Chapter III International Organisation impacting global business

       

World Bank (IBRD) International Financial Corporation (IFC) International Development Association (IDA). Regional Financial Institutions Bank of International Settlement World Trade Organisation (WTO) Regional Trading Blocks Organising for Economic Co-operation Development (OECD)

& 

Bretton Wood Conference, New Hampshire in 1944 -The international monetary & financial aspects.  The main purpose of this conference was finalisation of the Articles of Assoication of the IMF & IBRD.  The conference has given birth to the twin international financial institutions International Monetary Fund (IMF) & the International Bank for Reconstruction & development (IBRD).  IBRD is popularly known as World Bank

IMF was established to provided short-terms loans to overcome the BOP difficulties.  World Bank aimed at providing long term loans for the purpose of 1. Reconstructing the war-damaged economies 2. Developing the less developed economies.  Reconstruction and development of member countries after the second world war.  Financial assistance to basic infrastructure and large scale industries. 

International Bank for Reconstruction & Development (IBRD) 
The world bank was established on 27th December, 1945 & started functioning with effect from 25th June 1946.  IMF short term financial assistance to remove short term disequilibrium in the BOP of member countries.  IBRD long term assistance to eliminate the BOP of member countries.  According to Prof. John H. Williams, world bank is much more important than the IMF reconstructing the war damaged economies & developing the less developed economies. 

World bank/IBRD is an international government, corporate in form, whose capital stock is entirely owned by its member government.  USA, UK, Germany, France, Japan, Canada, China, India, Australia & Netherland permanent bodies  96% of authorised capital collected from member countries in the form of share capital issued & authorized capital

Member countries of IBRD
Sl. No. 1. 2. 3. 4. 5. 6. Name of the Countries United States of America Japan Germany Britain France China Share capital in % 17.7 6.6 4.84 4.63 4.63 2.99

7.
8. 9. 10.

India
Canada Saudi Arab Italy

2.99
2.99 2.99 2.99

Objectives and Functions of IBRD  The World Bank regards that poverty anywhere is a danger to the prosperity everywhere .  Thus, the existence of backward economies is viewed by the developed countries also as undesirable, because it keeps the global market restricted.  The main objectives of the world bank are -

Functions of IBRD article I of the agreement
1. To assist in the reconstruction & development of the territories of its member of facilitating the investment of capital for productive purposes. 2. To promote private investment by means of guarantees on participation in loans & other investment to private investors. 3. To promote the long term balanced growth of international trade & the maintenance of equilibrium in balances of payments. 4. To encourage the development of productive resources in developing countries by supplying their investment capital.

5. Helping in the establishment of the projects in backward areas, which will have the greatest linkages with the hinterland, so that output, employment and income may increase. 6. Developing the economic infrastructure base through the development of power, transport, communications and irrigation sectors. 7. Assisting in the development of social infrastructure also, by financing special programmes of development of education, health and training.

Helping special area development progrmmes as in drought prone areas, flood prone areas, or ravine areas. 9. Supporting special programmes which can relate to the development of anything e.g., forest development, ports development, agricultural development, urban services, housing projects, sewerage development or underground railways. 8.

Membership of IBRD 

Any country can join as a member of the IBRD by signing in the Charter of the Bank as its subscriber.  Bank can suspend any member, if the country fulfill the conditions & responsibility to the IBRD.  The members of the IMF are also the member of the world bank.  The membership of the bank as on January 31, 2008 185.  The member country has to pay all the dues & also its share of losses, if it resigns.

Organisation Structure  IBRD is managed by a three-tier structure including Board of Governors, Executive Directors & President.
Board of Governors - 2

Management

Executive Directors - 21

President

Structure of World Bank

Board of Governors

Executive Directors

President

Governor

Alternative Governor

6 Directors FM

15 Directors CB

Finance Dept

Operation Dept

E&R Dept

Staff Dept

Law Dept

Foreign Affairs Dept

Board of Governors 
The Board of Governors is the general body of the Bank which consists of one Governor and the alternative Governor.  Governor was appointed by Finance Minister.  Alternative Governor was appointed by Central Bank of each member countries for the term of five years.  All powers of the Bank are vested in the Board of Governors.  The Board is required to meet at least once a year.  The strength of the voting rights of the governor depends upon the amount of the contribution of the country to the share capital of the bank.

Voting Rights of IBRD
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Name of the Countries United States of America Japan Germany Britain France China India Canada Saudi Arab Italy % of Voting Rights 22.5% 10.11% 9.11% 8.92% 8.92% 6.34% 5.84% 5.84% 5.84% 5.84% 

     

Executive Directors The Executive Directors are in charge of the general operations of the Bank. At present there are 21 Executive Directors 6 directors appointed by largest share holders USA, UK, Germany, France, Japan and India. 15 directors elected by other members. President The Executive Directors elected the president of the Bank who acts as the chief of the operating staff. He is responsible for the conduct of the ordinary business of the bank but is subject to the direction of the Executive Directors in matter of policy.   

The president of the bank normally does not have voting right except in case of exercising equal rights. He is assisted by senior vice president and directors of various departments in the day to day functioning of the bank. Committees The function of the bank is further assisted by two committees.
1. Advisory Committee seven experts appointed by Board of Governors. 2. Loan Committee appointed by the executive directors - loans  

 

Capital Resources The initial authorised capital of the world bank was $ 10,000 million divided into 1,00.000 shares of US $ 100.000 each. The subscribed capital is - US $ 9.400 million. The capital of the bank was US $ 9.3 billion in July 1992 to US $ 27 billion as on 31-01-2008. These shares were available only to member countries of each share.  2% is payable in Gold or US dollars.  18% is to paid in the currency of the member countries.  80% of the capital and payable at the request of the bank.   



Lending Operations Loans are granted to member countries only after the bank is fully satisfied about economic and financial position of member countries. The bank has power, supervision & control sanctioning loans & advances to member countries. Normally, the bank makes medium & long-term loans given to the member countries. World Bank providing these medium and longterm loans to LDCs at the lowest rate of interests. 

Granting loans by the bank is for overall & integrated development of the member countries.  The loans are meant for the reconstructions of the member countries.  Power Sector 30% of its total loans  Transport Sector 30% of its total loans  Agriculture, forestry, fishing, industrial sector, technical assistance and banking 40 % of total loans.

Loans out of its own funds

Lending forms

Borrowed Capital

Guarantee of Loans 

  

 

1. Loans out of Own Funds The World Bank can grant direct loans out of its own funds upto the 20% of the total subscribed capital. The bank s own funds consists of the contributions made by the members and the accumulated profits. 2. Loans out of Borrowed Capital The WB also provides direct loans out of its borrowed funds on the approval of the country from which the funds have been borrowed. 3. Guarantee of Loans The WB lends indirectly by guaranteeing loans made by private investors. Thus, the bank acts as guarantor between the lender and the borrower. In case of default by the borrower, the bank may call up its uncalled reserves to cover the default. 

  



Conditions for granting loans If the borrower is unable to raise a loan under reasonable circumstances. If the loan is for reconstruction and development. When the member country or its central bank provides guarantees the repayment of the loans. If a competent committee recommends a loan in the form of a written project report. In addition to providing direct loans, indirect loans and guaranteeing the loans.

Technical & Advisory Assistance 
Apart from loans & advances, the bank has been rendering signal services to its members by providing them suitable technical assistance to them.  Technical Assistance survey mission national resources long term development programmes.  Providing training programme Washington, Economic Development Institution set up Rocke feller & Ford Foundation  Problems of economic development & to increase their efficiency

Assistance to Underdeveloped countries (UDCs) 1. Bulk of the financial assistance has been given to UDCs for the promotion of development. 2. Loans & advances given to UDCs at lower interest rates. 3. The bank provides technical assistance to UDCs through its various institutions. 4. The bank conducting various meeting of creditor countries from time to time for extending assistance to the UDCs.

India & the World Bank 
India is one of the founder member of the world bank. It has been allotted a permanent place in the board of executive directors of the bank.  The bank has sent several missions/committee to India for financial assistance to various development projects field survey on various sectors of the economy.  Several officials of the bank have visited India for investigation into specific projects loans assistance.  The bank has also appointed a Resident Representative in New Delhi.

World Bank Groups 
World Bank facing many problems like 1. The IBRD can give loans only to its member government discouraging to private sectors. 2. Bank can make only fixed interest loans and cannot provide risk capital.  Therefore, with the aim of providing risk capital and soft loan facilities for the economic development of the member countries the IFC and IDA established

World Bank Group The World Bank has three affiliates
1. The International Financial Corporation (IFC) 2. The International Development Association (IDA) 3. Multilateral Investment Guarantee Agency  

International Development Association was established in 1960 as an affiliate of the world bank provide finance to less developed countries soft loan basis soft loan window of the IBRD. International Finance Corporation was established in July 1956 provides finance to private sector in developing countries.

World Bank Group

International Financial Corporation 1956 Finance to private Sectors Risk-capital

International Development Association 1960 Soft loans to members Soft loan windows

International Finance Corporation (IFC) 
The international finance corporation (IFC) is an affiliate of the world bank.  It was established on 20th July 1956 with the object of assisting private enterprises in developing countries by providing risk capital.  The world bank grants loans only to member government and ignore private enterprises.  And also does not provide risk capital to private enterprises of the member countries. ‡ Whereas, IFC would like to provide risk capital to the private industrial undertakings in developing countries. ‡ Therefore, for this requirement IFC was came into picture private industrial undertaking.

1.

2.

3. 4. 5.

Objectives of the IFC Investing in productive private enterprises private investors without govt guarantee of repayment. To serve as a clearing house investment opportunities, private capital and experienced management. Stimulating productive investment Accelerating internal loan of capital Promoting the growth of capital markets in the underdeveloped countries. 

   

Membership of the IFC As already pointed out that, IFC is an affiliate of the world bank. All the member of the world bank are eligible to become the member of the IFC. It has 185 members as on 3rd January 2008. It is not essential that all the members of the world bank should also be the member of the IFC. Thus, the activities of the corporation are completely controlled by the authorities of the IBRD.  

 

Capital Resources In the beginning, the authorised capital of the IFC was $100 million which was divided into 1,00,000 shares of $1,000 each. At present, its authorised capital is $1,300 million. On the basis of subscription, India s place is fourth in the list, when the USA, UK, France rank first, second and third respectively. The IFC can borrow from the World Bank.

Assistance to the member countries
Large scale Financial Assistance Medium scale Small scale Power Sector Petrochemical Mining

Loans

Oil & natural gas exploration Telecommunication Financial services Tourism  

 

1. Direct Investment Directly equity capital along with the private investments in companies in developing countries. Investment should not be more than the 50% of the total capital of company. Investment economic development commercial areas profit making areas. 2. Foreign & local capital IFC provides foreign capital & local capital to the private industry in the form of loans underwriting & sponsors of investment.  

 

3. Technical assistance Technical assistance of the private business enterprises in developing countries. 4. Capital market development Financial support & advice for the development of financial institutions. Provides legal, financial & institutional framework to encourage foreign & local capital investment in developing countries. Development of financial companies leasing & venture capital companies, mutual funds, merchant bankers etc. 5. Help to small-scale industries financial & technical assistance. 

 



India & IFC India is a founder member of the IFC. They receiving assistance in variety of areas such as automobiles, shipping, electricity, cement fertilizers, oil & gas, petro-chemical, Iron & steel & financial sectors. They received 10% of loans & equity of developing countries. The IFC invested $ 48.1 millions in India $25.4 millions loans & $22.7 millions as equity.

Regional Financial Institutions ‡ Some regional development banks have been established to assist the development of the developing countries of the respective regions. 
The African Development Bank  The Asian Development Bank  The Caribbean Development Bank &  Inter American Development Bank ‡ The influence of the regional banks is growing as they are becoming more responsive to the special needs of their own constituencies  

 

Asian Development Bank (ADB) Asian Development Bank (ADB) is a regional financial institution which was established under auspicious of a United Nations body Economic Commission for Asia & Far East (ECAFE) This regional institution mainly focused on economic development & cooperation in the Asian region. The bank started functioning in 1966 & has the head office at Manila in the Philippines. Total membership of ADB was increases from 31 in 1966 to 67 in 2008 48 Asian & 19 non-Asian countries.

1. 2. 3.

4.

5.

Objectives of ADB To promote public & private investment for economic development in the ECAFE. Utilization of its resources for financing those development of projects. Coordination of plans & policies of the member countries with a view to achieving better utilization of their resources. Provision of technical assistance to the member countries for the preparation, financing & execution of development projects. Cooperation with United Nations & various organs & other international organization.

Membership of the ADB
1. Members of the ECAFE 2. Associate members of ESCAP 3. Other countries in the ESCAP region which are members of the United Nations. 

Admission to membership of the bank is done by the acceptance of 2/3 of the members of the Board of Governors.

Asian Development Bank

Board of Governors Alternative Governor President Vice - president

Board of Directors 7 + 3 = 10 

  

Board of Governors Board of Governors is the highest policy making body of the bank. Each member nominates one Governor and an Alternative Governor. All the powers of the Bank are vested in the Board of Governors, which may delegate its powers of the bank to the Board of Directors. Admission of new members, changes in authorized capital, election of Directors and President.

Board of Directors  Board of Directors exercises the responsibility in the operations of the bank.  It takes decisions concerning loans, guarantees and other investments by the bank, borrowing programmes, technical assistance and other operations of the bank.  It also approves the administrative budget of the bank financial year.

President 
President was elected by the board of directors is the chairman of the board of directors.  He is elected for a period of five years.  President is assisted by the Vice-president in the management of the bank.

Vice President 
He is serves for a five year term, but may be re-elected.  He acts as the deputy of the president in the management and operations of the bank.  In the absence of the president, he exercises the authority and performs the functions of the president. 

   

Financial Resources Authorised capital of $ 2.9 billion was raised to $ 25 billion in 1992. Out of this 50% contributed by Japan & the remaining by other member countries India is the 2nd largest contributor to ADB. To increase its resources, the bank issues debentures and accepts deposits from its special funds. Further, the fund raises from borrowing from the international capital markets. Besides Japan, USA, UK & Germany have substantial contributions to the share capital of the ADB.

Various activities of ADB

1. Financial assistance  Financial assistance in the form of loans Loans Project Loans
Sector Loans Programme Loans Project Loans ± are given for specified projects & the amount is tied to the project. Sector Loans ± are given to a number of related projects in a given sector Programme loans ± cover more than one sector & related to the implementation of a policy.

Special Funds
a. b. c. d. Technical Assistance Special Fund Asian Development Fund Agricultural Special Fund & Multipurpose Special Fund 

Loans out of these funds are given for projects of high development priority for longer periods and at lower rates of interest than for ordinary loans Soft Loans 10% paid in capital.

In short, the ADB sanctions for the following types of loans
1. To development finance institutions on the guarantee of govt. 2. To small and medium enterprises on the govt s guarantee 3. To private enterprises in the form of equity and loans without govt guarantee. 4. To strengthen financial institutions and capital market. 5. To public sector enterprise for privatization without govt guarantee. 

 



2. Technical Assistance The ADB also provides technical assistance to member countries out of the technical assistance special fund. This assistance is provided to the member in ECAFE region through their govts agencies, regional institutions and private firms. The bank also provides advisory services under its technical assistance programme. It sends its own experts and even hires consultants from other institutions on short and long missions member countries.

3. Surveys and Research  The ADB conducts survey and research in order to formulate policies for the future and to promote regional integration.  It brings out an annual report in which it highlights the achievements, prospects and failures relating to the economic development of the member countries of the ECAFE region and also suggests measures to solve their problem.

4. Poverty Reduction  Further, the bank exercises greater emphasis on poverty-reduction by means of increasing productivity, enhancing employment opportunities and promoting economic growth.  These require new channels of investments with improved technologies.  ADB now pays more attention to HRD, poverty reduction, social infrastructure development, urban environmental improvement and structural reforms.

Sector wise cumulative lending by ADB in India on 1 December 2008
Sector wise Transport & communication Energy Social Infrastructure Finance Multi-sector Industry & non fuel minerals Others Total
No of loans 22 25 15 13 6 4 1 86 Amounts in million 4,399.2 4,350.8 1,620 1,370 1,200 175.9 200 13,319.5 % 33% 32.7% 12.2% 10.3% 9% 1.3% 1.5% 100%

Limitations of ADB 1. Its financial resources are limited because the regional member countries are mostly poor. 2. There have been negative transfer to the bank during the last few years Fiji, Malaysia & Philippines. 

 



WORLD TRADE ORGNISATION (WTO) Set back of International trade after the First World War high tariff walls and raised other tariff barriers Soon after the Second World War International Trade Organisation - General Agreement on Tariff and Trade (GATT) came into picture 1947 provisional body They tries to reduce tariff and other barriers to trade member countries. GATT stood for promotion of free trade, nondiscriminatory multilateral trade and for abolishing all unfair trade practices.

Various rounds of GATT
Year 1947 1949 1951 1956 1960-61 1964-67 1973-79 Place Geneva (Switzerland) Annecy (France) Torquay (UK) Geneva Geneva (Dillon Round) Geneva (Kennedy Round Geneva (Tokyo Round) Geneva (Uruguay Round) Subjects covered Tariffs Tariffs Tariffs Tariffs Tariffs Countries 23 13 38 26 26

Tariffs and anti-dumping measures Tariffs, non-tariff measures, agreements Framework

62 102

1986-1994

Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creating of WTO.

123

Uruguay Round (1986-1993) and Dunkel Proposals 1991
1. Non Tariff Barrier 2. Natural Resource Products 3. Textile and Clothing 4. Agriculture 5. Tropical Products 6. GATT articles 7. Tokyo Round Codes 8. Anti-Dumping most favourable nations clause 9. Subsidies 10. Intellectual Property 11. Investment Measures 12. Dispute Settlement 13. The GAT system 14. Services

WORLD TRADE ORGNISATION (WTO) 
The WTO was set up as the successor to GATT as formal international organization.  It came to effect from 1st January 1995, under the Marrakesh agreement places the global trading system.  Uruguay Round, GATT was converted into World Trade Organisation (WTO).  The membership of the WTO increased from 77 in 1995 to 150 by the end of June 30th 2008.  WTO will be directed & control by Ministerial Conference.  That will meet at least once every two years.  India is the founder member of the WTO by signing the WTO agreement on 30th December 1994.  97% world trade accounted among member nations.

Features of the WTO
1. Unlike the GATT, it is a legal entity. 2. Unlike the IMF & the IBRD it is not an agent of the United Nations. 3. Unlike, the GATT, the agreements under the WTO are permanent & binding to the member countries. 4. WTO is a powerful body, it is faster & efficient decision making than GATT Dispute settlements. 5. Unlike the GATT, the WTOs has a wider coverage. It covers trade in goods as well as services (GATS) TRIMS, TRIPS

Difference between GATT & WTO
1. 2. 3. 4. 5. GATT GATT had no legal status GATT & its agreements are provisional GATT were contracting body GATT was less powerful Under GATT dispute Settlement System was slow & less efficient GATT rules applied to trade in goods only (GATG) 1. 2. 3. 4. WTO WTO has a legal status international treaty WTO & its agreements are permanent WTO was permanent body WTO is more powerful

6.

5. WTO it is faster & more efficient. 6. WTO covers not only GATG but also GATS, TRIPS. TRIMS

1. 2. 3.

4. 5. 6.

Objectives of the WTO To ensure the reduction of tariffs & other barriers to trade. To eliminate discriminatory treatment in international trade relations anti dumping - MFN To facilitate higher standards of living, full employment, a growing volume of real income & effective demand & an increase in production & trade in goods & services of the member nations. To make positive effect, ensures developing countries - LDCs To facilitate the optimal use of the world s resources for sustainable development. To promote an integrated more viable & durable trading system multilateral & plurilateral trading

Structure of the WTO Ministerial Conference Dispute Settlement Body (DSB) Councils I, II & III Trade in Goods (GATG) Trade in Services (GATS) Trade Related Intellectual Property Rights (TRIPS) Trade Policy Review Body Committees I II & III Secretariat of the WTO Trade & Development BOP Restrictions Budget, Finance & Administration

Director General 1+4 

  

 

Ministerial Conference (MC) MC is at the top of the structural organization of the WTO. It is the supreme governing body which takes ultimate decisions on all matters. It is constituted by representatives of all the member countries General council (GC) It is composed of the representatives of all the members. It is the real engine of the WTO which acts on behalf of the MC. It is also acts as the dispute settlement body as well as the Trade policy review body. 

Secretariat - The administration of the WTO is conducted by the secretariat which is headed by the Director of General (DG) appointed by the MC for the tenure of four years.  Director General assisted by the four deputy directors from different member countries.  The annual budget estimates & financial statement of the WTO are presented by the DG.

Trade in Services GATS

Councils

Intellectual Property Rights (TRIPS) Trade related to Goods (GATG Trade & Development

Committees

BOP Restrictions Budget, Finance & Administration 

  

Functions of WTO The former GATT was not really an organisation, it was merely a legal arrangement. On the other hand, the WTO is a new international organisation set up as a permanent body. It mainly focus on trade in goods (GATG), trade in services (GATS), foreign investment (TRIMS), intellectual property rights (TRIPS) etc. Article III has set out the following five functions of WTO.

Functions of WTO ..
1. The WTO shall facilitate the implementation, administration and operation of multilateral and plurilateral trade agreements. 2. The WTO shall provide the forum for negotiations among its members concerning their multilateral trade. 3. Facilitating settlement of trade disputes among members Governing the Settlement of Disputes. 4. The WTO shall administer Trade Policy Review Mechanism. 5. Cooperating with other international institutions involved in global policy making IMF & IBRD.

Non Discrimination

Free Trade

Stability in Trading System

Principles of WTO

Decision Making

Market Access

Fair Competition

1. Non-Discrimination anti-dumping  This is the most important principle on which WTO has been founded.  The principle of non-discriminations means two things
1. All trading partners will be granted the Most Favoured Nations (MFN). 2. Foreign goods, services, investment, trademarks, patents & copyright shall be given the same treatment. 

  

2. Free Trade The objective of WTO, as in case of GATT is to promote free trade among nations through negotiations. For this purpose WTO has to work for progressive liberalisation of trade through reduction in tariff and removal of quantitative restriction on imports by member countries. 3. Stability in the Trading System Under WTO agreements member states are committed not to raise tariff and non-tariff trade barriers arbitrarily. This provides stability and predictability to the trading system.

4. Promotion of Fair Competition  WTO system of multilateral trading system provides for transparent, fair and undistorted competition among the various countries.  Rules such as most favoured nation treatment to all trading parties, equal treatment to foreign goods patents and copyright.  WTO agreement provides for discouraging unfair competitive practices such as export subsidies and dumping.

5. Special concern for developing countries  WTO has shown special concern for the developing countries as it has given them more time to adjust to agreements under it and also some special privileges. 6. Multilateral Trading System  The most important feature of WTO is that it seek to establish just and fair multilateral system of international trade  where in the developed countries, developing countries and least developing countries. 

   

7. Market Access Commitment WTO agreement which seek to establish multilateral trading system require the member countries. Infact, market access is ensured by abolishing nontariff barriers as well as by reducing tariffs. The member countries reduced tariffs on industrial goods and agricultural products by 37 percent. USA agreed to cut down farm subsidies. Developing countries are also required to reduced agricultural subsidies by 10% of the agricultural products. 

 



Dispute Settlement of WTO Dispute Settlement Mechanism one of the major activities performed by WTO. Due to globalisation and increases competitions among the contracting countries goods, services & capital which turn, created disputes between countries. WTO provides a more powerful mechanism solve disputes over trade among the member countries. WTO, in one of its recent reports observed that, multilateral dispute mechanism is more frequently by the developing countries than advanced countries.

Scope of WTO  Traditionally, GATT was concerned with the trade in goods which were mainly primary manufactured products.  WTO, on the other hand has a much wider scope than GATT because now new areas are included agreements having implications for the production process of goods, agriculture, a controversial area.  Other new areas included in the agreement are
1. Trade Related Intellectual Property Rights (TRIPS) 2. Trade Related Investment Measures (TRIMS) 3. General Agreement on Trade in Services (GATS)

WTO

Trade in goods

Trade in Services

Trade in IPR

General Agreement On Tariff & Trade

General Agreement On Trade in Services

Trade Related Intellectual Property Rights

Customs Valuation Product Standards Import Licensing & Safeguards Subsides & countervailing measures Anti-dumping Trade Related Investment Measures Textiles & Clothing Agriculture

Business & professional Patents Communication Copyrights Educational services Trademarks Engineering services Industrial designs Financial services Geographical indications Health services Undisclosed information Tourism & travel Transport services Banking & financial services

1. General Agreement on Trade in Services (GATS)  This agreement covers all internationally traded services.  Foreign services and service suppliers would be treated on equal national footing with domestic services and service supplies.  In short, the GATS covers four modes of international delivery services 1. Cross-border supply transportation services 2. Commercial presence FDI 3. Consumption abroad tourism and development 4. Movement of personnel foreign consultants.  

2. Trade Related Investment Measures (TRIMS) Trade Related Investment Measures refers to certain conditions for restrictions imposed by a government in respect of foreign investment in the country. TRIMS were widely employed by developing countries.
1. Local content requirement certain amount of local inputs be used in products 2. Trade balancing requirement (imports shall not exceed a certain proportion of exports). 3. Trade and foreign exchange balancing requirements. 4. Domestic sales requirement (i.e., a company shall sell a certain proportion of its output locally).

3. Trade Related Intellectual Property Rights (TRIPS)  One of the most controversial outcome of the UR is the agreement on TRIPS.  Intellectual property rights may be defined as information with a commercial value .  IPRs may be legally protected by patents, copyrights, industrial designs, geographical indications and trademarks. 

The UR agreement on TRIPS covers seven intellectual properties 1. Copyright & related rights 2. Trademark 3. Geographical indications 4. Industrial designs 5. Patents 6. Layout designs 7. Undisclosed information

Benefits of WTO to India  India was one of the 76 governments that became members of the WTO on the first day of the formation of the WTO. 1. Boost to Exports  India s exports are likely to be boosted due to reduction of tariffs on the products of export interest to India.  Prospects of agricultural exports will improve due to reduction in domestic subsidies and barriers to trade.  Phasing out of MFA will help in the export of textiles.  

 

2. Security and Predictability The revamped dispute settlement procedures and the agreements of safeguard, subsidies and anti-dumping measures will provide greater security and predictability in international trade. WTO rules provide greater protection against bilateral pressures or restrictive trade practices. Arbitrary changes in the laws governing trade and investments will not be made under the WTO regime. Under TWO, member nations bind their commitments so that conditions become predictable and transparent.  

  

3. Policy Assistance As a member of the WTO, India can get assistance from the International Trade Centre in formulating and implementing export promotion programmes. 4. Trade Links India has the advantage of having trade links with all other member countries. It is saved from the trouble of entering into multiple bilateral trade agreements with so many countries. India has market access to all nations. WTO is expected to facilitate the growth of multilateral trade. 

    

5. Settlement of Disputes WTO provides a forum for trade negotiations and settlement of disputes among member countries. Elaborate rules and procedures have been laid down for this purpose. The agreements are legally binding on member countries. 6. Special Concessions There are several concessions and exemptions for the developing countries especially the least developed nations. There are provisions extending special and differential treatment to such countries. WTO has also helped in promotion of trade in services. 

   

7. Promotion of Competition Quantitative restrictions and non-tariff barriers are to be removed under the regime of WTO. Import restrictions are allowed when a country faces balance of payments difficulties. 8. Technical Assistance Training programmes, regional seminars and international conferences are held regularly under the auspices of WTO. About 100 technical cooperation missions are organised every year. In these sessions, developing countries get an opportunity to learn the technicalities, rules and regulations to the least developed countries is provided.  

 



9. Sustainable Development The multilateral trading system embodied in the WTO has contributed significantly to economic growth and social development. No country is prevented from taking measures for the protection of its environment. WTO seeks to uphold and safeguard an open and nondiscriminatory multilateral trading system for promoting sustainable development Tariff and non-tariff barriers for environment goods and services shall be reduced and eliminated. Alleviation of poverty is placed at the centre of the agreements and rules.

10. Policy Review Mechanisms  Members of WTO have to undergo periodic review of their policies and programmes.  This is done with a view to promoting mutual understanding of the need, significance, and the impact of these policies which would promote transparency and fairness.

Disadvantages of WTO 1. No Export Push  India s exports may not increase considerably.  Flow of goods and services across the world depends more on infrastructure, political environment, quality and technology then on trade barriers.  Removal of trade barriers is no guarantee for increase in exports. 2. Prominence to Developed Nations  WTO focuses more on the interests of developed countries.  TRIMS undermines strategy of self-reliant growth based on local services and technology.  Global finance is still moving primarily towards the developed countries.  Most of the developing countries are left high and dry.  TRIMS favour the multinational corporations.

3. Price Rise  WTO agreements are likely to cause a steep hike in the prices of drugs and agricultural inputs. 4. Danger to Service Sector  Service sector in India is less developed than in developed countries.  Inclusion of trade in services would be detrimental to India s interests.

5. Not Really Free Trade  World trade has not really opened up.  Developed countries are imposing more restrictions than underdeveloped countries.  Free movement of labour is not allowed.  Tariff peaks remain in certain areas.  Anti-dumping duties have become the source of new non-tariff barriers.  Developed nations want to have monopoly over technology. 6. Erosion of Autonomy  WTO agreements are likely to erode the autonomy of governance in the third world countries.  The governments of these countries will not have full freedom to formulate the policies and identify the priorities in many areas, in which WTO agreements will prevail.

WTO and India
1. Tariff Reduction 1995 2005 2. Removal of Quantitative Restrictions 714 items in 2000 & 715 items were in 2001. 3. Trade Related Intellectual Property Rights (TRIPS) providing marketing patent rights drugs & farm products. 4. Trade Related Investment Measures (TRIMS) pharmaceutical products 5. Customs Valuation Rules - 1998 was amended to comply with the provision of the WTO agreement. 6. General Agreement on Trade in Services (GATS) 33 activities permitting the entry of foreign service providers.

Economic Integration  Economic integration also referred to as trade blocs, regional integration.  It is an important international business environment.  Most countries in the world are member of regional trade blocs high income countries low income countries and medium level of income. 

Regional integration refers to a process or decision whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers and establishing cooperation and coordination between them.  The term economic integration is commonly refer to the type of arrangement that removes artificial trade barriers like tariffs and quantitative restrictions between the integrating economies.

Definitions  Salvatore defines economic integration as a commercial policy of discriminately reducing or eliminating trade barriers only among the nations joining together.  Tinbergen creation of most desirable structure of international economy, removing artificial hindrances to the optimum operation and introducing deliberately all desirable elements of co-ordination.  Thus, international economic integration refers to a decision or process whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers and establishing certain elements of co-operations and co-ordinations between them.

Types or forms of Economic Integration 1. Preferential Trade Area or Association 2. Free Trade Area 3. Customs Union 4. Common Market 5. Economic Union

1. Preferential Trade Area  Under a preferential trade area (PTA) member countries agree to lower trade barriers within the group to levels below those erected against outside economies. 2. Free Trade Area  A free trade area is a grouping of countries to bring about free trade between them.  The free trade area abolishes all restrictions on trade among the members but each member is left free to determine its own commercial policy with non-members. 

 



3. Customs Union A customs union is a more advanced level of economic integration than the free trade area. It not only eliminates all restrictions on trade among member but also adopts a uniform commercial policy against the non-members. 4. Common Market The common market is a step ahead of the customs union. A common market allows free movement of labour and capital within the common market, besides having the two characterstics of the customs union namely free trade among members and uniform tariff policy towards outsiders.

5. Economic Union  A still more advanced level of integration is the economic union.  The economic union achieves some degree of harmonisation of national economic policies through a common central bank, unified monetary and fiscal policy etc. 6. Economic Integration  The ultimate form is full economic integration characterized by completion of the removal of all barriers to intra-bloc movement of goods & services, capital & persons.

Levels of Regional Economic Integration
Level of Integration +
Coordination of Economic Policies Free Movement of Factors of Production within Region Common External Trade Barriers Free Trade among Regional Partners Lower Trade Barriers to Regional Partners

EU CM CU FTA PTA

Preferential Free Trade Area Trade Area

Customs Union

Common Market

Economic Union

1. 2. 3. 4. 5. 6. 7. 8.

Important Regional Trading Blocks are European Union (EU) North American Free Trade Agreement (NAFTA) Association of South-East Asian Nations (ASEAN) South Asian Association for Regional Co-operation (SAARC) Economic and Social Commission for Asia and Pacific (ESCAP) Asean Free Trade Area (AFTA) Latin American Integration Association (LAIA) European Free Trade Association

The Major Regional Trade Blocs

NAFTA

European Union

CACM Andean Group

CARICOM COMESA

ASEAN

MERCOSUR   



European Union (EU) The European Economic Committee (EEC) also known as European Common Market (ECM), European Community (EC), European Union & Trade Blocs etc. The European Common Market was set up on January 1st, 1958 by six European nations France, Germany, Italy, Belgium, Netherlands & Luxembourg. Now it consists of 25 nations in Europe. The main objective of EEC is promote harmonious development of member countries continuous & balanced development raising standard of living close relations between member nations.

Years 1957

No of Countries 6 Nations

Name of the Countries France, Germany, Italy, Belgium, Netherland and Luxembourg United Kingdom (UK), Ireland & Denmark Greece Portugal and Spain Austria, Finland & Sweden Cyprus, Czech Republic, Estonia, Greece, Hungary, Lativia, Lithonia, Malta, Slovakia, Slovenia.

1973 1981 1984 1986 2004

3 Nations One Nation 2 Nations 3 Nations 10 - Nations

Major activities of EEC 1. Elimination of customs duties, quantitative restriction with regard to exports and imports of goods among member countries. 2. Establishment of a common customs tariff and common commercial policy with regard to nonmember countries. 3. Abolition of all obstacles for movement of persons, services and capital among members. 4. Increasing competition among member countries and enhancing standard of living among them. 

European Union one of the single largest market enlarged the production, trade, income, investment ^ employment in all the member countries.  The Balance of Payments (BOP) position of all the member countries has become strong.

2. North American Free Trade Agreement (NAFTA)  NAFTA came into being on January 1st, 1994.  This is the most affluent nations of the world USA, Canada & Mexico.  A free trade agreement was signed by the USA, Canada and Mexico in later.  NAFTA is expected to eliminate all tariffs and trade barriers among these countries by 2009. 

  



3. Association of South-East Asian Nations (ASEAN) This is an important regional economic grouping which is emerging as major one in world trade. A group of six countries Singapore, Brunei, Malaysia, Philippines, Thailand & Indonesia established ASEAN in 1992. ASEAN has created a common Effective Preferential Tariff (CEPT) plan to reduce tariffs for manufactured and processed products leading to an ASEAN free trade area in 15 years. ASEAN has helped its members to maintain money, share their resources and achieve synergy in development. ASEAN has decided to invite China & India has Guest Country .

4. South Asian Association for Regional Cooperation (SAARC)  The successful performance of EEC, NAFTA & ASEAN, the other trade blocs in the economic development of member countries gave impetus for the formation of SAARC.  India, Bangladesh, Bhutan, Maldives, Pakistan & Srilanka established SAARC in 1985.

Objectives of SAARC
1. To improve the quality of life & welfare of the member countries. 2. To develop the region economically, socially & culturally. 3. To provide the opportunity to the people of the region to live in dignity and to exploit their potentialities. 4. To enhance the self-reliance of the member countries jointly. 5. To enhance the mutual assistance among member countries in the areas of economic, social, cultural, scientific and technical fields. 6. To enhance the co-operation with other developing economies. 7. To extend co-operation to other trade blocs.

Trading Block
Name of the trading block Member countries
Year of establishment

EC Belgium, Denmark, France, (European Community) Italy, Luxumberg, Netherlands, Portungal, Spain & UK EFTA Australia, Finland, Iceland, Norway, (European Free Trade Liechten-Stein, Sweden & Switzerland Association) NAFTA (North American Free US, Canada & Mexico Trade Agreement) LAIA Mexico, Paraguay, (Latin American Uruguay, Venezuela Integration Association) Peru,

1957

1960

1989

1980

MERCOSUL (Southern Cone Argentina, Brazil, Paraguay, Uruguay Common Market) ANCOM (Andean Market) Bolivia, Colombia, Common Venezuela Ecuador, Peru,

1991

1969

CACM Costa Rica, El Salvador, Guatemala, (Central American Honduras, Nicaragua Common Market) CARICOM Antigua & Bermuda, Bahamas, (Caribbean Common Barbadas, Belize, Dominica, Geneda, Guyana, Jamaica, Montserrat, St. Kitts Market) Nevis, St. Lucia, St. Vincent, Trinidad

1960

1973

OECS (Organisation of Eastern Carribbean States)

Antigua & Bermuda, Dominica, Greneda, Montserrat, St. Kitts-Nevis, St. Lucia, St. Vincent, Grenadines & Virgin Islands

1981

GCC Bahrain, Kuwait, Oman, Qatar, Saudi (Gulf Co-operation Arabia, UAE Council) ACM (Arab Market) AMU (Arab Union) Egypt, Iraq, Jordan, Lebanon, Libya, Common Mauritania, Syria Algeria, Libya, Mauritania, Morocco, Maghreb Tunisia

1981

1964

1989

SACU Boputhatswana, Botswana, Ciskei, (Southern African Legotho, Namibia, S. Africa, Swaziland, Transkei, Venda Customs Union)

1969

ECOWAS Benin, Burkina Faso, Cape Verde, Cote d¶Ivorie, Gambia, Ghana, Guinea(Economic Community of West Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Toga African States) PTA (Preferential Trade Area for Eastern & Southern African States) CEEAC (Economic Community Central States) Burundi, Compros, Djibouti, Ethiopia, Kenya, Lesotho, Malawi, Maurtitius, Mozambique, Rwanda, Somalia, Swziland, Tanzania, Uganda, Zambia, Zimbabwe

1975

1981

Burundi, Cameroon, Central African Republic, Chad, Congo, Equatorial of Guinea, Gabon, Rwanda, Sao Tome, African Zaire

1981

CEAO Benin, Burkina Faso, Cote d¶Ivorie, Mali, (West African Mauritania, Niger, Senegal Economic Community)

1959

UDEAC (Economic & Customs & Union of Central Africa) MRU (Mano River Union) ASEAN or AFTA (Association of south-east Asian Nations) BA (Bangkok Agreement) ANZCERT (Australia, New Zealand Closer Economic Relations & Trade Agreement SAPTA (South Asian Preferential Trading Agreements)

Comeron, Central African Republic, Chand, Congo, Equatorial Guiena, Gabon Guinea, Liberia, Sierra Leone

1964 1973

Brunei, Indonesia, Malaysia, Phillippines, Singapore, Thailand Bangladesh, India, Laos, S. Korea, Srilanka

1967

1976

Australia, New Zealand

1983

SAARC (India, Pakistan, Bangladesh, Maldives, Srilanka, Nepal & Bhutan)

1993

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