SUBJECT: INTERNATIONAL BUSINESS

Assignment: # 1

THE EMERGENCE OF WTO AND ITS CONTRIBUTION IN INTERNATIONAL ECONOMIC INTERGATION WITH

REFERENCE TO REGIONAL TRADE BLOCS.

SUBMITTED TOPROF. R. JYOTHIRMAYEE

BY

ANKITA CHOUDHARYMBA 4TH SEMESTER

ON

MARCH 21ST 2011.

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WORLD TRADE ORGANISATIO

N

AND REGIONAL

TRADE BLOCS

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OUTLINE OF WTO:

Formation January 1, 1995

Headquarters Centre William Rappard, Geneva, Switzerland

Membership 153 member states

Official languages English, French, Spanish

Director-General Pascal Lamy

Budget 189 million Swiss francs (approx. 182 million USD) in 2009.

Staff 625

Website www.wto.org

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a

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dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

The WTO has 153 members, representing more than 97% of total world trade and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland.

HISTORY OF WTO:

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation — notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect. In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization.

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FOUNDATION OF WTO:

The WTO was formed replacing the GATT (General Agreement on Tariffs and Trade). GATT had been in accomplishment from 1949.GATT held a total of 8 rounds which were as follows:

Annecy Round 1949

Torquay Round 1951

Geneva Round 1955-1956

Dillon Round 1960-1962

Kennedy Round 1964-1967

Tokyo Round 1973-1979

Uruguay Round 1986-1994

GATT was a set of rules agreed upon by nations; the WTO is an institutional body. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.

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FUNCTIONS AND STRUCTURE OF THE WTO

The major functions of the WTO include:

• administering the WTO agreements

• handling trade disputes

• monitoring national trade policies

• serving as a forum for trade negotiations

• cooperating with other international organizations.

THE OBJECTIVES OF THE WTO

The preamble to the WTO Agreement describes its objectives as including:

• Raising standards of living

• Ensuring full employment

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STRUCTURE OF WTO: (Source: wto.org)

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DISPUTE SETTLEMENT PROCESS:

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Source: http://www.3dthree.org/pdf_3D/Guide-075Ch1.pdf

PROCESS OF DISPUTE SETTLEMENT:

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Source: wto.org

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MEMBERS OF WTO:

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FACTORS PROMOTING TRADE DEVELOPMENT AND REGIONAL ECONOMIC INTEGRATION

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Improving doing business enviornment.

Increasing economic corporation.

Enhancing trade policy coordination.

Accelerating reforms of trade policies.

REGIONAL

TRADE

BLOCS

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HISTORY OF REGIONAL TRADE BLOCS

For years the champion of multilateralism was the United States. However, multilateral trade negotiations in the 1980s were slow and tedious, thus leading the U.S. to move away from its policy of supporting only multilateral trade negotiations as a mechanism for encouraging free trade. This new U.S. policy fosters the development of both multilateral liberalization trade and preferential trade agreements.

Since the mid-1980s there has been a profound change in the structure of the international economy due to the widespread growth and internal enhancement of regional trading blocs in all parts of the globe. The World Trade Organization (WTO), for example, notes that almost all of its 134 members are signatories to regional trade agreements with other countries. As of February 1999 the GATT/WTO has been notified of 184 regional trade agreements of which 109 are currently in effect (see WTO 1999 web page).' These regional trade groups, according to Fred Bergsten of the Institute for International Economics, account for approximately 60 percent of world trade (Anon. 1999).

Among the most notable and impactful of these trade arrangements include the North American Free Trade Agreement (NAFTA) and the European Union (EU). The plan to establish the Asian-Pacific Economic Cooperation Group by 2020 (2010 for developed economies; 2020 for developing ones) should be an equally important development (APEC Secretariat 1999).

The United States, Mexico, and Canada created a free-trade area that became effective in January 1994. The members of NAFTA have declared their aspiration of incorporating much of Latin America and the Caribbean, thus ultimately establishing a Free Trade Area of the Americas (FTAA). Efforts are underway to make the FTAA a reality by 2005 (Office of NAFTA & Inter-American Affairs 2000). This area collectively will have a gross domestic product (GDP) of $2 trillion with a population of almost 500 million by the year 2000. According to the

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President of Pakistan's Institute for Development Research, 87 percent of world trade is currently accounted for by three blocs of 33 countries; namely NAFTA, the EU, and APEC (Anon. 2000).

The European Union's intensification of its program with its membership now totaling 15 members and a new common currency for 11 of its 15 members currently results in the establishment of the world's largest single market. Further expansion is anticipated, particularly into Central Europe, with the addition of up to ten new members over the next few years. It is estimated that the EU generates 31 percent of total world output and commands more than 20 percent of world trade (Weindenfeld 1999).

The Asia-Pacific Economic Cooperation (APEC), in spite of the financial problems the area experienced in 1997 and 1998, is still one of the fastest-growing regions in the world. By 1998, APEC's 21 member economies produced a Gross Domestic Product of more than US$16 trillion; this represents approximately 42 percent of global trade (Asia-Pacific Cooperation 2000). In contrast to other regional integrations, APEC, an open regional organization, represents an approach to integration that is concordant with the multilateralism of the WTO (Kim and Koo 1997).

While the history of trade is replete with regional trade bloc formation, we know little as to why or how these blocs form. At first, it was implicitly assumed that the trade blocs formed because there were some inherent benefits to the participants. However, a review of the existing knowledge of this area calls that proposition into question.

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INTRODUCTION TO REGIONAL TRADE BLOCS:

In general terms, regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition. Defense against global competition is obtained through established tariffs on goods produced by member states, import quotas, government subsidies, onerous bureaucratic import processes, and technical and other tariff barriers since trade is not an isolated activity, member states within regional blocks also cooperate in economic, political, security, climatic, and other issues affecting the region.

In terms of their size and trade value, there are four major trade blocks and a larger number of blocks of regional importance.

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MAJOR TRADING

BLOCS

MERCOSUR

EUASEAN

NAFTA

ASEAN (ASSOCIATION OF SOUTHEAST ASIAN NATIONS).

Established on: August 8, 1967, in Bangkok/Thailand.Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

Goals:

Accelerate economic growth, social progress and cultural development in the region and

Promote regional peace and stability and adhere to United Nations Charter.Important Indicators for 2009. Population approximately 591 million; GDP US$1.496 trillion; and Total Trade US$1.536 trillion.

EUROPEAN UNION

Founded in 1951 by six neighboring states as the European Coal and Steel Community (ECSC). Over time evolved into the European Economic Community, then the European Community and, in 1992, was finally transformed into the European Union.Regional block with the largest number of members states (27). These include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,

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Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom. Goals: Evolved from a regional free-trade association of states into a union of political, economic and executive connections.Population estimated at 501.2 million on 1 January 2010.GDP (PPP) estimated at US$14.9 trillion.

MERCOSUR ( Mercado Comun del Cono Sul - Southern Cone Common Market)

Established on: 26 March 1991 with the Treaty of Assunción.Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Associate members include Bolivia, Chile, Colombia, Ecuador, and Peru. Associate members haveaccess to preferential trade but not to tariff benefits of full members. Mexico, interested in becoming a member of the region, has an observer status.Goals: Integration of member states for acceleration of sustained economic development based on social justice, environmental protection, and combating poverty.Population: More than 273 million people. GDP (PPP) of more than US$2.774 trillion.

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NAFTA (NORTH AMERICA FREE TRADE AGREEMENT)

Agreement signed on 1 January 1994.Members: Canada, Mexico, and the United States of America.Goals: Eliminate trade barriers among member states, promote conditions for free trade, increase investment opportunities, and protect intellectual property rights. Population of over 460.9 million, GDP (PPP) US$17.0 trillion.

SOME OF THE OTHER REGIONAL TRADE BLOCS ARE AS FOLLOWS:

1. ANDEAN (Andean Community Countries) 2. BSEC ( Organization of the Black Sea Economic Cooperation) 3. CARICOM (Caribbean Community)4. CIS (Commonwealth of Independent States)5. COMESA (Common Market for Eastern and Southern Africa)6. ECOWAS (Economic Community of West African States)7. EFTA (European Free Trade Association)8. GCC (Gulf Cooperation Council for the Arab States of the Gulf ) 9. MEFTA (Middle East Free Trade Area)10.Pacific Community 11.SAARC (South Asian Association for Regional Cooperation)12.SADC (Southern Africa Development Community)13.ACP (African, Caribbean and Pacific Group of States)14.ACS (Association of Caribbean States ) 15.APEC (Asia-Pacific Economic Cooperation)16.IBSA – India-Brazil-South Africa Trilateral17.DR-CAFTA (Dominican Republic-Central America Free Trade Agreement)

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18.FTAA (Free Trade Area of the Americas)19.UNASUR/UNASUL (Union of South American Nations) formerly known as

SACN (South American Community of Nations)

Source: wikipedia.com.

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STATISTICS OF TRADE BLOCS:

Source: United Nations statistics division

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Source: Wikipedia.com

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ADVANTAGES AND DISADVANTAGES OF REGIONAL TRADE BLOCS

ADVANTAGES:

1. Transaction cost will be eliminated:United Kingdom firms currently spend about £1.5 billion a year buying and selling foreign currencies to do business in the EU. With the EMU this is eliminated, so increasing profitability of EU firms. This will enable tourist to drop the burden of paying heavy conversion of currencies.

2. Price Transparency: Eu firms and households often find it difficult to accurately compare the prices of goods, services and resources across the EU because of the distorting effects of exchange rate differences. This discourages trade. According to economic theory, prices should act as a mechanism to allocate resources in an optimal way, so as to improve economic efficiency. There is a far greater chance of this happening across an area where E.M.U exists

3. Uncertainty caused by Exchange rate fluctuations eliminated:Many firms become wary when investing in other countries because of the uncertainty caused by the fluctuating currencies in the EU. Investment would rise in the EMU area as the currency is universal within the area, therefore the anxiety that was previously apparent is there no more.

4. Single currency in single market makes sense:Trade and everything else should operate more effectively and efficiently with the Euro. Single currency in a single market seems to be the way forward.

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5. Rival to the "Big Two" :If we look out in the world today we can see strong currencies such as the Japanese Yen and The American $. America and Japan both have strong

economies and have millions of inhabitants. A newly found monetary union and a new currency in Europe could be a rival to the "BIG TWO". EMU can be self-supporting and so they could survive without trading with anyone outside the EMU area. This fact makes the Euro very strong already, and even George Soros couldn't affect it . The situation that EMU is in is good as it seems that it can survive on its own, with or without the help of Japan and U.S.A.

6. Prevent war:The EMU is, and will be a political project. It's founding is a step towards European integration, to prevent war in the union. It's a well known fact that countries who trade effectively together don't wage war on each other and if EMU means more happy trade, then this means, peace throughout Europe and beyond

7. Increased Trade and reduced costs to firms:Proponents of the move argue that it brings considerable economic trade through the wiping out of exchange rate fluctuations, but as well as this it helps to lower costs to industry because companies will not have to buy foreign exchange for use within the EU. For them, EU represents the completion of the Single European Market. It is vital if Europe is to compete with the other large trading blocs of the Far East and North America

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8. The Political agenda:There is also a political agenda to European bank (the European System of Central Banks -ESCB), the complete removal of national control over monetary policy and the partial removal of control over fiscal policy. Individual nation states will lose sovereignty (i.e. the ability to control their own affairs). It will be a considerable step down the road towards political union. There are many in the EU who favors economical and political union and they are very much in favor of EMU. There are also many who wish to keep national sovereignty and are struggling to prevent EMU, whatever its merits might be, from going ahead.

9. Inflation:From the mid-1980s onwards, there were a number of economists and politicians who argued that, for the UK at least, EMU provided the best way forward to achieve low inflation rates throughout the EU. During the first half of the 1980s high inflation countries, such as France and Italy were forced to adopt policies which reduced their inflation rates to something approximating the German inflation rates to something approximating the German inflation rate. If they had not done this, the franc and the lira would have had to be periodically devalued, negating the fixed exchange rate advantages of the system. Effectively, the German central bank, the Bundesbank, set inflation targets and therefore monetary targets for the rest of the EU. At the time, there was much discussion of why Germany had a better inflation record than

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DISADVANTAGES:

1. The instability of the system:Throughout most of the 1980s the UK refused to join the ERM (Exchange rate mechanism). It argued that it would be impossible to maintain exchange rate stability within the ERM, especially in the early 1980s when the pound was a petro-currency and when the UK inflation rate was consistently above that of Germany. When the UK joined the ERM in 1990 there had been three years of relative currency stability in Europe and it looked as though the system had become relatively robust. The events of Sept. 1992, when the UK and Italy were forced to leave the system, showed that the system was much less robust than had been thought.

2. Over estimation of Trade benefits:Some economists argue that the trade and cost advantages of EMU have been grossly overestimated. There is little to be gained from moving from the present system which has some stability built into it, to the rigidities which EMU would bring.

3. Loss of Sovereignty:On the political side, it is argued that an independent central bank is undemocratic. Governments must be able to control the actions of the central banks because Governments have been democratically elected by the people, whereas an independent central bank would be controlled by a non elected body. Moreover, there would be a considerable loss of sovereignty. Power would be transferred from London to Brussels. This would be highly undesirable because national governments would lose the ability to control policy. It would be one more step down the road towards a Europe where Brussels was akin to Westminster and Westminster akin to a local authority.

4. Deflationary tendencies:

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Perhaps the most important economic argument relates to the deflationary tendencies within the system. In the 1980s and 90's France succeeded in reducing her inflation rates to German levels, but at the cost of higher unemployment, For the UK, it can be argued, that membership of the ERM between 1990 and 1992 prolonged unnecessarily the recessional period. This is because the adjustment mechanism acts rather like that of the gold standard. Higher inflation in one ERM country means that it is likely to generate current account deficits and put downward pressure on its currency. To reduce the deficit and reduce inflation, the country has to deflate its economy. In the UK, it could be argued that the battle to bring down inflation had been won by the time the UK joined the ERM in 1990. However, the UK joined at too high an exchange rate. It was too high because the UK was still running a large current account deficit at an exchange rate of around 3 Dm to the pound. The UK government then spent the next two years defending the value of the pound in the ERM with

interest rates which were too high to allow the economy to recover. Many forecasts predicted that, had the UK not left the ERM in Sept 1992, inflation in the UK in 1993 would have been negative (ie prices would have fallen).The economic cost of this would have been continued unemployment at 3million and a stagnant economy. When the UK did leave the ERM and it rapidly cut interest rates from 10% to five and a half %, there was strong economic growth and the current account position improved, but there was an inflation cost.

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SOME ADDITIONAL PROPOSED ASSOCIATIONS:

Source: Wikipedia.com

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BIBLIOGRAPHY: Wikipedia.com Google images Wto.org http://www.gatt.org/ http://www.globalissues.org/article/42/the-wto-and-free-trade http://trade.ec.europa.eu/doclib/docs/2003/june/tradoc_113122.pdf http://www.rdfs.net/news/interviews/0306in/0306in_polman_en.htm http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1270300 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1270300 http://www.allacademic.com/meta/p_mla_apa_research_citation/

0/7/3/2/8/p73281_index.html http://web.sis.edu.hk/departments/geography/essay%20WTO.htm http://books.google.co.in/books?

id=ioAFU26qg4sC&pg=PA244&lpg=PA244&dq=emergence+of+wto&source=bl&ots=8ERvHQBRt3&sig=LFmQbqgVx8kOtk3Hlzr0wlUXDzQ&hl=en&ei=9tSGTcOjLZD8vQPB7ZnXCA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBkQ6AEwADhQ#v=onepage&q=emergence%20of%20wto&f=false

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