Q.3 Explain the meaning of the term ‘trade liberalization’ and advantages.

Also, identify some commonly observed mistakes in international trade ---Trade Liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements). The easing or eradication of these restrictions is often referred to as promoting "free trade." The Benefits of Trade Liberalization Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization. The potential gains from eliminating remaining trade barriers are considerable. Estimate of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. Moreover, developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers. Although there are benefits from improved access to other countries’ markets, countries

the product is produced and consumed in the US. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries. production gradually moves away from the point of origin. the US now exports the product to other developed countries. mass-production techniques are developed and foreign demand (in developed countries) expands. In the standardized product stage. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. growth and production of the personal computer with respect to the United States.benefit most from liberalizing their own markets. After the product becomes adopted and used in the world markets. . however. The group of low-income countries. would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. In some situations. In the maturing product stage.[1] A commonly used example of this is the invention. The model applies to labor-saving and capital-using products that (at least at first) cater to high-income groups. The model demonstrates dynamic comparative advantage. In the new product stage. no export trade occurs. Mistakes: · Failure to obtain export counselling and to develop a master international marketing plan before starting an export business: · Insufficient commitment to overcome the initial difficulties and financial requirements of exporting: · Failure to have a solid agent and or distributor’s agreement: · Blindly chasing orders from around the world · Failure to understand the connection between country risk and the probability of getting export financing · Failure to understand Intellectual Property Rights (IPR): · Insufficient attention to marketing and advertising requirements: · Lack of attention to product adaptation and preparation needs · Failure to obtain legal advice · Failure to understand export licensing requirements Product Life-Cycle Theory The product life-cycle theory is an economic theory that was developed by Raymond Vernon in response to the failure of the Heckscher-Ohlin model to explain the observed pattern of international trade. the product becomes an item that is imported by its original country of invention. production moves to developing countries. which then export the product to developed countries.

preferences. If we also presume similar evolutionary patterns for all countries. then products are introduced in the most advanced nations. usually on the basis of cost of production.g.. The sales of the product reach the peak and there is no further possibility to increase it. the clones of the early IBM PCs were not produced in the US.e.) Stage 2: Growth A copy product is produced elsewhere and introduced in the home country (and elsewhere) to capture growth in the home market. national) needs. Stage 5: Decline .g. ♦ It continues till substitutes enter into the market. countries with similar needs. Stage 1: Introduction New products are introduced to meet local (i. Stage 3: Maturity The industry contracts and concentrates—the lowest cost producer wins here. the many clones of the PC are made almost entirely in lowest cost locations.. and new products are first exported to similar countries.. this stage is characterised by: ♦ Saturation of sales (at the early part of this stage sales remain stable then it starts falling). (E. the IBM PCs were produced in the US and spread quickly throughout the industrialized countries.) The Period till the Maturity Stage is known as the Saturation Period. ♦ Marketer must try to develop new and alternative uses of product.) Stage 4: Saturation This is a period of stability.. This moves production to other countries. and incomes.Product life-cycle There are five stages in a product's life cycle: • • • • • introduction growth maturity saturation decline The location of production depends on the stage of the cycle. (E. (E.g.

which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population.e. Geneva.. A better example is textiles. However. approximately 80% of the revenues of H-P are from products they did not sell five years ago. and 30 observers. For example. The WTO's headquarters is at the Centre William Rappard.[7] representing more than 97% of the world's population[8]. especially from the Uruguay Round (1986–1994).Poor countries constitute the only markets for the product. Functions of WTO Among the various functions of the WTO. who is appointed by the ministerial conference. which implements the conference's policy decisions and is responsible for day-to-day administration. by riding the waves. and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. it provides a framework for negotiating and formalizing trade agreements. Switzerland.[4][5] Most of the issues that the WTO focuses on derive from previous trade negotiations. and a director-general. The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round). The WTO is governed by a ministerial conference. The organization officially commenced on January 1. the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports.) Note that a particular firm or industry (in a country) stays in a market by adapting what they make and sell. PCs are a very poor example here. meeting every two years. At this time. 1995 under the Marrakech Agreement."[6] The WTO has 153 members. the profits go back to the host old country.g. The organization deals with regulation of trade between participating countries. replacing the General Agreement on Tariffs and Trade (GATT). Therefore almost all declining products are produced in developing countries. (E. most seeking membership. i.. a general council. the future of the Doha Round is uncertain. which commenced in 1948. mainly because there is weak demand for computers in developing countries. these are regarded by analysts as the most important: . WTO he World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade.

a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. Non-Discrimination. and intellectual property. it does not define or specify outcomes. it is concerned with setting the rules of the trade policy games. Reciprocity. it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization.[34] "Grant someone a special favour and you have to do the same for all other WTO members. It has two major components: the most favoured nation (MFN) rule.[34] Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: 1. and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. the IMF and the World Bank. reciprocal concessions intend to ensure that such gains will materialise."[35] National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e. the WTO cooperates closely with the two other components of the Bretton Woods system. but their precise scope and nature differ across these areas. discriminating against imported goods).[29][31] Another priority of the WTO is the assistance of developing. If satisfaction is . It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule.[30][31] Additionally. and the national treatment policy.• • It oversees the implementation. services. but only after negotiating with its trading partners.[28][29] It provides a forum for negotiations and for settling disputes.e. least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training. i.[30] Principles of the trading system The WTO establishes a framework for trade policies. which could mean compensating them for loss of trade. Both are embedded in the main WTO rules on goods. These schedules establish "ceiling bindings": a country can change its bindings.[32] The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the organization.g. Binding and enforceable commitments. it is the WTO's duty to review and propagate the national trade policies. security standards et al. administration and operation of the covered agreements. That is.[33] Finally.[36] 3. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members.[34] 2. and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. technical standards.

The General Council of WTO. Since the founding of the WTO.[1] GATT and the World Trade Organization Main article: Uruguay Round In 1993. discouraging the use of quotas and other measures used to set limits on quantities of imports. and to notify changes in trade policies to the WTO. agreed to establish a working party to examine the request of Syria for WTO membership. One of the most significant changes was the creation of the World Trade Organization (WTO). Of the original GATT members. articles aimed at ensuring "fair competition". the complaining country may invoke the WTO dispute settlement procedures. to maintain institutions allowing for the review of administrative decisions affecting trade. governments are able to restrict trade. In specific circumstances. therefore. 21 new non-GATT members have joined and 29 are currently negotiating membership.[37] The WTO system tries also to improve predictability and stability. (renamed to Serbia and Montenegro and with membership negotiations later split in two). and provisions permitting intervention in trade for economic reasons. the GATT was updated (GATT 1994) to include new obligations upon its signatories. on 4 May 2010. The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. when it was replaced by the World Trade Organization in 1995.not obtained.[citation needed] GATT The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). Syria[4][5] and the SFR Yugoslavia has not rejoined the WTO.[35] 5. The other 52 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Safety valves. The original GATT text (GATT 1947) is still in effect under the WTO framework.[37] Exceptions to the MFN principle also allow for preferential treatment of developed countries.[35][36] 4. to respond to requests for information by other members. GATT was signed in 1947 and lasted until 1993. The WTO members are required to publish their trade regulations. Transparency. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain noneconomic objectives. is not recognised as a direct SFRY successor state. These internal transparency requirements are supplemented and facilitated by periodic countryspecific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). There are a total of 153 member countries in the WTO.[6][7] The contracting parties who founded the WTO ended . Since FR Yugoslavia. regional free trade areas and customs unions. subject to the modifications of GATT 1994. its application is considered a new (non-GATT) one.

during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Serbia and Montenegro are in the decision stage of the negotiations and are expected to become the newest members of the WTO in 2012 or in near future.sometimes referred to as BOL or B/L) is a document issued by a carrier to a shipper.[2] They are also used in the land development process to ensure that approved public facilities (streets. for deals between a supplier in one country and a customer in another. letters of credit incorporate functions common to giros and Traveler's cheques. and the advising bank of whom the beneficiary is a client.e. the issuing bank of whom the applicant is a client. the WTO is an institutional body. sidewalks. bill of lading. Typically. BL A bill of lading (BL . The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: . which usually provides an irrevocable payment undertaking. used primarily in trade finance. storm water ponds. The letter of credit can also be payment for a transaction. i. the issuing bank and the confirming bank. the documents a beneficiary has to present in order to receive payment include a commercial invoice. Almost all letters of credit are irrevocable.. cannot be amended or canceled without prior agreement of the beneficiary. A through bill of lading involves the use of at least two different modes of transport from road. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.official agreement of the "GATT 1947" terms on 31 December 1995. if any. commercial letter of credit (LC[1]) is a document issued mostly by a financial institution. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. Whereas GATT was a set of rules agreed upon by nations. meaning that redeeming the letter of credit pays an exporter. the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies (UCP 600 being the latest version). Letters of credit are used primarily in international trade transactions of significant value. and documents proving the shipment was insured against loss or damage in transit. In executing a transaction. A bill of lading can be used as a traded object. and sea. air.) will be built.[8] LC A standard. The parties to a letter of credit are usually a beneficiary who is to receive the money. acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. etc. Although it was designed to serve multilateral agreements. rail. In such cases.

• • • It is evidence that a valid contract of carriage. The carrier need not require all originals to be submitted before delivery. It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition (a bill will be described as clean if the goods have been received on board in apparent good condition and stowed ready for transport). it governs all the legal aspects of physical carriage. Shipper's name. irrespectively of who the actual holder of the B/L. may be at a specific moment. a BL may be consigned to the order of the shipper. Flag of nationality. Description of goods. the short form simply refers to the main contract as an existing document. and it may incorporate the full terms of the contract between the consignor and the carrier by reference (i. the shipper may endorse it in blank or to a named transferee. The BL must contain the following information: • • • • • • • Name of the shipping company. The particulars of the container in which goods are stuffed are also mentioned in case of containerised cargo. however. whereas the long form of a bill of lading (connaissement intégral) issued by the carrier sets out all the terms of the contract of carriage). Once the goods arrive at the destination they will be released to the bearer or the endorsee of the original bill of lading. This matches everyday experience in that the contract a person might make with a commercial carrier like FedEx for mostly airway parcels. a brief description of the goods. the number of packages. whether freight costs have been paid or whether payment of freight is due on arrival at the destination. and owner of the goods. The BL also contains other details such as the name of the carrying vessel and its flag of nationality. A BL endorsed in blank is transferable by delivery. the marks and numbers on the packages in which the goods are packed.e. Where the word order appears in the consignee box. and. their weight and measurement. i. being freely transferable but not a negotiable instrument in the legal sense. is separate from any contract for the sale of the goods to be carried. The bill of lading has also provision for incorporating notify party. exists. and It is also a document of transfer. it may be endorsed affecting ownership of the goods actually being carried.e. This is the person whom the shipping company will notify on arrival of the goods at destination. the importer's name is not shown as consignee. Gross/net/tare weight. Order and notify party. like a cheque or other negotiable instrument. or a chartering contract. and Freight rate/measurements and weighment of goods/total freight While an air waybill (AWB) must have the name and address of the consignee. It is therefore essential that the exporter retains control over the full set of the originals until payment is effected or a bill of exchange is accepted or some other assurance for payment has been made to him. The carrier's duty is to deliver goods to the first person who presents any one of the original BL. . In general. it binds the carrier to its terms.

If the date on which the goods are loaded on board is different from the date of the bill of lading then the actual date of loading on board will be evidenced by a notation the BL. . In certain cases a carrier may issue a separate on board certificate to the shipper. The date of the BL is deemed to be the date of shipment.The document is dated and signed by the carrier or its agent.

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