Q1. Describe Green field Investment? Quote an example.

ANS. 'Green Field Investment'

A green field investment is a form of foreign direct investment where a parent company builds
its operations in a foreign country from the ground up. In addition to the construction of new
production facilities, these projects can also include the building of new distribution hubs, offices
and living quarters.

Breaking Down 'Green Field Investment'

As opposed to a brown field investment, where leasing existing facilities and land results in
relatively lower expenses, green field investments forwarded by multinational corporations entail
higher risks and higher costs associated with building new factories or manufacturing plants.

The term "green field investment" refers to a project where a company builds the entirety of its
operations in a foreign market starting from scratch, or a so-called green field. These projects are
foreign direct investments that provide the highest degree of control for the sponsoring company.

Risks of Green Field Investments

As a long-term commitment, one of the greatest risks in green field investment is the relationship
with the host country. Smaller risks include construction overruns, problems with permitting,
difficulties in accessing resources and issues with local labor. Companies contemplating green
field projects typically invest large sums of time and money in advance research to determine
feasibility and cost-effectiveness.

Examples of Green Field Projects

In April 2015, Toyota announced its first green field project in Mexico in three years, a $1.5
billion manufacturing plant in Guanajuato. The factory is scheduled to open in 2019 with 2,000
employees and capacity to produce 200,000 cars per year. In total, Mexico attracted 366 green
field investment projects in 2014, due in large part to the low costs of labor and manufacturing in
the country, as well as its proximity to markets in the United States

Q2.what do you understand by the term Regional Economic Integration? Explain with
example.
ANS. Regional Economic Integration
Economic integration is an economic arrangement between different regions, marked by the
reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.

Regional economic integration has enabled countries to focus on issues that are relevant to their
stage of development as well as encourage trade between neighbors.

There are four main types of regional economic integration.

1. Free trade area. This is the most basic form of economic cooperation. Member countries
remove all barriers to trade between themselves but are free to independently determine trade
policies with nonmember nations. An example is the North American Free Trade Agreement
(NAFTA).
2. Customs union. This type provides for economic cooperation as in a free-trade zone.
Barriers to trade are removed between member countries. The primary difference from the
free trade area is that members agree to treat trade with nonmember countries in a similar
manner. The Gulf Cooperation Council (GCC) [1] is an example.
3. Common market. This type allows for the creation of economically integrated markets
between member countries. Trade barriers are removed, as are any restrictions on the
movement of labor and capital between member countries. Like customs unions, An example
is the Common Market for Eastern and Southern Africa (COMESA)
4. Economic union. This type is created when countries enter into an economic agreement to
remove barriers to trade and adopt common economic policies. An example is the European
Union (EU).

Pros
The pros of creating regional agreements include the following:
 Trade creation. These agreements create more opportunities for countries to trade with one
another by removing the barriers to trade and investment
 Employment opportunities. By removing restrictions on labor movement, economic
integration can help expand job opportunities.
 Consensus and cooperation. Member nations may find it easier to agree with smaller
numbers of countries. Regional understanding and similarities may also facilitate closer
political cooperation.
Cons
The cons involved in creating regional agreements include the following:
 Trade diversion. The flip side to trade creation is trade diversion. Member countries may
trade more with each other than with nonmember nations. This may mean increased trade
with a less efficient or more expensive producer because it is in a member country.
  Employment shifts and reductions. Countries may move production to cheaper labor
markets in member countries. Similarly, workers may move to gain access to better jobs and
wages.
 Loss of national sovereignty. With each new round of discussions and agreements within a
regional bloc, nations may find that they have to give up more of their political and economic
rights

Levels and Example:

Q3. Discuss the Export Development Process? Draw a Diagram.

ANS. Why companies export

Exporting

 Expands sales and profits

 Achieves economies of scale and reduces the unit costs of production.
 Is less risky than DFI because it does not require the same degree of capital.
 Allows companies to diversify sales location.

Characteristics of Exporters

 The probability of a company’s being an exporter increases with the size of the company
 Export intensity is not positively correlated with company size
 The largest exporters in the United States also are among the largest industrial
corporations
 Smaller exporters make smaller shipments; larger exporters make larger shipments

Phases of export development

As companies learn more about the process of exporting,

  they tend to export to more countries
 they tend to export to more dissimilar countries which are located further away
 They tend to export a larger percentage of their sales.

Export Strategy

Entry mode depends on ownership advantages of the company, location advantages of the
market, and internalization advantages of integrating transactions within the company
Companies that have lower levels of ownership advantages either do not enter foreign markets or
use low-risk strategies such as exporting Strategic considerations affect the choice of exporting
as an entry mode.

Q 4. How do Govt. keep their sovereignty while making cross national relationship?
Highlight importance of ECO 2017 Summit in Islamabad, Pakistan.

ANS. Sovereignty is the full right and power of a governing body over itself, without any
interference from outside sources or bodies. In political theory, sovereignty is a substantive term
designating supreme authority over some polity. It is a basic principle underlying the
dominant Westphalian model of state foundation.

Importance of summit for Pakistan

The 13th ECO Summit recently held in Pakistan provides one with a number of hopes regarding
the Summit’s adopted theme of “Connectivity for Regional Prosperity”.
To begin with, this fact in itself is a major achievement that despite the new wave of terrorism in
Pakistan the major event of this magnitude was successfully held in Islamabad. The ten states
namely Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and
Uzbekistan along with the founding members Pakistan, Iran and Turkey is reflective of important
representation from Central, South and West Asia. Not just that but the participation by all the
member states was another positive sign which shows the eagerness on part of the member
countries to contribute and benefit from the prospects of regional connectivity. Chinese
representation in the Summit makes it all the more conspicuous and weighty, ensuring that
regional connectivity is quite a tangible proposal which will be further supplemented and made
plausible through the CPEC.
Presently as both Afghanistan and Pakistan are struggling to improve their bilateral ties, the
presence of Afghan representative Ambassador Omar Zakhilwal was a sign of hope. This
representation despite the closer ties between Afghanistan and India and the latter’s ever growing
diplomatic, financial and military influence in Afghanistan should be viewed as encouraging, for
it did not keep Afghanistan to stay back. In the future there is a hope that President Ghani will be
able to exhibit some diplomatic maturity and the ability to act independent of Indian dictation,
solely for the wellbeing of people of Afghanistan and for the much larger benefit of the whole
region. The states may have differences or may be going through a bad phase in their bilateral
relations owing to various factors, but the reality of a prosperous future through regional
connectivity can simply not be ignored.
Furthermore the outcome of the Summit in the form of “Islamabad Declaration and Vision 2025”
shows a unanimous understanding on part of all the participant states to expand trade and
prosperity among them. The ECO region, which occupies the center of Eurasia, naturally
presents a geographical landscape that provides a link for East-West connectivity. Hence this
idea of East-West connectivity supplements the plan of concatenation through CPEC. Therefore
the presence of Chinese Executive Vice Foreign Minister Zhang Yesui, in an ECO summit has
been especially consequential. It also reveals the convergence of economic interests between the
ECO states and China, which will ultimately augur well for China’s OBOR initiative, having
dividends for all the participant states. This welcoming disposition of ECO countries towards
China and vice versa, reflects the reshuffling of alignment patterns among the various regions,
wherein the constructive engagement has already been evident through fruitful dialogue process.
However for these deliberations to manifest successfully and materialize into concrete outcome,
it is important to devise a framework mechanism that will ensure the adoption/implementation of
Islamabad declaration and Vision 2025. Now all the participant states need to vigorously pursue
the aim of prosperity through regional connectivity and own the project as well.
The states also agreed to work towards the prospects of cooperation and integration over the next
ten years by promoting multidimensional connectivity. This multidimensional cooperation not
just covers the economic aspect but equally stresses upon the intra and inter-regional peace and
security. Commitment towards employing dedicated efforts in order to collectively fight against
the menace of terrorism and unlawfulness were also displayed. Addressing the challenge of
militancy through collective response mechanism will be the most effective way to deal with the
situation. The states also agreed to stay committed to strengthen themselves against other
problems such as extremism and drug trafficking and collaborate in addressing the challenges of
climate change and food security. Most of all the understanding that peace in Afghanistan is the
basic pre requisite for the peace and subsequent progress on the objectives of ECO was
expressed unanimously by all the states. It is in the same context that China earlier agreed to
allocate 480 million yens to the Afghan Security Forces. Not only will it give boot to the Sino-
Afghan bilateral relations, but will also allow for the emergence of a relatively new player in
Afghanistan. Russia also has on more than one occasion hinted at joining the CPEC through
Eurasian Economic Union. This means that the region as whole is experiencing transition as well
as diffusion of power. The US and India on one hand may have to brace themselves up for a
Sino-Russian alliance in the region. The possibility of new alliance and power triangles can most
certainly not be ruled out.
Another much appreciated and widely touted outcome of the ECO summit is the fact that
Pakistan’s relevance within the international community has been recognised once again. Despite
the strong efforts by India to isolate Pakistan, the full attendance by Head of the States and by
the Chinese representative, emphasised Pakistan’s central position in the regional strategic
calculus, in which Pakistan is just unavoidable. The Summit took place after a gap of five years
and there is no doubt that the CPEC has infused a new life into the potentials of ECO as one of
Asia’s emerging markets. The significance of energy rich Central Asian states and the strategic
importance of Pakistan along with all the ECO member states in terms of regional connectivity is
going to increase further in times to come. The reaffirmation shown by all the states to make
ECO a successful organisation is commendable and should be continued through more rigorous
public and private partnerships. Also the Summit should now take place more regularly and on
time. Not just that but in future more important issues such as Kashmir problem can also be
taken up at its forum, which was somehow omitted this time. The prevalent conflicts within and
among the member states need to be resolved in order to achieve the required outcome. Last but
not the least, now is the time to come up with a practical geo-economic institutional framework
and make the Islamabad declaration into a reality.

Ans. GATS – General Agreement on Trade in Services

 GATS – General Agreement on Trade in Services is a treaty of the World Trade
Organization that entered into force in 1995 as a result of the Uruguay Round
Negotiation.
 The treaty was created to extend the multilateral trading system to service sector.
 All the members of WTO are signatories to the GATS.
 The basic WTO principle of Most Favored Nation (MFN) applies to GATS as well.

History of GATS

• WTO is successor of GATT in 1949

• WTO is organization where members have agreed to a set of agreements.
• GATS is one of the main WTO agreements • 1947- GATS (General Agreement on Trade
in Services)
• 1995 – WTO (World Trade Organization)
• Trade in goods + agriculture + services + intellectual property.

Main principles and scope

• GATS follows many main principles of the original GATT

 • The aim is to ensure progressive market liberalization and non-discrimination
between Members
• GATS cover almost all services, in total 155 services sectors
• Does not cover services supplied in the exercise of government authority

Related sectors & sub sectors of GATS

 Business services a)professional services - Medical and Dental services - Midwives, nurses,
physiotherapists, paramedical services
 Financial services a)All insurances & insurance-related services
 Health related & social services a)Hospital services b)Other human health services

How Does GATS work?

• Successive rounds of negotiations “with a view of achieving a progressively

higher level of liberalization” in their service sector.
• WTO members make liberalization requests/ offers of other member countries in
bilateral secret meetings in Geneva.

Modes of Trade

 Cross-border supply. Cross-border trade Trade takes place from the territory of country
A into that of B. i.e -Tele health -passing of information by means of fax or mail.
 Consumption abroad. Services consumed by nationals of country A in territory of
country B. – i.e. Tourism -Consumers who cross borders to obtain medical treatment.
 Commercial Presence. A service supplier of country A cross the border to establish and
provide a service in country B – i.e. Establishment of a private hospital by a European
company in Ecuador.
 Movement of natural persons. Temporary movement from country A to B to supply a
service. –i.e. Doctors moving to another country to temporarily provide their services.

National Treatment in GATT & GATS

In regard to NT in GATT, this principle stands side by side with Most Favored Nation (MFN) as
central to the market access principle of GATT/WTO.

The National Treatment obligation is named in Article III of GATT, and its main purpose is
to prevent discrimination between imported and domestic products of the members of the GATT.
Discrimination between imported and the domestic products is prohibited under the NT
principle. Different treatment of unlike products is permissible.

For example, the European Community, Mexico and Canada submitted a complaint against the
USA. In this case, US 1986 tax legislation imposed a higher tax on imported products compared
to domestic products; this treatment was found to be discrimination between domestic and
imported products.

NT applies in respect to services and service suppliers. The obligation of NT is to guarantee

access and treat all 'like' services and service suppliers equally and without discrimination. The
obligations in GATT and GATS are different; the National Treatment of the GATS (General
Agreement on Trade in Services) is not a general application as is NT under GATT, because the
obligation of NT in Article XVII inGATS does not apply generally to all measures impacting
trade in services. The latter obligationapplies only to cases where the countries of GATS have
explicitly committed to grant the NT inregard to specific service sectors.

Ans. Definition of Future Contract

Future is defined as a contract, between two parties, buyer and seller where both the parties
promise to each other of buying or selling of the financial asset at an agreed date in the future
and at a set price. As the contract is legally binding, the parties to it must perform it by
transferring stock/cash respectively.

The futures contract is a standardized and transferable contract that revolves around, its four key
elements, i.e. transaction date, price, buyer, and seller. In such contracts the buyer expects the
asset price to rise while the seller expects it to fall..

BASIS FOR
FUTURES OPTIONS
COMPARISON

Meaning Futures contract is a binding
agreement, for buying and selling
of a financial instrument at a
predetermined price at a future
specified date.
Options are the contract in which the
investor gets the right to buy or sell
the financial instrument at a set price,
on or before a certain date, however
the investor is not obligated to do so.

Obligation of Yes, to execute the contract. No, there is no obligation.

buyer

Execution of On the agreed date. Anytime before the expiry of the

contract agreed date.

Risk High Limited

Advance payment No advance payment Paid in the form of premiums.

 BASIS FOR
FUTURES OPTIONS
COMPARISON

Degree of Unlimited Unlimited profit and limited loss.

profit/loss

Q7. In what situation do the trade creation and trade diversion occur? Discuss.
Ans. Trade creation
Trade creation is an economic term related to international economics in which trade flows are
redirected due to the formation of a free trade area or a customs union.
In the former case after the formation of economic union, the cost of the goods considered is
decreased, leading to an increase of efficiency of economic integration. Hence, trade creation's
essence is in elimination of customs tariffs on inner border of unifying states, causing further
decrease of price of the goods, while there may be a case of new trade flow creation of the goods
between the states decided to economically integrate.

Occurrence of Trade Creation

When a customs union is formed, the member nations establish a free trade area amongst
themselves and a common external tariff on non-member nations. As a result, the member
nations establish greater trading ties between themselves now that protectionist barriers such
as tariffs, import quotas, non-tariff barriers and subsidies have been eliminated.

Downside of Trade Creation

The creation of trade is important to the nation entering the customs union in that
increased specialization may hurt other industries. Arguments for protectionism, such as
the infant industry argument, national defense, outsourcing, and issues with health and
safety regulations are brought to mind. However, customs unions are typically formed with
friendly nations, eliminating the national defense argument.

Trade diversion

Trade diversion is an economic term related to international economics in which trade is

diverted from a more efficient exporter towards a less efficient one by the formation of a free
trade agreement or a customs union. Total cost of good becomes cheaper when trading within the
agreement because of the low tariff. This is as compared to trading with countries outside the
agreement with lower cost goods but higher tariff. The related term Trade creation is when the
formation of a trade agreement between countries decreases of price of the goods for more
consumers, and therefore increases overall trade.

Occurrence
When a country applies the same tariff to all nations, it will always import from the most
efficient producer, since the more efficient nation will provide the goods at a lower price. With
the establishment of a bilateral or regional free trade agreement, that may not be the case. If the
agreement is signed with a less-efficient nation, it may well be that their products become
cheaper in the importing market than those from the more-efficient nation, since there are taxes
for only one of them.

Downside
Diverted trade may hurt the non-member nation economically and politically, and create a
strained relationship between the two nations. The decreased output of the good or service traded
from one nation with a high comparative advantage to a nation of lower comparative advantage
works against creating more efficiency and therefore against more overall surplus

Q8. How will the China become the world strongest economic super power in coming
year? Highlight the importance of CPEC for Pakistan and China.
Ans. China’s Rise to Global Economic Superpower
The International Monetary Fund (IMF), the most prestigious international financial institution in
the world, has rated China’s ranking to number one economic superpower in the world. —
surpassing those of the United States based upon the purchasing power parity of GDP indicator
(gross domestic product). IMF has asserted that China produced 17% of the world gross
domestic product (GDP) in 2014 exceeding U.SA’s GDP of world’s 16% (1). China’s economic
growth performance over the last 30 years has impressed development economists who took the
position that China will remain in the low/middle income group of nations permanently due to its
very large population — approximately 1.2+ billion in 2015. Moreover, China’s performance has
inspired other low and middle income countries to emulate China’s approach and engage in
growth manship including many middle income countries of Latin America such as Brazil,
Argentina, Columbia and India which also has a large population like China.

It is most likely that China will maintain its lead in economic ranking of GDP in the foreseeable
future largely due to catch-up of its per capita income which is rising annually at 8%-10%. (2)
Although China’s GDP has converged and surpassed Untired States GDP, its per capita GDP is
still below the U.S. and first world. However, China’s rapid GDP growth coupled with low
fertility rate (number of children per women) will boost China’s per capita income to high
marginal annual growth paving the way for its convergence, in less than two decades, to the level
of high income countries as estimated by USC researchers (3). It follows that the GDP gap
between China and other countries will further widen in the future.

China’s political system is not monolithic, or colossal, it has worked under a seven-member
Politburo Standing Committee of party congress. Political leadership is elected every five years.

The second major influence that explains China’s good fortune is its decision to open up to the
free world and get out of the Soviet sphere of influence. Following is a synopsis of China’s
economic, political and social framework that augur well for its continued development and
leadership, and provide a blueprint for other nations to emulate.
A. LEADERSHIP
The transition of leadership in China has been remarkably peaceful and smooth.

A succession of leadership in China including president Hu Jinping and follow-up by the current
president Xi Jinping’s flexible and innovative economic policy took advantage of globalization
and export orientation, attracting foreign investment, and maintaining a sound monetary and
fiscal policy. China became a member of the World Trade Organization (WTO) and hosted a
very successful International Olympic Games.

B. INTERNATIONAL TRADE ORIENTATION.

Concurrently, China is building its domestic consumer sector so that in the future it will have a
strong and well-developed domestic market. China’s drive for the development of non-fossil fuel
under its twelfth five-year plan could make it a world leader in energy exports and offer
unmatchable prices on alternative energy in the world market contributing to convergence of per
capita income of the silk rout countries.

C. GROWTH RATE PERFORMANCE.

The process of China’s remaining catch-up time of per capita income to that of the first world is
estimated to take place in approximately two decades. It follows that China’s catch-up time with
the first world would take place in five decades, starting in 1980 while it took the first world
nearly 50 decades to reach its current level of per capita income.

D. MACROECONOMIC MANAGEMENT.
China’s sound macroeconomic management was demonstrated during the Great Recession
(2007-2009) when its export dropped 15% - 18% causing 23 million to become unemployed, but
98% found jobs as the economy readily bounced back and the unemployment rate dropped to
4%. This performance is in sharp contrast to a number of countries where the recession is still
lingering in 2014. It is most notable that China escaped three global financial meltdowns since
1990, including the Japanese severe credit implosion, the Asian economies foreign reserve
meltdown caused by capital flight due to rigidity of fixed exchange rate. The Great Recession
(2007-2009) which engulfed the world economy was contagious, and China was subject to the
turbulence and transmittable global meltdown — but ironically China escaped. China’s
experience has drawn re-examination of the Western neoclassical paradigm concerning
macroeconomic stability, and efficacy, of countercyclical measures via mini manipulation of the
supply of money by the Federal Reserve Board. A better alternative for all nation states is to
establish social indicator targets.

E. RENEWABLE ENEGY
F. China is already the world’s biggest merchant marine operator according to U.N. data.
Container port data compiled by the United Nations shows. Customs administration figures show
around 40,000 ships entered and left Chinese ports in the first half of 2014.

G. POPULATION POLICY.
China’s one-child policy and its recent modification has been optimal given the absolute number
and the possibility of population trap. Successful control of fertility rate (number of children per
women) is the hallmark of optimal population and determinant of China’s long-term growth
potential and carrying capacity. China’s prosperity is closely connected to its population policy
although the age distribution of the population may pose some problems concerning productivity
in the future.

H. POVERTY REDUCTION.
Since 1978, China has uplifted millions of peasants out of poverty and it has been the most
successful country in the world in poverty reduction. China will deserve very high marks for its
social indictor and distributional objectives.

I. ANTI-CORRUPTION CAMPAIGN
Unfortunately corruption is a universal problem and once it takes roots it becomes
institutionalized and penetrates the culture. Thus it becomes difficult to undo corruption. It is
keenly prevalent in low- and middle-income countries. China is no exception in this regard,
however, a concerted effort has been launched to bring corruption under control beginning with
the effort of former president Hu Jinping and follow-up by the current president Xi Jinping.

J. UNIQUE FEATURES OF CHINA’S SOCIETY AND POLITY

Altruism, social cognition, equity, equality, egalitarian motives, public service and economic
growth are the hallmark of China’s leadership pronouncements. The duel system of one political
party and free competitive market economy characterize China’s unique socio-economic-
political system. The political system is not monolithic, or colossal, it has worked under a seven-
member Politburo Standing Committee of party congress. Political leadership is elected every
five years
Importance of CPEC for Pakistan and China
Q9. What is WTO? Highlight WTO policies in Doha round.

WTO:
Doha Round:
History:
• Launched at the fourth ministerial conference in Doha, Qatar in November 2001.
• Succeeded the Uruguay round and the three ministerial conferences at Singapore (1996),
Geneva (1998) and Seattle (1999).
Objectives:
• Lower trade barriers around the world.
• Committing all countries to negotiations opening agricultural and manufacturing markets, as
well as trade-in-services (GATS) negotiations and expanded intellectual property regulation
(TRIPS).
• Make trade rules fairer for developing countries
KEY ISSUES AT DOHA
•Agriculture has become the linchpin of the agenda for both developing and developed countries.
• Compulsory licensing of medicines and patent protection.
• A review of provisions giving special and differential treatment to developing countries.
• Resolve problems that developing countries are having in implementing current trade
obligations.
Key Interests for ASEAN countries –
 Greater market access for industrial goods.
 Trade facilitation.
 Anti-dumping and subsidies.
 Technical Co-operation.
 Effective dispute settlement mechanism
Ministerial Declaration
• The Doha Ministerial Declaration mandate for agriculture calls for comprehensive negotiations
aimed at substantial improvements in market access, reduction of export subsidies.
• The Declaration also provides that special and different treatment for developing countries
would be an integral part of all parts of negotiations.
• The Declaration took note of non-trade concerns reflected in negotiations proposal of various
member countries and confirmed that they would be taken in to account in negotiations
Intellectual Property Declaration
• The Doha Declaration on public health sought to alleviate developing countries dissatisfaction
with aspects of the TRIPS regime.
• The declaration committed member states to interpret and implement the agreement to support
public health and to promote access to medicines for all. Intellectual property declaration
Agriculture Issues in Developing Nations
• One of the key issues is the Agreement on Agriculture (AoA).
• Areas related to Agriculture-Market Access, Domestic Support, export Competition, Trade
Related Intellectual Property Rights .
• 40 to 50 % of support to the farmers in the form of Green Box subsidies.
• Developed countries allowed to retain 80% of their subsidies while developing countries can
subsidize their farmers not more than 10%.
• Increasing dependency on imports for food grains could bring strain on external payment
position of these countries.
Types of Impasses of relevance at DOHA round
• Parties could not agree to launch a negotiation. (Impasse on initiation).
• Parties could not agree on the subjects for the negotiation (Impasse on contents).
• After agreeing to start a negotiation the parties take a long time to come to a mutually agreeable
outcome. (Impasse as delay).
• Having agreed to start a negotiation, subsequently the parties appear unable to conclude the
negotiation with an agreement. (Impasse as high expected failure to agree).
• Having agreed to start a negotiation, subsequently the parties can only agree to conclude the
activity of negotiation without an agreement. (Impasse as actual failure to agree—fortunately the
DDA has not reached this point).
Unaddressed Issues
• In order not to discredit itself, globalization would have to squarely address sustainable
development and poverty reduction .
• There must be an attempt to link the strategies of development to something more fundamental,
the ends of economic and social development .
• The international trade rules are underpinned by an insufficient appreciation of the adverse
impact of rapid liberalization, if it does not pay adequate attention to the need to reduce asset and
income inequalities.
• Without substantial investment in the capacity to supply and, equally important, a guaranteed
safety net against falling prices and import surges, sudden liberalization would expose the
constituents to unbearable risk.

Ans. The Treaty of Amsterdam

The Treaty of Amsterdam was signed on the 2nd of October 1997 and came into force on the
1st of May 1999. Its main changes were focused on the Treaty on European Union, created by the
Maastricht Treaty in 1992.

Its main areas of focus were increasing the democratic legitimacy of the European Institutions by
increasing the powers of the European Parliament, Security and Justice Reforms including the
introduction of a common foreign and security policy, the reformation of the three pillars of the
EU and the reform of the institutions to better prepare them for the upcoming enlargement
Origins/ History
The Treaty of Amsterdam, or to give it its full name the “Treaty of Amsterdam amending the
Treaty of the European Union, the Treaties establishing the European Communities and certain
related acts, commonly known as the Amsterdam Treaty” came into force on the 1st of
May1999.

The Treaty was the result of a series of long negotiations beginning in 1995, in Messina, Sicily,
and reached completion in Amsterdam on the 18th of June 1997. It was formally signed into EC
law on the 2nd of October 1997 and a long and complex ratification process began. The
procedure was finally concluded after the European Parliament ratified it on the 19th of
November 1997 and after two referenda and 13 national parliament decision in the Member
States.

Q11. What do you about Michael Porter Theory of Comparative Advantage?

Explain.
Ans. Porter's Generic Competitive Strategies
In business, a competitive advantage is the attribute that allows an organization to outperform
its competitors. A competitive advantage may include access to natural resources, such as high-
grade ores or a low-cost power source, highly skilled labor, geographic location, high entry
barriers, and access to new technology.

A firm's relative position within its industry determines whether a firm's profitability is above or
below the industry average.
There are two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with the scope of
activities for which a firm seeks to achieve them, lead to three generic strategies for achieving
above average performance in an industry: cost leadership, differentiation, and focus. The focus
strategy has two variants, cost focus and differentiation focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of
cost advantage are varied and depend on the structure of the industry. They may include the
pursuit of economies of scale, proprietary technology, preferential access to raw materials and
other factors
2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that
are widely valued by buyers. It selects one or more attributes that many buyers in an industry
perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its
uniqueness with a premium price.

3. Focus
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in
(b) Differentiation focus a firm seeks differentiation in its target segment.

Q12. Tell us about classification of Factor of Endownment?

Ans. Factor endowment
In economics a country's factor endowment is commonly understood as the amount
of land, labor, capital, and entrepreneurship that a country possesses and can exploit
for manufacturing. Countries with a large endowment of resources tend to be more prosperous
than those with a small endowment, all other things being equal.

Factor endowments in the New World

A classical example often cited to emphasize the importance of institutions in developing a
country's factor endowment is that of North America (the United States and Canada) around the
turn of the 20th century. It is commonly argued that these countries benefited greatly by
borrowing many of Britain's institutions and laws. While North America undoubtedly gained
from this borrowing, this does not fully explain why the rest of the New World (which also
enjoyed a large factor endowment and access to British institutions) did not develop in a similar
way. In fact, data shows that connection between the prosperity of the colonizing and the wealth
of the colony was weaker than many thought. The future United States and Canada surpassed
several British established colonies in the Caribbean, such as Barbados, Jamaica, Belize, and
Guyana. In fact, the United States converged on the world economic leader, measured in
GDP/capita, the UK. In 1910, the United States overtook the UK and began to diverge from it
until about the 1950s. This shows that there must have been another explanation as to why the
future United States and Canada developed at a faster rate than other colonies in the region.[1]
Q13. Explain minimization of risk objectives through international Diversification?
Quote an example.
Ans. International diversification
An allocation of investments in a portfolio of international securities in order to achieve
broader equity exposure to many foreign markets while spreading the risks associated
with investing in any one foreign market.

RISK MINIMIZATION OBJECTIVES:

Diversification, internationally or otherwise, is often a means firms use to reduce risks.
Following Customers:
Suppliers will often set up facilities near the firms they supply. Bridgestone decided to make
automobile tires in the United States in order to continue selling to Honda and Toyota once those
companies initiated
U.S. production.
Preventing Competitors’ Advantages:
Firms in an oligopolistic industry often follow their competitors into other countries in order to
avoid giving a competitor an advantage.
Political Motives:
For example, during the early 1980s, the U.S. government instituted various incentives to
increase the profitability of U.S. investment in Caribbean countries that were unfriendly to
Castro’s regime.

Q14. Explain the different Economic Systems followed worldwide?

Ans. World Economic System

Traditional

A traditional economic system is one in which each new generation retains the economic
position of its parents and grandparents. Traditional economies rely on the historic success of
social customs. Tradition decides what an individual does for his living, so industry, clothing and
shelter are the same as in previous generations.
Market
Market economies are based on consumers and their buying decisions rather than under
government control. Market trends and product popularity generate what businesses produce.
The producers choose how to make products based on the most economically sound decision:
that might mean machine labor to save costs or human labor for specific skills. The buyers
decide who gets which products by what they are willing to pay for what they want. Complete
market economies do not utilize price controls or subsidies and prefer less regulation of industry
and production. Market decisions rely on supply and demand for pricing.
Command

In a command economy, the government controls all economic activity. One example of a
command economy is communism. In a government-directed economy, the market plays little to
no role in production decisions. Command economies are less flexible than market economies
and react slower to changes in consumer purchasing patterns and fluctuations in supply and
demand.
Mixed

A mixed economy combines qualities of market and command systems into one. In many
countries where neither the government nor the business entities can maintain the economy
alone, both sectors are integral to economic success. Certain resources are allocated through the
market and others through the state. Theoretically, this system should be able to combine the best
policies of both systems, but in practice the proportion government controls and response to
market forces varies. Some countries rely more on market emphasis and others on state planning.

Q15. Explain different types of counter trade with example?

Ans. Countertrade
Countertrade is a system of international trading that helps governments reduce imbalances in
trade between them and other countries. It involves the direct or indirect exchange of goods for
other goods instead of currency.
Countertrade is often used when a foreign currency is in short supply or when a country
applies foreign exchange controls, which are limits imposed on the availability of foreign
currencies to importers for the purchase of foreign products. Countertrade is often used by
developing countries to control trade and as a development technique.
Types of Countertrade:
•Barter •Switch Trading •Counter purchase • Buyback •Compensation trade •Offset
Barter:
• Exchange of goods or services directly for other goods or services without the use of money as
means of purchase or payment. Examples: Indo Iraq Wheat and Rice for Oil deal
Example of Barter Trade: Country A Cigars and Country B Mining Equipment
This means if Country A sells mining equipment to Country B in return for cigars - they will
probably hold some of the mining equipment back until they have made some good profit from
the cigars. .Indo-Iraq Barter Deal: Indo-Iraq Barter Deal. In 2000, India and Iraq agreed on an
"oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War
sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a
barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to
swap 1.5 million tons of Iraqi crude under the oil-for-food program.
Switch Trading:
 It involves at least three parties. This means a country may barter goods from another
country which may be of no use to itself so it sells the goods to other country for hard
cash
 Expands Exports
 Enables party to achieve satisfactory outcome
 May be difficult in brokering.
Example- Switch Trading:
• Brazil exported corn to East Germany (before Unification) and received products in return.
Germany did not use corn, so it sold the corn to other countries for hard cash.
Counter purchase:
•Counter purchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a
certain amount of materials in future back from a country to which a sale is made.
•Volume of trade does not have to be equal (may be covered by cash)
•Covered by two separate contracts.
•More flexible than barter
•Under one of the contracts, the sale of goods between an exporter and importer is negotiated and
paid for in as pacified currency. The second contract obligates the exporter to purchase goods
from the importer at a specified value over a period of time. Unlike buybacks, counter purchases
involve hard currency.
Buyback:
It occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or
other services to the country and agrees to take a certain percentage of the plant output as partial
payment for the contract.
Compensation trade:
Compensation trade is a form of barter in which one of the flows is partly in goods and partly in
hard currency.
Offset: Agreement that a company will offset a hard - currency purchase of an unspecified
product from that nation in the future. Agreement by one nation to buy a product from another,
subject to the purchase of some or all of the components and raw materials from the buyer of the
finished product, or the assembly of such product in the buyer nation.
Q16. Write a note on:

 A) Vertical and horizontal trade pattern

 B) European Union
Ans.
 A) Vertical and horizontal trade pattern
 Vertical and Horizontal Trade Patterns:
 Horizontal shows are shows with vendors who are selling a broader variety of products or
services, and the attendees usually come from a single market segment and are looking
for either very specific products or services or a broader variety. Vertical shows are more
narrowly focused to just one type of product and market. The advantage of vertical shows
is that the attendees are all from a very specific market, and your objectives for the show
can be more focused. The disadvantage is that your product or service must fall exactly
within the focus for the show, or you won't get the results you want.

B) European Union
It is a political and economic union of 28 member states that are located primarily in Europe. It
has estimated population of over 510 million. Headquarter in in Brussels, Belgium. Founded in 1
November 1993. Maastricht, Netherland.
European Union's activities cover:
 public policy
  health
 economic policy
 foreign affairs
 Defense

Principal Objectives of the EU

 Establish European Citizenship
 Ensure freedom, security, and justice
 Promote economic and social progress
 Assert Europe’s role in the world

Financial Bodies
1. European Central Bank
2. European Investment Bank –

What does the EU do?

 Euro - a single currency for Europeans
 Free to move
 Keeping the peace
 An area of freedom, security and justice
 Fewer frontiers: more jobs!
 An information society for everybody
 Caring about our environment

Why is it important for multinational firm to have

Q17.
legal consultancy? Give three reason.
ANS: 1. Clever multinational companies have legal consultancy and often have legal domicile
in one country, corporate management in another, financial assets in a third, and administrative
staff spread over several more. Consultancy helps them to manage all of them properly.

2. Multinational firms have legal consultancy because all these companies all choose locations
for personnel, factories, executive suites, or bank accounts based on where regulations are
friendly, resources abundant, and connectivity seamless. Perfect examples are: ExxonMobil,
Unilever, Black Rock, HSBC, DHL, Visa.

3. Consultants parachute into locations for commissioned work but often report to offices in
regional hubs, such as Prague and Dubai, with lower tax rates. To avoid pesky residency status,
the human resources department ensures that employees don’t spend too much time at their
project sites.

Q18. What are counter of origin effect?

ANS: The country-of-origin effect (COE), also known as the made-in image and
the nationality bias, is a psychological effect describing how consumers' attitudes, perceptions
and purchasing decisions are influenced by products'
Consumers have a favorable disposition to certain product/country combinations (for example,
French perfume, Japanese cameras, and German cars). Therefore, there may be benefits to
producing certain types of products in specific locations.

Nationalism:
Local consumers may wish to purchase locally produced goods (e.g., “buy American” campaigns
in the USA).
Product image:
As mentioned above, consumers may choose a product based on where it was manufactured
(e.g., German cars).
Delivery risk:
Service and replacement parts for foreign items are often expensive or difficult to obtain.
Industrial consumers especially may be willing to pay a higher price to a nearby producer in
order to reduce the risk of no delivery due to distance.
Changes in Comparative Costs:
A company may export because its home country has a cost advantage. However, changes in
productivity and foreign exchange values may reverse comparative cost advantages, leading the
firm to decide to engage in foreign direct investment.

Q19. What do you know about the Extraterritoriality?

Ans. Extraterritoriality
Extraterritoriality is the state of being exempted from the jurisdiction of local law, usually as
the result of diplomatic negotiations. Historically, this applied to individuals. Extraterritoriality
can also be applied to physical places, such as foreign embassies, military bases of foreign
countries, or offices of the United Nations. The three most common cases recognized today
internationally relate to the persons and belongings of foreign heads of state, the persons and
belongings of ambassadors and other diplomats, and ships in foreign waters.
Extraterritoriality is often extended to friendly or allied militaries, particularly for the purposes of
allowing that military to simply pass through one's territory.
It is distinguished from personal jurisdiction in the sense that extraterritoriality operates to the
prejudice of local jurisdiction.
Q20. What are the forward discount and forward premium?

ANS. Forward discount and forward premium

Forward discount and forward premium are the terms which are used in the context
of foreign exchange market to denote the pricing of exchange rate between the two currencies.
Let’s look at both the terms in detail – Forward Discount – It
refers to a situation where the spot exchange rate of a currency is trading at higher level than
future spot rate. So for example if rupee dollar is quoting at 55 rupees per dollar in spot market
and in futures it is quoting at 54.5 than it refers to forward discount.
Forward Premium – It refers to a situation where the spot exchange rate of a
currency is trading at lower level than future spot rate. For example if rupee dollar is quoting at
55 rupees per dollar in spot market and in futures it is quoting at 55.55 than it refers to forward
premium.

Ans. Assumption of comparative advantage theory

1. Constant Returns to Scale
The theory of Comparative Advantage assumes that the costs remain constant for producing any
number of goods. This means that if you require 2 hours to make one shirt, then you will spend
10 hours to make five shirts, 20 hours to make ten shirts etc. In reality, costs will go down
because of economies of scale.
2. Mobility
There is perfect mobility of the factors of production. This means that we assume that we can
move any factor of production to any part of the country at any time. In reality, we cannot move
factors of production easily.
3. Costs
There are no transportation costs, i.e. it does not cost anything to move goods from one place to
another.
4. Free Trade
Free trade exists between the two countries. This means there are no barriers to trade.
5. There are only two economies producing two goods.
1. The theory assumes that traded goods are homogeneous (i.e. identical).
2. There is perfect knowledge, so that all buyers and sellers know where the cheapest
goods can be found internationally.
Q22. Discuss effect of Non-tariff barriers (NTB) on prices.
Yields both cross-country averages and country-specific estimates of the effects of core NTBs,
for more than 60 countries and four sectors in which NTB protection was of major importance:
fruits and vegetables, bovine meats, processed food, and apparel. Country-specific NTB Premia
for bovine meat are the highest on average, followed by apparel, fruits and vegetables, and
processed foods. Four key findings emerge. First, results support the claim that NTBs are
endogenous. We also find evidence that NTBs and tariffs are complements—NTBs are more
likely the higher the tariff protection on a product. Second, controlling for the interaction of
barriers is important. In some sectors, the joint use of a tariff and an NTB reduces the impact of
the NTB on product price. Third, controlling for the interaction between income and NTBs also
matters. While it is commonly thought that richer countries have more open markets than poorer
countries, evidence for these four sectors suggests that the restrictiveness of NTBs may fall or
rise as country income rises. Fourth, the use of private sector complaint data to augment
government self-reported NTB incidence does appear to significantly affect the estimates of the
restrictiveness of NTBs.

Q23. What is TRIMs and how does it affect global trade?

ANS: TRIMs
The Agreement on Trade-Related Investment Measures (TRIMs) are rules that apply to the
domestic regulations a country applies to foreign investors, often as part of an industrial policy.
The agreement was agreed upon by all members of the World Trade Organization. Trade-Related
Investment Measures is one of the four principal legal agreements of the WTO trade treaty.
TRIMs are rules that restrict preference of domestic firms and thereby enable international firms
to operate more easily within foreign markets. Policies such as local content requirements and
trade balancing rules that have traditionally been used to both promote the interests of domestic
industries and combat restrictive business practices are now banned.
TRIMs recognize the investment measures that result in trade distortion and trade restrictions.
Restrictions:
1. Include local content requirements
2. Manufacturing requirements
3. Trade balancing requirements
4. Domestic sales requirements
5. Technology transfer requirements
6. Export performance requirements
7. Local equity restrictions
8. Foreign exchange restrictions
9. Remittance restrictions
10. Licensing requirements
 11. Employment restrictions
Aims of the Agreement
• Desiring  to promote the expansion and progressive liberalisaiton of world trade and to
facilitate investment, while ensuring competition
• Take into account  trade, development and financial needs of developing countries,
particularly least developed countries
• Recognising  certain investment measures can cause trade-restrictive and distorting effects

Q24. What is FDI? What are the advantages of FDI?

Ans. Definition of Foreign Direct Investment
Foreign direct investment (FDI) is an investment in a business by an investor from another
country for which the foreign investor has control over the company purchased.
The Organization of Economic Cooperation and Development (OECD) defines control as
owning 10% or more of the business. Businesses that make foreign direct investments are often
called multinational corporations (MNCs) or multinational enterprises (MNEs). An MNE
may make a direct investment by creating a new foreign enterprise, which is called a Greenfield
investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield
investment.
OR
Foreign direct investment (FDI) is an investment made by a company or individual in one
country in business interests in another country, in the form of either establishing business
operations or acquiring business assets in the other country, such as ownership or controlling
interest in a foreign company.
Advantages of FDI:
 Transfer of Technology
The transfer of technology isn’t just restricted to actual technologies. It involves sharing skills,
manufacturing methods and even entire facilities. It can also refer to the knowledge passed by
scientific research institutions.
The advantages of foreign direct investment and the transferring of technology for the receiving
country is great, as those countries usually don’t have access to research facilities or the
knowledge otherwise.
 Development of Human Capital Resources
One of the biggest is the development of human capital resources. This is probably also
understated as its effects are not immediately apparent. Human capital is the knowledge and
competence of those able to perform labor, also known as the workforce.
The human capital resource is not a tangible asset that is own by a company, but rather
something that is on loan. Therefore, countries with FDI benefit greatly by increasing the
development of their human resources while maintaining ownership.
 Increment in Income
Another of the advantages of a foreign direct investment is the rise of the income for the
receiving country. With higher wages and more jobs, the income of the entire country rises as
well. This in turn spurs economic growth. Large corporations usually offer higher salaries than
what you would normally find in that country; this leads to an increase in income.
 Creation of New Jobs
Foreign direct investment assumes the creation of new jobs, as well. As investors build new
corporations in these countries they create new job openings and opportunities. This leads to an
increment in income and the development of competition. New jobs offer more buying power to
the population of that country which in turn leads to economic boosts.
 Overall Economic Growth
All the above factors of foreign direct investment lead to economic growth. This is the increase
of real gross domestic product, also known as the GDP. Economic growth is heavily impacted by
changes in technology and the introduction of new technology.

Q25. What are the basic standards for advertising

programs?
.Standardization of Advertising Programs:
The savings from using the same advertising programs as much as possible, such as on a global
basis or among countries with shared consumer attributes, are not as great as those from product
standardization, but can be significant.
•Translation: On the surface, translating a message would seem to be easy. However, some
messages, particularly plays on words, simply cannot be translated.
•Legality: What is legal advertising in one country may be illegal elsewhere. The differences
result mainly from varying national views on consumer protection, competitive protection,
promotion of civil rights, standards of morality, and nationalism.
•Message needs: An advertising theme may not be appropriate everywhere because of national
differences.
1. Promotion is the process of stimulating demand for a company’s goods and services. In
promoting a product, a variety of approaches can be used, including identical product and
identical message, identical product but different message, modified product but same message,
and modified product and different message.
2. Advertising is a no personal form of promotion in which a firm attempts to persuade
consumers to a particular point of view. In many cases, multinational enterprises (MNEs) use the
same advertising message worldwide
Two of the most common reasons include: (a) the way in which the product is used is different
from that in the home country; and (b) the advertising message does not make sense if translated
directly.
3. MNEs
The three most popular are television, radio, and newspapers. In particular, the use of
television advertising has been increasing in Europe, while in other regions, such as South
America and the Middle East, newspapers remain the major media for promotion efforts.
However, there are restrictions regarding what can be presented. Examples include: (a) some
 countries prohibit comparative advertising, in which companies compare their products
against those of the competition; (b) some countries do not allow certain products to be
advertised because they want to discourage their use (alcoholic beverages and cigarettes, for
example) or because they want to protect national industries from multinational enterprise
(MNE) competition; and (c) some countries, such as most Islamic countries, censor the use of
any messages that are regarded as erotic.

4. Personal selling is a direct form of promotion used to persuade customers to a particular point
of view. Some goods, such as industrial products or goods that require explanation or
description, rely heavily on personal selling. Personal selling is also widely used in marketing
products such as pharmaceuticals and sophisticated electronic equipment.
5. Because many international markets are so large, some multinational enterprises (MNEs)
have also turned to telemarketing. Multinational enterprises (MNEs) have also focused their
attention on recruiting salespeople on an international basis.

Ans. Internalization theory

Internalization theory focuses on imperfections in intermediate product markets.
Two main kinds of intermediate product are distinguished: knowledge flows linking research and
development (R&D) to production, and flows of components and raw materials from an
upstream production facility to a downstream one. Most applications of the theory focus on
knowledge flow.
Proprietary knowledge is easier to appropriate when intellectual property rights such
as patents and trademarks are weak. Even with strong protections firms protect their knowledge
through secrecy. Instead of licensing their knowledge to independent local producers, firms
exploit it themselves in their own production facilities. In effect, they internalize the market in
knowledge within the firm. The theory claims the internalization leads to larger, more
multinational enterprises, because knowledge is a public good.
Development of a new technology is concentrated within the firm and the knowledge then
transferred to other facilities.

Q27. What do you know about multipoint competition?

Ans. Multipoint Competition

1. Two or more diversified firms simultaneously compete in the same product areas or
geographic markets.
2. Multipoint competition exists when firms compete with each other (or could potentially
compete with each other) in more than one market.
Q 28. What are the internationally recognized methods of
payment?
Ans. A payment is the trade of value from one party (such as a person or company) to another
for goods, or services, or to fulfill a legal obligation.
Methods
There are two types of payment methods; exchanging and provisioning. Exchanging involves the
use of money, comprising banknotes and coins. Provisioning involves the transfer of money
from one account to another, and involves a third party. Credit card, debit card, cheque, money
transfers, and recurring cash or ACH (Automated Clearing House) disbursements are all
electronic payments methods. Electronic payments technologies include magnetic stripe
cards, smartcards, contactless cards, and mobile payments.
Some examples of payment methods include:
 credit and debit card payments
Credit and debit cards are cards issued by the bank or financial institution that let your customers
pay for goods and services. A credit card lets your customers pay for your goods and services by
incurring a debt with a credit card provider. Debit cards deduct the amount of money from a sale
from a customer’s bank account.
 direct debit payments
Direct debit is an automatic payment that happens periodically after a customer requests
it. It automatically transfers money from your customer’s bank account to your bank
account.
 Electronic funds transfer at the point of sale EFTPOS payments
Electronic funds transfer at the point of sale (EFTPOS) is a payment system that lets your
customers pay directly into your bank account using an EFTPOS machine using a plastic
card, such as a bankcard, credit card or debit card
 online payments -PayPal
Online payments let your customers pay for your goods and services through your website.
 cash
A cash payment refers to when customers pay using physical currency, such as notes and
coins.
 Cheque
A cheque is a document that tells a bank, credit union or building society to pay you money
from another person’s account.
 money order payments
A money order is a document that tells a bank, credit union, building society or post office to
pay you money. Unlike Cheque, money orders are prepaid.
 gift cards and vouchers
 A gift card is a card with a pre-paid amount of money on it that your customers can use
instead of other payment methods such as credit card and cash. Some gift cards only work at
a specific business or group of businesses. For example, a gift card from a shopping center
may only work at businesses within that shopping center. Others work anywhere credit card
is accepted.
 bitcoin and digital currencies.
Digital currencies such as Bitcoin are an increasingly popular option for accepting and
making payments

Q29. Why china is most fast growing economy in the world in

your views?
Ans. Why China or Chinese economy is the fastest growing economy
Chinese economy is the fastest growing economy among all the developing economy. It is the
biggest exporter of goods and services to the richest economy of the world i.e. united states of
America. The Chinese economy is said to be the next most powerful economy of the world.
Foreign direct investment of China is highest among all the developing country. Her export is
greater than import. Chinese mobile, Chinese toys, computers, and many electronic items is the
center of attraction in every market. “CHEAP AND BEST” CHINA IS THE BEST.
For a country to be powerful, she should have better technology, better resources, war
equipment, skilled laborer, less corruption and many other things. These things are not only with
china but also with India which has huge natural resources, huge number of professionals, India
is the biggest buyer of arms and ammunition amongst all the developing countries, but even then
why is India lagging behind and why china is ahead of every developing country? What makes
china a more powerful economy?
Here are some of the basic reasons for china to be the faster growing economy: – (these reasons
are not copied but based on extreme research or say a logical outcome of my psychological
approach)

SPECIAL ECONOMIC ZONE [SEZs]

A certain specified area is especially reserved for industries to undertake the production of goods
and services. Those who set up the industry in these areas are given some tax benefit or
electricity at lower cost and many other things which encourages industrialization. That is called
SEZs. The concept of special economic zone was first introduced by china. It was the Chinese
who initiated this program.
In India there are more than three thousand SEZs but even then industrialization process is slow
and weak. But china have only total of four special economic zones. But even then Chinese
industrialization is fastest amongst all the developing country. There is a reason for the success
of Chinese SEZs. In case of china all those industries whose plants are located in the SEZs are
not allowed to take help from the industries of their home country. For example – if an American
industries plant are located in any of the Chinese SEZs and they need electricity, raw- materials,
labour, is all provided by Chinese industries. And thus those small industries which provide help
to foreign or Chinese industries themselves benefit. This increases the revenue of the Chinese
industries which provides subsidiary help. Moreover industries located at SEZs are asked to
employ maximum worker belonging to china.[In case of India all these things are given the blind
eye]

STOCK EXCHANGE
The Beijing and the shanghai stock exchange is world famous stock exchange. FDI investment
through these stock exchanges is highest among all the developing country. Notable point in case
of Chinese stock exchange is that all the money which is invested at the Chinese stock exchange
is not allowed to flow outside the country. In other words money generated through these stock
exchanges is not allowed to invest outside of china. In case of India, foreigners and domestic
investors who make money at Bombay stock exchange and national stock exchange, use the
money generated through BSE and NSE to invest outside India. This is not with china and this
saves Chinese capital by huge margin.
CASINOS
As per the Chinese law, the people of china are not allowed to play at casino. It was found in
research that every year people lose their handsome amount, million and billions of dollars in
casino. If this money is used for some productive purpose, it can be fruitful to economy. So
keeping these things in mind Chinese government has declared gambling at casino as illegal, if
played by Chinese. Most of the casinos in china are owned by Chinese and foreigners are
allowed to play. There is no restriction over gambling in casinos to foreigners. Every year
foreigners come and play thereby win and lose their handsome money. Thus money worth of
million and billions of dollars is lost by foreigners and not Chinese. And thus Chinese money
remains in china and foreigners lose money, canny china J
TIANANMEN SQUARE MASSACRE :1989
An unforgettable and unbelievable massacre of 1989 is like a black spot on
the international peace. A heavy blow to democratic protest. With the globalization, competition
between the industries grew by leaps and bounds. Chinese education rate was picking up at a fast
rate. A Number of graduates and PHDs or say intellectuals were rising in china. Graduates and
PHDs and PG students began realizing that Chinese economy needs more liberalization i.e. less
restriction by government over private and foreign industries. They demanded reform at stock
exchange market and many other sectors of economy. And so in order to get
their demand fulfilled, students from different university and colleges designed the democratic
protest and lakhs of student gathered at TIANANMEN SQUARE. Chinese government asked
their students to go back to their colleges. These things cannot be dealt by chewing-gum eating
boys and girls. These are the work of government. Student and government are two different
concepts. Student comprises of inexperienced groups while government comprise of seniors and
experienced. Reform and different sector problems will be looked by government. Government
gave them ultimatum to vacate and shun down protest but students gave a deaf ear to the order.
And when the water was over the neck, the Chinese government sent troops with tanks and
helicopter and ordered for the shoot. More than ten thousand students were killed on the spot.
Government banned the coverage of killing by domestic and international media.
If government would have bowed down to demands of student’s then today multinational
companies and other economies would have controlled the growth rate of economy. In case of
India and many other countries MNCs invest money at their terms and condition but in case of
china MNCs come and invest money at the terms and conditions laid down by the Chinese
government.
A long run effect of massacre of 1989 proved beneficial for the growth of Chinese economy.
And china today talks of human right. Development at the cost of life of thousands of students
killed at Tiananmen Square. Though some, (including me) may think this barbaric, but still
strategically, development and maintaining their own command was the motive behind the China
massacre.

Q30.What are different types of investment in

international markets?
ANS. Investments:
Foreign investment means ownership of foreign property is exchanged for a financial return
(e.g., interest and dividends).
Direct Investment:
Foreign direct investment (FDI) occurs when an investor gains a controlling interest in a foreign
company. That controlling interest can be 100% or much less. When discussing foreign direct
investment, it is important to distinguish between the flow of FDI and the stock of FDI. The
flow of FDI refers to the amount of FDI undertaken over a given time period (normally one
year). The stock of FDI refers to the total accumulated value of foreign owned assets at a given
point in time.

Portfolio Investment:
Portfolio investment is a non-controlling investment in a foreign company. It is usually a
purchase of stock in a foreign company or loan to (bond purchase) a foreign firm.

Savings accounts
Savings accounts with New Zealand’s major banks are one of the most common and least risky
ways to store money for the short term. Credit unions and building societies also offer savings
accounts.
When we deposit money in an account we are actually lending it to the bank, which pays us
some interest in return. The interest rate is relatively low, so savings accounts are not the best
option for long-term growth.

Term deposits
Like savings accounts, term deposits also pay interest. The difference is that we agree to lend
money to the bank for a fixed period of time such as 6 or 12 months in return for a higher rate of
interest.
Bonds
A bond is like an IOU issued by a government, council, or company. We lend them money for a
number of years, and they promise to pay a certain interest rate – called a coupon. The level of
risk involved when investing in bonds depends on whoever’s issuing them.
Shares
When we buy a share, we’re buying a small part of a company. If that company makes
money, we may be paid a share of the profit, called a dividend. Like house prices, share prices
are generally expected to go up over time and give a ‘capital gain’ on our money when we sell.
However, prices can fall in value as well.
Property
Returns from investing in property come from rental income and from any increase in the value
of property over time – called capital gain. Some people view their own home as an investment
because it may grow in value; however it doesn’t bring in the income that letting property to
other individuals or businesses does. It is also important to factor in the interest paid on a
mortgage when assessing the potential for capital gain. We can invest in commercial property
directly, or through managed funds.

Commodities (including gold)

These types of investments don’t pay interest or dividends, but do increase and decrease in value
which can result in a capital gain. The value of commodities often moves in the opposite
direction of other asset classes (e.g. when share prices go down, gold often increases in value,
and vice versa), so investors sometimes buy them to try to protect their money.

Currency (foreign exchange)

As well as being used to buy goods and services, foreign currency is also used as an investment.
Currency investors are looking for higher interest rates overseas, or hoping exchange rates will
move in their favour resulting in a capital gain. Investors, including managed funds, may also use
currency to protect, or ‘hedge’, other investments that are invested overseas. The Financial
Markets Authority has more information about forex trading.

Derivatives (including options and futures)

Derivatives are generally only used by more sophisticated investors, such as managed funds.
This can be a confusing and complex area of investing. However, derivatives are built on a fairly
simple concept - allowing people to protect themselves, or ‘hedge’, against future price
movements. For example a farmer can fix the price today, for the milk they will supply in the
future. While at the same time, a supermarket owner can fix the price now for the milk they will
receive in the future.
Professional investors still use derivatives for this purpose, but can now also use them to invest
more efficiently.

Other alternatives
Other alternative investment types can include things such as private equity, hedge funds, fine
wine, exotic cars and stamps. There are different reasons for buying each one, but, as with all
investments, their value can go up or down.
 Q31. Marketing strategies play a key role in helping multinational enterprises (MNEs) to
formulate the overall plan of action. Discuss it?

Q32. What does OECD stands for? What are its objectives and who are its members.
Explain briefly?
ANS. The Organization for Economic Co-operation and
Development (OECD; French: Organisation de coopération développement
économiques, OCDE) is an intergovernmental economic organization with 35 member countries,
founded in 1960 to stimulate economic progress and world trade. It is a forum of countries
describing themselves as committed to democracy and the market economy, providing a
platform to compare policy experiences, seeking answers to common problems, identify good
practices and coordinate domestic and international policies of its members. Most OECD
members are high-income economies with a very high Human Development Index (HDI) and are
regarded as developed countries. OECD is an official United Nations Observer.
The OECD's headquarters are at the Château de la Muette in Paris, France. The OECD is funded
by contributions from member states at varying rates, and had a total budget of €363 million in
2015.

CURRENT MEMBERSHIP
 Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Israël, Italy, Japan, Korea, Latvia,
Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak
Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States
Sustainable economic growth is the ultimate goal of the OECD or Organization (Organization)
For Economic Cooperation and Development. The OECD is an international organization that
has 35 members.
The OECD was established in 1961 with the following objectives:
 Promote Employment
 Improve the standard of living
 Facilitate world trade growth
 Maintain financial stability
How OECD Works
The major functions of the OECD are:
 Provides a platform for the governments of member nations to find solutions to universal
problems, organize policies and compare policy experiences.
 Monitors economic trends relating to trade, technology, environment, taxation and agriculture
 Publishes its economic statistics and other intellectual findings both online and offline.
 Offers peer reviews to member nations about their performance.
 Offers expertise and ideas to over 100 non-member countries for their economic development.
Achievements of OECD
The main highlights of the OECD are:
 Shifted to ‘Think global, act local’ to maximize new opportunities for democratic participation.
 Major publications include the OECD Economic Outlook, OECD Fact book, OECD Economic
surveys and ‘Going for Growth.’
 Continued focus on economic growth through innovation.
Q33. From 1980s the economies are moving from centrally and mixed to free market
economy, what are the reasons? Explain.

Ans. not founded

Q34. Write a note on stock and flow of FDI?

Ans. FDI Flow
Foreign Direct Investment (FDI) flows record the value of cross-border transactions related to
direct investment during a given period of time, usually a quarter or a year. Financial flows
consist of equity transactions, reinvestment of earnings, and intercompany debt transactions.
Outward flows represent transactions that increase the investment that investors in the reporting
economy have in enterprises in a foreign economy, such as through purchases of equity or
reinvestment of earnings, less any transactions that decrease the investment that investors in the
reporting economy have in enterprises in a foreign economy, such as sales of equity or
borrowing by the resident investor from the foreign enterprise.
Inward flows represent transactions that increase the investment that foreign investors have in
enterprises resident in the reporting economy less transactions that decrease the investment of
foreign investors in resident enterprises. FDI flows are measured in USD and as a share of GDP.
FDI creates stable and long-lasting links between economies.

FDI Stock
Foreign Direct Investment (FDI) stocks measure the total level of direct investment at a given
point in time, usually the end of a quarter or of a year. The outward FDI stock is the value of
the resident investors' equity in and net loans to enterprises in foreign economies. The inward
FDI stock is the value of foreign investors' equity in and net loans to enterprises resident in the
reporting economy. FDI stocks are measured in USD and as a share of GDP. FDI creates stable
and long-lasting links between economies.
Q35. Why a home country encourages outward FDI? Explain.

\Q36. There are high and low cultural differences in countries, how management tackle
these difference? Explain example.
ANS. Cultural Differences - High Context versus Low Context
A low context culture is one in which things are fully spelled out. Things are made explicit, and
there is considerable dependence on what is actually said or written.
A high context culture is one in which the communicators assume a great deal of commonality
of knowledge and views.
Low context cultures include Anglos, Germanics and Scandinavians. High context cultures
include Japanese, Arabs and French.
The implications are obvious. Interactions between high and low context peoples can be
problematic. For example:
 Japanese can find Westerners to be offensively blunt. Westerners can find
Japanese to be secretive, devious and bafflingly unforthcoming with
information.
 French can feel that Germans insult their intelligence by explaining the
obvious, while Germans can feel that French managers provide no direction.
CROSS-CULTURAL MANAGEMENT:
Cross-cultural management is examining human behavior within organizations from an
international perspective.
Cross-cultural management describes organizational behavior within countries and cultures;
compares organizational behavior across countries and cultures; and seeks to understand how to
improve the interaction of co–workers, managers, executives, clients, suppliers, and alliance
partners from around the world.
Cross-cultural management focuses on reducing the cross-cultural differences and barriers and
creating cross-cultural awareness in order to have better communication and cooperation at the
workplace. It is the toughest job of a cross-cultural manager to keep his employees involved in
the tasks by keeping their differences aside. Every country follows a different way of
management style and it becomes difficult for an international manager to manage various
cultures.

STRATEGIES FOR MANAGING CROSS-CULTURAL DIFFERENCES:

As the managers and the employees in a multinational organization gradually understand the
dimensions and differences, it is the duty of both managers and the employees to adopt the
strategies to keep the diversity at bay. Following are the strategies which help us to overcome the
obstacles of cross-cultural differences;
1. Good knowledge of foreign culture:
The first strategy is acknowledging and admitting the existence of differences between cultures.
This mainly includes differences in perceptions, interpretations and evaluations of social
situations and people who create them and act within them. These differences than have to be
named, described, explained and understood. Recognition of the culture of a partner is
considered to be the first condition of mutual understanding and good cooperation.
2. Respect of a foreign culture:
Respect of a foreign culture means most of all accepting their differences without any judgment.
It is not possible to claim that a certain culture is more perfect, "better" than another culture.
Cultures are different and for their members they represent optimum to manage life situations in
conditions they have been living in for a long time.
3. Helpful steps in the relationship to a foreign culture:
The next strategy of the recommended process should be the effort to find common solution,
mutual understanding and simplification of the complicated and demanding process of behaving
in different cultural conditions. These helpful steps in no case mean that the participating
partners should give up their cultural background, but it suggests that they should use their
knowledge of own culture to gain knowledge about the partner's culture, which can be quite easy
after all
The main condition is a very good knowledge of partners and their cultural environment,
though.
4. Ignore the cultural differences:
In this strategy, a stage comes where the managers ignore the differences. It later becomes
irrelevant as the managers and employees would be having a good understanding about each
other cultures and practices as earlier they would learn to respect the cultures.
The ignorance of diversity precludes effective management of cultural differences and also
precludes the possibility of minimizing negative impacts and increasing positive impacts of
diversity.
5. Minimize differences:
In this strategy, the managers recognize cultural differences but only as a source of problem.
In such organizations, managers try to reduce the problems of differences by reducing cultural
diversity.

6. Managing differences:
This strategy is adopted by synergistic organizations. These organizations recognize the impacts
of cultural differences that lead to both advantages and disadvantages. The managers in
synergistic organizations believe that "our way and their way of believing and managing differ,
but neither is superior to other". In this case, the managers and employees minimize potential
problems by managing the impacts of cultural differences, not by minimizing the differences
themselves.

Q37. Differentiate between the forward discount and

forward premium?
Ans. Forward discount and forward premium
Forward discount and forward premium are the terms which are used in the context of foreign
exchange market to denote the pricing of exchange rate between the two currencies. Let’s look at
both the terms in detail –
Forward Discount – It refers to a situation where the spot exchange rate of a currency is trading
at higher level than future spot rate. So for example if rupee dollar is quoting at 55 rupees per
dollar in spot market and in futures it is quoting at 54.5 than it refers to forward discount.
Forward Premium – It refers to a situation where the spot exchange rate of a currency is trading
at lower level than future spot rate. For example if rupee dollar is quoting at 55 rupees per dollar
in spot market and in futures it is quoting at 55.55 than it refers to forward premium.

Q38. Write a note on Hawley tariff?

Ans. 'Smoot-Hawley Tariff Act'
The Smoot-Hawley Tariff Act, known formally as the United States Tariff Act of 1930, was a
piece of U.S. legislation raising import duties to protect American businesses and farmers.
The Smoot-Hawley Tariff Act, enacted in June 1930, increased in import duties by as much as
50%. It was the last legislation under which the U.S. Congress set tariff rates.
The Smoot-Hawley Tariff Act raised America's already remarkably high tariff rates.
The Smoot-Hawley Tariff Act was preceded by the Fordney-McCumber Act, passed in 1922, a
bill perceived as both punitive and protectionist, raising the average import tax to 40%. The
Fordney-McCumber Act incited retaliation from European governments, but that did little to
hinder American success.
However, the goal of Smoot-Hawley was to increase U.S. farmer protection against
agricultural imports. As European farmers recovered from WWI, American farmers struggled
with increased competition and declining prices from over-production.
Once other sectors caught wind of these changes, a large outcry to increase tariffs in other
economic sectors followed.
The first effort to pass the bill failed, stymied by moderate Senate Republicans early in 1929.
However, with the stock market crash of 1929, protectionist and isolationist sentiments found
increasing appeal. The bill then passed by a narrow margin (44-42) in the Senate, though easily
in the House. President Hoover signed the bill in the face of a petition signed by more than 1,000
economists urging him to veto it.
How It Contributed to the Depression
The timing of the bill's passage through Congress affected the stock market.
  May 28, 1929. Smoot-Hawley passes the House. Stock prices drop to 191 points.
 June 19. Senate Republicans revise bill. Market rallies, hitting its peak of 216 on
September 3.
 October 21. Senate adds tariffs to non-farm imports. Black Thursday stock market crash.
 October 31. Presidential candidate Hoover supports bill. Foreigners start withdrawing
capital.
 March 24, 1930. Senate passes the bill. Stocks fall.
 June 17, 1930. Hoover signs the bill into law. Stocks drop to 140 in July.
Tariffs forced import prices up 45 percent. Millions of Americans had just lost everything in the
stock market crash. Overnight, imports became unaffordable luxuries for all but the wealthy. It
made it harder for those who lost their jobs to afford anything but domestic goods.
Canada, Europe and other nations swiftly retaliated by raising tariffs on U.S. exports. As a result,
exports fell from $7 billion in 1929 to $2.5 billion in 1932. Farm exports fell to a third of their
1929 level by 1933.
Global trade plummeted 65 percent. That made it difficult for American manufacturers to remain
in business.
For example, tariffs on cheap imported wool rags rose by 140 percent. Five hundred U.S. plants
employed 60,000 workers to use the rags to make cheap clothing. U.S. auto manufacturers
suffered from tariffs on 800 products they used. At the time, exports comprised 5 percent
of gross domestic product.

Q39. Write a note on Amsterdam Treaty?

ANS, The Treaty of Amsterdam
The Treaty of Amsterdam was signed on the 2nd of October 1997 and came into force on the
1st of May 1999. Its main changes were focused on the Treaty on European Union, created by the
Maastricht Treaty in 1992.

Its main areas of focus were increasing the democratic legitimacy of the European Institutions by
increasing the powers of the European Parliament, Security and Justice Reforms including the
introduction of a common foreign and security policy, the reformation of the three pillars of the
EU and the reform of the institutions to better prepare them for the upcoming enlargement.

Origins/ History
The Treaty of Amsterdam, or to give it its full name the “Treaty of Amsterdam amending the
Treaty of the European Union, the Treaties establishing the European Communities and certain
related acts, commonly known as the Amsterdam Treaty” came into force on the 1st of
May1999.

The Treaty was the result of a series of long negotiations beginning in 1995, in Messina, Sicily,
and reached completion in Amsterdam on the 18th of June 1997. It was formally signed into EC
law on the 2nd of October 1997 and a long and complex ratification process began. The
procedure was finally concluded after the European Parliament ratified it on the 19th of
November 1997 and after two referenda and 13 national parliament decision in the Member
States.

Q40. Write a note on CER trade agreement?

Ans. The Australia – New Zealand Closer Economic Relations Trade Agreement (known as
ANZCERTA or the CER Agreement) is one of the most comprehensive bilateral free trade
agreements in existence. It covers substantially all trans-Tasman trade in goods, including
agricultural products, and was the first to include free trade in services.
The Agreement's central provision is the creation of a World Trade Organization (WTO)-
consistent Free Trade Area encompassing Australia and New Zealand.

Key interests and benefits

 All tariffs and quantitative import or export restrictions on trade in goods originating in
the Free Trade Area are prohibited under ANZCERTA.
 Contains measures to minimize market distortions in trade in goods, including
through domestic industry assistance and export subsidies and incentives.
 The harmonization of Trans-Tasman food standards through the Australia New
Zealand Food Authority (ANZFA) Agreement of 1995 means lower compliance costs
for industry, fewer regulatory barriers, and more consumer choice.
 Mutual recognition of goods and occupations removes technical barriers to trade and
impediments to the movement of skilled personnel between jurisdictions without the
need for complete harmonization of standards and professional qualifications.
 The Protocol on Investment to ANZCERTA entered into force on 1 March 2013.
Under the Protocol investors in both countries benefit from lower compliance costs,
higher screening thresholds and greater legal certainty when investing in their Trans-
Tasman Neighbour. Two-way investment between Australia and New Zealand is worth
more than $130 billion (2014).
The objectives of ANZCERTA are to:
 strengthen the broader relationship between Australia and New Zealand
 develop closer economic relations between the Member States through a mutually
beneficial expansion of free trade between New Zealand and Australia
  eliminate barriers to trade between Australia and New Zealand in a gradual and
progressive manner under an agreed timetable and with a minimum of disruption
 develop trade between New Zealand and Australia under conditions of fair competition.

Q41. Write a note on role of GATT?

Ans. The Role of the General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) was a multilateral trade treaty between
countries to regulate international trade and tariffs in accordance with specific rules, norms or
code of conduct. GATT was set up in 1948 in Geneva to follow the objectives of free trade in
order to encourage growth and development of all member countries. There are 117 member
nations in GATT. The principal purpose of GATT was to ensure competition in commodity trade
through the removal of or reduction in trade barriers.
GATT served as an important international forum for carrying on negotiations on tariffs. Under
GATT, member nations met at regular intervals to negotiate agreements to reduce quotas, tariffs
and such other restrictions on international trade. GATT became a permanent international trade
institution for the multilateral expansion of trade until it was replaced by World Trade
Organization (W.T.O) in 1995.

Objectives of GATT
 Expansion of international trade;
 Increase of world production by ensuring full employment in the participating nations.
 Development and full utilization of world resources; and
 Revising standard of living of the world community as a whole.
 The rules adopted by GATT are based on the following fundamental principles:
 Trade should be conducted in a non-discriminatory way;
 The use of quantitative restrictions should be condemned; and
 Disagreements should be resolved through consultations.
Methods of achieving the objectives
The GATT proposed to achieve the objectives through the following methods:
1) Most favored Nation clause
The clause is also known as elimination of discrimination clause. This clause is to be adopted to
avoid discrimination in international trade. The clause implies that each country shall be treated
as the most favored nation. Any particular trade concession offered by a member country to her
trading partner should also be available to all the members of the GATT at the same time.
2) Quantitative restrictions on Imports
The GATT rules prohibited the use of import quota fixation. But three important exceptions were
allowed to this rule:
 Countries, which are facing balance of payments difficulties, may use the device of input quota
fixation.
Developing countries may resort to quota fixation but only under procedure accepted by the
GATT.
Quotas may be applied to agricultural and fishery products if domestic production is subject to
equally restrictive controls.
3) Tariff negotiations and Reduction of Tariff
The GATT recognized that tariffs are often an important obstacle to international trade. Hence,
the GATT would encourage negotiations for tariff reduction to be conducted on a reciprocal and
mutually advantageous basis, taking into consideration the varying needs of individual
contracting parties.
The Uruguay Round of talks 1993 was most ambitious and complex. Apart from the traditional
tariff and non-tariff measures, new areas such as Trade related Intellectual property Rights
(TRIPS), Trade Related Investment Measures (TRIMS) and Trade in services were taken up for
discussion. There were differences among member countries in areas such as agriculture,
textiles, TRIPS and anti-dumping. The Uruguay Round has enlarged the scope of GATT to
include services and agriculture. The Uruguay Agenda wanted to remove all trade barriers.

Q42. Write a note on NAFTA?

Ans. North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) is a trade agreement between Mexico,
the United States, and Canada. The agreement was signed by U.S. President George H.W. Bush,
Canadian Prime Minister Brian Mulroney, and Mexican President Carlos Salinas on December
17, 1992 in San Antonio, Texas, and took effect on January 1, 1994. It removed taxes on
products traded between the United States, Canada, and Mexico. It also
protects copyrights, patents, and trademarks between those three countries. It was updated with
the North American Agreement on Environmental Cooperation, which helped set more
environment regulations and helped reduce pollution. It was also updated with the North
American Agreement for Labor Cooperation, which helped people fight for better work
conditions.
Members: Canada, Mexico & United States
 Official languages: English, French and Spanish
 Secretariats: Mexico-city, Ottawa, Washington D.C.
How NAFTA Work
NAFTA is a formal agreement that establishes clear rules for commercial activity between
Canada, the United States, and Mexico.
 It is overseen by a number of institutions that ensure the proper interpretation and smooth
implementation of the Agreement’s provisions.
• Free Trade Commission
• NAFTA Coordinators
• NAFTA working groups & committees
• NAFTA Secretariat
• Commission for labor Cooperation
• Commission for Environmental Cooperation
Objectives of NAFTA
 To eliminate trade barriers & facilitate the cross-border movements of goods and services
between the parties
 To promote conditions of fair competition
 To substantially increase investment opportunities
 To provide adequate and effective protection & enforcement of intellectual property
rights in each territory
 To create effective procedures for the implementation and application of this agreement
,for its joint administration & for resolution of disputes
 To establish a framework for further trilateral, regional and multilateral co-operation to
expand and enhance benefits of this agreement

The North American Agreement on Environmental

Cooperation (NAAEC)
is an environmental agreement between the United States of America, Canada and Mexico as a si
de-treaty of the North American Free Trade Agreement.
The agreement came into effect January 1, 1994.
The agreement consists of a declaration of principles and objectives concerning conservation and
the protection of the environment as well as concrete measures to further cooperation on these
matters between the three countries.
The North American Agreement on Labor Cooperation (NAALC)
 was signed on September 14, 1993, by the Presidents of Mexico and the United Stat
es, and the Prime Minister of Canada, as one of the supplementary accords to the North
America Free Trade Agreement (NAFTA).  It entered into force on January 1, 1994.
 The NAALC was the first international agreement on labor to be linked to an internationa
l trade agreement.
 It provides a mechanism for member countries to ensure the effective enforcement of exi
sting and future domestic labor standards and laws without interfering in the soverei
gn functioning of the different national labor systems, an approach that made it novel
and unique.

Provisions
NAFTA also seeks to eliminate non-
tariff trade barriers and to protect the intellectual property right of the products.
 Intellectual
Property: NAFTA made some changes to the Copyright law of the United States foreshadowi
ng the Uruguay Round Agreements Act of 1994 by restoring copyright (within NAFTA) on cert
ain motion pictures which had entered the public domain.
Environment: A side agreement was negotiated on the environment with Canada and M
exico, the North American Agreement on Environmental Cooperation (NAAEC), which led to th
e creation of the Commission for Environmental Cooperation (CEC) in 1994.
Transportation infrastructure:
NAFTA established the CANAMEX Corridor for road transport
between Canada and Mexico, also proposed for use by rail, pipeline, and fiber optic telecommuni
cations infrastructure. This became a High Priority Corridor under the U.S. Intermodal Surface
Transportation Efficiency Act of 1991.
Agriculture:
three separate agreements were signed between each pair of parties. The Canada–
U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainl
y sugar, dairy, and poultry products), whereas the Mexico–
U.S. pact allows for a wider liberalization within a framework of phase-
out periods (it was the first North–South FTA on agriculture to be signed).
Benefits:
 Benefits the importers by reduced or duty free goods.
 trade and investment levels in North America have increased, bringing strong economic
growth, job creation, and better prices and selection in Consumer goods.
 There has been great increase in trade among the three countries and market access
within each country also increased considerably.
 improved economic stability in the U.S. marketplace
 a marketplace that is increasingly driven more by supply and demand than by barriers to
commerce
Limitations:
 It has negative impacts on farmers in Mexico who saw food prices fall based on cheap
imports from U.S. agro business
 It has negative impacts on U.S. workers in manufacturing and assembly industries who
lost jobs.
 Critics also argue that NAFTA has contributed to the rising levels of inequality in both
the U.S. and Mexico.
 Some economists believe that NAFTA has not been enough (or worked fast enough) to
produce an economic convergence, nor to substantially reduce poverty rates
Q43. List disadvantages for 1st mover organization? Explain each.
Ans. What are First Movers?
A company that is the first to establish itself in a given market or industry, the proverbial 'early
bird,' is known as the first mover. First movers hope to gain a sustainable competitive advantage
by establishing themselves before any competitors enter the market.
Advantages
There are some advantages to being a first mover. Here are some of them:
 First movers have the potential to make a lasting impression on customers, which can
lead to brand recognition and brand loyalty.
 First movers have more time to refine their processes and to perfect their products or
services.
 First movers may have an advantage in controlling resources, such as a strategic location
or an exclusive contract with key suppliers or talented employees.
 First movers may have a sustainable advantage when there is a high cost involved for
customers to switch brands at a later date.
First-mover disadvantages
Although being a first-mover can create an overwhelming advantage, in some cases products that
are first to market do not succeed. These products are victims of first-mover disadvantages.
These disadvantages include “free-rider effects, resolution of technological or market
uncertainty, shifts in technology or customer needs, and incumbent inertia.”
 1. Free-rider effects
2. Resolution of technological or market uncertainty
3. Shifts in technology or customer needs
4. Incumbent inertia
5. the firm may be locked into a specific set of fixed assets,
6. the firm may be reluctant to cannibalize existing product lines, or
7. The firm may become organizationally inflexible.
Real-World Examples
A prime example of a successful first mover is Coca-Cola, or Coke. Coke was invented in 1896
by John S. Pemberton. When Caleb Bradham invented Pepsi-Cola thirteen years later, Coke was
already selling a million gallons per year. For over a hundred years, Pepsi has been trying to play
catch-up in the cola beverage market, but first mover Coca-Cola continues to dominate the
market. In 2014, the Coca-Cola brand was valued at $79 billion dollars . . . a very juicy worm,
indeed!
Other examples of successful first movers include:
 eBay -- the first online auction service

Q44. Write a note on IMF?

Ans. IMF
International Monetary Fund
 IMF is the intergovernmental organization that oversees the global financial system by
following the macroeconomic policies of its member countries, in particular those with
an impact on exchange rate and the balance of payments.
 It is an organization formed with a stated objective of stabilizing international exchange
rates and facilitating development through the enforcement of liberalizing economic
policies on other countries as a condition for loans, restructuring or aid.
 The IMF was created to support orderly international currency exchanges and to help
nations having balance of payment problems through short term loans of cash.
 Its headquarters are in Washington, United States.

Purposes of the IMF

 Promote international monetary cooperation.
 Expansion and balanced growth of international trade.
 Promote exchange rate stability.
 The elimination of restrictions on the international flow of capital.
 Make resources of the Fund available to members
 Help establish multilateral system of payments and eliminate foreign exchange
restrictions.
  Shorten the duration and lessen the degree of disequilibrium in international balances of
payment.
 Foster economic growth and high levels of employment
 Temporary financial assistance to countries to help the balance of payments adjustments.
ROLE OF IMF
 Promoting research in various areas of international economics and monetary economics.
 Providing a forum for discussion and consultation among member countries. Being in the
center of competence.
 Focusing on its core macroeconomic and financial areas of responsibility.
 Working in a complementary fashion with other institutions established.
FUNCTIONS OF IMF
 Surveillance (like a doctor)
 Technical Assistance (like a teacher)
 Financial Assistance (like a banker)
Where the IMF gets its money
 Most comes from the quota subscriptions: the money each member contributes when
joining the IMF. The Capital resources of the fund are subscribed by the various member
countries by way of their respective quotas. Each Member country is required to
subscribe its quota partly in gold and partly in its own national currency. Each Member
country is required to subscribe its quota partly in gold and partly in its own national
currency.
 General Arrangements to Borrow (1962): line of credit set up with several governments
and banks throughout the world
Special Drawing Right (SDRs)
 SDR is an invented currency: its value is based on the worth of the world’s five major
currencies US Dollar, French Franc, Pound Sterling, Japanese Yen, Deutsche Mark
 Countries add SDRs to their holdings of foreign currencies: keep available for need of
payments that must be made in foreign exchange

Collaborating with Other Institutions

 The IMF collaborates with
 the World Bank,
 the regional development banks,
 the World Trade Organization,
 United Nations agencies, and
 other international bodies.

SUCCESS OF IMF
1) International Monetary Cooperation
2) Reconstruction of European Countries
3) Multilateral System of Foreign Payments
4) Increase in International Liquidity
5) Increase in International Trade
6) Special Aid to Developing Countries
7) Providing Statistical Information
8) Helpful in Times of Difficulties
9) Easiness & Flexibility in Making International Payments

FAILURES OF IMF
1) Lack of Stability in Exchange Rate
2) Lack of Stability in the Price of Gold
3) Inability to Remove Restrictions on Foreign Trade
4) Rich Nations Club
5) No help for development projects
6) No Solution of International Liquidity
7) Interference in Domestic Economies
8) Inability to tackle the Monetary Crisis of August 1971 9) Less Aid for Developing Countries
10) High Rate of Interest

Q45. Write a note on World Bank?

Ans. Organization and Structure:
The organization of the bank consists of the Board of Governors, the Board of Executive
Directors and the Advisory Committee, the Loan Committee and the president and other staff
members. All the powers of the bank are vested in the Board of Governors which is the supreme
policy making body of the bank.
The board consists of one Governor and one Alternative Governor appointed for five years by
each member country. Each Governor has the voting power which is related to the financial
contribution of the Government which he represents.
The Board of Executive Directors consists of 21 members, 6 of them are appointed by the six
largest shareholders, namely the USA, the UK, West Germany, France, Japan and India. The rest
of the 15 members are elected by the remaining countries.
Each Executive Director holds voting power in proportion to the shares held by his Government.
The board of Executive Directors meets regularly once a month to carry on the routine working
of the bank.
The president of the bank is pointed by the Board of Executive Directors. He is the Chief
Executive of the Bank and he is responsible for the conduct of the day-to-day business of the
bank. The Advisory committees appointed by the Board of Directors.
It consists of 7 members who are expects in different branches of banking. There is also another
body known as the Loan Committee. This committee is consulted by the bank before any loan is
extended to a member country.
Capital Resources of World Bank:
The initial authorized capital of the World Bank was $ 10,000 million, which was divided in 1
lakh shares of $ 1 lakh each. The authorized capital of the Bank has been increased from time to
time with the approval of member countries.
On June 30, 1996, the authorized capital of the Bank was $ 188 billion out of which $ 180.6
billion (96% of total authorized capital) was issued to member countries in the form of shares.
Member countries repay the share amount to the World Bank in the following ways:
1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights (SDR).
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share deposited by the member country only on demand by the World
Bank.
Objectives:
The following objectives are assigned by the World Bank:
1. To provide long-run capital to member countries for economic reconstruction and
development.
2. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium
and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other projects of member
countries.
4. To ensure the implementation of development projects so as to bring about a smooth
transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides loans
for productive activities on considerate conditions.
Functions:
World Bank is playing main 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 of 5 to 20 years duration.
The main functions can be explained with the help of the following points:
1. World Bank provides various technical services to the member countries
2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.
3. The quantities of loans, interest rate and terms and conditions are determined by the Bank
itself.
4. Generally, Bank grants loans for a particular project duly submitted to the Bank by the
member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the loan
was sanctioned.
6. Bank also provides loan to private investors belonging to member countries on its own
guarantee.
World Bank Made up of 5 different organizations
1. International Bank for Reconstruction and Development
2. International Development Association
3. International Finance Corporation
4. Multilateral Investment Guarantee Agency
5. International Center for the Settlement of Investment Disputes

Write a note on SAARC and its role in

Q47.

international business in South Asia

Ans. History of SAARC
The idea of regional cooperation in South Asia was first mooted in May 1980. The Foreign
Secretaries of the seven countries met for the first time in Colombo in April 1981. The
Committee of the Whole, which met in Colombo in August 1981, identified five broad areas for
regional cooperation. New areas of cooperation were added in the following years.
The South Asian Association for Regional Cooperation (SAARC) was established when its
Charter was formally approved on 8 December 1985 by the Heads of State or Government of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan became a
member of SAARC during the Fourteenth SAARC Summit held in Delhi, India in April 2007.
Until 2009 China, Japan, Republic of Korea, USA, Iran, Mauritius, Australia, Myanmar and the
European Union have joined SAARC as Observers.
Cooperation in SAARC is based on respect for the five principles of sovereign equality,
territorial integrity, political independence, non-interference in internal affairs of the member
states and mutual benefit.
Regional cooperation is seen as a complement to the bilateral and multilateral relations of
SAARC Member States.
SAARC Secretariat
• The SAARC Secretariat is based in Kathmandu, Nepal. It coordinates and monitors
implementation of activities, prepares for and services meetings, and serves as a channel of
communication between the Association and its Member States as well as other regional
organization. The Secretariat is headed by the Secretary General. Ahmed Saleem from Maldives
is the current Secretary General. The Secretary General is assisted by eight Directors on
deputation from the Member SAARC Secretariat and Member States observe 8 December as the
SAARC Charter Day.
OBJECTIVES OF SAARC
• Promoting the welfare of the people of South Asia and to improve their quality of
life.
• Accelerating economic growth, social progress and cultural development in the
region and to provide all individuals the opportunity to live in dignity and to
realize their full potential.
• Promote and strengthen collective self-reliance among the countries of South
Asia.
• Contribute to mutual trust, understanding and appreciation of one another's
problems.
• Promoting active collaboration and mutual assistance in the economic, social,
cultural, technical and scientific fields.
• Strengthening cooperation with other developing countries;
• Strengthening cooperation among themselves in international forums on matters
of common interest
• Cooperation with international and regional organizations with similar aim and
purpose.
Principles of SAARC
The principles are as follows:
• Respect for sovereignty, territorial integrity, political equality and independence
of all members states.
• Non-interference in the internal matters is one of its objectives.
• Cooperation for mutual benefit.
• All decisions to be taken unanimously and need a quorum of all eight members.
• All bilateral issues to be kept aside and only multilateral issues to be discussed
without being prejudiced by bilateral issues.
Future members
• China has shown interest in joining SAARC. Pakistan & Bangladesh support
china’s candidature. While India is opposing.
• Indonesia supported by Sri Lanka intends to become a observer of SAARC.
• Myanmar has expressed it’s desire to become a full time member of SAARC.
Myanmar’s military regime officially applied for full SAARC membership in
May 2008. However, the application is still being considered and the government
is currently restricted to observer status.
• Russia intends to become an observer, and is supported by India.
• Iran because of it’s strong cultural, economic and political relationships with
Afghanistan and Pakistan and has expressed its desire to become a member of the
South Asian
SAARC Preferential Trading Arrangement (SAPTA)
 • The Agreement on SAARC Preferential Trading Arrangement (SAPTA) was
signed on 11 April 1993 to promote and sustain mutual trade and economic
cooperation within the SAARC region through the exchange of concessions. The
basic principles underlying SAPTA are:
• Overall reciprocity of advantages.
• Trade reform.
• Preferential measures in favour of Least Developed Contracting States.
• Inclusion of all products, manufactures and commodities in their raw, semi-
processed and processed forms.
WHY SAARC HAS FAILED TO ACHIEVE MOST OF ITS OBJECTIVES
Policy of non-interference:
Political deadlock:
Geopolitical equation matters

…Areas of Cooperation
1. Agricultural and Rural
2. Biotechnology
3. Culture
4. Economic and Trade
5. Education
6. Energy
7. Environment
8. Finance
9. Funding Mechanism
10. Information, Communication and Media
11. People to people contacts
12. Poverty Alleviation
13. Science and Technology
14. Security Aspects
15. Social Development
16. Tourism

Q48. Write a note on EU and its role in

international business in Europe?
Ans. History of EU
 European Economic Community. Now it was a community for coal, steel and for trade. Later
it changed the name to the European Community.
In 1993, with the Treaty of Maastricht it changed its name to the European Union. Now the
member countries work together not only in politics and economy (coal, steel and trade), but also
in money, justice (laws), and foreign affairs. With the Schengen Agreement, 22 member
countries of the EU opened their borders to each other, so people can now travel from one
country to the other without a passport or identity card. Now already 16 member countries have
replaced their national currencies with the euro. 10 new countries became members of the EU
in 2004, 2 more became members in 2007, and 1 more in 2013. Today there are 28 member
countries altogether.
Free movement
A person who is a citizen of a European Union country can live and work in any of the other 27
member countries without needing a work permit or visa. For example, a French person can
move to Greece to work there, or just to live there, and he or she does not need permission from
an authority in Greece.
In the same way, products made in one member country can be sold in any other member
country without any special permissions or extra taxes. For this reason, the members agree rules
on product safety - they want to know that a product made in another country will be as safe as it
would be if it had been made in their own.
Main institutions
Goals and values of the EU
Goals
The goals of the European Union are:
 promote peace, its values and the well-being of its citizens;
 offer freedom, security and justice without internal borders;
 sustainable development based on balanced economic growth and price stability, a highly
competitive market economy with full employment and social progress, and environmental
protection;
 combat social exclusion and discrimination;
 promote scientific and technological progress;
 enhance economic, social and territorial cohesion and solidarity among member countries;
 respect its rich cultural and linguistic diversity;
 establish an economic and monetary union whose currency is the euro.
Values
The EU values are common to the member countries in a society in which inclusion, tolerance,
justice, solidarity and non-discrimination prevail. These values are an integral part of our
European way of life:
 Human dignity
Human dignity is inviolable. It must be respected, protected and constitutes the real basis of
fundamental rights.
 Freedom
Freedom of movement gives citizens the right to move and reside freely within the Union.
Individual freedoms such as respect for private life, freedom of thought, religion, assembly,
expression and information are protected by the EU Charter of Fundamental Rights.
 Democracy
The functioning of the EU is founded on representative democracy. Being a European citizen
also means enjoying political rights. Every adult EU citizen has the right to stand as a candidate
and to vote in elections to the European Parliament. EU citizens have the right to stand as
candidate and to vote in their country of residence, or in their country of origin.
 Equality
Equality is about equal rights for all citizens before the law. The principle of equality between
women and men underpins all European policies and is the basis for European integration. It
applies in all areas. The principle of equal pay for equal work became part of the Treaty of in
1957. Although inequalities still exist, the EU has made significant progress.
 Rule of law
The EU is based on the rule of law. Everything the EU does is founded on treaties, voluntarily
and democratically agreed by its member countries. Law and justice are upheld by an
independent judiciary. The member countries gave final jurisdiction to the European Court of
Justice which judgements have to be respected by all.
 Human rights
Human rights are protected by the EU Charter of Fundamental Rights. These cover the right to
be free from discrimination on the basis of sex, racial or ethnic origin, religion or belief,
disability, age or sexual orientation, the right to the protection of your personal data, and or the
right to get access to justice.
These goals and values form the basis of the EU and are laid out in the Lisbon Treaty and the EU
Charter of fundamental rights.
In 2012, the EU was awarded the Nobel Peace Prize for advancing the causes of peace,
reconciliation, democracy and human rights in Europe.

From economic to political union

The European Union is a unique economic and political union between 28 European
countries that together cover much of the continent.
The predecessor of the EU was created in the aftermath of the Second World War. The first steps
were to foster economic cooperation: the idea being that countries that trade with one another
become economically interdependent and so more likely to avoid conflict.

Stability, a single currency, mobility and growth

The EU has delivered more than half a century of peace, stability and prosperity, helped raise
living standards and launched a single European currency: the euro. More than 340 million EU
citizens in 19 countries now use it as their currency and enjoy its benefits.

Transparent and democratic institutions

The EU remains focused on making its governing institutions more transparent and democratic.
More powers have been given to the directly elected European Parliament, while national
parliaments play a greater role, working alongside the European institutions. In turn, European
citizens have an ever-increasing number of channels for taking part in the political process.
The EU Role in the world
Trade
The European Union is the largest trade block in the world. It is the world's biggest exporter of
manufactured goods and services, and the biggest import market for over 100 countries.
Humanitarian aid
The EU is committed to helping victims of man-made and natural disasters worldwide and
supports over 120 million people each year..
Diplomacy and security
The EU plays an important role in diplomacy and works to foster stability, security and
prosperity, democracy, fundamental freedoms and the rule of law at international level.

Write a note on ECO and its recently

Q49.

held summit in Pakistan in 2017?

Ans. ECO: ECONOMIC COOPERATION ORGANIZATION
Economic Cooperation Organization (ECO), is an intergovernmental regional organization
established in 1985 by Iran, Pakistan and Turkey for the purpose of promoting economic,
technical and cultural cooperation among the Member States.

ECO is the successor organization of Regional Cooperation for Development (RCD) which
remained in existence since 1964 up to 1979.

In 1992, the Organization was expanded to include seven new members, namely: Islamic
Republic of Afghanistan, Republic of Azerbaijan, Republic of Kazakhstan, Kyrgyz Republic,
Republic of Tajikistan, Turkmenistan and Republic of Uzbekistan. The date of the
Organization’s expansion to its present strength, 28th November, is being observed as the
ECO Day.

The ECO region is full of bright trading prospects. Despite its young age, ECO has developed
into a thriving regional organization. Its international stature is growing. Nevertheless, the
organization faces un-daunting challenges with respect to realization of its objectives and goals.
Most importantly, the region is lacking in appropriate infrastructure and institutions which the
Organization is seeking to develop, on priority basis, to make full use of the available resources
in the region.

Current Membership:

Islamic State of Afghanistan, Azerbaijan Republic, Islamic Republic of Iran, Republic of

Kazakhstan, Kyrgyz Republic, Islamic Republic of Pakistan, Republic of Tajikistan, Republic of
Turkey, Turkmenistan and Republic of Uzbekistan

ORGANISATIONAL STRUCTURE:

1. The Council Of Ministers:

2. The Council Of Permanent Representatives:

3. The Regional Planning Council:

4. The General Secretariat:

ACTIVITIES:

Activities of ECO
1. Trade and Investment
2. Transport and Telecommunications
3. Energy, Minerals, environment
4. Industry and Agriculture
5. Project Research
6. Economic Research and Statistics.
7. Sustainable economic development of Member States
8. Progressive removal of trade barriers and promotion of intra- regional trade;
9.Development of transport & communications infrastructure linking the Member States with
each other and with the outside world;
10. Economic liberalization and privatization;
11. Mobilization and utilization of ECO region's material resources;
12.Effective utilization of the agricultural and industrial potentials of ECO region;

13.Regional cooperation for drug abuse control, ecological and environmental protection and
strengthening of historical and cultural ties among the peoples of the ECO region; and

14. Mutually beneficial cooperation with regional and international organizations.

Summit in Pakistan (2017)
The 13th ECO Summit recently held in Pakistan provides one with a number of hopes regarding
the Summit’s adopted theme of “Connectivity for Regional Prosperity”.
To begin with, this fact in itself is a major achievement that despite the new wave of terrorism in
Pakistan the major event of this magnitude was successfully held in Islamabad. The ten states
namely Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and
Uzbekistan along with the founding members Pakistan, Iran and Turkey is reflective of important
representation from Central, South and West Asia. Not just that but the participation by all the
member states was another positive sign which shows the eagerness on part of the member
countries to contribute and benefit from the prospects of regional connectivity. Chinese
representation in the Summit makes it all the more conspicuous and weighty, ensuring that
regional connectivity is quite a tangible proposal which will be further supplemented and made
plausible through the CPEC.
Presently as both Afghanistan and Pakistan are struggling to improve their bilateral ties, the
presence of Afghan representative Ambassador Omar Zakhilwal was a sign of hope. This
representation despite the closer ties between Afghanistan and India and the latter’s ever growing
diplomatic, financial and military influence in Afghanistan should be viewed as encouraging, for
it did not keep Afghanistan to stay back. In the future there is a hope that President Ghani will be
able to exhibit some diplomatic maturity and the ability to act independent of Indian dictation,
solely for the well being of people of Afghanistan and for the much larger benefit of the whole
region. The states may have differences or may be going through a bad phase in their bilateral
relations owing to various factors, but the reality of a prosperous future through regional
connectivity can simply not be ignored.
Furthermore the outcome of the Summit in the form of “Islamabad Declaration and Vision 2025”
shows a unanimous understanding on part of all the participant states to expand trade and
prosperity among them. The ECO region, which occupies the centre of Eurasia, naturally
presents a geographical landscape that provides a link for East-West connectivity. Hence this
idea of East-West connectivity supplements the plan of concatenation through CPEC. Therefore
the presence of Chinese Executive Vice Foreign Minister Zhang Yesui, in an ECO summit has
been especially consequential. It also reveals the convergence of economic interests between the
ECO states and China, which will ultimately augur well for China’s OBOR initiative, having
dividends for all the participant states. This welcoming disposition of ECO countries towards
China and vice versa, reflects the reshuffling of alignment patterns among the various regions,
wherein the constructive engagement has already been evident through fruitful dialogue process.
However for these deliberations to manifest successfully and materialise into concrete outcome,
it is important to devise a framework mechanism that will ensure the adoption/implementation of
Islamabad declaration and Vision 2025. Now all the participant states need to vigorously pursue
the aim of prosperity through regional connectivity and own the project as well.
The states also agreed to work towards the prospects of cooperation and integration over the next
ten years by promoting multidimensional connectivity. This multidimensional cooperation not
just covers the economic aspect but equally stresses upon the intra and inter-regional peace and
security. Commitment towards employing dedicated efforts in order to collectively fight against
the menace of terrorism and unlawfulness were also displayed. Addressing the challenge of
militancy through collective response mechanism will be the most effective way to deal with the
situation. The states also agreed to stay committed to strengthen themselves against other
problems such as extremism and drug trafficking and collaborate in addressing the challenges of
climate change and food security. Most of all the understanding that peace in Afghanistan is the
basic pre requisite for the peace and subsequent progress on the objectives of ECO was
expressed unanimously by all the states. It is in the same context that China earlier agreed to
allocate 480 million yens to the Afghan Security Forces. Not only will it give boot to the Sino-
Afghan bilateral relations, but will also allow for the emergence of a relatively new player in
Afghanistan. Russia also has on more than one occasion hinted at joining the CPEC through
Eurasian Economic Union. This means that the region as whole is experiencing transition as well
as diffusion of power. The US and India on one hand may have to brace themselves up for a
Sino-Russian alliance in the region. The possibility of new alliance and power triangles can most
certainly not be ruled out.