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Chapter III
International Organisation impacting global business
World Bank (IBRD) International Financial Corporation (IFC) International Development Association (IDA). Regional Financial Institutions Bank of International Settlement World Trade Organisation (WTO) Regional Trading Blocks Organising for Economic Co-operation &
Development (OECD)
Bretton Wood Conference, New Hampshire in 1944 -The international monetary & financial aspects.
The main purpose of this conference was finalisation of the Articles of Assoication of the IMF & IBRD.
The conference has given birth to the twin international financial institutions – International Monetary Fund (IMF) & the International Bank for Reconstruction & development (IBRD).
IBRD is popularly known as World Bank
IMF was established to provided short-terms loans to overcome the BOP difficulties.
World Bank aimed at providing long term loans for the purpose of –
1. Reconstructing the war-damaged economies
2. Developing the less developed economies. Reconstruction and development of member
countries – after the second world war. Financial assistance to – basic infrastructure
and large scale industries.
International Bank for Reconstruction & Development (IBRD)
The world bank was established on 27th December, 1945 & started functioning with effect from 25th June 1946.
IMF – short term financial assistance to remove short term disequilibrium in the BOP of member countries.
IBRD – long term assistance to eliminate the BOP of member countries.
According to Prof. John H. Williams, world bank is much more important than the IMF – reconstructing the war damaged economies & developing the less developed economies.
World bank/IBRD is an international government, corporate in form, whose capital stock is entirely owned by its member government.
USA, UK, Germany, France, Japan, Canada, China, India, Australia & Netherland – permanent bodies
96% of authorised capital collected from member countries in the form of share capital – issued & authorized capital
Sl. No.Sl. No. Name of the CountriesName of the Countries Share capital Share capital in %in %
1.1. United States of AmericaUnited States of America 17.717.7
2.2. JapanJapan 6.66.6
3.3. GermanyGermany 4.844.84
4.4. BritainBritain 4.634.63
5.5. FranceFrance 4.634.63
6.6. ChinaChina 2.992.99
7.7. IndiaIndia 2.992.99
8.8. CanadaCanada 2.992.99
9.9. Saudi ArabSaudi Arab 2.992.99
10.10. ItalyItaly 2.992.99
Member countries of IBRD
Objectives and Functions of IBRD The World Bank regards that “poverty
anywhere is a danger to the prosperity everywhere”.
Thus, the existence of backward economies is viewed by the developed countries also as undesirable, because it keeps the global market restricted.
The main objectives of the world bank are -
Functions of IBRD – article I of the agreement1. To assist in the reconstruction & development of the
territories of its member of facilitating the investment of capital for productive purposes.
2. To promote private investment by means of guarantees on participation in loans & other investment to private investors.
3. To promote the long term balanced growth of international trade & the maintenance of equilibrium in balances of payments.
4. To encourage the development of productive resources in developing countries by supplying their investment capital.
5. Helping in the establishment of the projects in backward areas, which will have the greatest linkages with the hinterland, so that output, employment and income may increase.
6. Developing the economic infrastructure base through the development of power, transport, communications and irrigation sectors.
7. Assisting in the development of social infrastructure also, by financing special programmes of development of education, health and training.
8. Helping special area development progrmmes as in drought prone areas, flood prone areas, or ravine areas.
9. Supporting special programmes which can relate to the development of anything e.g., forest development, ports development, agricultural development, urban services, housing projects, sewerage development or underground railways.
Membership of IBRD Any country can join as a member of the IBRD
by signing in the Charter of the Bank as its subscriber.
Bank can suspend any member, if the country fulfill the conditions & responsibility to the IBRD.
The members of the IMF are also the member of the world bank.
The membership of the bank as on January 31, 2008 – 185.
The member country has to pay all the dues & also its share of losses, if it resigns.
Organisation Structure IBRD is managed by a three-tier structure
including – Board of Governors, Executive Directors & President.
Management
Board of Governors - 2
Executive Directors - 21
President
Structure of World Bank
Board of Governors Executive Directors President
GovernorAlternative Governor
6 DirectorsFM
15 DirectorsCB
FinanceDept
Foreign AffairsDept
LawDept
StaffDept
E & RDept
OperationDept
Board of Governors The Board of Governors is the general body of the
Bank which consists of one Governor and the alternative Governor.
Governor was appointed by Finance Minister. Alternative Governor was appointed by Central Bank
of each member countries for the term of five years. All powers of the Bank are vested in the Board of
Governors. The Board is required to meet at least once a year. The strength of the voting rights of the governor
depends upon the amount of the contribution of the country to the share capital of the bank.
Sl. No.Sl. No. Name of the CountriesName of the Countries
% of Voting % of Voting RightsRights
1.1. United States of AmericaUnited States of America 22.5%22.5%
2.2. JapanJapan 10.11%10.11%
3.3. GermanyGermany 9.11%9.11%
4.4. BritainBritain 8.92%8.92%
5.5. FranceFrance 8.92%8.92%
6.6. ChinaChina 6.34%6.34%
7.7. IndiaIndia 5.84%5.84%
8.8. CanadaCanada 5.84%5.84%
9.9. Saudi ArabSaudi Arab 5.84%5.84%
10.10. ItalyItaly 5.84%5.84%
Voting Rights of IBRD
Executive Directors The Executive Directors are in charge of the general
operations of the Bank. At present there are 21 Executive Directors – 6 directors appointed by largest share holders – USA,
UK, Germany, France, Japan and India. 15 directors – elected by other members.
President The Executive Directors elected the president of the
Bank who acts as the chief of the operating staff. He is responsible for the conduct of the ordinary
business of the bank but is subject to the direction of the Executive
Directors in matter of policy.
The president of the bank normally does not have voting right except in case of exercising equal rights.
He is assisted by senior vice president and directors of various departments in the day to day functioning of the bank.Committees
The function of the bank is further assisted by two committees.
1. Advisory Committee – seven experts appointed by Board of Governors.
2. Loan Committee – appointed by the executive directors - loans
Capital Resources The initial authorised capital of the world bank was $
10,000 million divided into 1,00.000 shares of US $ 100.000 each.
The subscribed capital is - US $ 9.400 million. The capital of the bank was US $ 9.3 billion in July 1992
to US $ 27 billion as on 31-01-2008. These shares were available only to member countries
of each share. 2% is payable in Gold or US dollars. 18% is to paid in the currency of the member
countries. 80% of the capital and payable at the request of
the bank.
Lending Operations Loans are granted to member countries only
after the bank is fully satisfied about economic and financial position of member countries.
The bank has power, supervision & control – sanctioning loans & advances to member countries.
Normally, the bank makes medium & long-term loans given to the member countries.
World Bank providing these medium and long-term loans to LDCs at the lowest rate of interests.
Granting loans by the bank is for overall & integrated development of the member countries.
The loans are meant for the reconstructions of the member countries.
Power Sector – 30% of its total loans Transport Sector – 30% of its total loans Agriculture, forestry, fishing, industrial sector,
technical assistance and banking – 40 % of total loans.
Lending forms
Loans out of its own funds
Borrowed Capital
Guarantee of Loans
1. Loans out of Own Funds The World Bank can grant direct loans out of its own
funds upto the 20% of the total subscribed capital. The bank’s own funds consists of the contributions
made by the members and the accumulated profits.2. Loans out of Borrowed Capital
The WB also provides direct loans out of its borrowed funds on the approval of the country from which the funds have been borrowed.3. Guarantee of Loans
The WB lends indirectly by guaranteeing loans made by private investors.
Thus, the bank acts as guarantor between the lender and the borrower.
In case of default by the borrower, the bank may call up its uncalled reserves to cover the default.
Conditions for granting loans If the borrower is unable to raise a loan under
reasonable circumstances. If the loan is for reconstruction and
development. When the member country or its central bank
provides guarantees the repayment of the loans.
If a competent committee recommends a loan in the form of a written project report.
In addition to providing direct loans, indirect loans and guaranteeing the loans.
Technical & Advisory Assistance Apart from loans & advances, the bank has been
rendering signal services to its members by providing them suitable technical assistance to them.
Technical Assistance – survey mission – national resources – long term development programmes.
Providing training programme – Washington, Economic Development Institution set up Rocke feller & Ford Foundation
Problems of economic development & to increase their efficiency
Assistance to Underdeveloped countries (UDCs)
1.Bulk of the financial assistance has been given to UDCs for the promotion of development.
2.Loans & advances given to UDCs at lower interest rates.
3.The bank provides technical assistance to UDCs through its various institutions.
4.The bank conducting various meeting of creditor countries from time to time for extending assistance to the UDCs.
India & the World Bank India is one of the founder member of the world bank.
It has been allotted a permanent place in the board of executive directors of the bank.
The bank has sent several missions/committee to India for financial assistance to various development projects – field survey on various sectors of the economy.
Several officials of the bank have visited India for investigation into specific projects – loans assistance.
The bank has also appointed a Resident Representative in New Delhi.
World Bank Groups World Bank facing many problems like –1. The IBRD can give loans only to its member
government – discouraging to private sectors.2. Bank can make only fixed interest loans and
cannot provide risk capital. Therefore, with the aim of providing risk
capital and soft loan facilities for the economic development of the member countries the IFC and IDA established
World Bank GroupThe World Bank has three affiliates –
1. The International Financial Corporation (IFC)2. The International Development Association (IDA)3. Multilateral Investment Guarantee Agency
International Development Association was established in 1960 as an affiliate of the world bank – provide finance to less developed countries – soft loan basis – soft loan window of the IBRD.
International Finance Corporation was established in July 1956 provides finance to private sector in developing countries.
World Bank Group
International Financial Corporation
International DevelopmentAssociation
1956Finance to private SectorsRisk-capital
1960Soft loans to membersSoft loan windows
International Finance Corporation (IFC) The international finance corporation (IFC) is an affiliate of the
world bank. It was established on 20th July 1956 with the object of assisting
private enterprises in developing countries by providing risk -capital.
The world bank grants loans only to member government and ignore private enterprises.
And also does not provide risk – capital to private enterprises of the member countries.
• Whereas, IFC would like to provide risk capital to the private industrial undertakings in developing countries.
• Therefore, for this requirement IFC was came into picture - private industrial undertaking.
Objectives of the IFC1. Investing in productive private enterprises –
private investors – without govt guarantee of repayment.
2. To serve as a clearing house – investment opportunities, private capital and experienced management.
3. Stimulating productive investment4. Accelerating internal loan of capital5. Promoting the growth of capital markets in
the underdeveloped countries.
Membership of the IFC As already pointed out that, IFC is an affiliate of
the world bank. All the member of the world bank are eligible to
become the member of the IFC. It has 185 members as on 3rd January 2008. It is not essential that all the members of the
world bank should also be the member of the IFC.
Thus, the activities of the corporation are completely controlled by the authorities of the IBRD.
Capital Resources In the beginning, the authorised capital of the
IFC was $100 million which was divided into 1,00,000 shares of $1,000 each.
At present, its authorised capital is $1,300 million.
On the basis of subscription, India’s place is fourth in the list, when the USA, UK, France rank first, second and third respectively.
The IFC can borrow from the World Bank.
Assistance to the member countries
Financial Assistance
Large scale
Medium scale
Small scale
Loans
Power Sector
Petrochemical
Mining
Oil & natural gas exploration
Telecommunication
Financial services
Tourism
1. Direct Investment Directly equity capital along with the private
investments in companies in developing countries.
Investment should not be more than the 50% of the total capital of company.
Investment – economic development – commercial areas – profit making areas.2. Foreign & local capital
IFC provides foreign capital & local capital to the private industry in the form of loans – underwriting & sponsors of investment.
3. Technical assistance Technical assistance of the private business
enterprises in developing countries.4. Capital market development
Financial support & advice for the development of financial institutions.
Provides legal, financial & institutional framework to encourage foreign & local capital investment in developing countries.
Development of financial companies – leasing & venture capital companies, mutual funds, merchant bankers etc.5. Help to small-scale industries – financial & technical assistance.
India & IFC India is a founder member of the IFC. They receiving assistance in variety of areas
such as automobiles, shipping, electricity, cement fertilizers, oil & gas, petro-chemical, Iron & steel & financial sectors.
They received 10% of loans & equity of developing countries.
The IFC invested $ 48.1 millions in India - $25.4 millions loans & $22.7 millions as equity.
Regional Financial Institutions• Some regional development banks have been
established to assist the development of the developing countries of the respective regions. The African Development Bank The Asian Development Bank The Caribbean Development Bank & Inter – American Development Bank
• The influence of the regional banks is growing as they are becoming more responsive to the special needs of their own constituencies
Asian Development Bank (ADB) Asian Development Bank (ADB) is a regional
financial institution which was established under auspicious of a United Nations body Economic Commission for Asia & Far East (ECAFE)
This regional institution mainly focused on economic development & cooperation in the Asian region.
The bank started functioning in 1966 & has the head office at Manila in the Philippines.
Total membership of ADB was increases from 31 in 1966 to 67 in 2008 – 48 Asian & 19 non-Asian countries.
Objectives of ADB1. To promote public & private investment for
economic development in the ECAFE.2. Utilization of its resources for financing those
development of projects.3. Coordination of plans & policies of the member
countries with a view to achieving better utilization of their resources.
4. Provision of technical assistance to the member countries for the preparation, financing & execution of development projects.
5. Cooperation with United Nations & various organs & other international organization.
Membership of the ADB1. Members of the ECAFE2. Associate members of ESCAP3. Other countries in the ESCAP region which are
members of the United Nations. Admission to membership of the bank is
done by the acceptance of 2/3 of the members of the Board of Governors.
Asian Development Bank
Board of Governors Board of Directors
President
Alternative Governor7 + 3 = 10
Vice - president
Board of Governors Board of Governors is the highest policy
making body of the bank. Each member nominates one Governor and an
Alternative Governor. All the powers of the Bank are vested in the
Board of Governors, which may delegate its powers of the bank to the Board of Directors.
Admission of new members, changes in authorized capital, election of Directors and President.
Board of Directors Board of Directors exercises the responsibility
in the operations of the bank. It takes decisions concerning loans, guarantees
and other investments by the bank, borrowing programmes, technical assistance and other operations of the bank.
It also approves the administrative budget of the bank – financial year.
President President was elected by the board of directors – is the
chairman of the board of directors. He is elected for a period of five years. President is assisted by the Vice-president in the
management of the bank.Vice President
He is serves for a five year term, but may be re-elected. He acts as the deputy of the president in the
management and operations of the bank. In the absence of the president, he exercises the
authority and performs the functions of the president.
Financial Resources Authorised capital of $ 2.9 billion was raised to $ 25
billion in 1992. Out of this 50% contributed by Japan & the
remaining by other member countries – India is the 2nd largest contributor to ADB.
To increase its resources, the bank issues debentures and accepts deposits from its special funds.
Further, the fund raises from borrowing from the international capital markets.
Besides Japan, USA, UK & Germany have substantial contributions to the share capital of the ADB.
Various activities of ADB
Financial
AssistanceTechnical
Assistance
Poverty
ReductionSurv
ey and Researc
h
1. Financial assistance Financial assistance in the form of loans
Loans
Project Loans
Sector Loans
Programme Loans
Project Loans – are given for specified projects & the amount is tied to the project.Sector Loans – are given to a number of related projects in a given sectorProgramme loans – cover more than one sector& related to the implementation of a policy.
Special Fundsa. Technical Assistance Special Fundb. Asian Development Fundc. Agricultural Special Fund &d. Multipurpose Special Fund
Loans out of these funds are given for projects of high development priority for longer periods and at lower rates of interest than for ordinary loans – Soft Loans – 10% paid in capital.
In short, the ADB sanctions for the following types of loans –
1. To development finance institutions on the guarantee of govt.
2. To small and medium enterprises on the govt’s guarantee
3. To private enterprises in the form of equity and loans without govt guarantee.
4. To strengthen financial institutions and capital market.
5. To public sector enterprise for privatization without govt guarantee.
2. Technical Assistance The ADB also provides technical assistance to member
countries out of the technical assistance special fund. This assistance is provided to the member in ECAFE
region through their govts agencies, regional institutions and private firms.
The bank also provides advisory services under its technical assistance programme.
It sends its own experts and even hires consultants from other institutions on short and long missions – member countries.
3. Surveys and Research The ADB conducts survey and research in order
to formulate policies for the future and to promote regional integration.
It brings out an annual report in which it highlights the achievements, prospects and failures relating to the economic development of the member countries of the ECAFE region and also suggests measures to solve their problem.
4. Poverty Reduction Further, the bank exercises greater emphasis
on poverty-reduction by means of increasing productivity, enhancing employment opportunities and promoting economic growth.
These require new channels of investments with improved technologies.
ADB now pays more attention to HRD, poverty reduction, social infrastructure development, urban environmental improvement and structural reforms.
Sector wise No of loans
Amounts in million
%
Transport & communication 22 4,399.2 33%
Energy 25 4,350.8 32.7%
Social Infrastructure 15 1,620 12.2%
Finance 13 1,370 10.3%
Multi-sector 6 1,200 9%
Industry & non fuel minerals 4 175.9 1.3%
Others 1 200 1.5%
Total 86 13,319.5 100%
Sector wise cumulative lending by ADB in India on 1 December 2008
Limitations of ADB1. Its financial resources are limited because
the regional member countries are mostly poor.
2. There have been negative transfer to the bank during the last few years – Fiji, Malaysia & Philippines.
WORLD TRADE ORGNISATION (WTO) Set back of International trade after the First World
War – high tariff walls and raised other tariff barriers Soon after the Second World War – International
Trade Organisation - General Agreement on Tariff and Trade (GATT) – came into picture – 1947 – provisional body
They tries to reduce tariff and other barriers to trade – member countries.
GATT stood for promotion of free trade, non-discriminatory multilateral trade and for abolishing all unfair trade practices.
Year Place Subjects covered Countries
1947 Geneva(Switzerland)
Tariffs 23
1949 Annecy (France)
Tariffs 13
1951 Torquay(UK)
Tariffs 38
1956 Geneva Tariffs 26
1960-61 Geneva (Dillon Round)
Tariffs 26
1964-67 Geneva (Kennedy Round Tariffs and anti-dumping measures 62
1973-79 Geneva (Tokyo Round)
Tariffs, non-tariff measures, “Framework” agreements
102
1986-1994Geneva (Uruguay
Round)Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creating of WTO.
123
Various rounds of GATT
Uruguay Round (1986-1993) and Dunkel Proposals - 1991
1. Non Tariff Barrier2. Natural Resource Products3. Textile and Clothing4. Agriculture5. Tropical Products6. GATT articles7. Tokyo Round Codes8. Anti-Dumping – most favourable nations clause9. Subsidies10. Intellectual Property11. Investment Measures12. Dispute Settlement13. The GAT system14. Services
WORLD TRADE ORGNISATION (WTO) The WTO was set up as the successor to GATT as formal
international organization. It came to effect from 1st January 1995, under the
Marrakesh agreement places the global trading system. Uruguay Round, GATT was converted into World Trade
Organisation (WTO). The membership of the WTO increased from 77 in 1995 to
150 by the end of June 30th 2008. WTO will be directed & control by Ministerial Conference. That will meet at least once every two years. India is the founder member of the WTO by signing the
WTO agreement on 30th December 1994. 97% world trade – accounted among member nations.
Features of the WTO1. Unlike the GATT, it is a legal entity.2. Unlike the IMF & the IBRD it is not an agent of the
United Nations.3. Unlike, the GATT, the agreements under the WTO
are permanent & binding to the member countries.4. WTO is a powerful body, it is faster & efficient
decision making than GATT – Dispute settlements.5. Unlike the GATT, the WTOs has a wider coverage.
It covers trade in goods as well as services (GATS) – TRIMS, TRIPS
Difference between GATT & WTO
GATT1. GATT had no legal status2. GATT & its agreements are
provisional3. GATT were contracting
body4. GATT was less powerful5. Under GATT dispute
Settlement System was slow & less efficient
6. GATT rules applied to trade in goods only (GATG)
WTO1. WTO has a legal status –
international treaty2. WTO & its agreements are
permanent3. WTO was permanent body4. WTO is more powerful
5. WTO it is faster & more efficient.
6. WTO covers not only GATG but also GATS, TRIPS. TRIMS
Objectives of the WTO1. To ensure the reduction of tariffs & other barriers to trade.2. To eliminate discriminatory treatment in international trade
relations – anti dumping - MFN3. To facilitate higher standards of living, full employment, a
growing volume of real income & effective demand & an increase in production & trade in goods & services of the member nations.
4. To make positive effect, ensures developing countries - LDCs5. To facilitate the optimal use of the world’s resources for
sustainable development.6. To promote an integrated more viable & durable trading
system – multilateral & plurilateral trading
Structure of the WTO
Ministerial Conference
Dispute Settlement Body (DSB)
Director General 1+4
Trade PolicyReview Body
Councils I, II & III Secretariat
of the WTO
Committees I II & III
Trade in Goods (GATG)
Trade in Services (GATS)
Trade Related Intellectual Property Rights (TRIPS)
Trade & Development
BOP Restrictions
Budget, Finance & Administration
Ministerial Conference (MC) MC is at the top of the structural organization of the
WTO. It is the supreme governing body which takes ultimate
decisions on all matters. It is constituted by representatives of all the member
countries General council (GC)
It is composed of the representatives of all the members.
It is the real engine of the WTO which acts on behalf of the MC.
It is also acts as the dispute settlement body as well as the Trade policy review body.
Secretariat - The administration of the WTO is conducted by the secretariat which is headed by the Director of General (DG) appointed by the MC for the tenure of four years.
Director General – assisted by the four deputy directors from different member countries.
The annual budget estimates & financial statement of the WTO are presented by the DG.
Councils
Trade in Services GATS
IntellectualProperty Rights (TRIPS)
Trade related to Goods (GATG
Committees
Trade & Development
BOP Restrictions
Budget, Finance &Administration
Functions of WTO The former GATT was not really an organisation, it
was merely a legal arrangement. On the other hand, the WTO is a new international
organisation set up as a permanent body. It mainly focus on – trade in goods (GATG), trade in
services (GATS), foreign investment (TRIMS), intellectual property rights (TRIPS) etc.
Article III has set out the following five functions of WTO.
Functions of WTO…..1. The WTO shall facilitate the implementation,
administration and operation of multilateral and plurilateral trade agreements.
2. The WTO shall provide the forum for negotiations among its members concerning their multilateral trade.
3. Facilitating settlement of trade disputes among members – Governing the Settlement of Disputes.
4. The WTO shall administer Trade Policy Review Mechanism.
5. Cooperating with other international institutions involved in global policy making – IMF & IBRD.
Principles of WTO
NonDiscrimination
FreeTrade
Stability in TradingSystem
DecisionMaking
MarketAccess
FairCompetition
1. Non-Discrimination – anti-dumping This is the most important principle on which
WTO has been founded. The principle of non-discriminations means
two things –1. All trading partners will be granted the Most
Favoured Nations (MFN).2. Foreign goods, services, investment, trademarks,
patents & copyright shall be given the same treatment.
2. Free Trade The objective of WTO, as in case of GATT is to promote
free trade among nations through negotiations. For this purpose WTO has to work for progressive
liberalisation of trade through – reduction in tariff and removal of quantitative restriction on imports by member countries.3. Stability in the Trading System
Under WTO agreements member states are committed not to raise tariff and non-tariff trade barriers arbitrarily.
This provides stability and predictability to the trading system.
4. Promotion of Fair Competition WTO system of multilateral trading system
provides for transparent, fair and undistorted competition among the various countries.
Rules such as most favoured nation treatment to all trading parties, equal treatment to foreign goods patents and copyright.
WTO agreement provides for discouraging unfair competitive practices such as export subsidies and dumping.
5. Special concern for developing countries WTO has shown special concern for the developing
countries as it has given them more time to adjust to agreements under it and also some special privileges.6. Multilateral Trading System
The most important feature of WTO is that it seek to establish just and fair multilateral system of international trade –
where in the developed countries, developing countries and least developing countries.
7. Market Access Commitment WTO agreement which seek to establish multilateral
trading system require the member countries. Infact, market access is ensured by abolishing non-
tariff barriers as well as by reducing tariffs. The member countries reduced tariffs on industrial
goods and agricultural products by 37 percent. USA agreed to cut down farm subsidies. Developing countries are also required to reduced
agricultural subsidies by 10% of the agricultural products.
Dispute Settlement of WTO Dispute Settlement Mechanism one of the major
activities performed by WTO. Due to globalisation and increases competitions
among the contracting countries – goods, services & capital which turn, created disputes between countries.
WTO provides a more powerful mechanism solve disputes over trade among the member countries.
WTO, in one of its recent reports observed that, multilateral dispute mechanism is more frequently by the developing countries than advanced countries.
Scope of WTO Traditionally, GATT was concerned with the trade in
goods which were mainly primary manufactured products.
WTO, on the other hand has a much wider scope than GATT because now new areas are included agreements having implications for the production process of goods, agriculture, a controversial area.
Other new areas included in the agreement are 1. Trade Related Intellectual Property Rights (TRIPS)2. Trade Related Investment Measures (TRIMS)3. General Agreement on Trade in Services (GATS)
Trade in goods Trade in Services Trade in IPR
WTO
General AgreementOn Tariff & Trade
General AgreementOn Trade in Services
Trade Related Intellectual Property
Rights
Customs ValuationProduct StandardsImport Licensing & SafeguardsSubsides & countervailing measuresAnti-dumpingTrade Related Investment MeasuresTextiles & ClothingAgriculture
PatentsCopyrights
TrademarksIndustrial designs
Geographical indicationsUndisclosed information
Business & professionalCommunicationEducational servicesEngineering servicesFinancial servicesHealth servicesTourism & travelTransport servicesBanking & financial services
1. General Agreement on Trade in Services (GATS) This agreement covers all internationally traded
services. Foreign services and service suppliers would be
treated on equal national footing with domestic services and service supplies.
In short, the GATS covers four modes of international delivery services –1. Cross-border supply – transportation services2. Commercial presence – FDI3. Consumption abroad – tourism and development4. Movement of personnel – foreign consultants.
2. Trade Related Investment Measures (TRIMS) Trade Related Investment Measures refers to certain
conditions for restrictions imposed by a government in respect of foreign investment in the country.
TRIMS were widely employed by developing countries.1. Local content requirement – certain amount of local inputs
be used in products2. Trade balancing requirement (imports shall not exceed a
certain proportion of exports).3. Trade and foreign exchange balancing requirements.4. Domestic sales requirement (i.e., a company shall sell a
certain proportion of its output locally).
3. Trade Related Intellectual Property Rights (TRIPS)
One of the most controversial outcome of the UR is the agreement on TRIPS.
Intellectual property rights may be defined as “information with a commercial value”.
IPRs may be legally protected by patents, copyrights, industrial designs, geographical indications and trademarks.
The UR agreement on TRIPS covers seven intellectual properties –
1. Copyright & related rights2. Trademark3. Geographical indications4. Industrial designs5. Patents6. Layout designs7. Undisclosed information
Benefits of WTO to India India was one of the 76 governments that became
members of the WTO on the first day of the formation of the WTO.
1. Boost to Exports India’s exports are likely to be boosted due to
reduction of tariffs on the products of export interest to India.
Prospects of agricultural exports will improve due to reduction in domestic subsidies and barriers to trade.
Phasing out of MFA will help in the export of textiles.
2. Security and Predictability The revamped dispute settlement procedures and the
agreements of safeguard, subsidies and anti-dumping measures will provide greater security and predictability in international trade.
WTO rules provide greater protection against bilateral pressures or restrictive trade practices.
Arbitrary changes in the laws governing trade and investments will not be made under the WTO regime.
Under TWO, member nations bind their commitments so that conditions become predictable and transparent.
3. Policy Assistance As a member of the WTO, India can get assistance
from the International Trade Centre in formulating and implementing export promotion programmes.4. Trade Links
India has the advantage of having trade links with all other member countries.
It is saved from the trouble of entering into multiple bilateral trade agreements with so many countries.
India has market access to all nations. WTO is expected to facilitate the growth of
multilateral trade.
5. Settlement of Disputes WTO provides a forum for trade negotiations and
settlement of disputes among member countries. Elaborate rules and procedures have been laid down
for this purpose. The agreements are legally binding on member
countries.6. Special Concessions
There are several concessions and exemptions for the developing countries especially the least developed nations.
There are provisions extending special and differential treatment to such countries.
WTO has also helped in promotion of trade in services.
7. Promotion of Competition Quantitative restrictions and non-tariff barriers are to
be removed under the regime of WTO. Import restrictions are allowed when a country faces
balance of payments difficulties.8. Technical Assistance
Training programmes, regional seminars and international conferences are held regularly under the auspices of WTO.
About 100 technical cooperation missions are organised every year.
In these sessions, developing countries get an opportunity to learn the technicalities, rules and regulations to the least developed countries is provided.
9. Sustainable Development The multilateral trading system embodied in the WTO
has contributed significantly to economic growth and social development.
No country is prevented from taking measures for the protection of its environment.
WTO seeks to uphold and safeguard an open and non-discriminatory multilateral trading system for promoting sustainable development
Tariff and non-tariff barriers for environment goods and services shall be reduced and eliminated.
Alleviation of poverty is placed at the centre of the agreements and rules.
10. Policy Review Mechanisms Members of WTO have to undergo periodic
review of their policies and programmes. This is done with a view to promoting mutual
understanding of the need, significance, and the impact of these policies which would promote transparency and fairness.
Disadvantages of WTO1. No Export Push India’s exports may not increase considerably. Flow of goods and services across the world depends more on
infrastructure, political environment, quality and technology then on trade barriers.
Removal of trade barriers is no guarantee for increase in exports.2. Prominence to Developed Nations WTO focuses more on the interests of developed countries. TRIMS undermines strategy of self-reliant growth based on local
services and technology. Global finance is still moving primarily towards the developed
countries. Most of the developing countries are left high and dry. TRIMS favour the multinational corporations.
3. Price Rise WTO agreements are likely to cause a steep
hike in the prices of drugs and agricultural inputs.
4. Danger to Service Sector Service sector in India is less developed than in
developed countries. Inclusion of trade in services would be
detrimental to India’s interests.
5. Not Really Free Trade World trade has not really opened up. Developed countries are imposing more restrictions than
underdeveloped countries. Free movement of labour is not allowed. Tariff peaks remain in certain areas. Anti-dumping duties have become the source of new non-tariff
barriers. Developed nations want to have monopoly over technology.6. Erosion of Autonomy WTO agreements are likely to erode the autonomy of
governance in the third world countries. The governments of these countries will not have full freedom
to formulate the policies and identify the priorities in many areas, in which WTO agreements will prevail.
WTO and India1. Tariff Reduction – 1995 – 20052. Removal of Quantitative Restrictions – 714 items in 2000
& 715 items were in 2001.3. Trade Related Intellectual Property Rights (TRIPS) –
providing marketing patent rights – drugs & farm products.
4. Trade Related Investment Measures (TRIMS) – pharmaceutical products
5. Customs Valuation Rules - 1998 was amended to comply with the provision of the WTO agreement.
6. General Agreement on Trade in Services (GATS) – 33 activities permitting the entry of foreign service providers.
Economic Integration Economic integration also referred to as
trade blocs, regional integration. It is an important international business
environment. Most countries in the world are member
of regional trade blocs – high income countries low income countries and medium level of income.
Regional integration refers to a process or decision whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers and establishing cooperation and coordination between them.
The term economic integration is commonly refer to the type of arrangement that removes artificial trade barriers like tariffs and quantitative restrictions between the integrating economies.
Definitions Salvatore – defines economic integration as a
commercial policy of discriminately reducing or eliminating trade barriers only among the nations joining together.
Tinbergen – creation of most desirable structure of international economy, removing artificial hindrances to the optimum operation and introducing deliberately all desirable elements of co-ordination.
Thus, international economic integration refers to a decision or process whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers and establishing certain elements of co-operations and co-ordinations between them.
Types or forms of Economic Integration
1. Preferential Trade Area or Association2. Free Trade Area3. Customs Union4. Common Market5. Economic Union
1. Preferential Trade Area Under a preferential trade area (PTA) member
countries agree to lower trade barriers within the group to levels below those erected against outside economies.2. Free Trade Area
A free trade area is a grouping of countries to bring about free trade between them.
The free trade area abolishes all restrictions on trade among the members but each member is left free to determine its own commercial policy with non-members.
3. Customs Union A customs union is a more advanced level of
economic integration than the free trade area. It not only eliminates all restrictions on trade
among member but also adopts a uniform commercial policy against the non-members.4. Common Market
The common market is a step ahead of the customs union.
A common market allows free movement of labour and capital within the common market, besides having the two characterstics of the customs union namely – free trade among members and uniform tariff policy towards outsiders.
5. Economic Union A still more advanced level of integration is the
economic union. The economic union achieves some degree of
harmonisation of national economic policies through a common central bank, unified monetary and fiscal policy etc.6. Economic Integration
The ultimate form is full economic integration characterized by completion of the removal of all barriers to intra-bloc movement of goods & services, capital & persons.
Levels of Regional Economic Integration
Level ofIntegration +
PreferentialTrade Area
FreeTrade Area
Customs Union
Common Market
Economic Union
Lower Trade Barriers to Regional Partners
Free Trade among Regional Partners
Common External Trade Barriers
Free Movement of Factorsof Production within Region
Coordination of EconomicPolicies
PTA
FTA
CU
CM
EU
Important Regional Trading Blocks are –1. European Union (EU)2. North American Free Trade Agreement (NAFTA)3. Association of South-East Asian Nations (ASEAN)4. South Asian Association for Regional Co-operation
(SAARC)5. Economic and Social Commission for Asia and Pacific
(ESCAP)6. Asean Free Trade Area (AFTA)7. Latin American Integration Association (LAIA)8. European Free Trade Association
The Major Regional Trade Blocs
MERCOSUR
Andean Group
CACM CARICOM
NAFTA
ASEAN
European Union
COMESA
European Union (EU) The European Economic Committee (EEC) also
known as European Common Market (ECM), European Community (EC), European Union & Trade Blocs etc.
The European Common Market was set up on January 1st, 1958 by six European nations – France, Germany, Italy, Belgium, Netherlands & Luxembourg.
Now it consists of 25 nations in Europe. The main objective of EEC is promote harmonious
development of member countries – continuous & balanced development – raising standard of living – close relations between member nations.
YearsNo of
Countries Name of the Countries
1957 6 – Nations France, Germany, Italy, Belgium, Netherland and Luxembourg
1973 3 – Nations United Kingdom (UK), Ireland & Denmark
1981 One Nation Greece
1984 2 – Nations Portugal and Spain
1986 3 – Nations Austria, Finland & Sweden
2004 10 - Nations Cyprus, Czech Republic, Estonia, Greece, Hungary, Lativia, Lithonia, Malta, Slovakia, Slovenia.
Major activities of EEC1. Elimination of customs duties, quantitative
restriction with regard to exports and imports of goods among member countries.
2. Establishment of a common customs tariff and common commercial policy with regard to non-member countries.
3. Abolition of all obstacles for movement of persons, services and capital among members.
4. Increasing competition among member countries and enhancing standard of living among them.
European Union one of the single largest market enlarged the production, trade, income, investment ^ employment in all the member countries.
The Balance of Payments (BOP) position of all the member countries has become strong.
2. North American Free Trade Agreement (NAFTA)
NAFTA came into being on January 1st, 1994. This is the most affluent nations of the world –
USA, Canada & Mexico. A free trade agreement was signed by the USA,
Canada and Mexico in later. NAFTA is expected to eliminate all tariffs and
trade barriers among these countries by 2009.
3. Association of South-East Asian Nations (ASEAN) This is an important regional economic grouping which is
emerging as major one in world trade. A group of six countries – Singapore, Brunei, Malaysia,
Philippines, Thailand & Indonesia established ASEAN in 1992.
ASEAN has created a common Effective Preferential Tariff (CEPT) plan to reduce tariffs for manufactured and processed products leading to an ASEAN free trade area in 15 years.
ASEAN has helped its members to maintain money, share their resources and achieve synergy in development.
ASEAN has decided to invite China & India has “Guest Country”.
4. South Asian Association for Regional Co-operation (SAARC)
The successful performance of EEC, NAFTA & ASEAN, the other trade blocs in the economic development of member countries – gave impetus for the formation of SAARC.
India, Bangladesh, Bhutan, Maldives, Pakistan & Srilanka established SAARC in 1985.
Objectives of SAARC1. To improve the quality of life & welfare of the member
countries.2. To develop the region economically, socially &
culturally.3. To provide the opportunity to the people of the region
to live in dignity and to exploit their potentialities.4. To enhance the self-reliance of the member countries
jointly.5. To enhance the mutual assistance among member
countries in the areas of economic, social, cultural, scientific and technical fields.
6. To enhance the co-operation with other developing economies.
7. To extend co-operation to other trade blocs.
Name of the trading block
Member countries Year of establishment
EC
(European Community)
Belgium, Denmark, France, Italy, Luxumberg, Netherlands, Portungal, Spain & UK
1957
EFTA
(European Free Trade Association)
Australia, Finland, Iceland, Liechten-Stein, Norway, Sweden & Switzerland
1960
NAFTA
(North American Free Trade Agreement)
US, Canada & Mexico 1989
LAIA
(Latin American Integration Association)
Mexico, Paraguay, Peru, Uruguay, Venezuela 1980
Trading Block
MERCOSUL
(Southern Cone Common Market)
Argentina, Brazil, Paraguay, Uruguay 1991
ANCOM
(Andean Common Market)
Bolivia, Colombia, Ecuador, Peru, Venezuela 1969
CACM
(Central American Common Market)
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua 1960
CARICOM
(Caribbean Common Market)
Antigua & Bermuda, Bahamas, Barbadas, Belize, Dominica, Geneda, Guyana, Jamaica, Montserrat, St. Kitts Nevis, St. Lucia, St. Vincent, Trinidad
1973
OECS
(Organisation of Eastern Carribbean States)
Antigua & Bermuda, Dominica, Greneda, Montserrat, St. Kitts-Nevis, St. Lucia, St. Vincent, Grenadines & Virgin Islands
1981
GCC
(Gulf Co-operation Council)
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE 1981
ACM
(Arab Common Market)
Egypt, Iraq, Jordan, Lebanon, Libya, Mauritania, Syria 1964
AMU
(Arab Maghreb Union)
Algeria, Libya, Mauritania, Morocco, Tunisia 1989
SACU
(Southern African Customs Union)
Boputhatswana, Botswana, Ciskei, Legotho, Namibia, S. Africa, Swaziland, Transkei, Venda
1969
ECOWAS
(Economic Community of West African States)
Benin, Burkina Faso, Cape Verde, Cote d’Ivorie, Gambia, Ghana, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Toga
1975
PTA
(Preferential Trade Area for Eastern & Southern African States)
Burundi, Compros, Djibouti, Ethiopia, Kenya, Lesotho, Malawi, Maurtitius, Mozambique, Rwanda, Somalia, Swziland, Tanzania, Uganda, Zambia, Zimbabwe
1981
CEEAC
(Economic Community of Central African States)
Burundi, Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, Rwanda, Sao Tome, Zaire
1981
CEAO
(West African Economic Community)
Benin, Burkina Faso, Cote d’Ivorie, Mali, Mauritania, Niger, Senegal 1959
UDEAC
(Economic & Customs & Union of Central Africa)
Comeron, Central African Republic, Chand, Congo, Equatorial Guiena, Gabon
1964
MRU
(Mano River Union)
Guinea, Liberia, Sierra Leone 1973
ASEAN or AFTA
(Association of south-east Asian Nations)
Brunei, Indonesia, Malaysia, Phillippines, Singapore, Thailand 1967
BA
(Bangkok Agreement)
Bangladesh, India, Laos, S. Korea, Srilanka 1976
ANZCERT
(Australia, New Zealand Closer Economic Relations & Trade Agreement
Australia, New Zealand 1983
SAPTA
(South Asian Preferential Trading Agreements)
SAARC (India, Pakistan, Bangladesh, Maldives, Srilanka, Nepal & Bhutan)
1993
