UNIT-V

Indian Foreign Trade Policy: Bilateral and Multilateral Trade Agreements, Globalization and WTO-
Trade Blocs, Balance of Payments (BOP), Exchange rate movements and its impact on BOP,
International Disputes settlement mechanism-Dumping and Anti-dumping measures, TRIPS, TRIMS,
EXIM Policy.

The Foreign Trade Policy (FTP) or Export and Import Policy was introduced by the Government to grow
the Indian export of goods and services, generating employment and increasing value addition in the
country. The Government, through the implementation of the policy, seeks to develop the
manufacturing and service sectors

Duration of the Policy

The Foreign Trade Policy (FTP) was flagged off in the financial year of 2015-16, and will remain effective
until the 31st of March, 2020. During this period, all the exports and imports of the country will be
governed by the policy. The Government strives to make India a significant partner in global trade by
2020.

Here’s an overview of some of the major initiatives under the Foreign Trade Policy:

Niryat Bandhu

Niryat Bandhu Scheme for mentoring budding exporters on the intricacies of foreign trade by means of
counseling, training and outreach programmes. Given the rise of small and medium scale enterprises
and their role in employing people, MSME clusters have been identified for focused interventions to
increase exports.

Electronic IEC

Import exporter code, or in casual terms, export permit is mandatory for carrying out exports and
imports from/to another country. DGFT has facilitated the online filing of IEC application.

E-BRC

The initiative of Electronic Bank Certificate (e-BRC) enables DGFT to capture essential details of
realization of export proceeds directly from the banks by means of secured electronic mode. This paves
the way for implementation of various export promotion schemes without any physical interface with
the stake holders.

A Memorandum of Understanding (MOU) has been signed with 14 State Governments for sharing e-BRC
data to benefit the exporters with GST refunds. Moreover, MOU has been signed with Enforcement
Directorate, Agricultural Directorate, Agricultural Processed Food Products Export Development
Authority and Goods and Services Tax Network (GSTN).
Round-the-Clock Customs Clearance

24*7 customs clearance has been made available at 19 sea ports and 17 air cargo complexes. The round-
the clock Customs clearance facility has been extended to all Bills of Entry at 19 sea ports and 17 Air
Cargo Complexes. In addition to it, Merchant Overtime Charges (MOT) need not be collected for the
services provided by the Customs officers at 24*7 Customs Ports and Airports.

Single Window Interface

Single Window Interface for Facilitating Trade (SWIFT) has been launched to facilitate the easier perusal
of business. The system enables the importers to electronically lodge Integrated Declaration at a single
point only with Customs. The necessary permissions are obtained from other regulatory agencies
without physically approaching them.

National Committee on Trade Facilitation (NCTF)

National Committee on Trade Facilitation (NCTE) has been constituted in consequence to India’s
ratification of the WTO agreement on Trade Facilitation (TFA). It has been established to facilitate
domestic co-ordination and implementation of TFA provisions.

E-Mail Notification Service

The Central Board of Excise and Customs (CBEC) has commenced an e-mail notification service to assist
the importers with information pertaining to all important stages of import clearances.

The Union Ministry of Commerce and Industry announced on January 12, 2021, that the New Foreign
Trade Policy 2021-2026 of India which is under formulation will come into effect on April 1, 2021. The
policy will be implemented for five years and will strive to make India a leader in international trade.

Key Highlights:

• Improvements in the operations of the domestic services and manufacturing sectors along with
infrastructure support by the government will result in correcting the imbalances within India and will
feed into the trade policy.

• For the formulation of the policy, meetings have been held with the stakeholders. A Board of Trade
meeting also took place in December 2020 where the state governments and other stakeholders
provided their inputs.

• Further meetings were also held with the Industry Associations, Chambers of Commerce, and Export
Promotion Councils for their inputs.
• For inviting suggestions from various stakeholders, a Trade notice was issued and more than 2000
suggestions were received. All the suggestions were also examined while formulating the new policy.

New FTP plans on making India a USD 5 Trillion economy

Trade agreements

Trade agreements are when two or more nations agree on the terms of trade between them. They
determine the tariffs and duties that countries impose on imports and exports. All trade agreements
affect international trade.

Bilateral trade agreements

Multilateral trade agreements

A bilateral trade agreement confers favored trading status between two nations. By giving them access
to each other's markets, it increases trade and economic growth. The terms of the agreement
standardize business operations and level the playing field.

Each agreement covers five areas.

First, it eliminates tariffs and other trade taxes. This gives companies within both countries a price
advantage. It works best when each country specializes in different industries

Second, countries agree they won't dump products at a cheap cost. Their companies do this to gain
unfair market share. They drop prices below what it would sell for at home or even its cost to produce.
They raise prices once they've destroyed competitors.

Third, the governments refrain from using unfair subsidies. Many countries subsidize strategic
industries, such as energy and agriculture. This lowers the costs for those producers. It gives them an
unfair advantage when exporting to another nation.

Fourth, the agreement standardizes regulations, labor standards, and environmental protections. Fewer
regulations act like a subsidy. It gives the country's exporters a competitive advantage over its foreign
competitors.

Fifth, they agree to not steal the other's innovative products. They adopt each other's copyright

Bilateral trade agreements: Bilateral trade agreements are between two countries. Both countries agree
to loosen trade restrictions to expand business opportunities between them. They lower tariffs and
confer preferred trade status with each other. The sticking point usually centers around key protected
or government subsidized domestic industries. For most countries, these are in the automotive, oil or
food production industries. The United States has 14 bilateral agreements. The Obama administration
was negotiating the world's largest bilateral agreement. The Transatlantic Trade and Investment
Partnership (TTIP) is a free trade agreement being negotiated between two of the world's largest
economies, the U.S. and the E.U. The United States produced US$20.5 trillion in trade during 2018, and
the European Union, which produced $22 trillion. The two economies generate almost a third of the
world's gross domestic product of $135.2 trillion.

Multilateral trade agreements

Multilateral trade agreements are commerce treaties between three or more nations. The agreements
reduce tariffs and make it easier for businesses to import and export. Since they are among many
countries, they are difficult to negotiate. Multilateral agreements make all signatories treat each other
the same. No country can give better trade deals to one country than it does to another. That levels the
playing field.

The Most Favored Nation Status confers the best trading terms a nation can get from a trading partner.
Developing countries benefit the most from this trading status.

The second benefit is that it increases trade for every participant. Their companies enjoy low tariffs. That
makes their exports cheaper.

The third benefit is it standardizes commerce regulations for all the trade partners. Companies save legal
costs since they follow the same rules for each country.

The fourth benefit is that countries can negotiate trade deals with more than one country at a time.
Trade agreements undergo a detailed approval process. Most countries would prefer to get one
agreement ratified covering many countries at once.

The fifth benefit applies to emerging markets. Bilateral trade agreements tend to favor the country with
the best economy. That puts the weaker nation at a disadvantage. But making emerging markets
stronger helps the developed economy over time.

Multilateral trade agreements : Multilateral trade agreements are the most difficult to negotiate. These
are among three countries or more. The greater the number of participants, the more difficult the
negotiations are. They are also more complex than bilateral agreements. Each country has its own needs
and requests.

Once negotiated, multilateral agreements are very powerful. They cover a larger geographic area. That
confers a greater competitive advantage on the signatories. All countries also give each other most
favored nation status. They agree to treat each other equally. The largest multilateral agreement is the
North American Free Trade Agreement. It is between the United States, Canada and Mexico. Their
combined economic output is $20 trillion. Over NAFTA's first two decades, regional trade increased from
roughly $290 billion in 1993 to more than $1.1 trillion in 2016. But it also cost between 500,000 to
750,000 U.S. jobs. Most were in the manufacturing industry in California, New York, Michigan and Texas.

GLOBLISATION

The term globlisation means international integration. It includes opening up of world trade,
development of advanced ways of communication, internationalization if financial sector, increasing
importance of MNCs, increased mobility of persons, goods, capital data and ideas. Globalization
generally means integrating economy of a nation with the world economy. The economic differences
initiated have had a high effect on the overall growth of the economy. It also helped in the integration of
the Indian economy into the global economy. The Indian economy was in major crisis in 1991 when
foreign currency reserves went down to $1 billion. Globalization had its impact on various sectors
including Agricultural, manufacturing, Financial, Health sector and many others.

New Economic Policy

After suffering a huge financial and economic crisis Government of India brought a new policy which is
known as Liberalization, Privatization and Globalization Policy (LPG Policy) also known as New Economic
Policy 1991 as, it was a measure to come out of the crisis that was going on at that time.

The following measures were taken to liberalize and globalize the economy as per the policy:

1. Devaluation of Indian Currency by 18 to 19%

2. Disinvestment in Public sector

3. Allowing Foreign Direct Investment

4. Facilities to NRIs

Consequences of Globalization:

Globalisation, in fact affected all spheres of life in India. It has intensified interdependence and
competition between and among economies in the world market. This is reflected in Interdependence in
regard to trading in goods and services and in flight of capital. As a result domestic economic changes
are not determined entirely by domestic policies and market conditions. Rather, they are influenced by
both domestic and international policies and economic conditions. It is thus clear that a globalising
economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible
actions and reactions of policies and developments in the rest of the world. This constrained the policy
option available to the government which implies loss of policy autonomy to some extent, in decision-
making at the national level.
Impact of Globalization in various fields

IMF granted loans on the basis of the understanding of structural adjustment. It maintains that, there
shall be sufficient fundamental changes in the main driver of economy. Agriculturally driven economy
has its own limitations to grow. Thus timely policy changes are helpful in shift from one to another. In a
sense, the contribution of agriculture to the GDP has hastily decreased in the specified period.
Accordingly, the world level institutions recommended reduction and gradual elimination of subsidies
(both direct and indirect). Supporters of globalization list the following benefits of globalization

1. India witnessed acceleration in its average annual rate of growth.

2. There is acceleration in industrial growth. The average growth has jumped from 5.2

percent during pre liberalization to a 7.0 per cent after 1991.

3. Business in India became more competitive after globalization.

4. Globalization has led to fewer economic crises.

5. After globalization, India has seen a long and unprecedented period of welfare enhancement.

Apart from the economic benefits, Indian society has got variety of products and services including
education and health services that sophisticated the lifestyle of common people. In a sense,
globalization changed the Human Development Index of India by eliminating the barriers of cross
borders.

The critics of globalization disapprove the concept on the following grounds;

1. Globalization paved the way to exploitation of natural resources.

2. It resulted in income disparity and regional imbalances.

3. Third world countries had to experience new deceases as part of globalization.

4. Drastic deterioration in social values.

5. Rate of atmospheric pollution increased.

STAGES OF GLOBALISATION

There are five different stages in the development of a firm into global corporations.

First stage

The first stage is the arm’s length service activity of essentially domestic company, which moves into
new markets overseas by linking up with local dealers and distributors.

Second stage
In the stage two, the company takes over these activities on its own.

Third stage

In the next stage, the domestic based company begins to carry out its own manufacturing, marketing
and sales in the key foreign markets.

Four stage

In the stage four, the company moves to a full insider position in these markets ,supported by a
complete business system including R & D and engineering. This stage calls on the managers to replicate
in a new environment the hardware, systems and operational approaches that have worked so well at
home.

Fifth stage

In the fifth stage, the company moves toward a genuinely global mode of operation

WTO

General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, is a multilateral
agreement regulating trade among 153 countries. According to its preamble, the purpose of the GATT is
the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a
reciprocal and mutually advantageous basis." The GATT functioned de facto as an organization,
conducting eight rounds of talks addressing various trade issues and resolving international trade
disputes. Its approach was based on two non discriminatory principles, the (1) Most favored nation and
national treatment, and (2) Reciprocity. It worked to eliminate all non-tariff barriers and import quotas,
and advocated use of countervailing duties to fight dumping and to negate the effects of subsidies.

The Uruguay Round, which was completed on December 15, 1993 after seven years of negotiations,
resulted in an agreement among 117 countries (including the U.S.) to reduce trade barriers and to
create more comprehensive and enforceable world trade rules. The agreement coming out of this
round, the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,
was signed in April 1994. The Uruguay Round agreement was approved and implemented by the U.S.
Congress in December 1994, and went into effect on January 1, 1995.This agreement also created the
World Trade Organization (WTO), which came into being on January 1, 1995. The WTO implements the
agreement, provides a forum for negotiating additional reductions of trade barriers and for settling
policy disputes, and enforces trade rules. The WTO launched the ninth round of multilateral trade
negotiations under the "Doha Development Agenda"(DDA or Doha Round) in 2001.
World Trade Organization (WTO)

WTO is the only international organization dealing with the rules of trade between nations. At its heart
are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified
in their parliaments. The goal is to help producers of goods and services, exporters and importers to
conduct their business fairly. Following the Uruguay round agreement, [name of the eighth round of
multilateral trade negotiations held under the auspices of GATT (General Agreement on Trade and
Tariffs)], GATT was converted from a provisional agreement in to a formal international organization
called WTO(World Trade Organization) with effect from Jan-1, 1995. WTO is directed by a ministerial
conference that will meet at least once every two years and its regular business is overseen by a

General Council. Its Secretariat is based in Geneva, Switzerland. The WTO ensures that trade is as fair as
possible and as free as practicable by negotiating rules and obeying them.

LOCATION: Geneva, Switzerland

ESTABLISHED: 1 January 1995

CREATED BY: Uruguay Round negotiations (1986-94)

MEMBERSHIP: 164 members representing 98% of world trade

functions

Administering WTO trade agreements

Forum for trade negotiations

Handling trade disputes

Monitoring trade policies

Technical assistance and training for developing economies

Cooperation with other international organizations

WTO And India

The Uruguay round agreements and WTO have come in for scathing criticisms in India. Many

politicians and others have argued that India should withdraw from the WTO. Most of the criticisms are
baseless or due to lack of knowledge of the international trading environment.

Should India Quit WTO?

Accepting the demand of some of the critics that India should withdraw from the WTO will
be a great blunder that the nation can commit. By being a part of WTO, India enjoys the Most

Favoured Nation (MTN) status with all the other members of the WTO. Opting out of the system

would mean an infinitely laborious task of entering in to bilateral negotiations with each and every one
of the trading partners which would amount to having one’s arms twisted bilaterally by the US, the EC
and Japan. It may be noted at this juncture that China got readmitted to the system after a long wait and
lobbying.

One major controversy pertains to the abandonment of agricultural subsidies. Much hue and cry has
been raised in India about this. However, it needs to be mentioned that the agreement would not
adversely affects India’s agricultural subsidies and its agricultural exports.

India’s Trade gain Even if India could gain much benefit in trade with the advent of WTO, it is much less
than that of other developing countries likes China, and the newly industrialized economies owing to the
following reasons:

• India’s share in the world trade is very low.

• The gain will also depend on rate of growth of India’s exports.

Compliance measures

India has taken several measures to comply with the TRIPS agreement of WTO. On copyrights and
related rights, the Agreement requires compliance with the provisions of Bern convention to which India
is a signatory and the new copyright Act of India already meets there requirements of the TRIPs
agreement. Similarly, Trade and Merchandise Marks Act of 1958, was replaced by a new Act, namely,
the Trade Marks Act, 1999, so as to provide for the protection of service marks also. Along with this,
India amended its Geographical Indications of Goods Act, 1999 and Patent Law, in order to comply with
the provisions of TRIPS agreement, and to protect its valuable intellectual properties

An evaluation of WTO

WTO has come to play a very important role in the global and thereby national economies. National
economic policies are significantly influenced by the provisions and principles of WTO. Because of this,
there are several criticisms against the functioning of WTO, especially in the developing countries.
Infact, WTO has both positive and negative impacts.

Benefits of WTO

1. It has made notable attempts in deducing tariff and non-tariff barriers to trade.

2. The liberalization of investments has been fostering the economic growth of a number of

countries.
3. The liberalization of trade and investment has been resulting in increase in competition,

efficiency of resource utilization, improvement in quality and productivity and fall in price ultimately.

4. It provides a forum for multilateral trade negotiations and settling of disputes between member
nations.

5. It monitors and controls the violation of trade agreements.

6. It undertakes, research activities about global trade and economy, and disseminates valuable

information.

Doha Declaration of WTO

The fourth session of the Ministerial Conference of the WTO was held in Doha (Qatar), in November
2011, in which ministers from 142 member countries participated. It attracted a lot of attention because
of the differences in the opinion of developing and developed nations. At Doha, the developed countries
wanted a new round of multilateral trade negotiations to be launched soon, by including the seven
issues proposed in the meeting at Singapore, in 1196 such as, investment, competition policy, trade
facilitation etc. But, developing countries, including India, opposed this and argued that the before going
for a new round, the present issues on implementation should be resolved. Following this, the Doha
round, ended up with a declaration namely Doha Development Agenda for new trade liberalization
talks.

Agreements of WTO

Uruguay round is the name by which the eighth round of multilateral trade negotiations held under the
auspice of the GATT is popularly known because it was launched in Punta del Este, in Uruguay, a
developing country in September 1986. The agreements under WTO can be summarized as follows:

Trade Related Intellectual Property Rights (TRIPS)

One of the most controversial outcomes of the Uruguay Round Conference is the agreement on trade
related aspects of intellectual property rights including trade in counterfeit goods. Intellectual property
rights may be defined as information with commercial value. According to WTO, these are the rights
given to the persons over the creations of their minds. Such rights include patents, trademarks,
copyright, geographic indications, trade secrets or undisclosed information, industrial designs and layout
etc.

Objectives of protecting intellectual property rights

1. Encourage and reward creative work.

2. Technological innovation
3. Fair competition

4. Consumer protection.

5. Transfer of technology.

6. Balance of rights and obligations.

Trade Related Investment Measures (TRIMS)

The TRIMS agreement contains provisions primarily for eliminating the trade-distorting effects of
investment measures taken by WTO members. It does not introduce any new obligations, but merely
prohibits TRIMs considered inconsistent with the provisions of the 1994 General Agreement on Tariffs
and Trade (GATT) for both agricultural and 235 industrial goods. An agreement on TRIMS provides that
no contracting party shall apply any TRIM which is inconsistent with the WTO Articles. Measures
deemed inconsistent with the agreement were to be identified (by the countries where they were in
effect) within 90 days of 1 January 1995, the day the WTO came into existence. Industrial country
members were expected to eliminate these measures within two years, while developing countries were
given five years and the least developed countries seven years. The agreement provides flexibility on
these deadlines if a country is experiencing implementation difficulties for development, finance or
trade reasons. For example, some developing countries were recently granted an extension through
2003. The agreement does not define TRIMs or provide objective criteria for identifying them, leaving it
to members to decide which of their TRIMs are illegal.

General Agreement on Trade in Services (GATS)

The GATS is a multilateral agreement under the WTO that was negotiated in the Uruguay Round and
came into effect in 1995. This agreement extent multilateral rules and disciplines to services also, and is
regarded as a landmark achievement of the Uruguay Round. In short, this agreement covers four modes
of international delivery of services as:

 Cross border supply of services.

 Provision of services through FDI or representative offices.

 Consumption abroad (Tourism)

 Movement of personnel ( entry and temporary stay of foreign consultants)

The framework of GATS includes basic obligation of all member countries on international trade in
services, including financial services, telecommunications, transport, audiovisual, tourism and
professional services, including the movement of workers. The GATS lays down that increasing
participation of developing countries in world trade shall be facilitated through negotiated
commitments on access to technology, improvements on access to distribution channels and
information networks and the liberalization of market access in sectors and modes of supply of export
interest to them.

International Disputes settlement mechanism

The WTO’s mechanism for resolving international trade disputes emphasizes consensus building over
unilateral action. The rules governing the system are set forth in the Dispute Settlement Understanding
(DSU). The task of adjudicating disputes is delegated to the Dispute Settlement Body (DSB), a special
assembly of the WTO’s General Council, which includes all WTO members. The DSB appoints the seven
members of the WTO’s Appellate Body.

The multi-stage process of dispute settlement begins with a request for informal consultations between
the parties. If the consultations fail to resolve the dispute, the complaining party may request the
appointment of a three-member investigative panel. After receiving oral and written submissions from
the parties, the panel issues its report and recommendations.

A party may seek appellate review of a panel report, but only with respect to issues of law and legal
interpretations developed by the panel. Appeals are heard by three of the seven members of the
Appellate Body. The Appellate Body may uphold, modify or reverse the panel’s report.

A panel or Appellate Body report must be adopted by the DSB without amendment unless the DSB
decides by a consensus of all its members to reject the report. The respondent may request a
reasonable time to comply with the recommendations of a report. If the respondent fails to comply, the
complainant may seek compensation or request authorization from the DSB to engage in retaliation.

BOP

What is ‘Balance of Payment’?

Balance Of Payment (BOP) is a statement which records all the monetary transactions made between
residents of a country and the rest of the world during any given period. This statement includes all the
transactions made by/to individuals, corporates and the government and helps in monitoring the flow of
funds to develop the economy. When all the elements are correctly included in the BOP, it should sum
up to zero in a perfect scenario. This means the inflows and outflows of funds should balance out.
However, this does not ideally happen in most cases.

BOP statement of a country indicates whether the country has a surplus or a deficit of funds i.e when a
country’s export is more than its import, its BOP is said to be in surplus. On the other hand, BOP deficit
indicates that a country’s imports are more than its exports. Tracking the transactions under BOP is
something similar to the double entry system of accounting. This means, all the transaction will have a
debit entry and a corresponding credit entry.

Why balance of payment is vital for a country?

A country’s BOP is vital for the following reasons:

BOP of a country reveals its financial and economic status.

BOP statement can be used as an indicator to determine whether the country’s currency value is
appreciating or depreciating.

BOP statement helps the Government to decide on fiscal and trade policies.

It provides important information to analyze and understand the economic dealings of a country with
other countries.

By studying its BOP statement and its components closely, one would be able to identify trends that may
be beneficial or harmful to the economy of the county and thus, then take appropriate measure

Elements of balance of payment

There are three components of balance of payment viz current account, capital account, and financial
account. The total of the current account must balance with the total of capital and financial accounts in
ideal situations.

Current Account

The current account is used to monitor the inflow and outflow of goods and services between countries.
This account covers all the receipts and payments made with respect to raw materials and
manufactured goods. It also includes receipts from engineering, tourism, transportation, business
services, stocks, and royalties from patents and copyrights. When all the goods and services are
combined, together they make up to a country’s Balance Of Trade (BOT).
There are various categories of trade and transfers which happen across countries. It could be visible or
invisible trading, unilateral transfers or other payments/receipts. Trading in goods between countries
are referred to as visible items and import/export of services (banking, information technology etc) are
referred to as invisible items. Unilateral transfers refer to money sent as gifts or donations to residents
of foreign countries. This can also be personal transfers like – money sent by relatives to their family
located in another country.

Capital Account

All capital transactions between the countries are monitored through the capital account. Capital
transactions include the purchase and sale of assets (non-financial) like land and properties. The capital
account also includes the flow of taxes, purchase and sale of fixed assets etc by migrants moving out/in
to a different country. The deficit or surplus in the current account is managed through the finance from
capital account and vice versa.

There are 3 major elements of capital account:

Loans & borrowings – It includes all types of loans from both the private and public sectors located in
foreign countries.

Investments – These are funds invested in the corporate stocks by non-residents.

Foreign exchange reserves – Foreign exchange reserves held by the central bank of a country to
monitor and control the exchange rate does impact the capital account.

Financial Account

The flow of funds from and to foreign countries through various investments in real estates, business
ventures, foreign direct investments etc is monitored through the financial account. This account
measures the changes in the foreign ownership of domestic assets and domestic ownership of foreign
assets. On analyzing these changes, it can be understood if the country is selling or acquiring more
assets (like gold, stocks, equity etc).

if for the year 2018 the value of exported goods from India is Rs. 80 lakhs and the value of imported
items to India is 100 lakhs, then India has a trade deficit of Rs. 20 lakhs for the year 2018.
BOP statement acts as an economic indicator to identify the trade deficit or surplus situation of a
country. Analyzing and understanding the BOP of a country goes beyond just deducting the outflows of
funds from inflows. As mentioned above, there are various components of BOP and fluctuations in these
accounts which provide a clear indication about which sector of the economy needs to be developed.
Trade blocs

A bloc means groups. Trading blocs means grouping of countries. It means a group of nations united for
some common actions. Trading bloc is a voluntary grouping of countries of a specific region for common
benefit .A trade bloc is a type of intergovernmental agreement, often part of a regional
intergovernmental organization, where regional barriers to trade, (tariffs and non tariff barriers) are
reduced or eliminated among the participating states

Trade blocs can be stand-alone agreements between several states (such as the North

American Free Trade Agreement (NAFTA)) or part of a regional organization (such as

the European Union). Depending on the level of economic integration, trade blocs can fall

into different categories, such as preferential trading areas, free trade areas, customs

unions, common markets and economic and monetary unions

It indicates regional economic integration of nations for mutual benefits. In general terms,

regional trade blocks are associations of nations to promote trade within the block and defend its
members against global competition. Trading blocs are highly organised and based on shared interest to
promote economic and social interest of the member countries

Objectives of Trading Blocs:

i. To remove trade restrictions among member nations.

ii. To improve social, political, economic and cultural relations among member nations.

iii. To encourage free transfer of resources.

iv. To establish collective bargaining.

v. To promote economic growth

Types of trade bloc

A regional trading bloc is a group of countries within a geographical region that protect themselves from
imports from non-members. Trading blocs are a form of economic integration, and increasingly shape
the pattern of world trade. There are several types of trading bloc Preferential Trade Area Preferential
Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff
barriers on selected goods imported from other members of the area. This is often the first small step
towards the creation of a trading bloc.

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members.

Customs Union

A customs union involves the removal of tariff barriers between members, plus the

acceptance of a common (unified) external tariff against non-members. This means that

members may negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the
WTO.

Common Market

A ‘common market’ is the first significant step towards full economic integration, and occurs

when member countries trade freely in all economic resources – not just tangible goods. This means
that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as
removing tariffs, non-tariff barriers are also reduced and eliminated. For a common market to be
successful there must also be a significant level of harmonisation of micro-economic policies, and
common rules regarding monopoly power and other anti competitive practices.

MAJOR TRADE BLOCS

EU –( European Union)

NAFTA (North American Free Trade Agreement)

ASEAN : (Association of south east nations)

SAARC:( South Asian Association for Regional Cooperation)

OPEC: (Oil and Petroleum exporting countries)

MERCOSUR: (Mercado Comun del Cono Sul - Southern Cone Common Market)

EU –( European Union) :The EU is the world’s largest trading bloc, and second largest economy, after the
USA.The EU was originally called the Economic Community (Common Market, or The Six) after its
formation following theTreaty of Rome in 1957. The original six members were Germany, France, Italy,
Belgium, Netherlands, and Luxembourg.The initial aim was to create a single market for goods, services,
capital, and labour by eliminating barriers to trade and promoting free trade between members. In
terms of dealing with non-members, common tariff barriers were erected against cheap imports, such as
those from Japan, whose goods prices were artificially low because of the undervalued yen. By 2014,
following continuous enlargement, the EU had 27 members. Croatia is the latest country to join, in July
2013

SAARC:( South Asian Association for Regional Cooperation) : It stands for South Asian Association for
Regional Cooperation. SAARC is an economic integration of South Asian countries for regional
cooperation. It was established on

8th December 1985. It consists of nations of South Asia that includes Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Srilanka. SAARC focus on areas such as Science and Technology,
agricultural and rural development, tele-communication, postal services etc.

SAARC members signed an agreement called SAPTA (South Asian Preferential Trade

Agreement). This agreement was signed to provide a framework for the exchange of trade

concessions .It aims at accelerating the process of economic and social development in member states.
Afghanistan became the eighth member of this group in 2007.

ASEAN : (Association of south east nations) : Established on August 8, 1967, in Bangkok/Thailand.

Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand, and Vietnam
OPEC: Oil and Petroleum exporting countries:

Opec is an organisation consisting of world's oil and petroleum exporting countries. The

Organization of the Petroleum Exporting Countries (OPEC) was created in 1960 to unify and

protect the interests of oil-producing countries. OPEC has maintained its headquarters in

Vienna since 1965.The original members of OPEC included Iran, Iraq, Kuwait, Saudi Arabia, and
Venezuela. OPEC has since expanded to include seven more countries (Algeria, Angola, Indonesia,Libya,
Nigeria, Qatar, and United Arab Emirates) making a total membership of 12.

The main objective of this bloc is to unify and coordinate member countries petroleum

policies and to provide them with technical and economic aid. There has been a continuous

increase in India's share of export to opec countries

NAFTA:

North American Free Trade Agreement the North American Free Trade Agreement or

NAFTA is an agreement signed by the governments of the United States, Canada, and

Mexico creating a trilateral trade bloc in North America.

The agreement came into force on January 1,1994 NAFTA is the most powerful trading blocs

in the world. USA, Canada, Mexico are the members of NAFTA. The objective of NAFTA is

to reduce barriers on the flow of goods, services and people among member nations,

protection to investment in member countries etc. European Union and NAFTA accounts for

over fifty percent of the world trade.

MERCOSUR: (Mercado Comun del Cono Sul - Southern Cone Common Market)

The Southern Common Market (MERCOSUR for its Spanish initials) is a regional integration process,
initially established by Argentina, Brazil, Paraguay and Uruguay, and subsequently joined by Venezuela
and Bolivia* -the latter still complying with the accession procedure.
Dumping & Anti dumping

Dumping means selling the product at below the on-going market price and/or at the price below the
cost of production. Usually, when the organization in an exporting country has some product in excess
then it dumps that amount of production. It prices the excess production on the
basis of marginal costing and charges only variable cost plus profit, thus fixing the price below the full
manufacturing cost. Dumping hurts the industry of importing countries because they cannot compete
with the low priced imported product.

Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade
distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of
dumping and re-establish fair trade. The use of anti dumping measure as an instrument of fair
competition is permitted by the WTO. In fact, anti dumping is an instrument for ensuring fair trade and
is not a measure of protection purpose for the domestic industry. It provides relief to the domestic
industry against the injury caused by dumping.

As on 28.01.2019, anti-dumping duty is in force on 99 products imported from China," Minister of State
for Commerce and Industry. Chinese products on which the duty was imposed include chemicals and
petrochemicals, fibres and yarn, machinery items, pharmaceutical, rubber and steel items