International Economic Environment

Trade barriers - Types International Economic Groupings (Trade Blocs) GATT/ WTO & trade liberalization Latest developments at WTO (including Doha Round) Role of MNCs in International trade FDI

Trade barriers
A government imposed restriction on the free international exchange of goods or services Measures that governments introduce to make imported goods or services less competitive than locally produced goods and services

Why trade barriers?

Protect domestic industries from foreign competition Promote new industries and R & D Conserve foreign exchange resources/reserves of the country To make the BoP position favorable To curb conspicuous consumption To mobilise revenue for the government To discriminate against certain countries

Types of trade barrier

Tariff Duties or taxes imposed on internationally traded goods when they cross the national borders Non tariff They restrict trade in forms, other than tariff, also described as new protectionism measures

Types of non tariff barriers

Traditional used by developing countries to prevent foreign exchange outflows E.g. Import licensing, import quotas Modern used by developed countries to protect domestic industries which have lost international competitiveness E.g. Voluntary export restraint (VER)

 Quotas Tariff quota, unilateral quota, bilateral quota, mixing quota Licensing

Voluntary export restraint (VER)

Types of Trade Blocs

Free Trade Area Free trade between nations; each nation will have own commercial policy towards non members Customs Union - Free trade between nations; all nations will have common commercial policy towards non members Common Market - Free trade between nations; all nations will have common commercial policy towards non members; additionally, free movement of factors of production (capital, labor, technology) Economic Union all of the above plus common economic policy. Eg: Euro currency of EU

European Union (EU)

Founder nations - Belgium, France, Federal Republic of Germany, Italy, Luxembourg and Netherlands Came into existence in 1958

Type: Customs and economic union

One of the most successful and progressive trade blocs Has a common currency - Euro 25% of Indian exports go through EU It is Indias single largest trading partner and hence very important

The North American Free Trade Agreement (NAFTA)

Founder nations - USA, Canada and Mexico Signed in 1992, came into operation in 1994 Aims to protect investments of member countries, decrease tariffs, lower trade barriers, formation of US-Mexico border environmental commission, creation of a common bank EU and NAFTA together constitute 50% of world trade 20.7% of Indian exports with NAFTA

The Association of South East Asian Nations (ASEAN)

Founder nations Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Durssalam Established in 1967 Aims to accelerate economic development as well as social and cultural progress, stability of member nations and protect common interests Is a Full Dialogue partner with India

South Asian Association For Regional Co-operation (SAARC)

Founder nations India, Pakistan, Nepal, Bangladesh, Bhutan and Maldives
Formed in 1985 Accounts for one fifth of world population Aims at growth of under developed areas, economic growth, promote self reliance etc The progress of the trade bloc was limited due to less cordial relations between Indian and Pakistan

Positive implications of trade blocs

Expansion of markets for trade

Growth and development of regions

Increase in exports/imports Benefits to member nations Better mobility to factors of production Cordial relations among nations

Negative implications of trade blocs

Competition restricted among member nations Non members and global trade associations face problems in implementing free trade policies Collective bargaining by member nations Restriction on global trades in an artificial way