WORLD TRADE

ORGANIZATION

Saranya S/AP/FT/KSRCT
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 Establishment

• The World Trade Organization (WTO) was

established in 1st January 1995.
• The WTO is an embodiment of Uruguay Round
negotiations on 15th November 1993 to
“strengthen the world economy, lead to more
trade, investment, employment and income
throughout the world”.
• It has a member stand of 153, including India.
• It is the successor to General Agreement of
Tariffs and Trade (GATT).
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 Objectives of WTO

The WTO reiterates the objectives of GATT, which are

– Promote trade flow by encouraging nations to adopt non-
discriminatory and predictable trade policies
– Raising standard of living and incomes, promoting full
employment, expanding production and trade, optimum
utilization of world’s resources.
– Introduce sustainable development – a concept which envisages
that development and environment can go together.
– Taking positive steps to ensure that developing countries,
especially the least developed ones, secure a better share of
growth in world trade
– Establish procedures for resolving trade disputes among
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 Functions of WTO

WTO is based on Geneva, Switzerland. Its functions are:

– Administering and implementing the multilateral and plurilateral
trade agreements, which together make up the WTO.
– Acting as a forum for multinational trade negotiations
– Seeking to resolve trade disputes
– Overseeing national trade policies
– Co-operating with other international institutions involved in
economic policy making.

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 Functions of WTO

Functions of WTO continued:

– Acting as a watchdog of international trade, constantly
examining the trade regimes of individual members.
– Acting as a management consultant for world trade. Experts on
the panel of WTO scan the world economic environment and
make observations on contemporary issues.
– Technical assistance and training for developing countries

WTO doesn’t aim at economic or political integration, but

seeks to promote free trade among member countries.

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 Principles of WTO

Transparency

Environment MFN
Protection Treatment

National
Competition
Treatment

Principles
of WTO

Treatment for Free Trade

LDCs Principles

Rule Based
Trading
Dismantling
Trade
MFN – Most Favored Nation
System Barriers
LDC – Least Developed Country
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 International trade
• Free trade implies that the government of the land exerts
minimal influence on decisions relating to exports or
imports made by private individuals and businesses.
They promotes world trade.
• Fair trade or managed trade suggest that the
government of the land should actively intervene and
ensure exports and imports are regulated.
• The economic independence among countries makes
countries engage less in conflicts
• Uneven distribution of resources makes trade inevitable

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 Barriers to trade
Product and
Quotas Testing
Standards

Non- Tariff Subsidies Embargoes

Local Content
Others
Requirements
Barriers
Administrative
Export Tariff
delays

Currency
Tariff Import Tariff
Control

Transit Tariff
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 Advantages of international
trade
• Leads to more efficient resource allocation and
lower cost per unit of output.
• Non-economic advantages like political, social
and cultural advantages to be gained by
fostering trade in international organizations.
• It helps to widen the range of choice of goods or
products.
• It allows the transfer of knowledge, technologies
and information between trading partners.

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 Advantages of international
trade
• It enables the countries to specialization
which increases the world output and
standard of living
• It increases the need to become efficient
and effective in the production process
because of competition
• It stimulates research and development
policies and more rapid adoption of new
technology to reduce cost of production
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 Disadvantages of international
trade
• One may need to wait for long term gains
• Hiring professional staffs to launch
international trade is timely and costly
• Modifying product or packaging
• Incur added administrative costs
• Dealing with special licenses and
regulations

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 Foreign direct investment
• FDI refers to the purchase of significant
number of shares of a foreign company in
order to gain certain degree of
management control.
• FDI involves three components
– Equity capital
– Reinvested earnings and
– Intra-company loans.

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 Foreign direct investment
• In India, FDI is understood to cover a few more routes
than the equity route stated in the previous slide.
• Specifically FDI investment in India is said to include the
following:
– RBI’s automatic approval route for equity holding up to 51%,
– Foreign investment board’s discretionary approval route for
larger projects with equity holding greater than 51%,
– Acquisition of shares,
– RBI’s non-residential Indian (NRI) schemes, and
– External commercial borrowing (ADR/GDR route).

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 Factors influencing FDI
• Several factors influence the decision relating to
the flow of FDI.
• These can be classified into 3 categories:
– Supply
– Demand and
– Government.
Supply factor Demand factor Government factor
Production costs Customer access Economic problems
Logistics Follow clients Avoidance of trade barriers
Resource availability Follow rivals Economic development incentives
Access to technology Exploitation of competitive
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Case study:
Starbucks in China

Discuss the increase in coffee culture and

exploitation of Starbucks in China, a land
known for its tea.

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 THANK YOU

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