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Regional Trade Blocks International business is significantly impacted by schemes of

Regional Trade Blocks International business is significantly impacted by schemes of economic integration of different nations. As a building block of economic development of the member countries. Foster economic cooperation between countries.

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Regional Trade Blocks International business is significantly impacted by schemes of

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  1. Regional Trade Blocks • International business is significantly impacted by schemes of • economic integration of different nations. • As a building block of economic development of the member • countries. • Foster economic cooperation between countries. • It may sometimes become a stumbling block for firms located outside • the block. 265 RTAs notified by NTO by 2003 Mexico was participating in 13 RTAs

  2. Forms of integration (RTA – Regional Trade Agreements) There are different levels of integration Free Trade among members Free Trade Area Free Trade among members Common External Commercial policy Customs Union Free Trade among members Common External Commercial policy Free factor Mobility within The market Common Market Free factor Mobility within The market Free Trade among members Common External Commercial policy Harmonized Economic Policies Economic Union Free Trade among members Common External Commercial policy Free factor Mobility within The market Harmonized Economic Policies Super national Organizational Structure Economic Integration

  3. Prominent Trade Blocks • European Union (EU) • European Economic Community, European Common Market or the • European Community (EC) is most successful regional economic • integration.

  4. Formed in 1958 (01 Jan, EEC) – Belgium, France, Germany (west), • Italy, Luxembourg & Netherlands by virtue of treaty of Rome, 1957. • It required every member to : • Eliminate tariffs, quotas & other barriers to intra community trade. • Devise a common internal tariff on their imports.

  5. Harmonize their taxation & monetary policies & social security • policies. • Adopt common policy on agriculture, transport & competition in • industry. • EEC was expanded in 1973 – UK, Denmark & Ireland Greece joined • In 1981. • Spain, Portugal – 01, Jan 1986 • Austria, Finland & Sweden – in 1990s

  6. 01 July, 1968 – Established Customs Union 1979 – European Monetary System 1992 – Integrated Market (common market) Population lager than US & GDP close to US & higher than Japan it was a huge market

  7. May 01, 2004 – Membership rise to 25 from 15 – Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovak Republic, Hungary, Slovenia, Cyprus & Malta Turkey Bulgaria & Romania – Joined in 2007 – 27

  8. 2007 (India) Import - Rs. 26.2 B Export - Rs. 29.4 B Indo EU Trade – Largest trade partner Exports Imports 2005-06 Rs. 107, 127 crores Rs. 101, 600crores 1990-91 Rs. 8951 crores Rs. 12, 680 crores 1970-71 Rs. 282 crores Rs. 320 crores

  9. 2. NAFTA (North American Free trade Agreement) US + Canada – 1988 + Mexico – 1994. Eliminate all tariffs moving among 3 member countries. It includes not only trade liberalization (most RTBs) but also labor & environmental standards.

  10. LAFTA - Latin American Free Trade Association • Argentina, Bolivia, Brazil, Chile, Paraguay, Peru, Uruguay & Venezuela • CACM – Central American Common Market • EI Salvador, Guatemala, Honduras, Nicaragua & Costa Rica

  11. ASEAN – Association of South East Asian Nations – 1967. • Indonesia, Malaysia, Philippines, Singapore, Thailand 1984 – • Brunei, Darussalam, 1995 : Vietnam • 1997 – Myanmar, Laos, 1999 - Cambodia

  12. GCC (Gulf Cooperation Council) 1981, Bahrain, Kuwait, Oman, • Qatar, Saudi Arabia & UAE • SAARC – South Asian Association of Regional Cooperation – • 1985 – Bangladesh, Bhutan, Indi Maldives, Nepal, Pakistan, Sri Lanka • Intra – regional trade of SAARC is insignificant

  13. SAPTA – SAARC preferential trading arrangement in 6th SAARC summit on 2nd April 1993 & came into effect from 7 Dec 1995. Transformed as SAFTA – South Asian Free Trade Area w.e.f. 01 July 2006.

  14. APEC (Asia Pacific Economic Cooperation) : 1989 • Australia, Brunei, Darussalam, Canada, Indonesia, Japan, Malaysia, • New Zealand, Philippines, The Republic of Korea, Singapore, Thailand • & US. • 1991 – China, Hong Kong, Taiwan, • 1993 – Mexico, Papua, New guinea • 1994 – Chile • 1998 – Peru, Russia & Vietnam

  15. Role of Regional & International Institutes • WTO – World Trade Organization (HQ – Geneva) • ITO was proposed to be set up along with IMF & world bank on the • recommendations of Bretton Woods conference • Instead of ITO GATT was established in 1947.

  16. GATT was biased in favor of developed countries • Developing countries insisted on establishing ITO • To solve this issue, the UN appointed a committee in 1963, the • committee recommended, as a via media, the UNCTAD ( UN • conference on Trade & development) in 1965 which could manage • some concessions for the developing countries.

  17. Uruguay Round (1986 – 1994) – outcome on Tariffs, non- tariff • measures, rules, services, IPR, Dispute settlement, creation of WTO. • Final act was signed at a meeting in Marrakesh, morocco in April • 1994.

  18. Objectives of WTO • Raising standard of living & incomes, promoting full employment • & optimum utilization of world resources. • Introduce sustainable development (Development & environment) • Developing & LDCs secure a better share of growth.

  19. Functions of WTO • Administrating & implementing multilateral agreements. • Acting as a forum for multilateral trade organizations • Seeking to resolve trade disputes • Cooperating with other international institutions involved in Global • economic policy – making .

  20. Maintaining trade related database. Members are to notify detailed • trade measures & statistics. • Acting as a management consultant for world trade • Technical assistance & training for developing countries.

  21. Principles of WTO Transparency Environment MFN Treatment Competition Principles Of WTO Treatment of LCDs National Treatment Rule based Trading system Free Trade Principal Dismantle Trade Barriers

  22. Structure of WTO Director General Secretariat Ministerial Conference General Council Trade Policy Review Board Dispute Settlement Committee on Trade & Development Committee on Budget Committee on BOP Council for Services Trade related Intellectual Property Rights council Council for Goods

  23. Key subject to WTO • Agriculture • Info Tech Agreement (ITA) • Health & Safety Measures • Multilateral Agreement on Investment • Helping LDCs & Food Importing Countries • Textiles & Clothing • TRIPS • TRIMS (Trade Related Investment Measures) • GATS (General Agreement on Trade in Services) • Dispute Settlement

  24. Dispute settlement body General Council Meeting as Trade Policy Review body. General Council as Dispute Body Appellate Body

  25. Dispute Settlement Panels • Committees on • Trade & Environment • Trade & Development • Sub – Committees • on LDCs • BOP • Regional Trade • Agreement • Budget, Finance • & Administrative • Council for • Services • Financial • Services • GATS rules Council for TRIPS • Council for • Trade in Goods • Committees on • Market access • Agriculture • Sanitary Measures • Tech. Barriers to • Trade • Anti- Dumping • Import Licensing • Customers Valuation • Safe Guards • TRIMS • General Agreement on Trade in Services

  26. International Monetary Fund ( IMF) IMF is an international organization that overseas the global financial system by following the macro – economic policies of its member countries, in particular those with an impact on exchange rates & the BOP.

  27. It also offers financial & technical assistance to its members, making It international lender of last resort. HQ Washington D.C. Established in 1944 Total Member Countries 185 • to stabilize exchange rates & • to surprise the reconstruction • of the world’s international • payment system.

  28. Countries contribute to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances. It provides aids & concessional loans (long term & short term) 3.49% for SDRs. Currency – Special Drawing Rights (SDRs) 25% in other currencies 75% in own currencies MD – Dominique Strauss- Kahn

  29. Responsibilities : • Foster Global Monetary Cooperation • Secure financial stability • Facilitate international trade • Promote high employment & sustainable • Economic growth & • Reduce poverty

  30. Structure Pmt. Seats US Germany UK France Japan China Russia Saudi Arabia Managing Director 16 members are elected for 2 yrs. 24 Member Executive Board Board of Governors all Nations are represented Governor (India) – P. Chidamaram Alternate Governor – Y.D. Reddy

  31. Data Dissemination In 1996 & 1997 IMF established standards to guide members in the dissemination to the public of their economic & Financial data. The primary objective is to encourage member countries to build a frame works to improve data quality & increase statistical capacity.

  32. Membership Qualification Any country may apply for membership to the IMF. First considered by IMF’s Executive Board E.B. submits a report to the BOG of IMF with

  33. Recommendations in the form “Membership Resolution” (It has amount of Quota in the IMF & form of payment of subscription) Board of Governors adopt “Membership Resolution” The applicant state take legal steps required under its own law to enable If to sign the IMF’s articles of agreement & fulfill obligations of IMF membership.

  34. Any member withdraw form IMF (very rare) (in 2007, Ecuador announced Hugo Chavez ) Member’s Quota determines the amount of its subscription, its voting weight, its access to IMF financing & allocation of SDRs.

  35. A member state can’t unilaterally increase its quota increases must • be approved by the Executive Board & are linked to formula • (country’s size, economy etc.) • In 2001, China was prevented from increasing its quota.

  36. Member’s Quota & Voting Powers CountryQuota%Vote% Millions of SDRsNumbers China 8090.1 3.72 81151 3.66 France 107385 4.94 107635 4.86 Germany 13008.2 5.99 130332 5.88 India 4158.2 1.91 41832 1.89 Japan 13312.8 6.13 133378 6.02 Saudi 6985.5 3.21 70105 3.17 Arabia UK 10738.5 4.94 107635 4.86 USA 37149.3 17.09 371743 16.79 Switzer 3458.5 1.59 34835 1.57 Land

  37. Assistance & Reforms : • Primary objective of IMF is to provide financial assistance to • countries that experience serious financial & economic difficulties • using funds deposited with the IMF from the Institute’s 185 countries • Member states with BOP problems may request loans

  38. In return countries are required to launch certain reforms. These are • required because countries with fixed exchange rate policies can • engage in fiscal, monetary & political practices may lead to the crisis • itself. • For example, nations with severe budget deficit, rampant inflation, • strict price controls, safer under – valued or over valued currencies • (fixed exchange rate)

  39. The structural adjustment programs are intended to ensure that IMF • is actually helping to prevent financial crises rather merely funding • financial recklessness.

  40. Financing Facilities Concessional & Non – concessional lending PRGF (poverty reduction & growth facility) 0.5 % rate of interest 5 ½ - 10 yrs. Standby Arrangements (SBA) Extended Fund Facility (EFF) Supplemental Reserve Facility (SRF) Contingent Credit Lines (SCL) Compensatory Financing Facility (CFF)

  41. Short term BOP problem, 12 – 18 months More serious BOP problem 3 yrs Very short term financing on large scale 3.5% rate & 1 – 1½ yrs. Sudden loss of market confidence – Emerging Market Economy 4. To prevent crisis 1½ - 3 ½ % up to 1 yr. 5. Sudden shortfall in export earnings or increased cost of cereal imports. no surcharge. 12 – 18 months.

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