser)

The basic advantage of a global reserve currency, which is not issued by any national government,

such as the SDRs, is that it provides a hedge against the currency risk inherent in any national

currency, while also solving Triffin’s Dilemma, as explained above. The biggest problem facing SDRs

currently is that their circulation is very small (as of 2009, SDRs constituted only 4% of global

reserves)80, and its use is only between sovereign governments and the IMF itself, despite being in

existence for over 40 years. For it to be used, “expanding the volume of official SDRs is a

prerequisite for them to play a more meaning role” (International Monetary Fund, 2011).

Moreover, as pointed out by David Bosco (2011): “Moving the SDR back to the prominent place it

was designed to occupy would be a formidable political and logistical task.”


29

The UN (2011) report sees the SDRs as the main way forward in the reform of the international

monetary system:

This is a feasible proposal and it is imperative that the international community begins

working on the creation of such a new global reserve system. A failure to do so will jeopardize

prospects for a stable international monetary and financial system, which is necessary to

support a return to robust and stable growth.

The report further outlines a series of approaches of how to design the institutional framework for

a new global reserve system81, such as the possibility of having the IMF continuing to issue SDRs or

a Global Reserve Bank, the allocation based on a formula weighted by the relative national size in

the world economy by GDP, the counter-‐cyclical issuance of SDRs to finance world liquidity and

using SDR allocations to advance global development objectives in LDCs by multilateral

development banks.

Returning to the Gold Standard?

There have also been calls for a return to the Gold Standard82. In order for Gold to play a formal

role in the international monetary system, it could not hamper the system’s performance or create

unacceptable constraints on national economic policies – the latter being unlikely due to the

inflexibility of a fixed price of gold. The think tank Chatham House has considered the idea of

introducing Gold into the IMF’s SDR basket (“Gold-‐laced SDRs”), yet found no evidence of this

actually bringing substantial benefits, while actually potentially proving an obstacle83. And while

Gold is probably going to continue playing a significant role in the system as a hedging instrument,

there are few concrete proposals about re-‐introducing it formally into the monetary system.

Conclusion In this study guide we have tried to give the reader an understanding of the international monetary

system, by introducing its history in the forms of the Gold Standard and Bretton Woods, as well as

explaining the status quo, and its pitfalls; wherever possible, we have introduced the impact of the

international monetary system on the LDCs. Furthermore, we have reviewed the United Nations’

“Report of the Commission of Experts of the President of the United Nations General Assembly on

Reforms of the International Monetary and Financial System” (2011), as well as providing the

reader with proposed ideas to reform the system, mainly in terms of a multi-‐currency reserve


30

system or the widening of SDRs in order to replace the hegemonic status the US Dollar enjoys as

the global reserve currency.

What, then, are the next steps? There is no clear answer, and the importance of the matter

requires a united approach, especially for the Least Developed Countries, who have a very large

stake in the system, and yet have only played a very small part in forming it: “poor countries have

almost no say in the rules of the game” (United Nations, 2009). Meanwhile, Sheng (2012) predicts

that “realistically, only a more severe crisis will force common agreement on change”. However, it

cannot be in the interest of the global community to await an even more severe crisis than the

Global Financial Crisis, the harshest since the Great Depression. Hence, the WTO is asked to come

up with a resolution on the reformation of the international monetary system, with a particular

focus on the promotion of stability and growth in LDCs.

Bibliography Astrow, André. Gold and the International Monetary System. Chatham House, 2012. Bird, Graham. The international monetary system and the less developed countries. London:

Macmillan, 1978. Bordo, Michael D. and Hugh Rockoff. “The Gold Standard as a “good housekeeping seal of

approval”.” The Journal of Economic History 56, no. 02 (1996): 389-‐428 Bosco, David. “Dreaming of SDRs.” Foreign Policy, September 7, 2011. Copeland, Laurence S. Exchange Rates and international finance. Pearson Education, 2008. Dailami, Mansoor. “The New Triumvariate”. Foreign Policy, September 7, 2011. Dorucci, Ettore and Julie McKay. “The International Monetary System After the Financial Crisis.”

European Central Bank, Occasional Paper Series No. 123, 2011. Eichengreen, Barry J. Golden Fetters: The Gold Standard and the Great Depression, 1919-‐1939.

Oxford University Press, 1996. Farhi, Emmanuel, Pierre-‐Olivier Gourinchas, and Hélène Rey. Reforming the international monetary

system. CEPR, 2011. International Monetary Fund. “Enhancing International Monetary Stability – A Role for the SDR?”

IMF, 2011.


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Khosa, Matimba Johannes. “The Impact of exchange rate volatility on emerging market exports: a comparative study”. University of Johannesburg, 2012.

Mohan, Rakesh, Michael Debabrata Patra and Muneesh Kapur. “The International Monetary

System: Where Are We and Where Do We Need to Go?”. IMF Working Paper, 2013. Schenk, Catherine. “Gold as a Money Anchor: We have been here before”. The Gail Foster Group

LLC, 2011. Sheng, Andrew. “Systematic Thoughts on the International Monetary System,” TEN (2012): 5. Triffin, Robert. Gold and the dollar crisis: the future of convertibility. Vol. 960. Yale University Press,

1960. United Nations. “Report of the Commission of Experts of the President of the United Nations

General Assembly on Reforms of the International Monetary and Financial System”. United Nations, 2009.

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China, 2009.


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Endnotes

52. The full opinion piece is available at http://www.economonitor.com/blog/2013/03/the-‐world-‐has-‐changed-‐the-‐international-‐monetary-‐system-‐needs-‐some-‐serious-‐re-‐thinking/

53. A full transcript of Mr. Lamy’s speech can be found at http://www.wto.org/english/news_e/sppl_e/sppl222_e.htm

54. http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf 55. See Astrow (2012). 56. Ibid. 57. See, for example, Eichengreen (1992) 58. A comprehensive analysis can be found at

http://www.sjsu.edu/faculty/watkins/econhist.htm 59. This is also known as the Triffin Dilemma or the Triffin Paradox. See Triffin (1960) 60. For a more detailed explanation of the Triffin Dilemma, see

http://lexicon.ft.com/term?term=triffin-‐dilemma 61. See Copeland (2008) for a more detailed analysis of the causes of the decline and end of

Bretton Woods 62. See Farhi et al (2011) 63. For a in-‐depth econometric study of the impact of exchange rate volatility on emerging

economies, see Khosa (2012) 64. Note that the vertical scale shows the real effective exchange rates over the last six

months, rolling window. 65. Source: Dorucci and McKay (2011) 66. The full report is available at

http://www.imf.org/external/pubs/ft/wp/2013/wp13224.pdf, and should be consulted for important reference on the IMF’s analysis of the status quo and policy proposals

67. See, for example, the following press release http://www.ibtimes.co.uk/chinas-‐dollar-‐

trap-‐foreign-‐exchange-‐reserves-‐hit-‐3-‐8tn-‐1432428


33

68 See Farhi et al (2011)

69. See Roberto Zoellick’s, ‘The big questions China still has to answer,” Financial Times, 2

September 2011. 70. See Zhou (2009). 71. For a in-‐depth background of the taskforce (later, commission), please see

http://www.un.org/ga/president/63/commission/background.shtml 72. An exemplary press release can be found at http://www.marketwatch.com/story/lehman-‐

folds-‐with-‐record-‐613-‐billion-‐debt?siteid=rss 73. The report is available online at

http://www.un.org/ga/econcrisissummit/docs/FinalReport_CoE.pdf 74. We would like to encourage the reader to read the report, especially Chapter 5

“International Financial Innovations”, for an alternative assessment of the history and status quo to the one we offer.

75. Report of the Commission of Experts of the President of the United Nations General

Assembly on Reforms of the International Monetary and Financial System (2009), p. 115 76. See, for example, US Treasury Secretary Timothy Geithner commenting on the stance of

the US Dollar remaining to be the world’s reserve currency http://www.channelnewsasia.com/stories/afp_world_business/view/417740/1/.html

77. Report of the Commission of Experts of the President of the United Nations General

Assembly on Reforms of the International Monetary and Financial System (2009), p. 114 78. See Zhou (2009)

79. Alternatively, you may access http://bcove.me/7qou4729 80. See Bosco (2011) 81. We strongly encourage the reader to read the details of these proposed policies, which

would be central to a resolution focusing on SDRs. In particular, we would like to stress points 32 – 47 of Chapter 4 of the UN (2011) report, or pp. 115 – 118.

82. See, for example, http://www.cnbc.com/id/44356270 83. See Astrow (2012).

Documents

World Trade Organization (WTO) Study Guide© London International Model United Nations 2015 !LIMUN | Charity No. 1096197 ! Tableof!Contents!