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Free trade refers to a situation where a government


does not attempt to restrict what its citizens can
buy from another country or what they can sell to
another country.

While many nations are nominally committed to
free trade, they tend to intervene in international
trade to protect the interests of politically
important groups.
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Country A
Political values &
legal Practices
Cultural values,
attitudes & beliefs
Economic Forces
Geographical
influences
Trade
Enhancements



Trade Restrictions
Companies
Competitive
Environment
Country B
Political values &
legal Practices
Cultural values,
attitudes & beliefs
Economic Forces
Geographical
influences
Prevent Unemployment
Import restriction leads to
Retaliation by other countries
Less likely Retaliated against effectively by
small economics.
Less likely to be met with Retaliation if
implemented by small economics.
May decrease export jobs because of price
increases for components
May decrease export jobs because of lower
incomes abroad.

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Protect Infant Industries
A government should shield an emerging industry
from foreign competition by guaranteeing it a large
share of domestic market until it is able to compete
on its own.
Promote Industrialization
Countries with large manufacturing base generally
have higher per capita incomes than those that do
not.

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Maintaining essential industries
Government apply trade restrictions to protect
essential domestic industries during peacetime so
a country is not dependent on foreign sources of
supply during war.
Deal with unfriendly countries
Groups concerned about security often use
national defense arguments to prevent the export,
even to friendly countries, of strategic goods that
might fall into the hands of potential enemies or
that might be in short supply domestically.
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Maintaining spheres of influence
Governments give aid and credits to, and
encourage imports from, countries that join a
political alliance or vote a preferred way within
international bodies.
Preserve national identity
Countries are held together partially through a
unifying sense of identity that sets their citizens
apart from those in other nations. To sustain this
collective identity, countries limit foreign products
and services in certain sectors.
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Country quotas
Testing, labeling
Seasonal prohibitions
Health and sanitary prohibitions
Certifications
Foreign exchange licensing
Custom surcharges
Stamp taxes
Taxes on transport
Anti-competitive practices
Trade restrictions on e-commerce
Licensing fees
Excise duties
Taxes on foreign exchange deals
Special import authorization
Restrictions on data processing
Advance import deposits

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One way to understand trade control is by
distinguishing between two types that differ
in their effects:
Those that indirectly affect the amount
traded by directly influencing the prices of
exports and imports.
Those that directly limit the amount of a
good that can be traded.
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Tariffs: oldest and simplest instrument
Import, Export and Transit duty
Specific duty, ad valorem duty, compound duty
Tariffs are unambiguously pro-producer and anti consumer.
Tariffs reduces overall efficiency of the world economy.
Non Tariff Barriers: Direct price influences
Subsidies: cash grant, low-interest tax, tax breaks
etc.
Whether subsidies generate national benefits that exceed
their national cost is debatable.
Aid and Loans, Customs valuation etc.

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Non Tariff Barriers: Quantity controls
Import Quotas
Tariff rate quota
Voluntary export restraint (VER)
Local Legislation
Standards
Specific Permission requirements
Reciprocal requirements
Restriction on services.
Import quotas and VER always raises the domestic price of
an imported good.


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The Bretton Woods Conference of 1944
It was attended only by representatives of finance
ministries & not by representatives of trade
ministries
In December 1945, US invited its war-time allies to
negotiate & conclude a multilateral agreement
UNO in Feb 1946, organized a conference to draft a
charter for International Trade Organization
London Meet in Oct 1946, The work on setting up
ITO continued till Nov 1947, Due to acceptance of
GATT, the work on establishing ITO was halted.

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1946 London England: 50 countries met to
discuss creating an international trade
organization as a third world economic power
along side IMF & World bank, but failed.
1947 Havana, Cuba 23 countries met &
negotiated more than 45,000 reductions in
their custom duties that affected $10B of
trade, then about 1/5
th
of worlds total trade.
These agreements were codified into the
General Agreements on Tariffs and Trade
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1947 Geneva Switzerland: The same 23
countries met for the first official meeting of
founding members of GATT.
1949 Annecy France : 13 Member
countries negotiated more than 5,000 tariff
concessions.
1951/1956 Torquay, England and Geneva :
38 Member nations negotiated additional
tariff reductions and concessions.
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1960 1961 The Dillon Round : 26 countries
additional tariff reductions and concessions
1964 1967 The Kennedy Round Geneva:
Membership increased to 62 countries and
discussion expanded to review new trade rules
and passed an anti-dumping agreement
1973 1979 The Tokyo Round : 102 member
countries, reduced custom duties. Reached a
series of agreements on various non tariff
barriers. But these agreements were signed by
only few. Failed to reform agricultural trade
and emergency import measures.
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1986 1994 The Uruguay Round : 123
nations, Majority were developing nations,
tariffs were reviewed, on tariff measures,
trade rules, services, Intellectual property,
dispute settlements, textiles and agriculture.
WTO was formed on 1
st
Jan 1995.
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The process of becoming a WTO
member

The process of becoming a WTO member is unique to
each applicant country, and the terms of accession are
dependent upon the country's stage of economic
development and current trade regime. The process
takes about five years, on average, but it can last more if
the country is less than fully committed to the process
or if political issues interfere. The shortest accession
negotiation was that of the Kyrgyz Republic, while the
longest was that of Russia, which, having first applied to
join GATT in 1993, was approved for membership in
December 2011 and became a WTO member on 22
August 2012
The World Trade Organization (WTO) is the only
international organization dealing with the
global rules of trade between nations.
Its main function is to ensure that trade flows
as smoothly, predictably and freely as possible.
The WTO Secretariat, based in Geneva, has
around 600 staff and is headed by a director-
general. Its annual budget is roughly 160
million Swiss francs.
It does not have branch offices outside Geneva.
Since decisions are taken by the members
themselves, the Secretariat does not have the
decision-making role that other international
bureaucracies are given.
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The Secretariats main duties are to supply
technical support for the various councils and
committees and the ministerial conferences,
to provide technical assistance for developing
countries, to analyze world trade, and to
explain WTO affairs to the public and media.
The Secretariat also provides some forms of
legal assistance in the dispute settlement
process and advises governments wishing to
become members of the WTO.

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Ministerial conferences
The WTOs top decision-making body. Meets
at least once every two years.
General Council
Top day-to-day decision-making body.
Meets regularly, normally in Geneva.
The WTO and other organizations
Cooperation between multilateral institutions
on global economic policy-making.

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1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and
qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government
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1. The WTO dictates policy
2. The WTO is for free trade at any cost
3. Commercial interests take priority over
development
4. and over the environment
5. and over health and safety
6. The WTO destroys jobs, worsens poverty
7. Small countries are powerless in the WTO
8. The WTO is the tool of powerful lobbies
9. Weaker countries are forced to join the WTO
10. The WTO is undemocratic
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To raise standards of living
To ensure full employment
Growing volume of real income and effective
demand
Expanding the production of and trade in
goods & services
Sustainable development and environmental
protection
Developing countries
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Agreements on Agriculture
Agreements on Textiles & Clothing
Agreements on GATS
Agreements on TRIPS
Agreements on TRIMS

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The objective of the Agriculture Agreement is to
reform trade in the sector and to make policies
more market-oriented. This would improve
predictability and security for importing and
exporting countries alike.

The new rules and commitments apply to:
Market access
Domestic support
Export subsidies


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Market Access
Various trade restrictions confronting imports
Tariffication
Special safeguards
Special treatment
Impact on India
The Developed will have better market access
in the Developing countries
India would gain on enhanced market
access
India has removed all quantitative restrictions






lower tariff rates for
specified quantities, higher
(sometimes much higher)
rates for quantities
that exceed the quota.
For products whose non-tariff restrictions
have been converted to tariffs, governments
are allowed to take special emergency
actions (special safeguards) in order to
prevent swiftly falling prices or surges in
imports from hurting their farmers.
special treatment provisions to restrict imports
of particularly sensitive products (mainly rice)
during the implementation period (2000 for
developed, 2004 for developing), but subject to
strictly defined conditions, including minimum
access for overseas suppliers.
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Domestic Support
Amber box (5%, 10%)
Green box
Blue box
Impact on India
Provides space for The Developed to
subsidize heavily
Indian Domestic support is less than 10%





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Export Subsidies & The Least Developed
Developed countries
Developing countries
The least developed Depending on food Imports
Impact on India
Reduced tax rate on profits from exports
India may face problem from heavily subsidized
exports of industrialized nations
Standardization of Agri. products

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Numerical targets for agriculture

Developed
countries
6 years: 1995-
2000
Developing
countries
10 years: 1995-
2004
Tariffs
Average cut for all agricultural products -36% -24%
Minimum cut per product -15% -10%
Domestic support
Total AMS cuts for sector (period:1986-88) -20% -13%
Exports
Value of subsidies -36% -24%
Subsidized quantities (period:1986-90) -21% -14%


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Textiles, like agriculture, was one of the
hardest-fought issues in the WTO, as it was
in GATT. It completed fundamental change in
a 10-years as agreed in the Uruguay Round.
The system of import quotas that dominated
the trade since the early 1960s have now
been phased out.
The Key Points :
MFA 1974 To ATC 1995
Integration
TMB
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Multi Fiber Agreement (MFA) 1974
Radical departure from basic GATT
Selective Quantitative Restrictions
Quota system became predominant
Agreement on Textile & Clothing (ATC)
1995-05
Wide product coverage
Progressive integration into GATT
Enlarge existing quotas until they are
removed
Special safeguard during transition period
TMB, Quota monitoring other provisions

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Four steps over 10 years back to top
The schedule for freeing textiles and garments products from import quotas (and returning them to GATT
rules), and how fast remaining quotas had to be expanded.
The example is based on the commonly-used 6% annual expansion rate of the old Multifibre
Arrangement. In practice, the rates used under the MFA varied from product to product.
Step
Percentage of products
to be brought under
GATT (including
removal of any quotas)
Percentage of products
to be brought under
GATT (including
removal of any
quotas)
Step 1:
1 Jan 1995 (to 31 Dec 1997)
16%
(minimum, taking 1990
imports as base)
6.96%
per year
Step 2:
1 Jan 1998 (to 31 Dec 2001)
17% 8.7%
per year
Step 3:
1 Jan 2002 (to 31 Dec 2004)
18% 11.05%
per year
Step 4:
1 Jan 2005

>Full integration into GATT (and final
elimination of quotas).
>Agreement on Textiles and Clothing
terminates.
49%
(maximum)
No quotas left
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GATS is the first & only set of multilateral rules
governing international trade in services.
Negotiated in the Uruguay Round.
It was developed in response to the huge
growth of the services economy over the past
30 years.
The greater potential for trading services
brought about by the communications
revolution.
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BASIC Principles
All services are covered by GATS
Most-favoured-nation treatment applies to all
services, except the one-off temporary
exemptions
National treatment applies in the areas where
commitments are made
Transparency in regulations, inquiry points
Regulations have to be objective and reasonable
International payments: normally unrestricted
Individual countries commitments: negotiated &
bound
Progressive liberalization: through further
negotiations
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Global Obligations & Disciplines
Total Coverage
Most-favoured-nation (MFN) treatment
Commitments on market access & national
treatment
Transparency
Regulations
Recognition
International payments and transfers
Progressive liberalization
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The annexes: services are not all the same
Movement of natural persons
Financial services
Telecommunications
Air transport services
Current work
Negotiations (Article 19)
Work on GATS rules (Articles 10, 13, and 15)
Work on domestic regulations (Article 4.4)
MFN exemptions (Annex on Article 2)
Taking account of autonomous liberalization (Art-19)
Special treatment for least-developed countries (Art-19)
Assessment of trade in services (Article 19)
Air transport services
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The WTOs Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS), negotiated in the 1986-94 Uruguay
Round, introduced intellectual property rules into the
multilateral trading system for the first time.

Types of intellectual property :
The areas covered by the TRIPS Agreement
Copyright and related rights
Trademarks, including service marks
Geographical indications
Industrial designs
Patents
Layout-designs (topographies) of integrated circuits
Undisclosed information, including trade secrets
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Agreements coverage:
How basic principles of the trading system and
other international intellectual property
agreements should be applied
How to give adequate protection to intellectual
property rights
How countries should enforce those rights
adequately in their own territories
How to settle disputes on intellectual property
between members of the WTO
Special transitional arrangements during the
period when the new system is being introduced.
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National treatment
MFN
Balanced Protection
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World Intellectual Property Organization
(WIPO)
Paris Convention for the Protection of
Industrial Property (patents, industrial
designs, etc)
Berne Convention for the Protection of
Literary and Artistic Works (copyright).
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Copyrights
Trademarks
Geographical indicators
Industrial Designs
Patents
Integrated circuits layout designs
Undisclosed information and trade secrets
Curbing anti-competitive licensing contracts
Enforcement
Technology transfers
Transition agreements 1, 5,11 or More
years

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The WTOs Agreement on Trade-Related
Investment Measures (TRIMs), states that, the
foreign capital would not be discriminated by
the member countries, equal treatment on par
with domestic capital should be the mandate.
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No Restriction on any area of investment
No limitation or ceiling on quantum of
investment (100%)
Permission to Import Raw materials &
components
Exporting a Part of the product will not be
mandatory
Restriction on repatriation of dividend,
interest & royalty should be removed
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The agreement recognizes that certain investment
measures restrict and distract trade. It states that
no member country shall apply any TRIM,
inconsistent with the provisions of GATT WTO.
They mainly include:
Local content requirement ( Certain amount of local
input use is insisted)
Trade balancing requirements (Import shall not
exceed a certain proportion of Export)
Trade & foreign exchange balancing requirements
Domestic sales requirements ( Company has to sell
certain portion locally)
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Anti-Dumping Agreement.

Actions taken against dumping (selling at an
unfairly low price)
Subsidies and special countervailing duties to
offset the subsidies
Emergency measures to limit imports
temporarily, designed to safeguard domestic
industries.
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Safeguards
A WTO member may restrict imports of a
product temporarily (take safeguard actions)
if its domestic industry is injured or threatened
with injury caused by a surge in imports. Here,
the injury has to be serious.
Plurilaterals
Trade in civil aircraft
Government procurement
Dairy products
Bovine meat.
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