Differences between Bretton Woods world trade regime and the current world trade system governed by the World Trade Organization

Length: 731 words

The Bretton Woods system was the result of a grand financial conference at the culmination of the Second World War. The participants were delegates drawn from 44 Allied countries that were in coalition against the defeated Axis powers. The main purpose of the conference was to organize and regulate the international monetary and financial systems, which were thrown into disarray during the war. The chief outcome of the event was the signing of GATT (General Agreement on Tariffs and Trade. The conference laid the foundation for the later emergence of World Bank and the International Monetary Fund. The priorities and economic models adopted by the WTO are a marked contrast to that of the Bretton Woods regime. The mantra of WTO since 1972 has been international trade liberalization. The Marrakech Agreement of 1995 officially replaced the other GATT regime. Although free trade is paid lip service, the arrangements are more favorable to countries and business corporations with bigger economic clout. However, within the WTO framework, trade deals are negotiated and formalized, just as disputes are arbitrated and resolved.

Coming back to the Bretton Woods Conference, it laid out a roadmap for the financial, trade and monetary policies of participant countries. Consultation, cooperation

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and consensus among the nations were the basic principle upon which several agreements were made. Even in an era preceding neoliberal globalization, the leadership of the Bretton Woods conference understood the interconnectedness of national economies. Since most of the nations were depleted in terms of resources and infrastructure at the end of the war, the immediate focus was on rebuilding and fostering peace. The conference succeeded in encouraging and creating open markets, which nicely counterbalanced national interest with economic stability. One of the means through which the Bretton Woods system was able to achieve this stability is by pegging foreign exchange market rates at a certain level. Some mild flexibility was permitted under special contingencies. Unlike the contemporary neo-liberal model, capital inflows into a country were also regulated to acceptable levels. Moreover, all participant nations were obliged to subscribe to IMF’s capital. Nations were also allowed to create a favorable balance of payments position for their economy. Hence, a fairly stable and sustainable system was established in the form of the Bretton Woods. One cannot claim the same with respect to the global economic regime in place under the WTO.

The WTO is very different to how the Bretton Woods system was organized. The earlier system contained only 44 members and was a response to the great losses incurred in the Second World War. The WTO, on the other hand, is more inclusive, in that nearly all nations of the world are part of it. Despite a lot of flack the WTO receives from representatives of Third World nations, there are some meritorious principles it upholds. For example, the member nations are obliged to treat all other members in equal terms, preventing any case of undue favoritism on part of a member nation. Likewise members should treat imported and home-made goods on parity. A related principle is that of reciprocity, whereby, the gains and consequences for all the signatories to the agreement are given consideration. Another measure to ensure fairness is the imposition of commitments made by members. WTO also promotes transparency and accountability for all trade deals carried out under its auspices.

For example, the WTO has failed to reduce the gap between the wealthy and the poor of the world. It cannot evade this criticism by pointing fingers at national governments. In the four decades since the neo-liberal program was put in place, the world has become polarized in terms of economic development. Many underdeveloped nations in sub-Saharan Africa, Latin America and South Asia were left out of the prosperity boom. The WTO regime is equally unable to prevent crony capitalist tendencies whereby, in most participant nations, an oligarchy of politicians and businessmen collude to promote vested interests. This is a hazardous phenomenon which has undermined democracy in many nations. With the free flight of capital across borders, the citizen franchise to vote is weakened by the veiled veto power exercised by global investment firms. Along with democracy, internal economic stability of many nations have also been weakened under the neoliberal regime of the WTO. These are areas that need immediate redress, for, otherwise, social fissures and eruptions of civil war across class lines will become rampant across the globe.

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