An Overview

International Business per se is not a modern activity though the imperative to international business may be a modern day feature Organised international business took place even during historical times
Columbus went in search of a different route to the Indies so that trade in spices could be continued
3

An Overview
Entire history of India would have been different if British East India Company had not come for business purposes Indian businessmen also went out in search of markets overseas like during the reign of Pallava (7th Century AD) and Chola (10th Century AD), they had gone to SE Asian countries like Thailand, Indonesia, Malaysia, Cambodia etc The first phase of globalisation began around 1870 and ended with world war I
5

A Global Perspective
During Industrial revolution, countries like England, Germany, USA were exporting finished goods to various countries by getting raw materials from their colonies The ratio of trade to GDP was taken as a measure to determine trade
GDP = ((Private consumption+Gross investment+Government spending+(exportsimports))
6

International Business Model

Stages
Domestic International Multinational Global Transnational

Influence
Social and Cultural Technological Economic Political

Goals Mkt Share High Profit Risk Avoidance Resource Acquisitions Expand Business Capacities Advantages Low Price Variety of goods High Living Standards Economic Growth Competitive Advantage Problems Political Risks Foreign Debt Exchange Instability High Cost

Domestic Biz Approaches Ethnocentric Polycentric Regiocentric Geocentric Influence

Intl Biz

Export Direct Investment Licensing Franchising TKP JVs M&As

Drivers of Globalisation
Regional Integration: Formation of groups like EU (European Union), NAFTA (North American Free Trade Agreement), ASEAN (The association of South East Asian Nations), SAARC (South Asian Association for Regional Cooperation), ESCAP (The Economic and Social Commission for Asia and Pacific), APEC (Asia Pacific Economic Cooperation)
8

Drivers of Globalisation
Declining Trade Barriers: There has been a significant reduction in the tariff rates. USA reduced tariff rates from 44% in 1913 to 14 in 1950, 4.8% in 1990 and 3.9% in 2000. Almost all advanced countries reduced tariff rates to 3.9% in 2000. The growth in international trade between 1950 and 2007 was about 28 fold.
9

Drivers of Globalisation
Declining Investment Barriers: Governments are encouraging investments for higher production and global reach. Various governments made 1238 changes in the laws governing direct investment between 1991 and 2007. Of these 95% were in favour of FDI. Bilateral treaties increased from 181 in 1980 to 1856 in 2000 among 160 countries. These treaties enabled not only increase in international trade, but also production

10

Drivers of Globalisation
Growth in FDI: The investment made by a company in new manufacturing and/or marketing facilities in a foreign country is referred to as FDI. With a rapid growth during 1990s, FDI flows increased dramatically over the last 25 years. Emerging economies like Brazil, India, China, Mexico, Hong Kong and Singapore are receiving over 50% of FDI among developing countries
11

Drivers of Globalisation
Strides In Technology: Rapid advances in Information Technology and Transportation Technology have contributed immensely in the advancement of global business. Modern Telecom, Internet and WWW have aided International Business in making rapid strides.

Stages in International Business

Business houses evolve thro stages such as: Domestic Company International Company Multi-national Company Global Company Transnational Company

Stages in International Business

Domestic Company: Limits operations to the political boundaries. The vision and mission are, therefore, confined to domestic market. General motto of the company is that if it does not happen domestically, it cannot happen at all. Strategies adopted for growth would include expansion and diversification in the domestic market
14

Stages in International Business

International Company: A few of the domestic companies may find it worth a try to market goods produced in foreign markets. They tend to sell the same products on the belief that they are superior. They extend the domestic product, domestic price, promotion and other business practices to the foreign markets Looks overseas for opportunities, on account of unutilised capacities, diversification of risk

15

Stages in International Business

Multinational Company: International companies
find it difficult to push what they have in foreign markets as they soon realise that what is required is quite different. A good example is export of Toyopet cars by Toyota to the USA. They were overpriced, underpowered and built like tanks and the US market rejected them. MNCs formulate different strategies for different countries. MNC is also referred to as multidomestic. Multidomestic companies evolve distinct policies for offices setup in different countries. The orientation shifts from ethnocentric to polycentric. Another example is Philips and its competition with Matsushita
16

Stages in International Business

Multinational Company:
Multi-domestic: formulates different strategies for different markets Shift of focus: ethnocentric to polycentric An MNC will work like a domestic company in each country

17

Stages in International Business

Global Company: is the one which has either global marketing strategy or a global strategy. Global company either produces in home country or in a single country and focuses on marketing these products globally, or produces the products globally and focuses on marketing these products domestically. Dr Reddy Labs is a good example of a company that produces drugs in India and markets globally Focus is on understanding customer and competitive advantage
18

Stages in International Business

Transnational Company: Transnational company produces, markets, invests and operates across the world. However, most of the transnational companies satisfy many of the characteristics of global corporation. Eg., Coca Cola, Pepsi

19

Transnational company
Geocentric orientation:
Thinks globally and acts locally Global strategy but allows value addition to customer Allows adaptation to add value to its global offer Assets distributed throout the world R&D integrated Production spread but specialised and integrated
20

Transnational Companies
Knowledge shared among all locations (Caterpillar) Scanning or Information acquisition Vision and aspirations global markets, customers Operations: key operations globalised (P&G R&D, Colgate HR)

21

Stages of International Business

Stage and company Strategy Model Domestic Domestic hence NA Internationa Multidomes Global l tic Internationa l coordinated federation Extension markets Multi Global domestic centralised decentralise network d hub National markets Global markets or resources Mixed Transnation al Global Integrated

View of world markets Orientation Key Assets

Home country markets Located in home country

Global markets and resources Geocentric Dispersed Interdepend ent and specialised

Ethnocentric Ethnocentric Polycentric Core centralised, others dispersed

Decentralise All in home d self country sufficient except mktg or sourcing

22

Stages of International Business

Stage and company Role of country units Domestic Single country Internationa Multidomes Global l tic Adopting and leveraging competenci es Created at centre and transferred Exploiting Marketing local or sourcing opportunitie s Retained within operating units Marketing developed jointly and shared Transnation al Contribution s to company world wide All functions developed jointly and shared

Knowledge

Home country

23

Approaches to International Business

Ethnocentric approach: Here the domestic companies view foreign markets as an extension to domestic markets. Export division takes care of the plans to export goods produced across national facilities

Ethnocentric Approach
CEO

Manager R&D

Manager Fin

Manager Prodn

Manager HR

Manager Mktg

Asst Mgr North

Asst Mgr South

Asst Mgr Exports

Features: Foreign mkt, extension of domestic mkt; strategy by domestic co.; Export dept takes care of product design and operations
3

Approaches to International Business

Polycentric approach: As companies get into the act of exporting goods produced locally, they figure out that an altogether different approach is required to sustain and grow in a foreign market. Hence using polycentric approach, companies establish foreign subsidiary and empower its executives

Approaches to International Business

Regiocentric approach: After successful entry into a foreign country, the company operating there may find it strategically meaningful to export to neighbouring countries of the host country , like South Asia region to take care of commonalities of law and culture

Regiocentric Approach
CEO CEO
Foreign subEurope

Mktg, Bel Mktg, Ger

Mktg, UK

Manager R&D

Manager Fin

Manager Prodn

Manager HR

Manager Mktg

Features: Extension from single country to many, Foreign subsidiaries Consider regional environment and policies are made accordingly. Prodn And design may be the same but marketing strategies may vary

Geocentric Approach
CEO India

Subsidiary India

Subsidiary USA

Subsidiary Canada

Subsidiary Europe

Subsidiary SEA

Features: Strategies may involve passive to active pursuit of opportunities, Internationalisation process.
9

Differences between Domestic and International Business

Domestic Business Approach is ethnocentric International Business Approach can be polycentric, regiocentric or geocentric Geographic scope could vary from two to the entire globe Operating is style is spread across the globe

Geographic scope is limited to national boundaries of the domestic country Operating style including production, marketing, investment etc limited to domestic country

10

Differences between Domestic and International Business

Domestic Business Environment: Domestic business mostly scans the domestic environment Quotas imposed by countries for exports and imports are not likely to affect domestic business Tariffs that are international in nature may have no effect on domestic business

International Business International business scans the global environment Quotas do effect international business in a significant way Tariffs imposed by global countries will have a significant influence
11

Differences between Domestic and International Business

Domestic Business Foreign Exchange Rates do not directly or significantly affect domestic business Culture is confined to the domestic walls and products are designed accordingly Export Import Procedures may not have a very significant effect.

International Business Foreign Exchange Rates have significant influence Multi cultural issues are to be reckoned and appropriate strategies designed Exp-Imp procedures across the nations where there are operations have to be taken care of
12

Differences between Domestic and International Business

Domestic Business Human Resources are normally drawn from domestic country and management may not be too complex Markets and customers are reasonably known to domestic companies

International Business Human Resources are drawn from countries where operations are established and management is complex International companies will have to understand and accordingly work out strategies for global market

13

Multinational Enterprises
MNEs and the environment

Home Country
Competitors Customers Domestic Affiliates Suppliers Government

Stakeholders
Multinational Enterprises Banks

Host Countries
Competitors Customers Foreign Affiliates Suppliers Government

MNEs - Characteristics
Affiliates have to be responsive to a number of environmental forces including competitors, customers, suppliers, financial institutions and government They draw on a common pool of resources, including assets, patents, trademarks, information and human resources Affiliates are linked by common strategic vision

Why do firms become MNEs?

To protect themselves from risks and uncertainties To tap growing world market for goods and services To counter increased foreign competition and to protect world market share To reduce costs To overcome tariff walls To take advantage of technological expertise

Some Overseas Acquisitions by Indian Companies

Company Tata Tea Tata Motors Tata Steel Infosys Reliance Inds Ranbaxy Wipro Hindalco Acquisition Tetley Tea, UK Daewoo Commercial Vehicles, Korea Nat Steel, Singapore Expert Information Services, Australia Trevira, Germany RPG(Aventis) Labs, France NerveWire Inc, USA Straits Ply, Australia Price (USD million) 502 110 207 3.1 95 60 18.5 56.4

Essel Propac is the worlds largest maker of tubes used to pack toothpaste. The firm has 17 plants in 11 countries. Invested USD 40 million in China and USD 15 mil In the USA

Risks for an MNC

There is no safety net. An MNC cannot appeal to a supranational authority for conflict resolution or enforcement of a decision. A good example is when IBM and Coke were asked to leave India MNC is most of the time not treated on par with local firms when it comes to cap on investments, products etc. MNC may not be in position to exploit economies of scale
19

Risks for an MNC

There is always an apprehension in the minds of the people that an MNC will wind up and go away in hours of trouble. MNC will have to strive to establish credibility. Variations in business environment tend to be higher in the case of MNCs when compared to local firms. MNCs operating in multiple countries will have to deal with, at times conflicting requirements across nations

20

World of International Business

Reasons for FDIs
Equity funds invested in other nations
Ownership and control of foreign assets In practice FDI involves ownership, as a whole or partial, of a company in a foreign country known as foreign subsidiary

Forms of equity investment

Purchase of an ongoing company JV Completely owned enterprise

World of International Business

Portfolio Investment investment is made in the securities market to gain profits Reasons for ownership position in control of Foreign Assets
Increase Sales and Profits Companies in smaller economies look outside of their home boundaries

Thousands of smaller firms earn bulk of revenue from international customers Global markets offer more incentives and opportunities than domestic market

World of International Business

Enter Rapidly Growing Markets
Country moves towards market driven economy MNEs find huge demand for goods and services that cannot be satisfied by local firms (eg China) Enter Eastern Europe by acquiring local firms or setting up joint ventures

World of International Business

Reduce Costs
MNEs enter foreign markets where labour is cheap Rules and regulations more relaxed than home turf

Material
Move to a geographical area where material is available so that movement is minimised

World of International Business

Energy
If energy costs are high, move to an area where they are cheap

Transportations costs
Minimise these costs

Maquiladoras (twin factories)

Production operations set up on both sides of US Mexican border in free trade zone for the purpose of shipping goods between two countires

World of International Business

Protect Domestic market
FDI is used to protect the domestic market Enter to attack potential competitors and prevent them from expanding overseas MNEs justify this action by saying that competition is less likely to enter foreign market if busy defending its home market Protect position of product if parent company moves operations overseas(example Honda moves to Indiana ,nippodenso radiator company moves operations close by to maintain business with Honda)

World of International Business

Protect foreign markets
FDI used to protect foreign markets Invest heavily to upgrade its stations and increase its market share

Acquire technological and managerial know how

Move operations close to competition Some US companies have moved some of their research and development facilities to Japan Using this strategy, they make it easier to monitor the competition and to recruit scientists from local universities and competitive laboratories Company hires internationally know scientists to help attract experience colleagues from leading Japanese companies Recruit young graduates from the host universities

Triad Nations
Two drivers of globalisation are
FDI Trade

Triad Nations: USA, EU and Japan Other countries moving into International trade are China, Brazil, Canada, Mexico, India, Singapore, S.Korea, Netherlands and Spain

Foreign direct investments and trade by triad members

FDI clusters A group of developing countries usually located in the same geographic region as a triad member and having some form of economic link to this member Triad countries have also become major investors in poorer nations. The United Nations centre on Transnational Corporations (UNCTC) reports, that triad members accounted for 40 % of the FDI in 25 of the 37 developing countries

Triad Nations
The Triad and Regional Business Strategy
Dominate home and surrounding region International expansion does not mean global expansion WalMart has 90% stores in the USA and only 10% outside

Triad Nations
Triad activity in the automobile industry
Auto industry in USA Auto industry in Japan Auto industry in EU Auto industry globally World wide Triad nations compete with each other Compete in the home markets Compete in the markets of others What happens in one market can have a ripple effect in the others

Economic Relations within the Triad

Triad Nations
Triad Economies
Slowed after 1998 US,EU, Japan, Germany etc have all taken a plunge Companies that needed capital could get nothing Competition increased New suppliers and products in markets Triad members under stress, however, FDIs or trade did not decline $ 700 billion worth of business between them Not three separated groups but inter-related ones Relaxed regulations resulted in influx of foreign MNEs to make foreign base strong

Mergers and Acquisitions

International Trade Theories

Mercantilism Theory of Absolute Cost Advantage Comparative Cost advantage theory Comparative Cost advantage with money Relative Factor endowments/Hukscher-Owen theory Country Similarity theory Product Life Cycle theory Global Strategic Rivalry theory Porters National Competitive Advantage

International Trade Theories

Mercantilism Oldest international trade theory As per this theory the gold constituted the wealth of a country The theory suggests that a nation should import gold for export of goods Decay of gold standard reduced the validity of this theory Neomercantilism proposes that a country should produce more than the demand

International Trade Theories

Theory of Absolute Cost Advantage According to Adam Smith, free trade enables a country to produce a variety of goods and services Which goods to produce and which to import Every country should specialise in producing those products at a cost less than that of other countries Natural advantage as a result of geographical position, climate etc or Acquired advantage as a result of technological superiority, skill development etc

International Trade Theories

Comparative Cost advantage theory If one country has absolute cost advantage in producing many products, absolute cost advantage theory fails to explain the situation David Ricardos theory of comparative cost advantage attempts to explain this situation A country should produce and export those products for which it is relatively more productive than that of other countries

Comparative Advantage with Money

This theory relates each trade with money Some points to ponder over are:
It assumes only two countries participate in international trade There are no transport costs Only two products exist The percentage of share in the profits between the nations is not specified Does not consider mobility of resources

Relative Factor Endowments theory

Factor endowments are Land, Capital, Labour, Natural Resources Eli Heckscher & Bertil Ohlin stated that factor endowments vary among countries, like USA is rich in capital, India in labour, Saudi in Oil etc If labour is abundant, it will be relatively less costly than other factors and vice-versa Countries will have comparative advantage based on factors and the cost of these

Country Similarity theory

International trade takes place among countries that are at the same stage of economic development Steffan Linder proposed that similarities in consumer preferences in countries at the same stage of development may provide for intra-industry trade There may be similarity of location, culture, political and economic interests

Product Life Cycle theory

Proposed by Raymond Vernon of Harvard Innovation is based on needs and problems in the domestic country Growth results in attracting competition, increased exports, further innovation, shifting of manufacturing to foreign countries

Global Strategic Rivalry theory

Paul Krugman and Kelvin Lancaster have stated that firms take strategic decisions and acquire and develop competitive advantage
Owning IPRs Investing in R&D Achieving large scale economies Exploiting the experience curve Eg., KLM entering into a strategic relationship with Northwest airlines

Porters National Competitive Advantage theory

Firm Strategy Structure & Rivalry

Factor Conditions

Demand Conditions

Related and Supporting Industries

Environment of IB

Internal Environ
Production R&D Marketing HR Finance Organisation Developemnt IT

External Macro
STEPIN
Ext Macro

Social and cultura l

Techn ology

Econo mic

Politic al

Intern ationa l

Natur al

IB Unit 2 Global Business and National Regulation

Rationale for Government Intervention Forms of Trade Regulation at National Level Tariff and Non-Tariff Barriers. Regional Economic Integration: Levels of Economic Integration Benefits & Costs of Economic Integration Major Trading Blocks: EU, NAFTA, ASEAN and SAARC.
1

IB Unit 2 Global Business and National Regulation

Multilateral Regulation of Trade and Investment Basic Principles of Multilateral Trade Negotiations GATT and its early Rounds World Trade OrganizationStructure and functions TRIPs & TRIMs-WTO & India UNCTAD

Regional and Economic Integration

Regional groups based on economics became increasingly important over the past two decades The benefits of free trade and stable exchange rates are available only if nation states are willing to give up some measure of independence and autonomy

Types of Integration
Negative Integration: refers to removal of barriers of trade such as elimination of tariffs, removal of quotas, removal of subsidies, removal of other restrictions to trade NTBs Positive Integration: refers to positive action by the economic union to
generate more trade and investment on a transnational basis facilitate the free operation of the market in the economic union

Levels of Economic Integration

Free Trade Area: is the least restrictive and loosest form of economic integration. In a free trade area all barriers to trade among member countries are removed. However, each member is free to set its own policies in relation to non-members and that would mean setting up tariffs, quotas, or other restrictions for countries outside the free trade area
5

Levels of Economic Integration

Trade agreements in a particular commodity or a group of commodities: Agreement between a group of countries may exist for trade in only one commodity or a specific group of commodities. European Coal and Steel Community (ECSC) is a good example

Levels of Economic Integration

The Customs Union: One step ahead in the spectrum of economic integration. Like in Free Trade Area, members of Customs Union dismantle barriers of trade. The difference between FTA and CU is that the members of CU have a harmonised tariff policy for imports from non-member countries. In an FTA, the members are fee to adopt independent trade policies with regard to the non-members. Andean Pact is a good example

Levels of Economic Integration

Common Market: A common market is a customs union within which free movement of labour and capital are allowed. Thus a common market has:
No barriers to trade between the members A common external trade policy Factors of production such as capital and labour move freely between members

Caricom (The Caribbean Community and Common Market) is a good example

Levels of Economic Integration

Economic Union: involves unification of fiscal and monetary policies in addition to the structure of common market
Unification of fiscal policy would mean harmonisation of the member country tax rates and subsidies throout unified region Unification of monetary policy would mean common currency or fixed exchange rates free convertibility and free movement of capital
9

Levels of Economic Integration

Stage of Integration Abolition of Tariffs and Quotas among members Yes Yes Yes Yes Common Abolition of Tariff and restriction on Quota system Factor Movements Harmonisatio n and Unification of Economic Policies and Institutions No No No Yes
10

Free Trade Area Customs Union Common Market Economic Union

No Yes Yes Yes

No No Yes Yes

Benefits and Costs of Economic Integration

Trade Creation: Economic Integration may enable a good from a country to be in a competitive position once the producer country joins the union. This is because the member countries have no tariffs and this may result in trade creation for the new member country. The new member gets into a competitive position vis--vis the other countries and this situation may be viewed as trade diversion for the country that is external to the union

11

Benefits and Costs of Economic Integration

Reduced Import Prices: If a country increases tariff, the exporting country may be forced to increase its price. However, if tariff is increased by a group, the exporting country may choose to reduce base price so that its market position is not lost (trade position is not affected)

12

EU
1960 - 1969 The Swinging Sixties a period of economic growth Emergence of 'youth culture. It is a good period for the economy, helped by the fact that EU countries stop charging custom duties when they trade with each other. They also agree joint control over food production, so that everybody now has enough to eat &soon there is even surplus agricultural produce.

EU
1970 - 1979 A growing Community the first Enlargement Denmark, Ireland and the United Kingdom join the European Union on 1 January 1973, raising the number of member states to nine. Energy crisis and economic problems in Europe. The EU regional policy starts to transfer huge sums to create jobs and infrastructure in poorer areas.
4

EU
1980 - 1989 The changing face of Europe - the fall of the Berlin Wall In 1981, Greece becomes the 10th member of the EU and Spain and Portugal follow five years later. In 1987 the Single European Act is signed. This is a treaty which provides the basis for a vast six-year programme aimed at sorting out the problems with the free-flow of trade across EU borders and thus creates the Single Market.

EU
1990 - 1999 A Europe without frontiers Collapse of communism, and in 1993 the Single Market is completed with the 'four freedoms' of: movement of goods, services, people and money. Maastricht Treaty (for Euro) signed in 1993. Austria, Finland and Sweden join in 1995. Schengen agreement (in Luxembourg) forms the basis people to travel without having their passports checked at the borders.

EU
2000 - today: A decade of further expansion The euro is the new currency for many Europeans. The political divisions between east and west Europe are finally declared healed when no fewer than 10 new countries join the EU in 2004. Many people think that it is time for Europe to have a constitution but what sort of constitution is by no means easy to agree, so the debate on the future of Europe rages on.

EU
Objective: Harmonious development of community thro economic activities. Continuous and balanced expansion, increase in stability and accelerated raising of the standard of living. Closer relations among member countries

10

EU - Policies and Activities

Meeting the needs of farmers and consumers Audio-visual and media: High standards and wide choice Budget-Investing in EUs future
The annual budget of the European Union amounts to almost 142 billion (2011 figures), about 1% of the wealth generated by the EU's member countries every year.

Development and Cooperation-Helping others to help themselves

11

EU - Policies and Activities

Energy-Secure and sustainable supplies Environment-Protecting, preserving and improving the world around EU Transport-Looking for sustainable mobility Establishment of European Investment bank Establishment of European Social Fund Competition-A fair deal for all
12

North Atlantic Free Trade Area

NAFTA is the largest free trade area consisting of USA, Canada (1989) and Mexico (1994) Objectives:
Eliminate barriers to trade in, and facilitate movement of goods & services across borders among member countries Promote conditions for fair competition in the FTA Increase substantially investment opportunities in the member countries
14

North Atlantic Free Trade Area

Measures:
Opening of govt procurement markets in each member country Residents of one country can invest in another Protection of IPR Simplification and harmonisation of product standards across member countries Free flow of business people from one country to another Avoidance of re-export of goods from 3rd party Pollution control along the USA-Mexico border
15

ASEAN
The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN.

17

Aims and Objectives

To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields
19

Aims and Objectives

To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres To collaborate more effectively for the greater utilisation of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples To promote Southeast Asian studies; and To maintain close and beneficial cooperation with existing international and regional organisations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

20

Asian Political Security Community

ASEAN ministerial meetingAMM ASEAN regional forum-ARF Defence Law Transnational Crime

ASEAN Economic Community

ASEAN economic ministersAEM ASEAN free trade area-AFTA Food, Agriculture and Forestry Finance Investment Minerals Mekong basin development corpn Transport Telecommunications & IT Tourism Sectoral bodies under the purview of ASEAN economic ministers

ASEAN Socio-Cultural Community

Culture and Arts Disaster Management Education Environment Haze Health Information Rural Dev and Poverty eradication Science and Tech Social Welfare and Development Women

Youth

21

GDP - ASEAN
Country Singapore Malaysia Indonesia Thailand Philippines Brunei Darussalam Cambodia Lao PDR Vietnam Myanmar GDP Growth-197182 9.0 7.5 7.6 6.7 5.7 GDP Growth-2003 1.1 5.3 4.1 6.8 4.7 3.2 GDP growth 2009 -1.3 -1.7 4.5 -2.2 1.1 -0.5 0.1 7.6 5.2 4.8
23

SAARC - South Asian Association for Regional Cooperation

Members of SAARC are:

India, SriLanka, Bangladesh, Pakistan, the Maldives, Nepal, Bhutan and Afghanistan (2005)

Objectives:
To promote welfare of the people and improve quality of life To accelerate economic growth, social progress and cultural development in the region

24

SAARC - South Asian Association for Regional Cooperation

Objectives:
To promote and strengthen collective self reliance among the countries To promote active collaboration and mutual assistance in the economic, cultural, social, technical, and scientific fields. To cooperate with international and regional organisations with similar aims and purposes

25

SAARC - South Asian Association for Regional Cooperation

Principles:
Cooperation for mutual benefit, within the frame work based on respect for the principle of sovereign equality, territorial integrity, political independence, noninterference in the internal affairs of other states. Such cooperation is to complement and not to substitute bilateral or multi-lateral obligations of member states Decisions at all SAARC levels are taken on the basis of unanimity Bilateral or contentious issues are excluded from its deliberations
26

SAARC
SAARC has been an ambitious programme with limited results. The intra-SAARC trade as a percentage of the total SAARC trade remained as low as 4%. A few other unilateral, bilateral and subregional initiatives along with SAARC are:
Unilateral: India removed import restrictions on about 2307 items from SAARC countries
27

SAARC
A few other unilateral, bilateral and subregional initiatives along with SAARC are:
Bilateral: India-SriLanka- Tariff liberalisation is the feature of this agreement of 2000 India-Nepal: under Indo-Nepal Economic Cooperation, export of goods from Nepal to India was free of customs duty and quantitative restrictions Indo-Bhutan treaty dates back to 1949 and is for free trade between the two countries
28

SAARC
A few other unilateral, bilateral and subregional initiatives along with SAARC are:
Sub-regional: Bangladesh, Bhutan, India, Nepal (BBIL) quadrangle Bangladesh, India, Myanmar, SriLanka, Thailand Economic Cooperation (BIMSTEC) signed in 1994. Bay of Bengal touches all the five countries

Regional: SAARC
29

IB Unit 2 Global Business and National Regulation

Major Trading Blocks: EU, NAFTA, ASEAN and SAARC. Multilateral Regulation of Trade and Investment Basic Principles of Multilateral Trade Negotiations GATT and its early Rounds World Trade OrganizationStructure and functions TRIPs & TRIMs-WTO & India UNCTAD

IMF

Post world War II IBRD

ITO

ITO
ITO (International Trade Organisation) failed to take off and its place taken by GATT (General Agreement on Trade and Tariffs) in 1947 with 23 countries (including India) signing the agreement at a conference in Geneva. It became a permanent agreement at a conference in Havana in 1948

 There were a series of multilateral trade negotiations between 1948 and 1994 called rounds

GATT Trade Rounds

Year 1947 Place Geneva Subjects Covered Tariffs Results Achieved No. of Countries 45,000 tariffs 23 concessions affecting $ 10 b worth of trade about 1/5 of the worlds trade Tariffs reduced for another 5000 items Tariff concessions for 8700 items Further tariff concessions for $ 2.5 b trade 13

1949

Annecy, France

Tariffs

1951

Torquay, UK

Tariffs

38

1956

Geneva

Tariffs

26

GATT Trade Rounds

Year 1960-61 Place Geneva-Dillon Round Subjects Covered Tariffs Results Achieved Negotiated new common external tariff of the European Community No of Countries 26

1964-67

GenevaKennedy round

Tariffs and anti-dumping measures

Tariff 62 reductions of up to 50% for goods worth $ 40 b

GATT Trade Rounds

Year Place Subjects Covered Results Achieved No of Countri es 102 197379 Genev a Tokyo round Tariffs and non-tariff measures, framework agreements, subsidies and countervailing duties, customs valuation, government procurement, technical barriers to trade, import licensing procedures, dairy products, bovine meat and trade in civil aircraft 1/3rd cut in customs duties in the worlds nine major industrial markets, bringing the average tariff down to 4.7%. A series of agreements on NTBs, breaking entirely new ground, not accepted by the full members of GATT. Spl problems of developing countries came to the fore

GATT Trade Rounds

Year Place Subjects Covered Results Achieved No of Countri es 123 198694 Genev a Urugu ay round Tariffs and NTB measures, rules, services, IPR, dispute settlement, textiles, agriculture, creation of WTO. Covered trade from tooth brushes to pleasure boats, banking to telecom, genes of wild rice to AIDS treatments. Simply the largest trade negotiation of any kind in history The first draft of the Final Act was compiled by GATT DG, Arthur Dunkel. US and EU settled differences over agri issues. Some aspects of services and IP were negotiated mainly between developed and developing countries. Created WTO as the international trade organization

GATT and WTO

How is the WTO different from GATT? The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat, which had its origins in the attempt to establish an International Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat. The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are full and permanent. The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property.

10

GATT and WTO

While GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plurilateral, and therefore selective, nature. The agreements, which constitute the WTO, are almost all multilateral and, thus, involve commitments for the entire membership. The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured. The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all GATT member countries to accede to the WTO and permitting an overlap of activity in areas like dispute settlement. Moreover, GATT lives on as "GATT 1994", the amended and up-dated version of GATT 1947, which is an integral part of the WTO Agreement and which continues to provide the key disciplines affecting international trade in goods.
11

Plurilaterals: of minority interest

After the Uruguay Round, however, there remained four agreements, originally negotiated in the Tokyo Round, which had a narrower group of signatories and are known as plurilateral agreements. All other Tokyo Round agreements became multilateral obligations (i.e. obligations for all WTO members) when the World Trade Organization was established in 1995. The four were: trade in civil aircraft government procurement dairy products bovine meat. The bovine meat and dairy agreements were terminated in 1997.

12

GATT and WTO

GATT
A set of rules and multilateral agreement It was applied on a provisional basis Original idea was to establish an International Trade Organisation Its rules are applicable to trade in merchandise goods

WTO
A permanent institution Its activities are full and permanent Establishment is to serve its own purpose In addition to trade in merchandise goods, the rules apply to trade in services and trade related aspects of IP Dispute Settlement System is well defined and is fast and automatic
13

Dispute Settlement System not fast and automatic

Agriculture - Objectives
conversion of all non-tariff barriers into customs duties phasing-out of all trade-distorting production support measures elimination of export subsidies over a fiveyear period harmonisation of plant health regulations to prevent them being used as non-tariff barriers

Uruguay Round
Dunkel proposed Trade Distorting support policies known as amber policies and Green Policies which include supporting measures such as:
Expenditure on general government services for research, disease control, expansion of infrastructure, environmental protection, food security

Textiles Dunkels proposals

To do away with MFA Multi Fibre Agreement Developed countries dismantled import quotas on garments and textiles from 1/1/05 The above resulted in
Product specialisation Cross-border cooperation Improvement in sourcing skills Focus in higher value products Creation of conducive environment
18

TRIPs
Trade Related Intellectual Property Rights: Dunkels proposals include:
Protection of
Patents Copyrights Design Trademarks Trade Secrets

TRIMs
Trade Related Investment Measures: Dunkels proposals also touched inflow of foreign capital into third world countries and suggested removal of various controls. Significant features of TRIMs are:
Abolition of restrictions imposed on foreign capital Offering equal rights to foreign investors equal to those of the domestic investors
20

TRIMs
No restrictions on any area of investment No limitation or ceiling on foreign investment Granting permission without restriction to import raw materials and other components Export of the final product will not be compulsory Restriction on repatriation of dividend, interest and royalty will be removed Phased manufacturing programme will be introduced to increase the domestic content of manufacture
21

GATS
GATS: General Agreement on Trade Services, is an agreement under WTO. GATS is the first multilateral agreement that covers all internationally traded services like telecom, banking, tourism, professional services etc. The modes of supply for services can be: Cross border supply (intl telephone calls) Consumption abroad (tourism) Commercial presence (foreign bank setting up operations) Presence of natural persons (s/w persons on site)

MFN principle, Market Access, Transparency, Individual govt rights are taken care of

Most Favoured Nation

Favour one, favour all. MFN means treating ones trading partners equally on the principle of non-discrimination. A country should not discriminate between its trading partners (giving them equally most-favoured-nation or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them national treatment)
23

Most Favoured Nation

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners whether rich or poor, weak or strong.
24

WTO
The ten benefits 1. The system helps promote peace 2. Disputes are handled constructively 3. Rules make life easier for all 4. Freer trade cuts the costs of living 5. It provides more choice of products and qualities 6. Trade raises incomes 7. Trade stimulates economic growth 8. The basic principles make life more efficient 9. Governments are shielded from lobbying 10. The system encourages good governance

Fl ow char t of t he Di sput e Set t l em ent Pr ocess Navi g at e w t hi i n t hi s m odu le Pr ef ace I nt r oduct i ont ot he W TO di sput e set t l em ent syst e m Hi st or i cdevel opm ent of t he W TO dsput e i set t l em ent syst e m W TO Bodi es i nvoved l i n t hedi sput e set t l em ent pr ocess Legal basi f o a s r di sput e Possi bl eObj ect of a Com pl ai nt Jur i sdi ct on o Panel i f s and t he Appel at e l Body The pr ocess St ages i n at ypi cal W TO di sput e set l em en t t case

6. 1 Fl ow char t of t he Di spu te Set t l e m ent Pr oce ss

6. 2 Consu l t at i o ns

6. 3 The panel st age

6. 4 Adopt i on of panel r epor ts

6. 5 Appel l at e r evi e w

6. 6 Adopt i on of t he r epor t s by t he Di spu te Set t l e m ent Body

6. 7 I m pl e m ent at i on by t he l osi n g M em ber

6. 8 Noni m pl e m ent at i on

6. 9 Com p ensat i on

6. 10 Count er m e asur e s by t he pr eva i l i ng M em ber ( susp ensi o n of obl i ga t i ons)

6. 11 Sur ve i l l anc e unt i l f i nal i m pl e m ent at i on

6. 12 Speci al pr oce dur es f or nonvi ol at i on and si t uat i on com p l ai nt s

6. 13 Test Quest i ons

Legal ef f ect of pane l and appel l at ebody r epor t s andDSB r ecom m endat i ons and r ul i ng s Di sput e Set t em ent l w t hout r ecour set o i Panel s andt he Appel l at e Body Par t i ci pat oni n i di sput e set l em en t t pr oceedi ngs Par t i ci pat oni n i di sput e set l em en t t pr oceedi ngs Devel opi ng count r es i i n W TO di put e s set t l em ent Eval uat i on o t he f W TO di sput e set t l em ent syst e : m r esul t s t o dae t Fur t her i nor m at on f i Test Sum m ar y Annexes

India and WTO

Benefits
It is estimated that trade would increase to a very great extent especially in the areas such as clothing, agriculture, forestry and fishery products and processed food and beverages Agriculture exports would increase mainly on account of decrease in subsidies and removal of barriers to export of agriculture products

India and WTO

Benefits
The multilateral rules and discipline relating to antidumping, subsidies and countervailing measures, safeguards and dispute settlement machinery will ensure greater security and predictability of international trade. This would set favourable environment for international trade in India India along with other developing countries has the market access to a number of advanced countries as there are clauses concerning trade without discrimination

India and WTO

Benefits
The abolition of Textile quota system has brought in its wake newer opportunities for India. In line with WTO obligations, India has adopted the product patent regime for food, drugs, and chemicals from Jan 01, 2005

India and WTO

Disadvantages:
Application of TRIMs does affect our plans / strategies for growth of local technology and resources Services sector liberalisation may pose a major competition to banking, insurance, transportation

UNCTAD
United nations Conference on Trade and Development (UNCTAD):
Established in 1964 in Geneva to address problems of the developing countries pertaining to trade and development One of the important agreements launched by UNCTAD in 1968 was Generalised System of Preferences (GSP) that the developed countries granted to developing countries improved market access

UNCTAD
A few of the activities are:
Trade analysis and Information System Assessment of impact of trade and development on environment Assisting developing countries in Trade negotiations Conducting investment policy reviews of different countries Conducting capacity building seminars (pertaining to international investment and technology) for the developing nations

UNCTAD
A few of the activities are:
Macroeconomic and development policy reviews for the countries Technical advisory support for the developing countries Assisting developing nations in modernising customs clearance procedures Training in all areas of international trade for developing countries Assisting LDCs in their process of accession to WTO Assistance to LDCs in terms of strategies for development and poverty reduction

Objectives of GATT
The most important elements of the Agreement included those of:
non-discrimination: the Most Favored Nation (MFN) principle reciprocity transparency tariff reduction.

The GATT Negotiating Rounds

Round Date No. of Member Value of Trade No of Tariff Concession in Billion

Geneva Annecy Torquay Geneva Dillion Kennedy Tokyo

1947 1949 1950 1956 60-61 62-67 73-79

23 33 34 22 45 48 99

10 2.5 4.9 40 300

45,000 5,000 8,700 4,400 -

Special Treatment for Agricultural Trade

Quantitative import restrictions, banned for all other commodities, could be used in the case of agricultural commodities The use of agricultural export subsidies was explicitly permitted Other mechanisms for protecting agriculture, such as variable import levies and domestic subsidies, were not explicitly covered by the GATT, and provided additional loopholes for agricultural policy makers wishing to protect the agricultural sector.

The Latest GATT Round

Uruguay Round
Place : Uruguay. Date : 1986-93

Doha Round just started in November 2001

Uruguay Round
The Uruguay round was launched at a meeting of trade ministers in Punte del Este, Uruguay, in October 1986. It was expected to last for four to five years and instead took around eight years (until December 1993). What made the Uruguay round so contentious?

The Main Players in the Agricultural Negotiations

The USA was enthusiastic about promoting greater liberalization in agricultural trade, and was keen to reduce the protection and support enjoyed by producers in the EC under the CAP. The EC was much less amenable to far reaching liberalization, but was keen to reach a workable compromise, that could be enshrined in the GATT, in order to minimize future trade friction between itself and the USA. The Cairns Group

Other Players in the Agricultural Negotiations

For the large group of developing countries which were net importers of food, the main concern was over the impact of the Round on the cost of food imports. Two other countries with a major interest in the outcome of the round were Japan and the Republic of Korea. These countries had highly protected domestic rice markets, and a strong domestic opposition to reform of the sector.

 USA opened the negotiation with an unrealistic demand for the zero-zero option.
All agricultural subsidies and all quantitative restrictions on agricultural imports be phased out over a period of ten years, and that world health and safety measures be harmonized.

Initial Positions of US in the Uruguay Round

This proposal found support among Cairn groups but the EC totally opposed it.

Slow Initial Progress in the Negotiations

At the mid-term review in Montreal at the end of 1988, the negotiating parties in the agricultural group were as far apart as ever. In April 1989, U.S. negotiators dropped their demand for zero-zero option. In 1991, finally arrived at a consensus, whereby countries agreed to make concessions in each of the following three areas:
import access domestic support export subsidies.

The Blair House Accord

the 24 percent cut in the volume of subsidized exports that was originally proposed, was reduced to 21 percent. direct payments made under production limiting programs, such as those made under the EC's CAP reform, and the USA's policy of deficiency payments and land set-aside, were made exempt from domestic support reduction commitments; commitments to reduce domestic support on a product by product basis were replaced by a commitment to reduce overall support to the agricultural sector.

Major Areas of GATT Disciplines

Market Access

Domestic Support

Export Subsidies

Market Access Commitments

Tariffication, Tariff Binding and Reduction.
Non Tariff Barriers to be converted to Tariff Equivalent. All Tariffs to be bound. Reduce existing and new tariffs by 36 percent, on a simple average basis, in equal installments in six years. Reduce tariffs for each commodity by a minimum of 15 percent .

Japanese Minimum Access Commitment for Rice

Thousand Metric Tons 800 700 600 500 400 300 200 100 0 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02

Minimum Access Commitments

AMS Support Level for 24 Countries (1986-88 vs 1995)

250 200

Billion Dollars

150 100 50 0 1986-88 1995

U.S. GATT Commitments on Subsidized Exports

MILLION METRIC TONS 30 28 26 24 22 20 18 16 14 12 10 8 1995 900 800 700 600 500 400 300 200 100 0 1996 1997 1998 1999 2000

Quantity

Budget

Million Dollars

EU GATT Commitments for Subsidized Exports

The European Union will reduce the quantity and budgetary outlay for export subsidies from the current level. In the year 2000, the EU's maximum allowable quantity of subsidized wheat and wheat flour exports will be 13.4 MMT, 6.8 MMT less than the quantity of subsidized exports in 1991-92.

Uruguay round GATT Negotiations vs Old GATT

The old GATT was often criticized because it lacked an enforcement mechanism One of the most sustentative achievement of the Uruguay round was the creation of a new international institutions, the WTO. The WTO is responsible for enforcing existing international trade agreements and serve as a host for new talks to liberalize trade.

The Conduct of U.S. Commercial Policy

Since 1934, Congress has authorized systematic reduction in trade barriers. On the other hand, Congress has provided American business with alternative mechanisms for seeking and obtaining relief from foreign competition. In this section, we will discuss some of these measures.

Dumping
It is defined as selling a product in a foreign country at a price that is lower than the price charged by the same firm in the home country.

Economic Impacts of Dumping

PW P1 P2 Predatory dumping

Antidumping Cases Initiated Worldwide, 1999

Number of Antidumping cases Country By Against Australia 42 1 European Union 41 57 Canada 14 3 China 0 31 Japan 0 12 United States 16 15 Mexico 6 NA Total 233 233