International Economics Notes PDF

International Economics Introduction The subject ‘International Economics’ evolved from a simple theory of international trade was formulated to answer a few basic questions. The subject first originated in Western Europe on account of increasing importance of foreign trade in that part of the world...

International Economics Introduction The subject ‘International Economics’ evolved from a simple theory of international trade was formulated to answer a few basic questions. The subject first originated in Western Europe on account of increasing importance of foreign trade in that part of the world. The contributions of classical economists like Adam Smith, David Haberler Ricardo, F.W. Taussig, Haberler, J.S.Mill and Bela Balassa shaped the subject matter of International Economics. Meaning of International Economics International Economics is that branch of economics which is concerned with the exchange of goods and services between two or more countries. Hence the subject matter is mainly related to foreign trade. In other words, International Economics is a specialized field of Economics which deals with the economic interdependence among countries and studies the effects of such interdependence and the factors that affect it. International Economics studies the entire range of international economic transactions that consist of not only trade in goods and services but also capital flows, technology transfer, the rate of exchange, balance of payments, and issues relating to tariffs, protection, free trade, investment flows, role of fiscal and monetary policies pursued by individual countries. Subject Matter of International Economics The subject matter of International Economics includes large number of segments which are classified into the following parts. Subject Matter of International Economics The subject matter of International Economics includes large number of segments which are classified into the following parts. 1. Pure Theory of Trade This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments. 2. Policy Issues Under this part, policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in the balance of payments etc. are covered. 3. International Cartels and Trade Blocs This part deals with the economic integration in the form of international cartels, customs unions, monetary unions, trade blocs, economic unions and the like. It also discusses the operation of Multi-National Corporations (MNCs). 4. International Financial and Trade Regulatory Institutions The financial institutions like International Monetary Fund IMF, IBRD, WTO etc. which influence international economic transactions and relations shall also be the part of international economics. Meaning of Trade Trade is one of the powerful forces of economic integration. The term ‘trade’ means exchange of goods, wares or merchandise among people. Trade is of two types. They are: a) Internal Trade and b) International Trade. 1. Internal Trade It refers to the exchange of goods and services within the political and geographical boundaries of a nation. It is a trade within a country. This is also known as ‘domestic trade’ or ‘home trade’ or ‘intra-regional trade’. 2. International Trade It refers to the trade or exchange of goods and services between two or more countries. In other words, it is a trade among different countries or trade across political boundaries. It is also called as ‘external trade’ or ‘foreign trade’ or ‘inter-regional trade’. Internal Trade 1. Trade takes place between different individuals and firms within the same nation. 2. Labour and capital move freely from one region to another. 3. There will be free flow of goods and services since there are no restrictions. 4. There is only one common currency. 5. The physical and geographical conditions of a country are more or less similar. 6. Trade and financial regulations are more or less the same. 7. There is no difference in political affiliations, customs and habits of the people and government policies. International Trade 1. Trade takes place between different individuals and firms in different countries. 2. Labour and capital do not move easily from one nation to another. 3. Goods and services do not easily move from one country to another since there are a number of restrictions like tariff and quota. 4. There are different currencies. 5. There are differences in physical and geographical conditions of the two countries. 6. Trade and financial regulations such as interest rate, trade laws differ between countries. 7. Differences are pronounced in political affiliations, habits and customs of the people and government policies. Theories of International Trade 1. The Classical Theory of International Trade Introduction Adam Smith (1776) developed the theory of absolute cost advantage. But it was David Ricardo who formulated as an explicit and precise theory, namely, the theory of comparative cost advantage, which was later improved and refined by the economists like J.S Mill, Cairnes, Bastable,Taussig and Haberler. We shall first discuss the Adam Smith’s theory of absolute cost advantage. Classical Trade Theories Mercantilism (pre - 16th century) Takes an us-versus - them view of trade Other country's gain is our country's loss Free Trade theories Absolute Advantage (Adam Smith,1776) Comparative Advantage (David Ricardo, 1817) Specialization of production and free flow of goods benefit all trading partner's economies Free Trade refined Factor - proporations (Heckscher - Ohlin, 1919) International Product life (Ray Vernon, 1966) 2. Adam Smith’s Theory of Absolute Cost Advantage Adam Smith argued that all nations can be benefitted when there is free trade and specialisation in terms of their absolute cost advantage. The Theory According to Adam Smith, the basis of international trade was absolute cost advantage. Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage over the other country which in turn produces another commodity at an absolute cost advantage over the first country. Assumptions 1. There are two countries and two commodities (2 x 2 model). 2. Labour is the only factor of production. 3. Labour units are homogeneous. 4. The cost or price of a commodity is measured by the amount of labour required to produce it. 5. There is no transport cost. Illustration Absolute cost advantage theory can be illustrated with the help of the following example. Absolute Cost Advantage From the illustration, it is clear that India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India. Therefore, India should specialize in the production of wheat and import cloth from China. China should specialize in the production of cloth and import wheat from India. This kind of trade would be mutually beneficial to both India and China. 3. Ricardo’s Theory of Comparative Cost Advantage David Ricardo , the British economist in his ‘Principles of Political Economy and Taxation’ published in 1817, formulated a systematic theory called ‘Comparative Cost Theory’. Later it was refined by J.S Mill, Marshall, Taussig and others. Ricardo demonstrates that the basis of trade is the comparative cost difference. In other words, trade can take place even if the absolute cost difference is absent but there is comparative cost difference. According to Ricardo, a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize in the production and export of those goods which are relatively more advantageous. Similarly, even when a country has absolute disadvantage in production of both goods, the country would specialize in production and export of the commodity in which it is relatively less disadvantageous. Assumptions 1. There are only two nations and two commodities (2x2 model) 2. Labour is the only element of cost of production. 3. All labourers are of equal efficiency. 4. Labour is perfectly mobile within the country but perfectly immobile between countries. 5. Production is subject to the law of constant returns. 6. Foreign trade is free from all barriers. 7. No change in technology. 8. No transport cost. 9. Perfect competition. 10. Full employment. 11. No government intervention. Illustration Ricardo’s theory of comparative cost can be explained with a hypothetical example of production costs of cloth and wheat in America and India. Comparative Cost Advantage (Units of labour required to produce one unit) It is evident from the example that India has an absolute advantage in production of both cloth and wheat. However, India should concentrate on the production of wheat in which she enjoys a comparative cost advantage. (80/120 < 90/100). For America the comparative cost disadvantage is lesser in cloth production. Hence America will specialize in the production of cloth and export it to India in exchange for wheat. (Any exchange ratio between 0.88 units and 1.2 units of cloth against one unit of wheat represents gain for both the nations). With trade, India can get 1 unit of cloth and 1 unit of wheat by using its 160 labour units. In the absence of trade, for getting this benefit, India will have to use 170 units of labour. America also gains from this trade. With trade, America can get 1 unit of cloth and one unit of wheat by using its 200 units of labour. Otherwise, America will have to use 220 units of labour for getting 1 unit of cloth and 1 unit of wheat. Criticisms 1. Labour cost is a small portion of the total cost. Hence, theory based on labour cost is unrealistic. 2. Labourers in different countries are not equal in efficiency. Foreign Direct Investment (FDI) and Trade FDI is an important factor in global economy. Foreign trade and FDI are closely related. In developing countries like India, FDI in the natural resource sector, including plantations, increases trade volume. Foreign production by FDI is useful to substitute foreign trade. FDI is also influenced by the income generated from the trade and regional integration schemes. FDI is helpful to accelerate the economic growth by facilitating essential imports needed for carrying out development programmers like capital goods, technical know-how, raw materials and other inputs and even scarce consumer goods. When the export earnings of a country are not sufficient to finance for imports, FDI may be required to fill the trade gap. FDI is encouraged by the factors such as foreign exchange shortage, desire to create employment and acceleration of the pace of economic development. Many developing countries strongly prefer foreign investment to imports. However, the real impact of FDI on different sections of an economy (say India) may differ. It could be a boon for some as well as bane for others. This may be discussed in the class – room. Large demand for USD, generated by IMF and World Bank policies (FUND – BANK POLICIES), help the USD to gain value continuously. This is one of the hidden agenda of Fund – Bank policies. 1 Meaning of FDI FDI means an investment in a foreign country that involves some degree of control and participation in management. It corresponds to the investment made by a multinational enterprise in a foreign country. It is different from portfolio investment, which is primarily motivated by short term profit and it does not seek management control. Foreign Portfolio Investment (FPI) means the entry of funds into a nation where foreigners deposit money in a nation’s bank or make purchase in the stock and bond markets, sometimes for speculation. FPI is part of capital account of Bop. 2. Objectives of FDI FDI has the following objectives. 1. Sales Expansion 2. Acquisition of resources 3. Diversification 4. Minimization of competitive risk. Foreign Institutional Investment (FII) is an investment in hedge funds, insurance companies, pension funds and mutual funds. Foreign institutional investment is a common term in the financial sector of India. For example, a mutual fund in the United States can make investment in an India- based company. 3. Advantages of FDI Foreign investment mostly takes the form of direct investment. Hence, we deal here with the foreign direct investment. The important advantages of foreign direct investment are the following: 1. FDI may help to increase the investment level and thereby the income and employment in the host country. 2. Direct foreign investment may facilitate transfer of technology to the recipient country. 3. FDI may also bring revenue to the government of host country when it taxes profits of foreign firms or gets royalties from concession agreements. 4. A part of profit from direct foreign investment may be ploughed back into the expansion, modernization or development of related industries. 5. It may kindle a managerial revolution in the recipient country through professional management and sophisticated management techniques. 6. Foreign capital may enable the country to increase its exports and reduce import requirements. And thereby ease BoP disequilibrium. 7. Foreign investment may also help increase competition and break domestic monopolies. 8. If FDI adds more value to output in the recipient country than the return on capital from foreign investment, then the social returns are greater than the private returns on foreign investment. 9. By bringing capital and foreign exchange FDI may help in filling the savings gap and the foreign exchange gap in order to achieve the goal of national economic development. 10. Foreign investments may stimulate domestic enterprise to invest in ancillary industries in collaboration with foreign enterprises. 11. Lastly, FDI flowing into a developing country may also encourage its entrepreneurs to invest in the other LDCs. Firms in India have started investing in Nepal, Uganda, Ethiopia and Kenya and other LDCs while they are still borrowing from abroad. Larger FDI to India comes from a small country (Mauritius). 4. Disadvantages of FDI The following criticisms are leveled against foreign direct investment. 1. Private foreign capital tends to flow to the high profit areas rather than to the priority sectors. 2. The technologies brought in by the foreign investor may not be appropriate to the consumption needs, size of the domestic market, resource availabilities, stage of development of the economy, etc. 3. Foreign investment, sometimes, have unfavorable effect on the Balance of Payments of a country because when the drain of foreign exchange by way of royalty, dividend, etc. is more than the investment made by the foreign concerns. 4. Foreign capital sometimes interferes in the national politics. 5. Foreign investors sometimes engage in unfair and unethical trade practices. 6. Foreign investment in some cases leads to the destruction or weakening of small and medium enterprises. 7. Sometimes foreign investment can result in the dangerous situation of minimizing / eliminating competition and the creation of monopolies or oligopolistic structures. 8. Often, there are several costs associated with encouraging foreign investment. 5. FDI in India The early 1990s witnessed reforms in the economic policy. This helped to open up Indian markets to FDI. FDI in India has increased over the years. In India, FDI has been advantageous in terms of free flow of capital, improved technology, management expertise and access to international markets. The major sectors benefited from FDI in India are: i. financial sector (banking and non-banking) ii. insurance iii. telecommunication iv. hospitality and tourism v. pharmaceuticals and vi. software and information technology. FDI is not permitted in the industrial sectors like i. Arms and ammunition ii. atomic energy, iii. railways, iv. coal and lignite and v. mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper etc., FDI inflow in India has increased from $ 97 million in 1990-91 to $5,535 million in 2004-2005. It amounted to $32,955 million in 2011-2012. UNCTAD’s World Investment Report 2018 reveals that FDI to India declined to $40 billion in 2017 from $44 billion in 2016. International Economic Organizations Introduction In the previous chapter, we have studied the basis of trade, gains from trade, terms of trade, Bop and foreign exchange. When trade takes place among countries, the developed countries always stand to gain and the LDCs suffer from adverse terms of trade as well as balance of payments and they affect their exchange rates. The Great Depression of 1930s and World War II led to purely nationalistic policies in which almost every country-imposed trade restriction, exchange controls and exchange depreciation so as to boost exports and to restrict imports considerably. The Brettonwoods Conference proposed IMF, World Bank and International Trade Organisation (ITO) in 1944. The IMF and World Bank were started in 1945. Instead of ITO, an interim arrangement was made and named GATT (General Agreement on Tariff and Trade). The GATT was transformed into WTO (World Trade Organisation) from 1995. The IMF, IBRD and WTO headquarters are presented in the table. International Monetary Fund The purpose of International Monetary Fund is to secure and promote economic and financial cooperation among member countries. The IMF was established to assist the member nations to tide over the Balance of Payments disequilibrium in the short term. At present, the IMF has 189 member countries with Republic of Nauru joined in 2016. 1. Objectives of IMF i. To promote international monetary cooperation among the member nations. ii. To facilitate faster and balanced growth of international trade. iii. To ensure exchange rate stability by curbing competitive exchange depreciations. iv. To eliminate or reduce exchange controls imposed by member nations. v. To establish multilateral trade and payment system in respect of current transactions instead of bilateral trade agreements. vi. To promote the flow of capital from developed to developing nations. vii. To solve the problem of international liquidity. 2. Functions Of IMF i) Bringing stability in exchange rate The IMF is maintaining exchange rate stability and emphasizing devaluation criteria, restricting members to go in for multiple exchange rates and also to buy or sell gold at prices other than declared par value. ii) Correcting BOP Disequilibrium The IMF is helping the member countries in eliminating or minimizing the short-period disequilibrium in their balance of payments either by selling or lending foreign currencies to the member nation. iii) Determining par values IMF enforces the system of determination of par values of the currencies of the member countries. According to the Articles of Agreement of the IMF, every member nation should declare the par value of its currency in terms of gold or US dollars. Under this article, IMF ensures smooth working of the international monetary system, in favor of some developed countries. iv) Balancing demand and supply of currencies IMF is entrusted with the important function of maintaining balance between demand and supply of various currencies. The Fund (IMF) can declare a currency as scarce currency which is in great demand and can increase its supply by borrowing it from the country concerned or by purchasing the same currency in exchange of gold. v) Reducing trade restrictions The Fund also aims at reducing tariffs and other trade barriers imposed by the member countries with the purpose of removing restrictions on remittance of funds or to avoid discriminating practices. vi) Providing credit facilities IMF is providing different borrowing and credit facilities with the objective of helping the member countries. These credit facilities offered by it include basic credit facility, extended fund facility for a period of three years, compensatory financing facility and structural adjustment facility. The functions of the IMF are grouped under three heads. 1. Financial – Assistance to correct short and medium term deficit in BOP; 2. Regulatory – Code of conduct and 3. Consultative - Counseling and technical consultancy. 3. Facilities offered by IMF The Fund has created several new credit facilities for its members. Chief among them are: (i) Basic Credit Facility: The IMF provides financial assistance to its member nations to overcome their temporary difficulties relating to balance of payments. A member nation can purchase from the Fund other currencies or SDRs, in exchange for its own currency, to finance payment deficits. The loan is repaid when the member repurchases its own currency with other currencies or SDRs. A member can unconditionally borrow from the Fund in a year equal to 25% of its quota. This unconditional borrowing right is called the reserve tranche. Special Drawing Rights (SDRs) The Fund has succeeded in establishing a scheme of Special Drawing Rights (SDRs) which is otherwise called ‘Paper Gold’. They are a form of international reserves created by the IMF in 1969 to solve the problem of international liquidity. They are allocated to the IMF members in proportion to their Fund quotas. SDRs are used as a means of payment by Fund members to meet balance of payments deficits and their total reserve position with the Fund. Thus SDRs act both as an international unit of account and a means of payment. All transactions by the Fund in the form of loans and their repayments, its liquid reserves, its capital, etc., are expressed in the SDR. The achievements of the fund can be summed up in the words of Haien that ‘Fund is like an International Reserve Bank.’ (ii) Extended Fund Facility Under this arrangement, the IMF provides additional borrowing facility up to 140% of the member’s quota, over and above the basic credit facility. The extended facility is limited for a period up to 3 years and the rate of interest is low. (iii) Compensatory Financing Facility In 1963, IMF established compensatory financing facility to provide additional financial assistance to the member countries, particularly primary producing countries facing shortfall in export earnings. In 1981, the coverage of the compensatory financing facility was extended to payment problem caused by the fluctuations in the cost of cereal inputs. (iv) Buffer Stock Facility The buffer stock financing facility was started in 1969. The purpose of this scheme was to help the primary goods (food grains) producing countries to finance contributions to buffer stock arrangements for the stabilization of primary product prices. (v) Supplementary Financing Facility Under the supplementary financing facility, the IMF makes temporary arrangements to provide supplementary financial assistance to member countries facing payments problems relating to their present quota sizes. (vi) Structural Adjustment Facility The IMF established Structural Adjustment Facility (SAF) in March 1986 to provide additional balance of payments assistance on concessional terms to the poorer member countries. In December 1987, the Enhanced Structural Adjustment Facility (ESAF) was set up to augment the availability of concessional resources to low income countries. The purpose of SAF and ESAF is to force the poor countries to undertake strong macroeconomic and structural programmers to improve their balance of payments positions and promote economic growth. 4. Achievements Of IMF The main achievements of International Monetary Fund are as follows: i) Establishment of monetary reserve fund The Fund has played a major role in achieving the sizeable stock of the national currencies of different countries. To meet the foreign exchange requirements of the member nations, IMF uses its stock to help the member nations to meet foreign exchange requirements. ii) Monetary discipline and cooperation The IMF has shown keen interest in maintaining monetary discipline and cooperation among the member countries. To achieve this objective, it has provided assistance only to those countries which make sincere efforts to solve their problems. iii) Special interest in the problems of UDCs The notable success of the Fund is the maintenance of special interest in the acute problems of developing countries. The Fund has provided financial assistance to solve the balance of payment problem of UDCs. However, many UDCs continue to be UDCs, while the developed countries have achieved substantial growth. 5. India and IMF Till 1970, India stood fifth in the Fund and it had the power to appoint a permanent Executive Director. India has been one of the major beneficiaries of the Fund assistance. It has been getting aid from the various Fund Agencies from time to time and has been regularly repaying its debt. India’s current quota in the IMF is SDRs (Special Drawing Rights) 5,821.5 million, making it the 13th largest quota holding country at IMF with shareholdings of 2.44%. Besides receiving loans to meet deficit in its balance of payments, India has benefited in certain other respects from the membership of the Fund. International Bank For Reconstruction And Development (IBRD) or World Bank The International Bank for Reconstruction and Development (IBRD), otherwise called the World Bank(WB) was established in 1945 under the Bretton Woods Conference in 1944. The purpose is to bring about a smooth transition from war-time to peace-time economy. It is known as a sister institution along with the International Monetary Fund. The membership in International Monetary Fund is a prerequisite to become a member of IBRD. The IBRD was established to provide long term financial assistance to member countries. 1. Objectives of IBRD Objectives of the World Bank 1. Reconstruction and Development 2. Encouragement to Capital Investment 3. Encouragement to International Trade 4. Establishment of Peace-time Economy 5. Environmental Protection The following are the objectives of the World Bank: 1. To help member countries for economic reconstruction and development. 2. To stimulate long-run capital investment for restoring Balance of Payments (BoP) equilibrium and thereby ensure balanced development of international trade among the member nations. 3. To provide guarantees for loans meant for infrastructural and industrial projects of member nations. 4. To help war ravaged economies transform into peace economies. 5. To supplement foreign private investment by direct loans out of its own funds for productive purposes. World Bank’s Lending Procedure: The Bank advances loans to members in three ways i) Loans out of its own fund, ii) Loans out of borrowed capital and iii) Loans through Bank’s guarantee. The Bank(WB) has changed its development loan strategy and lays more emphasis on financing schemes which directly influence the well being of poor masses of the member countries, especially the developing countries. The amount of agricultural loans has increased more rapidly than in any other sector. The bank now also takes interest in the activities of the development of rural areas such as: a) spread of education among the rural people b) development of roads in rural areas and c) electrification of the villages. 2. Functions of IBRD The World Bank performs the major role of providing loans for development works to member countries, especially to underdeveloped countries. The World Bank provides long-term loans for various development projects. Article 1 of the Agreement states the functions performed by the world bank as follows. 1. Investment for productive purposes The World Bank performs the function of assisting in the reconstruction and development of territories of member nations through facility of investment for productive purposes. It also encourages the development of productive facilities and resources in less developed countries. 2.Balanced growth of international trade Promoting the long range balanced growth of trade at international level and the maintaining equilibrium in BOPs of member nations by encouraging international investment. 3. Provision of loans and guarantees Arranging the loans or providing guarantees on loans by various other channels so as to execute important projects. 4.Promotion of foreign private investment The promotion of private foreign investment by means of guarantees on loans and other investment made by private investors. The Bank supplements private investment by providing finance for productive purpose out of its own resources or from borrowed funds. 5. Technical services The World Bank facilitates different kinds of technical services to the member countries through Staff College and experts. 3. Achievements of World Bank The World Bank is said to be successful in achieving its primary objective of reconstruction and development of war ravaged nations. It helped greatly in the reconstruction of Europe after the World War II. It has been providing the developed and developing countries the same treatment in the process of growth. i) It is noted that the Bank’s membership has increased from the initial number of 30 countries to 68 countries in 1960 and to 151 countries in 1988. The IBRD has 189 member countries. ii) The Bank grants medium and long-term loans (i.e., payable over a period of 15-20 years) for reconstruction and development purposes to the member countries. The actual term of a loan depends upon the estimated useful life of the equipment or plant financed. iii) Initially the World Bank’s loans were mainly directed at the European countries for financing their programmers of reconstruction. Later it changed its development loan strategy and lays more emphasis of financing schemes for the poor masses of the developing countries. iv) The World Bank grants loans to member countries only for productive purposes particularly for agriculture, irrigation, power and transport. In other words, the Bank strengthens infrastructure needed for further development. v) The International Development Association (IDA), the Soft Loan Window of the Bank provides loans to UDCs at very low rate of interest. However, the economic inequality among the member- countries goes on increasing. Many African countries are yet to improve their economic status. 4. India and World Bank: The name “International Bank for Reconstruction and Development” was first suggested by India to the drafting committee. Since then the two have developed close relationship with each other from framing the policies of economic development in India to financing the implementation of these policies. The World Bank has given large financial assistance to India for economic development. Special mention may be made of the assistance World Bank has given to India in the development of infrastructure such as electric power, transport, communication, irrigation projects and steel industry. The World Bank has assisted a number of projects in India. The IFC has identified five priority areas, namely, capital market development, direct foreign investment, access to foreign markets, equity investments in new and expanding companies and infrastructure. The World Bank has also assisted India in accelerating programmers of poverty alleviation and economic development. Until China became the member of World Bank in 1980, India was the largest beneficiary of the World Bank assistance. INDIA & IBRD A Sustainable Relationship India is a member of four of the five constituents of the World Bank Group. · International Bank for Reconstruction and Development (IBRD, 1945) · International Development Association (IDA, 1960) · International Finance Corporation (IFC, 1956) · Multilateral Investment Guarantee Agency (MIGA, 1958) · International Centre for Settlement of Investment Disputes (ICSID, 1966) [India is not its member] India is one of the founder members of IBRD, IDA and IFC. World Bank assistance in India started from 1948 when a funding for Agricultural Machinery Project was approved. First investment of IFC in India took place in 1959 with US$ 1.5 million. India became a member of MIGA in January 1994. India has an Executive Director, in the Board of Directors of IBRD / IFC / IDA/ MIGA. ===================================================================== ================ World Trade Organization The WTO was established in 1995 as a successor to the GATT. It is a new international organization set up as a permanent body and is designed to play the role of watch dog in the spheres of trade in goods and services, foreign investment and intellectual property rights. The Dunkel Draft, formulated by Arthur Dunkel, its Secretary General became the base for WTO. Every two years, the member countries’ Commerce Ministers Conference are being organized to discuss and settle the important souls and trade related matters. The first WTO conference was held at Singapore in 1996. The recent conference was held at Argentina in 2017. It was planned to organize 12th ministerial conference at Kazakhstan in 2020. World Trade Centre WTC headquarters located at New York, USA. It featured the landmark Twin Towers which was established on 4th April 1973. Later it was destroyed on 11th September 2001 by the craft attack. It brings together businesses involved in international trade from around the globe. 1. Objectives of WTO The basic aim is to expand international trade and bring about economic prosperity by liberalizing trade restrictions. i. To ensure reduction of tariff and other barriers. ii. To eliminate discrimination in trade. iii. To facilitate higher standard of living. iv. To facilitate optimal use of world’s resources. v. To enable the LDCs to secure fair share in the growth of international trade. vi. To ensure linkages between trade policies, environmental policies and sustainable development. WTO Agreements Agreement on Trade Related Intellectual Property Rights (TRIPs) Intellectual Property Rights include copy right, trade marks, patents, geographical indications, trade secrets, industrial designs, etc. TRIPS Agreement provides for granting product patents instead of process patents. The period of protection will be 20 years for patents, 50 years for copy rights, 7 years for trade marks and 10 years for layout designs. As a result of TRIPS, the dependence of LDCs on advanced countries for seeds, drugs, fertilizers and pesticides has increased. Farmers are depending on the industrial firm for their seeds. Agreement on Trade Related Investment Measures (TRIMs) TRIMs are related to conditions or restrictions in respect of foreign investment in the country. It calls for introducing equal treatment for foreign companies on par with national companies. TRIMs were widely employed by developing countries. Restrictions on foreign investment on following grounds are to be removed. · No restriction on area of investment. · No binding on use of local material. · No mandatory exports. · No restriction on repatriation no proyalty , dividend and interest. · No trade balancing requirement, i.e. imports not exceeding exports. General Agreement on Trade in Services (GATS) GATS is the first multilateral set of rules covering trade in services like banking, insurance, transportation, communication, etc., All member countries are supposed to extend MFN (Most Favored Nation) status to all other countries without any discrimination. Transparency should be maintained by publishing all relevant laws and regulations over services. Phasing out of Multi Fibre Agreement (MFA) The multi fibre agreement governed the world trade in textiles and garments since 1974. It imposed quotas on export of textiles by developing nations to the developed countries. This quota system was to be phased out over a period of ten years. This was beneficial to India. Agreement on Agriculture (AoA) Agriculture was included for the first time under GATT. The important aspects of the agreement are Tariffication, Tariff cuts and Subsidy reduction. Dispute Settlement Body The Disputes Settlement Body puts an end to procedural delays. It is mandatory to settle any dispute within 18 months. The disputes are resolved through multilateral trading system. However, India has lost a huge export earnings because of the conditions laid out by the Body. 2. Functions of WTO The following are the functions of the WTO i) It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements. ii) It provides the forum for negotiations among its members, concerning their multilateral trade relations in matters relating to the agreements. iii) It administers the Understanding on Rules and Procedures governing the Settlement of Disputes. iv) It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy making. Major WTO Functions v Administering WTO trade agreements v Forum for trade negotiations v Handling trade disputes v Monitoring national trade policies v technical assistance and training for developing countries v Cooperation with other international organizations 3. Achievements of WTO The major achievements of WTO are as follows 1. Use of restrictive measures for Bop problems has declined markedly; 2. Services trade has been brought into the multilateral system and many countries, as in goods, are opening their markets for trade and investment; 3. The trade policy review mechanism has created a process of continuous monitoring of trade policy developments. WTO Ministerial Conferences WORLD TRADE ORGANIZATION 12. Kazakhstan - 2020 11. Buenos Aires, 10-13 December 2017 10. Nairobi, 15-18 December 2015 09. Bali, 3-6 December 2013 08. Geneva, 15-17 December 2011 07. Geneva, 30 November - 2 December 2009 06. Hong Kong, 13-18 December 2005 05. Cancún, 10-14 September 2003 04. Doha, 9-13 November 2001 03. Seattle, November 30 – December 3 1999 02. Geneva, 18-20 May 1998 01. Singapore, 9-13 December 1996 4. WTO and India India is the founding member of the WTO. India favors multilateral trade approach. It enjoys MFN status and allows the same status to all other trading partners. India benefited from WTO on following grounds: 1. By reducing tariff rates on raw materials, components and capital goods, it was able to import more for meeting her developmental requirements. India's imports go on increasing. 2. India gets market access in several countries without any bilateral trade agreements. 3. Advanced technology has been obtained at cheaper cost. 4. India is in a better position to get quick redressal from the trade disputes. 5. The Indian exporters benefited from wider market information.