Chapter - 9

International Trade

Unit 1 : Theories of International Trade

Topic: Introduction
International trade involves the exchange of goods, services, and resources between
different countries.

It involves transactions between residents of different countries.

Topic: Benefits of International Trade

(1) Powerful stimulus/incentive to economic efficiency & contributes to economic
growth and rising incomes.

(2) Efficient deployment/use of productive resources to their best use is a direct economic
advantage of foreign trade. Greater efficiency in the use of resources ensures productivity
gains. It also tends to decrease the likelihood of domestic monopolies; it is always
beneficial to the community.

(3) Trade provides access to new markets and new materials & enables sourcing of inputs
internationally at competitive prices. This reflects in innovative products at lower prices
and wider choice in products and services for consumers.

It also enables nations to acquire foreign exchange reserves necessary for imports
which are crucial for sustaining their economies.

(4) International Trade necessitates increased use of automation, supports

technological change, stimulates innovations, and facilitates greater investment in
research and development and productivity improvement in the economy.

(5) Trade also provides greater stimulus to innovative services in banking, insurance,
logistics, consultancy services etc.

(6) For emerging economies, improvement in the quality of output of goods and services,
superior products, finer labour etc. enhance value of products & enable them to move up
the global value chain.
(7) Opening up of new markets results in broadening the productive base and facilitates
export diversification so that new production possibilities are opened up.

(8) Trade can also contribute to human resource development, by facilitating

fundamental and applied research & exchange of know-how & best practices between
trade partners.

(9) Strengthens bonds between nations & thus, promotes harmony & cooperation in
nations.

Topic: Arguments against International Trade / Disadvantage of

international Trade
1. International trade may not equally benefit all nations due to unequal market access
and a lack of fair-trading principles, which can exacerbate/worsen disparities, especially
among wealth-diverse countries.

2. Underprivileged countries are vulnerable to economic exploitation by powerful global

corporations, which can outperform domestic entities.

3. Extensive environmental damage and rapid resource depletion can have severe negative
consequences for society.

4. Economic crises and trade cycles in one country can quickly spread to others, leading to
global economic instability.

5. Underdeveloped countries' dependence on foreign nations can impair economic

autonomy and political sovereignty, risking exploitation and loss of cultural identity.

6. Overreliance on exports can lead to a distortion of a country's actual investment

priorities.

7. Lack of transparency and predictability in trade policies of trading partners, as well as

the risks associated with changes in governments' policies, can pose challenges in
international trade.

Topic: Theories of International Trade

• (1) The Mercantilists' View of International Trade
• (2) The Theory of Absolute Advantage
• (3) The Theory of Comparative Advantage
• (4) The Heckscher-Ohlin Theory of Trade
• (5) New Trade Theory - An Introduction
Topic: The Mercantilists' View of International Trade
Mercantilism, which is derived from the word mercantile, "trade and commercial affairs".
Mercantilism according to Microsoft Encarta Dictionary (2009), is the economic policy
trending in Europe from the 16th to the 18th centuries, where the government used power
to control industry and trade with the theoretical belief that national power is achieved and
sustained by having constant large quantities of exports over imports.

Nations' human and material resources are unevenly endowed, distributed and developed.

This allows flow of labour, raw materials, capital and finished products across national
boundaries and markets thus resulting in "mercantilism" as the earliest international
economic system that proposes massive and aggressive export over import to accumulate
wealth, to have favourable balance of payment and trade and to be still relevant in today's
economy.

Topic: The Theory of Absolute Advantage

According to Adam Smith, a country will specialize in production & export of commodity
in which it has an absolute cost advantage

The principle of absolute advantage refers to the ability of a party (an individual, or firm, or
country) to produce a greater quantity of a good, product, or service than competitors,
using the same number of resources.

Adam Smith described principle of absolute advantage in the context of international

trade, using labor as the only input.

Exchange of goods between two countries will take place only if each of two countries
can produce one commodity at an absolutely lower production cost than the other
country.

A has absolute advantage in production of samosa so country A will - export & specialize in
production of Samosa.
B has absolute advantage in production of Gulab jamun so country B will export &
specialize in production of a Gulab jamun.

The above theory explained that mutually gainful trade is possible.

Topic: The Theory of Comparative Advantage

This law, given by this theory was given by David Ricardo observed that trade was driven by
comparative rather than absolute cost. Recardo's insight was that such a country would
still benefit from trading, according to comparative advantage exporting products in which
absolute advantage was greatest and importing products in which absolute advantage was
comparatively less.

Douglas Irwin (2009) calls comparative advantage "good news" for economic
development. "Even if a developing country lacks an absolute advantage in any field, it will
always have a comparative advantage in the production of some goods," and will trade
profitably with advanced economies.

Topic: The Heckscher- Ohlin Theory of Trade

This theory is also known as Factor-Endowment (Available) Theory of Trade (or Modern
Theory of Trade or Heckscher-Ohlin Samuelson theorem.

This theory states that comparative advantage in cost of production is explained

exclusively by the differences in factor endowments of the nations.

Factor endowment' refers to the overall availability of usable resources- labour &
capital

It states that a country tends to-

• specialize in the export of a commodity whose production requires intensive use

of its abundant resources and
• imports a commodity whose production requires intensive use of its scarce
resources.

 Capital abundant country- Produce and export capital- intensive goods relatively
more cheaply than other countries.
 Labour-abundant country- Produce and export labour- intensive goods relatively
more cheaply than another country.
Topic: Globalization & New International Trade Theory
American economist & Journalist Paul Krugman received 2008 Nobel Prize for Economics
for his work in economic geography and in identifying international Trade Patterns. In late
1970s, Krugman noticed that the earlier model did not fit into the international trade data.

The Heckscher- Ohlin model predicted that trade would be based on such factors as
Ratio of capital to Labour.

But Krugman noticed that most of the international trade takes place between countries
with roughly the same ratio of capital to labour.

Krugman defended free trade -> Trade without Tariff

Krugman in praise of cheap Labour published in slate in 1997

Paul A Samuelson: The factor price equalization theorem.

Topic: New Trade Theory (NTT)

New Trade Theory helps in understanding why developed & big countries are trade
partners when they are trading similar Goods & Services.

Eg- electronics, IT, cars etc.

Those countries with the advantages will dominate the market and the market takes the
form of monopolistic competition.

Two key concepts give advantages to countries that import goods to compete with
products from the home country

(1) Economies of Scale- If firm serves domestic as well as foreign market then it can
reap benefit of large scale of production & increase profits.

(2) Network Effects- The value of goods and services is enhanced as number of individuals
using it increases. This is called bandwagon effect. Consumers like more choices but
they also want goods and services with high utility and network effect increases utility
Eg- What's App and software like Windows.
 Unit 2 - The Instruments of Trade Policy

Topic: Tariff
Tariff is known as custom duties imposed on goods and Servies which are imported or
exported

In this unit, tariff would refer to import duties

Tariff leave the world market price of the goods unaffected while raising their prices in
the domestic market.

Free Trade- Buyers and sellers from separate economies voluntarily trade with minimum
of state (govt.) interference (without Tariff)

FTA - Free Trade Agreement

Protectionism: It is a state(govt.) policy aimed to protect domestic producers against

foreign competition through the use of tariffs, quotas and non-tariff trade policy
instruments.
Trade liberalization: It refers to opening up of domestic markets to rest of world by
lowering trade barriers.

Trade policy: It consists of all instruments that government may use to promote or
restrict imports & exports.

Topic: Types of Tariffs

(1) Specific Tariff- It is fixed amount of money per physical unit or according to weight or
measurement of commodity imported or exported.

e.g. - 10000 tariffs per cycle.

(2) Ad Valorem Tariff- When duty is levied as fixed percentage of value of traded
commodity.

i.e. A 30% ad valorem tariff on any American cycle.

(3) Mixed Tariffs- They are expressed either on basis of value of imported goods (an ad
valorem rate) or on basis of a unit of measure of the imported goods (a specific duty)
whichever is higher.

For E.g. duty on American cycle: 10% ad valorem or Rs. 4000 fixed taxes, whichever is
higher.

(4) Compound Tariff- It is generally calculated by adding up a specific duty to an ad

valorem duty.

Thus, on an import with quantity q and price p, a compound tariff collects a revenue

where t is the specific tariff and ta is the ad valorem tariff for example: duty on samosa at
10% ad-valorem plus 200 per kilogram.
(5) Technical/Other Tariff- These are calculated on the basis of the specific contents of
imported goods i.e. duties are payable by its components or related items.

For Eg- Rs. 10000 on each E-rikshaw plus Rs. 100/per kg on battery.

(6) Tarrif Rate Quota- TRQs combine two policy instruments quotas and tariffs Imports
entering under specified quota(limit) portion are subject to lower or zero tariff rate.
Imports above quantitative threshold of quota face a much higher tariff.

(7) Most-Favoured Nation Tariffs-Import tariffs which countries promise to impose on

imports from other members of WTO, unless country is part of a preferential trade
agreement. In practice, MFN rates are the highest that WTO members charge each
other.

Some countries impose higher tariffs on countries that are not part of the WTO.

(8) Variable Tariff- A duty typically fixed to bring the price of an imported commodity up
to level of the domestic support price for the commodity.

(9) Bound Tariff- A WTO member binds itself with legal commitment not to raise tariff
rate above a certain level (maximum level of import duty). A member is always free to
impose a tariff that is lower than bound level. Once bound, a tariff rate becomes
permanent and a member can only increase its level after negotiating with its trading
partners and compensating them for possible losses of trade.

(10) Preferential Tariff - Countries promise to give another country's products lower
tariffs than their MFN rate. These agreements are reciprocal, Examples are preferential
duties in the EU region under which a good coming from one EU country to another is
charged zero tariff rate. Countries, may also grant 'unilateral preferential treatment' Eg-
Generalized System of Preferences (GSP).

(11) Applied Tariffs- Duty that is actually charged on imports on a Most- Favoured
Nation (MFN) basis. Applied tariff should not be higher than the bound level.

(12) Escalated Tariff- Tariff rates on imports of manufactured goods are higher than
tariff rates on intermediate inputs and raw materials.

For example, a 5% tariff on raw material of cycle and 10% tariff on American cycle. This
type of tariff is discriminatory as it protects manufacturing industries in importing
countries and adversely affects industries of exporting countries.

(13) Prohibitive tariff - It is set so high that no imports can enter

(14) Import subsidies- It is simply a payment per unit or as percent of value for
importation of a good (i.e., a negative import tariff)

(15) Tariffs as Response to Trade Distortions- Countries affected by 'unfair' foreign-

trade practices, respond quickly by measures in the form of tariff responses to offset
the distortion. (it is also known as "trigger-price" mechanisms)

(16) Anti-dumping duty (ADD) - It is a protectionist tariff that a domestic gov imposes on
imports that it believes are priced below fair market value.

• Dumping may also be resorted to as a predatory pricing practice to drive out

domestic producers from market & to establish monopoly.
• Dumping is unfair and threat to domestic producers and thus ADD is charged.
This is justified only if the domestic industry is seriously injured by import
competition, and protection is in national interest.

(17) Countervailing duties- CVD is charged in an importing country to offset advantage

that exporters get from subsidies (from their govt.) to ensure fair pricing of imported
goods and thus protecting domestic firms.

Topic: Effects of Tariffs

(1) Create obstacles to trade, decrease imports & exports market access of exporting
country is worsened.

(2) Tariffs discourage domestic consumers from buying imported foreign goods.
Domestic consumers suffer a loss in consumer surplus.

(3) Tariffs encourage consumption and production of the domestically produced

import substitutes and thus protect domestic industries.

(4) Producers in importing country experience an increase in wellbeing. Increases

producer surplus of domestic - producers.

(5) The price increase induces an increase in output of the existing firms and possibly
addition of new firms to industry to take advantage of high profits and consequently
increase in employment.

(6) It discourages efficient production in rest of world and encourage inefficient production
in home country, by disregarding comparative advantage of foreign countries.

(7) Tariffs increase government revenues of importing country.

Topic: Non-Tariff Measures (NTMs)
Non-tariff measures comprise all types of measures which alter (Change) the conditions
of international trade, including policies and regulations that restrict trade and those
that facilitate it.

NTMs are divided into technical measures and non-technical measures.

Topic: Technical Measures

1. Sanitary & Phytosanitary (SPS) Measures

2. Technical Barriers to Trades (TBT)

Topic: Technical Measures

1. Sanitary & Phytosanitary (SPS) Measures

These are applied to protect human, animal or plant life from risks arising from
additives, pests, etc. or disease-causing organisms and to protect biodiversity.

These include ban or prohibition of import of certain goods, all measures governing
quality and hygienic requirements. For Eg- prohibition of import of poultry from
countries affected by avian flu etc.

2. Technical Barriers to Trades (TBT)

It Covers both food and non-food products refer to mandatory 'Standards and Technical
Regulations' define specific characteristics that product should have, like size, design,
packaging, etc. excluding measures covered by SPS. -

Conformity assessment procedures (e.g. testing, and certification) are done for this.

Eg: food laws, quality standards etc.

Topic: Non-Technical Measures

Non-technical measures relate to trade requirements: for example: shipping
requirements, custom formalities, trade rules, taxation policies, etc.

These are further distinguished as:

(1) Hard measures (e.g. Price and quantity control measures),

(2) Threat measures (e.g. Anti-dumping and safeguards) and

(3) Other measures such as trade-related finance and investment measures.

furthermore, classification also distinguish between

(a) Import-related measures imposed by importing country, and

(b) Export-related measures imposed by exporting country itself

(c) Procedural obstacles (PO) practical problems in administration, transportation,

delays in testing, certification etc. which makes it difficult for org. to comply.

Topic: Types of non-technical measures

(1) Import Quotas direct restriction which specifies that only certain physical amount of
good will be allowed into country and are usually enforced by issuing licenses.

• Binding Quota- They are set below the free trade level of imports and are usually
enforced by issuing licenses.
• Non-binding quota- It is set at or above the free trade level of imports, thus having
little effect on trade.
• Tariff rate quotas (TRQs) combine two policy instruments namely quotas and
tariffs.
• Absolute quotas or quotas of a permanent nature- They limit quantity of imports
to a specified level during a specified period of time and imports can take place any
time of year.

❖ Seasonal quotas and

❖ Temporary quotas

With a quota, government receives no revenue. The profits received by the holders of
such import licenses are known as 'Quota rents'.

If quota is set below free trade level, number of imports will reduce.

(2) Price Control Measures- These are steps taken to control prices of imported goods
in order to support domestic price of products when import prices are lower.

Also known as 'para-tariff' measures and include measures, other than tariff measures,
that increase cost of imports by a fixed percentage or by a fixed amount.

Eg: A minimum import price established for Sulphur.

(3) Non-automatic Licensing and Prohibitions- These are aimed at limiting quantity of
goods that can be imported, regardless of whether they originate from different
sources--c or from one particular supplier.

These measures include non-automatic licensing, or complete prohibitions. Eg- India

prohibits import/exports of arms and related items from/to Pakistan.

(4) Financial Measures-The objective is to increase import costs by regulating the access
to and cost of foreign exchange for imports and to define terms of payment. It includes
measures like advance payment requirements and foreign exchange controls denying
use of foreign exchange for certain types of imports.

(5) Measures Affecting Competition- These measures are aimed at granting exclusive or
special preferences or privileges to one or a few limited groups of economic operators. It
may include government imposed special import channels or enterprises, and
compulsory use of national services.

Eg, a statutory marketing board may be granted exclusive rights to import wheat: or a
canalizing agency (like State Trading Corp.) may be given monopoly right to distribute palm
oil.

(6) Government Procurement (Buy) Policies

It involves mandates that whole of specified percentage of government purchases

should be from domestic firms rather than foreign firms

In accepting public tenders, a government may give preference to local tenders rather
than foreign tenders.

(7) Trade-Related Investment Measures - These measures include rules on local content
requirements that mandate a specified fraction of a final good should be produced
domestically.

(a) requirement to use certain minimum levels of locally made components.

(b) restricting the level of imported components, and

((c) limiting the purchase or use of imported products to L an amount related to the
quantity or value of local products that it exports.

(8) Distribution Restrictions-

Limitations imposed on distribution of goods in importing country involving additional

license or certification requirement. These may relate to geographical restrictions or
restrictions as to the type of agents who may resell.
Eg: a restriction that imported fruits may be sold only through outlets having refrigeration
facilities.

(9) Restriction on Post-sales Services - Producers may be restricted from providing

after-sales services for exported goods in the importing country. Such services may be
reserved to local service companies of the importing country.

(10) Administrative Procedures- Costly and time-consuming administrative procedures

which are mandatory for import of foreign goods. These will increase transaction costs
and discourage imports.

Examples-specifying particular procedures and formalities, requiring licenses,

administrative delay, corruption in customs clearing, procedural obstacles linked to
prove compliance etc.

(11) Rules of origin- Country of origin means country in which a good was produced, or
home country of service provider. Rules of origin are the criteria needed by governments of
importing countries to determine the national source of product. Duties & restrictions
in some cases depend upon source of imports.

(12) Safeguard Measures- Measures to restrict imports of a product temporarily if its

domestic industry is injured with serious injury caused by a surge in imports. These
measures are for limited time and non-discriminatory.

(13) Embargos- An embargo is total ban imposed by government on import or export of

some commodities to particular country for a specified period. This may be done due
to political reasons or for reasons such as health, religious sentiments. This is most
extreme form of trade barrier.

Topic: Non-tariff Barriers (NTB)

NTBs are discriminatory NTMs, which are used as means to circumvent/avoiding free-
trade rules and favour domestic industries at expense of foreign competition.

NTBs are thus a subset of NTMs that have a "protectionist or discriminatory intent".

Topic: Export-Related Measures

These refer to all measures applied by government of exporting country including both
technical and non-technical measures.

1. Ban on exports
Eg- during periods of shortages, export of agricultural products such as onion, wheat etc.
may be prohibited to make them available for domestic consumption.

2. Export Taxes

An export tax is a tax collected on exported goods and may be either specific or ad
valorem

The effect of an export tax is to raise price of good and to decrease exports.

It increases domestic supply; it also reduces domestic prices and leads to higher
domestic consumption.

3. Export Subsidies and Incentives

Tariffs on imports hurt exports and therefore countries have developed compensatory
measures of different types for exporters like export subsidies, duty drawback, duty free
access to imported intermediates etc.

Government usually provides financial contribution to domestic producers in form of

grants, loans, equity infusions etc. or give some form of income or price support.

4.Voluntary Export Restraints (export quota) (VERs)

They refer to a type of informal quota administered by an exporting country voluntarily

restraining the quantity of goods that can be exported out of that country during a
specified period of time. Such restraints originate from political considerations.

VERs may arise when the import competing industries seek protection from a surge of
imports from particular exporting countries.

VERs cause domestic prices to rise and cause loss of domestic consumer surplus.
 Unit 3:
Topic: GATT
The General Agreement on Tariffs and Trade (GATT) covers international trade in goods. The
workings of the GATT agreement are the responsibility of the Council for Trade in Goods
(Goods Council) which is made up of representatives from all WTO member countries.

The Goods Council has 10 committees dealing with specific subjects (such as agriculture,
market access, subsidies, anti- dumping measures, and so on). Again, these committees
consist of all member countries.

Topic: GATT lost its relevance by 1980s

(1) it was obsolete to fast-evolving complex world trade scenario.

(2) international investments had expanded substantially.

(3) intellectual property rights and trade in services were not covered.

(4) world merchandise (Good's) trade increased by leaps and bounds and was beyond
its scope.

(5) the ambiguities (Confusion) in the multilateral system could be heavily exploited.

(6) efforts at liberalizing agricultural trade were not successful.

(7) there were inadequacies in institutional structure and dispute settlement system

(8) it was not a treaty and therefore terms of GATT were binding only insofar as they are not
incoherent with a nation's domestic rules.

Topic: The Uruguay Round and The Establishment of WTO

WTO have 164 members

The Uruguay Round brought about the biggest reform of the world's trading system.

Members established 15 groups to work on limiting restrictions in the areas of tariffs,

non-tariff barriers, tropical products, natural resource products, textiles and clothing,
agriculture, safeguards against sudden 'surges' in imports, subsidies, countervailing
duties, trade related intellectual property restrictions, trade related investment
restrictions.
The agreement was signed by most countries on April 15, 1994, and took effect on July
1, 1995.

Topic: Objectives of WTO

The principal objective of the WTO is to facilitate the flow of international trade
smoothly, freely, fairly and predictably.

The WTO has six key objectives-

1) to set and enforce rules for international trade

2) to provide a forum for negotiating and monitoring further trade liberalization

3) to resolve trade disputes

4) to increase the transparency of decision-making processes

5) to cooperate with other major international economic institutions involved in global

economic management, and

6) to help developing countries benefit fully from the global trading system.

The objectives of the WTO Agreements given in preamble of Agreement creating WTO,

• raising standards of living,

• ensuring full employment and a growth of real income and effective demand, and
• expanding the production of and trade in G/S.

Topic: Structure of the WTO

The WTO activities are supported by a Secretariat (Hrad-Quater) located in Geneva;
Switzerland headed by a Director General.

It has a three-tier system of decision making.

1st Level (Top-Level): Ministerial Conference

• It takes decisions on all matters under any of the multilateral trade agreements.
• It meets at least once every two years.

2nd Level: General Council

• It meets several times a year at the Geneva headquarters.

• It also meets as the Trade Policy Review Body and the Dispute Settlement Body.
3rd Level: Goods Council, Services Council and Intellectual Property Council

• These councils report to the General Council & are responsible for overseeing
the implementation of the WTO agreements in their respective areas of
specialization.

Topic: Regional Trade Agreements (RTAS)

RTAs are defined as groupings of countries (not necessarily belonging to the same
geographical region), which are formed with

the objective of reducing barriers to trade between member countries.

Topic: Type of RTAs

(1) Unilateral (one sided) trade agreements- under which an importing country offers
incentives to encourage the exporting country to improve the exporting country's
economy.

E.g. Generalized System of Preferences.

(2) Bilateral (two sided) Agreements - are agreements which set rules of trade between
two countries, two blocs or a bloc and a country. These may be limited to certain goods
and services or certain types of market entry barriers.eg - ASEAN-India Free Trade Area.

(3) Regional Preferential Trade Agreements- among a group of countries reduce trade
barriers on a reciprocal and preferential basis for only the members of the group. E.g.
Global System of Trade Preferences among Developing Countries (GSTP)

(4) Trading Bloc- has a group of countries that have a free trade agreement between
themselves and may apply a common external tariff to other countries.

Example: Arab League (AL), European Free Trade Association (EFTA)

(5) Free-trade area - is a group of countries that eliminate all tariff and quota barriers
on trade with the objective of increasing exchange of goods with each other. Members
retain independence in determining their tariffs with non-members. Example: NAFTA

(6) Customs union- is group of countries that eliminate all tariffs on trade among
themselves but maintain a common external tariff on trade with countries outside the
union (thus, technically violating MFN).

Eg- European Union etc.

(7) Common Market- It deepens a customs union by providing for the free flow of output
and of factors of production (labour, capital and other productive resources) by reducing
or eliminating internal tariffs on goods and by creating a common set of external tariffs.
There are also common barriers against non-members (e.g., EU, ASEAN)

(8) Economic and Monetary Union - Here members share a common currency. Adoption
of common currency also makes it necessary to have a strong convergence in
macroeconomic policies. For eg, European Union countries adopt a single currency.
Topic: Important Guiding Principles
Trade without discrimination:

(1) MFN: This principle states that any advantage or immunity granted by any one
country to other, shall be extended immediately and unconditionally to like product
originating from other countries. Under the WTO agreements, if a country lowers a trade
barrier or opens up a market for one country, it has to do so for the same for all other WTO
members.

(2) National Treatment: A country should not discriminate between its own and foreign.
Give others same treatment as one's own nationals.

(3) Freer Trade: Gradually (Slowly), Through Negotiation:

Lowering trade barriers is one of the most obvious means of encouraging trade. The
barriers concerned include customs duties (or tariffs) and measures such as import bans
or quotas that restrict quantities selectively.

The WTO agreements allow countries to introduce changes gradually, through "progressive
liberalization". Developing countries are usually given longer to fulfil their obligations.

(4) Predictability: Through Binding and Transparency

Sometimes, promising not to raise a trade barrier can be as important as lowering one,
because the promise gives businesses a clearer view of their future opportunities.

With stability and predictability, investment is encouraged, jobs are created and
consumers can fully enjoy the benefits of competition - choice and lower prices.
(5) Promoting Fair Competition

The WTO is sometimes described as a "free trade" institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, it is a system of rules dedicated to open, fair, and undistorted
competition.

(6) Encouraging Development and Economic Reform

The WTO system contributes to development. On the other hand, developing countries
need flexibility in the time they take to implement the system's agreements. And the
agreements themselves inherit the earlier provisions of GATT that allow for special
assistance and trade concessions for developing countries.

Topic: Overview of the WTO Agreements

(1) Agreement on Agriculture aims at strengthening GATT principles and agricultural trade.

(2) Agreement on Application of Sanitary and Phytosanitary (SPS) Measures

(3) Agreement on Textiles and Clothing

(4) Agreement on Technical Barriers to Trade (TBT)

(5) Agreement on Trade-Related Measures (TRIMS) Investment

(6) Anti-Dumping Agreement

(7) Customs Valuation Agreement

(8) Agreement on Pre-shipment Inspection (PSI)

(9) Agreement on Rules of Origin

(10) Agreement on Import Licensing Procedures

(11) Agreement on Subsidies and Countervailing Measures

(12) Agreement on Safeguards

(13) General Agreement on Trade in Services (GATS)

(14) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

(15) Trade Policy Review Mechanism (TPRM)

(16) Plurilateral Trade Agreements

 Plurilateral meaning:

Topic: The Doha Round

The Doha Round was 9th round since Second World War was officially launched at the
WTO's Fourth Ministerial Conference in Doha, Qatar, in Nov 2001.

The round seeks to accomplish major modifications of the international trading system
through lower trade barriers and revised trade rules.

The negotiations include 20 areas of trade.

Most controversial topic here was agriculture trade.

Topic: G20 Economies: Facilitating Trade

While some trade-restrictive measures have been lifted by G20 countries, the report
indicates that the trend has been going in the wrong direction.

Export restrictions contribute to shortages, price volatility, and uncertainty.

The report indicates that supply chains on the whole have thus far proved to be resilient,
despite the war in Ukraine, the continuing impacts of the COVID-19 pandemic, the
highest inflation many countries have experienced in decades, and the impacts of
monetary tightening by central banks seeking to limit price increases. That said,
specific industries and regions have been differently impacted.

Overall, the pace of implementation of new export restrictions by WTO members has
increased since 2020, first in the context of the pandemic and subsequently with the war
in Ukraine and the food crisis. Some of these export restrictions have been gradually
lifted, but several still remain in place.

As of mid-October 2022, WTO members still had in place (52) export restrictions on food,
feed and fertilizers, in addition to 27 export restrictions on products essential to combat
COVID- 19. Of these, 44% of the export restrictions on food, feed and fertilizers, and 63%
of the pandemic-related export restrictions, were maintained by G20 economies.

During the review period, G20 economies introduced 66 new trade- facilitating
measures (covering trade worth USD 451.8 billion) and 47 trade-restrictive measures on
goods (with a trade coverage of USD 160.1 billion). These measures were not related to
the pandemic.

At the same time, the accumulated stockpile of G20 import restrictions continued to grow.
By mid-October, 11.6% of G20 imports were affected by trade-restricting measures
implemented since 2009 and still in force.

Initiations of trade remedy investigations by G20 economies declined sharply during

the review period (17 initiations), after a peak in 2020 that was the highest since the
beginning of the trade monitoring exercise in 2009. Anti-dumping measures continued to
be the most frequent trade remedy action in terms of initiations and terminations.

Similarly, the implementation of new COVID-19-related trade measures by G20

economies decelerated over the past five months, with four new such measures
recorded on goods and one on services. The number of new COVID-19-related support
measures to mitigate the social and economic impacts of the pandemic also fell sharply
over the past five months.

Since the beginning of the pandemic, 201 COVID-19 trade and trade- related measures
in goods were implemented by G20 economies. Most (61%) were trade facilitating, while
the rest (39%) could be considered trade restrictive.

G20 economies also continued to phase out pandemic-related import and export
measures. By mid-October 2022, (77% of export restrictions had been repealed, leaving
(17) restrictions in place. Although the number of the pandemic- related trade restrictions
in place decreased, their trade coverage remained significant, at USD 122.0 billion.
The WTO trade monitoring reports have been prepared by the WTO Secretariat since 2009.

G20 members are: Argentina; Australia; Brazil; Canada; China; the European Union;
France; Germany; India: Indonesia; Italy; Japan; the Republic of Korea; Mexico; the Russian
Federation; Saudi Arabia; South Africa; Türkiye; the United Kingdom; and the United States.
 1

CHAPTER - 9 : INTERNATIONAL TRADE

UNIT-4 EXCHANGE RATE AND ITS ECONOMIC EFFECTS
 The Exchange Rate
A foreign currency transaction is a transaction that is denominated in or requires settlement in a foreign
currency, including transactions arising when an enterprise either:
(a) Buys or sells goods or services whose price is denominated in a foreign currency.
(b) Borrows or lends funds when the amounts payable or receivable are denominated in a foreign
currency.
(c) Becomes a party to an unperformed forward exchange contract; or
(d) Otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign
currency.

 The Exchange Rate Regimes

There are 3 broad categories of exchange rate systems.
(1) In one system, exchange rates are set purely by private market forces with no government
involvement Values change constantly as the demand for and supply of currencies fluctuate. (floating
exchange rate system)
(2) In another system, currency values are allowed to change through market forces of demand and
supply but governments participate in currency markets in an effort to influence those values
(managed floating / soft peg / dirty floating)
(3) Finally governments may seek to fix the values of their currencies, either through participation in the
market or through regulatory policy. (Pegged/hard peg)
AN EXCHANGE RATE REGIME is the system by which a country manages its currency with respect to
foreign currencies. It refers to the method by which the value of the domestic currency in terms of foreign
currencies is determined. There are two major types of exchange rate regimes at the extreme ends; namely
(I) floating exchange rate regime (also called a flexible exchange rate), and
(II) fixed exchange rate regime

 Free Floating Exchange Rate System

(1) A free floating system has the advantage of being self-regulation
(2) There is no need for government intervention if the exchange rate is left to the market
(3) The primary difficulty with free-floating exchange rates lies in their unpredictability
(4) Contacts between buyers and sellers in different countries must not only reckon with possible change
changes in prices and other factors during the lives of those contracts, they must also consider the
possibility of exchange rate changes.
 2

 Managed Float Systems

Governments and central banks often seek to increase or decrease their exchange rates by buying or selling
their own currencies.

 Fixed Exchange Rates

In a fixed exchange rate system, the exchange rate between two currencies is set by government policy.

In an open economy, the main advantages of a fixed rate regime are:

1. A fixed exchange rate avoids currency fluctuations and eliminates exchange rate risks & transaction costs
2. A fixed exchange rate can thus, greatly enhance international trade and investment.
3. A reduction in speculation on exchange rate movements
4. A fixed exchange rate system imposes discipline on a country's monetary authority and lower levels
of inflation.
5. The government can encourage greater trade and investment as stability encourages investment
6. Exchange rate peg can also enhance the credibility of the country's monetary-policy
7. However, in the fixed or managed floating exchange rate regimes (where the market forces are
allowed to determine the exchange rate within a band), the central bank is required to stand ready to
intervene in the foreign exchange market and, also to maintain an adequate amount of foreign
exchange reserves for this purpose.

 A floating exchange rate has many advantages:

 It allows a Central bank and/or government to pursue its own independent monetary policy.
 It allows exchange rate to be used as a policy tool: for example, policy-makers can adjust the nominal
exchange rate to influence the competitiveness of the tradable goods sector.
 As there is no obligation or necessity to intervene in the currency markets, the central bank is not
required to maintain a huge foreign exchange reserves.

The greatest disadvantage of a flexible exchange rate regime is

That volatile exchange rates generate a lot of uncertainties in relation to international transactions and add a
risk premium to the costs of goods and assets traded across borders

 Nominal Versus Real Exchange Rates

The real exchange rate is the rate at which a person can trade the goods and services of one country for the
goods and services of another.
Domestic Price Inex
Real exchange rate = Nominal exchange rate ×
Foreign Price Index

The Real Effective Exchange Rate (REER) is the nominal effective exchange rate (a measure of the value
of a domestic currency against a weighted average of various foreign currencies) divided by a price deflator
or index of costs.
1 NER
REER = NER × =( |Cost Index )
Price Deflator Price Deflator
 3

 The Foreign Exchange Market

Commercial Banks and Brokerage Houses do not only execute currency exchange operations at prices set
by other active players but come out with their own prices as well, actively influencing the price formation
process and the market life. That is why they are called MARKET MAKERS.

In the foreign exchange market, there are two types of transactions

(i) Current transactions which are carried out in the spot market and the exchange involves immediate
delivery, and
(ii) Future transactions wherein contracts are agreed upon to buy or sell currencies for future delivery
which are carried out in forward and/or futures markets On account of its critical role in the forex
markets, the dollar is often called a 'vehicle currency'

 Determination of Nominal Exchange Rate

Determination of Nominal Exchange Rate

 Changes In Exchange Rates

Currency appreciates when its value increases with respect to the value of another currency or a basket of
other currencies. On the contrary, currency depreciated when its value falls with respect to the value another
currency or a basket of other currencies
Currency Depreciation under Floating Exchange Rates
 4

 Devaluation (Revaluation) Vs Depreciation (Appreciation)

 DEVALUATION is a deliberate downward adjustment in the value of a country's currency relative to
another country's currency or group of currencies or standard.
 In contrast, DEPRECIATION is a decrease in a currency's value (relative to other major currency
benchmarks) due to market forces of demand and supply under a floating exchange rate and not due
to any government or central bank policy actions.
 Revaluation is the opposite of devaluation and the term refers to a discrete official increase of the
otherwise fixed par value of a nation's currency.
 Appreciation, on the other hand, is an increase in a currency's value (relative to other major
currencies) due to market forces of demand and supply under floating exchange rate and not due to
any government of central bank policy interventions

 Impacts of Exchange Rate Fluctuations on Domestic Economy

(i) Fluctuations in the exchange rate have significant role in determining the nature and extent of
country's trade
(ii) Fluctuations in the exchange rate affect the economy by changing the relative prices of domestically-
produced and foreign-produced goods and services.
(iii) Exchange rate changes affect economic activity in the domestic economy. A depreciation of domestic
currency primarily increases the price of foreign goods relative to goods produced, in the home
country and diverts spending from foreign goods to domestic goods.
(iv) For an economy where exports are significantly high, a depreciated currency would mean a lot of
gain.
(v) Depreciation is also likely to add to consumer price inflation in the short run, directly through its
effect on prices of imported consumer goods and also due to increased demand for domestic goods.
(vi) The fiscal health of a country whose currency depreciates is likely to be affected with rising export
earnings and import payments and consequent impact on current account balance.
(vii) Companies that have borrowed in foreign exchange through external commercial borrowings (ECBs)
but have been careless and did not sufficiently hedge these loans against foreign exchange risks,
would also be negatively impacted as they would require more domestic currency to repay their loans
(viii) Countries with foreign currency denominated government debts, currency depreciation will increase
the interest burden and cause strain to the exchequer for repaying and servicing foreign debt.
Fortunately, India's has small proportion of public debt in foreign currency.
(ix) Exchange rate fluctuations make financial forecasting more difficult for firms and larger amounts will
have to be earmarked for insuring against exchange rate risks through hedging.
(x) With growth of investments across international boundaries, exchange rates have assumed special
significance. Investors who have purchased a foreign asset, or the corporation which floats a foreign
debt, will find themselves facing foreign exchange risk.
(xi) Foreign investors are likely to be indecisive or highly cautious before investing in a country that has
high exchange rate volatility.
 5

 An appreciation will have the following consequences on real economy:

(i) An appreciation of currency raises the price of exports and, therefore, the quantity of exports would
fall.
(ii) The outcome of appreciation also depends on the stage of the business cycle as well. If appreciation
sets in during the recessionary phase, the result would be a further fall in aggregate demand and
higher levels of unemployment.
(iii) An appreciation may cause reduction in the levels of inflation because imports are cheaper.
(iv) With increasing export prices, the competitiveness of domestic industry is adversely affected and
therefore, firms have greater incentives to introduce technological innovations and capital-intensive
production to cut costs to remain competitive.
(v) Increasing imports and declining exports are liable to cause larger deficits and worsen the current
account.
(vi) Loss of competitiveness will be insignificant if currency appreciation is because of strong
fundamentals of the economy.
 Unit-5: International Capital Movements

Topic: International Capital Movements

The term 'foreign capital' is a comprehensive and includes any inflow of capital into the home
country from abroad.

1. Foreign aid or assistance

Bilateral or direct inter government grants.

Multilateral aid from many governments who pool funds with international organizations like
the World Bank.

Tied aid with stipulation / Condition

Untied aid without stipulations.

Foreign grants which are voluntary transfer of resources by governments, institutions,
agencies or organizations

2. Borrowings
Direct inter government loans

Loans from international institutions (e.g. world bank, IMF, ADB)

Soft loan

External commercial borrowing,

Trade credit facilities

3. Deposits from non- resident Indians (NRT)

4. Other investment
Foreign portfolio investment (FPI) in bonds, stocks and securities, and

Foreign direct investment (FDI) in industrial, commercial and similar other enterprises

Topic: Meaning of FDI

(1) FDI is defined as process whereby resident of one country acquires ownership of asset in
another country & such movement of capital involves ownership, control as well as
management of asset.

(2) FDI, according to IMF manual on 'Balance of payments' is "all investments involving long-
term relationship & reflecting lasting interest & control of resident entity in a economy in an
enterprise resident in economy other than that of direct investor".

((3) According to IMF and OECD (The Organization for Economic Cooperation and
Development) definitions, it typically occurs through acquisition of more than 10 percent of
the shares of the target asset.

Topic: Components of FDI

(1) Equity capital - Shares

(2) Reinvested earnings

(3) Other direct capital in the form of intra-company loans between direct investors (parent
enterprises) and affiliate enterprises.
Topic: FDI is done by
(1) Individuals,

(2) Incorporated or unincorporated private or public enterprises,

(3) Associated groups of individuals or enterprises,

(4) Governments or government agencies. estates, trusts, or other organizations

(5) Or any combination of above

Topic: Topic: Forms of Direct investments / Modes of FDI

(1) The opening of overseas companies,

(2) Including the establishment of subsidiaries or branches.

(3) Creation of joint ventures on a contract basis or M&A

(4) Joint development of natural resources and

(5) Purchase of companies in country receiving foreign capital

(6) Green(fresh) field investment (freshly starting production)

(7) Brownfield(existing/old) investments (using existing infrastructure by merging)

1 Horizontal Agreement
When the investor establishes the same type of business operation in a foreign country as it
operates in its home country.
2 Vertical Agreement
When the investor establishes or acquires a business activity in a foreign country which is
different from the investor's main business activity yet in some supplements, major activity.

3 Conglomerate
When an investor makes a foreign investment in a business that is unrelated to its existing
business in its home country.

This is often in form of a joint venture with a foreign firm already operating in the industry, as
Investor has no previous experience.

4 Two-Way direct foreign investment

These are reciprocal investments countries. between These investments occur when some
industries are more advanced in one nation.

Topic: Foreign Portfolio Investment (FPI)

FPI flow of 'financial capital rather than 'real capital and it does not involve ownership or
control on the part of investor.

FPI has immediate effects on balance of payments or exchange rates.

It is not concerned with either manufacture of goods or with provision of services.

portfolio investments are characterized by lower stake in companies with their total stake in a
firm at below 10 percent.

Difference between FDI and FPI:

Investment involves creation of physical assets whereas Investment is only in financial assets.

Has a long-term interest and therefore remain invested for long whereas only short-term
interest and generally remain invested for short periods.

Relatively difficult to withdraw whereas relatively easy to withdraw.

Not inclined to be speculative whereas Speculative in nature.

Often accompanied by technology transfer whereas not accompanied by technology transfer.

Direct impact on employment of labour and wages whereas no direct impact on employment of
labour and wages.

Enduring interest in management and control whereas no abiding interest in management and
Control.

Securities, are held with significant degree of influence by the investor on the management of
the Enterprise whereas Securities are held purely as a financial investment & no significant
degree of influence on the management of the Enterprise.

Topic: Reasons For FDI

(1) Opportunity to generate profits available in other countries.

(2) Expectation of higher rate of return than what is possible in the home country.

(3) Some firm-specific knowledge or assets (such as superior management skills or an important
patent) that gives foreign firms a competitive edge.

(4) Increasing interdependence of national economies.

(5) Internationalization of production.

(6) Reap economies of large-scale operation.

(7) Lack of feasibility of licensing agreements with foreign producers.

(8) Necessity to retain direct control of production knowledge & trade patents.

(9) Procure a promising foreign firm to avoid future competition.

(10) Risk diversification.

(11) Shared common language and possible saving in time and transport costs (due to
geographical proximity).

Topic: Deterrents to FDI

1. Poor macro-economic environment

Infrastructure lags, high rates of inflation and continuing instability, balance of payment
deficits, exchange rate volatility, unfavorable tax regime (including double taxation), small size
of market.

2. Unfavorable resource and labour market conditions

Poor natural and human resources, low literacy, low labour skills.
3. Unfavorable legal and regulatory frameworks

Absence of well-defined property rights, lack of security to life and property, stringent
regulations, cumbersome legal formalities and delays.

4. Lack of host country trade openness

lack of openness, prevalence of non-tariff barriers, lack of a general spirit of friendliness

towards foreign investors.

Topic: Modes of Foreign Direct Investment (FDI)

Foreign direct investments can be made in a variety of ways, such as

(i) Opening of a subsidiary or associate company in a foreign country.

(ii) Equity injection into an overseas company,

(iii) Acquiring a controlling interest in an existing foreign company. Mergers and acquisitions
(M&A)

(iv) Joint venture with a foreign company.

(v) Green field investment (establishment of a new overseas affiliate for freshly starting
production by a parent company).

(vi) Brownfield investments (a form of FDI which makes use of the existing infrastructure by
merging, acquiring or leasing, instead of developing a completely new one.

For e.g. in India 100% FDI under automatic route is allowed in Brownfield Airport projects.

Topic: Important Benefits of FDI

(1) Competition for FDI among national governments also has helped to promote political and
structural reforms important to attract foreign investors, including legal systems and
macroeconomic policies.

(2) There is also greater possibility for the promotion of ancillary units resulting in job
creation and skill development for workers.

(3) Foreign enterprises possessing marketing information with their global network of
marketing are in a unique position to utilize these strengths to promote the exports of
developing countries. If the foreign capital produces goods with export potential, the host
country is in a position to secure scarce foreign exchange needed to import capital
equipment's or materials to assist the country's development plans or to ease its external debt
servicing.

(4) If the host country is in a position to implement effective tax measures, the foreign
investment projects also would act as a source of new tax revenue which can be used for
development projects.

5) It is likely that foreign investments enter into industries in which economies of scale can be
realized so that consumer prices may be reduced. Domestic firms might not always be able to
generate the necessary capital to achieve the cost reductions associated with large-scale
production.

(6) Increased competition resulting from the inflow of foreign direct investments facilitates
weakening of the market power of domestic monopolies resulting in a possible increase in
output and fall in prices.

7) Since FDI has a distinct advantage over the external - - borrowings, it is considered to have a
favorable impact on the host country's balance of payment position, and

(8) Better work culture and higher productivity standards brought in by foreign firms may
possibly induce productivity related awareness and may also contribute to overall human
resources development.

Topic: Disadvantage of FDI

Following is the general arguments put forth against the entry of foreign capital:

(1) FDIs are likely to concentrate on capital-intensive methods of production and service so
that they need to hire only relatively few workers. Such technology is inappropriate for a
labour-abundant country as it does not support generation of jobs which is a crucial
requirement to address the two fundamental areas of concern for the less developed countries
namely, poverty and unemployment.

(2) The inherent tendency of FDI flows to move towards regions or - states which are well
endowed in terms of natural resources and availability of infrastructure has the potential to
accentuate regional disparity.

Foreign capital is also criticized for accentuating the already existing income inequalities in the
host country.

(3) In the context of developing countries, it is usually alleged that the inflow of foreign capital
may cause the domestic governments to slow down its efforts to generate more domestic
savings, especially when tax mechanisms are difficult to implement. If the foreign corporations
are able to secure incentives in the form of tax holidays or similar provisions, the host country
loses tax revenues.

(4) FDI is also held responsible by many for ruthless exploitation of natural resources & the
possible environmental damage.

(5) With substantial FDI in developing countries there is a strong possibility of emergence of a
dual economy with a developed foreign sector and an underdeveloped domestic sector.

(6) FDI usually involves domestic companies 'off-shoring', or shifting jobs and operations
abroad in pursuit of lower operating costs and consequent higher profits. This has deleterious
effects on employment potential of home country.

(7) Foreign entities are usually accused of being anti-ethical as they frequently resort to
methods like aggressive advertising. and anticompetitive practices which would induce market
distortions.

(8) FDI may have adverse impact on the host country's commodity terms of trade (defined as
the price of a country's exports divided by the price of its imports).

Topic: Foreign Direct Investment in India

Foreign Direct Investment (FDI) in addition to being a key driver of economic growth, has been
a significant non-debt financial resource for India's economic development. Foreign
corporations invest in India to benefit from the country's particular investment privileges such
as tax breaks and comparatively lower salaries.

This helps India develop technological know-how and create jobs as well as other benefits.
These investments have been coming into India because of the government's supportive policy
framework, vibrant business climate, rising global competitiveness & economic influence.

The government has recently made numerous efforts, including easing FDI regulations in
various industries, PSUs, oil refineries, telecom & defense.

India's FDI inflows reached record levels during 2020-21. The total FDI inflows stood at
US$ 81,973 million, a 10% increase over the previous financial year.
According to the World Investment Report 2022 India was ranked eighth among the world's
major FDI recipients in 2020, up from ninth in 2019. Information and technology,
telecommunication and automobile were the major receivers of FDI in FY22.

Topic: Overseas Direct Investment by Indian Companies

India is primarily a domestic demand-driven economy, with consumption and investments
contributing to 70% of the economic activity. With an improvement in the economic scenario
and the Indian economy recovering from the Covid-19 pandemic shock, India is relatively well
placed than the rest of the world.

This gives Indian businesses an advantage to make investments abroad and broaden their
operational footprint in such nations.

New innovations from abroad would be brought to India with the help of knowledge
spillover, and India itself would contribute to the growth of other nations. In this manner, a
mutual benefit is achieved.

Some of the key overseas investments and developments that have taken place in the recent
past are mentioned follows:

c points :
According to data released by the Reserve Bank of India (RBI), overseas direct investment
stood at US$ 1,922.51 million in September 2022.

The critical investments are as follows:

• In June 2022, Tata Steel announced plans to invest 7 million pounds (US$ 837.95 billion)
for its Hartlepool Tube Mill in North-East England.
• Tata Communications invested US$ 690 million in its wholly-owned subsidiary in
Singapore.
• Jindal Steel and Power invested US$ 366 million in its wholly owned subsidiary in
Mauritius
• Wipro invested US$ 204.96 million in its wholly-owned subsidiary in Cyprus.
• Jindal Saw invested US$ 64.5 million in its wholly-owned subsidiary in the United Arab
Emirates.
• Restaurant Brand Aisa and Lupin Ltd invested US$ 141.34 million and US$ 131.25 million
in their JVs in Indonesia and the US, respectively.
• Reliance New Energy invested US$ 87.73 million in its wholly owned subsidiary in
Norway.
• Mohalla Internet Pvt. Ltd. invested US$ 86 million in its fully owned unit in Mauritius.
• ONGC Videsh invested US$ 83.31 million in a joint-venture in Russia.
• ICICI Bank ties up with Santander in Britain in a pact aimed at facilitating the banking
requirements of corporates operating across both countries.
• ANI Technologies, the promoter of OLA, invested US$ 675 million in its wholly-owned
subsidiary in Singapore.
• Dr Reddy invested US$ 149.99 million in a joint venture (JV) in the US.
• A total of US$ 168.9 million was invested by Reliance New Energy in a JV and wholly-
owned subsidy in Germany and Norway.
• Gail India, energy PSU invested US$ 70.17 million in a JV and wholly-owned unit in
Myanmar and the US.
• ONGC invested US$ 74.15 million during the month in various countries in 5 different
ventures.
• In July 2022, Reliance Brands Ltd. signed a distribution agreement with Maison
Valentino, an Italian luxury fashion house, to open its first boutique in Delhi, followed by
a flagship store in Mumbai.
• In July 2022, Reliance Retail Limited entered into a long-term partnership with Gap Inc.
to bring the iconic American fashion brand, Gap, to India.
• In July 2022, Tata Steel signed a Memorandum of Understanding (MoU) with BHP, a
leading global resources company, with the intention to jointly study and explore low-
carbon iron and steelmaking technology.
• In January 2022, Ola Electric, the ride-hailing company's electric vehicle (EV) subsidiary,
announced its plans to establish Ola Futurefoundry, a global hub for advanced.
• engineering and vehicle design in the UK, investing US$ 100 million over the next 5
years.
• In January, Essar Group of India announced that it had created a joint venture with
Progressive Energy of the UK to invest US$ 1.34 billion in a hydrogen manufacturing
plant at its Essar Stanlow refinery complex.
• In January, Hindalco Ltd's US subsidiary, Novelis, announced its plans to invest US$ 365
million in a state-of-the-art vehicle recycling facility in North America.