WTO, MNCs &

Regional Blocs
Sandeep Singh,
Assistant Professor,
Department of Commerce,
CHRIST Deemed to be University
Email: sandeep.kumar@christuniversity.in
 World Trade Organization
• Prior to WTO, we had the General Agreement on Tariffs and Trade (GATT), an organization which regulated world trade
since 1948.

Criticisms of GATT
• Allowed existing domestic legislation to continue even if it violated a GATT agreement.
• Developed countries were increasing protectionism while developing ones were liberalizing.
• GATT had neither a legal status nor a global status, an agreement with a set of rules.
• Member countries of the GATT have diverse political and economic interests. Arriving at consensus was difficult.

• WTO came into being on 1st Jan, 1995, has 164 member countries, and is headquartered in Geneva.
• Promotes internationalization of trade in goods and services between member countries.
• India is the founding member of WTO. China joined in 2001, Russia in 2012, and Afghanistan in 2016.
 Objectives

(1) To set and enforce rules for international trade,

(2) To reduce trade barriers between nations,
(3) To provide a forum for negotiating and monitoring further trade liberalization,
(4) To resolve trade disputes between member nations,
(5) To increase the transparency of decision-making processes,
(6) To cooperate with other major international economic institutions involved in global economic management,
and
(7) To help developing countries benefit fully from the global trading system.
 Principles

• Non-Discrimination -
• Most favoured nation (MFN). Under the MFN, all WTO member countries should be treated equally,
without discrimination. For example - India decides to lower basic customs duty for imports of iron-ore
from China. This favour will have to be extended to all other countries. National treatment– Foreign goods
and local goods must be treated equally.
• Freer trade– All trade barriers should be lowered gradually through negotiations.
• Predictability– There should be stability and predictability in the trade rules of a nation.
• Promoting fair competition – There should be fair competition between all players.
• Encourage development – All countries should experience benefits of internationalization.
 WTO Structure

• The top decision-making body is the Ministerial Conference, that usually takes place every two years.
• The ministerial conference also appoints the director-general of WTO. The current Director-General is Roberto Azevedo.
• WTO’s day-to-day work is handled by three bodies:
• General Council
• Its job is to carry out the implementation and monitoring function of the WTO. The General Council is further divided into
multiple councils and committees that focus on specific topics.
• Dispute Settlement Body
• A dispute arises when a member govt believes that another member govt is violating an agreement which has been made in
the WTO. There is an Appellate Body where member states can appeal any decisions made against them during a dispute.
• Trade Policy Review Body
• This body is responsible for ensuring the trade policies of member states are in line with the goals of the WTO. Member
countries are required to inform the WTO about changes in their trade policies.
• The General Council again consists of four more bodies:

• Council for Trade in Goods,

• Has multiple committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping
measures and so on)

• Council for Trade in Services,

• Responsible for overseeing the functioning of the General Agreement on Trade in Services.

• Trade Negotiations,
• Deals with the current trade talks round.

• Council for Trade related aspects of IPR

• Deals with information on intellectual property in the WTO, news and official records of the activities of the TRIPS Council.
 MNCs and TNCs

A multinational corporation (MNC) is a company that operates in its home country, as well as in other countries
around the world. It maintains a central office located in one country, which coordinates the management of all its
other offices.

A transnational corporation (TNC) is an enterprise that is involved with the international production of goods or
services, foreign investments, and asset management in more than one country.

The main difference between both is that MNCs consist of a centralized management structure, whereas transnational
corporations generally are decentralized, with many bases in various countries where the corporation operates.
• Benefits of MNCs to Host Country

• Generation of emplyoment opportunities for locals.

• Developing the quality of the labour force by transfer of skills and expertise.

• Addition to the host country GDP through their spending with local suppliers and through capital investment

• Competition from MNCs acts as an incentive to domestic firms to raise their quality and efficiency

• MNCs extend more choices to the consumers and empowers them in a way.

• Profitable MNCs are a source of significant tax revenues fo the host country.

• Presence of one MNC may improve the reputation of the host country and other large corporations may follow suite and
locate as well.
• MNCs will bring with them technology and production methods that are probably new to the host country and a lot can
therefore be learnt from these techniques. 
• Costs of MNCs to Host Country

• Domestic businesses are unable to compete with MNCs and some fail.
• MNCs may not feel that they need to meet the host country expectations for acting ethically.
• MNCs may be accused of imposing their own culture on the host country.
• Profits earned by MNCs may be remitted back to the base country rather than reinvested in the host economy.
• MNCs indulge in transfer pricing and other tax avoidance measures to significantly reduce their tax liability.
• Jobs created in the local environment may be low-skilled with the multinational employing expatriate workers for the more
senior and skilled roles.
• MNCs have been accused of disregarding employee health and safety in countries where regulation and laws are not as rigorous.
• In certain less developed countries, MNCs have tried to dominate and control the government policy and action to some extent.
 Regional Blocs

• These are essentially trading blocs.

• Groups of countries that come together.
• Also known as Regional Integration Agreements and Arrangements.
• Example: European Union, NAFTA, ASEAN
• Manage and promote multi-lateral trade activities between themselves.
• Aims at more trade creation between the member nations.
• Removal of trade barriers/ restrictions on other countries.
• MFN and Trade Bans are common concepts here.
• Trade barriers are of two types: Tariff and non-tariff.
 Tariff and non-tariff barriers
Tariff Barriers:
• Tariff barriers primarily include customs levy or tariff on goods entering a country.
• Specific tariffs, Ad Valorem tariffs, Compound tariff, Protective tariff.
Non-tariff barriers:
• Licensing requirements: Import and export licenses to select businesses.
• Quotas: Can import/ export goods and services but only till a specified limit.
• Embargoes: When a country or several countries officially ban trade with a country.
• Voluntary Export restraints: Limits on exports of select goods based on alliances.
• Excessive red tape: Corruption in getting approvals and clearances.
• Procurement Laws: Stricter employee regulations
• Local Content laws: Compulsory to procure raw materials locally.
• Price Controls: Too much intervention by the government.
• Labeling requirements: Must disclose key ingredients even though they don’t want to.
• Goods delayed at the borders: Delays in customs and ports.
 Factors responsible for regional blocs
• Unlike too many unfortunate episodes in the past, participation in the global economy will not occur at the point of a sword or
facing the muzzle of a gun.
• It happens voluntarily and the main objective is to create favorable economic climate for promotion of cross border trade among
member countries.
• Countries that have similar political ideologies and a common history are more likely to coordinate their policies and form a bloc.
• When there is a lot of interdependence between two countries, it leads to a situation where blocs can be formed.

Benefits:
• Leads to a surge in the FDI numbers in developing and less developed nations.
• Bigger markets 🡪 Higher production 🡪 Economies of scale 🡪 Lower product costs.
• Greater competition leads to more efficiency within the firms and the customers benefit.
• Lower tariffs --> Lower costs of product --> Lower prices for consumers.

Costs:

• Internationalization Vs Regionalism, Partial loss of sovereignty, Too much of interdependence hurts.

 Types?

• There are four types of trading blocs:

• Preferential Trade Area (PTS) - Agree to decrease/ eliminate tariffs on select goods and services imported
from member nations.
• Free Trade Area (FTA) - Agree to remove or reduce barriers to trade on all goods and services coming
from participating members.
• Customs Union (CU) - No tariff barriers between members plus they agree to a common tariff rate for all
non-members.
• Common Market (CM) - It is an exclusive economic integration. Both tariff and non-tariff barriers are
removed, and not just in goods and services but all types of resources such as capital and labor.
 New FDI Policy
• India announced its latest consolidated FDI policy, which is in effect from October 15, 2020.
• Key Features:
• An entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is
situated in or is a citizen of any such country – can invest only under the Government approval route.
• No investment is allowed from Pakistan in defense, space, atomic energy and sectors/activities that are prohibited for
foreign investment.
• A 26 percent cap on FDI has been introduced in the segment that covers digital news (uploading or streaming of news
and current affairs through digital media) and this also requires government approval.
• It is mandatory for e-commerce entities with foreign investment to obtain and maintain a statutory audit report by
September 30 every year for the preceding financial year, which indicates their compliance with India’s laws.
• The new policy restricts vendors from buying more than 25 percent of their inventory from e-commerce platforms and its
group companies; and bans exclusive product launches.
 Globalization – Necessary Evil?
• Globalization has stimulated so much controversy in recent years.
• Massive demonstrations are held to coincide with meetings of the WTO, IMF, World Bank and other gatherings of government and business
leaders dealing with the process of developing international trade.
• The two sides see the globalization in a very different light.
• The critics of globalization believe that free international trade in goods and services does more harm than good. They view it as a vehicle for:

-Enriching corporate elites,

-Increasing inequality in the society, and
-Irreparable damage to the environment.
• On the other hand, the supporters of free international trade think that globalization holds the key for increasing the wealth of world's people. It
enables:
-More opportunities for people,
-Better choices for consumers and
-Helps under developed countries flourish.