• 2001: The term ‘BRIC’ was coined by Jim O’Neil of Goldman Sachs to describe the growing prominence of Brazil, Russia, India and China 
• 2009: BRIC country leaders started meeting as a bloc (immediately after Sub Prime Crisis). South Africa joined them later.  
• BRICS account for 

• Developed countries such as the US, Japan, Germany, U.K. and France hold 40 % voting power.

BRICS countries decided to form a development bank, whose purpose will be to “mobilise resources to set up infrastructure and ensure sustainable development” in BRICS countries and in other emerging economies.

• BRICS block emerging as a new economic powerhouse with 20% global GDP & 40% population. Hence, to solidify and demonstrate their strength BRICS Bank has been formed by these nations. 
• Disenchantment with Bretton-Woods institutions viz World Bank & IMF: Since its inception in 1944, the IMF and World Bank have not reformed their governance structure. The USA dominates both are out of sync with new world dynamics.  
• Exchange Rate Volatility: It will help defend these five economies from volatility in the dollar exchange rate.
• Making an alternative to the US Dollar: BRICS Bank will make the Chinese Yuan an alternative to US Dollar in the long run. 
• In the BRICS bank, the First chairman of the board of governors will be a Russian. The first President of the bank will be an Indian (KV Kamath). It is difficult in the World Bank and IMF, given the lobbying and uneven voting power.

It has to be noted that BRICS Bank is not an isolated initiative. Similar initiatives have been started in the past to blunt the might of Bretton-Woods institutions. These include the Development Bank of Latin America ( by Andean nations) in the 1960s, the Chiang Mai Initiative in the early 2000s (of 10 ASEAN nations plus China, South Korea and Japan) and Bank of South by Latin American countries in 2009.

• It will allow Beijing to invest overseas in developing nations through a neutral mechanism and avoid criticism of Chinese neocolonialism. 
• It will become difficult for India to balance a scenario in which China will provide funds for its OBOR through BRICS, especially because India is not part of the project. 

• IMF was established in 1945 as a direct result of the Bretton Woods Conference.
• The primary function of IMF was to assist the member countries to tide over the short term Balance of Payments crisis. 
• It has 189 members, with Nauru as the latest member (joined in 2016).

• To solve the problem of international liquidity.
• To stabilize exchange rate  
• To facilitate international trade.
• To enable international payment system  

• Correcting short-term Balance of Payment disequilibrium either by selling or lending foreign currencies to the member nation 
• Bringing stability in the exchange rate
• Balancing demand and supply of currencies by increasing the supply of scarce currency and purchasing excess currency
• Reducing trade restrictions, i.e. tariffs and other trade barriers imposed by the member countries
• Providing credit facilities like basic credit facility, extended fund facility for three years, compensatory financing facility and structural adjustment facility

• World Economic Outlook
• Global Financial Stability Report

• When a country faces a Balance of Payment (BoP crisis), it approaches the IMF for help through Extended Fund Facility.
• At the time of formation, the IMF fixed quota in which countries contributed according to their (economic) size. With the backing of all the money the IMF accumulated, a new currency called SDR (Special Drawing Rights) was created. At the time of its formation , 1SDR = 1$ =.88 grams gold. It was also called paper gold because of this reason.
• IMF works in the same way as banks. They take money from ‘Depositor nations’ & give interest to them. The same money is then given to ‘Borrower nations’ who pay interest to IMF.

How value of SDR is calculated?

• Till 1970s, the conversion of 1SDR = $ 1 = 0.88 grams of gold was maintained.
• Present system:  It is a weighted average of 5 currencies with the following weights.  

• Presently, the conversion ratio is 1 SDR = 1.418 $. 

Triffin’s Dilemma

• Since the EU/US financial crisis, voices have been raised worldwide against the US dollar as an international currency. Zhou Xiaochuan, Governor of Peoples Bank of China, has proposed the adaptation of IMF’s SDR as an international currency. He argued that a national currency was unsuitable as a global reserve currency because of Triffin’s Dilemma, i.e. difficulty faced by reserve currency issuers in simultaneously achieving their domestic monetary goals & meeting other country’s demand for a reserve currency. 
• Keynes and Schumacher also conceptualised such a currency for International Settlement in 1940-42, called Bancor. It was to be introduced by the United Kingdom after the Second World War. However, the US keeping its own interest in mind, made the US dollar the world key currency at Bretton Woods Conference. 

India has been major beneficiaries of IMF’s Fund assistance. India has borrowed twice .

• World Bank Group is a family of 5 international organizations that give loans to developing countries. 
• It is a ‘Specialized Agency of UN’.
• Bank came into existence in 1945 following the Bretton woods conference.
• It is headquartered in Washington DC.
• Each institution of the World Bank is owned by its member governments & its membership gives certain voting rights to all countries. But additional votes depend on the financial contribution to World Bank. 
• The President of the World Bank is usually an American & the present President is  David R. Malpass (US economist).

• IBRD is the oldest of all World Bank institutions that started working in 1945.
• It commenced lending to India in 1949.

Main functions

• Initially, the primary function of IBRD was the reconstruction of war-ravaged regions (after World War II).
• Later, it evolved to the development of middle income & creditworthy developing economies of the world.
• Arranging the loans or providing guarantees on loans by various other channels to execute essential projects.
• IBRD facilitates different kinds of technical services to the member countries through Staff College and experts.
• Human development was the main focus of development lending with a very low-interest rate (1.55% per annum) – the area of focus being agriculture, healthcare, family welfare etc.

Note: The name “International Bank for Reconstruction and Development” was first suggested by India to the drafting committee.

• It was set up in 1960.
• IDA is known as the soft window of the World Bank.
• It gives long term credit with the basic aim of developing infrastructure & extended to economies having per capita income lesser than $895. Credit is for 35-40 years, interest-free except for a small charge to cover the administrative fee. Every developing nation make enough diplomatic attempts to get money from here because of additional benefits.
• India has been one of the biggest beneficiaries. But, since 2014, India stopped receiving soft loans from IDA as it breached the $895 per capita income mark.

• It was set up in 1988.
• It offers insurance to foreign investments in the member countries due to non-commercial ( i.e. political) activities such as currency transfer, expropriation, war & civil disturbance, thus encouraging foreign investment in developing countries.

• BIPA is an Indian version of ICSID since India is not a member.
• It promotes & protects the investment of investors on a reciprocal basis. 
• Till now, India has signed BIPA with 72 nations. 
• Objective: To promote & protect the interest of either country in the territory of other. 

• India has been a member of 4 institutions of the World Bank Group except for ICSID.
• World Bank has given sizeable financial assistance to India for economic development. Until China became a member of the World Bank in 1980, India was the largest beneficiary of the World Bank assistance.
• World Bank assistance to India started in 1948 when funding for Agricultural Machinery Project was approved. The World Bank has also assisted in developing infrastructures such as electric power, transport, communication, irrigation projects and steel industry.
• The first investment of IFC in India took place in 1959 with US$ 1.5 million. Presently, IFC has been helping India to raise foreign capital via ₹ denominated Masala and Maharaja Bond.

• Ease of Doing Business Report
• Remittances and Migration Report
• World Development Report
• Global Economic Prospects Report

• To reduce tariff and non-tariff barriers.
• To eliminate discrimination in trade.
• To facilitate a higher standard of living.
• Stimulate economic growth and employment.
• Contribute to peace and stability.
• Give stronger voice to smaller nations.
• Establish rule-based order as rules reduce arbitrariness and opportunities for corruption.
• Cut the cost of doing business internationally.
• To ensure sustainable development in trade policies.

1. Ministerial Conference

• It is the supreme decision making body of the WTO.
• It (generally) meets once every two years to deliberate on trade agreements.
• The last ministerial conference was held in Geneva in 2021.

2. General Council

• It is the day to day decision making body of the WTO.
• It meets regularly in Geneva and implements the decision of ministerial conferences.
• It has a representative from each member state.
• Below the general council, there are Committees on individual agreements and annexes like anti-dumping, subsidies & countervailing measures (SCM) etc.

3. Director-General

• Present Director-General of WTO is Ngozi Okonjo-Iweala (having dual citizenship of Nigeria and USA) (she is the first female, first African and first US citizen to hold this post).
• Director-General heads the Secretariat at Geneva.

• WTO has Dispute Settlement Body (DSB) that settles trade disputes among nations.
• WTO procedure requires 60 days of consultations among disputants to resolve the dispute, failing which dispute panel is set up.
• DSB’s conclusion can be challenged in the Appellate Body.
• The erring country is directed to change its laws to streamline them within a reasonable time & if the country doesn’t correct them, the complainant country can take retaliatory measures. But there isn’t any punishment for losing a country & practically poor countries cant retaliate against rich nations.

Suppose India is charging a 5% Import Duty on mobiles from South Korea, i.e. in the mobile segment, India is offering the best deal to South Korea by charging just 5% duty. According to the Principle of Most Favoured Nation, India will have to give the same deal to all WTO members, which India is giving to the most favoured nation. It implies that on mobiles coming from China, India will charge 5% duty.

Pakistan Issue

• In 1996, India gave MFN status to Pakistan. But Pakistan didn’t reciprocate to Indian gesture. 
• In Feb 2019, after Pulwama Attack, India withdrew the MFN status given to Pakistan and hiked the customs duty by 200% on goods originating from Pakistan.

Tariff Barrier

• When government imposes very high tariffs/taxes on foreign products to protect their domestic market. 
• It has been opined by various economists that Trade Barriers doesn’t correct trade imbalances of country. It just shifts trade imbalance to other countries. E.g., What the US was importing earlier from China will now be imported from India or Vietnam.

Non-Tariff Barrier

• In Non-Tariff Barriers, although there aren’t any tariff barriers, policies are made to make it hard for foreign players to compete with domestic players.
• E.g. 
  • Government putting tender that only domestic companies can compete.
  • Not giving clearances easily on ports
  • Setting export quality norms so high that other countries can’t export
  • Providing subsidies to domestic producers

Case for free trade

What are the reasons for the government not to interfere with trade?

There are three arguments in favour of free trade. 

1. Free trade & efficiency

• Free trade promotes efficiency & avoids duplication of efforts 

2. Comparative Advantage Theory

According to David Ricardo’s Comparative Advantage Theory

• Produce what you have comparative advantage and import other things.
• This system leads to better efficiency and output.

3. Economies of scale in production

• Develop particular industry in one country & let it trade with the bigger market of the world. This production on a large scale will lead to economies of scale. 

4. Political argument

• A world that trades freely is a world that is at war less often. 

The case against Free Trade

• Beggar thy Neighbour Policies: Countries do this, especially by devaluing their currency.  

• Indian exports boomed due to low barriers. Indian exports have increased from $33.22 billion in 1998-99 to more than $100 billion.
• India won a multilateral dispute against the USA, which was otherwise impossible.
• India adopted international standards in IPR due to TRIPS. As a result, foreign flow increased in R&D.
• Textile boomed because MFA scrapped & ATC adopted under WTO.

Under the Agreement on Agriculture, subsidies are divided into three categories, and member countries have been directed to cut down the Amber Box subsidies.

These three boxes of subsidies are

1. Green Box Subsidies

• Subsidies that don’t disrupt trade balance OR cause minimum damage to the trade balance.
• E.g. agriculture R&D, extension services, insurance money etc.  
• Limits under AoA: Nothing, and Governments can give as much as they want.

2. Blue Box Subsidies

• Blue Box Subsidies aim to limit production.
• These subsidies don’t increase with production. For example, subsidies linked with acreage or number of animals.
• Few countries like Norway, Iceland, Slovenia etc., use the blue box subsidies. 
• Limits under AoA: Nothing.

3. Amber Box Subsidies

• Amber Box Subsidies disturb trade balance like subsidies on fertilizers, seeds, power, irrigation and Minimum Support Price.
• They distort the trade balance because they encourage excessive production. Hence, a given country’s product becomes cheaper than others in the international market.
• Limits under AoA: De Minimus Limits are imposed on them. These are the minimal amounts of Amber box subsidies permitted by WTO, even though they distort trade.

• This system impacts India because these subsidies are calculated with 1986 as a base when India’s production levels were low. Along with that, Inflation is unaccounted in the calculation. As a result, India’s 10% subsidy is much lesser than USA’s 5% subsidy. In 2017, Bali Package was signed, under which developing countries, especially India, were allowed to breach the 10% limit until the solution to this problem was reached. 

Critique of AoA

• The developed countries use the Agreement on Agriculture under the WTO framework as a tool to dismantle the public procurement infrastructure of developing countries. Developed countries such as USA and Canada produce food grains in large quantities, and they want to turn developing countries into a market to dump their surplus grains while converting the developing countries to produce tropical products needed by them at low prices. 
• ‘Reference price’ for calculating support was the 1986-88 average world price of a crop which they converted to rupees at the then-prevailing ₹12.5 per dollar exchange rate.

• Under this, the export of farm or animal products can be banned from a particular country to protect humans, plants & animals.
• Under this agreement, each nation can make its own Quality Control Rules given they are scientific.
• E.g., In 2014, European Union (EU) Trade commissioner banned imports of Indian Alphonso, eggplant & other vegetables due to fruit fly contamination in earlier shipments which can impact the health of plants in the EU.

• Under the TBT Agreement, the export of any non-farm product can be banned from a particular country if the product is dangerous to health or the environment.
• E.g., the US can ban entry of Indian Pharma Products under this agreement if they don’t meet health standards. 

If the host nation is giving large subsidies to its domestic industries (non-farm), then importing nation can take the following actions

It has three main pillars

• Intellectual Property Rights (IPRs) include copyright, patents, GI etc.
• The most revolutionary aspect of TRIPS is that it provides product patents instead of a process patents. 
• TRIPS gives protection of 20 years for patents, 50 years for copyrights, 7 years for trademarks and 10 years for layout designs. 

• TRIMs Agreement deals with the investment done by the businesses based in one country in a foreign country. It has the provisions of equal treatment of foreign companies wrt national companies. 

1. India’s Solar procurement under National Solar Mission
   • USA filed a case against India, arguing that India’s National Solar Mission gave public procurement preference & subsidy to India-made solar panels, creating a non-tariff barrier for US solar panels. Subsequently, India lost the case and withdrew these barriers in 2017. But, the USA still alleges that India is still giving preference to local manufacturers.
2. Ban on American Poultry
   • In 2007, India banned the import of US poultry under the provisions of the Indian Livestock Importation Act, 1898 due to the fear of avian influenza/bird flu (H5N1). The USA alleged that these claims had no scientific basis, and the ban was imposed to protect local business interests. In 2016, WTO ruled in favour of the USA. The USA alleges that India is still creating barriers to its poultry imports and hence demanded $450 million compensation from India in subsequent cases filed in 2018.
3. Export Incentive Schemes of India
   • In 2018, the USA filed a complaint against export incentive schemes of the Indian government viz. (1) Merchandise Export from India Scheme (MEIS), (2) Export Oriented Units (EOU), (3) Electronics Hardware Technology Parks (EHTP), (4) Special Economic Zone (SEZ) and (5) Export Promotion Capital Goods. Under this scheme, India gives tax reliefs and subsidies to its exporters. The argument of the Indian government was based on the fact that they will phase out these schemes after 8 years from and these subsidies and tax reliefs were needed as India is a developing country.
   •  But WTO ruled against India in 2019 and ordered India to stop such schemes within the next 90-180 days. But India challenged this in WTO Appellate Body

In WTO, negotiations related to trade are taken up in different rounds. E.g. WTO was formed as a result of the Uruguay Round. In 1986, these countries started to negotiate on a specific determined set of things under the Uruguay Round on which the decision was reached in 1993. After that, countries decided to move ahead to take other subjects in order to make the trade even freer. Hence, Singapore Round started in 1996 in which discussion was to be held on investment, government procurement, labour, environmental laws etc. But Uruguay Round had certain shortfalls which started to impact developing countries, and they started to protest. Hence, Singapore Round was scrapped, and negotiations started under Doha Round in 2001. Presently all the negotiations are going under Doha Round

Doha Development Round (DDA) officially began in November 2001 (4th Ministerial). DDA was set up to deal with many deficiencies of WTO significantly impacting developing countries. These include 

1. Public Stockholding: Developing countries wanted special safeguards & a change of rules relating to public stockholding for food security. 
2. Introduction of measures to blunt the market power of large firms in the pharmaceutical industry  
3. Making trade of goods and services easier across national borders 
4. Freer mobility of labour in global services trade 

Principles of Doha Round

1. Single Undertaking

• ‘Nothing is agreed until everything is agreed‘ i.e. the developed countries can’t cherry-pick which parts to prioritize.
• It is the root cause of why the Doha Round is struck. 

2. Transparency

• The negotiations have to be transparent.

3. Special & Differential Treatment

• The member countries will take the principle of special & differential treatment for developing & least developed countries into account while negotiating. 

India’s stand at Ministerial Conferences

• Export Subsidies: Reduce export subsidies given by developed nations.
• Special Safeguard Measures: USA, Canada, and other developed countries give their farmers 70-80% subsidies. If such produce is exported to developing countries, it can crash the price of agricultural commodities in those countries, negatively impacting local farmers. Hence, India and other developing countries want Special Safeguard Measure (SSM) under which such countries can raise the tariff on agricultural commodities temporarily to deal with the fall in the price of agricultural goods. There is a difference between developed and developing countries over the trigger factor at which SSM can be activated. 
• Stockholding: A permanent solution to public stockholding to ensure the continuation of its food subsidies for public distribution programs.           
• Re-affirming the Doha Development Agenda (DDA) and supporting the argument that new issues like—global value chain, e-commerce, competition laws, labour, environment and investments should be introduced only after settling all the issues to be discussed under DDA.

Why DDA is facing the roadblock?

 The reason is the fight between the developed and developing countries with differing demands

Developed Countries (headed by US , EU, Japan etc) => Bring back the Singapore Issues 

• They want a start to negotiations for new trade agendas, including investment, competition policies, government procurement, labour, environment and climate change.
• Developing Countries are against any conclusion of the Doha Round without a clear decision regarding the solution on key existing issues.

Developing Countries (headed by China, India etc)

• They want Doha Agenda negotiations to be completed before moving on to other items.

Consequences of DDA roadblock

Since WTO is not going anywhere and has stuck since decade, nations have started to look towards Regional Trade Agreements (RTAs). These developments have posed a question regarding the future of the multilateral trading system under the WTO. 

• With this, it is not surprising if the members no longer value the relevance of WTO & become more frustrated with its process. Consequently, members will be more eager to look for alternate routes outside the WTO, notably via Regional Integration. 
• Earlier TPP among the 12 nations (which was scrapped by Trump) and RCEP & TATIP can be understood as a pragmatic response to the DDA roadblock.  
• In all, Bilateral Free Trade agreements have increased from 124 in 1994 to 600 in 2015 

But neither approach with its inherent discriminatory nature is a substitute for WTO and its strong edifice of a multilateral system of rules based on egalitarian principles and effective dispute settlement mechanism.