CU-BCOM-SEM-III-Business Environment

 Japan became involved in the GATT for the first time in 1956 at the fourth meeting along with 25 other countries.12 The meeting was in Geneva, Switzerland, and again the committee reduced worldwide tariffs, this time by US$2.5 billion.7 This series of meetings and reduced tariffs would continue, adding new GATT provisions in the process. The average tariff rate fell from around 22%, when the GATT was first signed in Geneva in 1947, to around 5% by the end of the Uruguay Round, concluded in 1993, which also negotiated the creation of the WTO.13 In 1964 the GATT began to work toward curbing predatory pricing policies. These policies are known as dumping. As the years have passed, the countries have continued to attack global issues, including addressing agriculture disputes and working to protect intellectual property. 12.4.2 World Trade Organization: WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade (GATT), which was started in 1948. GATT was replaced by WTO because GATT was biased in favor of developed countries. WTO was formed as a global international organization dealing with the rules of international trade among countries. The main objective of WTO is to help the global organizations to conduct their businesses. WTO, headquartered at Geneva, Switzerland, consists of 153 members and represents more than 97% of world’s trade. The main objectives of WTO are as follows: a. Raising the standard of living of people, promoting full employment, expanding production and trade, and utilizing the world’s resources optimally b. Ensuring that developing and less developed countries have better share of growth in the world trade c. Introducing sustainable development in which balanced growth of trade and environment goes together The main functions of WTO are as follows: a. Setting the framework for trade policies b. Reviewing the trade policies of different countries c. Providing technical cooperation to less developed and developing countries d. Setting a forum for addressing trade-related disputes among different countries e. Reducing the barriers to international trade f. Facilitating the implementation, administration, and operation of agreements g. Setting a negotiation forum for multilateral trade agreements h. Cooperating with the international institutions, such as IMF and World Bank for making global economic policies i. Ensuring the transparency of trade policies 251 CU IDOL SELF LEARNING MATERIAL (SLM)

j. Conducting economic research and analysis Role of WTO: Global trade rules Global rules of trade provide assurance and stability. Consumers and producers know they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services they use. Producers and exporters know foreign markets will remain open to them. This leads to a more prosperous, peaceful and accountable economic world. Decisions in the WTO are typically taken by consensus among all members and they are ratified by members’ parliaments. Trade frictions are channelled into the WTO’s dispute settlement process, where the focus is on interpreting agreements and commitments and how to ensure that members’ trade policies conform with them. That way, the risk of disputes spilling over into political or military conflict is reduced. By lowering trade barriers through negotiations among member governments, the WTO’s system also breaks down other barriers between peoples and trading economies. Trade negotiations: The system was developed through a series of trade negotiations, or rounds, held under the GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The 1986-94 round – the Uruguay Round – led to the WTO’s creation. The negotiations did not end there. In 1997, an 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 were incorporated into a broader work programme, the Doha Development Agenda, launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. The new work programme included negotiations and other work on non- agricultural tariffs, trade and the environment, WTO rules on anti-dumping and subsidies, trade facilitation, transparency in government procurement, intellectual property and a range of issues raised by developing economies as difficulties they face in implementing WTO agreements. Negotiations on these and other topics have resulted in major updates to the WTO rulebook in recent years. A revised Government Procurement Agreement – adopted at the WTO’s 8th 252 CU IDOL SELF LEARNING MATERIAL (SLM)

Ministerial Conference in 2011 – expanded the coverage of the original agreement by an estimated US$ 100 billion a year. At the 9th Ministerial Conference in Bali in 2013, WTO members struck the Agreement on Trade Facilitation, which aims to reduce border delays by slashing red tape. When fully implemented, this Agreement – the first multilateral accord reached at the WTO – will cut trade costs by more than 14% and will lift global exports by as much as US$ 1 trillion per year. The expansion of the Information Technology Agreement – concluded at the 10th Ministerial Conference in Nairobi in 2015 – eliminated tariffs on an additional 200 IT products valued at over US$ 1.3 trillion per year. Another outcome of the Conference was a decision to abolish agricultural export subsidies, fulfilling one of the key targets of the UN Sustainable Development Goal on “Zero hunger”. Most recently, an amendment to the WTO’s Intellectual Property Agreement entered into force in 2017, easing poor economies’ access to affordable medicines. The same year saw the Trade Facilitation Agreement enter into force. WTO- Agreements: The WTO’s rules – the agreements – are the result of negotiations between the members. The current set is largely the outcome of the 1986- 94 Uruguay Round negotiations, which included a major revision of the original General Agreement on Tariffs and Trade (GATT). The Uruguay Round created new rules for dealing with trade in services and intellectual property and new procedures for dispute settlement. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas, such as lower tariffs and services market-opening. Through these agreements, WTO members operate a non- discriminatory trading system that spells out their rights and their obligations. Each member receives guarantees that its exports will be treated fairly and consistently in other members’ markets. WTO has the following advantages: (a) Promoting peace within nations: Leads to less trade disputes. WTO helps in creating international cooperation, peace, and prosperity among nations. (b) Handling the disputes constructively: Helps in lesser trade conflicts. When the international trade expands, the chances of disputes also increase. WTO helps in reducing these trade disputes and tensions among nations. (c) Helping consumers by providing choices: 253 CU IDOL SELF LEARNING MATERIAL (SLM)

Implies that by promoting international trade, WTO helps consumers in gaining access to a large number of products. (d) Encouraging good governance: Accelerates the growth of a country. The rules formulated by WTO encourage good governance and discourage the unwise policies that lead to corruption in a country. (e) Stimulating economic growth: Leads to more jobs and increase in income. The policies of WTO focus on reducing trade barriers among nations to increase the quantum of import and export. 12.4.3 International Monetary Fund: IMF, established in 1945, consists of 187 member countries. It works to secure financial stability, develop global monetary cooperation, facilitate international trade, and reduce poverty and maintain sustainable economic growth around the world. Its headquarters are in Washington, D.C., United States. The objectives of IMF are as follows: a. Helping in increasing employment and real income of people b. Solving the international monetary problems that distort the economic development of different nations c. Maintaining stability in the international exchange rates d. Strengthening the economic integrity of the nations e. Providing funds to the member nations as and when required f. Monitoring the financial and economic policies of member nations g. Assisting low developed countries in effectively managing their economies WTO and IMF have total 150 common members. Thus, they both work together where the central focus of WTO is on the international trade and of IMF is on the international monetary and financial system. These organizations together ensure a sound system of global trade and financial stability in the world. Functions of IMF: The IMF functions in three main areas:  Overseeing the economies of member countries  Lending to countries with balance of payments issues  Helping member countries modernize their economies Monitoring Member Country Economies The International Monetary Fund's primary job is to promote stability in the global monetary system. So, its first function is to monitor the economies of its 189 member countries. This 254 CU IDOL SELF LEARNING MATERIAL (SLM)

activity, known as economic surveillance, happens at both the national and global levels. Through economic surveillance, the IMF monitors developments that affect member economies as well as the global economy as a whole. Member nations must agree to pursue economic policies that coincide with the IMF's objectives. By monitoring the macroeconomic and financial policies of its member countries, the IMF sees stability risks and advises on possible adjustments. Lending The IMF lends money to nurture the economies of member countries with balance of payments problems instead of lending to fund individual projects. This assistance can replenish international reserves, stabilize currencies, and strengthen conditions for economic growth. The IMF expects the countries to pay back the loans, and the countries must embark on structural adjustment policies monitored by the IMF. Lending through the IMF takes two forms. The first is at non-concessional interest rates, while the other comes with concessional terms. The latter is advanced to countries with low income, and bears very low or no interest rates at all. Technical Assistance The third main function of the IMF is through what it calls capacity development by providing assistance, policy advice, and training through its various programs. The group provides member nations with technical assistance in the following areas:  Fiscal policy  Monetary and exchange rate policies  Banking and financial system supervision and regulation  Statistics The organization aims to strengthen human and institutional capacity. This is very important for countries with previous policy failures, weak institutions, or scarce resources. Through capacity development, member nations can help strengthen and improve growth in their economies and create jobs. 12.4.4 WORLD BANK The world bank is internationally recognized and supported that provides technical and financial assistance to many developing countries in the world. Also, it aids their advancement, in an economy with a primary goal of reducing poverty. World bank has the largest knowledge of developing countries. Also, they are the largest source when it comes to funding. 255 CU IDOL SELF LEARNING MATERIAL (SLM)

There are some of the facts that you should know about world bank for the preparation of your competitive exams. They are:  Jim Yong Kim is currently the president of the world bank.  Currently, the membership of the world bank is given to 189 countries under IBRD and 173 countries under IDA.  Organizations like MIGA, IFC, and ICSID manages the World bank  Also, the world has it’s headquarters situated in Washington DC and has more than 10000 staff all over the world.  So, the formation of world bank was done Bretton Woods committee that was held in 1944.  Alongside the IMF, it was launched in the presence of many important delegates. Functions of the World Bank  It helps the war-devasted countries by granting them loans for reconstruction.  Thus, they provide extensive experience and the financial resources of the bank help the poor countries increase their economic growth, reducing poverty and a better standard of living.  Also, it helps the underdeveloped countries by granting development loans.  So, it also provides loans to various governments for irrigation, agriculture, water supply, health, education, etc.  It promotes foreign investments to other organizations by guaranteeing the loans.  Also, the world bank provides economic, monetary, and technical advice to the member countries for any of their projects.  Thus, it encourages the development of of-industries in underdeveloped countries by introducing the various economic reforms. Objectives of the World Bank  This includes providing long term capital to its member nations for economic development and reconstruction.  Thus, it helps in inducing long term capital for improving the balance of payments and thereby balancing international trade. 256 CU IDOL SELF LEARNING MATERIAL (SLM)

 Also, it helps by providing guarantees against loads granted to large and small units and other projects for the member nations.  So, it ensures that the development projects are implemented. Thus, it brings a sense of transparency for a nation from war-time to a peaceful economy.  Also, it promotes the capital investment for member nations by providing a guarantee for capital investment and loans.  So, if the capital investment is not available than it provides the guarantee and then IBRD provides loans for promotional activities on specific conditions. Purposes of the World Bank  It wants to create an environment that is a pro-investment.  Also, it wants to improve the omics stability by reducing poverty.  So, it is working towards achieving sustainable growth.  Increasing the opportunities for jobs and business in member nations which are underdeveloped.  Through investment, it plans to promote the socio-economic status of the society.  Also, it wants to ensure that the judicial and legal systems are developed and individual rights are protected.  Strengthen the government of its member nations by promoting education.  Combating corruption and to ensure that there are adequate training opportunities and research facilities.  It wants to provide loans with low-interest rates and interest-free credits. 12.5 SUMMARY The International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) are highlighted in the financial press or on television nearly every day. From loans to Greece to trade deals in Asia, these organizations make headlines across the globe. Understanding these entities and their missions will provide greater insight into how these organizations help to shape the global economy. 257 CU IDOL SELF LEARNING MATERIAL (SLM)

The International Monetary Fund (IMF) is a global organization with 189 member countries currently based in Washington, D.C. The fund's purpose is to promote financial stability and economic growth among other objectives. The World Trade Organization (WTO is also a global association with 164 member countries. The organization's purpose is to promote fair trade between nations. The World Bank is also an international organization and has a goal to reduce poverty through financial assistance.  The leaders of the World Bank Group, International Monetary Fund and World Trade Organization came together on October 7, 2016 to discuss global trade.  The main takeaway from the conversation is that the world needs policies that are designed directly in response to challenges seen all over the world – including job losses and persistent inequality. While all three organizations promote themselves as fostering positive developments, not everyone agrees with their self-assessments. The organizations do provide financial assistance to countries in need, but like just about every other known method of obtaining financial resources, the money comes with strings attached and the motives behind the initiatives are often in question. 12.6 KEYWORDS  Horizontal: a business expands its domestic operations to a foreign country  Vertical: a business expands into a foreign country by moving to a different level of the supply chain.  Conglomerate: a business acquires an unrelated business in a foreign country.  Platform: a business expands into a foreign country but the output from the foreign operations is exported to a third country.  Internationally recognized means a high level of achievement in a field evidenced by a degree of skill and recognition substantially above that ordinarily encountered to the extent that the person is well-known in more than one country. 12.7 LEARNING ACTIVITY 1. Explain the role of FDI in Development of Backward Areas. ___________________________________________________________________________ _____________________________________________________________________ 2. Why it has been said that Encouraging good governance is one of the advantages offered by WTO? 258 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ 12.8 UNIT END QUESTIONS A. Descriptive Questions: Short Answers: 1. Write a note on FDI. 2. What are the different types of FDI? 3. What is the History of the General Agreement on Tariffs and Trade (GATT)? 4. State the functions of World Bank. 5. What are the main objectives of IMF? Long Answers: 1. Write a note on WTO and highlights its relationship for encouraging global business. 2. Discuss the functions of IMF 3. How GATT and WTO are related? Explain the relationship in details. 4. Compare WTO, IMF and World Bank. 5. Explain World Bank. B. Multiple Choice Question: 1. A business expands its domestic operations to a foreign country is an example of a. Horizontal FDI b. Standard FDI c. Vertical FDI d. Joint FDI 2. One of the key achievements of the __________was that of trade without discrimination. a. World Bank b. GATT c. IMF d. WTO 3. Raising the standard of living of people, promoting full employment, expanding production and trade, and utilizing the world’s resources optimally is the objective of a. GATT b. WTO 259 CU IDOL SELF LEARNING MATERIAL (SLM)

c. World Bank d. IMF 4. The technical assistance provided by IMF in the specific area as: a. IT softwares b. Technology Transfer c. Statistics d. Production 5. World Bank helps the war-devasted countries by granting them ____________ a. Technical Assistance b. Marketing Assistance c. Production Assistance d. Loans for reconstruction. Answer 1-a, 2-a, 3-b, 4-c, 5-d. 12.9 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment , Financial Times/ Prentice Hall. Reference Books:  Engineering Economic-Dr. Rajan Mishra by University Science Press  The Gazette of India, Ministry of Law and Justice, New Delhi. No.311, June’16, 2006.  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source: 260 CU IDOL SELF LEARNING MATERIAL (SLM)

 Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 261 CU IDOL SELF LEARNING MATERIAL (SLM)