International Business Answers Q2. Influence of PEST Factors on International Business Any business is affected by its external environment.

The major macroeconomic factors in the external environment that affect the business are political, environmental, social and technological.

A. Political Environment
The political environment of a country greatly influences the business operating in those countries or business trading with those countries. The success and growth of international business depends on the stable, collaborative, conducive and secure political system in the country. The following factors affect the political environment in a country.

1. Tax Policy: The tax policy of a country affects the profitability of the business there. The
Corporate Taxation laws affect the profitability directly. The direct taxation laws also affect the business because it influences consumer spending. The structure of indirect taxation in a country like its excise duty structure, customs and sales tax greatly affects the input costs of a business. For e.g. Countries like UAE have very low direct taxation levels inducing great spending and hence trading and marketing based business are successful. But due to very high indirect taxation levels the manufacturing business is not very successful.

2. Government support: One of the most important political factor is the Government
support to international businesses. Business can be successful only if the local government provides support in terms o infrastructure, license clearing if required, transparent policy and quick dispute resolution mechanism. Also the nature of the political system i.e. democracy, communism etc. in the country influences the Government support. For e.g. the RBI has provided single window clearance for FDI and hence has greatly increased the FDI levels in our country.

3. Labor Laws: the labor laws in a country affect the viability of a business in that country.
The pension laws also play a critical role especially in cross border acquisitions. Many businesses had to be withdrawn or closed because of the labor unrest in the country. For e.g.: Withdrawal of Premier Automobiles due to union strikes in our country. The problems faced by doctors and nurses in UK due to the restrictive laws in that country.

4. Environmental policy: The countries environmental policy (under the Kyoto Protocol or
otherwise) affects many business like chemicals, refineries and heavy engineering.

5. Tariffs and duty structure: The level of duties and tariffs that are imposed by the country
influence its imports and exports greatly. Some countries follow a protectionist policy to the domestic industry by raising import barriers For e.g. India in the pre liberalization era, Russia.

6. Political stability and political milieu: Political stability greatly affects the longevity of the
businesses in a country. Political risk assessment should be done to determine the country risk on the basis of following parameters : a. Confiscation: the nationalization of businesses without compensation. For e.g. India during the nationalist wave during Indira Gandhis tenure.

b. Nationalization: Resource nationalization is a major risk for businesses involving

local resources like oil, minerals etc. For e.g. the resource nationalization in Columbia.

c. Instability risk: The possibility of military takeovers or huge government changes.

For e.g. the coups in Thailand or in Fiji has affected the profits of businesses there by as much as 60% due to work stoppage and property destruction.

d. Domestication: The global company relinquishing control in favor of domestic

investors. For e.g. Barclays bank in South Africa B. Economic factors The economic factors in a country greatly influence the business in that country. The following factors are important in the macroeconomic environment.

1. Economic system: the economic system in a country i.e. capitalism/ communism/ mixed
economy (India) is important for deciding the nature of the businesses. The nature of the system decides the allocation of resources. Due to globalization there is a gradual shift toward market forces to allocate resources even in the communist countries like China.

2. Interest rates: The interest rates in the country affect the cost of capital (if raised locally)
and the operational costs. Interest rates also determine the confidence of the Government in the economy and consumer spending.

3. Exchange rates: The exchange rates affect international trade and capital inflows in the
country.

4. Income levels and spending pattern: Though it is more of a demographic parameter has
is very important bearing on the sell side of all international businesses. For e.g. In a

country like India, with rising aspirer population there is a market opportunity for products like IPod (considered luxury items till now) C. Social factors Businesses are driven by people both as human capital and as consumers. It is necessary for an international businessman to understand the social and cultural aspects of the country they operate in. The following are the important social factors.

1. Age distribution: the age distribution of the population is important to consider the
consumption patterns in the markets. Age distribution also determines the mindset of the market and helps segmentation of the market accordingly. It also has a bearing on the employee quality. A young population also determines a workforce.

2. Family system: the family system has a bearing on the decision makers in consumption.
For e.g. in Islamic countries women have a less say in making consumption decisions. In emerging economies like India children are gaining important role in consumption. This helps in positioning of products.

3. Cultural aspects: The cultural aspects influence the way the business is conducted in
countries. In Japan there is a different way in which contracts are signed and executed. In Russia being a communist oriented mindset the business is conducted in a closed manner. Italians have a seemingly lazy way of doing business and hence it is very difficult to conduct business in the pacy US way.

4. Career attitudes: the career attitude of the workforce is important social aspect.
D. Technological Factors Technology has a very important role to play in determining the success of international businesses because technology has made international business possible. The following are the technological factors that influence the business.

1. R&D: the support that the Government gives to R&D encourages setting up R&D business
levels. Also the ease of a qualified local workforce influence business. For e.g. the semiconductor industry in Taiwan

2. Technology transfer: The ease of technology transfer influences the business climate. The
environment where the technology transfer is not viable gradually loses out on business from emerging countries that seek technology transfers. For e.g. in the early 40s countries like Czechoslovakia (the Czech Republic) was a very technologically advanced country but had very low business interest due to the less chances of technology transfers. For e.g. GE withdrew operations from a JV as there as they could not access local expertise)

Political risk
1. Political risk is a type of risk faced by investors, corporations, and governments. It is a
risk that can be understood and managed with reasoned foresight and investment. 2. Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisionsor any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.

3. Political risk faced by firms can be defined as the risk of a strategic, financial, or
personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labour, and developmental), or events related to political instability (terrorism, riots, coups, civil war, and insurrection). 4. Portfolio investors may face similar financial losses. Moreover, governments may face complications in their ability to execute diplomatic, military or other initiatives as a result of political risk.

5. A low level of political risk in a given country does not necessarily correspond to a high
degree of political freedom. Indeed, some of the more stable states are also the most authoritarian.

6. Long-term jurisdiction of political risk must account for the danger that a politically
oppressive environment is only stable as long as top-down control is maintained and citizens prevented from a free exchange of ideas and goods with the outside world.

7. Understanding risk as part probability and part impact provides insight into political
risk. Political risk is similar to an expected value such that the likelihood of a political event occurring may reduce the desirability of that investment by reducing its anticipated returns.

8. There are both macro- and micro-level political risks. Macro-level political risks have
similar impacts across all foreign actors in a given location. While these are included in country risk analysis, it would be incorrect to equate macro-level political risk analysis with country risk as country risk only looks at national-level risks and also includes financial and economic risks. Micro-level risks focus on sector, firm, or project specific risk.

Risk analysis is the process of defining and analyzing the dangers to individuals, businesses and government agencies posed by potential natural and human-caused adverse events. In IT, a risk analysis report can be used to align technology-related objectives with a company's business objectives. A risk analysis report can be either quantitative or qualitative. In quantitative risk analysis, an attempt is made to numerically determine the probabilities of various adverse events and the likely extent of the losses if a particular event takes place. Qualitative risk analysis, which is used more often, does not involve numerical probabilities or predictions of loss. Instead, the qualitative method involves defining the various threats, determining the extent of vulnerabilities and devising countermeasures should an attack occur.

Q4. Ten reasons why FDI happens 1. Foreign Direct Investments (FDI) as defined in the BOP Manual, are investments made to acquire a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The purpose of the investor is to have a significant influence, an effective voice in the management of the enterprise. The definition of the Organization for Economic Cooperation and Development (OECD) which considers as direct investment enterprise an incorporated or unincorporated enterprise in which a direct investor who is resident in another economy owns ten percent or more of the ordinary shares or voting power (for incorporated enterprise) or the equivalent (for an unincorporated enterprise). 2. It provides a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. 3. FDI inflows are considered as channels of entrepreneurship, technology, management skills, and of resources that are scarce in developing countries. Hence, they could help their host countries in their industrialization.

4. For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities. In the past 15 years, the classic definition of FDI as noted above has changed considerably, over 2/3 of direct foreign investment is still made in the form of fixtures, machinery, equipment and buildings. 5. FDI is viewed as a basis for going global. FDI allows companies to accomplish following tasks: Avoiding foreign government pressure for local production Circumventing trade barriers, hidden and otherwise Making the move from domestic export sales to a locally-based national sales office Capability to increase total production capacity. Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc 6. Foreign direct investment is viewed as a way of increasing the efficiency with which the world's scarce resources are used. A recent and specific example is the perceived role of FDI in efforts to stimulate economic growth in many of the world's poorest countries. Partly this is because of the expected continued decline in the role of development assistance (on which these countries have traditionally relied heavily), and the resulting search for alternative sources of foreign capital. 7. FDI enables the firm owns assets to be profitably exploited on a comparatively large scale, including intellectual property (such as technology and brand names), organizational and managerial skills, and marketing networks. And it is more profitable for the production utilizing these assets to take place in different countries than to produce in and export from the home country exclusively. 8. FDI may result in a greater diffusion of know-how than other ways of serving the market. While imports of high-technology products, as well as the purchase or licensing of foreign technology, are important channels for the international diffusion of technology, FDI provides more scope for spillovers. For example, the technology and productivity of local firms may improve as foreign firms enter the market and demonstrate new technologies, and new modes of organization and distribution, provide technical assistance to their local suppliers and customers, and train workers and managers who may later be employed by local firms. 9. FDI increases employment in host country. Inflows of FDI also increase the amount of capital in the host country. Even with skill levels and technology constant, this will either

raise labor productivity and wages, allow more people to be employed at the same level of wages, or result in some combination of the two. 10. Proponents of foreign investment point out that the exchange of investment flows benefits both the home country (the country from which the investment originates) and the host country (the destination of the investment). Opponents of FDI note that multinational conglomerates are able to wield great power over smaller and weaker economies and can drive out much local competition. The truth might lie somewhere in between but they surely become reasons for companies to invest in foreign markets. Q5. WTO Rounds wrt India The WTO came into being on January 1, 1995, and is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1948. India was one of the 76 countries that signed the accession to the WTO and is one of the founder members of the WTO. Trade implications of signing the WTO for India: The implications of signing the WTO agreement for Indian trade have been mixed. India has benefited in the areas of garment exports, agricultural products exports and in market access to foreign markets in automobiles and electronics. India has a disadvantage mainly in areas of TRIPs, drug prices, patents in agriculture, TIS ( trade in services ) and TRIMS especially in biomedical areas, AoA export subsidies etc. Benefits:

1. Garment exports: The Multi Fiber Arrangement (MFA) that required Indian garment
exporters to have quotas for exporting to developed countries was phased out in 2005. The readymade garment exports from India has reached Rs 800 crores in 2007 and expected to reach Rs 1000 crores in 2008. This is thrice the exports in 2004-05.

2. Market access: as a signatory to the WTO India automatically gets the MFN ( most favored
nation ) status. This gives India access to markets in Europe and US in sectors like automobiles and engineering. India also benefits from the clauses related to trade without discrimination and benefit from capital good exports.

3. Anti Dumping measures:

India suffered from persistent dumping by Romanian and

Russian steel majors in the areas of steel casings, pipes affecting Indian domestic industry greatly. Also India suffered from dumping by Chinese steel industry. The anti dumping provisions and countervailing duties lend security to Indias domestic industries.

4. The Agreement on Agriculture: the AoA stipulates that the developed countries will reduce
tariffs on agriculture imports (up to 35%) thus helping Indias agriculture exports. It also promises reduction of domestic subsidies in the developed countries helping exports from India.

5. Competitive advantage: India has competitive advantage in the areas of merchandise trade.
India can utilize its competitive advantage in processing, beverages, gems and jeweler compared to the traditional centers in Europe like Amsterdam or Manchester etc increasing its trade with both the Euro region and the US. Disadvantages:

1. TRIPS: the Indian Patent Act is not compatible with the TRIPS agreement under the WTO.
The Indian Patent Act allows only process patents in areas of foods, chemicals and medicines. Under the TRIPS the IPA will have to modify to allow product patents also. Also products developed outside India can claim international patents applicable to India. This will hurt our agriculture foods. E.g. the Alphanso mango and the Basmati strand controversy.

2. Drug prices: the granting of the product patents in India will hurt the Indian generic drugs
industry and benefit the foreign pharma companies that own the formulation patents. This will lead to increase in drug prices in India. (This resulted in regulatory intervention in the recent budget in life saving drugs) e.g. the Pfizer controversy

3. Genetics: Indian seed and genetic research organizations are Government funded and will
not be able to compete with the MNCs like Montessanto etc that have economies of scale. This will increase seed prices for Indian farmers and also lend our genetic resources to the MNCs

4. Services: the opening up of the banking sector in 2009 will affect Indian banks due to the
foreign banks with huge balance sheets.

5. TRIMS: the Trade Related Investment Measures resulted in problems in trade in investment
issues like transit charges, formalities etc. together called as Singapore issues. Indian companies would have to lose in the differential charges that are applied. These issues were dropped in the Chachun ministerial conferences.

6. Anti dumping: the anti dumping rules were imposed on Indian linen in EU. Similarly Indian
textiles faced anti dumping regulations in US. There is no mechanism to resolve anti dumping duties issues. Indias stand in the Doha round and the following ministerial conferences:

1. Doha round: The Doha Development Round commenced at Doha, Qatar in November
2001 and is still continuing. Its objective is to lower trade barriers around the world, permitting free trade between countries of varying prosperity. As of 2008, talks have stalled over a divide between the developed nations led by the European Union, the United States and Japan and the major developing countries (represented by the G20 developing nations), led and represented mainly by India, Brazil, China and South Africa. Issues: Singapore issues: the issues related to the trade facilitation and differential charges in investment vehicles affected Indian investment and venture companies. This affected the Indian services. Agricultural subsidies: the EU, US and Japan support domestic agriculture by subsides. This was opposed by countries like India and Brazil. 2. Cancun conference 2003 : The objective of this conference was to forge the agreement discussed in Doha. Issues: market access to foreign markets. This agreement on market access for the developing countries in capital and industrial goods increased strength of G20 countries. India benefited greatly in the capital goods export. The Singapore issues were resolved that resulted in removing the undue advantage for countries like US and Japan in investment arena. This also benefited the Indian financial sector internationally.

3. Geneva 2004: In Geneva conference the developed nations reduced subsidiaries on

manufactured goods. This resulted in Indian small manufacturers like steel forging, casting to export largely and benefit from the construction boom in US.

4. Paris 2005: France reduced subsidies on farm products. However US and Japan did not
relent. Hong Kong 2006 and Potsdam 2007 talks failed in resolving the farm subsidies. So the recent rounds are in a stalemate situation from Indias point of view. Q6. Discuss NAFTA/ EU/ ASEAN/ SAARC/ MERCUSOR Mercosur Mercosur is a regional trade agreement among Argentina, Brazil ,Paraguay & Uruguay founded in 1991 by the Treaty of Asuncin, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, people, and currency. Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status.

Venezuela signed a membership agreement on 17 June 2006, but before becoming a full member its entry has to be ratified by the Paraguayan and the Brazilian parliaments. The bloc comprises a population of more than 263 million people, and the combined Gross Domestic Product of the full-member nations is in excess of US$2.78 trillion a year (Purchasing power parity, PPP) according to International Monetary Fund (IMF) numbers, making Mercosur the fifth largest economy in the World. Objectives of MERCOSUR Free transit of production goods, services and factors between the member states with inter alia, the elimination of customs rights and lifting of nontariff restrictions on the transit of goods or any other measures with similar effects; Fixing of a common external tariff (TEC) and adopting of a common trade policy with regard to nonmember states or groups of states, and the coordination of positions in regional and international commercial and economic meetings; Coordination of macroeconomic and sectorial policies of member states relating to foreign trade, agriculture, industry, taxes, monetary system, exchange and capital, services, customs, transport and communications, and any others they may agree on, in order to ensure free competition between member states; and The commitment by the member states to make the necessary adjustments to their laws in pertinent areas to allow for the strengthening of the integration process. The Asuncion Treaty is based on the doctrine of the reciprocal rights and obligations of the member states. MERCOSUR initially targeted free-trade zones, then customs unification and, finally, a common market, where in addition to customs unification the free movement of manpower and capital across the member nations' international frontiers is possible, and depends on equal rights and duties being granted to all signatory countries. During the transition period, as a result of the chronological differences in actual implementation of trade liberalization by the member states, the rights and obligations of each party will initially be equivalent but not necessarily equal. In addition to the reciprocity doctrine, the Asuncion Treaty also contains provisions regarding the most-favored nation concept, according to which the member nations undertake to automatically extend--after actual formation of the common market--to the other Treaty signatories any advantage, favor, entitlement, immunity or privilege granted to a product originating from or intended for countries that are not party to ALADI. SAARC

The South Asian Association for Regional Cooperation (SAARC) is an economic and political organization of eight countries in Southern Asia. It was established on December 8, 1985 by India, Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives and Bhutan. In April 2007, at the Association's 14th summit, Afghanistan became its eighth member.Sheelkant Sharma is the current secretary & Mahinda Rajapaksa is the current chairman of SAARC which is headquartered at Kathmandu. Objectives of SAARC:

to promote the welfare of the peoples of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential;

to promote and strengthen collective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another's problems; to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; to strengthen cooperation with other developing countries; to strengthen cooperation among themselves in international forums on matters of common interest; and to cooperate with international and regional organizations with similar aims and purposes.

Free Trade Agreement Over the years, the SAARC members have expressed their unwillingness on signing a free trade agreement. Though India has several trade pacts with Maldives, Nepal, Bhutan and Sri Lanka, similar trade agreements with Pakistan and Bangladesh have been stalled due to political and economic concerns on both sides. India has been constructing a barrier across its borders with Bangladesh and Pakistan. In 1993, SAARC countries signed an agreement to gradually lower tariffs within the region, in Dhaka. Eleven years later, at the 12th SAARC Summit at Islamabad, SAARC countries devised the South Asia Free Trade Agreement which created a framework for the establishment of a free trade area covering 1.4 billion people. This agreement went into force on January 1, 2006. Under this agreement, SAARC members will bring their duties down to 20 per cent by 2007. The last summit (15th) was held in Colombo where four major agreements - the SAARC development fund, the establishment of a SAARC standard organization, the SAARC convention

on mutual legal assistance in criminal matters, and the protocol on Afghanistan's admission to the South Asia Free Trade Agreement (SAFTA) were adopted with emphasis on region-wide food security. NAFTA The North American Free Trade Agreement (NAFTA) is a trilateral trade bloc in North America created by the governments of the United States, Canada, and Mexico. In terms of combined purchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison. It also is one of the most powerful, widereaching treaties in the world. The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Implementation of the North American Free Trade Agreement (NAFTA) began on January 1, 1994. This agreement will remove most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008. The agricultural provisions of the U.S.-Canada Free Trade Agreement, in effect since 1989, were incorporated into the NAFTA. Under these provisions, all tariffs affecting agricultural trade between the United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed by January 1, 1998. Mexico and Canada reached a separate bilateral NAFTA agreement on market access for agricultural products. The Mexican-Canadian agreement eliminated most tariffs either immediately or over 5, 10, or 15 years. U.S. trade with Mexico and Canada has grown more rapidly than total U.S. trade since 1994. The automotive, textile, and apparel industries have experienced the most significant changes in trade flows, which may also have affected employment levels in these industries. The five major U.S. industries that have high volumes of trade with Mexico and Canada are automotive industry, chemicals and allied products, computer equipment, textiles and apparel, and microelectronics.

The effects of NAFTA, both positive and negative, have been quantified by several economists. Some argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower prices, especially food), even after accounting for the 19941995 economic crisis. Others argue that NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from U.S. agribusiness, and negative impacts on U.S. workers in manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA has contributed to the rising levels of inequality in both the U.S. and Mexico. EU The European Union (EU) is a political and economic union of 27 member states, located primarily in Europe. The EU generates an estimated 30% share of the world's nominal gross domestic product (US$16.8 trillion in 2007). Thus EU presents an enormous export and investor market that is both mature and sophisticated. The EU has developed a single market through a standardised system of laws which apply in all member states, guaranteeing the freedom of movement of people, goods, services and capital. It maintains a common trade policy. Fifteen member states have adopted a common currency, the euro. Objectives of the EU: Its principal goal is to promote and expand cooperation among members states in economics, trade, social issues, foreign policies, security, defense, and judicial matters. Another major goal of the EU is to implement the Economic and Monetary Union, which introduced a single currency, the Euro for the EU members. The single market refers to the creation of a fully integrated market within the EU, which allows for free movement of goods, services and factors of production. The EU, in conjunction with Member States, has a number of policies designed to assist the functioning of the market. Some of the policies are given below: Competition Policy: The main competition lied in energy and transport sector. The union designed this strategy to prevent price fixing, collusion (secret agreement), and abuse of monopoly. Free movement of goods: A custom union covering all trade in goods was established and a common customs tariff was adopted with respect to countries outside the union. Services: Any member nation has a right to provide services in other Member States. Free movement of persons: Any citizen of EU member state can live work in any other EU member state

Capital: There are no restrictions on the movement of capital and on payments with the EU and between member states and third countries. Trade between the European Union and India India was one of the first Asian nations to accord recognition to the European Community in 1962. The EU is Indias largest trading partner and biggest source of FDI. It is a major contributor of developmental aid and an important source of technology. Over the years, EU India trade has grown from 4.4 bn to 28.4 bn US$. Top items of trade between India and EU Indias exports to EU % Indias Imports from EU Textile and clothing 35 Gemstones and jewellery Leather and leather products 25 Power generating equipment Gemstones and jewelery 12 Chemical products Agriculture products 10 Office machinery Chemical products 9 Transport equipment th th India is EUs 17 largest supplier and 20 largest destination for exports. still high. Under the Bilateral trade between India and EU, it accounts for 26% of Indias exports and 25% of its imports. The European Union (EU) and India agreed on September 29,2008 at the EU-India summit in Marseille, France's largest commercial port, to expand their cooperation in the fields of nuclear energy and environmental protection and deepen their strategic partnership. Trade between India and the 27-nation EU has more than doubled from 25.6 billion euros ($36.7 billion) in 2000 to 55.6 billion euros last year, with further expansion to be seen. ASEAN The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999. OBJECTIVES The ASEAN Declaration states that the aims and purposes of the Association are: (i) To accelerate the economic growth, social progress and cultural development in the region through joint endeavors. % 31 28 15 10 6

Tariff and non-tariffs have been reduced, but compared to International standards they are

(ii)

To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter.

(iii)

To maintain close cooperation with the existing international and regional organizations with similar aims.

WORKING OF ASEAN The member countries of ASEAN have Preferential Trading Arrangements (PTA), which reduces tariffs on products traded among member countries. In 1992, ASEAN developed a Common Effective Preferential Tariffs (CEPT) plan to reduce tariffs systematically for manufactured and processed products. The members have also established a series of co-operative efforts to encourage joint participation in industrial, agricultural and technical development projects and to increase foreign investments in their economies. These efforts include an ASEAN finance corporation, the ASEAN Industrial Joint Ventures Programme (AJIV) etc. ASEAN nations have introduced some programmes for greater diversification in their economies. India and ASEAN India is interested in maintaining close economic relations with the members of ASEAN, as these countries are closer to India. The ASEAN countries are offering co-operation to India in the field of trade, investment, science and technology and training of personnel. Also, Indias trade with ASEAN countries is satisfactory in recent years.