ECONOMICS IMPORTANT QUESTIONS

Q.I >> Explain the effects of Tariff and non-tariff barriers on International trade.
A. >>
Trade barriers are restrictions imposed on movement of goods between countries. Trade barriers are imposed
not only on imports but also on exports. The trade barriers can be broadly divided into two broad groups:
(a) Tariff Barriers, and
(b) Non-tariff Barriers.
TARIFF BARRIERS
Tariff is a customs duty or a tax on products that move across borders.
General Definitions of Tariff:
A tariff is a tax imposed on the import or export of goods.
A tariff refers to Import duties charged at the time goods are imported.
Tariff barriers represent taxes on imports of commodities into a country and are among the oldest form of
government intervention in the economic activity.
Tariffs are a kind of specialized tax that affects goods imported to, or exported from, a country.
The main causes of imposing trade barriers are as follows:
For protecting the domestic industries from foreign competition.
For protecting domestic employment.
For promoting development and research.
For the purpose of National Security
For conserving the foreign exchange resources of the country.
For guarding the domestic industries against dumping.
For making the Balance of Payment position favourable.
For raising revenue for the Government.
The most important of tariff barriers is the customs duty imposed by the importing country. A tax may also be imposed by
the exporting country on its exports. However, governments rarely impose tariff on exports, because, countries want to
sell as much as possible to other countries.
The important tariff barriers are as follows:
1.
Specific Duty: Specific duty is based on the physical characteristics of goods. When a fixed sum of money, keeping
in view the weight or measurement of a commodity, is levied as tariff, it is known as specific duty.
For instance, a fixed sum of import duty may be levied on the import of every barrel of oil, irrespective of quality and
value. It discourages cheap imports. Specific duties are easy to administer as they do not involve the problem of
determining the value of imported goods. However, a specific duty cannot be levied on certain articles like works of art.
For instance, a painting cannot be taxed on the basis of its weight and size.
2. Ad valorem Duty: These duties are imposed according to value. When a fixed percent of value of a commodity is
added as a tariff it is known as ad valorem duty. It ignores the consideration of weight, size or volume of commodity.
The imposition of ad valorem duty is more justified in case of those goods whose values cannot be determined on the
basis of their physical and chemical characteristics, such as costly works of art, rare manuscripts, etc. In practice, this type
of duty is mostly levied on majority of items.
3.
Combined or Compound Duty: It is a combination of the specific duty and ad valorem duty on a single product.
For instance, there can be a combined duty when 10% of value (ad valorem) and Re 1/- on every meter of cloth is charged
as duty. Thus, in this case, both duties are charged together.

4.
Sliding Scale Duty: The import duties which vary with the prices of commodities are called sliding scale duties.
Historically, these duties are confined to agricultural products, as their prices frequently vary, mostly due to natural
factors. These are also called as seasonal duties.
5.
Countervailing Duty: It is imposed on certain imports where products are subsidised by exporting governments. As
a result of government subsidy, imports become more cheaper than domestic goods. To nullify the effect of subsidy, this
duty is imposed in addition to normal duties.
6.
Revenue Tariff: A tariff which is designed to provide revenue to the home government is called revenue tariff.
Generally, a tariff is imposed with a view of earning revenue by imposing duty on consumer goods, particularly, on luxury
goods whose demand from the rich is inelastic.
7. Anti-dumping Duty: At times, exporters attempt to capture foreign markets by selling goods at rock-bottom prices,
such practice is called dumping. As a result of dumping, domestic industries find it difficult to compete with imported
goods. To offset anti-dumping effects, duties are levied in addition to normal duties.
8.
Protective Tariff: In order to protect domestic industries from stiff competition of imported goods, protective tariff
is levied on imports. Normally, a very high duty is imposed, so as to either discourage imports or to make the imports
more expensive as that of domestic products.
Note: Tariffs can be also levied on the basis of international relations. This includes single column duty, double column
duty and triple column duty.

EFFECTS OF TARIFFS
The role of tariffs is very important as far any particular nation of the World is concerned. Many of the developing nations
take an advantage of tariffs in the forms of protection and revenue source as well.
Kindleberger has analyzed various effects of tariffs based on price, consumption, revenue, protection and so on. It
has been briefly explained as follows:
1) Price effect
2) Revenue effect
3) Protection effect
5) Redistribution effect
6) Terms of trade effect
7) Competition effect
8) Income and employment effect
9) The balance of payment effect (BOP)

4) Consumption effect

All these effects of tariffs are discussed below with the help of following diagram
Y
D
PRICE
OF
COMMODITY
S
P

M2
P1

E2
R

P2

E1
M1

D
O

Q1
Q3
Q2
QUANTITY OF COMMODITY

In the above diagram quantity of commodity is represented on X axis and on the Y axis price of commodity has been
mentioned.
Where, DD is the Domestic Demand Curve, SS is the Domestic Supply Curve, OP is
the Equilibrium Price without Trade,OP1 is the Price of the Import under the Trade,OP2
is the Price after Imposition of Tariff on Imports,
Various effects of tariffs mentioned above can be better understood with the help of above diagram and an explanation
given below:
1) Price effect:
The price effect of tariff refers to an increase in the price of the commodity on which profit is levied.
If the tenancy of the importer is to impose the entire tariff on the
consumers, the price will increase as an amount of tariff is levied on the import of goods. If in the market the demand is
inelastic in nature then full burden will be passed on the consumers and in the opposite situations if demand is perfectly
elastic then the price effect will have fewer burdens as well.
In the above diagram P1P2 is the price effect of tariff as the post tariff price is OP2.
2) Revenue effect:
Many of the times there have been tendencies of the nations to earn revenue by
imposing tariffs. The revenue effect can be expressed by simple calculations of, the rate of tariff multiplied by the imports.
3) Protection effect:
A tariff has protective effect for the domestic industries. It tends to raise the domestic price of the imported commodity,
reduce the domestic demand for that commodity and thereby stimulates its domestic production.
4) Consumption effect:
Imposition of tariff raises the price, and as a result, the demand for the commodity falls. Total outlay on consumption of
the commodity is larger or smaller depending upon whether demand is inelastic or elastic.
5) Redistribution effect:
Redistribution Effect refers to the transfer of real income from the consumers to the producers as a result of tariff. The
tariff-imposed price increase results in the loss of consumers surplus. The redistribution effect takes place while an
increase in the price due to tariffs. It implies redistribution of income and wealth from one class to another class. As far as
developing nations are concerned capital is limited available as compared to the labor so tariff is not expected due to the
social justice.
6) Terms of trade effect:
When a country imposes a tariff duty, its willingness to receive imports is reduced. For a given quantity of exports, the
country now demands a larger quantity of imports because a part of these imports are to be surrendered to the customs
authorities in the form of tariff payment. Or, putting the same thing differently, the country is now willing to offer less of
exports in exchange for a given quantity of imports.
Thus, the tariff reduces the country's offer of exports for imports.
7) Competition effect
Tariff protects the domestic industry from foreign competition. Under this protection an infant industry after a period of
time, grows into an economically strong industry which can fully compete in the world market. But, the sluggish and lazy
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industry may not like to face the competition and remain inefficient even under the protection cover provided through
tariffs.
8) Income and employment effect:
As a result of tariff, the expenditure on imported goods is reduced. This will increase the export surplus of the country and
thereby the income from foreign trade. The money shifted from imports can now be spent on the domestically produced
goods.
If the country is at less than-full employment level, this will raise income and
employment in the country.
9) The balance of payment effect (BOP): Tariff has favorable effect on the balance of payments position of the imposing
country. It reduces imports and increases the export surplus of the country. Thus, through tariffs, a deficit in the balance of
payment can be corrected.
Thus, tariff plays an important role as far as international trade and relations are
concerned, it has positive and negative effects on the exporting as well as importing nations of the world. It is not only
bringing revenue to the government but also to protect and save the domestic industries, but an appropriate use of tariffs is
very important.
The measures which are used other than tariffs to restrict imports get collectively referred to as non-tariff barriers. These
are direct measures of import restrictions. The setting up of GATT and WTO led to progressive reduction in tariffs.
However it paved the way for the adoption of non-tariff barriers methods by the developed countries for the reduction of
imports.
The non-tariff barriers include a cafeteria of Trade barriers viz. Import Quota,
Import licensing, voluntary export restraints, Dumping, International Cartels, Subsidies
etc.
The non-tariff barriers can broadly be divided into two categories viz.
i) Those non-tariff barriers which restrict imports directly,
ii) Those which restrict imports by encouraging domestic production.
NON-TARIFF BARRIERS
A non tariff barrier is any barrier other than a tariff, that raises an obstacle to free flow of goods in overseas markets. Nontariff barriers, do not affect the price of the imported goods, but only the quantity of imports.
Some of the important non-tariff barriers are as follows:
1.
Quota System: Under this system, a country may fix in advance, the limit of import quantity of a commodity that
would be permitted for import from various countries during a given period. The quota system can be divided into the
following categories:
(a) Tariff/Customs Quota

(b)

Unilateral Quota

(c)

(d)

Multilateral Quota

Bilateral Quota

Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty free or at a reduced rate of import
duty. Additional imports beyond the specified quantity are permitted only at increased rate of duty. A tariff quota,
therefore, combines the features of a tariff and an import quota.

Unilateral Quota: The total import quantity is fixed without prior consultations with the exporting countries.

Bilateral Quota: In this case, quotas are fixed after negotiations between the quota fixing importing country and the
exporting country.


Multilateral Quota: A group of countries can come together and fix quotas for exports as well as imports for each
country.
2.
Product Standards: Most developed countries impose product standards for imported items. If the imported items
do not conform to established standards, the imports are not allowed. For instance, the pharmaceutical products must
conform to pharmacopoeia standards..
3.
Domestic Content Requirements: Governments impose domestic content requirements to boost domestic
production. For instance, in the US bailout package (to bailout General Motors and other organisations), the US Govt.
introduced Buy American Clause which means the US firms that receive bailout package must purchase domestic
content rather than import from elsewhere.
4.
Product Labelling: Certain nations insist on specific labeling of the products. For instance, the European Union
insists on product labeling in major languages spoken in EU. Such formalities create problems for exporters.
5.
Packaging Requirements: Certain nations insist on particular type of packaging materials. For instance, EU insists
on recyclable packing materials, otherwise, the imported goods may be rejected.
6.
Consular Formalities: A number of importing countries demand that the shipping documents should include
consular invoice certified by their consulate stationed in the exporting country.
7.
State Trading: In some countries like India, certain items are imported or exported only through canalising agencies
like MMTC. Individual importers or exporters are not allowed to import or export canalised items directly on their own.
8.
Preferential Arrangements: Some nations form trading groups for preferential arrangements in respect of trade
amongst themselves. Imports from member countries are given preferences, whereas, those from other countries are
subject to various tariffs and other regulations.
9.
Foreign Exchange Regulations: The importer has to ensure that adequate foreign exchange is available for import
of goods by obtaining a clearance from exchange control authorities prior to the concluding of contract with the supplier.
10. Other Non-Tariff Barriers: There are a number of other non tariff barriers such as health and safety regulations,
technical formalities, environmental regulations, embargoes, etc.

TYPES OF NON-TARIFF BARRIERS

There are various types of barriers are available to the Non-Tariff Barriers toTrade.
Following are the various Six Types of Non-Tariff Barriers to Trade
1. Specific Limitations on Trade: it includes the Quotas, Import Licensing requirements, Proportion restrictions of
foreign to domestic goods
(local content requirements), Minimum import price limits, Embargoes
2. Customs and Administrative Entry Procedures:
It includes the Valuation systems,Anti-dumping practices, Tariff classifications, Documentation requirements, Fees and so
on.
3. Standards:
In this type the Standard disparities, Intergovernmental acceptances of testing methods and standards, Packaging,
labeling, and marking etc. are included.
4. Government Participation in Trade:
It has Government procurement policies, Export subsidies, Countervailing duties, Domestic assistance programs
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5. Charges on imports:
It includes Prior import deposit subsidies, Administrative fees, Special supplementary duties, Import credit discrimination,
Variable levies, Border taxes etc.
6. Others:
It has Voluntary export restraints, Orderly marketing agreements and so on.
Thus, the various types of barriers to the Non-Tariff barriers are explained as
well. The Non-Tariff barriers can include wide variety of restrictions to trade.
Here is some example of the popular Non-Tariff barriers
A) Licenses
License is the most common instruments of direct regulation of imports (and
sometimes export) are licenses and quotas. Almost all industrialized countries apply these Non-Tariff methods. The
license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of
import and export commodities included in the lists of licensed merchandises. The main types of licenses are general
license that permits unrestricted importation of goods included in the lists for a certain period of time.
B) Quotas
A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of
time. It is also an important instrument to restrict trade as far as Non-Tariff barriers are concerned.
Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports and exports of certain goods.
This category includes global quotas in respect to specific countries, seasonal quotas, and so-called voluntary export
restraints.
Quantitative controls on foreign trade transactions are carried out through one-time license.
Licenses and quotas limit the independence of enterprises with a regard to
entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain
commodities, regulate the number and range of goods permitted for import and export. The licensing and quota systems
are an important instrument of trade regulation of the vast majority of the world.
The consequence of this trade barrier is normally reflected in the consumers loss because of higher prices and limited
selection of goods as well as in the companies that employ the imported materials in the production process, increasing
their costs.
C) Voluntary Export Restraints (VERs)
A Voluntary Export Restraints (VERs) is a restriction set by a government on the quantity of goods that can be exported
out of a country during a specified period of time. Often the word voluntary is placed in quotas because these restraints
are typically implemented upon the insistence of the importing countries.
D) Embargo:
Embargo is a specific type of quotas prohibiting the trade. As well as quotas,
embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain
goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is
usually introduced for political purposes, the consequences, in essence, could be economic.
E) Standards:
Standards take a special place among Non-Tariff barriers. Countries usually
impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also
to block sales of products of foreign manufacture.
These standards are sometimes entered under the pretext of protecting the safety and health of local populations.

Q. 2 >> Discuss the types and effects of tariffs.

A.>> SAME AS IN ANSWER 1 excluding non-tariff barriers.
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Q.3 >> What is Dumping? Explain types of Dumping.

A. >> Dumping is when a country exports or sells products in a foreign country for less than either
(1) the price in the domestic country, or
(2) the cost of making the product.
For example, if a television manufacturer in the U.S. sells televisions domestically for $500 dollars (and it costs them
$300 dollars to make each one), and sells them in France for $250, that could potentially be categorized as dumping. The
U.S. manufacturer is not only selling the televisions below prices they offer in the U.S., but is selling them at a loss, below
their actual cost of production! This could potentially harm French television manufacturers who simply can't compete.
Haberler defines dumping as:
The sale of goods abroad at a price which is lower than the selling price of the same goods at the same time and in the
same circumstances at home, taking account of differences in transport costs
Viners definition is simple.
According to him, Dumping is price discrimination between two markets in which the monopolist sells a portion of his
produced product at a low price and the remaining part at a high price in the domestic market. Besides, Viner explains
two other types of dumping. One, reverse dumping in which the foreign price is higher than the domestic price.
This is done to turn out foreign competitors from the domestic market. When the product is sold at a price lower than the
cost of production in the domestic market, it is called reverse dumping Two when there is no consumption of the
commodity in the domestic market and it is sold in two different foreign market, out of which one market is charged a
high price and the other market a low price. But in practice, dumping means selling of the product at a high price in the
domestic market and a low price in the foreign market. We shall explain price determination under dumping in this sense..
A monopolist has following motives for dumping:
i. To dispose an excess stock produced due to wrong judgment of demand.
ii. To develop new trade relations with countries
iii. To benefit from economies of scale
iv. To drive competitors out of the foreign market.
Types of Dumping:
Dumping can be classified in the following three ways:
1. Sporadic or Intermittent Dumping:
It is adopted under exceptional or unforeseen circumstances when the domestic production of the commodity is more than
the target or there are unsold stocks of the commodity even after sales. In such a situation, the producer sells the unsold
stocks at a low price in the foreign market without reducing the domestic price.
This is possible only if the foreign demand for his commodity is elastic and the producer is a monopolist in the domestic
market. His aim may be to identify his commodity in a new market or to establish himself in a foreign market to drive out
a competitor from a foreign market. In this type of dumping, the producer sells his commodity in a foreign country at a
price which covers his variable costs and some current fixed costs in order to reduce his loss.

2. Persistent Dumping:
When a monopolist continuously sells a portion of his commodity at a high price in the domestic market and the
remaining output at a low price in the foreign market, it is called persistent dumping.
This is possible only if the domestic demand for that commodity is less elastic and the foreign demand is highly elastic.
When costs fall continuously along with increasing production, the producer does not lower the price of the product more
in the domestic market because the home demand is less elastic.
However, he keeps a low price in the foreign market because the demand is highly elastic there. Thus, he earns more
profit by selling more quantity of the commodity in the foreign market. As a result, the domestic consumers also benefit
from it because the price they are required to pay is less than in the absence of dumping.
3. Predatory Dumping:
The predatory dumping is one in which a monopolist firm sells its commodity at a very low price or at a loss in the
foreign market in order to drive out some competitors. But when the competition ends, it raises the price of the
commodity m the foreign market. Thus, the firm covers loss and if the demand in the foreign market is less elastic, its
profit may be more.

Q.4 >> Write a note on International CARTELS

A.>> An international cartel is formed by producers in the same line of production in two or more countries, agreeing to
regulate production and sales for monopolistic ends.
Haberler defines international cartels more precisely as
A union of producers in a given branch of industry, of as many countries as possible, into an organisation to exercise a
single planned control over production and price and possibly to divide markets between the different producing
countries.
Concept of Cartel:
Business Agreement whether formal or informal that serve to limit or suppress competition are referred to as cartel.
Cartels originally developed to suppress competitions from abroad.
Formal or informal agreements among business enterprises engaged in the same trade but located in different countries
to limit competition to regulate markets and restrict trade are known as international cartels.
Thus international cartels are a sort of monopoly combines to eliminate
competition in the foreign markets. Cartel members usually form an organised
association through explicit agreements which would ensure them higher profits than would be possible otherwise.
Conditions conducive to International Cartels:
Numbers of conditions led to the cartelization, which are as follows:
When the number of producing firms is small.
When the firms belonging to given industry have already reached cartel agreements between different countries.
When the process of manufacture or fabricated products can be patented,
When there is a natural scarcity of raw material and
When there is Government cooperation or leadership in the organization of Cartel.
Indeed, the scope of cartels is wide enough covering metals and minerals, and
manufactured goods like chemicals, dyestuffs, pharmaceutical products and electrical goods. The main inducing factor
behind the formation of cartels is the fear of cut-throat competition and desire for monopoly control.
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Further, when productive capacity is found to exceed current demand, international cartels have been formed as an attempt
to share a diminished market.
Professor Krause points out the following important objects of cartels:
1) To achieve control over prices Cartels resort to price-fixing above competition price and reap high monopoly profits.
2) To impair the quality of product. When cartels are formed, buyers will have no safeguards against low quality, since
hardly an opportunity is made available to the buyers to choose between different varieties.
3) To make allocation of trade territories and thereby to acquire and maintain a
monopolistic position by each cartel member in their respective allocated markets.
4) To restrict supply, assigning quotas to each cartel member.
5) To deliberately retard technological change until the existing plants and
productive facilities have been fully depreciated.
MERITS OF CARTELS:
1) Due to business combines, large-scale output is made possible, so goods may be
sold at cheaper rates through cartels.
2) Cartels tend to eliminate wasteful competition also.
3) Cartels can solve the problem of excess capacity.
DRAWBACKS OF CARTELS:
1) They tend to reduce international trade on account of restricted output and high price policy.
2) International cartels may also mean under-utilization of the worlds resources and
manpower, in view of lack of competition and the system of production quotas
followed by the cartel members.
Since international cartels are not governed by impartial international machinery in
favor of the consumers interest in general, it is utmost desirable that cartels must be
prevented by all means.
For breaking up the cartels, it is necessary to adopt unilateral action through anti-thrust measures by a country,
coordinated with such international actions.
EXAMPLES OF CARTELS:

De Beers is well known for its monopoloid practices throughout the 20th century, whereby it used its dominant
position to manipulate the international diamond market. The company used several methods to exercise this
control over the market: Firstly, it convinced independent producers to join its single channel monopoly, it flooded
the market with diamonds similar to those of producers who refused to join the cartel, and lastly, it purchased and
stockpiled diamonds produced by other manufacturers in order to control prices through supply.
As recently as the mid-1980s, De Beers controlled almost 90% of global rough diamond supply, but beginning in
the 1990s, the emergence of new competition reduced De Beers market share to less than 40%. While De Beers
still sets non-negotiable prices of their own diamonds, they no longer have the market share to fix the global
diamond market as a whole.

Organization of the Petroleum Exporting Countries (OPEC) : As its name suggests, OPEC is organized by
sovereign states. It cannot be held to antitrust enforcement in other jurisdictions by virtue of the doctrine of state
immunity under public international law. However, members of the group do frequently break rank to
increase production quota.
Also any imported olive oil you buy is likely not worth the money, as the olive cartels radically cut the good stuff
with cheap fillers without changing the labels.

Q. 5>>Discuss types of Economic Integration.

A>>
Economic integration is a general term which covers several kinds of arrangements by means of which
two or more independent economies agree to come closer economically. By economically integrating themselves in the
form of a union they would like to discriminate against goods produced by countries of the rest of the world lying outside
the economic union.
As per Timbergen
economic integration is the creation of most desirable structure of international economy removing artificial barriers to the
optimum operation and introducing deliberately all desirable elements of coordination or unification.
While defining the term economic integration he draws a distinction between two types of economic integration viz.
positive and negative economic integration.
Positive economic integration refers to bring about reforms in the existing institutional arrangement, checking out the neo
policy to correct the market imperfections. On the other hand the negative economic integration refers to removal of
artificial barriers like tariffs on he movement of goods among the member countries of the group.
Mr. Balasa defines economic integration as,
a process and as a state of affairs. As a process it encompasses measures designed to abolish discrimination between
economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of
various forms of discrimination between national economies.
Removal of trade barriers-the tariffs and other non-tariff barrier is an example of economic integration.
TYPES OF ECONOMIC INTEGRATION:
There are as many as five major types of economic integration which are as follows:i) A group of countries making preferential Trading Agreements.
ii) F.T.A i.e. Free Trade Area.
iii) C. U. i.e. Customs Union.
iv) C. M. i.e. Common Market
v) E. U. i.e. Economic Union
i)
A group of countries making Preferential Trading agreements:In this type of economic integration a group of countries come together and make tentative or temporary preferential
trading agreements among themselves to give preferetial treatment to each others goods. This is a loose type of economic
integration because this type of integration remains temporary.
The member countries of this group reduce tariffs on imports of goods from each other while there is no change in the
original tariff policy followed by each member country of the group trading with rest of the countries of the world which
are not the members of the group.
For example common-wealth Preferential System of 1932. Great Britain and the member countries of commonwealth
established among themselves a system of trade which was referred to as commonwealth Preference System. As per this
system the commonwealth countries reduced tariffs among themselves but allowed their high tariff rates to continue on
the imports from rest of the world countries.
ii)
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F.T.A. i.e. Free Trade Area:-

As per the title a group of countries forming a free trade area bring about a free trade between them by removing all the
trading restrictions.
They completely remove all tariffs on imports of goods from the member countries.
However, each member country of the free trade area retains its autonomy in levying tariffs on the imports from non
member countries of the world. The European Free Trade Area (EFTA) is a burning example of Free Trade Area.

iii) C. U. i.e. Customs Union:A customs Union is a free trade area plus a common policy of tariffs adopted by the member countries in dealing with the
imports from the non member countries of the world. A burning example of customs union is E. C. ie the European
Community. It was formed in 1958 by signing the treaty of Rome in 1957. By July 1, 1958 a customs union was
established among the original six members of the European Economic Community viz Belgium, France, Federal
Republic of Germany, Italy, Luxembourg and Netherlands.
iv) Common Market:A common market is a step higher than the customs union. A common market is a customs union plus free movement of
factors of production viz labor and capital within the common market area or region.
A common market retains the two common character features of a customs union viz
i)
free trade among member countries by removing tariffs internally and
ii)
the member countries follow the common tariff policy in dealing with non member countries of the world.
A glaring example of common market is European Economic Community which is also called as European
Common Market which was established in Jan. 1958 by signing the treaty of Rome in 1957. It had original six members
viz Belgium, France, Federal Republic of Germany, Italy, Luxembourg and Netherlands.
The treaty of Rome required every member to.
i) eliminate tariffs, quotas and other barriers on intra-community trade.
ii) devise a common internal tariff on their imports from countries belonging to rest of the world.
iii) allow free movement of factors of production within the EEC.
iv) harmonies their taxation and monetary policies and social security policies and
v) adopt a common policy on agriculture, transport and competition in industry.
The EEC was expanded in 1973 with the inclusion of United Kingdom, Denmark and ireland. Greece joined the EEC in
1981. Spain and Portugal joined the EEC on 1st January 1986. Austria, Finland and Sweden joined the EEC afterwards and
as such the membership of EEC became 15.
The common market is an advanced stage of customs union. It provides a free
market for goods belonging to all the member countries. It facilitates the mobility of factors of production among the
members of the community. It means factors of production viz labour, capital and enterprise can switch on to any member
country to EEC which they can find most profitable due to which efficiency and productivity increase.
v) E. U i.e. Economic Union:The Economic Union is still an advanced stage of economic integration. The Economic Union is a common market plus
harmonization of national economic policies viz monetary and fiscal policies.
An economic union can be defined as an economic integration which leads to
monetary union. The member of the economic union chalk out common rules
embodying things like taxation, economic legislation foreign trade, agriculture, transport balance of payments, fiscal and
monetary policies, social and economic welfare etc.
The glaring example of economic union is E. U.
i.e. European Union viz Benelux ie Belgium, Netherlands and Luxembourg.
vi) ECM or EEC i.e. European common market or European Economic
Community- An economic union is a case of absolute economic integration. It
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means it is a complete economic integration of group of countries.

Q.6 >> Discuss the arguments for Economic integration.
A>>
Economic integration is a general term which covers several kinds of arrangements by means of which
two or more independent economies agree to come closer economically. By economically integrating themselves in the
form of a union they would like to discriminate against goods produced by countries of the rest of the world lying outside
the economic union.
As per Timbergen
economic integration is the creation of most desirable structure of international economy removing artificial barriers to the
optimum operation and introducing deliberately all desirable elements of coordination or unification.
While defining the term economic integration he draws a distinction between two types of economic integration viz.
positive and negative economic integration.
Positive economic integration refers to bring about reforms in the existing institutional arrangement, checking out the neo
policy to correct the market imperfections. On the other hand the negative economic integration refers to removal of
artificial barriers like tariffs on he movement of goods among the member countries of the group.
Mr. Balasa defines economic integration as, a process and as a state of affairs. As a process it encompasses measures
designed to abolish discrimination between economic units belonging to different national states; viewed as a state of
affairs, it can be represented by the absence of various forms of discrimination between national economies.
Removal of trade barriers-the tariffs and other non-tariff barrier is an example of economic integration.
Now a days economic integration is becoming more popular because of the mutual benefits which spring up from
economic integration. United we stand divided we fall. In economic integration the economic activities of the member
countries are harmonized, co-ordinated and unitedly operated.
Following are the reasons of the popularity of economic integration:i) Widening of market:- By regional grouping or integration the domestic market gets widened. There happens to be a
move from domestic market to a regional market.
ii) Economies of scale:- Due to regional integration or grouping production takes place at a very large scale due to
specialization. Due to specialization economies of scale both internal and external spring up.
iii) High degree of specialization:- The regional integration leads to widening of market, large scale production,
economies of scale (internal and external) which paves the way for a very high degree of specialization. A micro-level
specialization ie. specialization amongst the specialized items takes place which gets referred to as high degree
specialization.
iv) Optimum utilisation of resources:- Assuming full employment when the market widens due to economic integration
in order to cope up with the increased demand the country concerned has to reallocate resources ie resources are
withdrawn from high cost production and put in use to the low cost production.
v) Increase in the volume of trade: Due to reallocation of factors of production the volume of production increases ie the
volume of production doubles.
vi) Changes in the cost price structure:- As per the modern theory of foreign trade due to economic integration each
member country specializes in the reduction of a commodity in which it is best suited for which leads to production of a
commodity at an extremely low cost of production which in turn leads to keeping the price of the product extremely low.
vii) Mutual Benefits:- Due to regional economic integration mutual benefits accrue to all the member countries of the
group due to specialization, changes in the cost price structure in the member countries.

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viii)Consumers Surplus:- Before economic integration consumers of the home country use to get the goods at a very
high domestic price. When regional economic integration takes place consumers get goods at a very low price due to
import of goods at a very low price without tariff. Thus it leads to increase in the real income of the consumers which
gets referred to as consumers supply.

ix) Increase in efficiency:- Due to healthy competition among the member countries of the group efficiency in production
increases.
x) Increase in standard of living:- Due to economic integration a high degree of specialization takes place due to which
qualititiveness increase. Not only quantity but also quality of product increase due to which life style changes.
xi) Increase in economic development:- The increase in the volume of trade leads to increase in per capita income and
the standard of living of the people. It is an indication of increase in the rate of economic growth of the member countries.
xii) Overall increase in welfare:- All the above mentioned factors, pave the way for increasing the general welfare and
well being of the people of the member countries.
Q.7 >> Describe the objectives & achievements of APEC.
A. >> The forum, which was founded in the year 1989, to promote and facilitate cooperation, trade, economic growth
and investment between Asia Pacific nations is known as Asia Pacific Economic Cooperation or the APEC. APEC is
an intergovernmental forum, which operates on the basis of non binding commitment and open dialog. APEC does not
require its participants to have any treaty obligations.

APEC has as many as 21 members. These members are known as Member Economies. The Member Economies
constitute 41 percent of the population world wide, accounts for 56 percent of the world gross domestic product and
approximately 49 percent of world trade.

APEC was established in 1989 to further enhance economic growth & prosperity for the regions and to strengthen teh
Asia-Pacific community. Since its inception, APEC has been driven by three core principles :
1. Promotion of sustainable economic growth.
2. Developing and strengthening the multilateral trading system.
3. Increasing the Interdependence and economic prosperity of its members.

Objectives and aims of APEC:

The main purpose of APEC 's inception was to decrease the number of obstacles in trade and also to reduce tariffs across
Asia Pacific nations. This in turn created domestic economies, which were efficient. It also gave a boost to export
activities in all the APEC countries. The APEC has set its eye on achieving the Bogor Goals by the year 2010 for
economies, which are industrialized. It has set its target for fulfilling the Bogor Goals by the year 2020 in case of
developing economies.
These goals are related to open and free trade across all member economies of APEC. The name Bogor Goals was
adopted because these goals were framed in the 1994 meeting, by different leaders in Bogor, a place in Indonesia.
13

A brief overview of the Bogor Goals:

Investment, trade, which is free and open, facilitates economic growth. It also creates employment opportunities and new
vistas open in the field of international trade. On the contrary, industrial inefficiencies as well as rise in prices are
consequences of excessive protectionism. By carrying out free and open trade, production cost is greatly reduced and this
in turn reduces the cost of services and goods. APEC also looks into the efficient as well as safe movement of services and
goods. This is achieved by means of technical cooperation, economic cooperation and policy alignment.
APEC 's mode of operation:
APEC is successful because it believes in respecting the views expressed by the member nations. It operates by
encouraging dialogs between member economies. In order to achieve its goals pertaining to free trade, investments and
open trade, it takes decisions depending on consensus.

Funding of APEC:
Funding by the different member economies, keeps APEC functioning and aids in carrying out the various activities of
APEC.

History of APEC
The idea of APEC was firstly publicly broached by former Prime Minister of Australia Bob Hawke during a speech in
Seoul, Korea on 31 January 1989. Ten months later, 12 Asia-Pacific economies met in Canberra, Australia to establish
APEC. The founding members were: Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New
Zealand, the Philippines, Singapore, Thailand and the United States.
China, Hong Kong, China and Chinese Taipei joined in 1991. Mexico and Papua New Guinea followed in 1993. Chile
acceded in 1994. And in 1998, Peru, Russia and Viet Nam joined, taking the full membership to 21.
Between 1989 and 1992, APEC met as an informal senior official and Ministerial level dialogue. In 1993, former United
States President Bill Clinton, established the practice of an annual APEC Economic Leaders' Meeting to provide greater
strategic vision and direction to cooperation in the region.
Member Economies
APEC has 21 members. The word 'economies' is used to describe APEC members because the APEC cooperative process
is predominantly concerned with trade and economic issues, with members engaging with one another as economic
entities.
APEC Members
Date of Joining
Australia

6-7 Nov 1989

Brunei Darussalam

6-7 Nov 1989

Canada

6-7 Nov 1989

Chile

11-12 Nov 1994

People's Republic of China

12-14 Nov 1991

Hong Kong, China

12-14 Nov 1991

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Indonesia

6-7 Nov 1989

Japan

6-7 Nov 1989

Republic of Korea

6-7 Nov 1989

Malaysia

6-7 Nov 1989

Mexico

17-19 Nov 1993

New Zealand

6-7 Nov 1989

Papua New Guinea

17-19 Nov 1993

Peru

14-15 Nov 1998

The Philippines

6-7 Nov 1989

Russia

14-15 Nov 1998

Singapore

6-7 Nov 1989

Chinese Taipei

12-14 Nov 1991

Thailand

6-7 Nov 1989

The United States

6-7 Nov 1989

Viet Nam

14-15 Nov 1998

Achievements of APEC:
From the time, APEC was established in the year 1989, the APEC member economies have been the most active nations
as far as economic dynamism is concerned. Within few years of its inception, the different APEC economies together
accounted for 70% of the growth in the economy world wide. All the APEC member nations surpassed the other
economies of the world. This was true, even during the period, when Asia was going through financial crisis. APEC has
managed to streamline economies of the member nations.

Some of the important achievements & benefits are :

1.Economic growth
2. Growth in Trade
3. Redction in tariff
4. Rise in investment
5. Improvements in the Economic Well-being
6. significant progresses on redcing non-tariff measures
7. Fall in the barriers to trade in services
8. Wider Co-operation
9. Economic & Technical Co-operation
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1. Economic Growth : Since its inception in 1989, the APEC has been most economically dynamic part of the world.
During its first decade, APEC member countries generated about 70% of global economic growth. APEC member
economies work together to sustain this economic growth through a commitment to open trade, investment & economic
reform. By progressively reducing tariffs and other barriers to trade, APEC member economies have become more
efficient & exports have expanded sbstantially.

2. Growth in trade :
Since 1989, APECs role in facilitating regional integration has proven essential to promoting trade and economic growth
in Asia-Pacific.
For example, reducing trade barriers between members, harmonising standards & regulations, and streaming customs
procedures have enables goods to move easily across borders.

3.Reduction in tariffs :
APEC economies have persed tariff reductions by implementing commitments made in multilateral, regional & bilateral
agreements. The reduced average applied tariff rates in APECs industrialized economies has contributed to the high
levels of trade among APEC economies.

4.Rise in Investment :
Most APEC economies made extensive efforts to liberalise foreign investment. Stocks of inward & outward Foreign
Direct investment (FDI) involving the five industrialised economies Australi, Canada, Japan, New Zealand and United
States quadrapled from 1994-2009.
The eight developing economies Chile, Hongkong, Korea, Malaysia, Mexico, peru, Singapore and Chinese Taipei-also
experienced strong increases in stocks of inward investment, and a massive nine-fold increase in stocks of otward
investment, despite a downtrn during the Global Financial Crisis.

5. Improvement in the Economic well being:

Increases in the trade and investment performance of APEC economies have broght significant improvements in the
economic well being of individuals.

6.Significant progresses on redcing non-tariff barriers :

APEC indstrialised economies have also made progress in redcing non-tariff measures(NTMs). NTMs refers to measures
other than tariffs that result in a distortion of trade, including quantitative restrictions, price controls, subsidies, non-tariff
charges, unwarranted customs procedures and discriminatory application of technical standards.

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7. Fall in the barriers to trade in services:

The APEC industrialised economies have engaged in unilateral, regional and multilateral efforts to liberalise trade in
services.

8. Wider Co-operation :
APEC has provided a framework for dialogue & co-operation in diverse, widely spred region with a relatively short
history of working together. APEC has also adjusted & widened its activities in response to new needs, such as health
threats & terrorism. APEC economies have worked collectively to address the effects of financial crisis, terrorist attacks,
the spread of bird flu, the Indian Ocean Tsunami, and so on.

9. Economic & technical Co-operation :

APECs economic and technical co-operation (ECOTECH) activities are designed to bild capacity & skills in APEC
member economies at both the individal & institutional level, to enable them to participate more fully in the regional
economy & the Liberalisation process.

Q8 >> Discuss achievements of SAARC.

A.>

SAARC

South Asian Association for Regional Cooperation

Establishment 1985
Secretariat Kathmandu, Nepal
Secretary -general- Arjun Bahadur Thapa
Members- India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan, Maldives and Afghanistan.
Observers- Australia, China, the European Union, Iran, Japan, Mauritius, Myanmar, South Korea and the United States.
- Though SAARC covers 3% area of world but it has 21% population of the world.
- Myanmar seeks future membership while Turkey and Russia applied for observer status.
- South Asian countries have shared common culture, ethnicity, history, geography.
- Vision for SAARC in 1998, which envisaged the establishment of a South Asian Free Trade Area by 2010, a Customs
Union by 2015 and an Economic Union by 2020.
- Mr. Vajpayee even advocated that the culmination of this process should be the establishment of a SAARC Monetary
Union.
Article 1 of the SARRC Charter includes aim and objectives of SAARC. The various aims and objectives of SAARC
are as follows1. To promote welfare and betterment of the quality of life of the people of South Asia.
2. To provide international platform for work on cultural, social and economic development and provide opportunity
to the people of member countries of SAARC.
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3. To promote collective self-reliance among the countries of South Asia.

4. To promote mutual trust ,understanding and appreciation of one another's problems.
5. To promote active collaboration and mutual assistance in economic, social, cultural and scientific fields.
6. To promote co-operation on similar areas with other developing countries.
7. To promote co-operation on international forum on the issues of common interests to members state.
8. Co-operating with other international and regional organization with similar objectives.

Achievements of SAARC
SAARC came into existence in year 1985 and since last 27 years of its establishment had accounted for many
achievements. The various achievements are as follows1. Integrated Program me of Action(IPA)-SIPA for the nine agreed area have been launched i.e. agriculture, rural
development, science and technology, health, transport, sports, arts, culture and population activities.
2. Economic achievements-The major achievements made by SAARC in the economic field are as followso

SAPTA(SAARC preferential trading arrangement)was signed on 7 December, 19995 and came into force
since 2001 which promoted trade liberalization in South Asia.

Signed an agreement of mutual assistance in custom matters establishment of SAARC arbitration council.

In 13th summit, mutual administrative assistance in tax matter and avoidance of double taxation were
signed.

SAFTA(South Asian Free Trade Area) was signed in Islamabad in January 2004 and came into force in
2006.

SAARC chamber of commerce and industry (SCCI) came into force to encourages and facilitates business
co-operation in private sector.

SAARC system of finance promote co-operation on financial matters. It regulate meetings of governors of
Central bank of member state to discuss on the issue of financial management and development.

SAARC promoted agricultural development by the development and application of Agrinet project
promoting agricultural knowledge in South Asia.

3. Literacy and education-The major development in the field of education and literacy are as followso

In the field of education, the member states co-operate through forum of(SACODIL) i.e.SAARC
consortium on open and distance learning and head of universities grants commissions.

Till 2013 going to establish a common university for education in Delhi.

4. Poverty alleviation-The major development regarding poverty alleviation are as followso

Regional food security essence have been signed, to which India's contribution is 1lac 53 thousand ton of
food grain.

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Promoted global objective of shelter for all.

5. Terrorism and Drug trafficking-the major development regarding terrorism and drug trafficking are as followso

Convention on terrorism was signed in November,1987 and came into force on 27th August, 1988.

SAARC convention on narcotic drugs and psychotropic substances signed on November, 1990 and came
into force on 15 September, 1993.

Conference on co-operation on police matter exists.

SAARC terrorist offences monitoring desk(STOMD) and SAARC drug offences monitoring
desk(SDOMD) existed in Colombo which maintains its regular flow of information.

6. South Asian Development Fund(SADF)-To promote fund operational at the earliest SADF came into existence.
7. People to people contact-The major development in the field of people to people contact are as followso

SAARC chamber of commerce and SARRC law enhanced people to people contact.

SAVE(SARRC audio visual exchange) was implemented.

The library of SAARC constituted periodicals, journals, magazines and annual report which is available to
common people increasing contacts.

8. Science and technologies-It has produced 9 technical publication on subjects like transfer of form technology
research and extension system, quarantine and physiotherapy law, plant genetic resources technologies on
livestock and fishery. It has produced computers and communicate information i.e. audio-visual media production.

Q. 9 >> Describe the benefits of NAFTA to Canada.

A>>

In 1994, the North American Free Trade Agreement (NAFTA) came into effect, creating one of the worlds

largest free trade zones and laying the foundations for strong economic growth and rising prosperity for Canada, the
United States, and Mexico. Since then, NAFTA has demonstrated how free trade increases wealth and competitiveness,
delivering real benefits to families, farmers, workers, manufacturers, and consumers.
NAFTA has positively affected Canada by bringing strong economic growth, job creation, better prices and better
selection in consumer goods.
the benefits of NAFTA for Canada.
1. Generates jobs
In all of the nations linked to the NAFTA, it is acknowledged that the living standards have been steadily rising since the
agreement came into effect. These improvements in conditions of living are due to the creation of jobs. Businesses have
gotten more profits under NAFTA and the healthy competition has led to the creation of jobs in Canada. The enhanced
economic activity caused by trade is an advantage as well since the activity assists create jobs. Canada benefits directly
from NAFTA because many Canadian jobs are linked to trade.

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2. Enhance trade
NAFTAs main objective is to ease and enhance trade between involved nations. Since this agreement was signed, Canada
has experienced huge advantages due the enhanced trade generated. NAFTA benefits Canadians because products
manufacture in Mexico can be brought to Canada as well as America duty free, which helps lower costs. Not only has the
trade of products in Canada grown due to NAFTA, but Canadians have also benefited from a significant increase of
services trade.

3. Increases investment
Another major benefit of NAFTA for Canada is that it enhances investment, especially foreign investment. This is
attributed to the protection offered by NAFTA and the reduced risks as well. Foreign investors are basically granted
similar protection as domestic or local investors. Canadian firms also benefit from the opportunity of bidding on
government contracts in Mexico and America, creating more opportunities.
There are certain shortcomings of NAFTA for Canada as well. This agreement has led to large amounts of poisonous
waste being dumped in Canada, which could possibly contaminate drinking water.
Q. 10 >> Describe the emerging trends in Global Trade.
A. >>
Major Current Trends in Foreign Trade
Current trends are towards the increasing foreign trade and interdependence of firms, markets and countries.
Intense competition among countries, industries, and firms on a global level is a recent development owed to the
confluence of several major trends. Among these trends are:
1) Forced Dynamism:
International trade is forced to succumb to trends that shape the global political, cultural, and economic environment.
International trade is a complex topic, because the environment it operates in is constantly changing. First, businesses are
constantly pushing the frontiers of economic growth, technology, culture, and politics which also change the surrounding
global society and global economic context. Secondly, factors external to international trade (e.g., developments in
science and information technology) are constantly forcing international trade to change how they operate.
2) Cooperation among Countries:
Countries cooperate with each other in thousands of ways through international organisations, treaties, and consultations.
Such cooperation generally encourages the globalization of business by eliminating restrictions on it and by outlining
frameworks that reduce uncertainties about what companies will and will not be allowed to do.
Countries cooperate:

i) To gain reciprocal advantages,

ii) To attack problems they cannot solve alone, and
20

iii) To deal with concerns that lie outside anyones territory.

Agreements on a variety of commercially related activities, such as transportation and trade, allow nations to gain
reciprocal advantages. For example, groups of countries have agreed to allow foreign airlines to land in and fly over their
territories, such as Canadas and Russias agreements commencing in 2001 to allow polar over flights that will save five
hours between New York and Hong Kong.
Groups of countries have also agreed to protect the property of foreign-owned companies and to permit foreignmade goods and services to enter their territories with fewer restrictions. In addition, countries cooperate on problems they
cannot solve alone, such as by coordinating national economic programs (including interest rates) so that global economic
conditions are minimally disrupted, and by restricting imports of certain products to protect endangered species.
Finally, countries set agreements on how to commercially exploit areas outside any of their territories. These include outer
space (such as on the transmission of television programs), non-coastal areas of oceans and seas (such as on exploitation
of minerals), and Antarctica (for example, limits on fishing within its coastal waters).
3) Liberalization of Cross-border Movements:
Every country restricts the movement across its borders of goods and services as well as of the resources, such as workers
and capital, to produce them. Such restrictions make international trade cumbersome; further, because the restrictions may
change at any time, the ability to sustain international trade is always uncertain. However, governments today impose
fewer restrictions on cross-border movements than they did a decade or two ago, allowing companies to better take
advantage of international opportunities. Governments have decreased restrictions because they believe that:
i) So-called open economies (having very few international restrictions) will give consumers better access to a greater
variety of goods and services at lower prices,
ii) Producers will become more efficient by competing against foreign companies, and
iii) If they reduce their own restrictions, other countries will do the same.

4) Transfer of Technology:
Technology transfer is the process by which commercial technology is disseminated. This will take the form of a
technology transfer transaction, which may or may not be a legally binding contract, but which will involve the
communication, by the transferor, of the relevant knowledge to the recipient. It also includes non-commercial technology
transfers, such as those found in international cooperation agreements between developed and developing states. Such
agreements may relate to infrastructure or agricultural development, or to international; cooperation in the fields of
research, education, employment or transport.

5) Growth in Emerging Markets:

The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia and South America especially) has
impacted international trade in every way. The emerging markets have simultaneously increased the potential size and
worth of current major international trade while also facilitating the emergence of a whole new generation of innovative
companies.

Q.11>> Dispute settlement mechanism of WTO.

A.>>
21

The dispute redressal mechanism of WTO is a device to listen to the complaints

from the member countries about the violation of the WTO rules, regulations and agreements and setting up of a panel of
independent experts to look into the arguments of both the sides and to rule whether the rules, regulations and agreements
of WTO have been broken or not. There is also an Appellate body which hears appeals against panel findings. Its rulings
are sent back to the Dispute settlement body (DSB) which takes a consensus decision to adopt them.

DISPUTE SETTLEMENT MECHANISM:

The understanding on dispute settlement embeds a member critically important principles and procedures in the
WTO besides formally accepting adherence to Articles XXII and XXIII of the GATT, 1947. The understanding on Rules
and Procedures Governing the settlement of Disputes, 1994 (DSU) came into being only after the WTO Agreement came
into force.
The rules and procedures of DSU are applicable to the Agreements establishing the WTO; Agreement on Trade in
Goods; Agreements on Trade in Services (GATS); Agreements on Trade Related Aspects of Intellectual Property
Rights (TRIPs) and Dispute Settlement Understanding (DSU). DSU shall also apply to Agreement on Trade in Civil
Aircraft; Agreement on Government Procurement; International Dairy Agreement; and Arrangement Regarding Bovine
meat provided the signatories to each Agreement decide for accepting the terms of the DSU application.
The rules of DSU with special modification have been applicable to other
Agreements such as Anti-dumping; Technical Barriers to Trade; Subsidies and
Countervailing Measures; Customs Valuation; Sanitary and Phytosanitory Regulations; Textiles; General Agreement on
Trade in Services (GATS) Financial services; Air Transport services; and Ministerial Decisions on services Disputes.
The main features of WTO Dispute settlement can broadly be characterized as:i) the right of every member to have its complaint addressed by a panel experts;
ii) the promise that panel will act expeditiously and independently on the basis of clear rules and procedures;
iii) the commitment that the panel reports will be adopted by the WTO unless and objecting member can successfully
organize a consensus to block adoption.
iv) the right to have decisions and reasoning of panels subjected to review by a
permanent appellate body;
v) the obligations of members to implement adopted panel findings by taking action to remove the basis of complaint.
vi) the confidence that panels will have the assistance of a qualified, capable,
independent group of officials with legal training in analyzing the issues and reaching decisions.
vii) the promise that decisions will accumulate into a body of precedent that will further strengthen the rule of law in
international trade and trade related activities.
Dispute settlement procedure in Article 64 adopts the machinery provided by the WTO. Article XXII and XXIII
of the GATT as elaborated and applied by Dispute settlement. Understanding shall apply to consultations and settlement
of disputes.
When benefits are nullified by a measure which does not conflict with any of the provisions of the TRIPs agreement or
existence of any other situation for a period of five years Article XXIII cannot be invoked. Under Article 64(3) a
consensual decision is possible to be taken in such situations.

22

How long to settle a dispute?

These approximate periods for each stage of a dispute settlement procedure
are target figures the agreement is flexible. In addition, the countries can settle their dispute themselves at any stage.
Totals are also approximate.
60 days Consultations, mediation, etc
45 days Panel set up and panellists appointed
6 months
Final panel report to parties
3 weeks
Final panel report to WTO members
60 days Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60-90 days
Appeals report
30 days Dispute Settlement Body adopts appeals report
Total = 1yr 3m (with appeal)

Steps in Panel Process:

The agreement describes in some detail how the panels are to work. The main
stages are:
Before the first hearing: each side in the dispute presents its case in writing to the panel.
First hearing: the case for the complaining country and defence: the complaining country (or countries), the
responding country, and those that have announced they have an interest in the dispute, make their case at the panels first
hearing.
Rebuttals: the countries involved submit written rebuttals and present oral arguments at the panels second meeting.
Experts: if one side raises scientific or other technical matters, the panel may consult experts or appoint an expert review
group to prepare an advisory report.
First draft: the panel submits the descriptive (factual and argument) sections of its report to the two sides, giving them
two weeks to comment. This report does not include findings and conclusions.
Interim report: The panel then submits an interim report, including its findings and conclusions, to the two sides, giving
them one week to ask for a review.
Review: The period of review must not exceed two weeks. During that time, the panel may hold additional meetings with
the two sides.
Final report: A final report is submitted to the two sides and three weeks later, it is circulated to all WTO members. If the
panel decides that the disputed trade measure does break a WTO agreement or an obligation, it recommends that the
measure be made to conform with WTO rules. The panel may suggest how this could be done.
The report becomes a ruling: The report becomes the Dispute Settlement Bodys ruling or recommendation within 60
days unless a consensus rejects it. Both sides can appeal the report (and in some cases both sides do).

Q.12>> Explain the main aspects of Agreement on Agriculture (AOA) under WTO.
A.>>
23

The Agreement on Agriculture, (the Agreement), came into force on 1 January 1995. The preamble to the Agreement
recognizes that the agreed long-term objective of the reform process initiated by the Uruguay Round reform programme is
to establish a fair and market-oriented agricultural trading system. The reform programme comprises specific
commitments to reduce support and protection in the areas of domestic support, export subsidies and market access, and
through the establishment of strengthened and more operationally effective GATT rules and disciplines. The Agreement
also takes into account non-trade concerns, including food security and the need to protect the environment, and provides
special and differential treatment for developing countries, including an improvement in the opportunities and terms of
access for agricultural products of particular export interest to these Members.

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 various trade restrictions confronting imports

domestic support subsidies and other programmes, including those that raise or guarantee farmgate prices and
farmers incomes

export subsidies and other methods used to make exports artificially competitive.

The agreement does allow governments to support their rural economies, but preferably through policies that cause less
distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not
have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete
their obligations. Least-developed countries dont have to do this at all. Special provisions deal with the interests of
countries that rely on imports for their food supplies, and the concerns of least-developed economies.
Peace provisions within the agreement aim to reduce the likelihood of disputes or challenges on agricultural subsidies
over a period of nine years, until the end of 2003.

Market access: tariffs only

The tariffication package contained more. It ensured that quantities imported before the agreement took effect could
continue to be imported, and it guaranteed that some new quantities were charged duty rates that were not prohibitive.
This was achieved by a system of tariff quotas lower tariff rates for specified quantities, higher (sometimes much
higher) rates for quantities that exceed the quota.
The newly committed tariffs and tariff quotas, covering all agricultural products, took effect in 1995. Uruguay Round
participants agreed that developed countries would cut the tariffs (the higher out-of-quota rates in the case of tariff-quotas)
by an average of 36%, in equal steps over six years. Developing countries would make 24% cuts over 10 years. Several
developing countries also used the option of offering ceiling tariff rates in cases where duties were not bound (i.e.
committed under GATT or WTO regulations) before the Uruguay Round. Least-developed countries do not have to cut
their tariffs. (These figures do not actually appear in the Agriculture Agreement. Participants used them to prepare their
schedules i.e. lists of commitments. It is the commitments listed in the schedules that are legally binding.)
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. But the agreement specifies when and how those emergency actions can be introduced (for example, they cannot
be used on imports within a tariff-quota).
24

Four countries used special treatment provisions to restrict imports of particularly sensitive products (mainly rice)
during the implementation period (to 2000 for developed countries, to 2004 for developing nations), but subject to strictly
defined conditions, including minimum access for overseas suppliers. The four were: Japan, Rep. of Korea, and the
Philippines for rice; and Israel for sheepmeat, wholemilk powder and certain cheeses. Japan and Israel have now given up
this right, but Rep. of Korea and the Philippines have extended their special treatment for rice. A new member, Chinese
Taipei, gave special treatment to rice in its first year of membership, 2002.
Domestic support:
The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they
encourage over-production. This squeezes out imports or leads to export subsidies and low-priced dumping on world
markets. The Agriculture Agreement distinguishes between support programmes that stimulate production directly, and
those that are considered to have no direct effect.
Domestic policies that do have a direct effect on production and trade have to be cut back. WTO members calculated how
much support of this kind they were providing per year for the agricultural sector (using calculations known as total
aggregate measurement of support or Total AMS) in the base years of 1986-88. Developed countries agreed to
reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years.
Least-developed countries do not need to make any cuts. (This category of domestic support is sometimes called the
amber box, a reference to the amber colour of traffic lights, which means slow down.)
Measures with minimal impact on trade can be used freely they are in a green box (green as in traffic lights). They
include government services such as research, disease control, infrastructure and food security. They also include
payments made directly to farmers that do not stimulate production, such as certain forms of direct income support,
assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance
programmes.
Also permitted, are certain direct payments to farmers where the farmers are required to limit production (sometimes
called blue box measures), certain government assistance programmes to encourage agricultural and rural development
in developing countries, and other support on a small scale (de minimis) when compared with the total value of the
product or products supported (5% or less in the case of developed countries and 10% or less for developing countries).
Export subsidies:
The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a
members lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of
money they spend on export subsidies and the quantities of exports that receive subsidies. Taking averages for 1986-90 as
the base level, developed countries agreed to cut the value of export subsidies by 36% over the six years starting in 1995
(24% over 10 years for developing countries). Developed countries also agreed to reduce the quantities of subsidized
exports by 21% over the six years (14% over 10 years for developing countries). Least-developed countries do not need to
make any cuts.
During the six-year implementation period, developing countries are allowed under certain conditions to use subsidies to
reduce the costs of marketing and transporting exports.
The least-developed and those depending on food imports
Under the Agriculture Agreement, WTO members have to reduce their subsidized exports. But some importing countries
depend on supplies of cheap, subsidized food from the major industrialized nations. They include some of the poorest
countries, and although their farming sectors might receive a boost from higher prices caused by reduced export subsidies,
they might need temporary assistance to make the necessary adjustments to deal with higher priced imports, and
eventually to export. A special ministerial decision sets out objectives, and certain measures, for the provision of food aid
and aid for agricultural development. It also refers to the possibility of assistance from the International Monetary Fund
and the World Bank to finance commercial food imports.
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Q.13 >> Describe the trade & environmental issues under WTO.
A.>> Sustainable development and protection and preservation of the environment are fundamental goals of the WTO.
They are enshrined in the Marrakesh Agreement, which established the WTO, and complement the WTOs objective to
reduce trade barriers and eliminate discriminatory treatment in international trade relations. While there is no specific
agreement dealing with the environment, under WTO rules members can adopt trade-related measures aimed at protecting
the environment provided a number of conditions to avoid the misuse of such measures for protectionist ends are fulfilled.
The WTO contributes to protection and preservation of the environment through its objective of trade openness, through
its rules and enforcement mechanism, through work in different WTO bodies, and through ongoing efforts under the Doha
Development Agenda. The Doha Agenda includes specific negotiations on trade and environment and some tasks assigned
to the regular Trade and Environment Committee.
Through its goals, rules, institutions and forward-looking agenda, the WTO provides an important means of advancing
international environmental goals.
Trade and environment, as an issue, is by no means new. The link between trade and environmental protection both the
impact of environmental policies on trade, and the impact of trade on the environment was recognized as early as 1970.
Towards the end of the Uruguay Round (19861994), attention was once again drawn to trade-related environmental
issues, and the role of the soon-to-be-created World Trade Organization.
The increased emphasis on environmental policies is relatively recent in the 60-year history of the multilateral trading
system. At the end of the Uruguay Round in 1994, trade ministers from participating countries decided to begin a
comprehensive work programme on trade and environment in the WTO. They created the Trade and Environment
Committee. This has brought environmental and sustainable development issues into the mainstream of WTO work. The
2001 Doha Ministerial Conference kicked off negotiations in some aspects of the subject.
The committee: broad-based responsibility
The committee has a broad-based responsibility covering all areas of the multilateral trading system goods, services
and intellectual property. Its duties are to study the relationship between trade and the environment, and to make
recommendations about any changes that might be needed in the trade agreements.
The committees work is based on two important principles:
The WTO is only competent to deal with trade. In other words, in environmental issues its only task is to study questions
that arise when environmental policies have a significant impact on trade. The WTO is not an environmental agency. Its
members do not want it to intervene in national or international environmental policies or to set environmental standards.
Other agencies that specialize in environmental issues are better qualified to undertake those tasks.
If the committee does identify problems, its solutions must continue to uphold the principles of the WTO trading system.
More generally WTO members are convinced that an open, equitable and non-discriminatory multilateral trading system
has a key contribution to make to national and international efforts to better protect and conserve environmental resources
and promote sustainable development.
The committees work programme focuses on 10 areas. Its agenda is driven by proposals from individual WTO members
on issues of importance to them.

World trade expansion has raised the issue of the relationship between trade and the environment. Is
trade good or bad for the environment? The answer is not obvious.
The production of goods that are imported and exported, like other production, will often have environmental effects. But
will these effects increase or decrease with expanded trade? Will they affect the exporting nation, the importing nation, or
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the world as a whole? And whose responsibility is it to respond to environmental problems associated with trade?
Questions such as these have received increasing attention in recent years.
International attention was first focused on these issues in 1991, when the
Mexican government challenged a United States law banning imports of tuna from Mexico. The U.S. Marine Mammal
Protection Act prohibited tuna fishing methods that killed large numbers of dolphins, and banned tuna imports from
countries that used such fishing methods. The Mexican government argued that this U.S. law was in violation of the rules
of the General Agreement on Tariffs and Trade (GATT).
According to the free trade principles that provided the basis for GATT and for its successor, the World Trade
Organization (WTO), countries cannot restrict imports except in very limited cases such as protection of the health and
safety of their own citizens. A GATT dispute panel ruled that the U.S. could not use domestic legislation to protect
dolphins outside its own territorial limits.
Although Mexico did not press for enforcement of this decision, the tuna/dolphin decision opened a major controversy
over issues of trade and environment. In a similar case in 1999, the World Trade Organization ruled that the U.S. could not
prohibit shrimp imports from countries using fishing methods that killed endangered sea turtles.
The implications of this and the earlier tuna/dolphin decision could affect many
other international environmental issues, such as forest protection, ozone depletion, hazardous wastes, and global climate
change. All these issues are linked to international trade.
To address these questions, we need to examine the theory and practice of
international trade. Most economists believe that expanded trade is generally beneficial,
promoting increased efficiency and greater wealth among trading nations. But what if expanded trade causes
environmental damage?
At the national level, the standard economic policy response to environmental
impacts is to implement policies that internalize externalities. At the international level, however, the picture is more
confused. The burden of environmental externalities associated with trade may be borne by importers, exporters, or by
others not directly involved in the production or consumption of traded goods. The authority to formulate and enforce
environmental policies usually exists only at the national level. This can create significant problems when environmental
impacts are transnational, since most international trade agreements do not include any provisions for environmental
protection.
Environmental Agreements (MEAs)
It has long been recognized that some environmental problems require
international solutions. The first international treaty dealing with trade and the
environment was the Phylloxera agreement of 1878, which restricted trade in
grapevines to prevent the spread of pests that damage vineyards. In 1906 an
international convention was adopted banning the use of phosphorus in matches.
Phosphorous was responsible for serious occupational disease among match workers, but it was the cheapest ingredient
for matches. An international convention was required to prevent any exporting country from gaining competitive
advantage by using phosphorus in match production.
Since then, numerous international treaties have been adopted to respond to
specific environmental issues. These include conventions protecting fur seals, migratory birds, polar bears, whales, and
endangered species. Transboundary and global environmental issues have been addressed in the Montreal Protocol on
Substances that Deplete the Ozone Layer (1987), the Basel Convention on Hazardous Wastes (1989), the Antarctica
Treaty (1991), and the Convention on Straddling and Highly Migratory Fish Stocks (1995). In 1997 the Kyoto Protocol on
Climate Change established guidelines for reducing greenhouse gas emissions, including important trade-related
measures. These international treaties have addressed the environmental impacts of production methods in ways that
individual nations cannot.
Serious questions remain, however, about the compatibility of MEAs with WTO rules. Which set of international
agreements should take precedence in the case of a conflict?
For example, the Kyoto Protocol encourages the subsidized transfer of energy
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efficient technology to developing nations but this provision could be in violation of the WTOs prohibition of export
subsidies. Whereas national laws such as the U.S. Marine Mammal Protection Act have been found incompatible with
WTO rules, there has so far been no major test case involving conflict between an MEA and a trade agreement.
Strategies for Sustainable Trade
The emerging twenty-first century global economy will be characterized both by resource and environmental limits and
by a much more important role for the presently developing nations. Expanded global trade will bring benefits in terms of
increased efficiency, technology transfer, and the import and export of sustainably produced products. But we must also
evaluate the effects of trade in terms of social and ecological impacts.
A World Bank review of trade and environment issues finds that many
participants in the debate now agree that
(a) more open trade improves growth and economic welfare, and
(b) increased trade and growth without appropriate environmental policies in place may have unwanted effects on the
environment.
This implies that future trade agreements must take environmental sustainability more explicitly into account. Introducing
sustainability into trade policy will require institutional changes at global, regional, and local levels.
Greening Global Environmental Organizations
At the global level, a major reform proposal would be to set up a World
Environmental Organization (WEO) which would counterbalance the World Trade Organization (WTO) much as national
environmental protection agencies balance departments of finance and commerce. This would create a global
environmental advocacy organization, but might lead to conflict and deadlock with other transnational institutions.
Another approach would be to "green" existing institutions, broadening the environmental and social provisions of
GATT's Article XX, and altering the missions of the World Bank and International Monetary Fund to emphasize
sustainable development objectives.
The idea of a World Environmental Organization may seem visionary, but there is a good argument for its establishment.
According to Sir Leon Brittan, former Vice President of the European Commission: Setting environmental standards
within a territory may be fine, but what about damage that spills over national borders? In a rapidly globalizing world,
more and more of these problems cannot be effectively solved at the national or bilateral level, or even at the level of
regional trading blocs like the European Union. Global problems require global solutions.
Local, Regional, and Private Sector Policies:
The trend towards globalization, which increasingly makes communities subject
to the logic of the global marketplace, is in conflict with the goal of strengthening local and regional policies promoting
sustainable development. Reserving powers of resource conservation and management to local and regional institutions is
important to the sustainable management of resources. Also, it is often difficult to make a match between centralized
World Bank or institutional financing, even if "greened", and the local institutions that are crucial to effective
implementation of resource conservation and environmental standards. Most environmental policies are implemented at
the national level, and it is important to maintain national authority to enforce environmental
standards.
In regional groupings such as NAFTA, that involve no supranational rule-making body, trade agreements could give
special status to national policies aimed at sustainable agriculture and resource management. NAFTA rules currently give
precedence to international environmental treaties (the Basel Convention on hazardous wastes, the Montreal Protocol on
ozone depleting substances, and CITES on endangered species). This principle could be expanded to all national
environmental protection policies, and effective sanctions for environmental violations could be established.
In regional trade and customs unions such as the European Union where elected
supranational policy-making bodies exist, these bodies must take responsibility for environmental and social issues to the
extent that their legitimate democratic mandate allows. Transboundary issues are a logical area for supranational bodies to
be responsible for environmental rule making. Where they are empowered to intervene in national policy-making, the
process must be oriented towards "harmonizing up" rather than "harmonizing down" standards. This means that countries
within the common market must retain the power to impose higher social and environmental standards where they see fit.
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Certification and labelling requirements for sustainably produced products help

consumers make informed purchasing decisions. Germanys green dot system has also set up certification systems for
goods such as coffee and timber. To be effective in a globalized world, however, certification systems must be
international. This requires support both at the national level and from corporations and international agencies.

--------------------------------Q.14 >>Describe the important contentious issues of WTO.

A.>>

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