The First World War (1914-1919) and the Second World War (1939-45) were accompanied by massive destruction of life and property the world over. Almost all the economies of the world were adversely affected. Due to scarcity of resources, countries were not in a position to take up any reconstruction or developmental works. Even the international trade amongst nations got adversely affected because of the disruption of the world’s currency system. There was no system of generally accepted exchange rate. It was at that juncture that representative of fortyfour nations under the leadership of J.M. Keynes — a noted economist joined together at Breton Woods, New Hampshire to identify measures to restore peace and normalcy in the world. The meeting was concluded with the setting up of three international institutions, namely the International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD) and the International Trade Organization (ITO). While the World Bank was assigned with the task of reconstructing war-torn economies — especially the ones in Europe, the IMF was entrusted with the responsibility of ensuring stabilisation of exchange rates to pave way for the expansion of world trade. The main objective of the ITO as they could foresee at that time was to promote and facilitate international trade among the member countries by overcoming various restrictions and discriminations that were being practiced at that time. The first two institutions, viz., IBRD and IMF, came into existence immediately. The idea of setting up of ITO, however, could not materialise due to stiff opposition from the United States. Instead of an organisation, what eventually emerged was an arrangement to liberalise international trade from high customs tariffs and various other types of restrictions. This arrangement came to be known as the General Agreement for Tariffs and Trade (GATT). GATT came into existence with effect from 1st January 1948 and remained in force till December 1994. Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non-tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of duration of negotiations which lasted over a period of seven years from 1986 to 1994. Since 1st January 1995, GATT has been transformed into World Trade Organisation (WTO). Unlike GATT, WTO is a permanent body and has a global status similar to that of IMF and World Bank. WTO agreements cover trade in not only goods but also in services and intellectual property through various agreements such as Agreement on Textiles on Clothing (ATC), General Agreement on Trade in Services (GATS), Agreement Relating to Trade in Intellectual Property (TRIP) and Agreement on Agriculture (AoA). International Business vs. Domestic Business Conducting and managing international business operations is more complex than undertaking domestic business. Because of variations in political, social, cultural and economic environments across countries, business firms find it difficult to extend their domestic business strategy to foreign markets. To be successful in the overseas markets, they need to adapt their product, pricing, promotion and distribution strategies and overall business plans to suit the specific requirements of the target foreign markets Key aspects in respect of which domestic and international businesses differ from each other are discussed below. Mobility of factors of production: The degree of mobility of factors like labor and capital is generally less between countries than within a country. While these factors of movement can move freely within the country, there exist various restrictions to their movement across nations. Apart from legal restrictions, even the variations in socio-cultural environments, geographic influences and economic conditions come in a big way in their movement across countries.
Differences in business systems and practices: Countries differ from one another in terms of their socioeconomic development, availability, cost and efficiency of economic infrastructure and market support services, and business customs and practices due to their socio-economic milieu and historical coincidences. All such differences make it necessary for firms interested in entering into international markets to adapt their production, finance, human resource and marketing plans as per the conditions prevailing in the international markets. Political system and risks: Political factors such as the type of government, political party system, political ideology, political risks, etc., have a profound impact on business operations. Since a business person is familiar with the political environment of his/her country, he/she can well understand it and predict its impact on business operations. But this is not the case with international business. Political environment differs from one country to another. One needs to make special efforts to understand the differing political environments and their business implications. A major problem with a foreign country’s political environment is a tendency among nations to favor products and services originating in their own countries to those coming from other countries. While this is not a problem for business firms operating domestically, it quite often becomes a severe problem for the firms interested in exporting their goods and services to other nations or setting up their plants in the overseas markets. Business regulations and policies: Coupled with its socioeconomic environment and political philosophy, each country evolves its own set of business laws and regulations. Though these laws, regulations and economic policies are more or less uniformly applicable within a country, they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital
THE WTO IN BRIEF: PART 1
The multilateral trading system—past, present and future
The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
WTO IN BRIEF 1. History 2. Organization 3. Agreements 4. Developing countries
So while the WTO is still young, the multilateral trading system that was originally set up under GATT is well over 50 years old. The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6% annually. Total trade in 2000 was 22times the level of 1950. GATT and the WTO have helped to create a strong
See also: > 10 benefits > 10 misunderstandings > Understanding the WTO
and prosperous trading system contributing to unprecedented growth. The system was developed through a series of trade negotiations, or rounds, held under GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The last round — the 1986-94 Uruguay Round — led to the WTO’s creation. The negotiations did not end there. Some continued after the end of the Uruguay Round. In February 1997 agreement was reached on telecommunications services, with 69 governments agreeing to wide-ranging liberalization measures that went beyond those agreed in the Uruguay Round. In the same year 40 governments successfully concluded negotiations for tariff-free trade in information technology products, and 70 members concluded a financial services deal covering more than 95% of trade in banking, insurance, securities and financial information. In 2000, new talks started on agriculture and services. These have now been incorporated into a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. The work programme, the Doha Development Agenda (DDA), adds negotiations and other work on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping and subsidies, investment, competition policy, trade facilitation, transparency in government procurement, intellectual property, and a range of issues raised by developing countries as difficulties they face in implementing the present WTO agreements. The deadline for the negotiations is 1 January 2005. THE WTO IN BRIEF: PART 2
The organization
The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably.
WTO IN BRIEF 1. History 2. Organization 3. Agreements 4. Developing countries
It does this by: • • • • Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies
See also:
•
> 10 benefits > 10 misunderstandings > Understanding the WTO
Assisting developing countries in trade policy issues, through technical assistance and training programmes Cooperating with other international organizations
•
doc_354452465.doc
Differences in business systems and practices: Countries differ from one another in terms of their socioeconomic development, availability, cost and efficiency of economic infrastructure and market support services, and business customs and practices due to their socio-economic milieu and historical coincidences. All such differences make it necessary for firms interested in entering into international markets to adapt their production, finance, human resource and marketing plans as per the conditions prevailing in the international markets. Political system and risks: Political factors such as the type of government, political party system, political ideology, political risks, etc., have a profound impact on business operations. Since a business person is familiar with the political environment of his/her country, he/she can well understand it and predict its impact on business operations. But this is not the case with international business. Political environment differs from one country to another. One needs to make special efforts to understand the differing political environments and their business implications. A major problem with a foreign country’s political environment is a tendency among nations to favor products and services originating in their own countries to those coming from other countries. While this is not a problem for business firms operating domestically, it quite often becomes a severe problem for the firms interested in exporting their goods and services to other nations or setting up their plants in the overseas markets. Business regulations and policies: Coupled with its socioeconomic environment and political philosophy, each country evolves its own set of business laws and regulations. Though these laws, regulations and economic policies are more or less uniformly applicable within a country, they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital
THE WTO IN BRIEF: PART 1
The multilateral trading system—past, present and future
The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
WTO IN BRIEF 1. History 2. Organization 3. Agreements 4. Developing countries
So while the WTO is still young, the multilateral trading system that was originally set up under GATT is well over 50 years old. The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6% annually. Total trade in 2000 was 22times the level of 1950. GATT and the WTO have helped to create a strong
See also: > 10 benefits > 10 misunderstandings > Understanding the WTO
and prosperous trading system contributing to unprecedented growth. The system was developed through a series of trade negotiations, or rounds, held under GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The last round — the 1986-94 Uruguay Round — led to the WTO’s creation. The negotiations did not end there. Some continued after the end of the Uruguay Round. In February 1997 agreement was reached on telecommunications services, with 69 governments agreeing to wide-ranging liberalization measures that went beyond those agreed in the Uruguay Round. In the same year 40 governments successfully concluded negotiations for tariff-free trade in information technology products, and 70 members concluded a financial services deal covering more than 95% of trade in banking, insurance, securities and financial information. In 2000, new talks started on agriculture and services. These have now been incorporated into a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. The work programme, the Doha Development Agenda (DDA), adds negotiations and other work on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping and subsidies, investment, competition policy, trade facilitation, transparency in government procurement, intellectual property, and a range of issues raised by developing countries as difficulties they face in implementing the present WTO agreements. The deadline for the negotiations is 1 January 2005. THE WTO IN BRIEF: PART 2
The organization
The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably.
WTO IN BRIEF 1. History 2. Organization 3. Agreements 4. Developing countries
It does this by: • • • • Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies
See also:
•
> 10 benefits > 10 misunderstandings > Understanding the WTO
Assisting developing countries in trade policy issues, through technical assistance and training programmes Cooperating with other international organizations
•
doc_354452465.doc