WTO & COMMODITY MARKET

AGENDA
y GATT & WTO : Functions y TRIPs ,TRIM y FTA y Indian Trade y Commodity Market y NCDEX & MCX y Regulation y Unresolved Issues

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.

Functions of WTO
y Oversees the implementation, administration and operation y y y y

of the covered agreements. Provides a forum for negotiations and for settling disputes. Reviews and propagate s the national trade policies Ensures the coherence and transparency of trade policies WTO cooperates closely with the two other components of the Bretton Woods system, the IMF and the World Bank

such as registrations or systems of renewal. . Sets down minimum standards for many forms of intellectual property (IP) regulation Contains requirements that nations' laws must meet like copyright rights. TRIPS also has a Most Favoured Nation (MFN) clause. Copyright must be granted automatically.TRIPs ± Trade Related Aspects of Intellectual Property Rights y Negotiated at the end of the Uruguay Round of the y y y y General Agreement on Tariffs and Trade (GATT) in 1994. geographical indications etc. and not based upon any "formality".

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 .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.

Free Trade Agreements (FTA) 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 o Free Trade Agreements (FTA's) o Preferential Trade Agreements (PTA's) o Comprehensive Economic Cooperation Agreements (CECA's) .

Indian Trade Agreements y India-ASEAN Trade Agreement y South Asia Free Trade Area (SAFTA) y India-MERCOSUR preferential trade agreement y Asia-Pacific Preferential Trade Agreements (APTA) y BIMSTEC ( Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) y India-Sri Lanka Free Trade Agreement y India-Thailand Free Trade Agreement y India-China Trade Agreement y India-Maldives Trade Agreement y India-Korea Trade Agreement .

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 .

7 billion people ASEAN-India investments reached US$ 5 billion in 2008 ASEAN-India Trade in Goods Agreement (TIGA) signed on August 13. Malaysia . Philippines . Myanmar and Cambodia ASEAN-India Framework Agreement on Comprehensive Economic Cooperation signed in 2003 Combined region comprising 1.Thailand. Vietnam. Indonesia . Singapore . Laos. 2009 & came into effect in January 2010 .India -ASEAN FTA y ASEAN Free Trade Area (AFTA) .trade bloc agreement y y y y between Brunei .

India -ASEAN FTA« 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 Facilitate the more effective economic integration of the new ASEAN Member States and bridge the development gap among the Parties .

000 250.000 0 India's total Exports India's total Imports Source: Department of Commerce All figures are in US million $ .000 50.000 100.India's total commodity import/export from year 2001 to 2010 350.000 200.000 150.000 300.

% Rise in India's total commodity Import/Export w r t pr. year 50 40 30 % increase in export over last year 20 % increase in import over last year 10 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 -10 .

IRON ORE ETC.PRE.India's Total Commodity Export for FY 2009-10 16% NATURALCULTURED PEARLS. PRECIOUS OR SEMIPRECIOUS STONES.) Total Export: 1.745 US Million $ . MACHINERYAND MECHANICALAPPLIANCES.78. RECORDERSAND REPRODUCERS.CLAD WITH PRE. COTTON.BOILERS.METALS. MINERALOILSAND PRODUCTS OF THEIR DISTILLATION 16% ELECTRICALMACHINERY SOUND . Others (INCLUDES MAJORLY DRUGS.TELEVISIONIMAGE 4% 4% 60% NUCLEAR REACTORS.METALANDARTCLS MINERALFUELS.PARTS THEREOF .

PARTS THEREOF. IRON AND STEEL) Total Import: 2.CLAD WITH PRE.METAL AND ARTCLS NUCLEAR REACTORS.PRE. MACHINERY AND MECHANICAL APPLIANCES.403 US Million $ . TELEVISION IMAGE Others (INCLUDES MAJORLY GOLD. . BOILERS.India's Total Commodity Import for FY 2009-10 MINERAL FUELS. MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION 35% 33% NATURAL CULTURED PEARLS. PRECIOUS OR SEMIPRECIOUS STONES. SOUND RECORDERS AND REPRODUCERS. % % 16% ELECTRICAL MACHINERY. COAL.METALS.

.

y Direct reduction of Subsidies on Exports y Counter Veiling Duties: These are supposed to have a positive impact if they help the industries and negative impact if they reduce the cost competitiveness.e. free market access to products and reduction of tariff and non-tariff barriers. .Major Agreements for Textile and Leather Industry y Agreement of Market Access i. y Agreement to have Safeguard Measures: If there is an import surge and it is liable to affect the domestic industries in the transition economies.

These include removal of some textiles and clothing products from the list of items reserved for the small-scale sector. a number of measures have been taken 1. both of which maintain restrictions under the Agreement on Textiles and Clothing (ATC). The new Textile Policy also acknowledges the need to restructure. and removal of foreign equity restrictions 2.Textile Sector India¶s total merchandise exports. y Textiles and clothing accounts for around 30% of . or close down. y Exports go mainly to the European Union and the United States. non-viable units. y To improve sector¶s competitiveness.

2008: All remaining products integrated . 1995: Products which accounted for not less than than 16% of total imports in 1990 1998: Products which accounted for not less than 17 per cent of 1990 imports integrated.trade in textiles and clothing governed by WTO rules.Agreements in Textile Sector y Prior to 1995.trade in textile sector was subject to bilateral quotas negotiated under the Multifibre Arrangement. 2002: Products which accounted for not less than 18 per cent of 1990 imports integrated. Implementation was done in phase. y Since 1995.

y Special safeguard provision allows the imposition of additional duties when there are import surges above a particular level Government Initiatives: y Policy guided by domestic supply and self sufficiency considerations y Price controls are maintained for staples to ensure remunerative prices for farmers. vegetables and floricultural products. y The Government also procures and subsidizes the sale of certain commodities through the public distribution system. Subsidies: (a) Exemption of export profit from income tax. . y Provisions to encourage the use of less trade-distorting domestic support policies to maintain the rural economy.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. (b) Subsidies on cost of freight on export shipments of certain products like fruits.

Financial Vs Commodity Derivatives Derivatives Market Financial Derivatives Commodity Derivatives Underlying AssetCommodity Underlying Asset-Financial Asset 1. 2. Varying Quality of asset : Exists in case of underlying commodity assets. Physical Settlement: Underlying Commodity assets are bulky and need special facility for storage. .

Method of Settlement Order Buyer Cash e osit Bank Commodity Exchange Trade Physical Cash Clearing House Settlement Settlement Instructions Instructions e ository Order Seller ASSEYEAR Quality Check Seller Commodity e osit Warehouse .

.

.

Turnover of Global Commodity Exchange .

.

and has more than 2000 registered members operating through over 100. y MCX offers more than 40 commodities across various segments such as bullion. and a number of agri-commodities on its platform. ferrous and non-ferrous metals. y Sixth largest and amongst the fastest growing commodity futures exchange in the world.Multi Commodity Exchange of India Ltd(MCX) y Headquartered in Mumbai. . Multi Commodity Exchange of India Ltd (MCX) is a commodity futures exchange started operations in November 2003 . in terms of the number of contracts traded in 2009. across India. y The demutualised Exchange set up by Financial Technologies (India) Ltd (FTIL) has permanent recognition from the Government of India to facilitate online trading. and clearing and settlement operations for commodity futures across the country.000 trader work stations. y MCX holds a market share of over 80% of the Indian commodity futures market.

m. Special Session (order cancellation session) is held to cancel the pending orders prior to opening of market .m.m. .Trading @ MCX y Monday to Saturday: 9:45 a. metals. to 2:00 p.m.m. to 9:59 a. Agri-commodities are available for futures trading up to 5:00 p. energy products) are available up to 11:30 pm / 11.m. (up to 11:55 p. to 11:30 p. y Normal Session: Monday through Friday: 10:00 a. on account of day light savings typically between every November and March of the following year) Saturdays: 10:00 a.m. whereas non agri-commodities (bullions.m.55pm.

‡ Public limited company registered under the Companies Act. . ‡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.2003. ‡Regulated by Forward Markets Commission in respect of futures trading in commodities and subjected to various laws of the land. Maharashtra in Mumbai on April 23. 1956 with the Registrar of Companies.

Commodities traded on the NCDEX platform Agricultural commodities Precious metals Cotton Crude palm oil RBD Palmolein Soy oil Rapeseed oil Soybean Rapeseed Silver Gold .

‡ ‡ ‡ ‡ ‡ To create a world class commodity exchange platform for the market participants. To bring together the entities that the market can trust . technology platforms. To inculcate best international practices like demodularization. into the trade. To provide nationwide reach and consistent offering. low cost solutions and information dissemination without noise etc. To bring professionalism and transparency into commodity trading.

cooperative societies. . NABA RD and NSE.Structure of NCDEX Promoters Governance Membership Capital requirements Member has to deposit Base Minimum Capital (BMC) with the exchange NCDEX may initiate suitable action including withdrawal of trading if minimum security deposit is not kept. ICICI Bank. associa tion of persons. Independent Board of Directors Appoints an executive committee Responsible for managing and regulating all the operations of the exchange and commodities transactions. LIC. partn erships. comp anies etc. Any person. that fulfills the eligibility criteria set by the exchange.

Shall we Invest in commodity Market .

Shall we Invest in commodity Market .

to 5.00 p. ‡After the trading hours on the expiry date. where orders match automatically. . the matching for deliveries takes place firstly. its price. Order matching is essentially on the basis of commodity. based on the available information.00 a. ‡Supports an order driven market.TRADING ‡The trade timings of the NCDEX are 10. ‡After completion of the matching process.m. ‡Unmatched positions have to be settled in cash. on the basis of locations and then randomly. ‡CLEARING ‡National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX.m. The cash settlement is only for the incremental gain/ loss as determined on the basis of final settlement price. clearing members are informed of the deliverable/ receivable positions and the unmatched positions. time and quantity .

. ‡ The seller intending to make delivery takes the commodities to the designated warehouse. the final settlement price is the spot price on the expiry day. ‡ Warehouse then ensures that the receipts get updated in the depository system giving a credit in the depositor's electronic account. ‡ Final settlement : On the last trading day of the futures contract. cash settled by debiting/ crediting the clearing accounts of Clearing Members (CMs) with the respective clearing bank.Settlement ‡ MTM settlement : On a continuous basis at the end of each day.

Role of regulatory bodies in Exports/Imports Directorate General of Foreign Trade (DGFT) Responsible for implementing the Foreign Trade Policy or Exim Policy with the main objective of promoting Indian exports. . Key Functions ‡ ‡ ‡ ‡ To Implement Foreign 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.

of India Key Functions ± ‡ ‡ ‡ ‡ 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 . Govt. Food and Public Distribution.Role of regulatory bodies in Exports/Imports Forward Markets Commission (FMC) Regulatory authority which is overseen by the Ministry of Consumer Affairs.

Three Tier Regulation in Commodity Markets GOI FMC Commodity Exchange .

clearing. settlement and management of the exchange . y To avoid manipulation of prices y To ensure that the market has appropriate risk management system.Need for regulation in Commodities Markets y Proper regulation is needed to create competitive conditions. y To ensure fairness and transparency in trading.

18 lakh tonnes of additional space to FCI. y Almost 50 lakh tonnes of total foodgrain stored in open under cover and plinth(called CAPS) for years.50.000 crore per annum due to foodgrain damage. y Structure of Warehousing: 1.Private players and Unorganized storage providers . y 30-40% of annual horticulture produce is wasted annually due to inadequate storage. y To overcome this. which should not exceed 6 months.Government controlled organizations like CWC and FCI 2. y All this due to lack of Regulation in this sector.Warehousing Sector y Economic losses upto Rs. Central Warehousing Corporation to give 1.

there were no specific regulations for the warehousing sector in India. due to its positive effects on the revenue of the industry. y But recently 3 laws were introduced by the government to boost this industry. Favorable law for growth of warehousing industry. Part of SEZ Act Goods and Services Tax Framework To reform the warehousing model in the country.The Warehousing sector y Till 2007. . These receipts help farmers in lowering access barriers to the market and against this they can get loans. Warehousing Development and Regulation Act of 2007 Free Trading Warehouse Zones regulation Concept of negotiable warehouse receipts and registration of warehouses.

Over 80 commodities . . y Lack of Economy of Scale: too many commodity exchanges. similar to SEBI. y Tax and Legal bottlenecks: restrictions on the movement of certain goods from one state to another. Derivatives popular for few commodities. y The Regulator: need of a strong and independent regular.Unresolved Issues y Commodity Options: Trading in commodity options contracts banned since 1952 y Warehousing and Standardization: y Cash Versus Physical Settlement: 1% to 5% of the total commodity derivatives trade in the country are settled in physical delivery.

such as maize. provides liquidity in the market. Generally during this period. which was seen in 2009. . tax cuts etc. coffee. energy and metals outperform other commodities. A few commodities..Commodities and Business Cycle y Late Expansion: Expectations of profit are at their high point and stock prices are sky high. soybeans. including sugar. Banks approve loans easily. sugar and gold outperform other commodities and other investment avenues. soybeans etc. perform well due to their higher demand. In recession during 2008 also. it was seen that sugar gave good returns y Late Recession: Markets moves on the hope that the economy will revive and some immediate monetary measure like interest rate cuts. Some commodities. y Early Recession: Uncertainties arise in the market and the market for physical investment gets saturated and people get less profit.

Base metals get more returns in the early recession phase as compared to the late recession phase. with the decline in interest rate and fresh inflow of money. commodities perform better during late recession and late expansion phases. optimism. The market witnesses spontaneous movements. and higher-than-expected profits during the early expansion phase y In general.Commodities and Business Cycle«Cntd y Early Expansion: In early expansion. stocks and bonds outperform commodities. while agro futures display patterns quite strongly even in the recession time. . A recovery in the equity market offers support to the commodities market.

. global companies will increasingly play a role as producers. demand for a wide variety of commodities covering food. y Competition from imports: Competition will result in inefficient domestic units falling by the wayside. fiber. suppliers. but will eventually lead to greater efficiency among domestic producers y Role of MNCs: In the Indian commodities sector.The Future of Indian Commodity Market Some features of the emerging scenario as far as the commodity market is concerned are: y Expansion of commodity trade: Trade volumes. India is likely to produce many of the aforesaid commodities. metals and energy is expected to expand. There is a possibility that India may export certain commodities in large volumes in future. Indian producers will have to learn to face competition from MNCs. traders and service providers.

y Strong cash market: 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. y Use of information technology: IT will be used for delivering price and market information to primary producers (farmers). . y Dominance by a few large firms: y Waning role of government: The government's role is changing from controller to facilitator.The Future of Indian Commodity Market«Cntd y Consolidation of fragmented capacities: Fragmentation of business that is resulting in scale-diseconomies and other infirmities is likely to give way to consolidation. but also help capture value by taking trading positions.

com y www.com y www.References y www. Ahuja .mcxindia.commodityonline.com y Commodity Derivatives Market in India: Development Regulation and Future Prospects by Narender L.ncdex.

Sign up to vote on this title
UsefulNot useful