Session-I: Ibo-01 International Business Environment Block-1 Concepts & Dimensions

SESSION-I
An ISO 9001:2008 Certified Organization
IBO-01 INTERNATIONAL BUSINESS ENVIRONMENT BLOCK-1 CONCEPTS & DIMENSIONS
UNIT-1 INTRODUCTION TO INTERNATIONAL BUSINESS ENVIRONMENT International business is a term used to collectively describe topics relating to the operations of firms with interests in multiple countries. Such firms are sometimes called multinational corporations (MNC's). International business by its nature is a primary determinant of international trade, One of the results on the increasing success of international business ventures is globalization.
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CONCEPT & RELEVANCE of International Business Environment Micro & Macro Environments Domestic, Foreign and Global Environment Relevance of International Business Environment
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Copyright PCTI Group 2009
FOREIGN ENVIRONMENT Foreign environment consisting of factors like geographic and economic conditions, socio-cultural traits, political and legal forces, and technological and ecological facets prevalent in a foreign country. Foreign market operations, require an increased sensitivity to the environmental differences & adaptation of business strategies to suit the differing market situation.
GEOGRAPHIC ENVIRONMENT
It refers to a countrys climate, topography, natural resources and people. Everyone engaged in International Business must have some knowledge of geographic features of the foreign country as these influence the nature and characteristics of a society.
ECONOMIC & FINANCIAL ENVIRONMENT

It pertains to countrys economic and financial features such as level of economic development, income, pattern of expenditure, infrastructure, inflation, commercial and foreign investment policies, monetary and fiscal systems, accounting systems and balance of payments account.
SOCIO-CULTURAL ENVIRONMENT
It is defined as the sum total of mans knowledge, beliefs, art, morals, laws, customs and any other capabilities and habits acquired by man as a member of the society. Elements of Culture: Language, Aesthetics, Education, Religions & Superstitious, Attitudes & Values, Material Culture, Technology, Social groups and organizations, Business customs & Practices.
POLITICAL ENVIRONMENT
In political environment, one needs to analyze factors such as current form of government and political party system, role of government in the economy, political encouragement to foreign firms, political stability and political risks to business.
LEGAL ENVIRONMENT
Every business firm operates within the jurisdiction of legal system. Besides directly influencing firms business operations, laws affect the environment within which a firm operates in the foreign country. The legal systems that exist in different countries of the world are antecedents of one of the two legal philosophies: common law and code law. Common Law- The basis of common law is tradition, past practices & rulings of higher courts who look upon similar problems within the accepted set of laws. Code Law- It is based on Roman Law and is an all inclusive system of written rules that encompass all eventualities.
ECOLOGICAL ENVIRONMENT
It refers to pattern and balance of relationships between plants, animals, people and their environment. Green technologies, Green products and Green companies are highly valued in todays global market place.
UNIT-2 THEORIES OF INTERNATIONAL TRADE

Trade theories explain the pattern of trade between two countries, the pattern of specialization and the mutual benefit of the trade. Objectives of Trade Theories: To explain the pattern of trade between two countries. To explain the pattern of specialization. To show that international trade is mutually beneficial to the trading country.
WHEAT
Production possibilities of wheat & cloth
60
B O C
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100
CLOTH
RICARDIAN THEORY OF TRADE

It states that a country has comparative advantage in the good in which its relative labor productivity is higher than its trading partner and tends to export this good. Labor theory of Value Autarky Equilibrium Absolute advantage Vs Comparative advantage Free trade and Gains from trade Terms of trade
Product price ratio & factor price ratio

capital
KY/LY A E F Y=1 X=1 B O

labor
KX/LX
THE NEOCLASSICAL THEORY OF TRADE

It focuses on endowments, it assumes that there are at least two factors, say labor and capital which are used in the production of goods. But the two countries have the same technology or the same production functions. Factor Intensity Product price ratio & Factor price ratio The Heckscher-Ohlin-Samuelson (HOS) Theorem Factor price equalization Theorem Samuelson-Stopler theorem Rybezynski Theorem
UNIT-3 BALANCE OF PAYMENTS

Balance of payment is an accounting record of the transactions between the residents of one country and the residents of the rest of the world over a given period of time. It is basically a statement of inflow and outflow payments for a particular country.
Underlying Principles and Conceptual Framework

Balance of payment is concerned with economic
transactions. Five basic types of economic transactions may be distinguished as: Purchases and sales of goods and services against financial items I.e. the interchange of goods and services against claims and monetary gold; Barter; the interchange of goods & services against other goods & services. The interchange of financial items against other financial items eg: sale of securities for money. The provisions or acquisition of goods & services without requital eg: grants in aid The provision or acquisition of financial items without requital eg: in payment of taxes or as a gift.
Balance of Payment Accounting

The balance of payment is a standard double entry accounting record and as such subject to all the rules of double entry book-keeping viz. Credit(+) and Debit(-) & leaving aside errors and omissions. Simple accounting rules followed in BOP are: 1. All the transactions which lead to an immediate or prospective payment from the rest of the world to the country should be recorded as credit. 2. All transactions which result in an actual or prospective payment from the country to the rest of the world should be recorded as debits. 3. A transaction which results in an increase in demand for foreign exchange is to be recorded as debit entry while a transaction which results in an increase in the supply of foreign exchange is a credit entry.
Components of Balance of Payment

The Current Account: Under this are included imports and exports of goods and services and unilateral transfers, which reflect government and private gifts and grants. The Capital Account: Under this are grouped transactions leading to changes in foreign financial assets and liabilities of the country. The Reserve Account: It is like capital account but only for reserve assets. These are the assets which the central bank of the country uses to settle the deficits and surpluses that arises in the other two categories.
Deficits & Surplus in BOP

BOP accounting is based on the principles of double entry book-keeping, meaning thereby that for every credit entry, there is a debit entry. Thus, BOP account always balances. The difference between aggregate debit and credits is called balance. In case, debits exceed credit, balance is negative or deficit, when the credits exceed debits, the balance is positive or surplus. Obviously, the term, deficits or surplus cannot refer to the entire BOP but subset of accounts included in BOP.In case, there is a deficit or surplus, there have to be some compensatory transactions to balance the imbalance.
There are several concepts of Balance in BOP: Trade Balance- This is the balance on the merchandise trade account,item I in the current account. Balance on goods & services- It is the balance between the export & imports of goods and services. Current Account balance- It is the net balance on the entire current account items I+II+III. When it is negative we have a current account deficit, when positive, a current account surplus. Balance on current account and long term capital- It is also called basic balance. This is supposed to indicate the long term trends in BOP.
Balance of Payment Disequilibrium

A nations balance of payment is said to be in equilibrium when it is neither drawing upon its international reserves to make excess payments nor accumulating such reserves as a result of its receipts. In other words, when a country is not able to pay for its imports of goods and services from its export earnings, on accumulating reserves year after year, a disequlibriu m in Balance of Payment sets in.
Factors affecting BOP

Inflation National Income Government Restructures Exchange rates
Methods of correcting Disequilibrium Use of past reserves Borrowing from IMF Monetary and fiscal policy measures Exchange rate adjustments
UNIT-4 INSTRUMENTS OF TRADE POLICY

Trade policy is followed by the countries that tend to restrict trade by charging an import tariff(a tax on imported goods). Tariff: It is a price based policy to restrict trade because it changes the price of import paid by the importer. Non-tariff barriers: Government policies and administrative practices that regulates or restrict the foreign trade.
Partial Equilibrium Theory of Trade
Price
D Pw Pw(1+t)
Pw
S Quantity
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CONSUMER SURPLUS
Price D d b e D O Q
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Quantity
PRODUCER SURPLUS
S Price
b a c S O Q
Q
Quantity
Non-Tariff Barriers to Trade

Non-Tariff barriers are Government policies and administrative practices that regulates or restrict the foreign trade. Major kinds of non-tariff barriers: Customs classification and valuation Subsidies Local content & foreign investment performance requirement Technical standards & health regulations Government procurement Restrictions on services
QUOTA VERSUS TARIFF

Quota- Quantitative measures of restrictions imposed by the government to regulate the International trade. Tariff- It refers to a tax imposed by a government on Price physical goods as they move into or out of a Pd country. S* 3
Pt Pf 4 2 5 1
Pt*=Pt-t
6 7
Quantity O
Mt Mf
EXCHANGE CONTROL
In India before trade liberalization in 1991 import licensing was combined with exchange control.Only the holders of the import licenses were given permission to purchase foreign currencies from banks. Therefore, exchange control or the control on the issue of foreign currencies was simply a part of the import licensing system. This is what has made Rupee a non-convertible currency. The current policy is that Rupee is convertible on all current account transactions which include trade in goods, travel & tourism. For these transactions no import licenses are required.Many developing countries use exchange control as a means to restrict trade.
FLEXIBLE EXCHANGE RATES

Rs. Per $
Supply for $
Rs. 35
Rs. 30
Demand for $ Million Dollars

4500
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4800
5000
FIXED EXCHANGE RATES

Under fixed exchange rate system a deficit in the balance of payment is adjusted by money supply changes and the consequent changes in the price level.
UNIT-5 GLOBALIZATION
Globalization (globalization) in its literal sense is the process of transformation of local or regional phenomena into global ones. It can be described as a process by which the people of the world are unified into a single society and function together. This process is a combination of economic, technological, socio-cultural and political forces. Globalization is often used to refer to economic globalization, that is, integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.
MAJOR FORCES OF GLOBALIZATION
International Trade and Globalization International Capital Flow Globalization and Technology
Effect of Globalization on World Economy

Global economy is integrated day by day. Volume of world trade has grown at a faster rate. Trend of lowering the barriers to the free flow of goods, services & capital among countries. Foreign direct investment in global economy Multilateral trading system Imports are penetrating deeper into the worlds largest economies as well Growth of world trade Whole world is considered as a single market Increasing opportunities for the firms Innovations have started spreading faster
GLOCALIZATION
the term glocal refers to the individual, group, division, unit, organization, and community which is willing and is able to think globally and act locally. The term has been used to show the human capacity to bridge scales (from local to global) and to help overcome meso-scale, bounded, "little-box" thinking. The term 'glocals' is often used to describe a new social class: expat managers who travel often and switch homes often, and are therefore both global and local.
UNIT-6 INTERNATIONAL INVESTMENT As the name suggest International investment is nothing but investment in Foreign market.It is one of the most important vehicle of global operations. Foreign capital can come to countries seeking it in various forms. It can be a loan capital, direct investment, and also portfolio investment etc.
Nature & Types of International Investment

The growing international production & trade require increased amount of international investment.As a result, the flow of international investment has been increasing. The country requires international investment for enhancing the production, trade and distribution capabilities. Foreign Direct Investment:It is expected to occur when an investor based in one country acquires assets in another country with an interest to manage the assets. Portfolio investment: It is an investment made by the foreigner in stocks, bonds and other financial investment.
FDI & Developing Countries

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the the establishment of an enterprise by a foreigner. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.
Advantages of FDI
FDI as Capital Supplier FDI as a remover of balance of payments constraint FDI as a vehicles of technology transfer FDI as a promoter of exports of Host Developing Country FDI as a provider of increased employment FDI result in higher wages Generates competitive environment in Host country
Limitations of FDI
Foreign enterprises depend on domestic capital Need not necessarily remove balance of payments constraint in the long run Does not transfer technology effectively FDI is not a provider of Additional Employment Does not create higher wages Does not create additional exports Does not create competitive environment
Trade Related Investment Measures (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 all members of the World Trade Organization. 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. Trade related Investment Measures is the name of one of the four principal legal agreements of the WTO trade treaty. TRIMs are rules, which restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets.
Multilateral Investment Agreement (MIA) An agreement signed by a large number of countries wherein rules are agreed upon by all of them.It is to standardize various provisions and bring it under the control of a multilateral institution with an effective dispute settlement mechanism.The WTO is considered to be the most suitable organization which has an effective dispute settlement mechanism possessing cross retaliation.
Multilateral Investment Guarantee Agency (MIGA)

The MIGA was established by the World Bank in 1988 with a specialized mandate to: Encourage equity investment and other direct investment flows to developing countries through the mitigation of non-commercial risks Advice developing member governments on the design, implementation of policies, Programmes and procedures to related foreign investments Sponsor a dialogue between the international business community and host government on investment issues
UNIT-7 TRANSNATIONAL CORPORATIONS

The TRANSNATIONAL company evolved in the 1980s in response to environmental forces and simultaneous demands for global efficiency, national responsiveness, and worldwide learning. The transnational model combines features of multinational, global, and international models. A product is designed to be globally competitive, and is differentiated and adapted by local subsidiaries to meet local market demands.
Whereas the international company originates the product in the headquarters country and then transfers it to the subsidiary, the transnational might reverse this process. Resources, including technology and managerial talent, might be distributed among subsidiaries and integrated between them through strong interdependencies.
These corporations, together with their host governments, are reorganizing the world economic structures -- and thus the balance of political power -- through a series of intergovernmental trade and investment accords. These treaties serve as the frameworks within which globalization is evolving -- allowing international corporate investment and trade to flourish across the Earth. They include: The Uruguay Round of the General Agreement on Tariffs and Trade (GATT) The World Trade Organization, which was created to enforce the GATT's rules. The proposed Multilateral Agreement on Investment. (MAI) The North American Free Trade Agreement (NAFTA). The European Union (EU).
WHY FIRMS BECOME TRANSNATIONAL?

To protect themselves To tap the growing world market Response to increased foreign competition To reduce costs To reduce tariff To take advantage of technological expertise
Features of TNCs
TNCs are normally very large in size as measured by the value of their total sales TNCs depend to a large extent on their foreign sales TNCs are multi product enterprises something that gives them tremendous market power. Main strength of TNCs is their command of technology and innovation The affiliates of the TNCs are responsive to a number of important environmental forces, including competitors, customers, suppliers, financial institutions and government. It draws on a common pool of resources including assets, patent trademarks, information and human resources.
Market Powers of TNCs

Intra Firm Trade: It is defined as trade between two related parties very often situated in different countries and aims at maximizing joint profit rather than individual profit as would be in the case of trade between two unrelated parties. Intra-firm trade with the affiliates accounts for 1/3rd of the world trade, with non-affiliates. Transfer Pricing: It is defined as pricing that is different from arms length price which is market price used by the TNCs to achieve certain corporate goals.Transfer pricing is the impact of reduced profitability of a subsidiary which can dampen the enthusiasm and morale of people working in the subsidiary.
TOPICS TO BE DISCUSS THEORIES EXPLAINING EMERGENCE OF TNCs IN WORLD ECONOMY
ISSUES AND CONTROVERSIES

UNIT-8 TECHNOLOGY TRANSFER

Technology normally implies a way of producing goods or establishing services; it manifests itself in production process and product development. TRANSFER OF TECHNOLOGY can be defined as the transfer effected from one agency to the other. Technology transfer is the process of sharing of skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services.
Levels of Technology Transfer

I. II. Transfer of knowledge: when the technical knowledge is transferred from the laboratory and scientific establishment to students of technology. General knowledge of production of a product.Firms & individuals in this area would be broadly knowledgeable about the process & requirements which constitute part of the general knowledge of a concerned industry. It can be said that when a new product is either introduced in the market or imported, one can get an idea of technological possibilities. It is commercially successful and this technology normally is owned by a firm with necessary property protection.
III. IV.
Costs of Technology Transfer

Direct Costs: This price includes royalty, technical fees, management fees and other such expenses. In the absence of adequate knowledge the buyer may pay more price than what the market demands. The cost of training personnel is also included very often in direct costs.The visits, stay and other expenses of expatriates who effect the transfer of technology from their company to the buyers firms will also be included in the direct cost.
Costs of Technology Transfer

Indirect Costs: There are two types of indirect costs; a) Restrictive clauses specifying that the firm should buy the needed machinery, equipment & raw materials from the source identified by the technology seller most often traded under transfer pricing.This one can expect to be invariably higher than the market price. b) If no legal precaution is taken, the buyer may pay additional fees, royalty for any improvement of technology effected over the period of contracts.
Reasons for purchasing technology

Innovating a new process or a product by a firm is costlier than buying technology in the market. It is often said that one does not need to invent a wheel again and again. Since a commercially successful technology has already proved its utility, the buyers finds it very attractive to buy the technology. A firm which has no incentive to become a leader in the market either by innovating a new product or a new process would find it more convenient to buy the most modern technology from the owner which is most often a TNC than taking the risk of innovating a similar technology.
TECHNOLOGY MARKET
Technology market is a sellers market. The owners of proprietarily technology are a few large TNCs, although there are a few medium and small scale enterprises in the market. So the TNCs control the sale of technology. The buyers of technology are a large number of firms specially from developing countries. Effective purchase of technology can be done only when a buyer knows about the technology.
Recent Trends And Current Issues

Technology is increasingly globalizes. In all countries, science and technology policy is now perceived as having effects that go beyond national boundaries and having consequences for international trade. Technology is considered not only in the national context of industrialization of agriculture, but also improving the services sector as well. Technology is act as the prime factor in creating comparative advantage and acquiring competitiveness in international markets. There has been a growing tendency for companies to seek increased governmental protection of intellectual property rights.
ORGANIZATIONAL INNOVATION AND MANAGEMENT PRACTICES

The underlying philosophy of production has been altered; instead of producing to stock, goods are produced to order. That necessitates a demanddriven system capable of producing a variety of product types in much smaller volumes.Hence, lot sizes have been reduced dramatically. The efficient production of different products in small lot sizes requires minimizing downtime.It requires quick line changeovers and tool set ups. Machinery redesign becomes necessary but, more importantly, production-line workers must be trained to do changeovers rather than having them done by separate teams as in mass production.
Production layouts need to be restructured, and changes made in the use and management of machines in order to create a smooth flow of smaller lot sizes. Inventories have to be reduced to a minimum just-in-time level rather than being stocked justin-case, so that the increased number of different product types can be accommodated without large carrying costs. Maintaining a smooth flow of production without inventories requires that components have zero defects or be of perfect quality. Skill and craft demarcations among workers are eliminated and workers are trained to be multiskilled.
Technology Collaboration Agreement It is a specific mechanism of technology transfer. Even with subsidiaries and affiliates some TNCs have technology collaboration agreement spelling out the details of technology to be transferred and price to be paid. It is an legal agreement enforceable by the courts of law.
Vital components of Contract

Patent and Secret technology Trade marks Brand name Royalty, Management and technical fees Duration Establishment of R&D Performance Guarantee Design conference Restrictive Practices Latest technology Technical Assistance and training Training of labor force
Intellectual Property Rights

Intellectual property (IP) are legal property rights over creations of the mind, both artistic and commercial, and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; ideas, discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property include copyrights, trademarks, patents, and trade secrets.
International Agreement for IPR World Intellectual Property Organization (WIPO) Paris Convention Berne Union Washington Treaty
TRIPS Agreement It covers seven categories of intellectual property viz. copyright and related rights, trade marks, geographical indication, industrial designs, patents, integrated circuits and trade secrets.
Topics to be discussed
TRIPS and Developing Countries India and Transfer of Technology
UNIT-9 WORLD TRADE

Trade has been one of the most buoyant international economic activities in recent period. World merchandize trade has been consistently growing at rates higher than rates of growth in global output in the nineties. The world merchandise trade grew by an average rate of 6% during the period 1990-95. The volume of world merchandise exports grew by 3.5% in the year 1998 after an outstanding growth rate of 10.5% in 1997.All major regions experienced a marked slowdown of their trade growth in 1998. The contradictory forces of Asian crisis and falling commodity prices were attenuated by the robustness of the continued economic growth in US and strengthened demand in western Europe.All regions recorded a lower export expansion in 1998 than 1997.
As far as import is concerned, Western Europe, the largest regional trader, was the only region not to record a deceleration in import growth in the year 1998. Western Europe import growth rate of 7.5% was less than 10% rate recorded by North America, Latin America and the transition economies. The imports into Asia fell by 8.5%. Services are becoming a significant component in global trade. The value of commercial service increased from US$1275billion to US$1320billion in 1996 to 1997. IT fell down to US$1290billion in 1998.
Trade in Services
Services account for more than one fifth share in global trade. Services exports grew, at current value, from US$1000 billion during 1993 to US$1170 billion during 1995 and US$1290 in 1998.All leading importers of commercial services exporting nations are in developed world except Hong Kong, China. All leading importers of commercial services are from the developed world.while Japan is a leading exporter & importer of services it is to be noted that its relative position as an importer is more dominating than as an exporter.8 out of 10 countries are both leading exporters and importers.USA is worlds leading exporter & importer.
Export Basket of Developing Countries

About 71% of the export earnings of Middle East, 61.3% of the earnings of Africa and 42.1% of those of Latin America and 39.3% of the earnings of East European countries including former USSR were derived from agricultural and mining products comprising food items, agricultural raw materials, ores and metals and fuel while the share of these commodities in the export trade of North American , West European and Asian countries is 16.9%, 15.3% and 14.1%.The presence of Japan in Asia tilts the balance heavily.The share of primary commodities in the export trade of the developing Asian countries is significant, while the Latin American, African and East European countries depend substantially on primary commodities for earning foreign exchange, manufactured items, as seen earlier, have proved to be the most dynamic sector in international trade in recent years. It is not only that a number of developing countries depend on primary commodities for major part of their export earnings, but a great majority among them depend on a limited number of primary commodities for earning foreign exchange.
Problems of Developing Countries

Demand Elasticity Competition from Substitutes Technological Developments Growth of Services Sector Inelasticity of Supply Price fluctuations Protectionism Subsidies Tariff and non-tariff barriers Managed Trade Non-trade issues MNCs Influence Terms of trade
UNIT-10 MULTILATERAL TRADING SYSTEM

General Agreement on Tariffs and Trade was founded in 1947 with 23 members.It is a multilateral arrangement aimed at reducing barriers to trade, both tariff and non tariff. The GATT mandate was to oversee international trade in goods and to gradually liberalize the trade by means of progressive reductions in tariff barriers.
Establishment of the WTO

The World Trade Organization (WTO) is an international organization designed to supervise and liberalize international trade. The WTO came into being on 1 January 1995, and is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947, and continued to operate for almost five decades as a de facto international organization. The WTO has 153 members, which represents more than 95% of total world trade.The WTO is governed by a Ministerial Conference, which meets every two years; a General Council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the Ministerial Conference. The WTO's headquarters is in Geneva, Switzerland.
Basic Differences b/w GATT and WTO

1. Whereas the GATT framework allowed for the existence of a number of important side agreements negotiated and concluded by certain GATT contracting parties in the framework of the various GATT rounds, the WTO administers a unified package of agreements to which all members are committed. 2. WTO members cannot block decisions arrived at under the dispute settlement mechanism. Under the GATT, dispute panel findings were often blocked.
3. The WTO has considerably expanded the role of GATT by including Trade in services and IPR within the multilateral trading system. 4. The WTO contains an improved version of the original GATT rules- GATT 1994, which restate and strengthen the original GATT rules concerning trade in goods. 5. The potential membership of the WTO of some 150 countries is far wider than under the GATT. This fact undoubtedly serves to strengthen the arm of the WTO. 6. GATT trade opt-out agreements, such as those governing the clothing and textiles & agriculture sectors are to be gradually overturned and so called grey area measures including voluntary arrangements & export restraints are to be phased out. Virtually, all trade in goods will from now on be subject to GATT/WTO rules.
Functions of the WTO

Provide a forum for further trade liberalization negotiations arising from the Multilateral and Plurilateral Agreements. Administer the new Dispute Settlement Procedure in such a manner as to regulate and ensure Members compliance with the agreements. Establish and direct a trade policy Review Mechanism to study the trade policies of members. Co-operate fully, and on an equal footing, with the International Monetary Fund and the World Bank for the furtherance of policy-making; and Research and produce both specialized and general economic reports of International interest.
Structure of WTO
The ministerial conference is the top tier of the WTO framework. It is scheduled to meet every two years.The ministerial conference consists of a representative from each Member and has full authority to take decisions on any matter arising from the Multilateral Trade agreements. It is the chief policy making body of the WTO and any major policy changes, such as a decision to alter competition policy or to rewrite the WTO Agreement. The general council is responsible for overseeing the WTO between Ministerial Conference meetings and consists of representative from each member.The General Council, retains overall responsibility for all the councils.
Principle Functions of the General Council

To act as a Dispute Settlement Body under the Terms of Understanding on rules and procedures Governing the Settlement of disputes; To administer the Trade Policy review mechanism(TPRM);and To supervise and ensure the smooth running of the councils for trade in goods, services and Traderelated aspects of IPR as well as all Trade Committees, including those establishment under the Ministerial Conference.
The General Council delegates responsibility to three major bodies
The council for Trade in Goods The council for Trade in Services The council for Trade-related aspects of Intellectual Property Rights.
URUGUAY ROUND AGREEMENT

Well before GATT's 40th anniversary, its members concluded that the GATT system was straining to adapt to a new globalizing world economy.In response to the problems identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not manage etc.), the eighth GATT round known as the Uruguay Round was launched in September 1986, in Punta del Este, Uruguay.It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed during the April 1994 ministerial meeting at Marrakech, Morocco, and hence is known as the Marrakech| <document classification> Agreement. Copyright PCTI Group 2009 |
Major Goals of Uruguay Round

To achieve further liberalization of trade by reducing tariffs and other barriers to trade. To properly reflect the modern developments in world trade by including in GATT negotiations for the first time trade-related investment measures, trade in services and IPR protection. To bring an end to exemptions of the GATT rules such as those granted to the agricultural, clothing and textiles sectors, and so resubmit them to GATT discipline. To improve and strengthen the GATT dispute settlement procedure in order to ensure application of GATT rules and thus render it effective and credible.
Uruguay Round Agreement

Multilateral Agriculture Sanitary & Phytosanitary measures Textiles & clothing Technical barriers to trade TRIMS Anti-dumping Customs valuation Pre-shipment inspections Rules of origin Import licensing procedures Subsidies & countervailing measures Safeguards GATS TRIPS Dispute settlement TPRM
Plurilateral Public procurement Trade in civil aircraft International dairy products International bovine meat
TOPIC to be Discussed
INDIA AND THE WTO
UNIT-11 REGIONAL ECONOMIC GROUPING
OVERVIEW: One of the significant developments that has taken place in the world economic scenario since the second half of the fifties has been the emergence of regional economic groupings. No region in the world appears to be free from regional groupings and most of the countries irrespective of the stage of their economic development, seem to be interested to become full members of or in forging some sort of alliance with one grouping or the other. The main aim is to accelerate the development process and improve the quality of life of the residents of the region by providing them with greater choice both as producers and as consumers.In regional grouping, the economic significance of national political boundaries is completely lost.
HISTORY
Two distinct waves of regional groupings appear to have swept the world since the end of the Second World War. The first one surfaced during the 1950s with the formation of European Common Market(ECM) by the West Germany, France, Italy, Belgium, Luxemburg and the Netherlands on 1st January 1958. The second wave surfaced during the mid 1980s with the USA as a significant player. Thus, the Canada-US Free Trade Agreement was negotiated in 1989 and later, the NAFTA, with USA, Canada and Mexico as members, came into existence during 1992.
FORMS
Regional Groupings can be classified, conceptually, into five major types: Preferential Trading Arrangement Free Trade Customs Union Common Market Economic Community
RATIONALE
Political Objective Response to slow progress of Global Liberalization Regional Initiatives Demonstration Effect
TOPIC TO BE DISCUSSED
REGIONALISM V/S MULTILATERALISM
IMPACT
Trade Diversion Trade Creation Terms of Trade Effect Economies of scale and ease of entry Mergers & Acquisitions Increased Competition Reduction in Marketing Costs Impact of FDI Flow
STRATEGY
Product Wise strategy Market Segmentation Strategy Entry Strategy Strategic Alliances FDI Strategy
UNIT-12 INTERNATIONAL COMMODITY AGREEMENTS

INTRODUCTION: Commodities are defined as those products which have undergone either little process or value addition. Thus these commodities remain in the original shape. Hence, they are also known as primary products. These commodities constitute major chunk of exports of developing countries. Thus, developing countries face innumerable problems in the trade of Primary Commodities.
A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. Rice is rice. Stereos, on the other hand, have many levels of quality. And, the better a stereo is, the more it will cost. The price of copper is universal, and fluctuates daily based on global supply and demand. Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and silicon chips.
Trade in Primary Commodities

Commodities play a very significant role in the economies of developing countries. Even now only a few developing countries have diversified their export structure. The commodities constitute 60 to 70% of exports of developing countries. In some cases their share in exports is as high as 90%. The international trade in commodities has certain distinct problems from that of manufactures. Refer Table 12.1 from book.
Demand for Primary Products: Instability in Prices & Volume

The export of developing countries considered individually are unstable in the sense that they show a recession and shortfalls in relation to the trend. Any measure of the instability of exports is, therefore, relative to this trend. Instability means the absolute deviation of exports from the trend, whether linear or exponential, giving the best fit. The average export instability is greater considered individually during the period 1960-81. Demand for primary products depended on the Industrial production of developed countries. Most developing countries produced primary products for exports.
The industrial production of developed countries was substantially influenced by the Business cycles. When there was boom, there would be high demand for primary products. Prices would rise. This rise was also caused by the inelastic nature of supply of primary products. This is for the following two reasons: Supply of ores and metals cannot be contracted immediately, when demand falls because the mine owners cannot close the mines. It may be noted here that primary products are not exported by only developing countries. Developed countries also export primary products. In fact the share of developed countries in world exports of primary products has gone up.
Terms of Trade of Primary Products with Manufactures

There are three measures of terms of trade: Net barter terms of trade Gross Barter Terms of Trade Income terms of trade
Commodity Markets and TNCs

Commodity markets are not free markets. They have been dominated by oligopolistic or monopolistic elements, reflecting the control of TNCs with their dominant market power. Further in a number of commodities government intervention in the market has become quite important. Market for iron ore, bauxite/alumina are collected by the TNCs. Further in sisal four large trading companies control world trade. In cocoa one TNC controls one quarter of world trade. Similarly, in diamonds one TNC controls marketing of 80% of worlds rough diamonds.There are, however, a few commodities, specially agricultural commodities, in which the control of TNCs is not very significant.
Long-Term factors affecting the demand for Primary Commodities Technological Factors Change in structure of Advanced Economies International Debt of Developing Countries
International Commodity Agreement

Commodity Agreements have been devised by economists and policy makers to remove excessive instability. Since 1920, there has been international interest in stabilizing commodity prices to achieve orderly marketing. It was not until after World War II that an international mechanism was formally instituted via the UN through which such inter-governmental agreements could be negotiated, ratified & implemented. Before this the agreements were to be signed by interested parties without the supervision of a world body, and in almost all cases without the consumers being the party to such agreements. Cocoa was the first commodity which had gone through the stages of design, negotiations and implementation Copyright PCTI Group 2009 under the auspices of the |UN. classification> | <document
In 1947, the Economic and Social Council (ECOSOC) of the UN established a special branch, the Interim Coordinating Committee on International Commodity Agreements (ICCICA) to deal specifically with commodity agreements.Later in 1965, the UN conference on Trade and Development was set up to deal with the commodity problems of developing countries.
Export Control Agreements

It operate by attempting to force a balance between supply and demand by controls on supply. In principle, supply reduction may be met either by reduction in production, any national stockpiling of excess production or by disposal of excess production. Which of these courses is adopted is largely dependent on the characteristics of a particular commodity. It is difficult to significantly affect production of crop commodities within the harvest year and so here stockpiling or disposal in the normal course. On the other hand, there is a greater flexibility in metal production and in general it is cheaper to store it underground. Export Control Agreements are considered cheaper because they do not entail foreign exchange costs.
Updating Support Price

From time to time it will become necessary to update the price support range of a buffer stock agreement. The same applies to the production or export control price trigger in a control agreement. Factors which might be considered for updating are: Changes in exchange rate Changes in the general level of prices Changes in conditions in taste and technology Commodity price Level of the stock held by the buffer stock authority
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment and development issues. The organization's goals are to "maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis." The creation of the conference was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations. In the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO). Currently, UNCTAD has 193 member States and is headquartered in Geneva, Switzerland. UNCTAD has 400 staff members and an annual regular budget of approximately US$50 million and US$25 million of extra budgetary technical assistance funds.
UNCTAD and Commodities

The UNCTAD has done substantial work in studying the problems of commodities. In UNCTAD IV (Nairobi) the developing countries made commodity problem the centerpiece of negotiations with the developed world, and fought hard for two things: An integrated programme of Commodities (IPC) Establishment of a Common Fund for financing buffer stock
Under the resolution of UNCTAD, 28 months were allowed to the governments to negotiate successfully agreements on 18 commodities with pricing provisions, agreed supply management measures, compensatory financing, stocking, access etc. UNCTAD Secretariat had argued that there were 7 commodities-cocoa, coffee, olive oil, natural rubber, sugar, tin and wheat. Since 1976 only one agreement with price provision has been negotiated for natural rubber. The renegotiation of the cocoa agreement was very difficult. When it was finally agreed by the US, a major consumer, and Ivory Coast, a major producer, refused to join it. Thus a part of the integrated programme of commodities did not succeed. Copyright PCTI Group 2009 | | <document classification>
Major International Commodity Agreements

1. 2. 3. 4. 5. 6. 7. International Rubber Agreement International Sugar Agreement International Tin Agreement International Cocoa Agreement International Coffee Agreement International Olive Oil Agreement International Wheat Agreement
UNIT-13 INTERNATIONAL FINANCIAL INSTITUTIONS

After the global conflict of the world war II, rehabilitation of world economy was the major concern of the international community. As a result of war, the entire apparatus of the world payments mechanism had shattered. Toward the close of the world war II in 1944, the major western governments met in Bretton Woods, New Hampshire, to restore the international institutions that were needed to restore economic stability and growth in the world trade. As a result of these meetings, The International Monetary Fund(IMF), and the International Bank for reconstruction & development known as World Bank were set up in 1945.
INTERNATIONAL MONETARY FUND (IMF)

The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed to stabilize international exchange rates and facilitate development. It also offers financial and technical assistance to its members, making it an international lender of last resort. Its headquarters are located in Washington, D.C., USA.
Objectives of IMF
To promote international cooperation by providing the machinery for consultation and collaboration by members on International Monetary issues. To facilitate the balanced growth of International trade and through this, contribute to high levels of employment and real income and the development of productive capacity. To promote exchange stability and orderly exchange arrangements and facilitate the avoidance of competitive currency depreciation. To make financial resources available to members. To seek reduction of both the duration & magnitude of payments imbalances.
Functions of IMF
To formulate and administer a code of conduct regarding exchange rate policies and restrictions on payments for current account transactions. To provide members with financial resources to enable them to observe the code of conduct while they were correcting or avoiding payment imbalances. To provide a forum in which the IMF could consult with one another and collaborate on International Monetary matters.
Exchange Rate Policies

In regard to code of conduct regarding exchange rate policies basic objective was avoiding disruptive fluctuations that had occurred in 1930s and the rigidity that prevailed under the international gold standard. It may be recalled that fluctuation under the international gold standard, disturbances in price level in one country would be wholly on partly offset by an automation of BOP adjustment mechanism called the Price Specific Flow Mechanism (specific refers to gold coins). The gold standard broke down during the World War I and was briefly reinstated from 1925 to 1931 as the Gold Exchange standard. Under this standard, the US and England could hold only gold reserves, but other nations could hold both gold and dollars or pounds as reserves. In 1931, England departed from gold in the face of massive gold and capital flows, coming to an unrealistic exchange rate, and the Gold Exchange standard was finished. Thereafter, countries devalued their currencies to maintain trade competitiveness. These policies, in which nations cheapened their currencies in order to increase their exports at others expense and reduced imports, led to trade war. It is generally believed that te protectionist trade and exchange policies fueled the global depression.
The Current System of Exchange Rate Determination

The current system is a hybrid, with major currencies floating on a managed basis, some currencies freely floating, and other currencies moving in and out of various types of pegged exchange rate relationships. SURVEILLANCE over the Exchange Rate Policies: The Fund is required to oversee both the international monetary system, to ensure its effective operation, and the observance by each member of its obligations. To do later, the Fund must exercise firm surveillance over the exchange rate policies of members who are required to provide it with the necessary information and to consult with it on their exchange rate policies when the Fund requests them to do so.
The Fund has approved three principles to guide members in conduct of exchange rate policies. These are: Obligation of members to refrain from manipulating exchange rates or the International monetary system to prevent BOP adjustments or to gain an unfair competitive advantage over other members. To intervene in their exchange markets if necessary to counter disorderly conditions that may be characterized by, among other things, disruptive short term movements in their currencies. Members in their intervention policies, should take into account the interests of other members, including those of countries in whose currencies they Copyright PCTI Group 2009 | | <document classification> intervene.
Financial Resource and Policies

The resources of the IMF come from two sources viz. (i) Subscription by members (ii) Borrowing Every member of the Fund is required to subscribe to the Fund an amount equivalent to its quota. According to IMF rules, each member is assigned a quota expressed in Special Drawing Rights (SDRs). Quotas are used to determine the voting power of members, their contribution to the Funds resources, their access to these resources, and their share in allocation of SDRs. A members quota reflects its economic size a relation to the total membership of the Fund. A member is generally required to pay 25% of its quota in SDRs or in currencies of other members selected by the IMF; it pays the remainder in its own currency. These quotas are reviewed at interval of not more than five years.
Financial Resource and Policies

The IMF is authorized to supplement its ordinary resources by borrowing from official entities as well as from private sources. Under the General Agreement to Borrow (GAB), IMF entered into an agreement, initially in 1962 and renewed, revised and enlarged from time to time. As on April 30, 1997, amount potential is 18.5 billion SDRs. To further supplement the resources, on January 27, 1997, IMF decided to establish the New Arrangements to Borrow, (NAB).
Financial Assistance
The financial operations and transactions of the Fund are carried out through the General Department and the SDR Department. The Fund provides BOP assistance by selling to members in exchange for their own currency, the currencies of other members SDR. The members to which the Fund sells currencies or SDRs are said to make purchases from the Fund. Technically, purchases are not the borrowings since the purchasing country deposits an equivalent amount of its own currency with the Fund, but their economic effects are the same as those of borrowings.
Number of facilities under which the Fund provides financial assistance has increased considerably since mid 1970s. The Facilities are: Reserve Tranche Drawing Credit Tranche Facilities Extended Fund Facility Buffer Stock Financing Facility (ESAF) facilities for low income countries structural adjustment facility and enhanced structural adjustment facility Systematic Transformation Facility (STF)
Special Drawing Rights

SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are, by weight, the United States dollar, the Euro, the Japanese yen, and the pound sterling. Before the introduction of the Euro in 1999, the Deutsche Mark and the French franc were included in the basket. The amounts of each currency making up one SDR are chosen in accordance with the relative importance of the currency in international trade and finance. The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years.
Purpose of SDR
SDRs are used as a unit of account by the IMF and several other international organizations. A few countries peg their currencies against SDRs, and it is also used to denominate some private international financial instruments. For example, the Warsaw convention, which regulates liability for international carriage of persons, luggage or goods by air uses SDRs to value the maximum liability of the carrier. SDRs were originally created to replace Gold and Silver in large international transactions. Being that under a strict (international) gold standard, the quantity of gold worldwide is relatively fixed, and the economies of all participating IMF members as an aggregate are growing, a perceived need arose to increase the supply of the basic unit or standard proportionately. Thus SDRs, or "paper gold", are credits that nations with balance of trade surpluses can 'draw' upon nations with balance of trade deficits. So-called "paper gold" is little more than an accounting transaction within a ledger of accounts, which eliminates the logistical and security problems of shipping gold back and forth across borders to settle national accounts.
The World Bank

The World Bank is an international financial institution that provides financial and technical assistance to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of reducing poverty. The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) Whereas the latter incorporates these two in addition to three more: International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Centre for Settlement of Investment Disputes (ICSID)
5 Key Factors of World Bank

Build capacity: Strengthening governments and educating government officials. Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts. Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures. Combating corruption: Support for countries' efforts at eradicating corruption. Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, tele-/ video conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organization (NGO) officers etc. Copyright PCTI Group 2009 | | <document classification>
Areas of Operation
Agriculture and Rural Development Conflict and Development Development Operations and Activities Economic Policy Education Energy Environment Financial Sector Gender Governance Health, Nutrition and Population Industry Information and Communication Technologies Information, Computing and Telecommunications International Economics and Trade Labor and Social Protections
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Law and Justice Macroeconomic and Economic Growth Mining Poverty Reduction Poverty Private Sector Public Sector Governance Rural Development Social Development Social Protection Trade Transport Urban Development Water Resources Water Supply and Sanitation
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Other services of World Bank The Bank not only provides financial support to its member states, but also analytical and advisory services to facilitate the implementation of the lasting economic and social improvements that are needed in many under-developed countries, as well as educating members with the knowledge necessary to resolve their development problems while promoting. Clean Technology Fund management The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of its continued investment in coal-fired power plants
International Finance Corporation

The International Finance Corporation (IFC) promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives. IFC is a member of the World Bank Group and is headquartered in Washington, DC. It shares the primary objective of all World Bank Group institutions: to improve the quality of the lives of people in its developing member countries. IFC has 181 member countries , which collectively determine its policies and approve investments. To join IFC, a country must first be a member of the International Bank for Reconstruction and Development (IBRD). IFC's corporate powers are vested in its Board of Governors, to which member countries appoint representatives. IFC's share capital, which is paid in, is provided by its member countries, and voting is in proportion to the number of shares held. IFC's authorized capital (the sums contributed by its members over the years) is $2.45 billion; IFC's net worth (which includes authorized capital and retained earnings) was $9.8 billion as of June 2005.
International Finance Corporation

Established in 1956, IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. It promotes sustainable private sector development primarily by: Financing private sector projects and companies located in the developing world. Helping private companies in the developing world mobilize financing in international financial markets. Providing advice and technical assistance to businesses and governments.
International Development Association

The International Development Association (IDA) , is the part of the World Bank that helps the worlds poorest countries. It complements the World Bank's other lending arm the International Bank for Reconstruction and Development (IBRD) which serves middleincome countries with capital investment and advisory services. IDA was created on September 24, 1960 and is responsible for providing long-term, interestfree loans to the world's 80 poorest countries, 39 of which are in Africa.
IDA is funded largely by contributions from the governments of the richer member countries. Additional funds come from IBRD income and repayment of IDA credits. IDA loans address primary education, basic health services, clean water supply and sanitation, environmental safeguards, business-climate improvements, infrastructure and institutional reforms. These projects are intended to pave the way toward economic growth, job creation, higher incomes and better living conditions. IDA critics allege the improper use of financial resources, and object to a voting structure based on financial contributions (the largest being from the U.S. until 2007, when it was overtaken by the United Kingdom). Others criticize the IDA for its promotion of free trade, which some see as a means of oppression by the World Bank Group.
Regional Development Banks

Concept widely held in developing countries in 1950s contributed to the establishment of regional development banks. The developing countries came to realize that the existing international financial institutions could not be expected to take care of many financial problems inevitable in the implementation of regional cooperation programmes, which were receiving considerable emphasis by mid-1950s, particularly in Latin America. Inter American Development Bank The Asian Development Bank The African Development Bank
UNIT-14 LEGAL FRAMEWORK OF FOREIGN TRADE

An effective regulatory and legal framework is indispensable for the proper and sustained growth. In rapidly changing national and global business environment, it has become necessary that regulation of corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. Further, due to continuous increase in the complexities of business operation, the forms of corporate organizations are constantly changing. As a result, there is a need for the law to take into account the requirements of different kinds of companies that may exist and seek to provide common principles to which all kinds of companies may refer while devising their corporate governance structure.
Legal Framework of Foreign Trade when the relationship of the parties is Contractual
CONTRACT AND THE APPLICABLE LAW It need to be emphasized that all international trade transactions are legalized and if not so done should be legalized and regularized through contracts. In view of this, contract is considered central to all international trade transactions. It is central mainly because the general principles including the limiting principles of contract are applicable to all types of contracts. Such general principles relate to formation, validity, operations etc. of contract.
LAW
Law is a system of rules, usually enforced through a set of institutions. It shapes politics, economics and society in numerous ways and serves as the foremost social mediator in relations between people. Law governs a wide variety of social activities.
CONTRACT
A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement. Contract creates legally binding relationship and obligations i.e. rights & duties b/w the contracting parties.
AGREEMENT
Every promise or set of promises forming consideration for each other. An agreement is enforceable by law. All contracts are agreements but all agreements are not contracts.
ESSENTIALS OF A VALID CONTRACT

AGREEMENT FREE CONSENT CONTRACTUAL CAPACITY LAWFUL CONSIDERATION LAWFUL OBJECT NOT EXPRESSLY DECLARED VOID POSSIBILITY OF PERFORMANCE CERTAINITY OF TERMS INTENTION TO CREATE LEGAL OBLIGATION LEGAL FORMALITIES
Exports Sales Contract and the applicable law

Export sales contract (ESC) is defined as a contract whereby the exporter transfers or agrees to transfer the property in goods to the importer for a price. ESC broadly divided into two parts: Export where the exporter transfers the property in goods to the importer then and there or immediately and, An agreement to export where the exporter only agrees to transfer the property in goods at a future date or on the fulfillment of certain conditions. Export or an outright sale is an absolute, unconditional and executed contract involving a contract plus conveyance. Export sales because of its peculiar nature involves a lot of legal formalities.
a. b.
Basic Elements of ESC

1. ESC must involve two parties-the exporter (seller) and the importer (buyer). 2. Goods form the subject matter of ESC may be existing or future goods. 3. In case of export (or sale) the property in goods (ownership) is transferred immediately from the exporter to the importer. The importer becomes the owner and he bears all risks of loss or damage to the goods. 4. Price is consideration in a contract of export sales. An export sales contract must be supported by consideration. If it is without a price, it is only a gift pure, simple and cannot be called an export sales contract. 5. All other elements of a valid contract are also applicable to a contract of export sales.
Legal Framework of Foreign Trade when the relationship of the parties is Non-Contractual
Exporter and the Government: Export contract is a private contract between the exporter and the importer and the Government not being a party to this contract has nothing to interfere with this contract. But the Government of India has enacted various laws and regulations like Foreign Trade Act 1992, Foreign Exchange Regulation Act, Custom Act, Customs Tariffs Act, Preshipment & Quality Control Act etc and it mandates the exporter to conclude his export contract subject to the provisions of these laws. This simply means that the international trade transactions legalized through export contract.
Exporter and International Agencies

The International Chamber of Commerce (ICC), Paris has formulated certain conventions like INCOTERMS (International Contract Terms) 1990 and UPC( Uniform customs and Practices for Documentary credits) 1993 which have been universally accepted by the international business community to be applicable in international trade transactions. Since these conventions have assumed the force of law over a period of time and have become universally acceptable to the international business community, the parties to international trade transactions, although they have no contractual relationship with ICC, Paris, are bound to honor the provisions of these conventions.
Indian Contract Act 1872 & Sale of Goods Act 1930

UNIT-15 THE PROPER LAW OF THE CONTRACT OR THE LEX CAUSAE In case of international contracts (involving foreign transactions and foreign elements) between parties belonging to different countries and legal regimes, the law applicable (to their contract) is the Proper Law of the Contract (PLC) or Lex Causae. The PLC may be the exporters or importers country law or even a third country law which are national laws.
Proper Law
In the conflict of laws, lex causae (Latin: lex+causa, "cause [for the] law") is the law or laws chosen by the from among the relevant legal systems to arrive at its judgment of an international or interjurisdictional case. The term refers to the usage of particular local laws as the basis or "cause" for the ruling, which would itself become part of referenced legal canon. Conflict of laws regulates all lawsuits involving "foreign" law, where the outcome of a legal action will differ based on which laws are applied. Once the forum court has ruled that it has jurisdiction to hear the case, it must then decide which of the possible laws are to be applied.
Based on the decisions of the English Courts and the provisions of English Law and American jurisprudence the following limitations have been laid down which can be said as generally applicable. The chosen foreign law should not offend or should not be repugnant to English Public Policy. Chosen law shall yield to or be subject to an English statutory law as the lex fori(law of forum) to the extent to which statue expressly so provides (say for example, English Unfair Contract Terms Act 1977). Chosen foreign law should not go against the mandatory provisions or rules of the lex fori which are of such a compelling character that the English courts will apply regardless of the proper law. The parties may be free to choose the law of a place having no connection with the contract yet the choice must be bona fide and legal. The chosen law will not be applicable and enforceable if the performance of the contract is unlawful by the lex loci solutions (law of the intended place of performance of the contract).
The Proper Law of the Contract when choice of Law Clause not existing or Absent in the Contract
In cases where the choice of law clause is not existing or absent in the contract including ESC, it is considered essential as a first step, to find out the intention of the contracting parties from the various contract documents and even otherwise regarding the applicable law. If the intention of the parties is apparent or can be inferred the intended law will be the PLC or applicable law. In case where the contract is silent as to the applicable law and the intention of the parties is not apparent or cannot be inferred or deduced the Conflict of Laws principles will be applied to determine the PLC. Each country has formulated its conflict of laws rules to provide an overall guidance to the courts on this question.
Since, every country has its own trade laws and regulations, the question arises as to which law can more appropriately be said to be the applicable law or PLC. Although, it is possible for different aspects of the contract to be governed by different laws but the strong tendency of the English and other courts today is to apply a single legal system to the contract as a whole. The main task is to identify the center of gravity i.e. the state having the closest connection with the contract. Here the courts have tried to avoid a purely mechanical test. They have taken many facts into account or consideration like the place where the contract was concluded, the places of business of the parties, the contractual place or places of performance, the nature and subject matter of the contract etc.
In the process of identifying the closely connecting factor the courts have given greater weightage to certain factors compared to others. Accordingly the lex loci solutionis or the law of the place of intended performance of the contract was considered to be the most important and was given greater weigthage. Prima facie lex loci solutionis was considered having closer or greater connection with the contract.
lex loci solutionis

The lex loci solutionis is the Latin term for "law of the place where relevant performance occurs" in the Conflict of Laws. Conflict is the branch of public law regulating all lawsuits involving a "foreign" law element where a difference in result will occur depending on which laws are applied. The lex loci solutionis is one of the possible choice of law rules applied to cases testing the validity of a contract and in tort cases.
Refined Theory
According to the Refined Theory the contract has to be governed by the law of the principal place of the business of the party (the exporter) whose performance is characteristic of the contract. In the absence of a choice of law clause in the contract, the PLC can, therefore, be defined as the exporters country law (more specifically the laws on contract and sale of goods) as the exporters principal place of business is invariably and normally located in his own country.
Qualifications of the Proper Law

The most important aspects of a contract are considered to be governed by the proper law of the contract that is the law expressly or impliedly selected by the parties or where their choice is not manifest and the intention cannot be inferred, the law with which the transaction has its closest connection.The proper law , governs the formation and essential validity, capacity, interpretation, effect and discharge of the contract.The principles have been adopted by the EC Convention on the Law Applicable to Contractual Obligations in 1980.
Qualifications of the Proper Law

According to some English authors, the proper law is not of universal application.The definition & location of connecting factor, procedural law etc. are matters of lex fori (law of the forum). A contract can also be considered formally valid if it satisfies the formalities prescribed by the lex loci contractus (law of the place where contract is made) even if it does not meet those of proper law.
Application of Lex Causae to sale of goods

Apart from contract, the lex causae or the proper law of the contract has been made applicable to sale of goods including export sales. According to Professor Goode the general principles explained earlier on lex causae in contracts, most of the contractual aspects of a contract for the sale of goods are governed by the proper law of the contract. In the absence of an express or implied choice of law by the parties the law of the sellers principal place of business will be applicable law or lex causae.
But the proprietary aspects of a contract for the sale of goods including the capacity to transfer, formalities of a valid transfer, its essential validity, the time of the passing of the property, location of title etc. will be determined by the lex situs, that is the law of the place where goods are situated at the time of the contract. Professor Cheshire had earlier advocated the proper law to govern the proprietary rights of the parties interse but now it seems to be agreed that the lex situs governs the proprietary issues even where they arise solely between the parties to the contract and do not involve a third party. According to the general principle to the forum should recognize a title validity acquired under the lex situs and should refuse to accept a claim to ownership not recognized by the lex situs, even if a different result would have been reached under the lex fori.
Standardized Export Sales Contract

All export transactions are legalized through contracts called export sales contract (ESC) and formalized through written agreements containing standard terms & conditions.ESC is applicable, if the product is standardized one, such as garments, handicrafts, light engineering products etc. The standardized terms & conditions can be evolved & adopted with or without some changes each time a contract is drafted.These terms & conditions are comparatively simple compared to the terms & conditions in a contract for export of more complicated products like petrochemical plants or heavy engineering products.
Elements of Export Sales Contract

It is a contract between two distinct parties i.e. an exporter and importer who must be competent to contract. Goods which form the subject matter of the contract must be movables and may be either existing goods owned and possessed by the exporter or future goods (to be procured or manufactured). The exporter transfers or agrees to transfer the property in the goods to the importer.Transfer of general property in the goods or ownership is the essence of the contract of export sales. The transfer of property in the goods from the exporter to the importer is for consideration which must be money called price. When goods are exchanged for goods it is not an export (or a sale) but a barter. When the consideration is partly in cash and partly in goods the transaction is an export Copyright PCTI Group 2009 | | <document classification> or sale.
Elements of ESC
The other essential elements of a contract like the competency of the parties, lawful object and consideration, certainty of meaning etc. are also applicable to ESC. Export sales contract is formed by offer (to buy or sell goods) by one party and its acceptance (to sell or buy goods respectively) by the other party. The contract is made in writing or by word of mouth or partly in writing and partly by word of mouth. The contract may also be implied from the conduct of the parties or from the course of dealing between the parties. Although oral contracts are valid, it is always safe and secure to have a formal written contract.
Difference b/w ESC & DSC (Domestic Sales Contract)

Although the essential elements of a valid ESC and that of the DSC are same there appears to be some differences, between these two contracts. This is mainly because all export sales have a foreign element which is absent in all domestic sales. The ESC involves parties who are called exporter and importer belonging to different countries. The price (consideration) under the ESC is quoted and realized in foreign currency. The goods (forming the subject matter of ESC) are exported across the boundary of the exporters country. The applicable law and jurisdiction under the ESC may or may not be the exporters country law and jurisdiction. The ESC is concluded subject to the provisions of certain laws on Foreign Exchange Regulations, Foreign Trade Development & Regulations etc. which are not relevant for domestic sales regularized through DSC.
Settlement of International Trade Disputes

In international business, disputes are varied in nature and arise mainly on account of omissions and commissions in the contract resulting in a breach of contract. Settlement of commercial disputes or differences as and when they arise, in a desirable solution. They are resolved and required to be resolved amicably by discussion in view of the high cost, time consuming process, inconvenience involved in settling the disputes by litigation or arbitration. When the amicable method of resolving the disputes fails the parties resort to an outside person, or tribunal or court to settle the disputes.
Areas of International Trade Disputes

Disputes arise when the contracting parties do not fulfill their contractual obligations resulting in a breach of contract (actual or anticipatory). When time is considered as the essence of the contract but goods are not supplied within the stipulated time. When the promisor expresses difficulty of performance due to some uncontemplated events, delays etc. although he has undertaken an absolute obligation to perform the contract. When the promisor pleads his inability to perform his obligation due to failure of a third person on whom the promisor relied for supply of goods. When the promisor faces some unusual circumstances like strikes or lock-outs of his factory and it becomes difficult for him to meet his commitment.
When the overseas buyer wants to avoid the contractual obligations because the market for the goods has dried up and there are no demand or he finds it difficult to locate buyers for the goods ordered. When the overseas buyer refuses to pay or delays payment of goods. When goods, as promised, not supplied according to description or when goods supplied though correspond to the sample but does not correspond to the description which is the essence of the contract. When goods supplied are not fit for the purpose required and mentioned by the buyer and the buyer relied on the skill and judgment of the seller for the goods and it is the sellers business to deal in such goods.
Disputes arises when goods supplied are not of merchantable quality i.e.goods do not have use value or exchange value. Disputes may also arise due to passing of property in goods (ownership), passing of risk and on account of title to goods. Disputes b/w the contracting parties arise not only due to breach of conditions express or implied but also due to breach of implied warranties when buyers quiet possession is disturbed by a person having a superior title to goods or the goods have been sold subject to some charge without the knowledge of the buyer or goods are dangerous in nature and the buyer has not been given any warning for use etc.
Methods of Settlement of International Trade Disputes

ARBITRATION Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.
ARBITRATION
Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. It is more helpful, however, simply to classify arbitration as a form of binding dispute resolution, equivalent to litigation in the courts, and entirely distinct from the other forms of dispute resolution, such as negotiation, mediation, or determinations by experts, which are usually non-binding. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals of their right to access the courts.
LITIGATION
It is a method by which the parties resort to a court established by law. The litigation is initiated and completed according to the rules of the court which exist to ensure the proper conduct of the litigation. The court adjudicates only on the basis of issues which the parties present to it and upon the evidence which the parties choose to adduce. Litigation however, is costly, time consuming and most inconvenient. It creates bitterness and adversely affects the long term commercial interests of the parties.
Limitations of Litigation
Court proceedings are slow and time consuming besides being very formal. The judge, expert or eminent in the field of law may not be expected to have the same expertise in the lines of international trade and business. The time and dates of hearing in a court of law may not be convenient to the parties. Court proceedings and judgments being open to public no business secrecy can be maintained. Litigation may result in bitterness and breach of commercial relationship b/w the parties. Litigation is costly & additionally more difficult in a foreign court. International trade laws and procedures are rather complicated and the party litigating has to get acquainted with these laws.
Advantages of Arbitration
Arbitration proceedings can be commenced and completed within a specified time limit depending on the nature of the dispute. Arbitration is therefore, quicker than litigation. The costs and expenses of arbitration are less compared to court litigation. Arbitration promotes goodwill and better trade relations between the parties. In arbitration, the parties can avail of the services of experts who are experienced and more knowledgeable which is not possible in a court litigation. Arbitration ensures privacy and secrecy as the proceedings are private and the award given by the arbitrators is also not published. The arbitration proceedings are less formal & more flexible than litigation.
Arbitration Clause
An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause. In the United States, the federal government has expressed a policy of support of arbitration clauses, because they reduce the burden on court systems to resolve disputes. This support is found in the Federal Arbitration Act, which permits compulsory and binding arbitration, under which parties give up the right to appeal an arbitrator's decision to a court.
In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the U.S. Supreme Court established the "separability principle", under which enforceability of a contract must be challenged in arbitration before any court action, unless the arbitration clause itself has been challenged. Furthermore, arbitration clauses are often combined with geographic forum selection clauses, and choice-of-law clauses, both of which are also fully enforceable. The result is that a plaintiff may find himself or herself compelled to arbitrate in a strange private forum thousands of miles from home, and the arbitrators may decide the case on the basis of the law of a state or a nation which the plaintiff has never visited. An arbitration clause may nevertheless be challenged and held invalid if it designates a biased party as the arbitrator.
Alternative Dispute Resolution (ADR)

Alternative dispute resolution (ADR) (also known as External Dispute Resolution in some countries, such as Australia) includes dispute resolution processes and techniques that fall outside of the government judicial process. Despite historic resistance to ADR by both parties and their advocates, ADR has gained widespread acceptance among both the general public and the legal profession in recent years. In fact, some courts now require some parties to resort to ADR of some type, usually mediation, before permitting the parties' cases to be tried. The rising popularity of ADR can be explained by the increasing caseload of traditional courts, the perception that ADR imposes fewer costs than litigation, a preference for confidentiality, and the desire of some parties to have greater control over the selection of the individual or individuals who will decide their dispute.
ADR includes informal tribunals, informal meditative processes, formal tribunals and formal meditative processes. The classic formal tribunal forms of ADR are arbitration (both binding and advisory or nonbinding) and private judges (either sitting alone, on panels or over summary jury trials). The classic formal meditative process is referral for mediation before a court appointed mediator or mediation panel. Structured transformative mediation as used by the U.S. Postal Service is a formal process. Classic informal methods include social processes, referrals to non-formal authorities (such as a respected member of a trade or social group) and intercession. The major difference between formal and informal processes are (a) pendancy to a court procedure or (b) the possession or lack of a formal structure for the Copyright PCTI Group 2009 | | <document application of the procedure. classification>
MAJOR ISSUES IN SETTLEMENT OF INTERNATIONAL TRADE DISPUTES
Applicable Substantive Law Jurisdiction or the Forum Venue of arbitration Applicable procedural law Recognition and enforcement of Foreign Judgments and Arbitral awards Law for enforcement of foreign awards in India Enforcement of Indian Awards in Foreign countries
Topic for Discussion

OVERVIEW OF INDIAN ARBITRATION AND CONCILIATION ACT 1996 RELEVANT FOR INTERNATIONAL COMMERCIAL ARBITRATION AND CONCILIATION
An ISO 9001:2008 Certified Organization
UNIT-17
INTERNATIONAL TRADE AND ENVIRONMENT
TRADE VS. ENVIRONMENT-GENESIS OF CONFLICT

The interface between and environment is not entirely a new phenomenon. Way back in the late 1960s environment problems generated by industrial pollutants surfaced as a major issue in the developed world calling for stricter environment and product standards. As customer awareness grew. In countries like Germany, more and more consumers started to demand that the product they consumed should not cause unnecessary health risks or damage the environment. It is expected that several new industries will come under greater consumer scrutiny in the near future.
The concern for preserving the sanctity of the domestic environment has extended to a greater regard for safeguarding the global environment. The seeds of the conflict originate from the varying perceptions of the environmentalists, who are now a powerful lobby in the Western countries and the trade economists. Environmentalists have argued that there is a definite lacuna in the present system of International Trade, governed by GATT (now WTO) regime. Trade economists feel that it would be far better to tackle the environment problem separately, through International Agreement on Environment Standards and Policies rather than looking at it as a trade related issue. Free trade is the best method to ensure that developing countries are enabled to absorb the most recent technologies and production methods which are cleaner and far more efficient. The 1992 Earth Summit at Rio. Had rightly stressed the need for international cooperation to promote Sustainable Development through trade.
The United Nations (UN) General Assembly

The General Assembly of the United Nations, as the highest level intergovernmental mechanism, is the principal policy making and appraisal organ on matters relating to the follow-up of the United Nations Conference on Environment and Development (UNCED) It was the UNCED which had adopted the celebrated Agenda 21 at Rio-de-Janerio on June 14, 1992. Agenda 21, represents a comprehensive programme of action to be implemented by Governments, development agencies, United Nations organizations and independent sector groups in every area where economic activity affects the environment.
UN Commission on Sustainable Development (UNCSD)

The UNCSDs terms of reference include: Monitoring progress on the implementation of Agenda 21 and the activities related to the integration of environmental and developmental goals by governments, ENGOs and other UN bodies. Monitoring progress towards the target of 0.7% of GNP from developed countries for Overseas Development Assistance(ODA). Reviewing the adequacy of financing and transfer of technologies as outlined in Agenda 21. Providing recommendations to the General Assembly through the Economic and Social Council.
UN Environment Programme (UNEP)

The UN Environment Programme (UNEP) coordinates United Nations environmental activities, assisting developing countries in implementing environmentally sound policies and encourages sustainable development through sound environmental practices. It was founded as a result of the United Nations Conference on the Human Environment in June 1972 and has its headquarters in Nairobi, Kenya. UNEP also has six regional offices and various country offices.
Its activities cover a wide range of issues regarding the atmosphere, marine and terrestrial ecosystems. It has played a significant role in developing international environmental conventions, promoting environmental science and information and illustrating the way those can work in conjunction with policy, working on the development and implementation of policy with national governments and regional institution and working in conjunction with environmental Non-Governmental Organizations (NGOs). UNEP has also been active in funding and implementing environmentally related development projects.
The World Trade Organization (WTO)

The WTO General Council has established a new Committee on Trade and Environment, with specific terms of reference and an extensive work programme. Two important parameters will guide WTOs work. One is that WTO competence for policy coordination in this area is limited to trade. The second is that if problems of policy coordination to protect the environment and promote sustainable development are identified through the Committee, they are to be resolved in a manner that upholds and safeguards the principles of the multilateral; trading system. On the interface between Environment and International Trade, WTO has virtually assumed a pivotal role by the range and depth of its proposed operations.
GATT/WTO AND THE ENVIRONMENT AGENDA

In Western Countries there was almost spontaneous reaction to the worldwide debate on the destruction of tropical forests or reduction of the ozone layer by Western consumers through reducing the consumption of furniture from tropical timber or refusal to buy products like aerosol sprays etc, which made use of CFCs. In other words, environmental considerations began exert increasing pressure on international on international trade, and GATT could no longer consider sidelining important issues in its deliberations. The newly created World Trade Organizations (WTO) has gone further and introduced a preamble, which specifically supports the need to protect the environment and the goal of Sustainable Development. In future, it should no longer be possible to overrule environmental concerns with the free trade argument.
MULTILATERAL ENVIRONMENTAL AGREEMENTS

The Montreal Protocol The convention protect the depletion of the ozone layer was among the earliest of the spate of environmental convention, known as the Vienna Convention for the protection of the Ozone Layer, 1985 has since been followed up by the Montreal Protocol on Substances that Deplete the Ozone Layer, which was signed by the United States, the European Community and 22 other countries. The Vienna Convention provided that the parties should adopt a Protocol on measures, procedures and standards to protect the ozone layer. The Montreal Protocol on Substances that Deplete the Ozone Layer was adopted in 1987and signed by 24 countries.
THE BASEL CONVENTION

The basic objective of the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal is to control transboundary movements of hazardous wastes and their disposal in other countries, notably the developing world. The convention seeks to ensure the environmentally sound management of the wastes and their disposal as close as possible to the sources of generation. The main obligation of the parties are To reduce to a minimum the generation of hazardous waste. To dispose of it adequately and within the territory of the country where the waste has been generated To ensure that transboundary movement of hazardous waste.
TRADE PROVISION
The Basel convention states that every country has the sovereign right to ban the import of hazardous wastes or other wastes, and as a consequence, no state should allow any transborder movement of hazardous wastes or other wastes to a state which has prohibited their import. The export of hazardous wastes to a state which is no a party to the Basel Convention and the imports from a nonparty state are prohibited, unless an agreements (establishing requirements no less environmentally sound than the Basel Convention) is reached between parties and non-parties. Exports of waste for disposal in Antarctica are prohibited.Before permitting exports of wastes, export country has to make sure that the importing country has agreed in writing to the specific import. (prior informed consent procedure).The Basel convention does not call for an outright ban on the trade. It only seeks to regulate the trade.
THE LONDON GUIDELINES

The London Guidelines for the Exchange of Information on Chemicals in International Trade were elaborated to assist Governments in increasing chemical safety through exchange of scientific, technical, economic or legal information on chemicals in international trade. It also contains procedures for prior informed consent which regulates trade in chemicals that are banned or severely restricted. The UNEP International Register of Potentially Toxic Chemicals (IRPTC) is the institution entitled to receive notifications of banned or severely restricted chemicals and in charge of informing all parties of the notifications received.
THE CITES CONVENTION

The basic objective of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is to provide guidelines and procedures to protect endangered species of wild flora and fauna against over-exploitation through international trade. The degree of control that is exercised over trade is related with the degree of threat of extinction each animal or plant faces.
TRADE VS. ENVIRONMENT GLOBAL CONFLICTS

The manner in which GATT rules have operated in the environment arena, including their role in preventing protectionist abuses and their attempts to impose standards on unilateral basis on other countries, become more apparent while considering the following trade disputes. Mexico / United States (US restrictions on imports of Tuna) United States / Thailand (Thai restrictions on importation of internal taxes on cigarettes) Canada / European Community, Mexico vs United States. Another possible source of conflict with the GATT rules occurs when an environmental agreement specifies a difference in the trade measures affecting parties and non-parties. For instance, the trade provisions of the Montreal Protocol, the Basel Convention, and CITES (for those species in which managed trade is permitted) require parties to apply more restrictive trade provisions to non-parties than to parties.
REGULATORY MEASURES AND ECONOMIC INSTRUMENTS ISSUES OF CONCERN TO DEVELOPING COUNTRIES
Environmental standards and regulations in industrialized countries generally formulated to protect their local environment may also have an impact on developing countries by altering their trading opportunities.
REGULATORY MEASURES
Product standards and regulation Production standards refer to technical specifications such as performance, quality, safety or dimensions of a product. Normally the term regulation is used when compliance is mandatory while the term standard is used when compliance is voluntary. Product regulations may refer, among other things, to pesticide residues, toxity, energy efficiency, emission of pollutants, recyclables etc. Process standards and regulations Process standards can be direct or indirect. Technology standards are essentially direct controls, as they dictate the production process at the plant level. Process standards e.g., emission controls, can be also be achieved through an environment tax or traceablepermit system (quotas or cellings on pollution emission levels which can be traded internationally) in which case they are indirect controls. Process standards and regulations may adversely affect the competitiveness of domestic industry because of their impact on the production costs.
ECONOMIC INSTRUMENTS Product charges Subsidies Deposit-refund systems Packaging policies
ACHIEVEMENTS OF THE URUGUAY ROUND OF NEGOTIATIONS-ASSOCIATED AGREEMENTS ON TRADE AND ENVIRONMENT
The final Uruguay Round of Trade Negotiation addresses a number of environmental concerns in its different sectoral agreements. Although not entirely foolproof, the Agreement signify a definite attempt to bridge the differences between the various sections involved in this issue and marks some progress towards the goal of Sustainable Development.
Salient aspects of the Associated Agreements on Trade and Environment are: The agreement on Technical Barriers to Trade (TBT) The Agreement Sanitary and Phytosanitary Measures (SPS) Measures protect human, animal and plant health. The Agreement on Agriculture The Agreement on Subsides and Countervailing Duties The Agreement on Trade-Related Intellectual Property Rights (TRIPS) The Agreement on Trade in Services Dispute Settlement Measures
Topics to be discuss
Environmental Issues and International Trade- The Indian Experience
UNIT-18 INTERNATIONAL TRADE IN SERVICES

Interest in the services sector at both the global and national levels has considerably increased in recent years. Apart from being a major contributor to the gross domestic product and employment, the services sector has emerged as an important foreign exchange earner for the developed as well as the developing countries. More than one-fifth of the world trade is currently accounted for by international transactions in services. Since January 1995, world in services has been brought under the surveillance of the General Agreement on Trade in Services (GATS) which is a part of WTO and aims at liberalization of trade in services.
TRADE IN SERVICES : CONCEPTUAL ASPECTS

Services are activities which are essentially invisible, intangible and perishable in nature. Furthermore, as the services are not inventoriable, their production and consumption take place simultaneously. From the point of view of national income accounting, services are defined as activities not included in the primary and secondary sectors and as such comprise of the activities like transport, travel, communication, trade, finance, construction, public utilities, public administration as well as professional, community, social and personal services.
With the evolution of GATS in December 1993, the controversy has largely been set aside. According to the GATS provisions, trade in services now means supply of services through any one of the following four modes 1. Cross-border movement 2. Movement of consumers 3. Commercial presence abroad 4. Presence of natural persons abroad
ROLE OF TRADE IN SERVICES IN ECONOMIC DEVELOPMENT

The few years, have witnesses a rapid growth of interest in trade in services and its role in economic development. Services have emerged as an important source of foreign exchange earnings for both the developed and developing countries. Today cross-border transactions in services alone exceed US$ 1 trillion per annum and these account for about 20 per cent of the total world trade. Exports of services such as tourism, shipping, telecommunications, insurance, banking, software and project exports including technical consultancy and legal management have come to occupy a strategic position in the world markets. Especially in the case of many developing countries, surplus in the invisible account have greatly helped them in mitigating deficit problems in their balance of payments account.
Services is also economically important for providing jobs to the millions of people. Services already account for about 60 per cent of the employment in the developed countries, and 27 to 30 per cent and 30 to 50 per cent in the case of low income and middle income developing countries respectively. Tourism, hoteling, manpower, software and turnkey project exports and consultancy assignments are of prime interest to the labor abundant developing countries and can greatly help them in solving their unemployment problems. Service sector plays a catalytic role in the industrialization process and economic development of the countries by way of providing necessary infrastructure and basic inputs for material production in other sectors. Copyright PCTI Group 2009 | | <document classification>
Trade in services, according to Article 1.2 of the GATS agreement, encompasses all the four modes of supply, viz., cross-border transactions, movement of consumers commercial presence abroad and movement of natural persons. Commercial presence abroad is akin to foreign direct investment and has been included at the insistence of the developed countries. Economic development means not only economic growth but also efficient utilization of resources betterment of various sections of the society. Liberalization of services trade would allow country to pursue liberalization in harmony with their comparative advantages. In a liberal environment, resources will be employed in those activities where they can be more effectively and efficiently utilized.
TOPICS TO BE DISCUSSED
RECENT TRENDS IN WORLD TRADE IN SERVICES AND PROSPECTS & INDIAN PERSPECTIVE
UNIT-19 INTERNATIONAL BUSINESS ETHICS

INTRODUCTION Ethics refers to the business conduct or morals of standard. It is based on the cultural value system and the accepted ways of doing business in each society. Ethical norms are based on broadly accepted guidelines from religion, philosophy and legal system. Global managers are exposed to wide varieties of ethical problems. Therefore, understanding of ethical norms becomes essential for smooth operation of global business.
THE CONCEPT OF ETHICS

Ethics is the study of decision making within a framework of a system of moral standards. The individual conduct that is considered right and good in the context of a governing moral code is called ethical behavior. It is not only compatible with law but also confirms to a broader set of moral principles expected by all in the social group.
ETHICAL DILEMMAS AND ETHICAL LAPSES

The ethical issues facing the managers fall into two broad categories, ethical dilemmas and ethical lapses. In case of ethical dilemmas the issue has two conflicting but arguably valid sides. A classical ethical dilemma refers to permitting or not tobacco companies to advertise. Not allowing them to advertise, restricts their freedom of speech and obstructs their ability to do business. Ethical lapse on part of a manager occurs when he makes an unethical decision. While ethical dilemma arises due to unresolved interpretations of ethical issues, the ethical lapse is associated with cases of unethical behavior. Thus the desire of a tobacco company to advertise is an ethical dilemma; the decision of a top manager to profit from inside information is an act of ethical lapse.
APPROACHES TO ETHICAL MANAGEMENT

Identifying Ethical Pressures An organizations decision of pursuing ethical management practices, must be a proactive stance and such practices must be pursued with diligence and persistence. To realize this aim there is a need to recognize various ethical pressures on managers that lead to ethical dilemmas.
The ethical pressure on managers is likely to result from such sources as organizational goals. Personal goals, competition, uniformity and fear. The managers may be under pressure to meet their organizations goals, such as to sell a certain number of products. Such pressures may lead managers to choose course of action that may be less ethical but helps in better short-term performance. Individuals are under peer group pressures to act in confirming ways, both on jobs and other situations, throughout their lives. If there is shortage of jobs and supervisor has a family to support, the pressure to act unethically is really great.
FRAMEWORKS FOR RESOLVING ETHICAL DILEMMAS
Utilitarianism Formalism or Deontology
Utilitarianism and Formalism Illustrations of Contrast: These two important approaches differ in their perspectives while facing ethical decision making situations. Some examples of these differences are listed below. a. While describing a business executives action, the utilitarian sees it from the perspective of its being good or bad but the formalist views it from the angle of being right or wrong b. For a utilitarian the consideration behind an ethical decision is executives needs, wants and desires, however, for a formalist it is the question of the executives conscience
c.For a utilitarian the solutions to ethical problems are not easily definable, it is exactly opposite as far as the formalist is concerned d.The telling of lies is considered wrong by both, but for different reasons. For an utilitarian speaking lies is wrong because it can lead to attendant problems, in the formalist views it is wrong because it is not correct for anybody to lie. e.The role of law is viewed differently. It is the belief of utilitarian that through benevolent legislation, everybodys life can be improved but for the formalists it is important to apply law fairly and impartially. Cultural Preference for Decision Principles Empathy
INSTITUIONALIZING ETHICAL ORGANIZATIONS BEHAVIOR

An ethical organizational culture can be introduced and nurtured by managers that emphasizes the importance of ethical consideration. The move towards an ethical atmosphere must start at the top of the organization, led by personal influence of top managers. The way the CEO and other executives exercise moral judgment can have more impact on an organization than any written policy. Another way to institutionalize ethical behavior is to provide ethics training that may start at the time of employment at which employees read and sign the companys code of ethics.
ETHICS AND INTERNATIONAL MANAGEMENT

Ethical Analysis of Management Decisions Content of Managerial Dilemma Moral Standards of Behavior
ETHICAL SYSTEM OF BELIEF

Eternal Law Utilitarian Theory Universal Theory (Formalism) Distributive Justice Personal Liberty
FOREIGN CORRUPT PRACTICES ACT OF USA

After many glaring cases of business bribing government officials in other countries came to light, US government passed the Foreign Corrupt Practices Act (FCPA) in 1977 which was amended in 1988. This act requires adherence to strict accounting standards by US companies. It also prohibits them from offering bribe in their overseas operation. The Act establishes specific standards for US managers to help them in determining what is permissible conduct.
TOPIC FOR DISCUSSION
ETHICAL ISSUES IN INTERNATIONAL TRADE
ETHICAL v/s UNETHICAL ACTIVITIES

Selling Products Less in Demand in Home Countries Selling Prohibited Products in LDC Markets Selling Products Likely to be Misused Restrictive Trade Policies Dumping Counterfeiting Grey Marketing
CODE ETHICS FOR INTERNATIONAL MARKETING

Various pressures on major player in international trade shows the need to clearly lay down guidelines, in form of code ethics, for their employees. Such code of ethics should lay down guidelines for operating in various markets, particularly focusing on places where unethical behavior is more common. The code of conduct has been emphasized and laid down by outside agencies such as OECD, International Chamber of commerce, International Labor Organization and UN committee on Transnational Corporation. These codes address issues related to MNCs and their stakeholders such as host government, the public, consumers and employees.
BUSINESS AND SOCIAL RESPONSIBILITY
AREAS OF SOCIAL RESPONSIBILITY

The socially responsible organizations are all time looking for creative and new ways of servicing their stakeholders. Such efforts can be grouped under the following categories : local community welfare including health care, education, human rights, the natural environment, consumer rights and support for cultural events. Socially responsible organizations have also realized that investing in community health care is not desirable but also valuable and necessary for everyone including the company, the employees and the community at large.
Organization have also shown interest in their social responsibility in educative. It is not just to be charitable of generate positive publicity, but to survive. They have contributed in efforts to improve preschool, primary, secondary and vocational education. Many organizations direct their social responsibility efforts towards upholding the cause for human rights. Reebok International, the athletic shoe manufacturer, has promoted the activities of Amnesty International. The right to freedom of expression is a part of its corporate philosophy.
APPROACHES TO SOCIAL RESPONSIBILITY

Continuum of Social Responsibility The stance taken by organizations towards their social responsibility can be categorized in one of the four ways : opposition, obligation, responsiveness and contribution to social responsibility. These categories from a continuum; the lowest level responsibility is shown by firms who must be forced to comply with legal and ethical standards.
Social Audit Organizations concerned with keeping their social responsibility at the forefront of their strategy employ the tool of social audit. It provides them a systematic evaluation and reporting of their current performance in various areas of social responsibility.
INSTITUTIONALIZING SOCIAL RSPONSIBILITY

Advocacy Supporting a particular cause through financial, material and human resource backing Partnership Cooperating with special interest groups, such as environment groups, to seek mutually acceptable solutions to social problems. Philanthropy Gifting money, time, goods or services to charitable, humanitarian or educational institutions. Executive Loan Allowing their executives to take leave of absence and assume management positions in non-profit organizations for short duration. Cause-Related Marketing Offering to contributive a specified amount to a designated cause when customers buy the companys goods or services. In 1983 American Express donated one cent from its every card purchase to help refurbish the State of Liberty. It raised $1.7 million for the Statue.
UNIT-20 ELECTRONIC COMMERCE

Rapid developments in computer and Telecommunications technologies during the last decade has moved the world from manufacturing hereafter, but information will be the power house of global economy. The Internet and the popular World Wide Web have dramatically changed the information exchange process all over the world. It is but a small world! Economic growth in an environment of intense global competition is feasible only through efficient trade, both national and international. International electronic commerce is managing this resource with maximum efficiency using the Global Information Infrastructure.
EMERGING DIRECTIONS IN INTERNATIONAL BUSINESS We are living in the information age. To handle information efficiently, organizations must possess the appropriate information technology (IT) infrastructure. While self-owned networks may not be within the reach of most companies, they can obtain a minimum level of internetworking through network service providers.
Like global competition, global partnership is an emerging reality. Most corporations will depend on suppliers distributed across national boundaries. Integrating production activities with suppliers and customers is again an information management issue. Just-in-time (JIT) Inventory Management, Total Quality Management (TQM), and continuous improvement are some of the important concerns businesses need to address and resolve. Carefully designed and implemented information systems help firms handle these issues.
ELECTRONIC COMMERCE (EC)

EC broadly connotes business activities (with associated technical data) conducted electronically. Using electronic channels based on computer and telecommunications technologies, a lot of business transactions and information interchange can be automated without any constraints on the geographical dispersion of the trading partners. In the emerging global electronic marketplace, all companies meet on equal terms. They have access to all information services to communicate. They need not revert to paper-based transactions. Buyers activities are supported by multimedia catalogs, and other seller services. Sellers activities are supported by automated order processing, production scheduling, delivery scheduling, payment services and so on. Third parties offer value-added services such as specialized directions, brokering, referral, vendor certification, credit handling, etc.
The number of companies, offering information and services for sale over the Internet and value-added networks (VANs) has been increasing very fast. Their number may increase to a million by the year 2000. The important benefits of EC are 1.Competitive advantage through innovative marketing strategies 2.Mass customization through online interaction with the customers 3.Global reach for even small businesses 4.Efficient market research 5.Cost reduction in business operations through efficient links with the suppliers and strategic allies 6. Multimedia presentation of product, company and marketing information. EC offers an excellent scope for domestic products to gain international visibility through the Web on the Internet. This is an immense advantage for exporters of products unique to the developing nation. The importers also benefit by identifying cheaper and quality inputs for their businesses. Copyright PCTI Group 2009 | | <document classification>
THE INTERNET SERVICES

The Internet is used for a variety of activities. Some of the commo0n activities are 1. Accessing and retrieving information 2. communicating 3. Teleworking 4. transacting business 5. using recreational facilities
THE WORLD WIDE WEB (WWW)

The World Wide Web (shortly called as the Web) has become very popular. It is only during the last couple of years that is presence on the Internet has become prominent. The Web technology is based on a clientserver architecture. It has facilitated availability of multimedia information on the Internet. Moreover, it permits users to access documents located at different sites, using hyperlinks. A client (also called a browser in the context of the Web) is a programme on the users computer terminal. It can request information stored at different servers locates all over the world. A server is another programme on the computer terminal where information is stored and is made available to clients requesting such information. Some of the popular Web clients are Mosaic, Netscape and Explorer.
THE WORLD WIDE WEB (WWW)

With its multimedia capabilities, the Web is popular worldwide. Invariably, every Web server on the Internet has a home page to provide a brief overview of the organization and the information available with the server. To obtain the information wanted, the user needs to navigate using the hyperlinks. Many commercial organization offer product and related information on the Web. Smaller organizations create their Web presence with the help of the Internet services providers.
ELECTRONIC DATA INTERCHANGE (EDI)

EDI is the computer-to-computer exchange of business information among trading partners. The information exchange must conform to mutually agreed standards among the parties involved so that their systems have technological capabilities to handle flow of information in both directions. In a common EDI scenario, purchase orders are sent to suppliers. The suppliers send acknowledgement, and follow up by sending shipping documents. The purchaser makes payments through banks on receipt of invoices. This chain of activities is performed through computer-to-computer interaction without human intervention.
GLOBAL TRADE POINT NETWORK (GTPN)

Under the auspices of the United Nations Conference on Trade and Development (UNCTAD), the Trade Efficiency Initiative was launched in February, 1992. the main objective of this initi9ative is to open international trade to new participants, especially the small and medium sized enterprises (SMEs), by simplifying and harmonizing trade procedures worldwide and by giving traders access to advanced technologies and information networks. The Trade Point programme is key component of this initiative. The Global Trade Point Network (GTPN) was officially launched by the UNCTAD delegates at the United Nations International Symposium on Trade Efficiency held in Columbus, Ohio, USA during October 1994
The programme has four major objectives: 1.Make international trade transactions more efficient by simplifying and standardizing the trade process 2.Make current and prospective international traders more effective by providing them with easy access to trade information, facilitation of services, information technologies, network, and support training 3.Promote new commercial partnerships between international traders through the creation of electronic information and communication links and through the addition of new international trade participants Increase awareness of existing and potential international traders to new trading opportunities and techniques offered by advances in t6rade information, technology, and attendant international standards
TRADE POINT NETWORKS

The UN Trade Point Development Centre (UNTPDC) is located at Melbourne, Australia. A major service of this centre is to provide an Electronic Trading Opportunities (ETO) system which would include a list of current world opportunities available to business. Another important services is a facility to Trade Points to create multimedia catalogs for their information, brochures and catalogs online as simple text or with full multimedia support. Companies using the ETO-Visual catalog services will be exhibited at the GTPN and their products linked to the ETO Master Index at the UNTPDC Web site.
ETO
ETO system is a major Web service under UNTPDC Global Reach Programme. The ETO Master Index facilities access to the system and navigation to all possible locations of ETOs. Users can search ETOs to access ETO Visual Catalogs (multimedia), and ETO Visual Special Projects. ETO connector links to several Internet sources on international trade information such as Commerce Business Daily, International Trade Daily, Daily Government Trade Opportunities, World Banks World Trade Yellow Pages and Circle International Inc. ETO Data Entry ETO Associates ETO Agent Registration ETO EDI Centre ETO Search ETO Search ETO Email Query System
COMMERCE NET
CommerceNet was formed in U.S to facilitate the use of an Internet-based infrastructure for Electronic commerce (EC) to allow efficient interactions among customers, suppliers and development partners to speed time to market and reduce the costs of doing business. The charter of the CommerceNet is to: Operate an Internet-based Web server to provide information for an open electronic marketplace for interbusiness transactions Accelerate the mainstream application of EC on the Internet Enhance existing Internet services and applications, and promote new services Encourage broad participation of companies of all sizes and offer training programme on the a CommerceNet Copyright PCTI Group 2009 | | <document classification>
COMMERCE NET
This Internet-based electronic marketplace will drastically reduce paper-based transactions. Its major features are Browsing of multimedia catalogs, soliciting of bids and placing of orders by buyers Responding to such bids, scheduling production, and coordinating of deliveries by sellers Bringing buyers and seller together through a wide array of third party value-added information services
BUSINESS ISSUES
THANKS.

Session-I: Ibo-01 International Business Environment Block-1 Concepts & Dimensions

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SESSION-I

An ISO 9001:2008 Certified Organization

IBO-01 INTERNATIONAL BUSINESS ENVIRONMENT BLOCK-1 CONCEPTS & DIMENSIONS

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ECONOMIC & FINANCIAL ENVIRONMENT

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UNIT-2 THEORIES OF INTERNATIONAL TRADE

Production possibilities of wheat & cloth

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RICARDIAN THEORY OF TRADE

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Product price ratio & factor price ratio

KY/LY A E F Y=1 X=1 B O

THE NEOCLASSICAL THEORY OF TRADE

UNIT-3 BALANCE OF PAYMENTS

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Underlying Principles and Conceptual Framework

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Balance of Payment Accounting

Components of Balance of Payment

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Deficits & Surplus in BOP

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Balance of Payment Disequilibrium

Factors affecting BOP

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UNIT-4 INSTRUMENTS OF TRADE POLICY

Partial Equilibrium Theory of Trade

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Non-Tariff Barriers to Trade

QUOTA VERSUS TARIFF

FLEXIBLE EXCHANGE RATES

Demand for $ Million Dollars

FIXED EXCHANGE RATES

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MAJOR FORCES OF GLOBALIZATION

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Effect of Globalization on World Economy

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Nature & Types of International Investment

FDI & Developing Countries

Trade Related Investment Measures (TRIMS)

Multilateral Investment Guarantee Agency (MIGA)

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UNIT-7 TRANSNATIONAL CORPORATIONS

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WHY FIRMS BECOME TRANSNATIONAL?

Market Powers of TNCs

TOPICS TO BE DISCUSS THEORIES EXPLAINING EMERGENCE OF TNCs IN WORLD ECONOMY

ISSUES AND CONTROVERSIES

UNIT-8 TECHNOLOGY TRANSFER

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Levels of Technology Transfer

Costs of Technology Transfer

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Costs of Technology Transfer

Reasons for purchasing technology

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Recent Trends And Current Issues