MARATHA MANDIRS BABASAHEB GAWDE INSTITUTE OF MANAGEMENT STUDIES

A PROJECT REPORT ON

TRADING BLOCKS

MASTER OF MANAGEMENT STUDIES (MMS) (FINANCE)

SUBMITTED TO: PROF. SOWANI

SUBMITTED BY

JOLENE BANGERA VARUN BHUDEKA VIDISHA DHAPRE SHARMILA JOSHI PRACHI KADAM VIVEK KAPADIA (09) (24) (45) (46) (50)

(06)

Signature: _________________

ACKNOWLEDGEMENT
We are highly indebted to Prof. SOWANI who gave us the opportunity to make a project on Trading Blocks which is a very interesting topic to learn. It is very important topic from global point of view. He was available for us whenever we needed him. Without his timely guidance this project would not have been a success.

TABLE OF CONTENTS

SR.NO

PARTICULARS

PAGE NO

1.

Formation of trading blocks-conditions for success

2.

OPEC-its objectives and functions

3.

European Economic Community-relation with India

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4.

The North American Free Trade Agreement [NAFTA]

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5.

The United Nations Conference on Trade and Development [UNCTAD]

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1. FORMATION OF TRADING BLOCKS Meaning: A trading block is a large free trade area formed by deciding trade policies, tariffs, taxes, etc. between the member countries. It can also be called as economic integration. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics The definition of a trading bloc varies widely. However, one definition that encompasses the main attributes of trading blocs and touches on the reasons that countries may have for forming such an organization is that given by the United States National Policy association. According to this definition, a trading bloc is defined by four characteristics explained as follows. 1) Participates in a special trade relationship established by a formal agreement that promotes and facilitates trade within that group of countries in preference to trade with outside nations by discriminating against nonmembers. 2) Has attained or has as a stated goal the deepening of trade liberalization or integration with the objective of establishing a free trade area, customs union, or common market.

3) Strives to reach common positions in negotiations with third countries, with other trade blocs, or in multilateral forums. 4) Attempts to coordinate national economic policies to minimize disruption to intrabloc economic transactions.

History: Before 1947, countries were forced to impose any tariffs on their imports. However, when one country increased its tariffs, the action often triggered retaliatory actions by its trading partners. The end result of such protectionism was lowered efficiency, less trade, and no increase in employment. Thus in the post- war era efforts were made to reduce tariff barriers, that is, to liberalize international trade. One of the first economic blocs was the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empire from 1871. A trade bloc is established through a trade pact (or pacts) covering different issues of the economic integration. Trading blocs are created because according to the theory of comparative advantage, countries should specialize in producing those goods in which they have a comparative advantage; that is, those goods that they have a lower opportunity cost of production than other nations. By specializing in the production of these goods, a group of nations as a whole can produce, and therefore consume, a greater quantity of each product. However, as countries become more specialized in the production of goods, it becomes necessary to trade with countries that need these goods or that have resources that are not available in that nation. Due to this factor, as nations become more specialized, they also become increasingly dependent on their trading partners. Furthermore, since smaller countries with fewer resources and land are generally less powerful than larger nations, the need arises to develop economic alliances to gain buying and selling power. Hence, trading blocs arise. Trading blocs provide many economic benefits to their members. These can be grouped in two categories: competition and scale effects, and trade and location effects.

Competition And Scale Effects : This refer to the benefits that arise from the possible increase in foreign direct investment, from the formation of economies of scale, and from increased competition as separate national markets become more integrated into a single market. By creating larger markets, trading blocs may assist in attracting foreign direct investment. When foreign firms want to supply a product to a country, they have two options: to import it or to build a local plant. Importing has the disadvantages created by tariffs and by other trade barriers that may be used. However, domestic production is riskier in that a certain amount of sales has to be made for the initial investment to be profitable. Therefore, a company may still choose to import the product even with the disadvantages that this entails. However, by increasing market size and making markets more competitive, trading blocs favor the lower marginal costs of locally producing products rather than importing them, and therefore often lead to an increase in foreign direct investment. In fact, this was observed to be the case in Mexico where foreign direct investment more than doubled the year after it joined NAFTA.

Creating large markets not only serves an important function by increasing the amount of foreign direct investment, it also allows for economies of scale. Many nations are not large enough to support the production of goods with large economies of scale because they lack large enough markets in which to sell their products or from which to obtain inputs. Trading blocs can provide these and consequently allow for economies of scale to be achieved. On the other hand, trading blocs bring producers in member countries into closer contact, thereby increasing competition among them. This leads to the erosion of monopoly positions and consequently promotes efficiency gains within firms. This effect is not only felt by producers in the member states; producers in nonmember nations will also experience these changes and have to adapt their pricing and the quality of their products to be able to compete in a more efficient market. Therefore trading blocs result in a more efficient market.

Trading Blocs Also Result In Trade And Location Effects By eliminating tariffs, imports from other member countries will become cheaper, so demand patterns will change. Consumers and firms will buy products from the cheapest source without price distortions, thereby ensuring that production is allocated to those firms with a comparative advantage in production. This will increase the markets efficiency by allowing a greater quantity of products to be manufactured with the same amount of resources and consequently result in higher levels of consumption.

Types of Trading Blocs Trading Blocs can be classify based on the degree of Integration among different economies; Free Trade Areas Customs Unions Common Market Political Unions Economic Union (a) Free Trade Area: - This is the simplest form of economic integration which provides for internal free trade between member countries. Each member is allowed to determine its own commercial policy with respect to non-members. For example, Latin American Free Trade Association (Lafta), North American Free Trade Area (Nafta) between the USA, Canada and Mexico; Asia Pacific Economic Cooperation (APEC) and COMESA.

(b) Customs Union :- A customs union is a more advanced form of economic integration which not only provides for internal free trade between the member countries but also adopts a uniform commercial policy against the nonmembers. They will have a common external tariff (CET) which is applied to all countries outside the customs union. The countries will be represented at trade negotiations with organizations such as the World Trade Organization by supra-national organizations e.g. the European Union. 7

(c) Common Market :- A common market allows free movement of labour and capital within the common market in addition to having free movement of goods between the member countries and having common commercial policy is respect to non-members. (d) Economic Union :- This is a common market where the level of integration is more developed. The member states may adopt common economic policies e.g. the Common Agricultural Policy (CAP) of the European Union. They may have a fixed exchange rate regime such as the ERM of the EMU. Indeed, they may have integrated further and have a single common currency. This will involve common monetary policy. The ultimate act of integration is likely to be some form of political integration where the national sovereignty is replaced by some form of over-arching political authority. For example, the European Union (EU) has introduced a common currency Euro 2000. (e) Political Union :- Political union is the ultimate type of economic integration whereby member countries achieve not only monetary and fiscal integration but also political integration. For example, the Europe Union (EU) is moving towards a political union similar to one created by 52 states of America.

Dynamic Advantages of Joining a Trading Block Access to larger markets, which ultimately leads to internal economies of scale External economies of scale due to improved infrastructure (e.g. transport and telecoms links) Greater international bargaining power Increased competition between members More rapid spread of technology Dynamic Disadvantages of Joining a Trading Block Country may lose resources to more efficient members, or to geographical centre, and become depressed region Firms may co-operate, collude and merge, leading to greater monopoly power Diseconomies of scale if firms become very large High administrative costs of trading bloc 8

2. OPEC OPEC FORMATION The governments of Saudi Arabia and Venezuela, in accordance with the objectives of the Arab Petroleum Congress of 1959 issued a declaration on May 13, 1960, recommending that petroleum exporting countries pursue a common policy in order to protect their rightful interests. The declaration also advanced the idea of establishing an organization to achieve this end. Nonetheless, the countries concerned did not take immediate action. It was the sudden and arbitrary decrease in petroleum prices for the second time in 1960 that made them feel the danger which encouraged them to unite in a common front. Consequently, the major petroleum producing countries declared at the Baghdad conference (in the presence of Saudi Arabia, Republic of Iraq, Iran, Venezuela and Kuwait), their intention to establish the organization which became known as the Organization of Petroleum Exporting Countries (OPEC). One of the major decisions of that meeting declared the main objective of the organization to be the standardization of petroleum prices among its members and agreement on the best methods of protecting its individual and collective interests. As a result, OPEC was founded in September 1960. MISSION OPEC's mission is to coordinate and unify the petroleum policies of Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to those investing in the petroleum industry.

MEMBER COUNTRIES: The OPEC Statute stipulates that: "any country with a substantial net export of crude petroleum, which has fundamentally similar interests to those of Member Countries, may become a Full Member of the Organization, if accepted by a majority of three-fourths of Full Members, including the concurring votes of all Founder Members". The Statute further distinguishes between three categories of membership: Founder Member, Full Member and Associate Member. Founder Members of the Organization are those countries which were represented at OPEC's first Conference, held in Baghdad, Iraq, in September 1960, and which signed the original agreement establishing OPEC. Full Members are the Founder Members, plus those countries whose applications for Membership have been accepted by the Conference. Associate Members are the countries which do not qualify for full membership, but which are nevertheless admitted under such special conditions as may be prescribed by the Conference.

Initially OPEC was created by four member countries. Presently it has eleven member countries, which are as follows:

Algeria Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia UAE Venezuela

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OPECs OBJECTIVES The main objective of OPEC is to ensure the stabilization of oil prices in international markets and securing a steady income to oil producing nations. OPECs objective is to coordinate and unify petroleum policies among the member countries to secure fair and stable prices for petroleum producers, an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the industry. The Ministerial Monitoring Committee, which consists of an oil minister from each member country, meets in ordinary sessions twice a year, and is responsible for the formulation of the general policies of the organization, such as deciding upon total production and minimum prices. OPEC seeks to control the oil supply and thereby artificially keep prices high. OPEC has also tried to use its economic clout for political purposes. Thus the principal goal is the determination of the best means for safeguarding their interests, individually and collectively; devising ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry. While OPEC still has considerable influence in determining the price per barrel of petroleum by restricting output, their success has greatly diminished since the 1970s. OPEC nations still account for two-thirds of the world's oil reserves, and, as of March 2008, 35.6% of the world's oil production, affording them considerable control over the global market.

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OPEC FUNCTIONS The OPEC Conference is held generally in March and September. Supreme authority, meets generally in March and September. It is headed by the official representatives of each Member Country. The Board of Governors directs management, draws up budget and the Secretariat carries out executive functions, consists of Secretary General and Research Division. The OPEC Secretariat is a permanent inter-governmental body Important Functions Of OPEC:

It Coordinates the oil production policies: The OPEC Member Countries coordinate their oil production policies in order to help stabilize the oil market. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil. The Member Countries also hold other meetings at various levels of interest, including meetings of petroleum and economic experts, country representatives and special purpose bodies such as committees to address environmental affairs.

Helps oil producers to achieve a reasonable rate: Decisions about matching oil production to expected demand are taken at the Meeting of the OPEC Conference. Details of such decisions are communicated in the form of OPEC Press Releases. It also helps oil producers achieve a reasonable rate of return on their investments.

Try to stabilize the market The Ministers of energy and hydrocarbon affairs meet twice a year to review the status of the international oil market and the forecasts for the future in order to agree upon appropriate actions which will promote stability in the oil market.

Maintaining stability in oil production Apart from this, the member countries also meet from time to time to discuss upon expected demand for petroleum in countries. 12

3. THE EUROPEAN ECONOMIC COMMUNITY (ECM) The European Economic Community or European common market (ECM) was founded in 1957. The EEC was formed under the treaty of Rome by six countries viz. France, West Germany, Italy, Belgium, Luxembourg and Netherlands. On January 1, 1973. Ireland, Denmark and United Kingdom become members of the community. The community was further enlarged as Greece becomes its member in 1981, followed by Portugal and Spain in 1984. History Of Formation Of European Union: 1) On 9th May, 1950, in Paris, French Foreign Minister Robert Schuman called France, Germany and other European countries to pool together their coal and steel production. These two sectors were most important in those days and were the basic of all military power. This was the first concrete foundation of a European federation. Hence 9th May is still celebrated as Europe day. 2) In April 1951, six countries (Belgium, France, West Germany, Italy, Luxembourg and the Netherlands) signed the treaty of Paris establishing the European Coal and Steel Community (ECSC). According to this treaty, these six countries abolished import duties on Coal and Steel, if imports are from these six countries. They also established same import duty in all six countries for Coal and Steel to be imported from rest of the world. 3) On 25th March 1957, the six countries signed treaty of Rome. As per this, not only coal and steel but also all goods, services, labor and capital were tariff-free within these countries and has common external (for rest of the world) tariff. It was creation of European Economic Community (EEC) as a common market for goods, services, etc. 4) European Atomic Energy Community was also created in 1957 to promote peaceful use of nuclear and atomic energy within six countries. In 1967, ECSC, EEC and EURATOM were merged together to be called as European Community (EC). 5) Encouraged with the results of EC, in 1970s, these countries started thinking of Monetary Unification. In 1979, European Monetary System (EMS) was formed. 6) In the process of European unification, some of the scholars like Monnet extensively forwarded the idea of economic, monetary and political unification of 13

Europe. Other group of nations in Europe, viz., Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK, were desirous to have free trade but did not like the idea of further unification. This group formed European Free Trade Area (EFTA) in 1958. in further sequence of events, most of the members of EFTA joined EC. 7) Single European Act came into force in 1986. on 7th February 1992, 12 EC members signed a Treaty at Maastricht (the Netherlands), which came into force on 1st November 1993. The EC changed its name to European Union (EU). The majority of the members committed themselves to the introduction of single European currency within ten years. Membership of EU is increasing and more countries are willing to participate. Article 2 of the treaty of Rome lays down that the community shall have as its task, by setting up a common market, to promote throughout the community a harmonious development by economic activities, a continuous and balanced expansion, an increase in stability and accelerated raising by the standard of living and closer relations between the member states belonging to it. The objectives of the community are: The elimination of custom duties and quantitative restrictions in exports and imports, as well as other measures having equivalent effect. Establishment of common customs tariff and common commercial policy. The abolition of obstacles to freedom of movement for persons, services and capital. The establishment of a system ensuring that competition in the common market is not distorted. Adoption of common policy is the sphere of transport. Application of procedures so that the disequilibrium in the balance of payments of member states can be remedied. The establishment of a European investment bank to facilitate the economic expansion of community. The association of overseas countries and territories with a view to increase trade and promote jointly economic and social development.

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The principle objective of the EC was the creation of a customs union with no internal tariffs barriers on intra-union trade. The member countries give up their individual tariff schedules and erect a common external tariff barrier for trade with non-union members. The working and achievements of the community include the following: Common Agricultural Policy (CAP): The economic community agreed upon a common Agricultural Policy (CAP).trade barriers do not exist for the movement of agricultural goods from one country to another. If there is excess demand over domestic production of farm products, imports from the outside world are allowed. With the adoption of CAP, EC has become self sufficient in agriculture. Common Fisheries Policy: The Common Fisheries Policy came into force in February 1971. The policy covers marketing of fresh frozen and preserved fish. It provides equal access to fishing areas for all EEC nationals, with provisions for certain kinds of offshore fishing. Factor Mobility: One of the objectives of the European Community was the free movement of persons, services and capital. The workers and their families can move from one member country to another without a permit. They have the same right to work and are subject to the same taxation as nationals of the concerned country. Regional Development Policy: The regional development policy aims at reducing the differences between the various regions and mitigating the backwardness of the less favoured.EC aimed at providing financial help to the backward areas of the member countries. Common Transport Policy: The common Transport Policy had 3 objectives; Elimination of obstacles which transport may put in the way of the establishment of common market. 15

Free movement of transport services within the member countries. General organization of the transport system with the EC.

Only the first objective has been achieved by the EC.

THE EUROPEAN MONETARY UNION (EMU) The European Council decided to establish the European Monetary System (EMS) in 1978, which started functioning in March 1979. The EMS has created an EC currency zone to unify their economies to stimulate growth. It established an Exchange Rate Mechanism (ERM) under which each country works to prevent wide shifts in the value of its currency. The currency of each country could fluctuate between the wide 6% band to the narrow 2.25% up to August 1993. The EMS established the European currency unit (ECU) which is the means of settlement between the EC currencies and central banks. The ECU is the weighted basket of all EC currencies and is calculated daily by the European commission. In 1994 the European Monetary Institute was created as transitional step in establishing the European Central Bank (ECB) and a common currency. ECB is responsible for setting a single monetary policy and interest rate for adopting nations, in conjunction with their national central banks. At the beginning of 1999, the same EU members adopted a single currency, the euro, for foreign exchange and electronic payments (Greece, which did not meet the economic conditions required until 2000, subsequently also adopted the euro). The introduction of the euro four decades after the beginnings of the European Union was widely regarded as a major step towards European political unity. Euro coins and notes began circulating in January 2002, and local currencies were no longer accepted as legal tender two months later. Of the European Union membersDenmark, Great Britain, and Sweden- that did not adopt the euro when it was introduced perhaps the most notable is Britain, which continues to regard itself as more or less 16

separate from Europe. None of the ten EU members admitted in 2004 has yet adopted the euro.

India And The EC India has entered into a commercial and economic cooperation agreement with the European Community. The ECs share in Indian foreign trade has not changed over the years. Indias exports to the community in 1970-71 were 18.4% of the total exports, which increased to 26.6% in 1994-95. Though, the Indian exports to the EC has increased, they amount to just 0.6% of imports of the community. There are two elements in the communitys relations with India. Trade cooperation: The EC has entered into a commercial agreement with India for the import of textiles under the Multi Fibre Agreement (MFA). Under this, India exports textiles and clothing to EC. Development Aid: This includes cooperation in science and technology, energy and human resources. The aim of the EC is to help the Indian industry improve its technology, reduce production costs, produce to standards acceptable to European buyers and acquire greater familiarity with the European business centre. For this, EC has funded a number of training programs and programs for trade promotion of Indian products. The EC has passed a legislation, whereby the following export products are required to meet EC standard and certification. Food and food products, Drug and pharmaceuticals, Durable consumer good including electrical equipment. 17

Manufacturers whose products do not conform to standards will be barred from entering the EC. The EC experts visit India to advise manufacturers as well as testing laboratories. During 1995-96, the community donated $240 million to Indias reform program for the health and family welfare sector. The individual EC countries are contributing to a 5 years program whose total cost is ECU one billion. All the funds are provided as a grant.

Critical Appraisal The European Community has achieved its objective to remove the obstacles to the free movement of goods, services, capital and labour among the member countries. Over the years, trade has expanded and a vast common market has been created. The member nations have enjoyed high rates and investment and growth in income. The community has been successful in creating ECU as a bulwark against the hegemony of the dollar. The EC has also signed special association agreements with East European countries. Despite its achievement, the EC has not been successful in achieving a complete economic and political union. There has been no harmonization of fiscal measures and it has failed to evolve a common transport policy. Regional disparities within member countries persist. But the trade creation effects have been much stronger so that the total trade of the community with the outside world has increased manifold.

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4. THE NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) NAFTA was initiated by the government of President George Bush, but it was concluded by the Clinton Administration. NAFTA came into being on January 1, 1994 with USA, Canada and Mexico as members. The three countries agreed to phase out tariffs over a period of 15 years. The free trade area between USA and Canada was established in 1988 and they had close trading ties. With the inclusion of Mexico, some labor intensive industries might do well. It is fundamentally a trade and investment agreement created with a view to reduce barriers in the flow of goods, services and people among these three countries. The agreement covers goods and services that are either produced in North America or that meet certain local content requirements. For example, a German company manufacturing its products in North America and meeting these standards will qualify for the same benefits as any American company. The areas covered by the agreement are: Tariff reduction Free movement of professionals among the three countries Financial and Direct Investment matters Consumer Safety Specific issues relating to protection of labor Specific issues relating to protection of natural environment 19

The Objectives Of NAFTA Are: 1. Protection for investment in the sense that no investment can be expropriated without full compensation 2. The creation of a special fund to retain workers and offer financial support to industries adversely affected by its passage. 3. The creation of US-Mexico border Environmental Commission that could require up to $8 billion addressing water and airing pollution and cleanup toxic waste dumps. 4. Substantial tariff reduction over 10 year period. Eg: US will eliminate tariffs on automobiles assembled in Mexico and Mexico will reduce tariffs on US built cars and trucks. 5. Lowering barriers for easier movement of goods across borders. 6. More access to financial services. Eg: NAFTA will dismantle Mexicos ban on US banks and brokerage services. Also, US banks will be allowed up to 25% of Mexicos market and brokerage up to 30% of Mexican market. 7. The creation of North American Development Bank to assist in environmental cleanups and to provide trade adjustment assistance to communities adversely affected by NAFTA. 8. The creation of special offices to investigate environmental abuses and labor abuses in Canada and US respectively. 20

RECENT DEVELOPMENTS Though a slowdown was experienced in the world economy after the September 11 2001, NAFTA still continues to provide benefits to its customers, farmers, workers and businessmen in Canada, Mexico and US. The members of NAFTA are working towards improving trade liberalization within North America. NAFTA has lowered trade barriers which have contributed to expansion of trade in all three countries. Between 1994 and 2002, trade among the NAFTA members has increased by 109% from US$297 billion to US$622 billion. An important effect of NAFTA is the gradual shift of capital, technology and new job opportunities in all the three countries towards more effective uses. As a result, there has been a rise in productivity and standards of living. The NAFTA members have not ignored the importance of environmental protection too and hence have promoted various projects in its goal towards enhancement of environment and public health. NAFTA members have extended their hands to promote trade liberalization in other trade areas. The steps in this direction include: In 2001, a summit was organized by Canada in which 34 democratically elected leaders of the Western Hemisphere participated. The main proposal in the summit was to work together to ensure that the Free Trade Area of the America (FTAA) negotiations continue towards the goal. 21

In November 2002, US assumed co-chairmanship of the FTAA negotiations with Brazil.

NAFTA is an attempt to move the economies of North America towards a scenario whereby a company that is based in any one of the three countries can freely conduct its business across all three borders, as long as certain basic standards are met. The long-term objective of the agreement is to bring into its fold, the countries of North and South America.

5. THE UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD) The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body, UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment and development issues. The organization's goals are to "maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis.". The creation of the conference was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations. In the 1970s and 1980s UNCTAD was closely associated with the idea of a New International Economic Order (NIEO). Currently, UNCTAD has 191 member States and is headquartered in Geneva, Switzerland. UNCTAD has 400 staff members and an annual regular budget of approximately US$50 million and US$25 million of extra budgetary technical assistance funds. The primary objective of UNCTAD is to formulate policies relating to development aspects including: Trade 22

 Aid Transport Finance Technology The Conference ordinarily meets once in four years. The UNCTAD I was held at Geneva in 1964. Since then such conferences are being held every four years. The UNCTAD IX was held at Madrid in 1996. The conference has its permanent secretariat at Geneva. The UNCTAD has the following functions laid down by the UN General Assembly. To promote international trade among countries, especially

for accelerating the economic development of LDCs This embraces measures for safeguarding the interests of poorer countries in the international trading system, dealing with market failures, particularly in trade in commodities and negotiating modalities for state intervention for this purpose, coping with restrictive business practices both at the national and international levels, relating trade to wider variables determining the development process like finance, money, technology etc. To formulate principles and policies of international trade. Herein lay the principal negotiating role of UNCTAD. UNCTAD was thus mandated to formulate soft laws which are morally binding, and should guide policies and actions across the entire spectrum of trade and related development issues. As it happened, the greatest success of UNCTAD lay in this area. To facilitate the coordination of activities of other

international organisations within the UN in the field of international trade and related problems of economic development.

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By this provision, UNCTAD was made the principal instrument for the General Assembly and the ECOSOC to discharge their holistic role under the Charter in the economic field. policies. This can be a basis for putting forward proposals for technical cooperation. To act as a center for harmonious trade related development To make proposals to implement the said principles and

policies of governments and regional economic groupings. Article I of the U.N. Charter provides, among the purposes of the UN, that the Organization will be the centre for harmonizing the activities of nations in the attainment of the common ends of the Organization. Implicit in this purpose of UNCTAD, is the obligation of all Member States to subject their trade and related development policies to discussion and possible harmonization at the UNCTAD forums.

The UNCTAD is supposed to fulfill the following objectives that have evolved gradually from the various conferences. 1. Trade in Manufactured Goods (GSP) Under GSP, the exports of manufacturers, semi-manufacturers and some agricultural items from the developing countries enter duty-free or at reduced rates in to the developed countries. Suppose the United States imposes 25% customs duty on import of hand tools. Under GSP, export of hand tools India to US will not be subjected to that duty. Initially the GSP scheme was introduced for a period of ten years but this period has been extended. There are now 14 GSP schemes in operation in 29 preference giving countries (including the 15 member European Union). The three major importing areas - the EU, Japan and the US, account for more than 90% of total preferential imports. 24

Even after two decades of operation of GSP schemes, the preferential imports account for less than one-fourth of the durable imports of the OECD countries. 2. Trade in Primary Commodities The prices of primary products undergo high level of fluctuation in the international markets. This causes hardship to many developing countries, as their total foreign exchange realization from the export of primary products becomes uncertain. UNCTAD has suggested the creation of a common fund in order to stabilize the prices of primary products through buffer stocks. By this, the exporters of primary products will be able to realize higher prices and the importance of such primary products will not be subjected to the uncertainty of price fluctuations (which sometimes are the result of speculative activity). 3. Development Finance Right from the UNCTAD III member countries have been voicing their concern over their balance of payment deficits and indebtness. Over the years, the UNCTAD meetings have failed to solve problems of debt and development of LDCs. These meetings have been conducted to exchange ideas rather get things done. According to the Economist- the UNCTAD has lost the initiative on debt to the IMF and on development to the World Bank. The IMF has the confidence of western bankers and governments. The debt issue has been taken over by the IMF because it acts as a bank itself and the World Bank has both money and effective advice to promote development. 4. Economic Cooperation among LDCs UNCTAD II held at New Delhi in 1968 emphasized he need to promote international cooperation and self-reliance among the LDCs. The first step towards economic cooperation among LDCs was taken at the ministerial meeting of G-77 (held in New York) where it was decided to launch the Global System of Tariff Preferences (GSTP). The UNCTAD VI recommended the initiation of a number of cooperative measures such as: 25

Harmonization of LDCs, policies, rules, regulations and practices governing technology in all aspects. Training and exchange of personnel. Establishment of preferential agreements, for the transfer and development of technology. Technological cooperation in specific areas and sectors of critical importance.

There are many factors, which stand in the way of economic cooperation among the LDCs. The economies of LDCs are highly competitive in nature but their problems can be overcome by mutual help and trust. The LDCs need to work in close cooperation. UNCTAD is a forum where they can meet, discuss and formulate plans for regional economic cooperation. 25 April 2008 UNCTAD XII Adopts Wide-Ranging Conclusions Against the backdrop of surging food prices and global economic uncertainties, UNCTAD XII ended with adoption of comprehensive conclusions aimed at reinforcing international efforts to extend gains from globalization to the millions being left behind UNCTAD Secretary-General Supachai Panitchpakdi hailed the Accra Accord and its accompanying political declaration for embodying the shared commitment of the developing and developed world to work toward making globalization a powerful means to achieve poverty eradication. Quoting Ghanaian President John Kofi Agyekum Kufuor, whose country hosted the conference, Dr. Supachai referred to a new mood of development solidarity around the objective of narrowing gaps between countries and achieving the Millennium Development Goals, which include halving extreme poverty by 2015. Speaking at the end of the twelfth ministerial meeting of the United Nations Conference on Trade and Development, Dr. Supachai also vowed to strengthen the organizations work on commodities, including agriculture, in the face of the crisis provoked by surging prices for basic food items. He said the organization had important role to play in 26

promoting policies that bolster agricultural sectors in developing countries. These include increased aid, investment and technology transfers. It could also highlight market distortions and back policies that lead to higher incomes for small producers. This was part of a UN-wide drive to cope with the short, medium and long-term aspects of the food crisis, Dr. Supachai said. The Accra Accord highlighted the challenges facing many developing countries as they strive to integrate successfully into the international economic and financial system and set out a detailed agenda for progress in economic and social development spanning areas ranging from commodities, trade and debt to investment and new technologies. While welcoming the strong economic growth rates that global trade and investment flows have brought many in the developing world, UNCTAD XII cautioned that these advances have not been shared by all and have been accompanied by new difficulties, most notably the current crises in food prices and financial markets, as well as growing income inequalities. The Accra Accord and Accra Declaration are the final documents of the 12th session of the United Nations Conference on Trade and Development (UNCTAD XII) in Accra, Ghana, 20-25 April 2008. The Accord highlights information and communication technology (ICT) and transport and trade logistics (TTL) as part of the issues to be focused on by UNCTAD for the next four years.

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