INTERNATIONAL BUSINESS AND TRADE

M-6. GLOBAL TRADE REGIME & FREE TRADE RHETORIC PROTECTIONISM REALITY IN WTO

INTRODUCTION

The Uruguay Round of GATT, and the WTO which resulted, was an attempt by the major advanced
countries to tackle issues of strategic importance to them for the redesign and management of the global
economy in their interest, including the linkages between money, trade and finance. In many respects,
the outcome of the Uruguay Round were, and still are, threatening the domestic development and future
options of poor, Third World countries. Against that background, the purpose of this unit, and the next, is
to put in perspective specific strategic concerns of Third World countries arising from the injustice and
exploitation they experience in the global trade regime.

MAIN CONTENT

GATT-WTO AS AN IMPLEMENTER OF CHANGE

Following the Third World countries' constrictive demand for an equitable and New International
Economic Order (NIEO), (which had received international notice by 1973), the major advanced courtiers
began to seek for an appropriate framework to implement radical changes in the structures of world trade
and economy. The changes were required to achieve the following three aims: Arrest the rising prices of
raw materials (controlled mainly by the Third World, e.g. crude oil), which had led to the second slump in
1974/78; stop the increasing radicalism of the Third World; and bolster US economic dominance – and,
by extension, that of its western allies. For several reasons, GATT was chosen as an appropriate framework
to accomplish those aims. The reasons include the fact that foreign trade is one of the strongest linkages
among nations. Then there is the fact that Third World countries were weakest inside GATT as they did
not negotiate
collectives within it like the main powers. The support of the socialist countries for the Third World, even
verbal and rhetorical – could not be counted on inside GATT because, for reasons of self- interest, the
socialist countries adopted a low profile in it. Moreover, GATT negotiations were the least transparent,
unlike other international processes.

The Uruguay Round of GATT negotiations, and the World Trade Organization which followed, constitute
a major reconstruction of international capitalism and a great setback for Africa and the rest of the Third
World. The Uruguay Round is regarded as the most ambitious and complex of the eight rounds of
negotiations under GATT. It differs from earlier rounds of GATT which had sought merely to open up world
trade through tariff reductions and the selective lowering of non-tariff barriers to trade, e.g. quota
restrictions. The Uruguay Round represents two separate themes:
1. The GATT multinational negotiations in goods; and
2. Separate negotiations on multinational mechanisms for ‘trade in services’

Hence, the new rounds of GATT negotiations were about wider economic issues and trade policy. The
new round is essentially for reorganizing the international economy and international economic relations
into the 21st century, in the wider geographical context of the efforts of the United States to maintain its
position as a global superpower. It is about global production, production capacities and how to reduce
weakened competition from the Third World.
ISSUES IN THE GATT NEGOTIATION

Three sets of issues have been identified in the Uruguay Round of GATT negotiation. These are:

TRADITIONAL ISSUES
1) Textile and clothing – These have been partly removed from GATT rules, but the discriminatory Multi-
Fibre Agreement (MFA) has been retained. The Multi Fibre Arrangement governed the world trade in
textiles and garments from 1974 through 1994, imposing quotas on the amount developing countries
could export to developed countries. Its successor, the Agreement on Textiles and Clothing, expired on 1
January 2005.

2) Agriculture - Third World interests differ among exporters of temperate zone products who compete
with the advanced countries; exporters of tropical products; net food –importing countries; and others.
But the broad development interest of the Third World should not be sacrificed for mere market-share
arrangement between the US and the European Union.

SYSTEMIC ISSUES
1. GATT Articles – There are moves to tamper with these, especially Article XVIII, which enables the Third
World countries to impose ‘trade policy restrictions’ in defense of their balance of payments.
2. Safeguards – These ensure that selective or discriminatory safeguard actions should be outlawed.
This arrangement is not really offensive to the Third World.
3. Subsidies and Multilateral Trade Negotiation Agreements – The ‘non-exclusion’ clause should not be
used to extract concessions that are contrary to the provisions of the agreements. The weak . Third
World countries are especially vulnerable here.
4. Special and Different Treatment – This is a fundamental principle and the provisions for it in part IV of
GATT and in the Enabling Clause should be made operational in order to offer additional incentive to
the weaker economies of the Third World.
5. Enforcement of Rights and Obligations – This relates to the Dispute Settlement Mechanism and the
functioning of the GATT system. At present, the enforcement of rights and obligations lies in
‘retaliation’, an area in which Third World countries are very weak in relation to the industrialized
countries.

NEW ISSUES

● Current concerns about the trading system focus both on areas where multilateral trade rules exist but
where fair international competition is hindered by continuing high barriers and state support, and
areas where trade rule-making has not kept pace with changes to the global economy. Both these
“gaps in the rulebook” are highlighted in calls for reform and
modernization of the World Trade Organization (WTO), across both its monitoring and
transparency and its negotiating functions.
● Market distortions remain significant in key areas of global trade. For example, notwithstanding the
1995 WTO Agreement on Agriculture, agro-food products overall face higher trade barriers than
industrial goods. Tariffs applied to agricultural products are on average three times higher than for
industrial goods. Agro-food products are also more likely to face non-tariff measures. These include
quotas (banned for other products) as well as regulations which, while aimed at legitimate public
policy objectives, can nonetheless sometimes be more trade restrictive than necessary to achieve
that objective. Support to agricultural producers remains high, with over two thirds provided via
 measures that distort production and trade strongly. There is significant scope for reform of
agricultural markets and trade, with considerable gains from even partial reform. There are also
growing concerns about rising government support across a range of industrial sectors, and that
current trade rules on industrial subsidies are not able to effectively tackle this support and that new
rules are needed to ensure a level playing field.
● There are also important areas where multilateral rules are not keeping pace with changes in the global
economy. A good example of this is trade in services. Since the 1995 WTO General Agreement on
Trade in Services (GATS) the world has evolved dramatically, as a result of technological advances,
changing business practices, and deeper global integration. New commitments and updated rules for
services trade are needed that reflect 21st century trade.

FREE TRADE RHETORIC AND PROTECTIONISM REALITY IN WORLD TRADE ORGANIZATION

International economic agreements — free trade agreements — are crucial to a government’s innovation
policy because they construct the economic framework within which businesses and governments
operate. However, we need to understand that in international political and economic relations, there
are double standards with glaring inconsistencies between policies preached and practiced. In the
process, ‘free trade’, liberalization and deregulation have become the convenient ideological weapons for
a radical restructuring of the global economy in favour of the advanced countries and against the Third
World.

The main objectives of these anti-free trade (protectionists and interventionist trade) policies are to:

● Restrain Third World trade competition, especially in manufactured exports and textiles ● Ensure
that the Third World remains technologically poor and dependent on the North (the new TRIPS
(Trade-Related Aspects of Intellectual Property Rights ) in the WTO are to promote this objective.
● Arrest the rising prices of raw materials from the 1970s (especially oil prices) through the imposition of
massive devaluation and deregulation on the poor countries. Demobilize the Third World prevent the
revival of radical southern projects like the demand for a New International Economic Order (NIEO)
● Shore up US powers and global dominance in trade, investment and finance.

These are the main reasons for the hypocrisy over free trade, the revival of mercantilist and protectionist
trade policies in the north, and the persistent lack of transparency in the Uruguay Round of GATT
negotiations. These facts also explain the concerted hostility from Third World to quarter and subsequent
collapse of the WTO meeting in Seattle in December 1999.
 INTERNATIONAL BUSINESS AND TRADE

M-7. TRADE LIBERALISM AND RESTRICTIONS ON MIGRATION OF THE THIRLD WORLD

LABOUR INTRODUCTION

The international labour organization is the oldest UN organization and operates with labour business and
government representatives setting and enforcing minimum labour standards, including standards for
migrant workers. The focus of the annual conference has been on migrants and the goal will be to explore
what the ILO can do to promote orderly migration and protect migrants with ILO standards. The
international labour organization notes that migration for employment is a response to demographic and
economic inequalities, and that the labour force is expanding in developing countries

LEARNING OBJECTIVES

Upon successful completion of this unit, you should be able to:

● Describe the potential benefits of international migration of labour to the Third World and the
global economy.
● Explain the advanced countries’ position in imposing severe restrictions on labour migration.
● Described the implications of the advanced countries’ insistence on vital restrictions. .

MAIN CONTENT

LIBERALISM WITH RESTRICTIONS ON MIGRATION OF THIRD WORLD LABOUR.

In international trade theory, the international mobility of goods and services is regarded as a substitute
for the international immobility of factors of production (land, labour and capital). With liberalization,
globalization and the new world trade of WTO, capital and technology (the recently discovered fourth
factor of production), have become mobile.

Globalization requires that no country must retain any restrictions, controls and barriers on the free
movement measures and technology as intellectual property rights. But this is not so with labour, another
factor of production, which can move across national borders.

The rich have many assets; the poor have only one—their labor. Because good jobs are slow to come to
the poor, the poor must move to find productive employment. Migration is, therefore, the most effective
way to reduce poverty and share prosperity, the twin goals of the World Bank. Not surprisingly, all
development experiences and growth episodes in history have involved a reallocation of labor across
space and sectors within countries.

According to Moving for Prosperity: Global Migration and Labor Markets, however, some of the biggest
gains come from the movement of people between countries. Migrants’ incomes increase three to six
times when they move from lower- to higher-income countries. The average income gain for a young
unskilled worker moving to the United States is estimated to be about $14,000 per year. If we were to
double the number of immigrants in high-income countries by moving 100 million young people from
developing countries, the annual income gain would be $1.4 trillion. This global welfare gain dwarfs
(dominates) the gains from the removal of all restrictions on international flows of goods and capital.
These gains remain largely notional because most people cannot move. Only about 3 percent of the
world’s population live in a country in which they were not born, a proportion that has not changed much
over six decades of otherwise unprecedented global integration, via trade, investment, and knowledge
flows. Distances in space, culture, and language are inherent impediments to mobility, imposing an
estimated 30–50 percent tax on migrant wages. The most important barriers are, however, national
borders.

The gains for immigrants do not come at the expense of host countries. Farmers in destinations from New
Zealand to New Mexico thrive thanks to the hard work of immigrant workers. Institutions at the
technology frontier—from CERN (the European Organization for Nuclear Research) in Geneva to Silicon
Valley in California— innovate thanks to the ingenuity of immigrants. Native-born workers also gain on
average as they gravitate away from the occupations that immigrants are willing to perform, because they
benefit from the complementary skills that immigrants bring, or because they are consumers of the
products and services immigrants provide. Almost every empirical study finds that increased labor
mobility leads to large gains for the immigrants and positive overall gains for the destination country.

Migration Drivers

Human migration is a global phenomenon. In 2020, about 281 million international migrants and
hundreds of millions of internal migrants have changed their place of residence at any time in the past
(UNDESA, 2021). But why do people migrate in the first place?

Migration research has shown that people are “driven” in multiple ways and are influenced by macro-,
meso- and micro-level, and highly contextual factors (see infographic and Table 1 below) that facilitate,
enable, constrain, and trigger migration processes in complex ways. Migration drivers shape the
parameters and contexts within which people decide whether and where to move, or to stay put. They
increase or decrease the salience of migration, the likelihood of certain migration routes, and the
attractiveness of different locations. While some migration drivers, such as economic or environmental
factors, are often studied in isolation, there is growing acknowledgement that migration is not the
outcome of a single factor or a ‘root cause’ but of complex configurations of multiple, interdependent
and interacting factors. Analysing such migration driver complexes in detail is important both to
understand why people migrate, but also why the majority of people do never migrate.

There is no generally accepted definition of migration drivers. Van Hear et al. (2018, p.927) describe
migration drivers as “forces leading to the inception of migration and the perpetuation of movement”
that “shape the broader context within which aspirations and desires to migrate are formed and in which
people make their migration decisions – whether to move or not” (Van Hear et al., 2018, p.930).

IOM ( International Organization for Migration ) defines drivers of migration as follows:

“Complex set of interlinking factors that influence an individual, family or population group’s decisions
relating to migration, including displacement. [..] The concept of “drivers of migration” is dynamic,
reflecting an interaction of personal, social, structural, environmental and circumstantial factors working
in tandem with local, national, regional and global level incentives and constraints. Drivers influence the
decisions to migrate, whether the migration is internal or international, regular or irregular, and/or
temporary or permanent; and they operate along a spectrum between voluntary and involuntary
movement.” (IOM Glossary, 2019)

Related but distinct concepts to migration drivers are “root causes” and “migration determinants”. Root
causes are “the social and political conditions that induce departures - especially poverty, repression, and
violent conflict” (Carling and Talleraas, 2016, p.6). Determinants allude to “quantitative modelling and
the search for data that might explain and predict migration patterns” (ibid.). Migration drivers is a more
inclusive term that encompasses factors that eventually lead to migration.

Drivers of migration have been studied for decades and the scientific literature has identified a number
of fundamental dimensions of migration drivers including economic, political, social, cultural,
demographic, and ecological factors (Massey et al. 1993, Migali et al. 2018).

The circumstances, the ways and modes, and the extent to which sets of driving factors may influence
individual migration decision-making and larger migration processes are dependent on the functionality
of migration drivers, which is a central aspect in understanding the specific role of single or combinations
of multiple drivers may play at different stages of a migration (decision-making) process. Migration as a
behavioural option is highly context-dependent and, as such, the configuration of complex driver
environments is very specific to the time and place in which migration aspirations are formed and
decisions taken. However, context-specific functionalities of specific migration drivers can be generalised
and categorised along some key functions (cf. Van Hear et al., 2018). Predisposing drivers, for instance,
define fundamental societal structures and structural disparities. As the basic methodological premise,
we may assume that (potential) migrants respond to extrinsic or intrinsic stimuli when deciding about
migration (Czaika and Reinprecht, 2020). From this perspective, predisposing factors define the broadest,
most fundamental layer of opportunity structures (de Haas, 2010).

Table 1: Key migration driver dimensions and factors

Source: Czaika and Reinprecht (2020)
Demographic: Demographic migration drivers include population dynamics that become manifest at the
aggregate level by changes in population size and composition, fertility and mortality transitions, but also
by socio-demographic processes including changes in family size, models and structures.

Economic: Economic drivers include both structural and long-running macroeconomic differences
between sending and receiving regions or countries, such as development and income levels (GDP),
poverty, and inequality and short and medium-term fluctuations, such as the business cycle, economic
crises, and recessions. They further include labour market conditions, such as unemployment and
employment, wages, and employment opportunities. Lastly, they also incorporate housing and lifestyle-
related reasons for migration, such as moving to more pleasant places promising higher quality of life.

Environmental: Climate change and natural disasters are fundamental environmental drivers
predisposing internal and international migration. The effects of gradual climate change affects migration
mostly indirectly through multiple transmission channels including its impact on economic factors, such
as incomes, livelihood opportunities, or food security. Natural disasters and sudden environmental
shocks, such as floods, storms, droughts, earthquakes, and human-made disasters and accidents trigger
often immediate and large-scale, but mostly temporary population displacements.

Human development: Human development drivers go beyond economic drivers including factors
defining broader standards of living (e.g. as they are captured by UNDP’s human development index)
ranging from availability and access to education and training opportunities to the provision and quality
of the healthcare system and services.
 Individual: Individual drivers include pecuniary and non-pecuniary resources, such as financial
resources, migration experience, life aspirations and an associated capacity to aspire migration, or lack
thereof. They shape the migration decision-making process at the personal or household level. Attitudes,
views, norms and perceptions towards one’s own country and other countries influence whether and
where individuals desire to migrate.

Politico-institutional: Politico-institutional drivers include immigration and emigration regulations and

policies as well as some public sector policies aimed at and relevant to migrants, such as labour market
access and citizenship that constrain or facilitate migration and/or integration. They further include
general public services, public infrastructure, and public goods, not particularly aimed at migrants.
Migration governance and infrastructures, including state and non-state actors (such as recruitment
agencies) shape migration processes. Provision of civil and political rights at destination may attract
migrants while the absence thereof at origins might drive some to emigrate.

Security: Security-related drivers, such as conflict, war, and violence, can trigger migration and make
large-scale migration more likely, in particular, when the security situation for a broader population
deteriorates. Unstable political situations, political repression, and regime transitions may spark
motivation to leave a country but might at the same time also constrain emigration opportunities.

Socio-cultural: Socio-cultural drivers include transnational migrant communities and networks that might
enable and facilitate migration by providing information and hands-on support and assistance. Cultural
norms around migration might increase the salience of migration even in the absence of migrant
networks. In addition, (changing) gender norms, which are often interlinked with socio-cultural norms
and practices, affect migration decisions in complex ways.

Supranational: Supranational drivers include manifestations and features of the global, post-colonial
economic system and globalisation processes as established by international exchange in goods, services
and capital, transnational linguistic, cultural, geographic, and religious ties, and the effects of regional
integration processes and geopolitical shifts and transformations.

Advanced Countries Position Towards Restrictions On Labour Migration

Yet, the major sponsor of liberation, globalization-GATT WTO and a (Multilateral Agreement on
Investment), in the North- are strongly opposed to the international migration of labour. From France,
Germany, the USA and other Western countries, we read incredibly depressing tales of the harrowing
experience of immigrant workers – whether as boat people from Asia, North Africans in France, other
Africans in Germany, and East European in other parts of what should be their common European
homeland. Why, this being the case, should the government of Third World countries not be allowed to
exercised any control on the entry of manufactured goods, capital, investment and technology into their
countries, while the advanced countries stoutly shut out migrant workers (labour) from the Third World
countries, (including Eastern European), who went to enter their countries? Why would free trade,
liberalization and globalization be good for manufactured products, capital and technology (intellectual
property rights) and be bad for labour? The answer is simply because of the inequality between the
powerful owners of commodities, capital and technology, on the one hand, and the weak
atomized owners of labour power, on the other.
The main standards protecting migrant workers come from the United Nations agency devoted to labor
issues, the International Labor Organization (ILO). The ILO has two legally binding instruments relating to
migrant workers: Convention No. 97 of 1949 (C97) concerning Migration for Employment and Convention
No. 143 of 1975 (C143) concerning Migrations in Abusive Conditions and the Promotion of Equality of
Opportunity and Treatment of Migrant Workers. Both are complemented by non-binding
recommendations.

C97, which applies to the whole labor migration continuum from entry to return, covers the conditions
governing the orderly recruitment of migrant workers. It also articulates the principle of their equal
treatment with national workers regarding working conditions, trade union membership and enjoyment
of the benefits of collective bargaining, accommodation, social security, employment taxes and legal
proceedings relating to matters outlined in the convention.

The scope of C143 is broader. The right to work is a fundamental right, as well as one of the keys to
exercising other rights.. Adopted at a time when particular migration abuses, such as the smuggling and
trafficking of migrant workers, were attracting the attention of the international community (which
remains the case today), this instrument devotes a whole section to irregular migration and to interstate
collaborative measures considered necessary to prevent it. It also imposes an obligation on states "to
respect the basic human rights of all migrant workers," confirming its applicability to irregular migrant
workers.

In addition, the United Nations, which has a broad mandate to protect human rights, adopted the
International Convention on the Protection of the Rights of All Migrant Workers and Their Families
(ICMW) in 1990; it came into force in July 2003. Like the ILO instruments, it covers the entire migration
process. However, only 27 states have ratified the ICMW, none of them major receiving countries.

In addition to underlining many of the traditional civil and political rights found in other, more general
human rights instruments that apply to all persons, including migrant workers and their families, the
ICMW clarifies that basic economic, social, and cultural rights apply to both regular and irregular migrant
workers. However, the ICMW permits states to limit the rights of certain specific categories of temporary
migrants, such as seasonal workers, project-tied workers, or specified-employment workers.

Conclusion

Migrant workers, and in particular certain vulnerable categories, such as women domestic workers and
temporary and irregular labor migrants, continue to suffer abuses and malpractices at the hands of
employers, government officials and the general population in receiving countries. This persists despite
standards that have been painstakingly devised to enable them to lead a dignified existence when
resident and employed abroad.

The reasons for the "protection gap" — feminization of the migrant labor force, states' reliance on
temporary workers, and states' reluctance to agree to legally binding, multilateral instruments — linger
and seem likely to remain in the near future. However, international organizations and other players,
particularly NGOs, have shifted their strategies in search of solutions that do not necessarily require the
world's major receiving countries to sign legally binding instruments like the ICMW.
Globalization, often perceived as a threat to migrant workers and the realization of their rights, has also
played a role in bringing together diverse and geographically distant voices to their defense, and may yet
help bring about important changes at the national and international levels that will ultimately benefit
migrant workers.

INTERNATIONAL BUSINESS AND TRADE

M-8. THIRD WORLD AGENDA FOR CHANGE IN GLOBAL TRADE, INTERNATIONAL FINANCING
INSTITUTIONS

INTRODUCTION

The growth in trade is in turn the result of both technological developments and concerted efforts to
reduce trade barriers. Some developing countries have opened their own economies to take full
advantage of the opportunities for economic development through trade, but many have not. Remaining
trade barriers in industrial countries are concentrated in the agricultural products and labor-intensive
manufactures in which developing countries have a comparative advantage. Further global trade in these
areas particularly, by both industrial and developing countries, would help the poorest escape from
extreme poverty while also benefiting the industrial countries themselves.

MAIN CONTENT

THIRD WORLD PROGRAMME FOR REFORM OF WTO

The proposed reforms include the following:

1. DEMOCRATIZE AND BRING THE SYSTEM WITHIN THE UN SYSTEM. Greater openness and
equitable participation by Third World countries are essential, and so it has been proposed to
bring the WTO within the UN system, hopefully with fairer sharing of benefits and costs;
2. ADDRESS PROBLEMS OF MARGINALIZATION AND IMPLEMENTATION OF AGREEMENT BY THIRD
WORLD COUNTRIES: A pre –condition for liberalization is the possession of built-up local capacity
to withstand the increased competition of the TNCs (Transnational corporations). This requires
addressing the urgent development problems of poverty, unemployment,inequalities,
technological stagnation and environmental degradation, which have worsened in the Third
World, and have been causing greater insecurity. There has also been reported increase in
disguised protection measures against poor countries, e.g. Use of WTO measures on anti-dumping
subsidies and the environment.
3. ELIMINATE THE DEFICIENCIES AND IMBALANCE IN THE WTO SYSTEM: The inequalities in the
distribution of benefits and costs, in which most poor countries are losers (with Africa estimated
as loosing between $1.2 and $3 billion annually) has to be addressed. The principle of reciprocity
for the balance of rights and obligations is also more appropriate for countries at a similar level of
development, whilst the dispute settlement mechanism based on retaliation is a rule of the jungle
that should change. Then the following imbalances need to be specifically redressed.
 • Agricultural agreement: This ignores, at present, the interest of non-commercial households and
peasant farmer who are in the majority in the Third World;
• The agreement on subsidies: Currently permits the subsidy practices of the North for research,
regional development, environmental protection (in addition to the current ones for agriculture
and industry), but not Third World subsidies for protection, diversification and exports;
• Market access for the Third World: This has featured tariff escalation in many advanced countries
such that their tariffs on goods of interest to poor countries are still extremely high. So the issue
of import restriction that stile production and exports in the Third World need to be addressed;
• The textiles sub-sector: Bringing textile into the normal – WTO framework.
• The agreement on services: This is clearly inequitable as it involves an unfair imbalance in the
protection of capital, which is abundant in the North, and the exclusion of labour, which is
relatively more abundant in the Third World, and made subject to harsh Northern immigration
restrictions, including the imposition of exploitative transit visas. This must be redressed;
• The agreement on TRIPS (The Agreement on Trade-Related Aspects of Intellectual Property
Rights), MAI (Multilateral Agreement on Investment) and TRIMS (The Agreement on Trade-
Related Investment Measures) : Also need urgent review, as some poor countries have either
rejected some of them, e.g. MAI, or they are demanding their review;
• Need for greater balance,transparency and accountability: This is also important as the WTO is
weighted against the weaker states that are not usually invited to the numerous informal
meetings where major decisions are taken.

STRATEGIC AGENDA FOR CHANGE

The challenges and threats posed to Third World countries by the new global trade system should be
seized by the Third World to forge a strong and united front for preparing a strategic agenda for
engagement with the North.

The main items of this collective Third World agenda for the strategic engagement with the North should
include:
1. The linking of the trade liberalization demanded by the North to the urgent development goals of
poor Third World countries;
2. Demand for special and differential treatment for poor countries on account of their high
vulnerability in the global economy;
3. Special attention to export commodities from the Third World with respect to their falling prices,
declining terms of trade and restricted volumes. This requires that the Third world should (a)
contest theInternational Commodity Agreements that have been abrogated unilaterally by the
North; and (b) renew schemes of supply management among poor countries;
4. Demand for effective governance of the global economy, with particular reference to trade,
international capital flows (especially speculative short-term capital), technology, environmental
protection, foreign debt, and the like.
5. Review of the status of the Multi-Fibre Agreement, agriculture and mineral products in GATT-
WTO;
6. Insistence that WTO procedures become transparent and democratic, and that its secretariat be
accountable, particularly in the sharing of the benefits and costs of the new global trading system,
which involves winners and losers;
7. Fuller discussions on competition policy under the new GATT- WTO system, particularly with
regard to improved market access for Third World products, through removal of restrictions on
 their manufactured products and of disguised protective measures, such as anti-dumping
subsidies;
8. Review of the new protectionism implied by the introduction of new issues such as services,
technology and foreign investment through TRIMS, TRIPS and MAI, respectively, as well as
Environment and Labour standards.

PREPARATORY WORK & MOBILIZATION FOR CHANGE

In order for the Third World to have meaningful and productive negotiations with the North over GATT-
WTO, it is imperative for them to engage in serious preparatory work and effective national, regional and
south mobilization.

INTERNATIONAL FINANCING VEHICLES AND/OR INSTITUTIONS

Globalisation has opened doors and opportunities that were never explored before. Activities of
companies are not limited to one region or a single country. And wherever there are activities of
companies, there is money involved in them.

International Financing is also known as International Macroeconomics as it deals with finance on a global
level. There are various sources for organizations to raise funds. To raise funds internationally is one of
them. With economies and the operations of the business organizations going global, companies have
access to funds in the global capital market.

International finance helps organizations engage in cross-border transactions with foreign business
partners, such as customers, investors, suppliers and lenders. Various international sources from where
funds may be generated include the following.

1. Commercial Banks. Global commercial banks all over provide loans in foreign currency to
companies. They are crucial in financing non-trade international operations. The different types
of loans and services provided by banks vary from country to country. One example of this is
Standard Chartered emerged as a major source of foreign currency loans to the Indian industry.
It is the most used source of international financing.
2. International Agencies and Development Banks. Many development banks and international
agencies have come forth over the years for the purpose of international financing. These bodies
are set up by the Governments of developed countries of the world at national, regional and
international levels for funding various projects. The more industrious among them include
International Finance Corporation (IFC), EXIM Bank and Asian Development Bank.
3. International Capital Markets. Emerging organizations including multinational companies depend
upon fairly large loans in foreign currency.

THE IFIs

In many parts of the world, international financial institutions (IFIs) play a major role in the social and
economic development programs of nations with developing or transitional economies. This role includes
advising on development projects, funding them and assisting in their implementation.
Characterized by AAA-credit ratings and a broad membership of borrowing and donor countries, each of
these institutions operates independently. All however, share the following goals and objectives:

• to reduce global poverty and improve people's living conditions and standards;
• to support sustainable economic, social and institutional development; and
• to promote regional cooperation and integration.

IFIs achieve these objectives through loans, credits and grants to national governments. Such funding is
usually tied to specific projects that focus on economic and socially sustainable development. IFIs also
provide technical and advisory assistance to their borrowers and conduct extensive research on
development issues. In addition to these public procurement opportunities, in which multilateral
financing is delivered to a national government for the implementation of a project or program, IFIs are
increasingly lending directly to non-sovereign guaranteed (NSG) actors. These include sub-national
government entities, as well as the private sector.

INTERNATIONAL BUSINESS AND TRADE

M-9. REGULATION OF INTERNATIONAL TRADE

INTRODUCTION

The consequences of trade inequalities are at the core of the criticism about globalization. Many
international organizations, from the world bank to non-government organizations (NGOs), work to
change the world trading system to make it more fair and equal for all countries, including the poorest
ones. But for all countries to be able to reap the benefits of globalization and trade regulation, the
international community must continue working to reduce distortions in international trade (cutting
agricultural subsidies and trade barriers) that favor developed countries and to create a common fair
system.

MAIN CONTENT

Most of the WTO agreements are the result of the 1986-94 Uruguay Round negotiations, signed at the
Manakish ministerial meeting in April 1994.

There are about 60 agreements and decisions. Negotiations since then have produced additional legal
texts such as the information Technology Agreement, services and accession protocols.

New negotiations were launched at the Doha Ministerial conference in November, 2001. The final “Act”
of the Uruguay Round agreements were signed in Marrakech in 1994 which is like a cover note. Everything
else is attached to this. Foremost is the agreement establishing the World Trade Organization (or the WTO
Agreement), which serves as an umbrella agreement. Annexed are the agreements on goods, services and
intellectual property, dispute settlement, trade policy review mechanism and the plurilateral agreements.
The schedules of commitments also form part of the Uruguay Round Agreements.

The structure of the WTO is dominated by its highest ministerial conference composed of representatives
of all WTO members, which is required to meet at least every two years and which can take decisions on
all matters under any of the multilateral trade agreements. The day to day work of the WTO however,
falls to a number of subsidiaries; principally the general council, also composed of all WTO members,
which is required to report to the ministerial conference. As well conducting its regular work on behalf of
the ministerial conference, the general council convenes in two particular forms as the dispute settlement
body, to oversee the dispute settlement body.
BASIC LEGAL RULES AND PRINCIPLES OF GATT

The GATT was a multilateral treaty which had been signed by 96 governments known as: Contracting
parties”. Thirty one other countries had applied GATT rules de facial. The GATT was neither an
organization nor a court of justice. It was simply a multinational treaty, which covered 80 percent of the
world trade.

It was a decision making body with a code of rules for the conduct of international trade, and a mechanism
for trade liberalization. It was a forum where the contracting parties met from time to time to discuss and
solve their trade problems and also negotiated to enlarge their trade, the GATT rules provided for the
settlement of trade dispute called for consultants waived trade obligation and even authorized retaliatory
measures.

Some of the legal rules and principles of GATT involved:

● Carrying on trade on the principle of one discrimination, reciprocity and transferring. ● A

transaction will qualify to be international if elements of more than one country are involved. ●
Most favored nation principle (MFN) expressed that any advantage to a product originating or
destined for another country shall be treated in accordance with a product originating in or
destined for the contracting country.
● National treatment principle: This prohibits discrimination between imported and like domestic
products other than through the imposition of tariffs (products, nature, intended use, commercial
value, price and sustainability)
● Reciprocity principle: Encourages negotiations between contracting parties on a reciprocal and
mutually advantages basis, directed towards the reduction of tariffs and other charges on imports
and exports

OVERSEEING NATIONAL TRADE POLICIES

Surveillance of national trade policies is a fundamentally important activity running throughout the
work of the WTO. At the center of this work is the trade policy review mechanism (TPRM).

The objectives of the TPRM are, through regular monitoring, to increase the transparency and
understanding of trade policies and practices, to improve the quality of public and intergovernmental
debate on the issues, and to enable a multilateral assessment of the effects of policies on the world
trading system. In this way member governments are encouraged to follow the WTO rules and discipline
more closely as measures to curb disputes and to settle them.
Reviews are conducted on a regular, periodic basis. The four biggest traders – the European Union, the
United States, Japan and Canada- are examined approximately once every two years. The next 16
countries in terms of their share of world trade are reviewed every four years; and the remaining countries
every six years, with the possibility of a longer interim period for the least-developed countries.

Reviews are conducted in the trade policy review Body (TPRB) –established at the same level as the
General council – on the basis of two documents; a policy statement prepared by the government under
review, and a detailed report prepared independently by the WTO secretariat. These two reports together
with the proceedings of the TPRB are published after the review meeting.

In addition to the TPRB, many other WTO agreements contain obligations of member governments to
notify the WTO secretariat of new or modified trade measures.

MULTILATERAL TRADE ARRANGEMENT BETWEEN NATIONS

Multilateral trade agreements are between many nations at one time. For this reason, they are very
complicated to negotiate, but are very powerful once all parties sign the agreement. The primary benefit
of multilateral agreements is that all nations get treated equally, and so it levels the playing field,
especially for poorer nations that are less competitive by nature.

Examples, the Doha Round of trade agreements is a multilateral trade agreement between all 149
members of the World Trade Organization.

The Trade Expansion Act of 1962, which authorized the so called Kenny Round of trade negotiations,
culminated with an agreement by 53 nations accounting for 80 percent of international trade agreement
to cut tariffs by an average of 35 percent.

In 1979, as a result of the success of the Tokyo Round, the United States and approximately 100 other
nations agreed to further tariff reductions and to the reduction of such non tariff barriers to trade as
quotas and licensing requirements.

A more recent set of multilateral negotiation, the Uruguay Round, was launched in September 1986 and
concluded almost 10 years later with an agreement to reduce industrial tariff and non tariff barriers
further, cut some agricultural tariffs and subsidies, and provide new protections to intellectual property.
Perhaps most significantly, the Uruguay Round led to creation of the World Trade Organization, a new,
binding mechanism for settling international trade disputes.

BILATERAL TRADE AGREEMENT

A trade agreement is a contract/agreement/fact between two or more nations that outlines how they will
work together to ensure mutual benefit in the field of trade and investment. Such trade agreements may
involve cooperation in the field of R & D, the lowering of import duties to be levied on the other partners,
exports, guaranteeing any investments made by the partner(s) in the home market, cooperation on the
tax front, etc.

Bilateralism is the practice of promoting trade between two countries through agreements concerning
quantity and price of commodities.
Bilateral trade as the name implies involves two countries. For instance, bilateral trade is the exchange of
goods between two countries. Bilateral trade agreements give preference to certain countries in
commercial relationships, facilitating trade and investment between the home country and the foreign
country by reducing or eliminating tariffs, imports quotas, export restraints and other trade barriers.

MULTILATERAL INVESTMENT TREATIES

The multilateral agreement on investment (MAI) was a draft agreement negotiated between members of
the Organization for Economic Cooperation and Development (OECD) in 1995 -1998. Its ostensible
purpose was to develop multilateral rules that would ensure international investment was governed in a
more systematic and uniform way between states.

THE UN CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD)

The first step towards the creation of UNCTAD was taken when the UN general assembly declared the
1960s as the United Nations Development decade in December, 1961.

By doing so, it recognized the need for adopting measures by developed countries to bridge the gap
between the rich and poor nations through trade and aid. It was on the recommendations of the UN
Economic and Social council in July 1963 for convening the first UNCTAD at Geneva in 1964.

PRIMARY FUNCTIONS OF THE UN CONFERENCE ON TRADE AND DEVELOPMENT

(i) To promote international trade between countries with different socio-economic systems, especially
for accelerating the
economic development of LDCs (Least developed countries).

(ii) To formulate principles and policies of international trade and related problem economic
development.

(iii) To make proposals for putting the said principles and policies into effect, and to take such steps
which may be relevant towards this end (Bakare, 2003).

(iv) Generally, to review and facilitate the coordination of activities of other institutions within the UN
System in the field of international trade and rated problems of economic development.

OBJECTIVES AND ACHIEVEMENTS OF UNCTAD

Which have been evolved gradually of the various CONFERENCE:

● Trade in primary commodities

● Trade manufacturers goods
● Development financing
● Technology transfer, and
● Economic Cooperation of countries

INTERNATIONAL BUSINESS AND TRADE

M-10. MANAGEMENT OF FOREIGN OPERATIONS AND INTERNATIONAL

TRADE INTRODUCTION

The efficient and cost effective production and delivery of goods and services to customers is essential for
business to flourish. Achieving this in the global marketplace poses unique and exciting challenges, and
international companies require skilled operations manages to deliver these goals.

MAIN CONTENT

Companies, nations involved in foreign operations business may structure their activities in the
following three ways.

1. WHOLLY OWNED SUBSIDIARIES. A large, well established company with much international
experience may eventually have wholly owned subsidiaries.
2. IMPORTS/EXPORTS ACTIVITIES. A small company with limited foreign experience operating in “risky
areas” may be restricted to export and import activity. If the company’s sales force has minimal
experience in export sales, it is advisable to use foreign brokers when specialized knowledge of foreign
markets is needed. When sufficient volume exists, the company may establish a foreign branch sales
offices, including salespeople and technical services staff.
3. JOINT VENTURES . A joint venture with a foreign company is another way to proceed internationally
and share the risk. Some foreign governments require this to be the path to follow to operate in their
countries. The foreign company may have local goodwill to assure success. A drawback is less control
over activities and a conflict of interests. A joint venture involves two or more businesses pooling their
resources and expertise to achieve a particular goal. The risks and rewards of the enterprise are also
shared.
ISSUE OF NATIONS/ ORGANIZATIONS WITH FOREIGN OPERATION

Nations involved in foreign operations are to take cognizance of the several issues below:

1) International company structure

2) Foreign laws and regulations
3) International accounting
 4) Cost calculation and global pricing strategy
5) Universal payment methods
6) Currency rates
7) Choosing the right global shipment methods
8) Communication difficulties and cultural differences
9) Political risks
10) Supply chain complexity and risks of labor exploitation
11) Environmental issues

FINANCIAL STRATEGIES

In countries where currency values are likely to drop financial managers of the subsidiaries should:

● Avoid paying advances on purchases unless the seller pays interest on the advances sufficient to cover
the loss of purchasing power.
● Not have excess idle cash. Excess cash can be used to buy inventory or other real assets. ● Buy
materials and supplies on credit in the country in which the foreign subsidiary is operating, extending
the final payment date as long as possible.
● Avoid giving excessive trade credit. If accounts receivable balances are outstanding for an extended
time period, interest should be changed to absorb the loss in purchasing power.

INTERNATIONAL BUSINESS AND TRADE

M-11. ECONOMIC COOPERATION AND INTERNATIONAL TRADE

INTRODUCTION

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize
international trade. The organization officially commenced on January 1st, 1995 under the Marrakesh
Agreement, replacing the General Agreement on Tariff and Trade (GATT), which commenced in 1948. The
organization deals with regulation of trade between participating countries; it provides a framework for
negotiating and formalizing trade agreements, 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.

The activities of Economic Cooperation Organization are conducted through directorates under the
supervision of secretary General and his Deputies which considered and involve projects and programmes
of mutual benefit in the fields of:

❖ Trade and investment

❖ Transport and telecommunications
❖ Energy, minerals and environment
❖ Agriculture, industry and tourism etc.
MAIN CONTENT

ECONOMIC COOPERATION AND INTERNATIONAL TRADE

In 1985, the Economic Cooperation Organization (ECO) was established by Iran, Pakistan, and Turkey to
promote economic, technical, and cultural cooperation among the member states. ECO is the successor
organization of Regional Cooperation for Development (RCD) which remained in existence from 1964 up
to 1979. In 1992, the Organization was expanded to include seven new members, namely: Afghanistan,
Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. The Economic
Cooperation Organization (ECO) is an intergovernmental organization involving seven Asian and three
Eurasian nations, part of the South Central Asian union. It provides a platform to discuss ways to improve
development and promote trade and investment opportunities. The ECO is an ad hoc organization under
the United Nations. The common objective is to establish a single market for goods and services much
like the European union. ECO’s secretariat and cultural department are located in Tehran, its economic
bureau is in Turkey and its scientific bureau is situated in Pakistan.
THE PRINCIPLE OF COOPERATION

● Sovereign equality of the member states and mutual advantage.

● Linking of national economic development plans with ECO’s immediate and long-term objectives to
the extent possible.
● Joint efforts to gain freer access to markets outside the ECO region for the raw materials and finished
products of the member states.
● Effective utilization of ECO institutions, agreements and cooperative arrangements with other
regional and international organizations including multilateral financial institutions; ● Common
endeavors to develop a harmonized approach for participation in regional and global
arrangements.
● Realization of economic cooperation strategy and exchange in educational, scientific technical and
cultural fields.

ACTIVITIES OF ECO

1. Trade & Investment. Trade and Foreign Direct Investment (FDI) play an important large role in the
economic growth of developing countries. Increased exports and inward investment creates wealth
which drives economic growth and hence creates jobs in an economy. Expanding trade volumes
require trade liberalization, harmonization of policies, reducing the cost of doing business, financial
infrastructure, and institutional capacity building. Harmonization of national policies is important for
free flow of trade, harmonization creates compatibility, maximizes economic efficiency and reduces
transaction costs. Trade facilitation is another area of focus for ECO, as it reduces indirect as well as
hidden costs, which is substantially high in ECO Region.
2. Transport and Communication. Transport, mobility and connectivity shall increasingly play its critical
role in ensuring regional development, prosperity, social well-being, cohesiveness and the realization
of Information Society. Accordingly, to achieve the maximum possible connectivity and its
consequent impact on socio-economic development, there is a compelling need to cooperate on
fundamental transit related policy issues through increasing efficiency, creating a more harmonized,
simplified legal and administrative framework by means of facilitating accession to and
implementation of major international conventions/agreements aimed at easing procedures for
movement of peoples and goods across the region and beyond, in an efficient way.Other impqerative
 prerequisite to that end are full implementation of the Transit Transport Framework Agreement
(TTFA), facilitating regular and commercially justified operation of ECO corridors/Routes, and
modernization of border crossing points Customs.
3. Tourism. As one of the largest and fastest growing economic sectors in the world, tourism is well-
positioned to foster economic growth and development at all levels and provide income through job
creation. The ever increasing contribution of tourism to the world economy and less investment
requirements and environmental effects makes it inevitable to adopt plans and strategies for
development of tourism on a national and regional basis.
4. Energy. Enhancing the energy security and sustainability through wider energy access and trade within
the ECO Region and beyond is among the top priorities within ECO. Energy demand is growing in pace
with the socio-economic development of ECO Member States, requiring
adequate, efficient and equitable provision of energy services. In this connection it is imperative
to develop and consolidate common efforts to ensure regional energy sustainability and resilience
in line with ECO Decade for Enhanced Energy Cooperation (2013-2022), projected ECO Plan of
Action for Energy/Petroleum Corporation (2016-2020), Global Sustainable Development Goals,
and in coherence with other energy related activities and projections envisaged in the ECO Vision
2025. Accordingly, energy trade, including regional electricity trade; uplifting the renewable
energy share in the ECO Region energy profile; enhancing the energy interconnectivity and
ensuring affordable access to all sources of energy are among the targets pursued by ECO.
5. Economic Growth and Productivity. Agriculture and industry are the key sectors which can boost
economic growth of the region through increasing productivity.The battle to end hunger and poverty
must be principally fought in rural areas, where half of the ECO population and the most hungry and
poor live. To eradicate hunger requires a combination of pro-poor investments in sustainable
agriculture, rural development and social protection measures to lift people out of chronic
undernourishment and poverty. Immediate steps are required to increase volumes, improve quality
and decrease cost of production to satisfy the regional demand for food. This can be realized by,
increased agricultural productivity via transferring and changing agro-technology, cooperating on
agricultural research and extension, implementing right agro-policy reforms, increasing human
capital productivity in the rural areas, optimum usage of natural resources (especially water) and
benefiting from international trade in the ECO Region. Industry is one of the main drivers which bring
nations to more prosperous and sustainable futures. ECO Member Countries are at varying degrees
of industrialization. The extent of industrial and technological development particularly in the hi-tech
arena is very limited thus requiring particular attention. Prevalence of natural and economic human
resources is among the advantages that makes investment in industries affordable and cost effective.
Promoting investment and attracting foreign capital are the key policies to help introduce new
technologies and competencies in ECO Region; however, it requires an investment friendly climate
and business environment. In this context attracting foreign direct Investment will be crucial to boost
the region's economic development by generating employment, developing human resources,
‘allowing resource and technology transfer’ and ‘increasing productivity and innovation’.
6. Social Welfare and Environment. As specified in the founding documents of the Organization, uplifting
the standards of living, quality of life, economic welfare and well being of people of the Region
constitute the very aim of regional cooperation in this part of the world. This requires, among others,
adoption of social protection and environment preservation policies in the Region. Realization of the
above strategic objective, which is also ECO’s core objective, requires a multi-faceted and supportive
policy environment to address and tackle challenges emanating from, among others, increased
population, increasing pressures on the natural resources, region-wide social-economic disparities,
changing climatic and eco-systems conditions and other trans-boundary environmental problems,
frequent natural disasters, drug and human trafficking,
 food security and health problems and education systems. This policy environment shall be
created through effective national and regional policies, active involvement of all Member
Countries in ECO decision making processes, and feasible and meaningful ECO relationship with
the global players and stakeholders within the context of SDGs, Sendai Framework and Paris
Agreement.
7. Partnerships. In its work, the Organization is entitled by its governing rules and practices to engage in
cooperative relationships with other regional and international organizations as well as non-ECO
countries. This has resulted in numerous partnership frameworks with the UN system and other
partners.

8. Capacity building and training programmes. In response to the needs and requirements for enhanced
regional cooperation, ECO is rendering a wide range of capacity building programmes and trainings
in different sectors for a wide spectrum of target groups from among the experts and officials of the
public and private sectors of the Member States as well as academic communities of the Region.
These programmes are mainly done through mobilizing the knowledge and expertise of the ECO
Secretariat, partner organizations as well as technical assistance entities and training institutes of the
individual Member States.

INTERNATIONAL BUSINESS AND TRADE

M-12. ADDITIONAL TOPICS FOR REVIEW AND MASTERY: TRADE POLICIES AND
ECONOMIC DEPRESSION

The Philippines is a founding member of the WTO. It has been a member of the WTO since 1
January 1995. The Philippines is a signatory to the following WTO agreements:

∙ 2005 Protocol Amending the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights
1994 (TRIPS).
∙ 2014 Protocol concerning the Trade Facilitation Agreement.
∙ Information Technology Agreement 1996.

Trade Policies in the Philippines

1. Philippines – Japan Economic Partnership Agreement . The Philippines and Japan entered into a free
trade agreement in 2008. PJEPA is the Philippines’ only bilateral free trade agreement, covering,
among others, trade in goods, trade in services, investments, movement of natural persons,
intellectual property, customs procedures, improvement of the business environment, and
government procurement.
2. Philippines – European Free Trade Association Free Trade Agreement. The Philippines and
EFTA members – Iceland, Liechtenstein, Norway, and Switzerland – signed a free trade agreement
in 2016 which entered into force in 2018. The Philippines-EFTA covers trade in goods, trade
in services, investment, competition, intellectual property, government procurement, and trade and
sustainable development.
3. Regional Comprehensive Economic Partnership. The Philippines and 14 Asia Pacific countries –
Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Myanmar, New Zealand,
 Singapore, Thailand, and Vietnam – signed a free trade agreement in 2020 which is expected to enter
into force in 2022. The RCEP agreement covers trade in goods, trade in services, investment,
intellectual property, e-commerce, competition, small and medium enterprises, and government
procurement.
4. Other Free Trade Agreements. Under ASEAN, the Philippines has preferential trade agreements with
China, Hong Kong, India, Japan, South Korea, and Australia and New Zealand.

Recent Trades on International Business and Trade

New Export Plan

The President of the Philippines approved the new Philippine Export Development Plan (PEDP) 2018- 2022
on 26 June 2019 through the issuance of Memorandum Circular No. 62, Series of 2019. The country's
Economic Development Cluster endorsed the PEDP on 14 June 2018. The website of the Department of
Trade and Industry (DTI) indicates that the PEDP 2018-2022 is a five-year roadmap identifying strategies
that will support the attainment of the country's export targets and improve its export competitiveness.

New Investment Priorities Plan

The President of the Philippines, through Memorandum Order No. 50, Series of 2020, approved
the 2020 Investment Priorities Plan (2020 IPP). The Board of Investments (BOI) subsequently issued
Memorandum Circular No. 2021-001 (General Policies and Specific Guidelines to Implement the
2020 Investment Priorities Plan).
The 2020 IPP aims to:
∙ Modernize the Philippine economy.
∙ Generate jobs across the country.
∙ Help solve societal issues relating to employment, housing, transportation, and safe and secure travel,
among others.

The 2020 IPP is valid from 2020 to 2023 and is subject to annual review to accommodate any

changes. Economic Depression in the Philippines Amid COVID-19

The Philippines has remained in protracted recession during early 2021, suffering its fifth
consecutive quarter of economic contraction in the first quarter of 2021. Economic recovery has been
delayed by the impact of the latest Covid-19 wave that has hit the Philippines during the first half of 2021,
reflecting strict pandemic control measures in Metro Manila and other surrounding areas badly impacted
by the latest pandemic surge.

Escalating new Covid-19 cases dampens recovery

The latest GDP statistics for the first quarter of 2021 showed that the Philippines economy contracted by
4.2% year-on-year, the fifth consecutive quarter of recession. This follows a severe contraction in GDP in
the 2020 calendar year, with the Philippines economy having contracted by 9.6% year-on-year. This was
the largest annual decline ever recorded since the National Accounts data series for the Philippines
commenced in 1946.
Household final consumption expenditure fell by 7.9% y/y in calendar 2020, while gross
capital formation contracted by 34.4% y/y. Some sectors of the economy recorded severe declines in
output, with the transport and storage sector recording a 30.9% y/y decline in output in 2020,
while accommodation and food services output slumped by 45.4%.

In the first quarter of 2021, the pace of contraction in household final consumption
expenditure moderated to a decline of 4.8% year-on-year, while gross capital expenditure contracted by
18.3% y/y. Strong growth in government final expenditure, which expanded by 16.1% y/y in the first
quarter of 2021, helped to mitigate the net impact of these declines.

Although the severity of the economic contraction has moderated during the second half of 2020
and during the second half of 2020, with positive quarter-on-quarter GDP growth recorded in the
fourth quarter of 2020, the new Covid-19 pandemic wave that gathered momentum since March 2021
has dampened near-term recovery prospects.

Reflecting the global slump in international trade, exports of goods and services fell by 16.3% y/y
in 2020. The Philippines export sector has also remained weak in early 2021, with exports down 9.1%
y/y in the first quarter of 2021

Despite the large decline in exports in 2020, the current account surplus reached a record high of USD 13
billion or 3.6% of GDP, boosted by the sharp slump in imports due to the severe contraction in domestic
demand. In March, the Philippines central bank, Bangko Sentral ng Pilipinas (BSP), has revised up its
current account surplus projection for 2021 to USD 9.1 billion, or 2.3% of GDP

An important stabilizing factor for the Philippines economy has been overseas worker remittances
by Filipinos working abroad, which remained quite stable during 2020, down only 0.8% y/y, and
equivalent to around 10% of GDP. However, an estimated 400,000 Filipino workers were repatriated
during 2020 as a result of job losses in their host countries, raising concerns about the impact on
remittance flows during 2021. Remittances sent home by workers are an important factor supporting
domestic consumer spending in the Philippines. Recent monthly data continues to show resilient
remittance inflows, with remittances by workers abroad up by 5.3% y/y in February 2021.
Due to the severe escalation in daily new Covid-19 cases since mid-March 2021, the
Philippines government has imposed a range of restrictive measures to try to contain the pandemic. A
one-week lockdown was announced for Metro Manila and four surrounding provinces on 29th March but
was extended progressively to 14th May. The Metro Manila lockdown was further extended to the end
of May, although lockdown measures have been eased in other parts of the Philippines. The total
number of people impacted by the lockdown measures for Metro Manila and surrounding provinces
was estimated at around 26 million, or around one-quarter of the total population of the Philippines, as
well as being the largest economic region of the Philippines economy.

Manufacturing production contracted by 9.8% y/y in 2020, reflecting significant disruption

to manufacturing output during the pandemic-related lockdown and restrictions on retail trading in Q2
and Q3 2020. Although economic conditions had been gradually improving in the fourth quarter of 2020
and during the first quarter of 2021, the recent severe escalation in the pandemic has created
renewed uncertainty about the momentum of economic recovery in the near-term. Manufacturers in
the Philippines highlighted a steep decline in output at the start of the quarter, which was largely
attributed to enhanced community quarantine measures, undertaken to control the spread of the
disease.

As a result of tightening lockdown measures, many clients suspended their operations, with
demand faltering for the first time since December 2020. Domestic demand was especially subdued
with the rate
of reduction among the sharpest in the series. However, export sales to European markets which
have begun to gradually reopen, helped to narrow the pace of contraction for manufacturing export
orders.

Progress of vaccine rollout

As a developing country with a population of 108 million, the Philippines confronts significant
challenges in vaccinating its population with Covid-19 vaccines due to difficulties in obtaining sufficient
vaccine supplies as well as the logistical problems of implementing a large-scale vaccination rollout
nationwide. The Covid-19 vaccination program began on 1st March 2021, after the arrival of shipments
of China's Sinovac vaccine. The Philippines has contracted to acquire 25 million doses of the Sinovac
vaccine, with one million already delivered and a further 1 million doses provided as a gift by the
Chinese government. The Philippines is also due to receive 9.3 million doses of the Oxford/AstraZeneca
vaccine through the global COVAX facility. So far 2.5 million doses had been delivered to the Philippines
through this COVX facility by the end of May 2021.

The COVAX facility, which is a global vaccine sharing initiative, has faced delays in receiving
AstraZeneca vaccine supplies from the Serum Institute of India, a key manufacturer of the AstraZeneca
vaccine. This is because India has also faced a sharply accelerating Covid-19 wave similar to the
Philippines, and the Indian government has placed temporary restrictions on export of Covid-19 vaccines
in order to accelerate vaccination of the Indian population.

The Philippine government is negotiating with seven global Covid-19 vaccine makers to secure
sufficient supplies. A contract for 13 million doses has been agreed with Moderna, with a further
contract for an additional 7 million doses also having been subsequently negotiated, providing a total
of 20 million Moderna vaccine doses. The Philippines also signed a contract for 40 million doses of the
Pfizer vaccine in May 2021.

The Philippine government had planned to vaccinate 70 million persons by end-2021, with a total of
2.5 million doses having been administered by mid-May 2021. An estimated 2.3% of the total
population had received first dose vaccinations by 18th May 2021. A key problem confronting the
Philippines, like many other developing countries, is that it is relying on imported vaccine supplies and is
therefore vulnerable to supply disruptions due to "vaccine nationalism", as some nations with vaccine
production facilities prioritize supplies to their own domestic populations due to the mounting human
toll of the pandemic.

Philippines economic outlook for 2021

While the Philippines economy is still expected to show a positive growth rebound in 2021, the near
term outlook has been dampened by the sharply rising wave of new Covid-19 cases since mid-
March 2021.

This is expected to constrain the pace of economic recovery in the near-term, as strict pandemic
control measures were imposed in Metro Manila and other surrounding areas badly impacted by the
latest surge in pandemic cases. Vaccine rollout in the Philippines has also been constrained by lack of
sufficient supplies of imported vaccines.

Consequently, the pace of economic recovery in 2021 is likely to be less buoyant than
previously expected, with renewed pandemic control measures constraining the momentum of growth
recovery in
the near-term. GDP growth in 2021 is expected to be in the 5% to 6% range, with stronger GDP growth in
2022 as the pandemic is gradually constrained by widening vaccine rollout in the Philippines, resulting in
more normal economic conditions.