WTO and its Impact

GATT The general agreement on tariff and trade. The producer of WTO was form in 1942 as result of the international desire to liberalize trade. The GATT was transformed in to WTO effect from January 1995 thus after about. Uruguay round (UR) in the name by which the eight round of the multilateral trade negotiation (MTNs) launched in Punta Del Este in the Uruguay following the UR agreement, GATT was converted from a provisional agreement into a formal international agreement called WTO. Difference between GATT and WTO GATT 1. GATT was ad hoc and provisional 2. GATT has contracting parties. 3. GATT was less powerful dispute settlement up to. WTO WTO and its agreement are permanent. WTO has members. WTO is more powerful than GATT dispute settlement machine.

FUNTION OF WTO 1. The WTO shall facilitate the implementation the administration the operation of multilateral trade, trade agreement and plurilateral trade agreement. 2. The WTO shall provide the four for negotiation among the members concerning their multilateral trade relation. 3. The WTO shall administrator settlement of dispute. 4. The WTO corporate with IMF and IBRD and its affiliated agencies. The general council will serve four main functions. 1. To supervise on a regular basis the operation of the revised agreement and Declaration relating to goods service and TRIPs. 2. To act as dispute settlement body. 3. To serve as a trade review mechanism. 4. To establish different council like serve council and TRIPs council. WTO principal and objective - To help trade flow as freely as possible. - To achieve further liberalization. - To set up impartial means of setting objectives.

STRUCTURE OF WTO Ministerial conference (once in 2 years) Trade policies review General council Also work as trade policy Review body and dispute Settlement body Goods councils Councils Services councils Intellectual property council. Dispute settlement body

Specified committees, working group s working parties. Salient feature of UR (Uruguay round agreement) TRIMs trade related investment measure (TRIMs) refer to certain condition or restriction imposed by agreement in respect of foreign investment in the country. TRIMs were widely Employed by developing countries. The agreement on TRIMs provides that no contracting party shall apply any TRIMs which are inconsistent with the WTO articles. TRIPs One of the most controversial outcomes of the UR is the agreement on the trade aspect of intellectual property rights. TRIP + TRIM = NEW ISSUES. Intellectual property right is the right given to person over the creation of their periods. They usually gave the creator an exclusive right over the use of his/her creation for a certain period of time. IPR may be legally protected by pate nts, why right Indus prior design geographical creation.


GATT/GATS: - Liberalization of trade in goods and serves - Increase competition from foreign goods. - Opportunity for Indian firm to export. TRIMPs liberalization of international investment. - Increase foreign investment and competition from foreign firm street to domestic firm - Facilitate joint venture and technology requesting benefit. - Facilitate a foreign investment by Indian firm including jo int venture globalization of Indian firm. TRIP provides monopoly power to owner of intellectual encourage globalization of Indian firm due to competition advantage. FOREIGN TRADE (development and regulation act) Objective development and regulation of foreign trade by facilitating import into augmenting import from India and for matters connected there with or incidental there to. MAIN PROVISION Development and regulation The FTDRA improve the central government to make provision for the development and regulation of foreign trade by f acilitating import and increasing export. Prohibition and restriction the act also improve the central government to make provision for prohibiting, restricting or regulating the import and export as obtain when required. Exam policy the act lays down that the central government may from time to time formulate and announce the export and import policy and may also attend the policy. DGFT the act provide for the appointment by the central governme nt of DGFT. The DGFT shall advice the central government in formulation of export and import policy and implementation of policy. Importers exporters code number (IEC NO) the act lays down that no person shall make any import or export concept under on import export code (IEC) number granted by DGFT. The director general is empowered to suspend or cancel the import export code number granted to any person if there is valid reason to close.

Issues and sustention/ consolation of license the director general or any other officer a thousand over this act is empowered to suspend or cancel a license is for export and import of goods in accordance with the act for goods and sufficient reason. Penalty for contravention where any person make or attempt to make any import and export in contravention of any provision of this act or any rules or order made. Under this act or the policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of goods involved where ever is more. ECONOMIC INTIGRATION After World War II the economic power in an important as the political and military power. World War II brought in a number of changes in the order. It sounded the death of several emperies including the large British empires it establish the performance of the united state of America as an economic and political might. There are two main groups the free world and socialist and world for over four decade after the war there were two super powers the USA and USSR. Communist china also merged subsequently as a power to recon with countries grouped according by for political and economic purpose. Meaning Economic integration is the unification of economic of two or more nation into an international economic entity levels. Forms of economic grouping or integration FTA free trade area FTA consist of a number of countries with in which trade is free in the serve that custom duties are not at the frontiers on trade but in practice it is limited to specified product with specified exception. Exception are the specific sector which the nation or government to protect from international competition trade barrier on intra trade are removed each country maintain it separate custom barrier on trading wit non member countries. This problem managing the FTA. A and B countries (member of FTA)

Export government Import duty 20% C

Export government Import duty 30%

Expertise in C faced with situation would attempt to shift the government to A and once the goods are cleared through custom resift the consignment to B provided the rerouting cost are lower then the differential in custom duties. To avoided this problem. FTA introduces the system of rule of origin where by only goods originating wholly or partially i n the member countries eligible for free trade. Ex EFTA European free trade area. Custom union like FTA there are two internal tariff barriers on intra union trade. The member countries give up there individual tariff schedules and react a common internal tariff barrier for trade will non union member. A custom union is like a single nation not only in internal trade that also in presenting common front to the rest of the world with its common internal tariff. - A stronger eco integration - Elimination of administration problem of a free trade area. COMMON MARKET In addition to the characteristic of a custom union, a common market also allows free movement of labour and capital with in the member countries. A common market gives beyond a custom union because it seeks to a standardize all government regulation effective trade. Example central America common market consisting of Costa Rica, El Salvador, Guatemala, Honduras, ad Nicaragua. ECONOMIC UNION This represents the final stage of eco integration the member countries not only allow free trade and movement of capital and labour but parmonsation one firmly difficult to achieve. 1. Unequal stage of development of member. 2. National saver eighty. In other words most of the eco parties of member s nations are same.

Even before the Second World War ended, the allied countries began to devote serious thought and effort in developing a system that would end the chaotic condition providing the way to achieve the orderly conduct of international trade, and promote goods monetary relations among the countries. (A) Help to remove the restriction on trade. (B) Ensure free convertibility. In June 1944 many countries met at Bretton wood. The agreement reached at this me eting provided for establishing two constitutions which come to be known as Bretton wood twins IMF, IBRD (World Bank). OBJECTIVE To promote international monetary. To facilitate the expansion and balance growth of international trade. To promote exchange stability. Less on the degree of desexualizes business in the international board of members.

Structure The IMF is an autonomous body with 184 countries as members. It is affiliated to the UNO. The highest authority of the IMF is the board of governor s I which each members country respected by the governor. The board of governor is the policy making body. Its meets normally every year. The international monetary and financial committee consists of 24 governesses representing group of countries. Its meet twice a year to advice the IMF on the functioning of the international monetary system. The administrative responsibility and detailed functioning of the IMF are vested with executive board. Resources The main resources for IMF are the member quotas. Quotas represent the subscription by a member country to the capital fund of IMF. Quotas are ferried for each country ferried broadly on its Eco size. The quotas become the base for drawing rights 25% of a country quota should be paid in the form of gold or US dollars and 75% in country o wn currency.

Special drawing rights Need to increase the international liquidity means resources for settlement of international debt, was felt and after much thought on the subject. It s resulted in the introduction of SDR. Nature of SDR Entitlement granted to member countries enabling them to draw from the IMF apart from their quotas. The arrangement is similar to a bank granted credit limit to it customer. When the countries experience need for foreign exchange it can sell SDR to another coun try and get foreign exchange. Utilization - Originally SDR were to be used for meeting BOP defines. - Settlement of international transaction. International bank for reconstruction and developing. Also know as World Bank, the IBRD is an off shout of the Bretton wood conference of 1944. It main function to provide long term loan to it member countries for their construction and development. In the initial days the World Bank concentrated on reconstruction of war shattered European countries later the bank shifted its focus and development of the back ward countries began to receive prime importation. Function To assist in reconstruction and development of the member countries by facilitating investment of capital for productive purpose. To promote foreign investment To promote the long range growth of international trade and the maintenance of equilibrium in B.O.P. Resources Resources of the bank consist of the capital and borrowing. (A) 2% is payable by the member country in gold or US $. (B) 18% members own. (C) 80% is kept in reserve to be paid by the member wheedled.

International Finance Corporation The IBRD loans are available only to member country government or with the guarantee of member country government was establishing in 1956 with the specific purpose of borrowing private enterprise. International development association It is affiliate of the IBRD. It s was established to provide soft loan to economically sound project which was social capital such as construction of roods and bridge etc.


The traditional theory of location suggest that if the inputs account f or a large share in the final product or if the raw material carries heavy weight but losses its weight during the manufacturing process, the manufacturing unit should be located near the source of input. On the other hand if the input does not matter ver y much from the viewpoint of the cost or transportation the manufacturing unit should be locate near the market. The decision regarding the location of an international firm is complex due. 1. Firm is spread over a far wider geographic area. 2. They source the input globally. 3. Their market is spread over different countries. An international firm may have various alternatives regarding the location of manufacturing activities. 1. Centralization of the manufacturing operation at the parent unit or any one of the subsidecious. It will help reap with the several of sale or location specific advantage in form of climatic, culture and governmental factor. It is a process involving movement of inputs from supplier to the firm and of the finished product from the firm to the market. 2. Decentralization of manufacturing operation at different subsidiary and distribution of the product in respective area. 3. Location of the cliff part of the manufacturing process of different subsidiary under a vertically integrate from work.

Vertical integration mat be of two type 1. The different unit is linked in chain like segment. 2. Different unit manufacturing spare and component import the output to a particular unit and in assembling than it is common that the spare part of a product are produced in a courtly with abdomen of capital and assembly port is located in the labor supplier country.

Factor behind detection of location During (1980) mention firm factor behind the selection of a location. 1. Size and growth of market and the degree of competition in the market. 2. Availability of raw material and labor force regard skill. 3. State of logistic and the degree of currency fluctuation. 4. Political and legal environment. 5. Cultural environment. In fact the purpose of considering there factors. 1. Minimize cost. 2. Maintain quality. 3. Flexibility in design the product and in the volume of production. The number of US company shift component necessary for the assembly of the produc t to maquiladore synonyms for the export processing zone the component are assembled there and shifted back USA. The assembly of many products of US companies also is done East Asian countries such as Taiwan, South Korea. Selecting a location Some are favorable factor and non favorable factor from this point, manager should first assign weight age and different factor depending upon the firm requirement and then use a machine showing favorable factor/location on the y -axis and on favorable factor/location on x-axis. The most suitable location would be the one that has the highest ratio of favorable point/ unfavorable point. This is the easiest way to select a location. Management of Inventory

1. Deviation from the economic order quantity The economic order quantity is the optimal size of inventory that a firm orders at particular point of time. - Particular quantity of order, where the sum of the ordering cost and the carrying cost of inventory is the minimum. Increase in the size of order the member of order in a particular period decrease ordering cost reduce carrying cost increase. Thus to arrive at the EOQ, the firm has to the off between the carrying cost and ordering cost. The off is complete where the sum of these two cost minimize. The domestic firm to these norms but international firm normally passes a bigger stock t han EOQ which is known as stock pilling.

Why stock pilling? - Political risk - Exchange rate risk Shifting of reorder point:The general principle is that the next lot of inventory is to be ordered when the investing stock comes down to the sum of safety level of stock and the lead time. Reorder point = safety level of stock + lead time. Ex investing stock based percentage rate = 30 days Safety level of stock = 5 days Lead time = 6 days The firm blocks the order for the next lot only after nineteen days of t he arrival of the investing stock. In case of international firm the lead time is large as the different unit is located at the different part of the globe. Even after goods reach the part there are a lot of custom formalities because of these entire factor the re order point in case of international firm his much earlier. Just in time system Japanese firm and now many western firms too have pated for the just in time system of inventory right. In just in time system inputs reach the manufacturing location just when they required. Why?

Carrying cost and ordering cost is minimum. Sourcing of input:1. Importation 2. Establishment of international procurement/ office (IPOs). 3. Sourcing through direct investment.

Advantage of integration:-

The source of region is pooled: in other words the factor of production of the countries is combined. The pooling increase affiance of out put or productivity due to large scale economic. Ex suppose that an item cost Rs 100 units in India, Bangladesh can produce the same item at say to but India leaves an impact duty as Rs 30 on it with the result that Bangladesh connect complete in India for that item. If India and Bangladesh form a custom union and oblige at Rs 80 and the production would be centered in more efficient country Bangladesh - this is called trade mark. Economic of scale:The economic integration result in a large market and output for the member countries product hence there would be economic of scale. It may be argue that the economic of scale could be obtain by a country even by an impacting but exporting countries may be inhabited in importing its product by imposition of trade barrier by importing countries but in trading firm of member country can go for trade.