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GATT

Y Outcome of the failure of negotiating governments to


create the International Trade Organization (ITO)

Y GATT was formed in 1949 and lasted until 1993, when it


was replaced by the World Trade Organization in 1995

Y It held a total of 8 trade rounds


World Trade Organization (WTO)

Y Commenced on January 1, 1995 under the Marrakech


Agreement, replacing the General Agreement on Tariffs
and Trade (GATT)
Y Supervises and liberalizes International trade
Y WTO has 153 members representing more than 97% of
total world trade
Y WTO's headquarters is at the Centre William Rappard ,
Geneva, Switzerland.
?unctions of WTO

Y Oversees the implementation, administration and operation


of the covered agreements.
Y Provides a forum for negotiations and for settling disputes.
Y Reviews and propagate s the national trade policies
Y Ensures the coherence and transparency of trade policies
Y WTO cooperates closely with the two other components of
the Bretton Woods system, the IM? and the World Bank
TRIPs ± Trade Related Aspects of Intellectual
Property Rights

Y Negotiated at the end of the Uruguay Round of the


General Agreement on Tariffs and Trade (GATT) in 1994.
Y Sets down minimum standards for many forms of
intellectual property (IP) regulation
Y Contains requirements that nations' laws must meet like
copyright rights, geographical indications etc.
Y Copyright must be granted automatically, and not based
upon any "formality", such as registrations or systems of
renewal.
Y TRIPS also has a Most ?avoured Nation (M?N) clause.
TRIMs - Trade Related Investment Measures

Y One of the four principal legal agreements of the


WTO trade treaty.
Y Applies to the domestic regulations which a
country applies to foreign investors, often as part
of an industrial policy
Y Enables international firms to operate more easily
within foreign markets
Y Includes Trade Related Investment Measures
Y Provides Legal framework
?ree Trade Agreements (?TA)

Y Trade treaty between two or more countries to reduce


or completely remove tariffs to trade
Y Increased remuneration from trade
Y Bilateral or multi-lateral
Y Types of trade agreements
÷ ?ree Trade Agreements (?TA's)
÷ Preferential Trade Agreements (PTA's)
÷ Comprehensive Economic Cooperation
Agreements (CECA's)
Indian Trade Agreements
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Indian Trade Agreements «Cntd
Y India-Nepal Trade Agreement
Y India-Japan Trade Agreement
Y India-Mauritius Trade Agreement
Y India-Bangladesh Trade Agreement
Y India-Mongolia Trade Agreement
Y India-Afghanistan Preferential Trade Agreement
Y India-Chile Preferential Trade Agreement
Y India-Bhutan Agreement on Trade, Commerce and Transit
Y India-Singapore Comprehensive Economic Cooperation
Agreement
India -ASEAN ?TA

Y ASEAN ?ree Trade Area (A?TA) - trade bloc agreement


between Brunei , Indonesia , Malaysia , Philippines
, Singapore ,Thailand, Vietnam, Laos, Myanmar and
Cambodia
Y ASEAN-India ?ramework Agreement on Comprehensive
Economic Cooperation signed in 2003
Y Combined region comprising 1.7 billion people
Y ASEAN-India investments reached US$ 5 billion in 2008
Y ASEAN-India Trade in Goods Agreement (TIGA) signed
on August 13, 2009 & came into effect in January 2010
India -ASEAN ?TA« Cntd
Objectives of ASEAN:
Y Strengthen and enhance economic, trade and
investment co-operation between the Parties
Y Progressively liberalize and promote trade in goods
and services as well as create a transparent, liberal and
facilitative investment regime
Y Explore new areas and develop appropriate measures
for closer economic co-operation between the Parties
Y ?acilitate the more effective economic integration of
the new ASEAN Member States and bridge the
development gap among the Parties

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Major Agreements for Textile and Leather
Industry
Y Agreement of § i.e. free market access
to products and reduction of tariff and non-tariff
barriers.
Y Agreement to have Ä 
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an import surge and it is liable to affect the domestic
industries in the transition economies.
Y Õirect reduction of Ä  
Y  
 : These are supposed to have
a positive impact if they help the industries and
negative impact if they reduce the cost
competitiveness.
Textile Sector
Y Textiles and clothing accounts for around 30% of
India¶s total merchandise exports.
Y Exports go mainly to the European Union and the
United States, both of which maintain restrictions
under the Agreement on Textiles and Clothing (ATC).
Y To improve sector¶s competitiveness, a number of
measures have been taken
1.These include removal of some textiles and
clothing products from the list of items reserved for
the small-scale sector, and removal of foreign equity
restrictions
2. The new Textile Policy also acknowledges the
need to restructure, or close down, non-viable units.
Agreements in Textile Sector
Y Prior to 1995,trade in textile sector was subject to bilateral
quotas negotiated under the Multifibre Arrangement.
Y Since 1995,trade in textiles and clothing governed by WTO
rules. Implementation was done in phase.

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Agriculture-WTO Agreements and Government
Initiatives
Y Rules to govern agri trade which will lead to improved predictability and
stability for importing and exporting countries.
Y Provisions to encourage the use of less trade-distorting domestic support
policies to maintain the rural economy.
Y Ä  
 allows the imposition of additional duties
when there are import surges above a particular level
 
Y Policy guided by domestic supply and self sufficiency considerations
Y Price controls are maintained for staples to ensure remunerative prices for
farmers.
Y The Government also procures and subsidizes the sale of certain
commodities through the public distribution system.
Ä  
(a) Exemption of export profit from income tax.
(b) Subsidies on cost of freight on export shipments of certain products like
fruits, vegetables and floricultural products.
?inancial Vs Commodity Õerivatives
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Method of Settlement
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Turnover of Global Commodity Exchange
Multi Commodity Exchange of India Ltd(MCX)

Y " (  §  )§    


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commodity futures exchange started operations in November 2003 .

Y The demutualised Exchange set up by ?inancial Technologies (India) Ltd (?TIL) has
permanent recognition from the Government of India to facilitate online trading, and
clearing and settlement operations for commodity futures across the country.

Y MCX holds a           


 , and has more than 2000 registered members operating through over 100,000
trader work stations, across India.

Y Sixth largest and amongst the fastest growing commodity futures exchange in the
world, in terms of the number of contracts traded in 2009.

Y MCX offers  .  across various segments such as bullion, ferrous
and non-ferrous metals, and a number of agri-commodities on its platform.
Trading @ MCX
Y § Ä   9:45 a.m. to 9:59 a.m.
Special Session (order cancellation session) is held to cancel
the pending orders prior to opening of market .
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/ 10:00 a.m. to 11:30 p.m.
(up to 11:55 p.m. on account of day light savings typically
between every November and March of the following year)

Ä    10:00 a.m. to 2:00 p.m.


Agri-commodities are available for futures trading up to 5:00
p.m. whereas non agri-commodities (bullions, metals, energy
products) are available up to 11:30 pm / 11.55pm.
·     registered under the Companies
Act, 1956 with the Registrar of Companies, Maharashtra in Mumbai
on April 23,2003.

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   /  § in respect of
futures trading in commodities and subjected to various laws of the
land.

·Provides a world-class commodity exchange platform for market


participants to trade in a wide spectrum of commodity derivatives

·Located in Mumbai and offers facilities to its members in about 91


cities throughout India at the moment.
 
 

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· To create a world class commodity exchange platform
for the market participants.
· To bring professionalism and transparency into
commodity trading.
· To inculcate best international practices like de-
modularization, technology platforms, low cost solutions
and information dissemination without noise etc. into the
trade.
· To provide nationwide reach and consistent offering.
· To bring together the entities that the market can trust
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·National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of
trades executed on the NCÕEX.
·After the trading hours on the expiry date, based on the available information, the
matching for deliveries takes place firstly, on the basis of locations and then randomly.

·After completion of the matching process, clearing members are informed of the
deliverable/ receivable positions and the unmatched positions.
·—nmatched positions have to be settled in cash. The cash settlement is only for the
incremental gain/ loss as determined on the basis of final settlement price.
Settlement
· §'§: On a continuous basis at the end of each day;
cash settled by debiting/ crediting the clearing accounts of
Clearing Members (CMs) with the respective clearing bank.
· / : On the last trading day of the futures contract;
the final settlement price is the spot price on the expiry day.
· The seller intending to make delivery takes the commodities to
the designated warehouse.
· Warehouse then ensures that the receipts get updated in the
depository system giving a credit in the depositor's electronic
account.
Role of regulatory bodies in Exports/Imports
Õirectorate General of ?oreign Trade (ÕG?T)
Responsible for implementing the ?oreign Trade Policy or Exim
Policy with the main objective of promoting Indian exports.

Key ?unctions -
· To Implement ?oreign trade policy of India
· coordination with state governments and all the other
departments of Ministry of Commerce and Industry
· To Grant Exporter Importer Code (EIC) Number to Indian
Exporter and Importers
· permits or regulate Transit of Goods in accordance with the
bilateral treaties between India and other countries.
Role of regulatory bodies in Exports/Imports
?orward Markets Commission (?MC)
Regulatory authority which is overseen by the Ministry of Consumer
Affairs, ?ood and Public Õistribution, Govt. of India

Key ?unctions ±
· To keep forward markets under observation and to take such action
in relation to them.
· To make recommendations generally with a view to improving the
organization and working of forward markets
· To undertake the inspection of the accounts and other documents
· to publish information regarding the trading conditions in respect
of goods
Three Tier Regulation in Commodity Markets






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Need for regulation in Commodities Markets

Y Proper regulation is needed to create competitive


conditions.
Y To avoid manipulation of prices
Y To ensure that the market has appropriate risk
management system.
Y To ensure fairness and transparency in
trading, clearing, settlement and management of the
exchange
Warehousing Sector
Y Economic losses upto Rs.50,000 crore per annum due to
foodgrain damage.
Y 30-40% of annual horticulture produce is wasted annually due
to inadequate storage.
Y To overcome this, Central Warehousing Corporation to give
1.18 lakh tonnes of additional space to ?CI.
Y Almost 50 lakh tonnes of total foodgrain stored in open under
cover and plinth(called CAPS) for years, which should not
exceed 6 months.
Y All this due to lack of Regulation in this sector.
Y Structure of Warehousing:
1.Government controlled organizations like CWC and ?CI
2.Private players and Unorganized storage providers
The Warehousing sector
Y Till 2007,there were no specific regulations for the warehousing sector in
India.
Y But recently 3 laws were introduced by the government to boost this
industry.

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Unresolved Issues
Y   & Trading in commodity options contracts
banned since 1952
Y #  
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Y     Ä 1% to 5% of the total
commodity derivatives trade in the country are settled in
physical delivery.
Y '%
  need of a strong and independent
regular, similar to SEBI.
Y *    Ä  too many commodity exchanges.
Over 80 commodities . Õerivatives popular for few
commodities.
Y '   *
 restrictions on the movement of
certain goods from one state to another.
Commodities and Business Cycle
Y *   Expectations of profit are at their high point and
stock prices are sky high. Banks approve loans easily. Generally
during this period, energy and metals outperform other commodities.
Y   % Uncertainties arise in the market and the market
for physical investment gets saturated and people get less profit. A
few commodities, including sugar, coffee, soybeans etc., perform
well due to their higher demand. In recession during 2008 also, it
was seen that sugar gave good returns
Y * % Markets moves on the hope that the economy will
revive and some immediate monetary measure like interest rate cuts,
tax cuts etc. provides liquidity in the market. Some commodities,
such as maize, soybeans, sugar and gold outperform other
commodities and other investment avenues, which was seen in 2009.
Commodities and Business Cycle«Cntd
Y     In early expansion, stocks and bonds outperform
commodities. A recovery in the equity market offers support to the
commodities market. The market witnesses spontaneous
movements, optimism, and higher-than-expected profits during the
early expansion phase

Y In general, commodities perform better during late recession and late


expansion phases, with the decline in interest rate and fresh inflow of
money. Base metals get more returns in the early recession phase as
compared to the late recession phase, while agro futures display
patterns quite strongly even in the recession time.
The ?uture of Indian Commodity Market
Some features of the emerging scenario as far as the
commodity market is concerned are:
Y      : Trade volumes, demand for a
wide variety of commodities covering food, fiber, metals and
energy is expected to expand. India is likely to produce many
of the aforesaid commodities. There is a possibility that India
may export certain commodities in large volumes in future.
Y  : Competition will result in
inefficient domestic units falling by the wayside, but will
eventually lead to greater efficiency among domestic producers
Y % §|: In the Indian commodities sector, global
companies will increasingly play a role as
producers, suppliers, traders and service providers. Indian
producers will have to learn to face competition from MNCs.
The ?uture of Indian Commodity Market«Cntd
Y    
   : ?ragmentation of
business that is resulting in scale-diseconomies and other
infirmities is likely to give way to consolidation.
Y      
 :
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: The government's role is
changing from controller to facilitator.
Y —   
IT will be used for delivering
price and market information to primary producers (farmers).
Y Ä
   Initiatives are already underway to
launch electronic spot trading in farm commodities that will
help growers and others not only discover prices almost real
time, but also help capture value by taking trading positions.
References
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