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Unit 7
Unit 7
Structure:
7.1 Introduction
Objectives
7.2 Introduction to Global Trade Institutions
Institutions
Objectives
7.3 WTO
Objectives and functions
Structure
Principles
Agreements
Issues
7.4 International Labour Organisation (ILO)
History
International labour code
7.5 Summary
7.6 Glossary
7.7 Terminal Questions
7.8 Answers
7.9 Caselet
7.1 Introduction
In the previous unit, you understood about regional integrations and its role.
You also learned about the various regional integrations across the world
along with important agreements which India has with other countries.
International business is a process of conducting business between several
countries. It creates opportunity as well as challenges. To support the
challenges faced by international business, certain support systems are
established. In this unit, you will learn about support systems for
international business.
This unit covers the institutional support systems It discusses various
international organisations working towards promoting international
business and provide regulatory framework. It also covers the International
Labour Organisation and the international labour code.
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Objectives:
After studying this, unit you should be able to:
describe the various international organisations working to facilitate
international trade.
evaluate the role of WTO.
discuss the major agreements in WTO.
interpret the scope of ILO.
explain the international labour code.
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7.2.2 Objectives
The international institutions provide information about other countries
behaviour, forum for dispute resolution and a common framework for
sustaining trade flows. A strong international financial system is required to
support growing international trade. It helps to reduce the risk of payment
imbalances and financial crisis. The international institutions work together
to provide a strong system for international trade which is open to all
countries. This kind of system is essential for supporting economic growth,
reducing poverty and raising the standard of living around the globe.
The main objective of IMF is to facilitate the expansion and balanced growth
of international trade and provide exchange stability.
The WTO helps in the smooth flow of international trade and provides
countries with a constructive platform for dealing with disputes over trade
issues.
The main objective of UNCTAD is to formulate policies regarding trade,
finance and technology. It is a specialised agency that performs three main
functions:
Provides a forum for intergovernmental discussions.
Undertakes research, data collection and policy analysis for debates of
government representatives and experts.
Provides technical assistance to the specific requirements of developing
countries.
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7.3 WTO
In this section we will discuss about the World Trade Organisation (WTO).
WTO was established on 1st January 1995. In April 1994, the Final Act was
signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of
15th April 1994 was formed to strengthen the world economy that would
lead to better investment, trade, income growth and employment throughout
the world. The WTO is the successor to the General Agreement of Tariffs
and Trade (GATT). India is one of the founders of WTO. WTO represents
the latest attempts to create an organisational focal point for liberal trade
management and to consolidate a global organisational structure to govern
world affairs. WTO has attempted to create various organisational attentions
for regulation of international trade. WTO created a qualitative change in
international trade. It is the only international body that deals with the rules
of trades between nations.
7.3.1 Objectives and functions
The key objective of WTO is to promote and ensure international trade in
developing countries. The other major functions include:
Helping trade flows by encouraging nations to adopt discriminatory trade
policies.
Promoting employment, expanding productions and trade and raising
standard of living and income and utilising the worlds resources.
Ensuring that developing countries secure a better share of growth in
world trade.
Providing forum for trade negotiations.
Resolving trade disputes.
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The important functions of the WTO as stated in the WTO agreement are
the following:
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7.3.2 Structure
The structure of the WTO consists of the Ministerial Conference, which is
the highest authority. This body consists of the representatives from all
WTO members. The members meet once in every two years and decisions
on all matters regarding the multilateral trade agreements are taken.
Subsidiary bodies and the General Council composing of WTO members
undertake the daily activities of the WTO. The members report to the
Ministerial Conference. On behalf of the Ministerial Conference the General
Council administers as the Dispute Settlement Body to handle the dispute
settlement procedures. It also acts as the Trade Policy Review Body that
regularly reviews the trade policies of individual WTO members.
The General Council delegates responsibility to other major bodies. They
are:
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7.3.3 Principles
The WTO principles of the trading system are:
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imported goods that are in the market must not face discrimination.
There is also a Most Favoured Nation (MFN) principle which requires the
nations to treat all WTO members equally. If one nation grants a special
trade deal to another nation, the deal must be extended to all WTO
members.
7.3.4 Agreements
The WTO agreements are a set of rules that are followed by the member
governments while formulating policies and practices in the area of
international trade. The agreements mainly cover goods, services and
intellectual property. The agreements comprise of the rights and obligations
of the government that are enforceable in multilateral framework. The
agreement supports individual countries commitments to lower customs
tariffs and other trade barriers, and to open services markets. The
agreements also recommend governments to make their trade policies
transparent. According to the agreement, the government must notify the
WTO about the measures adopted to make their trade policies transparent.
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7.3.5 Issues
The issues related to WTO are:
The other issues are green room negotiations. Green room negotiations
are the informal negotiation meetings at the WTO in which 35 countries
are chosen by the Director General.
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Activity 1
Refer to any website and create a report on the principles laid down by
GATT to the member countries on anti-dumping measures.
Refer to the following link for guidance
http://commerce.nic.in/wto-feb.pdf
Self Assessment Questions 2
4. The WTO is the successor to the _____________ .
5. Majority of the WTO members belong to developed countries.
(True/False)
6. The main objective of _____________ agreement is to establish
framework for liberalising trade in services.
a) GATT.
b) NAFTA.
c) TRIPS.
d) GATS.
7. The WTO agreements are a set of rules that are followed by the
governments while formulating policies and practices in the area of
international trade. (True/False)
8. The highest authority of WTO is the _____________.
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7.4.1 History
Following the Treaty of Versailles, the ILO was established as an agency of
the League of Nations. The ILO was created in 1919, after the First World
War. The ideas of the International Association for Labour Legislation were
incorporated in the Constitution of the International Labour Organisation.
The initial motivation of the ILO was humanitarian because the workers
were exploited without any improvement in their health and family. The
preamble of the constitution of the ILO states the conditions of labour and
the injustice and privation to large number of people. The economic factor
was the second motivation as it has a certain effect on the cost of
production. The failure of a nation to adopt humane conditions of labour
affects the economic situation of the country adversely.
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The ILO constitution was written in April 1919 by the Labour Commission
that was set up by the Peace Conference. The first annual International
Labour Conference had two representatives from the government. It
included one representative from the employers organisations and another
representative from the workers organisations of each member state. The
first six International Labour Conventions that dealt with working hours in
industry, minimum age, unemployment, maternity protection and night work
for women and night work for young persons in was implemented in the first
annual International Labour Conference. Albert Thomas was chosen as the
first Director of the International Labour Office by the Governing Body. From
the beginning, he drove organisation with a strong motivation. 16
International Labour Conventions and 18 Recommendations were adopted
in 2 years. In 1920, the ILO headquarters was set up in Geneva.
7.4.2 International Labour Code
The International Labour Code is composed of Conventions and
Recommendations adopted by the International Labour Conference. In
1997, the Code contained 181 conventions and 188 recommendations that
covered important subjects in labour and social fields. The main function of
the ILO is to set international labour standards by adopting conventions and
recommendations covering the major labour-related issues which are
referred to as the International Labour Code. The Conference adopts
conventions and recommendations which is prepared by the International
Labour Office and the governing body. The representatives of the member
nations bring the conventions and recommendations to the notice of the
authorities.
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7.5 Summary
Let us now summarise the salient points you learnt about support systems
for international business:
International business is the process of conducting business in multiple
countries. Multinational corporations (MNCs) and international business
companies (IBCs) conduct business between different countries.
The major support systems for international business are WTO (World
Trade Organisation), World Bank, and International Monetary Fund
(IMF).
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The ILO manages work through three main bodies, namely International
Labour Conference, Governing Body and International Labour Office.
7.6 Glossary
League of Nations: An intergovernmental organisation founded as a result
if the Treaty of Versailles in 1919-1920.
Red tape: A sequence of forms and procedures required to gain
bureaucratic approval for something. It is an obstructive and time consuming
official routine.
Tariff bindings: A ceiling level above which a member cannot apply a tariff.
It is the maximum tariff that can be applied by a Member.
Treaty of Versailles: One of the peace treaties at the end of World War I.
7.8 Answers
Self
1.
2.
3.
Assessment Questions 1
International business.
a) International Monetary Fund.
False.
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7.9 Caselet
WTO and the Challenges Faced by Indian Pharmaceutical
Companies
India is favourable location for big pharmaceutical companies because of
its cheap and educated labor force. The major concern of the WTO is to
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take care of the poor, especially in the area of health care. The TRIPS
Agreement of the WTO in pharmaceuticals brought the health care issue
to the forefront. According to the agreement, developing countries had to
revise their patent laws to conform to WTO requirements by 2006. The
success or failure of the TRIPS Agreement depends on countries like
India. Indias pharmaceutical industry is highly efficient and India needs
to implement the IPR (Intellectual Property Rights) laws to simultaneously
maintain its position in the pharmaceutical sector. The challenge for India
is to maintain its international obligations and to satisfy domestic interest
that includes consequent access to cheap medicine.
Indian pharmaceutical companies are using adaptive strategies to cope
up with the WTO product patent law. In order to adapt and benefit from
the opportunities created by the new patent system, firms are adapting a
combination of cooperative and competitive strategies. Indian pharma
companies face international competition. Companies that get huge
profits from exports spend huge amount on R&D (Research &
Development). Large companies such as Ranbaxy and Cipla were
preparing for the new patent regime since 1995. A company can lose
market share on a patent expired product. However, the cost of
developing the product can be recovered even after the expiration date of
the patent if the marketing strategies are well planned. Visionary
strategies such as drug discovery, focus on production of high quantum
and moderately priced generics, outsourcing to MNC's upgrading
manufacturing facilities, etc., are also being adopted by Indian pharma
companies. India can be the top global pharma Industry with the help of
these facilities and pharma support services such as clinical research
operations, diagnostic services and data management services.
Discussion question
1. Discuss the adaptive strategies of Indian pharmaceutical companies to
cope up with the WTO product patent law.
(Hint: Cooperative and competitive strategies)
Source: http://www.eurojournals.com/ejefas_13_04.pdf retrieved on 10th
November 2010
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Reference:
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