Module 1: Introduction to International Business

Introduction to International business, its importance and various concepts involved in it such as:
entrepot trade, various tariff and non tariff barriers, regional trading blocs and types of trade
agreements.

1.1 Introduction to International Business

Basically international business is a cross border transaction between individuals, businesses, or

government entities. The transaction can be of anything that has value, examples include –

● Physical Goods
● Services such as banking, insurance, construction, etc.
● Technology such as software, arms, and ammunition, satellite technology, etc.
● Capital and
● Knowledge

Hence International Business can be defined as Exchange of capital, goods, ideas, knowledge,

technology and services across international borders or territories. It involves cross-
border transactions of goods and services between two or more countries. Transactions of economic
resources include capital, skills, and people for the purpose of the international production of physical
goods and services such as finance, banking, insurance, and construction. International business is also
known as globalization.

International Business comprises of three basic activities: Import, Export and Entrepot

Import:

An import is a good or service bought in one country that was produced in another. Countries usually
import when there is a need of goods, services, ideas, technology and knowledge in their domestic
region for final consumption. Import of intermediaries or raw material is done for the purpose of
manufacturing. Sometimes goods are imported for exporting those further to other nations with or
without value addition.
Export:

Export happens when the country of origin sells , services, ideas, technology and knowledge to other
country. Export is an important activity to increase the balance of payments of the nation, to widen the
market and to increase the gross domestic product of the nation.

Entrepot:
An Entrepot or transshipment port is a port, city, or trading post where merchandise may be imported,
stored or traded, usually to be exported again. Importance of entrepot was due the growth of long-
distance trade during the era of industrialization. Such centers played a critical role in trade during the
days of wind-powered shipping. The benefit of the entrepôt in the past was that it removed the need for
ships to travel the whole distance of the shipping route. Ships would sell their goods into the entrepôt
and the Entrepot would, in turn, sell them to another ship traveling a further leg of the route.

In modern times customs areas have largely made such Entrepots obsolete, but the term is still used to
refer to duty-free ports with a high volume of re-export trade. Singapore and Hong Kong are good
examples of Entrepot. Entrepot trade may encompass some value addition activities like storage,
repackaging and break bulking. In general, Entrepot is a kind of foreign trade where gods are imported
and re-exported with or without value addition.

1.2 Trade Barriers: Tariff and non-tariff barriers

Trade barriers are restrictions imposed on the movement of goods between countries (import and
export). The major purpose of trade barriers is to promote domestic goods than exported goods, and
there by safeguard the domestic industries. Trade barriers can be broadly divided into tariff barriers and
non tariff barriers. Tariff barriers are also helpful in getting revenues to the Government from the import
and export trade activities.

1.2.1 Tariff Barriers:

Term tariff means ‘Tax’ or ‘duty’. Tariff barriers are the ‘tax barriers’ or the ‘monetary barriers’ imposed
on internationally traded goods when they cross the national borders.
Major tariff barriers:

1. Specific duty: It is based on the physical characteristics of the good. A fixed amount of money can be
levied on each unit of imported goods regardless of its price. Eg. Imposing of Rs 500 on imported shoes.

2. Ad Valorem tariffs: This is the most common type of tariff. The Latin phrase ‘ad valorem’ means
“according to the value”. This tax is flexible and depends upon the value or the price of the commodity.
In this the customs duty is calculated as a percentage of the value of the product. This helps the
government in getting revenues in proportion to the value of goods imported.

3. Combined or compound duty: It is a combination of specific and ad valorem duty on a single product,
for instance, there can be a combined duty when 10% of value(ad valorem) and Rs. 60 per
kilogram(specific tax) are charged on import of a metal

4. Sliding scale duty: The duty which varies along with the price of the commodity is known as sliding
scale duty or seasonal duties. These duties are confined to agricultural products, as their prices
frequently vary because of natural and other factors.

5. Countervailing duty: It is imposed on certain import where it is being subsidized by exporting

governments. As a result of the government subsidy, imports become cheaper than domestic goods, to
nullify the effect of subsidy; this duty is imposed in addition to normal duties.

6. Revenue tariff: A tariff which is designed to provide revenue or income to the home government is
known as revenue tariff. Generally this tariff is imposed with a view of earning revenue by imposing duty
on consumer goods, particularly on luxury goods whose demand from the rich consumers is inelastic in
nature.
7. Anti –dumping duty: At times exporters attempt to capture foreign markets by selling goods at rock-
bottom prices, such practice is called dumping. (China practices the activity of dumping in various
countries including USA and India.) As a result of dumping, domestic industries find it difficult to
compete with imported goods. To offset anti-dumping effects, duties are levied in addition to normal
duties.

8. Protective tariff: In order to protect domestic industries from stiff competition of imported goods,
protective tariff is levied on imports. Normally a very high duty is imposed, so as to either discourage
imports or to make the imports more expensive as that of domestic products. These are quite similar to
countervailing duties. Only difference is that countervailing duties are levied with an intention to
compensate subsidies of exporting countries.

1.2.2 Non Tariff Barriers

Any barriers other than tariff or use of tariff are called non tariff barriers. It is meant for constructing
barriers for the free flow of the goods. It do not affect the price of the imported goods or the revenues
of Government from foreign trade. However it affects the quality and quantity of the goods.

1. LICENSES: License is granted by the government, and allows the importing of certain goods to the
country. These are granted on the restricted items.

2. Voluntary Export Restrains (VER): these types of barriers are created by the exporting country rather
than the importing one. These restrains are usually levied on the request of the importing company. eg.
Brazil can request Canada to impose VER on export of sugar to brazil and this helps to increase the price
of sugar in Brazil and protects its domestic sugar producers.

3. Quotas: under this system, a country may fix in advance, the limit of import quantity of commodity
that would be permitted for import from various countries during a given period. This is divided into the
following categories: a) Tariff quota: certain specified quantity of imports allowed at duty free or at a
reduced rate of import duty. A tariff quota, therefore, combines the features of a tariff and import
quota. b) Unilateral quota: the total import quantity is fixed without prior consultations with the
exporting countries. c) Bilateral quota: here quotas are fixed after negotiations between the quota fixing
importing country and the exporting country. d) Multi lateral quota: a group of countries can come
together and fix quotas for each country.
4. Product standards: Here the importing country imposes standards for goods. If the standards are not
met, the goods are rejected.

5. Domestic / local content requirements: Importing governments impose DCR to boost domestic
production. It means that the country will import goods only if the intermediates, spares or raw material
from importing country is used in the manufacturing of the goods.

6. Product Labeling: certain countries insist on specific labeling of the products. Eg.EU insist on products
labeling in major languages in EU.

7. Packaging requirements: certain nations insist on particular type of packaging of goods. Eg. EU insist
on packaging with recyclable materials.

8. Foreign exchange regulations: The importer has to ensure that adequate foreign exchange is
available for import of goods by obtaining a clearance from exchange control authorities prior to the
concluding of contract with the supplier.

9. State trading: In some countries like India, certain items are imported or exported only through
channelizing agencies like MMTT( Minerals and metals trading cooperation of India)

10. Embargo: Partial or complete prohibition of trade with any particular country, mainly because of the
political tensions.

11. Administration policies: Strict Customs inspection, strong regulatory authorities, strict national
policy of trade

12. Other NTBs are: • Health and safety regulations. • Technical formalities • Environmental
regulations / Eco friendly products, etc.

1.3 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. Imports are goods and services produced in a foreign country and
bought by domestic residents.
There are three types of trade agreements. The first is a unilateral trade agreement. It occurs when a
country imposes trade restrictions and no other country reciprocates. A country can also unilaterally
loosen trade restrictions, but that rarely happens. The only example of unilateral trade barrier was
between India and Pakistan. India gave MFN status to Pakistan in year 1996 however Pakistan did not
reciprocate. Under WTO norms, member countries are mandated to give this status to each other on a
reciprocal basis.  But Pakistan did not follow these norms. Finally India removed this status of Pakistan
in year 2019.

Bilateral trade agreements are between two countries. Both countries agree to reduce trade
restrictions to expand business opportunities between them. They lower tariffs and confer preferred
trade status with each other. (Most Favoured Nation – MFN). India has Bilateral Trade Agreements with
all SAARC countries under SAPTA, excluding Pakistan. India has withdrawn MFN status to Pakistan in
2019.

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. General
Agreement on Tariff and Trade (GATT) is a agreement between 140 countries. Multilateral trade
agreements cover a larger geographic area and lead to form a group of trading countries called a trade
bloc. That confers a greater competitive advantage on the signatories. All countries also give each
other most favoured nation status. They agree to treat each other equally. 

The largest multilateral regional trade agreement is the North American Free Trade Agreement (NAFTA)
which is also a trade bloc. It is between the United States, Canada and Mexico. Their combined
economic output of NAFTA is $20 trillion. 

1.4 Regional Trade Blocs

A trade bloc or regional trading bloc (RTB) is a co-operative union or group of countries within a specific
geographical boundary. RTB protects its member nations within that region from imports from the non-
members. Trading blocs are a special type of economic integration. There are six types of trading blocs –
Preferential Trade Area − Preferential Trade Areas (PTAs), the first step towards making a full-fledged
RTB, exist when countries of a particular geographical region agree to decrease tariffs on selected goods
and services imported from other members of the area. Foreign trade policy and structure of each
member country, however remains different for outside countries i.e. the countries which are not
members of RTB. For. EX. Countries Sri Lanka and India which are under SAPTA preferential trade area,
will reduce their barriers of trade with each other. However they will have different foreign trade
policies while dealing with Singapore which is not a member of SAPTA

Free Trade Area − Free Trade Areas (FTAs) are like PTAs but in FTAs, the participating countries agree to
remove barriers to trade on goods coming from the participating members. Foreign trade policy and
structure of each member country, however remains different for outside countries. NAFTA (North
American Free Trade Area) is an example of Free Trade Area between Canada, USA and Mexico.
Barriers to trade are removed within these nations but their policies to trade with India or China are
different.

Customs Union − A customs union has no tariff barriers between members, plus they agree to a
common (unified) external tariff against non-members. Effectively, the members are allowed to
negotiate as a single bloc with third parties, including other trading blocs, or with the WTO. Example :
Russia , Kazakhstan, Belarus came together to form Eurasian Customs Union.

Common Market − A ‘common market’ is an exclusive economic integration. The member countries
trade freely all types of economic resources – not just tangible goods. All barriers to trade in goods,
services, capital, and labor are removed in common markets. In addition to tariffs, non-tariff barriers are
also diminished or removed in common markets. Example : East African Common Market, EAC. The EAC
is currently made up of six Partner States: Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda.

Economic Union - An economic union is a type of trade bloc which is composed of a common market
with a customs union. The participant countries have both common policies on product regulation,
freedom of movement of goods, services and the factors of production (capital and labour) and a
common external trade policy.  It refers to an agreement between countries that allows products,
services, and workers to cross borders freely. The union requires the integration of monetary and fiscal
policies, so that member countries coordinate policies, taxation, and government spending related to
the agreement. They also use a common currency that comes with fixed exchange rates.

Example: The European Union is the world’s largest trade bloc. Importing goods and services from more
than 100 countries, it is the biggest import market, as well as the biggest exporter in the world. The EU’s
common currency is the euro, which is used by its 27 member states: Austria, Belgium, Bulgaria, Croatia,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia,
Spain and Sweden. The EU countries coordinate their economic policies, laws, and regulations to
address economic and financial issues. One of the union’s founding principles is free trade among its
members. It is also committed to the liberalization of world trade outside of its borders.

Political Union: It has all features of economic union plus no separate sovereignty and has a common
Government. Represents the potentially most advanced form of integration with a common government
and were the sovereignty of a member country is significantly reduced. Only found within nation-states,
such as federations where there are a central government and regions having a level of autonomy.
United States of America is an example of political Union.

1.4.1 Examples of trade blocs

A. European Union (Economic Union)

The European Union is a unified trade and monetary body of 27 member countries. It eliminates all
border controls between members. The open border allows the free flow of goods and people, except
for random spot checks for crime and drugs. 1
Any product manufactured in one EU country can be sold to any other member without  tariffs or
duties.2 Practitioners of most services, such as law, medicine, tourism, banking, and insurance, can
operate in all member countries. 3 As a result, the cost of airfares, the internet, and phone calls are
typically lower than in the United States.

Purpose

The EU's purpose is to be more competitive in the global marketplace. At the same time, it must balance
the needs of its independent fiscal and political members. Its 27 member countries are Austria, Belgium,
Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania,
Slovakia, Slovenia, Spain, and Sweden.

How It Is Governed

Three bodies run the EU. The EU Council represents national governments. The Parliament is elected by
the people. The European Commission is the EU staff. They make sure all members act consistently in
regional, agricultural, and social policies. Contributions of 120 billion euros a year from member states
fund the EU.

The euro is the common currency for the EU area. It is the second most commonly held currency in the
world, after the U.S. dollar. It replaced the Italian lira, the French franc, and the German Deutschmark,
among others. The value of the euro is free-floating instead of a fixed exchange rate. As a result, foreign
exchange traders determine its value each day. The most widely-watched value is how much the euro's
value is compared to the U.S. dollar.

Difference between the Eurozone and the EU

The eurozone consists of all countries that use the euro.All EU members pledge to convert to the euro,
but only 19 have so far. They are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.

The European Central Bank is the EU's central bank. It sets monetary policy and manages bank lending
rates and foreign exchange reserves. Its target inflation rate is less than 2%.
The Schengen Area

The Schengen Area guarantees free movement to those legally residing within its boundaries. Residents
and visitors can cross borders without getting visas or showing their passports.

In total, there are 26 members of the Schengen Area. 12They are Austria, Belgium, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein,
Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain,
Sweden, and Switzerland.

Two EU countries, Ireland and the United Kingdom, have declined the Schengen benefits, and recently
UK has exited from EU. Four non-EU countries, Iceland, Liechtenstein, Norway, and Switzerland  have
adopted the Schengen Agreement. Three territories are special members of the EU and part of the
Schengen Area: the Azores, Madeira, and the Canary Islands. Three countries have open borders with
the Schengen Area: Monaco, San Marino, and Vatican City

History

In 1950, the concept of a European trade area was first established. The European Coal and Steel
Community had six founding members: Belgium, France, Germany, Italy, Luxembourg, and the
Netherlands. In 1957, the Treaty of Rome established a common market. It eliminated customs duties in
1968. It put in place standard policies, particularly in trade and agriculture. In 1973, the ECSC
added Denmark, Ireland, and the United Kingdom. It created its first Parliament in 1979. Greece joined
in 1981, followed by Spain and Portugal in 1986. In 1993, the Treaty of Maastricht established the
European Union common market. Two years later, the EU added Austria, Sweden, and Finland. In 2004,
twelve more countries joined: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Slovakia, and Slovenia. Bulgaria and Romania joined in 2007. In 2009, the Treaty of
Lisbon increased the powers of the European Parliament. It gave the EU the legal authority to negotiate
and sign international treaties. It increased EU powers, border control, immigration, judicial cooperation
in civil and criminal matters, and police cooperation. It abandoned the idea of a European Constitution.
European law is still established by international treaties. In 2020, United Kingdom took exit from
European Union.
Issues faced by European Union

1. GREXIT: Grexit means Greece + Exit. After the 2009 financial crisis, Greece became the epicentre of
Europe’s debt problems. By 2010 it was heading towards bankruptcy, setting off fears of a second
financial crisis. Many now see the exit of Greece from the euro or Grexit as it is also known, as the only
solution for the country to end its cycle of borrowing, regain control of its monetary policy, and stabilize
the economy. The Eurozone is a monetary union consisting of 19 countries that have each adopted the
euro as their sole currency. It should not be confused with the European Union, which is a politico-
economic union with no common currency – though, all members of the Eurozone are also members of
the European Union. In order to join the Eurozone, members must meet a set of criteria and, once
approved, must adopt a set of fiscal policies. By definition, the Grexit refers to the exit of Greece from
this monetary union. Although the Eurozone has its advantages in terms of trade, there are drawbacks
to sharing a currency with the 19 other countries. Namely: Greece’s monetary policy, including how
much money it can print, is controlled by the European Central Bank. Many countries are concerned
that increasing the amount of euros in circulation would result in inflation in other Eurozone countries.
By reintroducing the drachma through the Grexit, Greece would regain control of its monetary policy
and could implement its own fiscal plans. That said, there are issues with changing currency. If, as in the
case of the Grexit, the replacement currency is expected to devalue against the euro, this could lead to a
bank run as people rush to withdraw the more valuable euro, placing further stress on the economy.
The probability of a Grexit and the reintroduction of a devalued drachma have already prompted many
people to withdraw their Euros from the country’s banks. In the nine months leading up to March 2012,
deposits in Greek banks had fallen 13%. Thus on one side GREXIT is essential and inevitable future of
Eurozone while on the other side withdrawal of Greece is going to create lot of economic issues related
to currency value difference. However it is said that Greece will still continue to be a part of EU.

2. Brexit: On 23 June 2016 a referendum was held to decide whether the UK should remain in the
European Union or leave it. More than 30 million people voted and Leave won by 51.9 per cent to 48.1
per cent.A new word was created – Brexit – which is a short way of saying “The Britain leaves the
European Union” by mixing the words Britain and Exit.

The European Union is a trade bloc of 28 European Countries. Each of these countries pays to be a
member and in return, they get access to special ways of working together. This includes being part of a
“single market”, which means that countries can trade with one another and people can move around
freely – as if we were all living together in one big country.

The EU has its own parliament, laws and currency (the euro – although the UK doesn’t use this as they
still use pounds and pence).

The 48 per cent who voted to remain in the EU, including former Prime Minister David Cameron, felt
that being a member of a 28-nation club is better than going it alone. They felt it was easier for Britain to
sell things to other EU countries, meaning it was good for businesses and trade.

The idea of the single market was to increase trade between countries, creating jobs and lowering
prices. However, the European Parliament decides on many rules and standards that EU countries have
to follow and Brexit supporters felt that they were losing control of our own affairs and laws.

The UK pays billions of pounds in membership fees to the EU every year and isn’t getting much back in
return for this. Also, many people are moving from poorer countries to richer countries around the
world. This has made some people in the UK worry about the free movement rule, which allows people
in the EU to move to any other EU country without needing special permission (a visa).

Finally in January 2020 the new prime minister of United Kingdom , Mr Boris Johnson announced that
UK exits from EU. The UK left the EU on 31 January 2020 and has now entered an 11-month transition
period. During this period the UK effectively remains in the EU's customs union and single market and
continues to obey EU rules.

B. NAFTA

NAFTA stands for the North American Free Trade Agreement, which was negotiated by former U.S.
President George H.W. Bush, and went into effect under President Clinton in 1994. The agreement is
between the United States, Canada and Mexico, and was initially created to help lower costs of trade
and bolster North American trade. The agreement eliminated almost all tariffs and taxes on imports and
exports. The agreement also rid the three countries of trade barriers.

Back in 1984, President Ronald Reagan passed the Trade and Tariff Act, which allowed the president
special authority to negotiate free trade agreements more quickly. Going off of Reagan's initiative,
Canadian Prime Minister Mulroney supported the president and the Canada-U.S. Free Trade Agreement
was eventually signed in 1988; it went into effect one year after. When George H.W. Bush became
president, he began to negotiate with Mexican President Salinas to generate a trade agreement
between Mexico and the U.S. The trade agreement was part of President Bush's three-part plan called
the Enterprise for the Americas Initiative, which also included debt relief programs. 

After Mexico lobbied for a trilateral trade agreement in 1991, NAFTA was created as a way to open up
free trade between the three, not just two, superpowers in North America. President H.W. Bush signed
the NAFTA agreement in 1992, which was also signed by Canadian Prime Minister Brian Mulroney and
Mexican President Salinas.

The agreement went into effect on Dec. 8, 1993. By January of 1994, the trade agreement was in effect.

Objectives of NAFTA

● Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services
between the territories of the parties.

● Promote conditions of fair competition in the free trade area.

● Increase substantially investment opportunities in the territories of the parties.

● Provide adequate and effective protection and enforcement of intellectual property rights in
each party's territory.

● Create effective procedures for the implementation and application of this agreement, for its
joint administration and for the resolution of disputes.

● Establish a framework for further trilateral, regional and multilateral cooperation to expand and
enhance the benefits of this agreement.

● However, in simpler terms, NAFTA was designed to encourage economic growth and integration
among the North American countries, and was thought to actually stimulate job growth, boost
the three countries' respective economies, and increase imports.
According to the Council on Foreign Relations, "the deal also sought to protect intellectual property,
establish dispute-resolution mechanisms, and, through side agreements, implement labour and
environmental safeguards."

Before the treaty, Mexican tariffs on U.S. imports were a couple hundred percent higher than U.S. tariffs
on Mexican imports. NAFTA combined the near $6 trillion economies and helped build up North
American competitiveness globally in the market.

NAFTA also serves to help resolve trade disputes, especially investor-state issues, by way of tribunals.
President Trump has criticized the system for allegedly giving non-U.S. citizens "a veto over U.S.
law," according to the Council on Foreign Relations. However, there is still debate over whether NAFTA
provisions have actually helped resolve trade disputes by eliminating trade barriers. 

Additions to NAFTA
Two principle additions to NAFTA - the North American Agreement on Labor Cooperation and the North
American Agreement on Environmental Cooperation - have had significant impacts on the agreement's
efficacy. 

Achievements of NAFTA

Apart from expanding consumer choice for the past 20 years, NAFTA has multiplied trade between the
three countries by about 3.5 times compared to 1994, according to an Associated Press report back in
2013.

Additionally, all three countries have enjoyed increased trade, economic growth, and higher wages since
NAFTA was approved in 1994, but whether these are the result of NAFTA remains a question for experts.
In fact, a 2010 Congressional Research Service report claimed that "Most studies after NAFTA have
found that the effects on the Mexican economy tended to be modest at most."

Still, NAFTA has lived up to its aims in some fashion, increasing U.S.-Mexican trade to $481.5 billion in
2015 and U.S.-Canada trade totalling $518.2 billion. That's a 255% and 63.5% increase
respectively, according to the Mexican Embassy in Canada. Although the jury is out as to if these
phenomenal increases are due solely to NAFTA (which they are almost certainly not), experts believe the
treaty has certainly helped.
As of 2017, Mexico and Canada are the second and third-largest exporters to America, behind China in
the number one spot. However, current threats to withdraw the United States from NAFTA could have
significant impacts on tariffs. Without NAFTA keeping tariffs between the three countries at around 0%,
tariffs would revert to those set by the World Trade Organization, which, according to The New York
Times, average at about 7.1% for Mexico, 3.5% for the United States, and 4.2% for Canada.

Still, NAFTA has intellectual property (IP) provisions that help protect and give rights to the countries
involved in relation to their intellectual property. However, recent discussions over the protection of
data under current provisions have called NAFTA to increase protection levels for IP. 

Impact of NAFTA on Economy

NAFTA's impact on the economy is seemingly mixed. When President Clinton first signed the treaty in
1993, he predicted an enormous economic benefit.

"NAFTA will tear down trade barriers between our three nations, create the world's largest trade zone,
and create 200,000 jobs in [the U.S.] by 1995 alone," President Clinton claimed. "The environmental and
labor side agreements negotiated by our administration will make this agreement a force for social
progress as well as economic growth."

Additionally, the treaty has helped protect foreign investors by allowing them to bypass courts with
complaints of government regulation negatively impacting their businesses. According to USA Today,
Mexico and Canada paid out around $350 million in damages to foreign investors - but the United States
hadn't paid any as of 2013.

Some estimates suggest NAFTA has only benefited U.S. GDP by around 0.5%, or around $80 billion,
according to the Council on Foreign Relations. 

Still, apart from the financials, NAFTA has had a certain impact on supply-chain-related sectors including
transportation. The provisions in NAFTA allow for liberal regulation of land transportation regarding
streamlining licensing and processing for truckers through an open U.S.-Mexico border. Moreover,
NAFTA's history with the environment has largely helped maintain environmental data across the three
countries in North America, but recent concerns centre on this aspect of the treaty being cut for budget
purposes.  
 United States-Mexico-Canada Agreement
On September 30, 2018, an agreement was reached during re-negotiations on changes to NAFTA. The
next day, a re-negotiated version of the agreement was published, and referred to as the United States-
Mexico-Canada Agreement (USMCA). In November of 2018, at the G20 summit, the USMCA was
signed by President Trump, Canadian Prime Minister Justin Trudeau and then-Mexican President
Enrique Peña Nieto. When the USMCA was first announced the day after the agreement was reached, it
was claimed that the deal would remove tariff risks from approximately $1.2 trillion worth of goods
every year.

Included in the USMCA agreement, sometimes colloquially referred to as NAFTA 2.0, are:

● Allowing American farmers access to American dairy products, which had previously been more
restricted
● Automobiles have to have at least 75% of its components made in the United States, Canada or Mexico,
an increase from NAFTA's requirements of 62.5%
● By 2023, 40-45% of automobile components must be made by North American workers making at least
$16 an hour
● The terms of copyright increase to 70 years after the life of the author, an increase from the current
limit of 50 years after the life of the author
● Prohibition on duties for products like music or e-books purchased electronically
● Scrapping parts of Chapter 11, the NAFTA provision also known as the Investors-State Dispute
Settlement (ISDS) that allowed investors of companies to sue governments
● A "sunset" clause, in which the terms of the agreement expire after 16 years. The USMCA would be
reviewed every 6 years, during which it can be extended for another 16 year term
While the leaders of all 3 countries have signed the agreement, it cannot go into effect until the
governments of all 3 countries pass it. However, the United States has yet to pass the USMCA as a bill.
House Democrats have urged additions to the USMCA that, among other things, strengthen labor laws
and add environmental protections.

C. Issue faced in USA Political Union

Cal-exit: Calexit was inspired by Brexit. "Calexit" refers to the secession (withdrawal) of California from
the United States, after which it would become an independent country. The term has become popular
 after Donald Trump's victory in the 2016 U.S. presidential election – Hillary Clinton won the state of
California with 61% of the vote – though it is not the state's first independence movement. 20%
Califironians supported Calexit in 2014. They figure increased to 32% in 2016. Calexit is led by the group
Yes California, which describes itself as "the nonviolent campaign to establish the country of California
using any and all legal and constitutional means to do so."

At $2.46 trillion, California's gross domestic product (GDP) was larger than France's ($2.42 trillion) in
2015. Using World Bank figures, California would be the world's sixth largest economy, if it were an
independent country. Being the richest and most prosperous state in USA, California now wishes to
come out of the Political Union.

D. SAPTA

The Agreement on SAARC Preferential Trading Arrangement (SAPTA) which envisages the creation of a
Preferential Trading Area among the seven member states of the SAARC, namely Bangladesh, Butan,
India, Maldives, Nepal, Pakistan and Sri Lanka was signed in Dhaka in April 1993. The idea of liberalizing
trade among SAARC countries was first mooted by Sri Lanka at the sixth Summit of the South Asian
Association for Regional Co-operation (SAARC) held in Colombo in December 1991. It was agreed that
SAPTA is a stepping stone to higher levels of trade liberalization and economic co-operation among the
SAARC member countries.

Objective

The objective of the SAPTA is to promote and sustain mutual trade and the economic co-operation
among the member states through exchange of trade concessions. SAPTA therefore is the first step
towards higher levels of trade and economic co-operation in the region.

The basic principles of SAPTA

● Overall reciprocity and mutuality of advantages

● Step by step negotiations and periodic reviews so as to improve and extend the preferential trade
arrangement, in stages
● Inclusion of all products, manufactures and commodities in their raw semi- processes and processed
forms
● Special and favourable treatment to Least Developed Contacting States
Direct Trade Measures

SAPTA specified four negotiating approaches namely, product by product basis, across the board tariff
reduction, sectoral basis and direct trade measures. However it was agreed that tariff concessions would
initially be negotiated on a product - by- product basis. The agreement also provides for negotiation of
tariff concessions to be an ongoing process. The SAPTA envisages that concessions on tariff para-tariff
and non tariff measures will be negotiated step -buy step improved and extended in successive stages.

National Schedules of Concessions

The process of negotiation on the schedule of concession, which forms an integral part of the
Agreement, commenced in 1993. For this purpose, the Inter Governmental Group on Trade
Liberalization (IGG) was set up. The IGG met on six occasions in various capitals. At the sixth meeting
held in Katmandu on 20 th and 21 st April 1995, the delegations held intensive rounds of bilateral and
multilateral negotiations and agreed on the National Schedule of concessions to be granted by individual
member states to other member states under the SAPTA Agreement.

Four rounds of trade negotiations were concluded under SAPTA covering over 5000 commodities. Each
Round contributed to an incremental trend in the product coverage and the deepening of tariff
concessions over previous Rounds.

During the first and the second rounds, trade negotiations were conducted on a product by product
basis. In the third and the fourth rounds, negotiations were conducted on chapter wise.

SAPTA converts to SAFTA

The Agreement on the South Asian Free Trade Area (SAFTA)which was implemented with effect from 1st
January 2006 supersedes the SAARC Preferential Trading Arrangement (SAPTA).