WTO and its Impact

GATT – The general agreement on tariff and trade. The producer of WTO was form in 1942 as
result of the international desire to liberalize trade.
The GATT was transformed in to WTO effect from January 1995 thus after
about.
Uruguay round (UR) in the name by which the eight round of the multilateral trade
negotiation (MTNs) launched in Punta Del Este in the Uruguay following the UR agreement,
GATT was converted from a provisional agreement into a formal international agreement
called WTO.

Difference between GATT and WTO

GATT WTO

1. GATT was ad hoc and provisional WTO and its agreement are permanent.
2. GATT has contracting parties. WTO has members.
3. GATT was less powerful dispute settlement WTO is more powerful than GATT dispute
up to. settlement machine.

FUNTION OF WTO

1. The WTO shall facilitate the implementation the administration the operation of
multilateral trade, trade agreement and plurilateral trade agreement.
2. The WTO shall provide the four for negotiation among the members concerning their
multilateral trade relation.
3. The WTO shall administrator settlement of dispute.
4. The WTO corporate with IMF and IBRD and its affiliated agencies.

The general council will serve four main functions.

1. To supervise on a regular basis the operation of the revised agreement and

Declaration relating to goods service and TRIPs.
2. To act as dispute settlement body.
3. To serve as a trade review mechanism.
4. To establish different council like serve council and TRIPs council.

WTO principal and objective

- To help trade flow as freely as possible.

- To achieve further liberalization.
- To set up impartial means of setting objectives.
 STRUCTURE OF WTO

Ministerial conference (once in 2 years)

Trade policies review
General council

Also work as trade policy Dispute settlement body

Review body and dispute
Settlement body

Goods councils

Councils - Services councils

Intellectual property council.

Specified committees, working group’s working parties.

Salient feature of UR (Uruguay round agreement)

TRIMs – trade related investment measure (TRIMs) refer to certain condition or restriction
imposed by agreement in respect of foreign investment in the country. TRIMs were widely
Employed by developing countries. The agreement on TRIMs provides that no contracting
party shall apply any TRIMs which are inconsistent with the WTO articles.

TRIPs – One of the most controversial outcomes of the UR is the agreement on the trade
aspect of intellectual property rights.

TRIP + TRIM = NEW ISSUES.

Intellectual property right is the right given to person over the creation of their periods. They
usually gave the creator an exclusive right over the use of his/her creation for a certain period
of time.
IPR may be legally protected by patents, why right Indus prior design geographical creation.
 THE WTO IMPACT

GATT/GATS: - Liberalization of trade in goods and serves

- Increase competition from foreign goods.

- Opportunity for Indian firm to export.

TRIMPs – liberalization of international investment.

- Increase foreign investment and competition from foreign firm – street to domestic firm
- Facilitate joint venture and technology requesting benefit.
- Facilitate a foreign investment by Indian firm including joint venture – globalization of
Indian firm.

TRIP – provides monopoly power to owner of intellectual encourage globalization of Indian

firm due to competition advantage.

FOREIGN TRADE (development and regulation act)

Objective – development and regulation of foreign trade by facilitating import into

augmenting import from India and for matters connected there with or incidental there to.

MAIN PROVISION

Development and regulation – The FTDRA improve the central government to make
provision for the development and regulation of foreign trade by facilitating import and
increasing export.

Prohibition and restriction – the act also improve the central government to make provision
for prohibiting, restricting or regulating the import and export as obtain when required.

Exam policy – the act lays down that the central government may from time to time
formulate and announce the export and import policy and may also attend the policy.

DGFT – the act provide for the appointment by the central government of DGFT. The DGFT
shall advice the central government in formulation of export and import policy and
implementation of policy.

Importers – exporters code number – (IEC NO) – the act lays down that no person shall make
any import or export concept under on import – export code (IEC) number granted by DGFT.
The director general is empowered to suspend or cancel the import – export code number
granted to any person if there is valid reason to close.
Issues and sustention/ consolation of license – the director general or any other officer a
thousand over this act is empowered to suspend or cancel a license is for export and import of
goods in accordance with the act for goods and sufficient reason.

Penalty for contravention – where any person make or attempt to make any import and
export in contravention of any provision of this act or any rules or order made. Under this act
or the policy, he shall be liable to a penalty not exceeding one thousand rupees or five times
the value of goods involved where ever is more.

ECONOMIC INTIGRATION

After World War II the economic power in an important as the political and military power.
World War II brought in a number of changes in the order. It sounded the death of several
emperies including the large British empires it establish the performance of the united state
of America as an economic and political might.
There are two main groups – the free world and socialist and world for over four decade after
the war there were two super powers the USA and USSR. Communist china also merged
subsequently as a power to recon with countries grouped according by for political and
economic purpose.

Meaning – Economic integration is the unification of economic of two or more nation into an
international economic entity levels.

Forms of economic grouping or integration

FTA – free trade area – FTA consist of a number of countries with in which trade is free in the
serve that custom duties are not at the frontiers on trade but in practice it is limited to
specified product with specified exception. Exception are the specific sector which the nation
or government to protect from international competition trade barrier on intra trade are
removed each country maintain it separate custom barrier on trading wit non member
countries. This problem managing the FTA.

A and B countries (member of FTA)

Export government Export government

Import duty 20% Import duty 30%

C
Expertise in C faced with situation would attempt to shift the government to A and once the
goods are cleared through custom resift the consignment to B provided the rerouting cost are
lower then the differential in custom duties.
To avoided this problem. FTA introduces the system of rule of origin where by only goods
originating wholly or partially in the member countries eligible for free trade.

Ex – EFTA – European free trade area.

Custom union – like FTA there are two internal tariff barriers on intra union trade. The
member countries give up there individual tariff schedules and react a common internal tariff
barrier for trade will non union member.
A custom union is like a single nation not only in internal trade that also in presenting
common front to the rest of the world with its common internal tariff.

- A stronger eco integration

- Elimination of administration problem of a free trade area.

COMMON MARKET

In addition to the characteristic of a custom union, a common market also allows free
movement of labour and capital with in the member countries. A common market gives
beyond a custom union because it seeks to a standardize all government regulation effective
trade.

Example – central America common market consisting of Costa Rica, El Salvador, Guatemala,
Honduras, ad Nicaragua.

ECONOMIC UNION

This represents the final stage of eco integration the member countries not only allow free
trade and movement of capital and labour but parmonsation one firmly difficult to achieve.

1. Unequal stage of development of member.

2. National saver eighty.

In other words most of the eco parties of member’s nations are same.
 IMF

Even before the Second World War ended, the allied countries began to devote serious
thought and effort in developing a system that would end the chaotic condition providing the
way to achieve the orderly conduct of international trade, and promote goods monetary
relations among the countries.

(A) Help to remove the restriction on trade.

(B) Ensure free convertibility.

In June 1944 many countries met at Bretton wood. The agreement reached at this meeting
provided for establishing two constitutions which come to be known as Bretton wood twins
IMF, IBRD (World Bank).

OBJECTIVE

- To promote international monetary.

- To facilitate the expansion and balance growth of international trade.
- To promote exchange stability.
- Less on the degree of desexualizes business in the international board of members.

Structure

The IMF is an autonomous body with 184 countries as members. It is affiliated to the UNO.
The highest authority of the IMF is the board of governors I which each members country
respected by the governor. The board of governor is the policy making body. Its meets
normally every year.

The international monetary and financial committee consists of 24 governesses representing

group of countries. Its meet twice a year to advice the IMF on the functioning of the
international monetary system.
The administrative responsibility and detailed functioning of
the IMF are vested with executive board.

Resources

The main resources for IMF are the member quotas. Quotas represent the subscription by a
member country to the capital fund of IMF. Quotas are ferried for each country ferried
broadly on its Eco size.
The quotas become the base for drawing rights 25% of a country quota should be paid in the
form of gold or US dollars and 75% in country own currency.
Special drawing rights

Need to increase the international liquidity means resources for settlement of international
debt, was felt and after much thought on the subject. It’s resulted in the introduction of SDR.

Nature of SDR

Entitlement granted to member – countries enabling them to draw from the IMF apart from
their quotas. The arrangement is similar to a bank granted credit limit to it customer.
When the countries experience need for foreign exchange it can sell SDR to another country
and get foreign exchange.

Utilization

- Originally SDR were to be used for meeting BOP defines.

- Settlement of international transaction.

International bank for reconstruction and developing.

Also know as World Bank, the IBRD is an off shout of the Bretton wood conference of 1944. It
main function to provide long term loan to it member countries for their construction and
development.
In the initial days the World Bank concentrated on reconstruction of war shattered European
countries later the bank shifted its focus and development of the back ward countries began
to receive prime importation.

Function

To assist in reconstruction and development of the member countries by facilitating

investment of capital for productive purpose.

To promote foreign investment

To promote the long range growth of international trade and the maintenance of equilibrium
in B.O.P.

Resources

Resources of the bank consist of the capital and borrowing.

(A) 2% is payable by the member country in gold or US $.

(B) 18% members own.
(C) 80% is kept in reserve to be paid by the member wheedled.
International Finance Corporation

The IBRD loans are available only to member country government or with the guarantee of
member – country government was establishing in 1956 with the specific purpose of
borrowing private enterprise.

International development association

It is affiliate of the IBRD. It’s was established to provide soft loan to economically sound
project which was social capital such as construction of roods and bridge etc.

INTERNATIONAL PRODUCTION MANAGEMENT

The traditional theory of location suggest that if the inputs account for a large share in the
final product or if the raw material carries heavy weight but losses its weight during the
manufacturing process, the manufacturing unit should be located near the source of input.

On the other hand if the input does not matter very much from the viewpoint of the cost or
transportation the manufacturing unit should be locate near the market. The decision
regarding the location of an international firm is complex due.

1. Firm is spread over a far wider geographic area.

2. They source the input globally.
3. Their market is spread over different countries.

An international firm may have various alternatives regarding the location of manufacturing
activities.

1. Centralization of the manufacturing operation at the parent unit or any one of the
subsidecious. It will help reap with the several of sale or location specific advantage in
form of climatic, culture and governmental factor. It is a process involving movement of
inputs from supplier to the firm and of the finished product from the firm to the
market.
2. Decentralization of manufacturing operation at different subsidiary and distribution of
the product in respective area.
3. Location of the cliff part of the manufacturing process of different subsidiary under a
vertically integrate from work.
Vertical integration mat be of two type

1. The different unit is linked in chain like segment.

2. Different unit manufacturing spare and component import the output to a particular
unit and in assembling than it is common that the spare part of a product are produced
in a courtly with abdomen of capital and assembly port is located in the labor supplier
country.

Factor behind detection of location

During (1980) mention firm factor behind the selection of a location.

1. Size and growth of market and the degree of competition in the market.
2. Availability of raw material and labor force regard skill.
3. State of logistic and the degree of currency fluctuation.
4. Political and legal environment.
5. Cultural environment.

In fact the purpose of considering there factors.

1. Minimize cost.
2. Maintain quality.
3. Flexibility in design the product and in the volume of production.

The number of US company shift component necessary for the assembly of the product to
maquiladore synonyms for the export processing zone the component are assembled there
and shifted back USA. The assembly of many products of US companies also is done East Asian
countries such as Taiwan, South Korea.

Selecting a location

Some are favorable factor and non favorable factor from this point, manager should first
assign weight age and different factor depending upon the firm requirement and then use a
machine showing favorable factor/location on the y-axis and on favorable factor/location on
x-axis. The most suitable location would be the one that has the highest ratio of favorable
point/ unfavorable point. This is the easiest way to select a location.

Management of Inventory
 1. Deviation from the economic order quantity
The economic order quantity is the optimal size of inventory that a firm orders at particular
point of time.

- Particular quantity of order, where the sum of the ordering cost and the carrying cost of
inventory is the minimum.
Increase in the size of order the member of order in a particular period decrease – ordering
cost reduce – carrying cost increase.

Thus to arrive at the EOQ, the firm has to the off between the carrying cost and ordering cost.
The off is complete where the sum of these two cost minimize.
The domestic firm to these norms but international firm normally passes a bigger stock than
EOQ which is known as stock pilling.

Why stock pilling?

- Political risk
- Exchange rate risk

Shifting of reorder point:-

The general principle is that the next lot of inventory is to be ordered when the investing
stock comes down to the sum of safety level of stock and the lead time.

Reorder point = safety level of stock + lead time.

Ex – investing stock based percentage rate = 30 days

Safety level of stock = 5 days

Lead time = 6 days
The firm blocks the order for the next lot only after nineteen days of the arrival of the
investing stock.

In case of international firm the lead time is large as the different unit is located at the
different part of the globe. Even after goods reach the part there are a lot of custom
formalities because of these entire factor the re order point in case of international firm his
much earlier.

Just in time system

Japanese firm and now many western firms too have pated for the just in time system of
inventory right. In just in time system inputs reach the manufacturing location just when they
required. Why?
Carrying cost and ordering cost is minimum.

Sourcing of input:-

1. Importation
2. Establishment of international procurement/ office (IPOs).
3. Sourcing through direct investment.

Advantage of integration:-

The source of region is pooled: in other words the factor of production of the countries is
combined. The pooling increase affiance of out put or productivity due to large scale
economic.

Ex – suppose that an item cost Rs – 100 units in India, Bangladesh can produce the same item
at say to but India leaves an impact duty as Rs – 30 on it with the result that Bangladesh
connect complete in India for that item. If India and Bangladesh form a custom union and
oblige at Rs – 80 and the production would be centered in more efficient country –
Bangladesh - this is called trade mark.

Economic of scale:-

The economic integration result in a large market and output for the member countries
product hence there would be economic of scale. It may be argue that the economic of scale
could be obtain by a country even by an impacting but exporting countries may be inhabited
in importing its product by imposition of trade barrier by importing countries but in trading
firm of member country can go for trade.