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PSIR 2A-8 Evolution of International Economic System – Previous Year Questions – Solved

Model Answers to PYQs (2018-2023)

1] Identify and evaluate the reasons for deadlock in the WTO negotiations on fisheries between the developing and developed countries. [2022/20m/250w/4a]

The negotiation to curb harmful fisheries subsidies at the World Trade Organisation (WTO) is facing a deadlock due to deeply fixed positions of members over special and differential treatment (S&DT) concessions for developing countries. The WTO members are seeking to reach an agreement on prohibiting ‘harmful’ fisheries subsidies estimated at $14 billion-$20.5 billion annually that lead to overfishing and depletion of fish stocks worldwide.

While India, South Africa and some other countries are insisting on carve-outs for poorer nations to protect the subsidies of small fishers, there are others who want them to take on full commitments with longer timelines or technical support. A middle ground is difficult to reach due to the widely differing positions and there is a serious need for all members to show flexibility if a pact was to be in place.

Several developing countries including India, South Africa and Fiji, pointed out that as per the UN Sustainable Development Goals, effective S&DT should be an integral part of the WTO fisheries subsidies negotiation.

Some members like Canada and Australia said that S&DT should not be provided across the board to all developing countries and least developed countries (LDCs) but should be allowed following a needs-based approach. Both India and South Africa pointed out that there was no mention of a needs-based S&DT anywhere in the WTO negotiations or agreements and developing countries and LDCs had never been asked to demonstrate the use of S&DT provisions.

If members remain insistent on their demand for permanent exclusions to new subsidy disciplines, it would lead to the negotiations being dragged on. The negotiations could conclude faster if there was more flexibility among nations. [274 words]

2] Critically evaluate the role of the United States of America in the World Trade Organization (WTO) dispute settlement mechanism and its implications for the future of the WTO. [2020/15m/200w/3b]

The dispute settlement mechanism of WTO has been one of the most active platforms in WTO. Being the highest contributor to WTO, USA is a crucial and dominant member of the forum. However, lately, the country has been critical of the mechanism and is trying to undermine it.

The U.S. policymakers have increasingly used the WTO process to challenge Chinese government support for domestic industries, restrictions on imports, abuse of intellectual property, and other state-led trade policies. Between 2009 and 2017, the United States brought twenty-five cases to the WTO, more than any other country, sixteen of which targeted China.

The US administration also drew criticism for blocking the reappointment of a south Korean judge to the WTO’s appellate body in 2016. The process of blocking appointments was continued by Trump, and on December 10, 2019, the Appellate Body became unable to hear appeals since the terms of two more judges expired and the number of active judges fell to one. Seven judges normally serve on the body and a minimum of three is required to review new appeals.

While the U.S. has accepted favourable rulings that served its interests in global trade, it raised intransigent concerns about adverse decisions that struck down the U.S.’s trade measures.

The strangulation of the Appellate Body is a reflection of unilateralism and protectionism that are on a sharp rise. The crisis of WTO coincides with multipolarity and the rise of various trade agreements like RCEP.

The US withdrawal from the WTO would hand leadership of the world trading system to China. Its actions would create mistrust and countries would prefer newly formed regional trade agreements over WTO. [274 words]

3] Explain the significance and importance of the demand raised by the developing countries for a New International Economic Order (NIEO). Are they likely to achieve their objectives of NIEO in foreseeable future? [2020/15m/200w/3c]

The demand for a New International Economic Order by the developing countries goes back to the first session of the UNCTAD in 1964 when the call for NIEO was based on the realisation that most of the countries were not even independent when the current economic order came into play. Its fundamental objective was to transform the governance of the global economy to redirect more of the benefits of transnational integration toward “the developing nations”—thus completing the geopolitical process of decolonization and creating a democratic global order of truly sovereign states.

The NIEO called for the management of volatile commodity markets, preferential trade access to rich country markets, greater stability in exchange rates, monitoring of trans-border capital flows, greater aid to the least developed, favourable debt rescheduling, and regulation of multinational corporations to ensure that they comply with national laws and foster technology transfers.

The NIEO today is almost entirely forgotten. Their demands were backed by the fragile solidarity of the third world. The international laws were always in the favour of the developed nations and the north could always use its great economic, political and military might to restrain the south.

However, today the picture has changed. The developing countries have higher capacity and many institutions have been established exclusively by them like BRICS, RCEP, and SCO. They are assertive with their demands and are visible in various fora. e.g., the Doha round of talks, Kyoto Protocol etc. Hence, it appears possible to gradually achieve a New and Equal international economic system. [251 words]

4] How are the rising powers challenging the USA and Western dominance in the IMF and the World Bank? [2019/20m/250w/4a]

Western powers, especially the USA dominates the IMF and the World Bank. In fact, the US is the only country with sufficient voting powers in both these institutions over certain decisions. However, with the rise of emerging economies in the twenty-first century, Western dominance is being consistently questioned.

There is a constant demand by developing nations for a reformed IMF and World Bank with greater voting power to the emerging market economies. For this, the emerging economies supported the empowerment of these institutions after the 2008 global financial crisis. Eventually, IMF agreed on the redistribution of voting shares and decided that six per cent of the IMF quota share should be transferred to rising economies and developing states. This quota reform and doubling of IMF permanent capital resources helped emerging economies, especially Brazil, China, India, and Russia, enhance their influence in the institution, including the Executive Board.

In addition, emerging economies have also established their own institutions to counter the hegemony of the West. The formation of the Asian Infrastructure Investment Bank (AIIB), the BRICS New Development Bank (NDB) and the BRICS Contingent Reserve Arrangement (CRA) are some examples.

The developing nations have been increasingly critical of the attitude of the West in managing these institutions. And we frequently see China expressing its willingness to lead the international economic order

As more countries develop significant foreign exchange reserves, and as China has also been willing to finance projects, the World Bank and IMF weren’t as needed any more.

These initiatives are putting pressure on these western Institutions to speed up reforms that were ignored otherwise. hence, the rise of the emerging powers has started a feedback loop which is helping them in making the global economy equal and fair. [290 words]

The post contains answers to the last 6-year papers i.e. (2023-2018). Answers to the previous year questions from 2013-2017 are a part of our book PSIR Optional Model Answers to PYQs (2013-2022)

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You had all the questions posted at the beginning, have you taken them down?
Kindly do put up the questions


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