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 outsidethe block.

265 RTAs notified by NTO by 2003Mexico was participating in 13 RTAs

Forms of integration (RTA – Regional Trade Agreements)

There are different levels of integration

Free Trade Area

Customs Union

Common Market

Economic Union

Economic Integration

Free Trade among members

Free Trade among members

Free Trade among members

Free Trade among members

Free Trade among members

Common External Commercial policy

Common External Commercial policy

Common External Commercial policy

Common External Commercial policy

Free factor Mobility withinThe market

Free factor Mobility withinThe market

Free factor Mobility withinThe market

HarmonizedEconomicPolicies

HarmonizedEconomicPolicies

Super national OrganizationalStructure

Prominent Trade Blocks

1.European Union (EU)

European Economic Community, European Common Market or the European Community (EC) is most successful regional economic integration.

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.

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 1986Austria, Finland & Sweden – in 1990s

01 July, 1968 – Established Customs Union 1979 – European Monetary System1992 – Integrated Market (common market) Population lager than US & GDP close to US & higher than Japan it wasa huge market

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

Indo EU Trade – Largest trade partner

Exports Imports

2005-06 Rs. 107, 127 crores Rs. 101, 600crores1990-91 Rs. 8951 crores Rs. 12, 680 crores1970-71 Rs. 282 crores Rs. 320 crores

2007 (India) Import - Rs. 26.2 B Export - Rs. 29.4 B

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.

3. LAFTA - Latin American Free Trade Association Argentina, Bolivia, Brazil, Chile, Paraguay, Peru, Uruguay & Venezuela

CACM – Central American Common MarketEI Salvador, Guatemala, Honduras, Nicaragua & Costa Rica

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

5. GCC (Gulf Cooperation Council) 1981, Bahrain, Kuwait, Oman,Qatar, Saudi Arabia & UAE

6. SAARC – South Asian Association of Regional Cooperation – 1985 – Bangladesh, Bhutan, Indi Maldives, Nepal, Pakistan, Sri LankaIntra – regional trade of SAARC is insignificant

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.

7. 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 guinea1994 – Chile1998 – Peru, Russia & Vietnam

Role of Regional & International Institutes

(a)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.

• 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.

• 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.

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.

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 .

• 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.

Principles of WTO

Transparency

MFN Treatment

National Treatment

Free Trade Principal Dismantle

Trade Barriers

Rule based Trading system

Treatment ofLCDs

Competition

Environment

Principles Of WTO

Structure of WTO

Ministerial Conference Director General

Secretariat

Dispute Settlement General Council

Trade PolicyReview Board

Committee onBudget

Committee on Trade & Development

Committee onBOP

Council for Services

Trade related Intellectual Property Rights council

Council for Goods

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

Dispute settlement bodyGeneral Council Meeting as

Trade Policy Review body.

General Council asDispute Body

Appellate Body

Dispute Settlement Panels

Committees on

•Trade & Environment•Trade & Development •Sub – Committees on LDCs•BOP•Regional Trade Agreement•Budget, Finance & Administrative

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

Council for Services

•Financial Services•GATS rules

Council forTRIPS

General Agreement on Trade in Services

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 & theBOP.

It also offers financial & technical assistance to its members, makingIt international lender of last resort.

HQ Washington D.C. Established in 1944

Total Member Countries185

• to stabilize exchange rates & • to surprise the reconstruction

of the world’s international payment system.

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

Responsibilities :

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

Structure

Pmt. SeatsUSGermanyUKFranceJapanChinaRussiaSaudi Arabia

Managing Director

24 Member Executive Board

Board of Governors allNations are represented

16 members areelected for 2 yrs.

Governor (India) – P. ChidamaramAlternate Governor – Y.D. Reddy

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 frameworks to improve data quality & increase statistical capacity.

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

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 enableIf to sign the IMF’s articles of agreement & fulfill obligations of IMF membership.

Any member withdraw form IMF (very rare) (in 2007, Ecuador announced Hugo Chavez )

Member’s Quota determines the amount of its subscription, itsvoting weight, its access to IMF financing & allocation of SDRs.

• 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.

Member’s Quota & Voting Powers

Country Quota % Vote %Millions of SDRs Numbers

China 8090.1 3.72 81151 3.66France 107385 4.94 107635 4.86Germany 13008.2 5.99 130332 5.88India 4158.2 1.91 41832 1.89Japan 13312.8 6.13 133378 6.02Saudi 6985.5 3.21 70105 3.17Arabia UK 10738.5 4.94 107635 4.86USA 37149.3 17.09 371743 16.79Switzer 3458.5 1.59 34835 1.57Land

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

• 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)

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

Financing Facilities

Concessional & Non – concessional lending

PRGF (poverty reduction& growth facility)

0.5 % rate of interest5 ½ - 10 yrs.

1. Standby Arrangements (SBA)2. Extended Fund Facility (EFF)3. Supplemental Reserve Facility (SRF)4. Contingent Credit Lines (SCL)5. Compensatory Financing Facility (CFF)

1. Short term BOP problem, 12 – 18 months2. More serious BOP problem 3 yrs3. Very short term financing on large scale 3.5% rate & 1 – 1½ yrs.

Sudden loss of market confidence – Emerging Market Economy4. 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.