PROJECT

ON
“GLOBALIZATION AND
LIBERALIZATION AS A CONCEPT AND
DRIVING FORCE FOR THE
EMERGENCE OF WTO”

Subject: International Business

Submitted To:
Submitted By:
Dr. K. S. L. DAS
ABHISHEK SAINI (09)
ANKI
T KR. SRIVASTAVA(23)

BIKA
SH SRIVASTAV(42)

DHRUV BHATT(50)

DINESH CHANDRA(51)

GOVIND GUPTA(59)
 INSTITUTE OF MANAGEMENT STUDIES
GHAZIABAD
CERTIFICATE

This is to certify that ABHISHEK SAINI, ANKIT KUMAR SRIVASTAVA, BIKASH

SRIVASTAV, DHURV BHATT, DINESH CHANDRA and GOVIND GUPTA
student of PGDM-General (Full Time) 2010-2012 batch, IMS GHAZIABAD, has
done their project under my supervision and guidance.

During their assignment they were found to be very sincere and attentive to small
details whatsoever was told to them.

I wish him good luck and success in his future.

Dr. K. S. L. DAS
(IMS GHAZIABAD)
 ACKNOWLEDGEMENT

If words are considered to be sign of gratitude then let these words convey the
very same.

We are highly indebted to lecturer Dr. K. S. L. DAS who have provide us with the
necessary information and also for the support and her valuable suggestions and
comments on bringing out this report in the best way possible.

We feel great pleasure to cordial thanks to all faculty members of management

department of IMS who sincerely supported us with the valuable insights into the
completion of this project and we are thankful to that power that always inspire us
to take right step in the journey of success in our life.
 DECLARATION

We Abhishek Saini, Ankit Kumar Srivastava, Bikash Srivastav, Dhruv Bhatt,

Dinesh Chandra, Govind Gupta students of PGDM, Ist year, Institute of
Management Studies, hereby declare that the project on
“GLOBALIZATION AND LIBERALIZATION AS A CONCEPT
AND DRIVING FORCE FOR THE EMERGENCE OF WTO)”
is a pure work of our own and is original and completely authentic and has been
done under guidance of Dr. K. S. L. Das.

ABHISHEK SAINI (09)

ANKI
T KR. SRIVASTAVA(23)

BIKA
SH SRIVASTAV(42)

DHRUV BHATT(50)

DINESH CHANDRA(51)

GOVIND GUPTA(59)
 INTRODUCTION

The World Trade Organization (WTO) is an organization that intends

to supervise and liberalize international trade. The organization
officially commenced on January 1, 1995 under the Marrakech
Agreement, replacing the General Agreement on Tariffs and
Trade(GATT), which commenced in 1948. The organization deals
with regulation of trade between participating countries; it provides a
framework for negotiating and formalizing trade agreements, and a
dispute resolution process aimed at enforcing participants' adherence
to WTO agreements which are signed by representatives of member
governments and ratified by their parliaments. Most of the issues that
the WTO focuses on derive from previous trade negotiations,
especially from the Uruguay Round (1986–1994).
The organization is currently endeavoring to persist with a trade
negotiation called the Doha Development Agenda (or Doha Round),
which was launched in 2001 to enhance equitable participation of
poorer countries, which represent a majority of the world's population.
However, the negotiation has been dogged by "disagreement
between exporters of agricultural bulk commodities and countries with
large numbers of subsistence farmers on the precise terms of a
'special safeguard measure' to protect farmers from surges in
imports. At this time, the future of the Doha Round is uncertain.

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

BACKGROUND

Efficient transport plays a vital role in fostering international trade.

The removal of
Barriers to trade in the transport sector are therefore doubly
important. First, the transport sectors in itself an important area of
economic activity, and liberalization in transport will therefore make
an important contribution to the broader thrust of liberalization of
trade in services.

Secondly, by enhancing efficiency and reducing the costs of trade in

goods, removal of barriers in the transport sector will in turn lead to
freer and more open markets in the trading of physical goods and
movement of natural persons.
International trade, along with foreign direct investment and capital
market flows are the three main elements associated with the
concept of economic globalization.
Economic globalization proliferates as more and more economic
activity occurs between agents in different countries. The World
Bank has observed135 that there is significant divergence in the
spread of globalization across the world. The risk with this
divergence is that some nations may be excluded from the
globalization process and therefore not reap the advantages that
foreign investment and international trade can bring.
Trade liberalization has been a major contributor to increasing
economic globalization. This section outlines the global trading
framework and its impact on the ESCAP region. It examines the
growth of the international trading system under the GATT and the
WTO as well as the influence of regional trading agreements.

WTO/GATS

Prior to World War II international trade was limited to a system of

two-sided trade negotiations between nations. This system was
abandoned, and a more open liberal system of international
economic relations began to develop, with the GATT signed in
Geneva in 1947. GATT provided the signatory nations with a set of
rules for international trade negotiations.
Ever since the establishment of GATT member nations have
participated in trade rounds to develop agreements regarding the
terms of trade such as the progress of tariff reductions.
The phenomenal post 1945 increase in international trade has been
linked to the adoption of this open, liberal system of international
economic relations under the auspices of the GATT.

The World Trade Organization (WTO) replaced the GATT as a result

of the Uruguay Round of Trade Negotiations beginning in 1986.
Where trade negotiations were limited to tariff reductions, anti-
dumping and a series of non-tariff barriers to trade under the GATT,
the WTO has a much wider mandate. The WTO covers both
merchandise trade and trade in services as well as trading issues
involved with intellectual property rights (for further information on
trade in services refer to the section below).
The agreements that are negotiated in the trade rounds are in
essence multilateral in nature. That is, all members of the WTO sign
them. Multilateral agreements are the converse of bilateral
agreements
(Bilateral). Bilateral are trading agreements between two nations.
There are also two plurilateral agreements in the WTO, which are
signed by a limited group of members; these are related to trade in
civil aircraft and government procurement.

Economic Policy Group and Development Economics Group, April

2000, Assessing Globalization. Since World War II the impact of more
liberal trading arenas has led to a strong upsurge in global trade such
that total trade in 2000 was 50 times what it was in 1950. The WTO
now has 146-member countries137 with many in the process of
joining.

1. THE GATS FRAMEWORK

The General Agreement on Trade in Services (GATS) is the first ever
set of
Multilateral, legally enforceable rules covering international trade in
services. It was negotiated in the Uruguay Round and is overseen by
the WTO Council for Trade in Services. Under GATS, the trade in
services is subdivided into sectors, one of which is transport. Each
sector is characterized by four modes of supply:

Mode 1 - cross-border supply;

Mode 2 - consumption abroad;
Mode 3 - commercial presence; and
Mode 4 - presence of natural persons.

Like the agreements on goods, GATS operates on three levels: the

main text Containing general principles and obligations; annexes
dealing with rules for specific sectors; and finally individual countries’
specific commitments to provide access to their markets.
Unlike the agreement on trade in goods, GATS has a fourth special
element: lists
Showing where countries are temporarily not applying the ‘most-
favored-nation ‘Principle of non-discrimination. These schedules - like
tariff schedules under GATT - are an integral part of the agreement.
So are the temporary withdrawals of most-favored-nation treatment.
The GATS commits member governments to undertake negotiations
on specific issues and to enter into successive rounds of negotiations
to progressively liberalize trade in services. The first round had to
start no later than five years from 1995. Accordingly, the services
negotiations started officially in early 2000 under the Council for
Trade in Services. In March 2001, the Services Council established
the negotiating guidelines and procedures.

The Doha Ministerial Declaration of 14 November 2001 endorses the

work already done, reaffirms the negotiating guidelines and
procedures, and establishes some key elements of the timetable
including, most importantly, the deadline for the conclusion of the
negotiations as part of a single undertaking.

2. SPECIFIC ANNEXES TO GATS

There are two specific annexes to GATS that relate directly to trade in
transport services. These annexes outlines special conditions in the
trade in air transport services and Maritimes services.

a) Air transport services

Under the air transport services annex, traffic rights and directly
related activities are excluded from GATS coverage. They are
handled by other bilateral agreements. However, the annex
establishes that the GATS will apply to aircraft repair and
maintenance services, marketing of air transport services and
computer-reservation services.
b) Maritime services
Maritime services are an area where further negotiations were
scheduled to improve on the commitments included in the initial
Uruguay Round schedules. Negotiations were originally scheduled to
end in June 1996, but participants failed to agree on a package of
commitments. The talks have resumed with the new services round
which started in 2000.

Some commitments already exist in some countries' schedules

covering the three main areas in this sector: access to and use of port
facilities, auxiliary services and ocean transport.

3. REGIONAL AGREEMENTS
Aside from the multilateral agreements determined in the WTO
process or the plurilateral agreements and bilateral discussed above,
Regional Trade Agreements (RTAs) are another tool used to
liberalize trade. RTAs are agreements between two or more
countries on the terms of trade, the most well known being in the form
of Free Trade Agreements (FTAs). The proliferation of RTAs has
been large and complex. They have moved from formal,
geographically related groupings such as the European Union with
coverage over almost all trading sectors in the economy to more
general agreements between nations as geographically separate as
Australia and Chile. Although RTAs are for the most part outside the
trade negotiations under the WTO arrangements, the WTO has
recognized that they can contribute to international trade liberalization
in article XXIV of GATT and Article V of GATS. The WTO provides
some guidance on RTAs and requires that they cover substantially all
sectors of the trading economy and that they do not result in barriers
being raised on third parties who are not members of the RTA in
question.
4. GLOBALIZATION
Liberalization of the international trading and financial environment
has created the conditions necessary for the globalization of
production. The trade liberalization measures described in the
previous section have fostered Globalization of transportation
systems in two ways:
• By accelerating the growth in international flow of goods, they have
placed increased demands on transports systems, highlighted
deficiencies and intensified the need for capital investment,
knowledge transfer and harmonization of regulations and procedures;
and
• By directly reducing non-tariff barriers to the trade in transport
services, they have facilitated FDI in transport infrastructure and the
participation of trans-national organizations in the provision of
transport services.

The globalization phenomenon, the most recent phase of which

began to gather momentum during the 1990s, has reached a point
where its effects are felt in almost all parts of the world, including the
developing countries of Asia.

REASON BEHIND RISING WTO

Poorer countries suffering disadvantages: While it is true that

globalization encourages free trade among countries, there are also
negative consequences because some countries try to save their
national markets. The main export of poorer countries is usually
agricultural goods.

The exploitation of foreign impoverished workers: The deterioration of

protections for weaker nations by stronger industrialized powers has
resulted in the exploitation of the people in those nations to become
cheap labor. Due to the lack of protections, companies from powerful
industrialized nations are able to offer workers enough salary to
entice them to endure extremely long hours and unsafe working
conditions, though economists question if consenting workers in a
competitive employers' market can be decried as "exploited". It is true
that the workers are free to leave their jobs, but in many poorer
countries, this would mean starvation for the worker, and possible
even his/her family if their previous jobs were unavailable.

The shift to outsourcing: Globalization has allowed corporations to

move manufacturing and service jobs from high cost locations to
locations with the lowest wages and worker benefits. This results in
loss of jobs in the high cost locations. This has contributed to the
deterioration of the middle class which is a major factor in the
increasing economic inequality in the United States . Families that
were once part of the middle class are forced into lower positions by
massive layoffs and outsourcing to another country. This also means
that people in the lower class have a much harder time climbing out
of poverty because of the absence of the middle class as a stepping-
stone.

Weak labor unions: The surplus in cheap labor coupled with an ever-
growing number of companies in transition has caused a weakening
of labor unions in the United States. Unions lose their effectiveness
when their membership begins to decline. As a result unions hold
less power over corporations that are able to easily replace workers,
often for lower wages, and have the option to not offer unionized jobs
anymore.

An increase in exploitation of child labor: for example, a country that

experiencing increases in labor demand because of globalization and
an increase the demand for goods produced by children, will
experience greater a demand for child labor. This can be” hazardous"
or "exploitive", e.g., quarrying, salvage, cash cropping but also
includes the trafficking of children, children in bondage or forced
labor, prostitution, pornography and other illicit activities.

Since 1991, this discourse has been increasing rapidly in importance

in the United states; the number of newspaper articles showing
negative framing rose from about 10% of the total in 1991 to 55% of
the total in 1999. This increase occurred during a period when the
total number of articles concerning globalization nearly doubled This
discourse takes two very different forms:

1) Concern over economic well being in developed countries

In industrialized countries discourse about globalization centers on
economic self-interest. Newspaper articles about globalization
typically express concerns involve the interconnectedness of
international financial markets and the potential for economic crisis,
as well as threats to the livelihood of workers.

2) Concern over the impact of globalization in developing

countries
The establishment of the WTO in 1995 and subsequent protests led
to a large-scale anti-globalization movement that is primarily
concerned with the negative impact of globalization in developing
countries. Their concerns range from environmental issues to issues
like democracy, national sovereignty and the exploitation of workers.

Individuals who associate themselves with the anti-globalization

movement in industrialized countries comprise a relatively small but
vocal minority. They are overwhelmingly upper middle-class, college-
educated elites. These contrasts sharply with the situation in
developing countries, where the anti-globalization movement has
been more successful in achieving a broader, more balanced social
class composition, with millions of workers and farmers getting
actively involved.
 FUNCTIONS

Among the various functions of the WTO, analysts as the most

important regard these:
It oversees the implementation, administration and operation of
covered agreements.
It provides a forum for negotiations and for settling disputes.
Additionally, it is the WTO's duty to review and propagate the national
trade policies, and to ensure the coherence and transparency of trade
policies through surveillance in global economic policy-making.
Another priority of the WTO is the assistance of developing, least-
developed and low-income countries in transition to adjust to WTO
rules and disciplines through technical cooperation and training.
The WTO is also a center of economic research and analysis: regular
assessments of the global trade picture in its annual publications and
research reports on specific topics are produced by the organization.
Finally, the WTO cooperates closely with the two other components
of the Breton Woods system, the IMF and the World Bank.

PRINCIPLES OF THE TRADING SYSTEM

The WTO establishes a framework for trade policies; it does not

define or specify outcomes. That is, it is concerned with setting the
rules of the trade policy games. Five principles are of particular
importance in understanding both the pre-1994 GATT and the WTO:
Non-Discrimination- It has two major components: the most favored
nation (MFN) rule, and the national treatment policy. Both are
embedded in the main WTO rules on goods, services, and intellectual
property, but their precise scope and nature differ across these areas.
The MFN rule requires that a WTO member must apply the same
conditions on all trade with other WTO members, i.e. a WTO member
has to grant the most favorable conditions under which it allows trade
in a certain product type to all other WTO members." National
treatment means that imported goods should be treated no less
favorably than domestically produced goods (at least after the foreign
goods have entered the market) and was introduced to tackle non-
tariff barriers to trade (e.g. technical standards, security standards et
al. discriminating against imported goods).

Reciprocity- It reflects both a desire to limit the scope of free riding

that may arise because of the MFN rule, and a desire to obtain better
access to foreign markets. A related point is that for a nation to
negotiate, it is necessary that the gain from doing so is greater than
the gain available from unilateral liberalization; reciprocal
concessions intend to ensure that such gains will materialize.

Binding and enforceable commitments- The tariff commitments made

by WTO members in a multilateral trade negotiation and on
accession are enumerated in a schedule (list) of concessions. These
schedules establish "ceiling bindings": a country can change its
bindings, but only after negotiating with its trading partners, which
could mean compensating them for loss of trade. If satisfaction is not
obtained, the complaining country may invoke the WTO dispute
settlement procedures.

Transparency- The WTO members are required to publish their trade

regulations, to maintain institutions allowing for the review of
administrative decisions affecting trade, to respond to requests for
information by other members, and to notify changes in trade policies
to the WTO. These internal transparency requirements are
supplemented and facilitated by periodic country-specific reports
(trade policy reviews) through the Trade Policy Review Mechanism
(TPRM). The WTO system tries also to improve predictability and
stability, discouraging the use of quotas and other measures used to
set limits on quantities of imports.

Safety valves- In specific circumstances, governments are able to

restrict trade. There are three types of provisions in this direction:
articles allowing for the use of trade measures to attain noneconomic
objectives; articles aimed at ensuring "fair competition"; and
provisions permitting intervention in trade for economic reasons.
Exceptions to the MFN principle also allow for preferential treatment
of developed countries, regional free trade areas and customs
unions.

TRADE NEGOTIATIONS COMMITTEE

The Trade Negotiations Committee (TNC) is the committee that deals
with the current trade talks round. The chair is WTO’s director-
general. The committee is currently tasked with the Doha
Development Round.

The Service Council has three subsidiary bodies: financial services,

domestic regulations, GATS rules and specific commitments. The
General council has several different committees, working groups,
and working parties. There are committees on the following: Trade
and Environment; Trade and Development (Subcommittee on Least-
Developed Countries); Regional Trade Agreements; Balance of
Payments Restrictions; and Budget, Finance and Administration.
There are working parties on the following: Accession. There are
working groups on the following: Trade, debt and finance; and Trade
and technology transfer.
 VOTING SYSTEM

The WTO operates on a one country, one vote system, but actual
votes have never been taken. Decision-making is generally by
consensus, and relative market size is the primary source of
bargaining power. The advantage of consensus decision-making is
that it encourages efforts to find the most widely acceptable decision.
Main disadvantages include large time requirements and many
rounds of negotiation to develop a consensus decision, and the
tendency for final agreements to use ambiguous language on
contentious points that makes future interpretation of treaties difficult.

In reality, WTO negotiations proceed not by consensus of all

members, but by a process of informal negotiations between small
groups of countries. Such negotiations are often called "Green Room"
negotiations (after the colour of the WTO Director-General's Office in
Geneva), or "Mini-Ministerial", when they occur in other countries.
These processes have been regularly criticised by many of the
WTO's developing country members, which are often totally excluded
from the negotiations.