Unit-4:The world Economic-


The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.Also in this section

Who we are

There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other.

What we do

The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who usually meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva).

What we stand for

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.


The World Trade Organization — the WTO — is the international organization whose primary purpose is to open trade for the benefit of all.


The History of Globalization

Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in transportation and communication in the 19th century that eased trade across borders.

The think tank, Peterson Institute for International Economics (PIIE), states globalization stalled after World War I and nations’ movement toward port taxes to more closely guard their industries in the aftermath of the conflict. This trend continued through the Great Depression and World War II until the U.S. took on an instrumental role in reviving international trade


Globalization is the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade.

On the upside, it can raise the standard of living in poor and less developed countries by providing job opportunity, modernization, and improved access to goods and services. On the downside, it can destroy job opportunities in more developed and high-wage countries as the production of goods moves across borders.

Globalization motives are idealistic, as well as opportunistic, but the development of a global free market has benefited large corporations based in the Western world. Its impact remains mixed for workers, cultures, and small businesses around the globe, in both developed and emerging nations. 1:39


Globalization Explained

Corporations gain a competitive advantage on multiple fronts through globalization. They can reduce operating costs by manufacturing abroad. They can buy raw materials more cheaply because of the reduction or removal of tariffs. Most of all, they gain access to millions of new consumers.

Globalization is a social, cultural, political, and legal phenomenon. 

  • Socially, it leads to greater interaction among various populations.
  • Culturally, globalization represents the exchange of ideas, values, and artistic expression among cultures.
  • Globalization also represents a trend toward the development of single world culture. 
  • Politically, globalization has shifted attention to intergovernmental organizations like the United Nations (UN) and the World Trade Organization (WTO).
  • Legally, globalization has altered how international law is created and enforced.


  • Globalization has sped up to an unprecedented pace since the 1990s, with public policy changes and communications technology innovations cited as the two main driving factors.
  • China and India are among the foremost examples of nations that have benefited from globalization.
  • One clear result of globalization is that an economic downturn in one country can create a domino effect through its trade partners.

Disadvantages of Globalization

One clear result of globalization is that an economic downturn in one country can create a domino effect through its trade partners. For example, the 2008 financial crisis had a severe impact on Portugal, Ireland, Greece, and Spain. All these countries were members of the European Union, which had to step in to bail out debt-laden nations, which were thereafter known by the acronym PIGS.

Globalization detractors argue that it has created a concentration of wealth and power in the hands of a small corporate elite which can gobble up smaller competitors around the globe.

Globalization has become a polarizing issue in the U.S. with the disappearance of entire industries to new locations abroad. It’s seen as a major factor in the economic squeeze on the middle class

For better and worse, globalization has also increased homogenization. Starbucks, Nike, and Gap Inc. dominate commercial space in many nations. The sheer size and reach of the U.S. have made the cultural exchange among nations largely a one-sided affair.

Real World Examples of Globalization

A car manufacturer based in Japan can manufacture auto parts in several developing countries, ship the parts to another country for assembly, then sell the finished cars to any nation.

China and India are among the foremost examples of nations that have benefited from globalization, but there are many smaller players and newer entrants. Indonesia, Cambodia, and Vietnam are among fast-growing global players in Asian


Introduction to Multinational Corporations:

An important development in the post-war period is that of the spread of multinational corporations (MNCs) as the vehicle of foreign direct investments. These are also called as Transnational Corporations (TNCs).

Salvatore has defined them in these words, “These are the firms that own, control or manage production facilities in several countries.” Paul Streeten and S. Lal have defined MNCs from economic, organisational and motivational viewpoints. The economic definition of MNCs lays stress on the size, geographical spread and magnitude of investment.

The chief characteristics of multinational corporations (MNCs)

(i) They operate on a large scale having assets or sales in billions of dollars.

(ii) They operate internationally through a central office in the country of origin.

(iii) They have an oligopolistic structure and deal in differentiated products.

(iv) They try to bring about a collective transfer of resources like machinery, equipment, technological know-how, materials, finance and managerial services.

Role of MNCs:

The MNCs have become a very powerful force in the world economy during the last few decades. They have exercised a revolutionary effect on international economic system in general and industrial organisation in particular. It has been truly regarded as a remarkable economic phenomenon of the twentieth century. We assess here the role of MNCs from the point of view of the LDCs. The benefits of these organisations are based upon the theory of foreign direct investments.

These are given below:

(i) Transfer of Capital:

The LDCs are invariably faced with the problem of acute shortage of capital. On account of the paucity of domestic saving, these countries are unable to raise the rate of investment upto a desirable level necessary for their long-term steady growth.

The MNCs have abundance of surplus capital resources which become available for the industrial and commercial development of the poor countries. The MNCs become important conduits through which transfer of capital takes place from the capital-abundant to the capital-scarce countries.

(ii) Undertaking of Risk:

There is risk inherent in the development process especially in LDCs in the initial stages of their development. The shortage of capital, small extent of the market, absence of enterprising groups and undeveloped infrastructure signify a high degree of risk in different fields such as mining, oil exploration, power, transport, capital goods industries etc. The MNCs undertake this risk and remove a major barrier in the development of the LDCs.

(iii) Transfer of Superior Technology:

The LDCs are characterised by obsolete and inefficient techniques of production. They lack resources for research and development of better and more efficient techniques. The MNCs attempt to bridge the widening technological gap between the advanced and the LDCs through the transfer of advanced technical know-how sophisticated manufacturing processes and improved skills.

(iv) Development of Markets:

The growth process in LDCs remains inhibited on account of the small size of market. The MNCs have made a unique contribution in enlarging the market for the products manufactured in the LDCs through concerted advertising and global network of sales organisation. They undertake market research and adopt novel and highly efficient methods of marketing.

(v) Development of Human Resources:

The MNCs wants to make use of cheap labour available in LDCs. They provide training to different categories of workers in advanced techniques. In this way they make a highly useful contribution in the creation of skills. This brings about the development of human resources in these countries and raises their productive capacities. It is on account of this contribution of MNCs that they are sometimes called as carriers of knowledge and experience.

(vi) Fuller Utilisation of Natural Resources:

The LDCs have abundance of natural resources such as lands, minerals and water resources. These countries remain undeveloped because they fail to exploit them efficiently and utilise them economically. The MNCs by setting up projects in mining, manufacturing and plantations attempt to make the best possible use of available natural resources in these countries for maximising production and income.

(vii) Creation of Infrastructure:

The development process in the LDCs remains inhibited on account of under-development of economic and social overheads or basic infra-structure which includes means of transport and communications, means of irrigation and power, education and training and health services. The MNCs assist in the creation of economic and social overheads and stimulate growth process in the developing countries.

(viii) Creation of Industrial Linkages:

The industrial structure in any country is highly integrated. The different industries have forward or backward linkages with other industries. If some linked industries remain undeveloped, the whole process of industrialisation can remain blocked. The MNCs sometimes help create those missing links in industrial chain. The creation of those linked industries greatly accelerates the process of industrial expansion.

(ix) Creation of Employment Opportunities:

The expanding activities of MNCs in industrial and commercial spheres lead to the creation of job opportunities for different categories of workers and there is greater use of available manpower in the LDCs.

(x) Favourable Impact on Balance of Payments:

Many MNCs establish manufacturing units in the LDCs not only for catering to the needs of the host country but also for producing goods and services for exports. They are capable of expanding exports of the host countries to a large extent as they have a global marketing organisation. The earning of large amounts of foreign exchange helps in improving the balance of payments position in the developing countries.

In fact, the MNCs ensure the transfer of a ‘package of resources’ to the LDCs and effectively pave the way for their rapid economic transformation.

Adverse Effects of MNCs:

The MNCs are viewed with much distrust in the LDCs because their operations involve exploitation of men, materials and markets of these countries. They have failed to raise upto their expectations and have many adverse consequences for them.

(i) No Commitment to Economic and Social Development:

The LDCs allow MNCs to start and expand their operations in the hope that they will accelerate the development process. In fact the MNCs are highly profit-oriented organisations. They have no commitment to economic and social development of the poor countries. They want only to maximise their profits, no matter the pursuit of this goal involves economic exploitation of these countries.

(ii) Disincentive for Domestic Capital:

The capital-starved poor countries expect that MNCs will contribute in stepping up the rate of their capital formation. No doubt, there is some inflow of capital from abroad but at the same time the domestic capital mobilisation and investment is hit hard and there is not desired increase in the rate of capital formation.

(iii) Low Government Revenues:

It is sometimes thought that the operations of MNCs result in substantial increase in government revenues through different types of taxes. In fact, this benefit does not materialise because MNCs resort to transfer pricing under which the purchases of materials, machinery and equipment are made by them from their branches in other countries at higher prices and manufactured goods transferred to their foreign branches at much lower prices.

These manipulations show lower profits and value of product and cause loss of revenue to the government.

(iv) Low Foreign Exchange Earnings:

It is often supposed that MNCs specialise in exports. They can earn precious foreign exchange for the host countries and relieve their BOP difficulties. In fact, the MNCs do not ensure any substantial increase in the foreign exchange reserves of the host countries. They again resort to the practice of transfer pricing under which the imports of machinery and equipments from their foreign branches are over-priced while at the same time exports from the host country are under-priced. That results in much loss in foreign exchange reserves of the host country.

(v) Unsuited Technology:

The MNCs often make use of highly capital-intensive or labour-saving techniques of production. Such technology may not be in conformity with the resource endowment in the host countries and may aggravate the problem of unemployment. In addition, the host country becomes permanently dependent upon the foreign countries.

(vi) Heavy Cost of Transfer of Technology:

The MNCs charges exorbitant fees, royalties and other charges from the host countries. Thus the LDCs have to bear very heavy cost of transfer of technology.

(vii) No Significant Transfer of Technology:

The LDCs permit the MNCs to operate in the host countries with the expectation that they will promote the transfer of advanced technology. In fact, the MNCs show little interest in the promotion of research and training in the host countries. Key posts are invariably held by the foreigners. They are paid very high salaries and allowances.

Some of the executives of MNCs receive salaries and perquisites even higher than what is received by the heads of state in those countries. The techniques of production are kept as the guarded secrets. They sometimes thrust upon the LDCs a technology which has become out-of-date by their standards. That happens when the turnkey projects are transferred to the less developed countries.

(viii) Drain of Foreign Exchange:

The MNCs are responsible for a persistent heavy drain of foreign exchange from the LDCs in the form of repatriation of capital and remittance of royalties and profits. No such drain is involved when a developing country depends upon the foreign loans.

(iv) Exploitation:

The most serious objection against the MNCs is that these are the agents of exploitation of labour, raw materials and markets at the hands of the foreigners. The MNCs squeeze the famished economies of LDCs for maximising their profits. According to David Korten, these corporations have depleted or destroyed all kinds of capital like natural capital, human capital, social capital and institutional capital.

(v) Harmful for Long-Term Development:

The steady long-term development of the poor countries requires inflow of capital and technology in the modernisation of agriculture, creation of strong capital base and creation of infra-structure. The MNCs, on the other hand, are mostly engaged in consumer goods industries.

The strong MNCs do not permit the other firms to grow. The domestic enterprise remains in a state of demoralisation. It is not possible for the local firms to face stiff competition from the powerful MNCs. The whole situation created by MNCs is clearly detrimental for the long-term sustained and rapid growth of the LDCs.

MNCs and India:

In view of the serious shortage of capital, India followed a liberal policy right since the early 1950’s to attract foreign capital and enterprise. The MNCs had secured a strong foothold in the Indian economy by the 1960’s. According to the Industrial Licensing Policy Enquiry Committee, there were 112 companies in India in 1966 with assets of Rs. 10 crores or more. Of these 48 companies were either branches of foreign companies or they were their subsidiaries.

Of those 112 companies, the foreign control was explicit in atleast 62 companies. The MNCs even in 1966 had control over 53.7 percent assets of the giant sector in Indian industries. It is clear that the top of the industrial pyramid in the country was under the effective control of the foreigners as early as 1966.

The prime reason for which the MNCs are invited to the LDCs in general is that they will bring a larger inflow of foreign capital. An interesting and rather negative feature of the operations of MNCs in India has been that they have raised a major part of investment resources from within the country.

A study related to 1956-75 period conducted by S. Chaudhury revealed that the foreign sources contributed only 5.4 percent of the financial resources of the foreign subsidiaries. 94.6 percent of the financial resources had been obtained by them from the domestic sources.

Another study made by John Martinussen showed that the amount of capital issues consented with foreign participation declined from 61.5 percent of all consents to public limited companies in 1976 to a mere 29.5 percent in 1980. According to this study, 20 MNCs affiliated enterprises had even reduced their foreign funding. Several of these companies obtained no foreign funds at all during 1974-83 period. This fact totally explodes the myth that MNCs bring large amounts of foreign capital to the developing countries.

Another feature related to MNC investment in India is that foreign direct investment in general and MNC investment in particular declined in plantation, mining and petroleum sectors during 1948-1980 period and there was a significant rise in investment in the manufacturing sector. Martinussen pointed out that investment in foreign branches and subsidiaries has been concentrating increasingly in the manufacturing industries.

A common form of MNC participation in Indian industries is through collaboration with Indian companies. The Indian industrialists enter in foreign collaborations for the sake of advanced technology, foreign brand names and for having easy access to the foreign markets. The policy of liberalisation initiated in 1980’s resulted in a substantial spurt in foreign collaborations. Between 1948 and 1986, 10981 collaboration agreements had been approved.

Out of them about 49 percent had been approved between 1980-86 periods. The agreements with foreign enterprises took place predominantly in the areas of electrical equipments, industrial machinery, chemicals, pharmaceuticals, transport, precision instruments, metallurgical machinery, machine tools, glass and ceramics.

The liberalisation policy adopted by the government during the last few years for encouraging larger inflow of foreign investments is likely to induce MNCs to expand their operations in a big way. Already about 500 projects are under active consideration of the MNCs belonging to different advanced countries. During 1990’s, several foreign and indigenous enterprises underwent the process of restructuring and mergers.

The restructuring had become necessary in view of impending increased competition. The different amalgamating companies integrate their marketing and distribution set up to face effectively their competitors in the Indian market. The merger also enables them to economise in respect of overheads. The MNCs through their experience elsewhere are well aware that mergers and strategic alliances are route to competitive success.

In 2003, top executives of major transnational corporations have assigned high ranking to India as a highly preferred destination for foreign direct investments. The global management consultancy firm A.T. Kearney gave A.T. Kearney FDI Index, based on an annual survey of executives from world’s largest companies who are asked to rank countries on various parameters of FDI attractiveness.

Manufacturing investors ranked India among the top six most preferred investment locations and nearly a one-third were most optimistic about the Indian market. India was ranked ahead of apparently more developed countries such as the United Kingdom, Italy, Canada, Japan, Brazil and Indonesia. China was ranked at the top. Services sector investors ranked India as the fourth most attractive investment destination up from the 14th place in 2002. At present India is the second most preferred investment destination of the foreign investors, next only to China.


Outsourcing is a business practice in which a company hires another company or an individual to perform tasks, handle operations or provide services that are either usually executed or had previously been done by the company’s own employees.

The outside company, which is known as the service provider or a third-party provider, arranges for its own workers or computer systems to perform the tasks or services either on site at the hiring company’s own facilities or at external locations.

Companies today can outsource a number of tasks or services. They often outsource information technology services, including programming and application development as well as technical support. They frequently outsource customer service and call service functions. They can outsource other types of work as well, including manufacturing processes, human resources tasks and financial functions such as bookkeeping and payroll. Companies can outsource entire divisions, such as its entire IT department, or just parts of a particular department.

Outsourcing business functions is sometimes called contracting out or business process outsourcing.

Outsourcing can involve using a large third-party provider, such as a company like IBM to manage IT services or FedEx Supply Chain for third-party logistics services, but it can also involve hiring individual independent contractors and temporary office workers

Outsourcing pros and cons

In addition to delivering lower costs and increased efficiencies, companies that outsource could see other benefits.

By outsourcing, companies could free up resources (i.e., cash, personnel, facilities) that can be redirected to existing tasks or new projects that deliver higher yields for the company than the functions that had been outsourced.

Companies might find, too, that they can streamline production and/or shorten production times because the third-party providers can more quickly execute the outsourced tasks.

Companies engaged in outsourcing must adequately manage their contracts and their ongoing relationships with third-party providers to ensure success. Some might find that the resources devoted to managing those relationships rivals the resources devoted to the tasks that were outsourced, thereby possibly negating many, if not all, of the benefits sought by outsourcing.

Companies also could realize that they lose control over aspects of the outsourced tasks or services. For instance, a company could lose control over the quality of customer service provided when it outsources its call center function; even if the company’s contract with the provider stipulates certain quality measures, the company might find it’s more difficult to correct an outsourced provider than it would be to correct an in-house team.

Companies that outsource could also face heightened security risks, as they exchange with their third-party providers the company’s proprietary information or sensitive data that could be misused, mishandled or inadvertently exposed by the outsource provider.

Additionally, companies might encounter difficulties in getting their own employees to communicate and collaborate effectively with those working for third-party providers — a scenario that’s more common if the third-party operates overseas.

Foreign capital in india

Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.

The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Market size

According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India in 2018-19 stood at US$ 44.37 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.

The net foreign direct investment stood US$ 3.034 billion in May 2019 and US$ 7 billion in June 2019.  India invited US$ 7.8 billion of foreign investment in month of June 2019 as compared to US$ 1.6 billion in previous year.

Data for 2018-19 indicates that the services sector attracted the highest FDI equity inflow of US$ 9.16 billion, followed by computer software and hardware – US$ 6.42 billion, trading – US$ 4.46 billion and telecommunications – US$ 2.67 billion. Most recently, the total FDI equity inflows for the month of March 2019 touched US$ 3.60 billion.

During 2018-19, India received the maximum FDI equity inflows from Singapore (US$ 16.23 billion), followed by Mauritius (US$ 8.08 billion), Netherlands (US$ 3.87 billion), USA (US$ 3.14 billion), and Japan (US$ 2.97 billion).

Investments/ developments

India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018.

Some of the recent significant FDI announcements are as follows:

  • In August 2019, Reliance Industries (RIL) announced one of India’s biggest FDI deals, as Saudi Aramco will buy a 20 per cent stake in Reliance’s oil-to-chemicals (OTC) business at an enterprise value of US$ 75 billion.
  • In October 2018, VMware, a leading software innovating enterprise of US has announced investment of US$ 2 billion in India between by 2023.
  • In August 2018, Bharti Airtel received approval of the Government of India for sale of 20 per cent stake in its DTH arm to an America based private equity firm, Warburg Pincus, for around $350 million.
  • In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone Idea the largest telecom operator in India
  • In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centres.
  • Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr Varun Choudhary, Executive Director, CG Corp Global.
  • International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India.

Government Initiatives

In Union Budget 2019-2020, the government of India proposed opening of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.

In February 2019, the Government of India released the Draft National e-Commerce Policy which encourages FDI in the marketplace model of e-commerce. Further, it states that the FDI policy for e-commerce sector has been developed to ensure a level playing field for all participants.

Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds.

In December 2018, the Government of India revised FDI rules related to e-commerce. As per the rules 100 per cent FDI is allowed in the marketplace based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.

In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.

In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.

No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.

In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India.

The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.

The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.

In January 2018, Government of India allowed 100 per cent FDI in single brand retail through automatic route


  • TRIPs provide minimum standards in the form of common set of rules for the protection of intellectual property globally under WTO system.
  • The TRIPs agreement gives set of provisions deals with domestic procedures and remedies for the enforcement of intellectual property rights.
  • Member countries have to prepare necessary national laws to implement the TRIPs provisions.
  • TRIPs cover eight areas for IPRs legislation including patent, copyright and geographical indications

What is the G20?

The G20 (Group of 20) is an annual meeting for the leaders of the world’s biggest economies (technically 19 countries plus the EU). Together these countries account for 85% of the world economy and two-thirds of its population.

The G20 is the new kid on the block of international organizations. It was founded to create a bigger economic club than what existed at the time – the G7 – when more countries were needed to help respond to the financial crisis in East Asia in 1999.

Back then, the G20 was a fairly uneventful annual meeting of finance ministers and central bankers. The global financial crisis in 2008, kicked it into action, turning the organization into an economic emergency council for presidents and prime ministers. To keep things moving as the global economy was slipping into crisis mode, the G20 quickly organized for $1.1trillion to be injected into countries around the world, allowing businesses to continue operating despite what was going on.¹CASE STUDYDid your country make the list?As of 2017, the members of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

The reason why the G20 were the ones to do this was because, in contrast to bigger organizations like the UN, the World Bank, orthe IMF, they could much more easily sit around the same table and come to quick agreements in a way that larger international bodies couldn’t. In some ways, the G20 is now the world’s premier economic crisis-management organization.

But the small size of the G20 is a curse as well as blessing. As it only represents 19 countries (plus the EU), it excludes a pretty huge chunk of the world from discussions about big economic decisions (about 172 countries are not invited to the meetings). The idea of top leaders quickly deciding things around a table can also create sticky political situations; a lot of national governments aren’t set up for one leader to make big changes overnight without consulting a congress or parliament.

Issues of dumping-

Dumping is when a country exports or sells products in a foreign country for less than either:

  1. The price in the domestic country
  2. The cost of making the product

For example, if a television manufacturer in the U.S. sells televisions domestically for $500 dollars, but costing them only $300 dollars, and then sells them in France for $250, that could potentially be categorized as dumping. The U.S. manufacturer is not only selling the televisions below the prices they offer in the U.S. but also selling them at a loss! This could harm French television manufacturers, who simply can’t compete.

Under the World Trade Organization Agreement, dumping is not favorably looked upon, though it is not prohibited, if it causes, or threatens to cause, material injury to a domestic industry in the importing country. Some countries will go as far as to make it illegal to dump various products, because the government is trying to protect certain industries or companies that are vital or could potentially fail.

The Advantages and Disadvantages of Trade Dumping

The primary advantage of trade dumping is the ability to permeate a market with product prices that are often considered unfair. The exporting country may offer the producer a subsidy to counterbalance the losses incurred when the products sell below their manufacturing cost. One of the biggest disadvantages of trade dumping is that subsidies can become too costly over time to be sustainable. Additionally, trade partners who wish to restrict this form of market activity may increase restrictions on the good, which could result in increased export costs to the affected country or limits on the quantity a country will import.

International Attitude on Dumping

While the World Trade Organization reserves judgment on whether dumping is an unfair competitive practice, most nations are not in favor of dumping. Dumping is legal under WTO rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers. To counter dumping and protect their domestic industries from predatory pricing most nations use tariffs and quotas. Dumping is also prohibited when it causes “material retardation” in the establishment of an industry in the domestic market.

The majority of trade agreements include restrictions on trade dumping. Violations of such agreements may be difficult to prove and can be cost prohibitive to enforce fully. If two countries do not have a trade agreement in place, then there is no specific ban on trade dumping between them.

The Highlights of the India’s Foreign Trade Policy 2004-2009!

The new United Progressive Alliance (UPA) Government at the Centre changed the name of EXIM Policy and called it Foreign Trade Policy (FTP). Consequently, on August 31, 2004, the Commerce and Industry Minister, Mr. Kamal Nath, announced the five year (2004-09) FTP.

The policy aims at doubling India’s percentage share of global merchandise trade to 1.5 per cent by 2009 from 0.7 per cent in 2003, besides serving as an effective tool to generate employment, especially in semi-urban and rural areas.

Exporters of all goods and services, including those from Domestic Tariff Area (DTA), were exempted from service tax. Also exporters with minimum turnover of Rs. 5 crore and a sound track record have been exempted from furnishing bank guarantees in any of the export schemes. So as to reduce their high transaction cost and tax burden.

The Highlights of the India’s Foreign Trade Policy 2004-2009 is discussed below:

1. Strategy:

(a) It is for the first time that a comprehensive Foreign Trade Policy is being notified. The Foreign Trade Policy takes an integrated view of the overall development of India’s foreign trade.

(b) The objective of the Foreign Trade Policy is two-fold:

(i) To double India’s percentage share of global merchandise trade by 2009; and

(ii) To act as an effective instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas.

(c) The key strategies are:

i. Unshackling of controls;

ii. Creating an atmosphere of trust and transparency;

1. Simplifying procedures and bringing down transaction costs;

2. Adopting the fundamental principle that duties and levies should not be exported;

3. Identifying and nurturing different special focus areas to facilitate development of India as a global hub for manufacturing, trading and services.

2. Special Focus Initiatives:

(a) Sectors with significant export prospects coupled with potential for employment generation in semi-urban and rural areas have been identified as thrust sectors and specific sectoral strategies have been prepared.

(b) Further sectoral initiatives in other sectors will be announced from time to time. For the present, Special Focus Initiatives have been prepared for Agriculture, Handicrafts, Handlooms, Gems & Jewellery and Leather & Footwear sectors.

(c) The threshold limit of designated Towns of Export Excellence is reduced from Rs.1000 crores to Rs.250 crores in these thrust sectors.

3. Package for Agriculture:

The Special Focus Initiative for Agriculture includes:

(a) A new scheme called Vishesh Krishi Upaj Yojana has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products.

(b) Duty free import of capital goods under Export Promotion Capital Goods Scheme (EPCG).

(c) Capital goods imported under EPCG for agriculture permitted to be installed anywhere in the Agri Export Zone.

(d) Assistance to States for Developing Export Infrastructure and allied Activities (ASIDE) funds to be utilized for development for Agri Export Zones also.

(e) Import of seeds, bulbs, tubers and planting material has been liberalized.

(f) Export of plant portions, derivatives and extracts has been liberalized with a view to promote export of medicinal plants and herbal products.

4. Gems & Jewellery:

(a) Duty free import of consumables for metals other than gold and platinum allowed up to 2% of Free on Board (FOB) value of exports.

(b) Duty free re-import entitlement for rejected jewellery allowed up to 2% of FOB value of exports.

(c) Duty free import of commercial samples of jewellery increased to Rs. 1 lakh.

(d) Import of gold of 18 carat and above shall be allowed under the replenishment scheme.

5. Handlooms & Handicrafts:

(a) Duty free import of trimmings and embellishments for Handlooms & Handicrafts sectors increased to 5% of FOB value of exports.

(b) Import of trimmings and embellishments and samples shall be exempt from Counter Vailing Duty (CVD).

(c) Handicraft Export Promotion Council authorized to import trimmings, embellishments and samples for small manufacturers.

(d) A new Handicraft Special Economic Zone shall be established.

6. Leather & Footwear:

(a) Duty free entitlements of import trimmings, embellishments and footwear components for leather industry increased to 3% of FOB value of exports.

(b) Duty free import of specified items for leather sector increased to 5% of FOB value of exports.

(с) Machinery and equipment for Effluent Treatment Plants for leather industry shall be exempt from Customs Duty.

7. Export Promotion Schemes:

(a) Target Plus:

A new scheme to accelerate growth of exports called Target Plus has been introduced.

Exporters who have achieved a quantum growth in exports would be entitled to duty free credit based on incremental exports substantially higher than the general actual export target fixed. (Since the target fixed for 2004-05 is 16%, the lower limit of performance for qualifying for rewards is pegged at 20% for the current year).

Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value of incremental exports.

(b) Vishesh Krishi Upaj Yojana:

Another new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products.

Export of these products shall qualify for duty free credit entitlement equivalent to 5% of FOB value of exports.

The entitlement is freely transferable and can be used for import of a variety of inputs and goods.

(c) Served from India Scheme:

To accelerate growth in export of services so as to create a powerful and unique Served from India brand instantly recognized and respected the world over, the earlier scheme for services has ]peen revamped and re-cast into the Served from India scheme.

Individual service providers who earn foreign exchange of at least Rs. 5 lakhs and other service providers who earn foreign exchange of at least Rs. 10 lakhs will be eligible for a duty credit entitlement of 10% of total foreign exchange earned by them.

In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels, it shall be 5%.

Hotels and Restaurants can use their duty credit entitlement for import of food items and alcoholic beverages.

(d) EPCG:

(i) Additional flexibility for fulfillment of export obligation under Export Promotion Capital Goods Scheme (EPCG), scheme in order to reduce difficulties of exporters of goods and services.

(ii) Technological upgradation under EPCG scheme has been facilitated and incentives.

(iii) Transfer of capital goods to group companies and managed hotels now permitted under EPCG.

(iv) In case of movable capital goods in the service sector, the requirement of installation certificate from Central Excise has been done away with.

(v) Export obligation for specified projects shall be calculated based on concessional duty permitted to them. This would improve the viability of such projects.

(e) DFRC:

Import of fuel under Duty Free Replenishment Certificate (DFRC) entitlement shall be allowed to be transferred to marketing agencies authorized by the Ministry of Petroleum and Natural Gas.

(f) DEPB:

The Duty Entitlement Pass Book in short DEPB scheme would be continued until replaced by a new scheme to be drawn up in consultation with exporters.

8. New Status Holder Categorization:

(a) A new rationalized scheme of categorization of status holders as Star Export Houses has been introduced as under:

i. Category Total performance over three years

ii. One Star Export House 15 crores

iii. Two Star Export House 100 crores

iv. Three Star Export House 500 crores

v. Four Star Export House 1500 crores

vi. Five Star Export House 5000 crores

(b) Star Export Houses shall be eligible for a number of privileges including fast-track clearance procedures, exemption from furnishing of Bank Guarantee, eligibility for consideration under Target plus Scheme etc.

9. EOUs:

(a) Export Oriented Units (EOUs), shall be exempted from Service Tax in proportion to their exported goods and services.

(b) EOUs shall be permitted to retain 100% of export earnings in Export Earners Foreign Currency (EEFC) accounts.

(c) Income Tax benefits on plant and machinery shall be extended to Domestic Tariff Area (D1 A) units which convert to EOUs.

(d) Import of capital goods shall be on self-certification basis for EOUs.

(e) For EOUs engaged in Textile & Garments manufacture leftover materials and fabrics upto 2% of Cost, Insurance and Freight (CIF) value or quantity of import shall be allowed to be disposed of on payment of duty on transaction value only.

(f) Minimum investment criteria shall not apply to Brass Hardware and Hand-made Jewellery EOUs (this facility already exists for Handicrafts, Agriculture, Floriculture, Aquaculture, Animal Husbandry, IT and Services).

10. Free Trade and Warehousing Zone:

(i) A new scheme to establish Free Trade and Warehousing Zone (FTWZs) has been introduced to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency. This is aimed at making India into a global trading-hub.

(ii) Foreign Direct Investment (FDI) would be permitted up to 100% in the development and establishment of the zones and their infrastructural facilities.

(iii) Each zone would have minimum outlay of Rs.100 crores and Five Lakh sq. mts. built up area.

(iv) Units in the FTWZs would qualify for all other benefits as applicable for Special Economic Zones (SEZ) units.

11. Import of Second Hand Capital Goods:

a. Import of second-hand capital goods shall be permitted without any age restrictions.

b. Minimum depreciated value for plant and machinery to be re-located into India has been reduced from Rs.50 crores to Rs.25 crores.

12. Services Export Promotion Council:

An exclusive Services Export Promotion Council shall be set up in order to map opportunities for key services in key markets and develop strategic market access programmes, including brand building, in co-ordination with sectoral players and recognized nodal bodies of the services industry.

13. Common Facility Centres:

Government shall promote the establishment of Common Facility Centres to be used by home- based service providers, particularly in areas like Engineering & Architectural design, Multi-media operations, software developers etc., in State and District-level towns, to draw in a vast multitude of home-based professionals into the services export arena.

14. Procedural Simplification & Rationalization Measures:

(a) All exporters with minimum turnover of Rs.5 crores and good track record shall be exempted from furnishing Bank Guarantee in any of the schemes, so as to reduce their transactional costs.

(b) All goods and services exported, including those from Domestic Tariff Area (DTA) units, shall be exempted from Service Tax.

(c) Validity of all licences/entitlements issued under various schemes has been increased to a uniform 24 months.

(d) Number of returns and forms to be filed has been reduced. This process shall be continued in consultation with Customs & Excise.

(e) Enhanced delegation of powers to Zonal and Regional offices of Directorate General of Foreign Trade (DGFT) for speedy and less cumbersome disposal of matters.

(f) Time bound introduction of Electronic Data Interface (EDI) for export transactions. 75% of all export transactions to be on EDI within six months.

15. Pragati Maidan:

In order to showcase our industrial and trade prowess to its best advantage and leverage existing facilities Pragati Maidan will be transformed into a world-class complex. There shall be state-of-the- art environmentally-controlled, visitor friendly exhibition areas and marts.

A huge Convention Centre to accommodate 10,000 delegates with flexible hall spaces, auditorium and meeting rooms with high- tech equipment, as well as multi-level car parking for 9,000 vehicles will be developed within the envelope of Pragati Maidan.

16. Legal Aid:

Financial assistance would be provided to deserving exporters, on the recommendation of Export Promotion Councils, for meeting the costs of legal expenses connected with trade related matters.

17. Grievance Redressal:

A new mechanism for grievance redressal has been formulated and put into place by a Government Resolution to facilitate speedy redressal of grievances of trade and industry.

18. Quality Policy:

(a) DGFT shall be a business-driven, transparent, corporate oriented organization.

(b) Exporters can file digitally signed applications and use Electronic Fund Transfer Mechanism or paying application fees.

(c) All DGFT offices shall be connected via a central server making application processing faster. DGFT Head Quarters (HQ) has obtained ISO 9000 certification by standardizing and automating procedures.

19. Bio Technology Parks:

Biotechnology Parks to be set up which would be granted all facilities of 100% EOUs.

20. Со-acceptance/ Avalisation introduced:

As equivalent to irrevocable letter of credit to provide wider flexibility in financial instrument for export transaction.