Multilateralism, Regional Integration, Various Trade Blocs, Cartels, Commodity Agreement and State Trading Corporation

1. Multilateralism
&
Regional Integration

2. Trade agreement
• Trade agreement is any contractual trade
arrangement between countries concerning
their relationships.
• Trade agreement is a type of economic
integration.

3. Importance of trade agreements
• Reduce trade barriers.
• Increase the combined economic productivity.
• Trade agreements bring many benefits for
economies around the world. (new markets,
jobs, competitiveness and foreign investment)

4. After the world war II, the economies were
destroyed lowering down the volume of trade,
competition, efficiency, income and employment
which lead to reduction in trade barriers,
resulting in Regional Economic integration and
Multilateralism.

5. General Agreement of Trade &
Tariff
• It is a temporary agreement on multilateral tariff
reduction until the ITO was formed proposed by
brettenwoods conference (Hawana charter).
• It was signed by 23 countries in Jan 1948.
• It was not an organization but an agreement.
• Participating countries were not called members, called
contracting parties.
• Limited to removal of Tariff in the trade of goods.
• Trade in agriculture and textile was excluded from
GATT.
• This temporary agreement on multilateral tariff
reductions until the ITO was formed.

6. GATT Trade Rounds
• 8th Trade Round
• Subject covered: Tariffs, Nontariff, services,
textile & agriculture
• No. of countries 128
• WTO was born with the conclusion of
Marrakesh agreement in the Uruguary
round of multilateral trade negotiations in
1994.
• Presently in WTO 164 countries are there.

7. Why GATT was replaced with
WTO
• GATT deal with only tariff barriers but by
1970 Non tariff barriers has also started
increasing.
• GATT deal with trade in goods. But by 1980
developed countries started having
comparative advantage in trade in services.
• By 1980 Developing countries started pursuing
Export oriented growth.

8. Grand Bargain
Developed countries agreed to include trade in
agriculture and textile under WTO with some
exception.
Developing countries allowed inclusion of
services and intellectual property right under
WTO.

9. Multilateralism
• Multilateralism was defined as international
governance of the ‘many’
• Its central principle was “opposition of
bilateral discriminatory arrangements that were
believed to enhance the leverage of the
powerful over the weak and to increase
international conflict.

10. Multilateralism
• Multilateralism is said to a comprehensive
trade policies adopted by all the members of
WTO.
• All agreements under GATT & WTO are
accepted by all member countries and to
reduce trade barriers.
• It started in the field of goods but subsequently
it cover services, investment, intellectual
rights, technology.

11. • It aim to work towards totality and integrated
approach.
• It favors Globalization.
• It provide broader platform to trade.

12. Advantages of Multilateralism
• Multilateral is the equal treatment.
• Cannot be dominated by the major players.
• Best for liberalizing an economy
• Reduction of tariffs
• Contributed to Growth

13. Disadvantages of Multilateralism
• Decision making process is very complex.
• Increased use of NTB
• Challenges to underdeveloped countries.

14. Regional Integration
• It refers to economic integration between two
or more countries to eliminate trade and non
trade barriers for cross border movement of
goods and services among the signatories.
• The signatories or member countries try to
reduce or eliminate tariff and non tariff barriers
among the countries.

15. • Both approaches movement towards free trade.
• They are easy to form and negotiate but RE are
liberalized trade among member nations only
and are raising protection barriers against non
member countries.

16. Benefits of Regional Integration
• Free movement of goods, labor and capital
• Large scale production
• Optimum use of resources
• Increase in trade
• Decrease in prices
• Increase in employment opportunities
• Consumer surplus
• Increase in efficiency
• Economic development

17. Disadvantages of Regionalism
• Undermine the Multilateral System.
• Prevents developing countries from active
participation
• Hurt the interest of others country

18. Types of Regional Integration
• Free Trade Area
• Customs Union
• Common Market
• Economic Union
• Political Union

19. Free Trade Area
• Countries remove all barriers to trade among
members, but each country determines its own
barriers against nonmembers.
• Policies differ greatly against nonmember
countries from one country to another.
Countries in a free trade area also establish a
process to resolve trade disputes between
members. For e.g NAFTA

20. Customs Union
• Countries remove all barriers to trade among
members but erect a common trade policy
against nonmembers.
• Differs from a free trade area in that members
treat all nonmembers similarly. Countries
might also negotiate as a single entity with
other supranational organizations such as the
WTO.

21. Common Market
• Countries remove all barriers to trade and the
movement of labor and capital between
themselves, but erect a common trade policy
against nonmembers.
• Adds the free movement of important factors
of production such as people and cross-border
investment. Requires cooperation in economic
and labor policy, so is very difficult to attain.

22. Economic Union
• Countries remove barriers to trade and the
movement of labor and capital, erect a common
trade policy against nonmembers, and coordinate
their economic policies.
• Monetary and fiscal policies between member
countries are harmonized, which implies a level
of political integration. A further step concerns a
monetary union where a common currency is
used, such as with the European Union.

23. Political Union
Represents the potentially most advanced form
of integration with a common government and
were the sovereignty of member country is
significantly reduced. Only found within nation
states, such as federations where there is a
central government and regions having a level of
autonomy.

24. Levels of Economic Integration

25. Factors that hinder RE
• Geography of the region
• Unequal distribution to natural resources
• Absence of common currency
• Intra regional competition
• Different stages of growth and strategies for
development
• Territorial loyalty

26. International trade is one of the key factors of
macroeconomic prosperity for any country.
Today with the increasing force of globalization
international trade has become very complex
with multi-billion transactions taking place every
year.

27. Miscellaneous Techniques of trade to
control prices
• Cartels
• Commodity Agreements
• State trading corporations

28. Cartels
• An association of manafacturer or supplier
with the purpose of maintaining prices at a
higher level and restricting competition.
• For e.g. Organization of Petroleum Exporting
Countries (OPEC), International Air Transport
Association (IATA).
• It is mostly in oligopolistic markets.

29. Common oligopolistic Industries
• Telecom services
• Entertainment Industries
• Airlines Industries
• Computer & Software industry
• Oil and gas
• Aluminum & Steel

30. Conditions conducive to
International Cartels
• When the number of producing firms is small.
• When the firms belonging to given industry have
already reached cartel agreements between
different countries.
• When the process of manufacture or fabricated
products can be patented.
• When there is a natural scarcity of raw material.
• When there is Government cooperation or
leadership in the organization of Cartel.

31. Types of cartels
• Domestic cartels
• International Cartels
• Export Cartels
• Import Cartels

32. Merits
• Due to business combines, large-scale output
is made possible, so goods may be sold at
cheaper rates through cartels.
• Cartels tend to eliminate wasteful competition
also.

33. Demerits
• They tend to reduce international trade on
account of restricted output and high price
policy.
• International cartels may also mean under-
utilization of the world‘s resources and
manpower, in view of lack of competition and
the system of production quotas followed by
the cartel members.

34. Commodity Agreement
• A commodity agreement is an undertaking by
a group of countries to stabilize trade, supplies,
and prices of a commodity for the benefit of
participating countries.
• Commodity agreement usually involves a
consensus on quantities traded, prices, and
stock management.
• It serves solely as forums for information
exchange, analysis, and policy discussion.

35. International Commodity
Agreements
International Commodity Agreements which are
inter- governmental arrangements concerning the
production of & trade in, certain primary
products with a view to stabilizing their prices.

36. Objectives of Commodity Agreement
• Stimulate a dynamic and steady growth in developing
countries.
• Ensure reasonable predictability in the export earnings
to provide them with expanding resources for their
economic and social development.
• The market for commodities is particularly susceptible
to sudden changes in supply conditions, called supply
shocks (bad weather, disease, and natural disasters) and
cause commodity markets to become highly volatile. In
order to avoid these situations, commodity agreements
helps the supply to be stable.

37. Forms of Commodity Agreement
• Quota agreements
• Buffer Stock Agreements
• Bilateral or Multilateral Contracts

38. Quota agreements
This prevents a fall in commodity prices by
regulating their supply. In this type of agreement,
allocation of export quotas to participating
countries according to a mutually agreed formula
takes place. They also restrict export or
production by a certain percentage of basic quota
decided by Central Committee or Council .
Merit: Avoid accumulation of stocks
Demerit: Misallocation of resources

39. Buffer Stock Agreements
• A practice in which a large investor, especially a
government, buys large quantities of commodities
during periods of high supply and stores them so they
do not trade or circulate. The investor then sells them
when supply is low. This is done to stabilize the price.
• It is to stabilizing the prices by maintaining the demand
& supply balance.
• This arrangements only for those products which can be
stored at relatively low cost without the danger of
deterioration & this is one of the limitation of this
agreement.

40. Bilateral or Multilateral Contracts
• Bilateral agreements may be formed as
business or personal agreements between
individuals or companies.
• They may also be formed between countries in
the form of trade agreements or agreements in
other areas.
• In either case, a bilateral agreement is a
binding contract between the two parties that
have agreed to mutually acceptable terms.

41. • International sale & purchase contracts may also
be entered into by two or more major exporters &
importers.
• In this agreement, an upper price & a lower price
are specified.
• If the market price rises above the upper limit
specified, the exporter country is obliged to sell to
the importing country a certain specified quantity
of the upper price fixed by the agreement and vice
versa.

42. The International Cocoa Agreement
• In 2003, an agreement was made between the
seven main cocoa exporting countries, Cameroon,
Ivory Coast, Gabon, Ghana, Malaysia, Nigeria
and Togo, and the main importing countries
including the EU members, Russia, and
Switzerland.
• The main purpose of this agreement was to
promote the consumption and production of cocoa
on a global basis as well as stabilise cocoa prices.

43. International Coffee Agreement
The International Coffee Organization (ICO) is
the main inter-Governmental organization for
coffee in the year 1962. ICO exporting members
account for more than 97% of world coffee
production, and its importing members are
responsible for around 80% of world coffee
consumption.

44. International Coffee Agreement
• The main object is increasing world coffee
consumption through innovative market
development activities by means of statistics and
market study and also promoting the
improvement of coffee quality.
• The United States led recent efforts to renegotiate
the ICA, and seventh International Coffee
Agreement (ICA 2007) was adopted by the
International Coffee Council on September 28,
2007

45. Other Agreements
• International Natural Rubber Agreement
• International Tin Agreement
• International Wheat Agreement
• International Sugar Agreement

46. State Trading Corporation (STC)
• In India, the State Trading Corporation (STC)
was set up in May 1956 as an entirely state-
owned organisation. Its basic aim is to
stimulate India’s foreign trade, by enlarging
the scope of Indian exports and facilitating
essential imports.

47. • The government role in foreign trade is not
confined to import and export controls. It
directly participates in the import and export
business through its agencies like the STC,
Minerals and Metals Trading Corporation
(MMTC) and Mica Trading Corporation of
India (MITCO).

48. Objectives
• To enlarge exports,
• To facilitate trade (imports) in specific
commodities,
• To augment the revenue of the State,
• To bring about greater economic equality,
• To regulate trade (imports and exports) in certain
commodities, and
• To regulate and overcome difficulties of trade
with communist countries.

49. Functions of STC
• Improving overall trade, domestic as well as
international.
• Augmenting the national resources of the country
for promoting trade.
• Undertaking of trading generally with State
trading countries and private foreign traders too.
• Exploring of new markets for traditional export
items and developing exports of new items.

50. Functions of STC
• Stabilisation of price and traditional distribution by
importing at the Government’s instance any commodity
in short supply.
• Handling of such internal trade as promotes foreign
trade.
• Ensuring the quantity and quality of various
commodities to foreign buyers at competitive rates.
• Assisting in the settlement of trade disputes between
exporters and importers in different countries wherever,
India is directly concerned.
• Implementation of all trade agreements entered into by
the Government of India with other nations.

51. Defects of STC
• STC is found to be extremely slow in taking
decisions and actions.
• STC could not work fruitfully with buyers and
producers to solve the technical problems
involved in foreign trade.
• STC lacks a business point of view. Its activities
are governed by bureaucratic attitudes and
systems.
• Periodic changes in staff of STC seem to have
affected the efficiency and continuity of
functions.

52. Canalisation
The list contains those items which are to be exported only
through designated canalized agencies. At present there are
five items which are canalized. They are as follows Items
Canalised Agency
(a) Petroleum Products Indian oil corporation ltd.
(b) Gum karaya The tribal co-operative marketing federation
of India ltd (TRIFED)
(c) Mica waste and scrap MMTC and MITCO
(d) Mineral ores and scrap concentrates Indian rare earths ltd,
Kerala minerals & metals ltd. and MOIL
(e) Nigar seeds NAFED, TRIFED and 2 others

53. Intra Industry Trade
&
Inter Industry Trade

54. Inter Industry Trade
• Inter-industry trade is a trade of products that
belong to different industries.
• For instance, the trade of agricultural products
produced in one country with technological
equipment produced in another country can be
classified to be an inter-industry trade.
• Countries usually engage in inter-industry
trade according to their competitive
advantages.

55. Intra Industry Trade
Intra-industry trade is a trade of products that
belong to the same industry.
Intra-industry trade (IIT), that is trade of similar
products, has been a key factor in trade growth in
recent decades. These trends have mostly been
attributed to the fragmentation of production
(outsourcing and offshoring) as a result of
globalisation and new technologies.

56. Intra Industry Trade
• It is also called two way trade.
• Intra industry trade is highly prevalent in the
case of trade between developed countries.
• Now developing countries also participating in
Intra Industry trade.

57. Toyota, a Japanese car company mainly
produces family cars, and German car
manufacturer Audi concentrates on producing
sport cars. Accordingly, when Toyota produces
more family cars, the lower will be the unit cost,
and similarly, more sports cars are produced by
Audi, the lower unit price of the car will be.