INSTITUTIONS AND TRADE BODIES

❖ GATT, WTO IMF, World Bank

❖ UNCTAD, G7 and G20
❖ Regional Economic Integrations – NAFTA, MERCOSUR, EU,CEFTA,
ASIEAN,APEC, GCC
❖ International Laws- Trade Agreement,
❖ Understand Legal requirements
❖ Trade and Tariff agreements
❖ Trade barriers: Tariff and Non - Tariff barriers
 INTRODUC TION

❖International trade regulation is a recent phenomenon which has its roots in the
establishment of multilateral trade organizations such as the GATT and the WTO.
❖The basis of multilateral trade is the principles of non-discrimination, reciprocity, market
access, and fair competition, which have been embodied in both the GATT and WTO
agreements.
❖The WTO is a multilateral trade organization that came into existence on 1 January
1995, and is the successor to the GATT, which was created in 1947 and continued to
operate for almost five decades as a de facto international organization
 GENER AL AGREEMENT ON TAR IFFS AND TRADE (GATT)
❖The General Agreement on Tariffs and Trade (GATT) came into existence in 1947 as
an international organization for the facilitation of trade liberalization.
❖There were several multilateral institutions established to help in the reconstruction
of the world economy after World War II.
❖The International Trade Organization (ITO) was initially established for liberalization
of trade but since its charter could not be ratified, it was replaced by the GATT.
❖The GATT is an agreement on trade and tariffs for goods. It covers sector-specific
issues, such as agriculture, health regulations for farm products, textiles and clothing.
❖Objectives and Principles
❖The GATT was a treaty, not an organization. Its main objective was helping in the
growth of international trade through the reduction of tariff barriers, quantitative
restrictions, and subsidies on trade through a series of agreements. Its main objectives,
listed in the preamble are:
❖Raising the standard of living
❖Ensuring full employment, and a large and steadily growing volume of real income and
effective demand
❖Developing the full use of the resources of the world
❖Expansion of production and international trade

❖The history of the GATT can be divided into three phases

➢The first phase from 1947 until the Torquay Round, largely concerned which
commodities would be covered by the agreement and freezing existing tariff levels.
➢The second phase, encompassing three rounds, from 1959 to 1979, focused on reducing
tariffs.
➢The third phase, consisting only of the Uruguay Round from 1986 to 1994,
extended the agreement fully to new areas such as intellectual property,
services, capital, and agriculture. The WTO was born out of the negotiations
of the Uruguay Round.
The achievements of GATT are listed as under:
❖1. The early GATT trade rounds only concentrated on reducing tariffs.
❖2. It was the Kennedy Round in the mid-sixties, which introduced an Anti-
dumping Agreement and a section on development.
❖3. The Tokyo Round during the seventies was the first major attempt to
tackle non-tariff trade barriers, and to improve the system.
❖4. The eighth round, that is, the Uruguay Round of 1986–94, was the last
and the most extensive round which led to the establishment of the WTO
and a new set of agreements
 URU GUAY ROUND(1986-1994)

❖The last round of multilateral trade negotiation under the GATT known as the Uruguay
Round started in 1986, but remained largely inconclusive on account of the complexities
of the issues involved in it.
❖In December 1990, the then director general Arthur Dunkel presented a draft solution
called the Dunkel Draft, which was later replaced by an enlarged agreement.
❖This agreement was finally approved on 15 December 1993.
The Uruguay Round included the following areas for the first time:
■ Trade in services leading to the General Agreement on Trade in Services (GATS)
■ Trade-related aspects of intellectual property leading to the Agreement on Trade-related
Aspects of Intellectual Property Rights (TRIPs)
■ Trade-related investment measures leading to the Agreement on Trade-related Investment
Measures (TRIMs)
➢ The GATT was established as an international treaty aimed
at trade liberalization. It helped to rationalize tariffs and
increase trade across the globe, but it had to be replaced
with the WTO due to a deteriorating trade policy
environment, dominance by the developed nations and the
increasing importance of trade in services which it did not
cover.
 WOR LD TRADE ORGANIZATION (W TO)

❖The WTO is a multilateral trade organization aimed at international trade liberalization.

It came into existence on 1 January 1995 as the successor to the GATT.
❖The WTO functions on the basis of a set of agreements, which have been negotiated
and signed by a large majority of the world’s trading nations, and ratified in their
parliaments
❖The WTO is a multilateral trade organization, which aims at international trade
liberalization.
❖The WTO agreements cover trade in goods, services and intellectual property and
specify the basic principles of liberalization and the exceptions to the rule.
The WTO agreements fall into a simple structure with six main parts:
1. An overall umbrella agreement establishing the WTO
2. GATT for goods
3. GATS for services
4. TRIPS for intellectual property;
5. Dispute settlement
6. Reviews of governments’ trade policies.
Principles of WTO:

❖The WTO is governed by certain basic guiding principles which are contained in the
form of complex agreements covering a wide range of activities.
❖The basic areas they deal with are agriculture, textiles and clothing, banking,
telecommunications, government purchases, industrial standards and product safety,
food sanitation regulations, and intellectual property

All WTO agreements are based on two basic principles—most favored nation (MFN) and
national treatment
Most-Favored-Nation (MFN):
❖According to the WTO agreements, countries cannot normally discriminate between their
trading partners.
❖If a country gives a special favor, advantage, or privilege to one country (such as a lower
customs duty rate for one of their products), it has to be similarly granted to all other WTO
members.
❖This is known as the most-favored-nation (MFN) status, which is granted by WTO members to
each other.
National Treatment
❖This principle implies that imported and locally-produced goods should be treated equally once
they are in the domestic market.
❖The same should apply to foreign and domestic services, and to foreign and local trademarks,
copyrights and patents.
❖National treatment only applies once a product, service or item of intellectual property has
entered the domestic market. T
Functions of WTO
➢Elimination of discrimination: The WTO follows the MFN and national treatment
principles for the elimination of discrimination among its member nations. This is done to
ensure the overall economic development of all member nations based on the principles
of free trade
➢Combating protection and trade barriers: The WTO is committed to the removal
of all types of protection against free trade whether it is in the form of import duties or
quotas, for whatever reasons they are implemented
➢Resolution of disputes: The WTO functions as a forum for the resolution of disputes
of its members through the establishment of panels for this specific purpose. The judicial
reach of the WTO is, however, restricted to its members, and non-members cannot
benefit from this facility.
➢Providing a forum for emerging issues: : The WTO is a forum for dealing with
emerging issues in the world trading system, such as intellectual property, environmental
issues, regional agreements, as well as special sectors such as agriculture,
telecommunications, financial services and maritime services
 INTERNATIONAL MONETARY FUND (IM F)
❖The International Monetary Fund was established at the Bretton Woods Conference in 1945
to promote international monetary cooperation, exchange rate stability, and orderly exchange
arrangements; to foster economic growth and high levels of employment; and to provide
temporary financial assistance to countries to help ease balance of payments adjustment.
❖ It came into existence with an initial membership of 29 countries and has a present strength
of 191 members.
Objectives of the IMF
❖To promote international monetary cooperation through a permanent institution that
provides the machinery for consultation and collaboration on international monetary
problems.
❖To facilitate the expansion and balanced growth of international trade, leading to the
promotion and maintenance of high levels of employment, real income and the development of
the productive resources of all members.
❖To promote exchange rate stability and to maintain orderly exchange arrangements among
members, and to avoid competitive exchange depreciation.
❖To assist in the establishment of a multilateral system of payments in respect of current
transactions between members and in the elimination of foreign exchange restrictions that
hamper the growth of world trade.
❖To make the general resources of the Fund temporarily available to all members under
adequate safeguards, thus providing them with the opportunity to correct maladjustments in
their balance of payments.
❖ To shorten the duration and lessen the degree of disequilibria in the international balances of
payments of members.
Functions of IMF
❖Financial Assistance:
➢A core responsibility of the IMF is to provide loans to countries experiencing balance-of-
payments problems.
➢This financial assistance enables countries to rebuild their international reserves; stabilize
their currencies; continue paying for imports; and restore conditions for strong economic
growth.
➢The IMF also provides emergency assistance to support recovery from natural disasters
and conflicts, in some cases at concessional interest rates.
❖Technical Assistance:
➢IMF technical assistance supports the development of the productive resources of member
countries by helping them to effectively manage their economic policy and financial affairs.
➢The IMF provides technical assistance in its areas of core expertise: macro-economic policy,
tax policy and revenue administration, expenditure management, monetary policy, the
exchange rate system, financial sector sustainability, and macroeconomic and financial
statistics.
➢About 90 per cent of IMF technical assistance goes to low and lower-middle income
countries
❖Surveillance:
➢The IMF has been given the mandate of overseeing the international monetary system and
monitoring the economic and financial policies of its member countries in order to
promote global economic stability.
➢IMF surveillance provides an expert assessment of economic and financial developments,
both globally and in individual countries. It advises on risks to stability and growth and if
policy adjustments are warranted. In this way, the IMF helps the international monetary
system serve its essential purpose of providing a framework that facilitates the exchange of
goods, services and capital among countries and sustains sound economic growth.
 WOR LD BANK

The World Bank Group (WBG) came into formal existence on 27 December 1945
following international ratification of the Bretton Woods agreements. It is a family of five
international organizations responsible for providing finance and advice to countries for the
purposes of economic development and eliminating poverty. It functions through five major
agencies:
1. International Bank for Reconstruction and Development (IBRD)
2. International Development Association (IDA)
3. International Finance Corporation (IFC)
4. Multilateral Investment Guarantee Agency (MIGA)
5. International Centre for Settlement of Investment Disputes (ICSID)
Headquarters: Washington, D.C., United States
➢ The Bretton Woods Conference, officially known as the United Nations Monetary and Financial Conference,
was a gathering of delegates from 44 nations that met from July 1 to 22, 1944 in Bretton Woods, New Hampshire
(USA), to agree upon a series of new rules for international financial and monetary order after the conclusion of
World War II.
➢ The two major accomplishments of the conference were the creation of the International Bank for
Reconstruction and Development (IBRD) and International Monetary Fund (IMF). Founded in 1944, the
International Bank for Reconstruction and Development (IBRD) — soon called the World Bank — has expanded
to a closely associated group of five development institutions.
➢ Originally, its loans helped rebuild countries devastated by World War II.
➢ In time, the focus shifted from reconstruction to development, with a heavy emphasis on infrastructure such as
dams, electrical grids, irrigation systems, and roads.
➢ With the founding of the International Finance Corporation (IFC) in 1956, the institution became able to lend to
private companies and financial institutions in developing countries.
➢ Founding of the International Development Association (IDA) in 1960 put greater emphasis on the poorest
countries, part of a steady shift toward the eradication of poverty becoming the Bank Group’s primary goal.
➢ International Centre for Settlement of Investment Disputes (ICSID) founded in 1966 settles investment disputes
between investors and countries.
➢ Multilateral Investment Guarantee Agency (MIGA) founded in 1988 insures lenders and investors against political
risk such as war.
Objectives of World Bank
• Providing member countries with long-term capital for economic reconstruction and
development
• Inducing long-term capital investment to ensure a balanced development of BOP balance
and international trade.
• Promote capital investment in member countries in the following ways.
[Link] provide a guarantee on capital investment or private loans.
[Link] capital is not available even after the guarantee has been provided, IBRD will provide
credit for production activities on favourable terms.
• Ensuring the implementation of development projects to bring about a smooth transition
from wartime to a peaceful economy.
Function of the world Bank
• The World Bank supports countries devastated by the war by providing loans for
reconstruction.
• They provide a wealth of experience and the World Bank’s financial resources help poor
countries promote economic growth, reduce poverty and achieve better living standards.
• They also support developing countries by providing development loans.
• The World Bank also lends to various governments for irrigation, agriculture, water supply,
health and education.
• Encourage foreign investment in other organizations by guaranteeing loans.
• The World Bank also provides member countries with financial, financial and technical
advice on all projects.
• In this way, by introducing various economic reforms, we are promoting the development
of industries in developing countries.
 UNITED NATIONS CONFERENCE ON TRADE AND
DEVELOPMENT (UNC TAD)
❖The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 in
response to the growing concerns about the place of developing countries in international trade.
❖The UNCTAD is a knowledge-based institution, which promotes the development-friendly integration of
developing countries into the world economy and whose work aims to help shape current policy debates
and thinking on development, with a particular focus on ensuring that domestic policies and international
action are mutually supportive in bringing about sustainable development.
❖Main goal: 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
❖Membership191 member States
❖Headquarters: Geneva, Switzerland
WHAT DOES UNCTAD DO?
➢Provides a forum for intergovernmental consensus-building where all member States interact freely on
policy issues concerning trade and development.
➢Carries out policy and research analysis, capacity-building activities and technical cooperation in different
sectors of the economy
Functions of UNCTAD
The organization has three key functions:
❖It functions as a forum for intergovernmental deliberations, supported by discussions
with experts and exchanges of experience, aimed at consensus building.
❖It undertakes research, policy analysis, and data collection for the debates of government
representatives and experts.
❖It provides technical assistance tailored to the specific requirements of developing
countries, with special attention to the needs of the least developed countries and of
economies in transition. When it is considered appropriate, the UNCTAD cooperates
with other organizations and donor countries in the delivery of technical assistance.
 G7 AND G20
G7
• The Group of Seven (G7) is an informal intergovernmental economic and political forum
consisting of seven major industrialized democracies: Canada, France, Germany, Italy,
Japan, the United Kingdom, and the United States
• In 1975, France, Germany, Italy, Japan, the United Kingdom and the United States formed the
Group of Six to discuss how to respond to major economic concerns following the crisis.
• 1976, A year later, Canada was invited to join the Group of Seven.
• Starting in the 1980s, the G7 expanded its focus to international security, human rights and
global stability.
• By the early 21st century, the G7 prioritized engagement with developing countries.
• The G7 has played a crucial role in strengthening international economic policies. It has
advanced discussions on global issues such as climate change and gender equality, brought
donors together and notably, supported disarmament programs. This commitment
underscores the G7’s dedication to promoting global peace and security.
G 20
❖The G20, formed in 1999, is a group of twenty of the world’s largest economies that
meets regularly to coordinate global policy on trade, health, climate, and other issues.
❖The G20 : Nineteen countries with some of the world’s largest economies, as well as the
European Union (EU)
Objectives
➢Global economic governance – managing international financial stability.
➢Promoting sustainable development – addressing poverty, inequality, and climate
change.
➢Trade and investment – ensuring open markets and boosting global trade.
➢Digital economy and technology – fostering innovation and regulating new sectors.
➢Health and energy – handling pandemics, ensuring energy security and sustainability.
 REGIONAL ECONOMIC INTEGRATION

❖Economic integration is the process of removal of trade barriers between two or more
nations and the establishment of cooperation and coordination between them.
❖It is a part of the ongoing process of globalization which is concerned with the growing
economic interdependence of countries
❖Market integration is the extent to which one or more separated markets combine to
form a single market. Integration leads to increased cross-border flows of goods, services,
capital, and labour
❖The process of regional economic integration is pushed by the efforts of institutional and
policy coordination of both the government and private market players. This is further
encouraged by advancements in technology, global institutional growth and advances in
transportation and communications.
 EFFEC TS OF INTEGRATION

❖Trade Creation and Trade Diversion:

▪ The most prominent economic benefits of integration given by economist Jacob Viner are trade
creation and trade diversion.
▪ The major benefits of regional economic integration include trade creation and trade diversion,
increased competition, reduced prices, and higher factor productivity.
▪ Trade creation is the benefit of increased exports to members of a customs union due to the
elimination of tariff barriers
❖Reduced Import Prices:
▪ Imposing a tariff increases the price of goods as the seller increases his price to cover the tariff
▪ This, in turn, leads to a fall in demand. If the tariff is imposed by a bloc of countries, the fall in price
may lead to a substantial fall in demand forcing the producer to reduce the price to boost demand.
▪ The possibility of reduced prices is the result of increased market power of the bloc of nations
relative to that of a single country. This may result in an improved trade position for the importing
bloc of countries but would be disadvantageous for the exporting country.
❖Increased Competition and Economies of Scale:
▪ Economic integration increases market size, and helps to reduce the monopoly power of large
producers.
▪ This is because a larger market increases the number of competing firms, leading to greater
efficiency and lower prices for consumers
▪ Industries such as steel and automobiles, which require large-scale production in order to be
viable, benefit from the creation of a large trading bloc and, thus, a market.
▪ The creation of a large market then results in lower production costs called internal
economies of scale.
▪ In a common market, there may be external economies of scale as well resulting from the free
flow of factors of production such as capital, skilled labour, and superior technology.
❖Higher Factor Productivity:
▪ Free movement of the factors of production in a common market makes them look
for areas of higher productivity. This has a two-fold effect:
1. The movement of people leads to the movement of ideas, skills, and values
embodied in them, fostering greater cross-cultural understanding.
2. Free movement of the factors of production in a common market does not
necessarily benefit all members equally as the much needed resources of a country
may move to another area of higher productivity. A poorer country may lose
talented workers to better opportunities in other countries. For example,
multinationals such as Koninklijke Philips Electronics N.V. and Goodyear
Corporation have shifted their MERCOSUR production from Argentina to Brazil to
take advantage of lower costs and incentives provided by the Brazilian government
 REGIONAL TRADING AGREEMENTS

There are a number of regional trading agreements that are in force across
the world today. Some of the important ones have been discussed here.
 NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

❖The North American Free Trade Agreement (NAFTA) is a comprehensive

economic and trade agreement that establishes a free trade area encompassing
Canada, Mexico, and the United States.
❖NAFTA establishes rules on tariffs and quotas in accordance with the provisions
of the WTO.
❖It also sets out key principles regarding the treatment of foreign investors, It also
prohibits the imposition of certain performance requirements, such as a minimum
amount of domestic content in production, on foreign investors
Importance of NAFTA:
■ It is the first ever reciprocal free trade accord between the developed and
the developing world.
■ Its creation led to the formation of a tri-national market of more than 360
million people with a combined purchasing power of about USD 6.5 trillion.
■ The establishment of the NAFTA helped producers of North America
(especially the United States) to compete globally. It has also helped to improve
the investment climate in the region and has given companies a larger market
than before.
■ NAFTA has mainly affected trade and employment in North America
especially between USA and Mexico. It has been estimated that US agricultural
exports to Canada and Mexico helped to create about 243,000 jobs in the US
economy in 2006.
 MERC OSUR

❖The MERCOSUR was created as a free trade pact between Argentina and Brazil
and was extended to include Paraguay and Uruguay in March 1991.
Objectives of MERCOSUR :
■ Free transit of production goods, services, and factors between the member
states with the elimination of customs rights and lifting of non-tariff restrictions on
the transit of goods or any other measures with similar effects
■ Fixing a common external tariff (TEC) and adopting a common trade policy with
regard to nonmember states or groups of states, and the coordination of positions
in regional and international commercial and economic meetings.
• ■ Coordination of macroeconomic and sectoral policies of member states relating
to foreign trade, agriculture, industry, taxes, monetary system, exchange and capital,
services, customs, transport and communications, and any others they may agree
on, in order to ensure free competition between member states.
• ■ Ensuring the commitment of the member states in making the necessary
adjustments to their laws in pertinent areas to allow for the strengthening of the
integration process.
 EUROP EAN UNION (EU)

❖The European Union (EU) is a political and economic union of 28 member states,
located primarily in Europe. It was established on 1 January 1995, as a result of the
signing of the Treaty on European Union, also known as the Maastricht Treaty.
❖The treaty was signed in February 1992 and enforced in November 1993. The first EU
members comprised 15 countries: Belgium, the Netherlands, Luxembourg, France,
Germany, Italy, Denmark, Ireland, the United Kingdom, Greece, Spain, Portugal, Finland,
Sweden, and Austria
EU Characteristics:
Single Market: The EU is a single market which functions through a standardized
system of laws which apply in all member states, guaranteeing the freedom of movement
of people, goods, services, and capital.
Common Policy Framework: It maintains a common trade policy, agricultural and
fisheries policies, and a regional development policy. It has developed a role in foreign policy,
representing its members in the World Trade Organization (WTO), at G8 summits, and at
the United Nations.
Common Currency: 18 member states have adopted the euro as its common currency.
Latvia is the most recent member and the Council of the EU has approved Lithuania’s
membership from January 2015.2
Common Passport: Every citizen in each of its member states is eligible to obtain a
common European passport for travel between member states.
Hybrid Organization: The EU is a hybrid organization characterized by
intergovernmental and supranational features. It is a unique entity with characteristics that
distinguish it from any other existing organization or body. It is neither a federation of states
like the United States nor an organization for cooperation between governments like the
United Nations and nor is it a state intended to replace existing states.
 ASSOC IATION OF SOU TH EAST ASIAN NATIONS (ASEAN)

❖The Association of Southeast Asian Nations (ASEAN), an economic and political

association, was established on 8 August 1967 in Bangkok by Indonesia, Malaysia,
Philippines, Singapore, and Thailand.
❖Subsequently, the State of Brunei Darussalam joined on 8 January 1984, Vietnam on 28
July 1995, Lao People’s Democratic Republic and Myanmar on 23 July 1997, and
Cambodia on 30 April 1999.
Objectives of ASEAN T
he stated objectives of the ASEAN are:
■ To accelerate economic growth, social progress, and cultural development in the region.
■ To promote regional peace and stability through abiding respect for justice and the rule
of law in the relationship among countries in the region and adherence to the principles of
the United Nations Charter.
ASEAN Achievements
■ There has been a significant reduction in the tariff levels on most goods in the Inclusion List of
the ASEAN-6. More than 60 per cent of these products have zero tariffs. The average tariff for
ASEAN-6 has been brought down from more than 12 per cent when AFTA started to 2 per
cent as of 2011.
■ The roadmap for financial and monetary integration of ASEAN in four areas, namely, capital
market development, capital account liberalization, liberalization of financial services, and
currency cooperation.
■ Trans-ASEAN transportation network consisting of major inter-state highways and railway
networks, including the Singapore to Kunming Rail-Link, principal ports and sea lanes for
maritime traffic, inland waterway transport, and major civil aviation links.
■ The adoption of a roadmap for integration of air travel.
■ Initiative for ASEAN Integration (IAI) focusing on infrastructure, human resource
development, information and communications technology, and regional economic integration
primarily in Cambodia, Myanmar, Lao PDR, and Vietnam.
 ASIA -PAC IFIC EC ONOMIC C OOP ERATION FORUM (AP EC

❖The Asia-Pacific Economic Cooperation (APEC) came into existence in November

1994 and has 21 members as of 2011.
❖The APEC members are Australia, Brunei Darussalam, Canada, Chile, People’s
Republic of China, Hong Kong–China, Indonesia, Japan, Republic of Korea (South
Korea), Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia,
Singapore, Chinese Taipei, Thailand, United States, and Vietnam.
❖In 1994, APEC leaders gathered in Bogor, Indonesia, and agreed to build on the
commitments made in the Uruguay Round of GATT, by accelerating their
implantation and broadening and deepening those commitments.
APEC’s three pillars:
1. Trade and investment liberalization: Trade and investment liberalization aims to
reduce and eventually eliminate tariff and non-tariff barriers to trade and investment to
protect member states from the harmful effects of protectionism.
2. Business facilitation: Business facilitation focuses on reducing the costs of business
transactions, improving access to trade information, and aligning policy and business
strategies to facilitate growth and free and open trade
3. Economic and technical cooperation (ECOTECH): It is dedicated to providing
training and cooperation to build capacities in all APEC member economies to take
advantage of global trade.
The major benefits of the APEC are:

■ Economic growth: Since its inception in 1989, the APEC region has consistently been the
most economically dynamic part of the world. In its first decade, APEC member economies
generated nearly 70 per cent of global economic growth and the APEC region consistently
outperformed the rest of the world, even during the Asian financial crisis
■ Benefits to the people: The outcomes of APEC’s three areas of intervention have
enabled APEC members to strengthen their economies by pooling resources within the
region and achieving efficiencies. Tangible benefits are also delivered to consumers in the
APEC region through increased training and employment opportunities, greater choices in
the marketplace, cheaper goods and services, and improved access to international markets.