INTERNATIONAL BUSINESS ASSIGNMENT-II

MANISH KUMAR CHANDAN 11MBA0061 BATCH - A

Q1: Carry out a comparison of trade openness of your country with major economies of the world. Also examine its changes over the last two decades. Explore the reasons for the same.

TRADE OPENNESS OF INDIA

Trade openness refers to degrees to which countries and economies permits or have trade with other countries and economies.Opening up local markets to foreign competition and foreign direct investment (FDI) can lead to a more efficient allocation of resources that will result in productivity improvements in domestic industries and higher overall output. The Indian economy has seen dramatic changes in the last 20 years, thanks largely to the economic reforms introduced by the P V Narasimha Rao government in 1991. One way of measuring that change would be to see how India s merchandise trade has performed in this period. Exports have grown rapidly. At $18 billion in 1991-92, they were about seven per cent of India s gross domestic product (GDP). By 2010-11, exports increased to $246 billion, equivalent to 14 per cent of GDP. Imports, too, grew fast in this period from about $20 billion or eight per cent of GDP in 1991-92 to $350 billion in 2010-11, amounting to almost 20 per cent of GDP.

INDIAdS Nation:

Trad e

openness

with

Developed

INDIA-NETHERLANDS TRADE RELATIONS

The total two-way trade between India and Netherlands has been steadily increasing. It crossed 1 billion mark for the first time in 1997, the 2 billion mark in 2005, the 3 billion mark in 2007, the 4 billion mark in 2009 and the 5 billion mark in 2010. Total bilateral trade with the Netherlands in 2010 showed an increase of 23.59 %. Total trade between India and the Netherlands has grown over 80.72% in the period 2006 - 2010. Exports from India to the Netherlands in these five years have increased 97.57 % while Dutch exports to India increased by 55.34 %. The Balance of Trade has been in India s favour since 1992. In 2010, it stood at 1573.97 million in favour of India.

Political Relations:
Independent India was, in Dutch eyes, a developing country and a sturdy democracy, but one struggling at that time, with several political, social and economic issues. While there were some bilateral visits (Prime Minister Jawaharlal Nehru in 1957; Crown Princess Beatrix in 1962) the Netherlands was engaged in rebuilding its economy after World War II in an emerging Europe. The Netherlands focus on India increased after the economic

liberalization programme gathered momentum in the 1990s. The Netherlands is an important player in the global energy market and is a member of NSG.

Netherlands investments in India:

The Netherlands ranks 5th in the list of countries in terms of cumulative FDI inflows into India during the period April, 2000, to March, 2011, with fresh inflows, not including reinvestment of dividends etc, amounting to US $ 5.7 billion which was 4 % of total inflows into India during the above period. A large number of Dutch majors like Philips, Royal Dutch/Shell, Unilever (Hindustan Lever in India), ABN AMRO, ING, Rabobank, KLM (Koninklijke
Luchtvaart Maatschappij - operates daily direct flights to Delhi, Hyderabad and with North-West Airlines to Mumbai. Several alternative routes via Frankfurt, Moscow, London, Paris, and Vienna are also available on, inter alia, Air India.)

India investments in Netherlands:

The Netherlands is also gradually becoming an attractive destination for investments from India and figures amongst the top destinations. The Government of India cleared proposals worth about $ 11.463 bln for investments by Indian organizations in the Netherlands during the period 1996 - 2010. Some of the big corporate houses from India, like TCS, HCL, Wipro, Infosys, Satyam, Moser Baer, Safal, Suzlon, ONGC Videsh, to name a few, have already based their Europe-wide operations and have impressive business portfolios in the Netherlands.

Indian Exports to Netherlands:

Major part of exports are taken by mineral products, machines; electronic goods; sound recorders & reproducers, textile fabrics & textile goods, products of the chemicals and related industries, transport equipment, products of vegetable origin. India, Netherlands bilateral trade to scale new heights for pharmaceutical products, tobacco & manufactures, preparations of vegetables, fruit, nuts, plaster, cement, textile & garments, electronics & computer software, light engineering products, light commercial vehicles, tractors and sports goods.

Netherlands Exports to India:

Machines; electronic goods; electrical machinery, products under this group included radio and television transmitters; ballasts for tubes, transformers, etc; circuit breakers; Products of the chemical and related industries, pharmaceutical products, Non-precious metals and their products (Iron & steel), Optical, photographic, cinematographic, measuring medical or surgical instruments and accessories, including: photocopier machines and parts; x-ray equipments; medical prostheses; navigation instruments and binoculars; plastics, rubber, wood pulp, paper and carton.

Conclusion:
As per my study India and Netherlands should create a bilateral workgroup in India which aims
to remove the barriers with regard to plant health between India and the Netherlands. Agriculture is

more area where both of them show their interest to develop each other. Above I have mentioned about education but Netherlands Government should design a framework under which special fellowship programmes. More focus should be provided on water management, environmental management, development cooperation and sustainable energy by bringing out more MOU s.

INDIAdS Trad Openness With Developing Nation. e

INDIA-SRILANKA TRADE RELATIONS
India s friendly relations with Sri Lanka were further strengthened by exchange of visits and collaboration in political, Technological and economic fields. The Indo-Sri Lanka free trade agreement (ISFTA), which was signed on 28th December 1998 and entered into force with effect from 1 march 2000, aims at promoting economic linkage between India and Sri Lanka through enhancement of bilateral trade and investment. The agreement covers only trade in goods and requires the two countries to offer market access for each other exports on duty free basis and concessionary tariffs. The ISFTA does not provide for elimination of non tariff barriers. The balance of trade between India and Sri Lanka, which has always been in favour of India, continued to widen over the years. The bilateral balance of trade exceeded US$ 2Billion (US$ 2,268.6 Mn) in 2007, which was the highest trade gap between the two countries in favor of India. This was mainly due to the increase outlay on major import items from India, such as petroleum products, iron or steel & its' articles, cotton. Import from India in terms of value increased from US$ 1.8 billion in 2006 to US$ 2.8 billion in2007 registering an increase of 52%. Sri Lanka s exports however, grew only by 4.5%from US$ 494.1 million to US$ 516.4 million in 2007 resulting in a huge trade gap.

India exports to Sri Lanka:

India, which ranked as the 16th largest export destination of Sri Lanka in year 2000, emerged as the 3rd largest buyer in 2003. Accounting for 6.7% of Sri Lanka s total exports to the world, India remained the island s 3rd largest buyer in the year 2007. At present, more than 70% of the total value of Sri Lanka s exports enters India under the tariff preferences offered through the ISFTA. Currently India is exporting (top) Gems and jewellery, RMG cotton including accessories, cotton yarn, fabrics, drugs pharmaceuticals and special chemicals, petroleum crude, manufacture of metals, primary and semi-finished iron and steel products, marine products, manmade yarn fabrics, transport equipments, plastics and linoleum products, electronic goods, inorganic/organic chemical, iron ore, Rice, non-basmati and automobiles.

Sri Lanka exports to India:

Export from Sri Lanka to India increased by 4.5 % from US$ 494.06 Million in 2006 to US$ 516.40 Million in 2007. It is observed that in 2007, several major product categories recorded increases, when compared with 2006. 73.7% of Sri Lankan total exports to India in 2007 and recorded 67% growth when compared with 2006. Sri Lanka exports Vegetables,

vegetable oil, animal fat oils, copper products, electrical machinery, coffee, tea, rubber,
fabric, garment, accessories, baby garments to India.

Conclusion:
As Compare to Sri Lanka, India is pumping FDI in Sri Lanka for the rehabilitation of 280,000 internally displaced persons living in government camps. Well, this is something which Indian Government is doing but apart from that public sector units, (PSUs) are queuing up to invest big time. As National Thermal Power Corporation & Ceylon Electricity Board joint venture working on 500 megawatt, $500 million power plant,Power Grid Corporation wants to set up an undersea transmission link between the two countries,Larsen & Toubro (L&T) Construction and engineering dept. built 59 storeys in Colombo.

Q2: Under the "most favoured nation" principle of the WTO framework, no member country can discriminate among its members where as the PTAs are based on the principle of preferential treatments to its members and discriminatory treatment of non-members. This is against the fundamental of multilateralism under the WTO. How do you justify the legal status of PTAs under the WTO? Discuss your arguments in details.

LEGAL STATUS OF PTAs UNDER WTO

One of the exceptions to the Most Favoured Nation clause of Article I GATT 1994 agreement is the Preferential Trade Agreement. Article V of GATS and Article XXVI of GATT both rule out partial preferential trade agreements, because PTAs are put a threat on the multilateral process of trade liberalization. PTAs create a diversion from the low-cost, non-members and to high cost, member suppliers. This imposes a welfare cost on the PTAs and also on the whole world as the increase in price has to be paid by the trade going on in the world economy and not just by one country alone because if the cost increases for one then it increases for all the subsequent users. Agriculture is the victim as it was traditionally not included in the FTAs but under WTO it is included and subject to dispute settlement. The last twenty years has seen an unparalleled flurry of new preferential trading arrangements across the world: about two thirds of all PTAs notified by December 2006 were notified during the WTO years. Several countries have negotiated PTAs in sequence: so the EU, Mexico and Singapore are now hubs in a complex network of agreements. About 92% of PTAs notified as of December 2006 were free trade areas; but some of the most significant PTAs in share of trade (the EU and MERCOSUR) are customs unions and in the latter case, whether customs unions or free trade areas form on the path to global free trade. These questions are related because of WTO rules which define the two

sorts of PTA: customs union insiders must harmonize tariffs, so they can only participate in a new PTA if they leave the customs union or if all fellow insiders also join the PTA; whereas free trade area insiders set their tariffs independently, and may therefore form another PTA without consulting their fellow insiders. WTO rules allow countries to form closed or open access PTAs: entrants must secure the assent of existing insiders to join a closed access PTA, but can choose unilaterally whether to join an open access PTA. According to the literature, mandating open access would promote global free trade. By contrast, I use a variant on our model to explain why no countries have formed an open access PTA under existing rules: open access bilateral PTAs are dominated by closed access bilateral PTAs if they result in strategic positioning; and are otherwise dominated by a trilateral PTA.

Conclusion:
According to conventional wisdom, international public goods have only been provided by a hegemon which is prepared to incur an undue burden: a theory which can allegedly explain why progress in post-war trade negotiations was typically achieved via GATT rounds before the mid-'80s, and via bilateral agreements thereafter: the trigger for regime change being the US's willingness to negotiate bilaterally, as of 1982. However, it is unclear why a US commitment to multilateral negotiations deterred other countries from forming PTAs. I use a variant of my model to answer this question. If all countries are prepared to negotiate bilaterally and PTA insiders are the relative beneficiaries then it is unprofitable to make a multilateral proposal, as every country must then be compensated for not exercising its outside option of forming a PTA. By contrast, only two countries need be compensated if one country is committed to multilateral agreements; and it is then profitable to make multilateral proposals. While this argument addresses the critique of conventional wisdom, it is inconsistent with the tenor of the related literature: for I show that the hegemonic role can be undertaken by any of the symmetric countries. .