International Business

(ECO-505)
Session-11

Trade and International Business

Dr. RKP/ IMI, Bhubaneswar

Trade and International Business

Main Topics for Discussion
Trade and International Business Global Trade Theories WTO and Other World Trade Bodies Issues in International Trade

TRIPS, GATS and TRIMS

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Trade and International Business

Benefits from Trade
Theory of Absolute Advantage Theory of Comparative Advantage

Heckcher Ohlin Theory

Imitation Gap Theory International Product Life Cycle Theory

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Theories of International Trade

Theory of Absolute Advantage
Adam Smith

Theory of Comparative Advantage

David Ricardo

Theory of Heckscher-Ohlin
Eli Heckscher

Bertil Ohlin

Imitation Gap Theory

Richard Posner

Product Life Cycle Theory

Raymond Vernon
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Gains from Trade

Increased Efficiency Increased Productivity Increased Output Increased Income level and Welfare

Multi-Product and Multi-Country Scenario the trade will help all participating countries
Each Country will have some advantage in producing some products Technology and Know-how Natural Resources Climatic Conditions

These factors contribute to benefits from trading

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Trade Barriers
Tariff barriers Technical Barriers Procurement Policies International Price Fixing Cartels (OPEC) Custom Valuations Transportation Costs Non-Tariff Barriers Quota

Embargo
Subsidies to Local Goods Comparison between Quotas and Tariffs
Intra-industry Trade
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UNCTAD
UNCTAD Established in 1964; Headquarter in Geneva Functions of UNCTAD:
Assisting Developing Countries in Trade negotiations Conducting Investment Policy Reviews in Different Countries Advisory Service on Technology to Developing Countries Trade Analysis and Dissemination of Information Assessing Impact of Trade and Development on Environment Macroeconomic and Development Policy Reviews for Countries Assisting Countries in Modernizing Customs Clearance Procedure Bringing Least Developed countries into the mainstream of WTO Training in Different Aspects of International Trade for Developing Nations Assisting Poor Countries in Formulating Strategies for Development and Poverty Reduction
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World Trade Organization (WTO)

WTO Established in 1995; based in Geneva;157 member Countries ITO was proposed in 1944 in Bretton Woods Conference GATT was established in 1947 which was considered Rich Mens Club Subsequent to GATT, UCTAD was set up and finally WTO to reiterate the

objectives of GATT
Objectives:
Promote Trade Flows by encouraging predictable trade policies Expanding Production and Optimal usage of World Resources Sustainable Development Positive steps to ensure LDCs have larger Trade Shares Procedures for Resolving Trade Disputes among Members
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World Trade Organization (WTO)

Functions of WTO
Administering and Implementing Multilateral and Plurilateral Trade Agreements Acting as a Forum for Multilateral Trade Negotiations Overseeing National Trade Policies Cooperating with international institutions in global policy Making Maintaining Trade Related Database Acting as a watchdog of international trade; Examining Trade Regimes of members Policy Regarding World Economic Environment Policy Regarding Contemporary Issues

Technical Assistance and Training for Developing Countries

WTO does not aim at Economic Integration; Promotes overall Global Trade among Nations

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World Trade Organization (WTO)

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World Trade Organization (WTO)

Principles of WTO
Transparency MFN Treatment National Treatment: Non Discrimination within a Country

Free Trade Principle: Optimal Utilization of Resources

Dismantling Trade Barriers Rule Based Trading System Treatment for LDCs Competition Principle Environmental Protection

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World Trade Organization (WTO)

WTO and Agriculture Agreement on Agriculture

Reforms in Trade in Agricultural Sector Market Oriented Policies Improving Economic Cooperation

Ensuring Market Access 36 % reduction on tariff by Developed Countries

24 % reduction in tariff by Developing Countries

Domestic Support More than 50 % of Subsidies go to 1 % farmers in EU

More than 70 per cent of Subsidies go to 10 % of farmers in US in agri-business

Export Competition Reduce Export Subsidies by at least 36%

Less Trade-Distorting Domestic Support Policies

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World Trade Organization (WTO)

WTO and Health and Safety Measures

Agreement on Application of Sanitary Measures
Food Safety Animal Health Regulation Plant Health Regulation Stipulation should be unbiased and based on science Stipulation should be applied to the extent necessary to Protect Human, Animal and Plant Life or Health No Arbitrary Stipulation No Discriminatory stipulation among members withidentical conditions

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World Trade Organization (WTO)

WTO Helping Least Developed and Food Importing Countries

Developing Countries at an disadvantages in negotiations especially the ones heavily importing Food grains Provision of Basic foodstuffs

Aid for Agricultural Development

WTO Textiles and Clothing

Integration of Textiles and Clothing Sector Multi-fibre Agreement Bilateral Quota Negotiations Multifibre Agreement Governed trade in textiles and clothing from1974 to 2004 Expired on 1st January 2005 The objective of this agreement is to ensure integration
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Trade Related Intellectual Property Rights (TRIPS)

The WTO Agreement on TRIPS Protection and Enforcement of Intellectual Property Rights TRIPS came into being after intense lobbying from US, supported by EU members, Japan and other Developed nations Ratification of TRIPS is compulsory requirement for WTO membership Strict Enactment of TRIPS is a must to gain access and benefits opened up by WTO States can be disciplined - WTOs Dispute Settlement Mechanism
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Trade Related Intellectual Property Rights (TRIPS)

Requirements of TRIPS
Copyright term must extend by 50 years unless based on the life of the author Copyright must be granted automatically; not through formality Computer programs must be regarded as literary works and receive same

terms of protection
Patents must be granted for inventions in all fields of technology provided they meet all other patentability requirements Exceptions to exclusive rights must be limited

No unreasonable prejudice to legitimate interests of right holders of computer

programs and patents is allowed Legitimate interest of Third Parties have to be taken into account TRIPS s Most Favored Nation Clause
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Trade Related Intellectual Property Rights (TRIPS)

TRIPS and Access to Essential Medicines

AIDS medicines in Africa- Conflict of Interests; No compromise on Health Related Issues; Millennium Development Goals and TRIPS conflict

Software and Business Method Patent

Process Patent
Product Patent

Implementation in Developing Countries Post TRIPS Expansion Criticism of TRIPS

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Trade Related Investment Measures (TRIMs)

TRIMs Agreements under WTO TRIMs Rules for foreign Investors (Part of Industrial Policy)
Ban on Local Content Requirements Rules Ban on Trade Balancing Rules

Foreign Exchange Restrictions

Export Restrictions

Restrictions on Preference on Domestic Firms Ensure that International Firms operate smoothly in foreign Markets Trade Related Investment Measures FDI Movements to all Countries
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General Agreement on Trade in Services (GATS)

GATS Multilateral Legally Enforceable Rules covering Services Liberalization on movement of Services to Facilitate Trade Four Modes of GATS Mode-1: Cross Border Trade: Services from the territory of one Country to another Mode-2: Consumption Abroad: Travel &Consume the service in another Country Mode-3: Commercial Presence: Covers services by setting up a professional
Establishment

Mode-4: Temporary Movement of Natural Persons Inter Country

Movement of Personnel to provide Services

Criticism of GATS
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Dispute Settlements in WTO

Dispute Settlement Understanding Legally Binding Disputes regarding Dumping and Grant of Subsidies Since Dumping is done by a firm, WTO can not take action against the country, but ensures that country act against a firm Imposition of Anti Dumping Duty Based on calculations on Damages caused due to Dumping Anti Dumping Measures Advantages and Disadvantages of a country Joining WTO

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World Bodies and International Business

MNCs operations and World Bodies

Framework to improve International Trade and Business

Fair and Unfair Practices Reality and Ideal

Trade Policies and International Business Indias Foreign Trade Policy International Business and Global Welfare Case on China
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