Master of Business Administration - Semester 4 IB0017: Foreign Trade of India (Book ID: B1144) ASSIGNMENT

Q1. Examine the scope of study of International business environment.

Scope of International Environment The development of the multinational enterprise and the impact of foreign direct investment as a vehicle for the increased globalization of business activities is the current hot topic. Foreign direct investment has become the fastest increasing productive unit in the UK Economy recent investors in the UK including Toyota, Samsung and Nissan. None of these multinationals are confined to solely Japanese manufacturing companies, as the impact of new global technology and information systems is leading to a wider range of opportunities. Indeed, Numura securities in the Finance section, as well as the French car company, Peugeot, provide an example of the diverse range of Multinational Business activities in the UK alone. Further liberalization of trade has taken place through the various round of GATT and European Union, with these trading blocs are committed towards full removal of tariff and non-tariff barriers, and allowing the free movement of labor and capital in the creation of a single market. Similar agreements are taking place within the US, Canada and Mexico, as well as Japan and the association of South East Asian Nations. All these developments highlight the importance of understanding international business in the 21st century. Managers can obviously spend all of their available time and resources becoming ever-more educated about the global business environment without knowing all that they think they should know in order to be effective decision-makers. As in all aspects of life, priorities must be established- in this case, to focus on what is arguably most important to know in order to compete successfully in the global business environment. Even a cursory consideration of what constitute potentially important considerations in the global business environment can lead to a daunting list of possibilities. For example, the list could include broadly defined attributes of the global business environment such as the macroeconomic outlook for specific countries and regions, emerging political and social developments in those countries and regions, the availability of skilled labor and other demographic attributes of specific countries and regions and so forth. It might also include more specific characteristics of countries and regions such as trade and foreign investment laws, availability of input suppliers, consumer buying behavior, existing physical infrastructure, including roads, seaports and airports, the number and competitive strength of rivals, the availability of potential strategic partners and many, many other factors. Prioritizing what one should understand about the global business environment is obviously not an easy thing to do given the many unknowns that confront international business managers. The PEST Analysis PEST is a well-known and widely applied tool when analyzing what the international market has to offer. International marketing environment. International PEST Analysis would consider: How easy will it be to move from purely domestic to international marketing? Would your business benefit from inward foreign investment? What is the nature of competition within each individual market, and how will companies from other nations compete when you meet with them head-to-head in unfamiliar countries?

Q2. What are the basic principles of an international business contract?

Contractual Principles The principles reviewed here are generally those of the common law, but there are some important differences between the common law and the civil law. Because these are simply the basics, there is no discussion of the "refinements" in the interpretation of these principles. Thus they are only a guide and not a definitive statement which will enable you to accurately predict outcomes of disputes. 1. A contract is formed by an Offer and an Acceptance: Ideally, the offer contains all the important factors which will be contained in the contract, and the offer must be accepted without any change by the person to whom the offer is made. This is what is known as the "mirror image" rule. If the acceptance does not match" the original offer, it is a counter-offer, and no contract is formed until the other party indicates acceptance of the revised proposition. This situation can arise where

parties (say a buyer and seller) each use their own standard form contract, the seller offering to sell on its form and the buyer "accepting" on its own standard form. This is described as the "battle of the forms" and there may be no enforceable contract as a result, because the parties have failed to meet the "mirror image" rule. Another common difficulty is identifying an offer. It is quite common in business for a quotation to be made, either in a catalogue or an advertisement. Generally speaking this is not considered an offer, but simply an invitation to do business, so that it is they buyer who must make an offer based on the information contained in the advertisement or quotation. The best test in this situation is to examine if possible, the intention of the person making the quotation or placing the advertisement. There should be evidence of a clear intention that the "quotation" was an offer. 2. An offer may be revoked at any time before it is accepted, unless a specific commitment has been made to keep the offer open for a specified period of time: Revocation must always be communicated to be effective. The common law provides that an offer can be revoked at any time before acceptance even when the offeror has stated that it will remain open for a specified period of time. Civil law countries generally regard a firm offer to be binding for the period specified. The UCC take a middle course, as a firm offer for the purchase or sale of goods stated in writing to be effective for a specified period can be enforced by a person who has relied on the offer. 3. An Offer should Normally contain All the Essential Terms of the Contract: There may be situations where the parties have left out important terms of a contract. The more important the missing term, the less likely it is that the parties have an enforceable contract. If the parties have provided for some agreed method of providing the missing term, the contract may well be effective. This is quite common where price is missing and there is an established mechanism for determining the going price of a commodity or item on a specific date. 4. Performance of Contracts: If one party to the contract fails to live up to its obligations, the other party is usually entitled to damages for breach of contract. On rare occasions, a court will order the defaulting party to honour the contract by performing it. This is known as specific performance and is rare in the common law system, although it is more common under civil law rules. In unusual cases where the performance of a contract becomes impossible for the performing party, due to no fault on its part, the contract is said to be frustrated and there is no liability on the part of the party that fails to perform.

Q3. Differentiate between arbitration, litigation and mediation.

The distinctive feature of arbitration is that it is a private dispute resolution mechanism, which nevertheless provides arbitrators with judicial power. Some other features are: Arbitration is a private dispute resolution method, in which the arbitrators mandate to resolve a dispute derives from a contract (i.e., an arbitration agreement or arbitration clause). Arbitrators have the power to deliver an award that finally resolves the dispute that is binding on the parties. Based on above features arbitration is separated from the following: Litigation proceedings before national court: In litigation, national courts are an expression of state power and they are bound to apply the rules and procedures of the state they are attached to. National judges owe allegiance to their state and they have limited or no discretion to deviate from the procedural codes and rules of that state. By contrast, in arbitration parties are free to determine how the proceedings are to be conducted, subject only to minimum safeguards (due process). Party autonomy is a fundamental principle in arbitration, which gives the parties the opportunity to tailor the proceedings in accordance with their commercial needs and the special characteristics of the case. Arbitrators are private judges whose mandate is determined by the arbitration agreement concluded by the parties, and who owe allegiance to the parties that have appointed them rather than to a state. Alternative dispute resolution (ADR) methods: Despite the fact that their authority derives from a contract, arbitrators have the power to grant an award, which is a final decision that is binding on the parties. Arbitral awards are enforceable in the same way that national judgments are. Therefore, arbitration must be distinguished from other forms of ADR, such as mediation. Here, as in arbitration, a third party (mediator) is involved in the resolution of the dispute between the two commercial parties. However, the mediator has no power to impose a decision on the parties. Mediators work with the parties to resolve their dispute by an agreement; they cannot issue a binding decision. Thus, the outcome of a successful mediation is a settlement rather than an enforceable award.

Q4. What do you mean by international taxation and double taxation? What are the vital elements and principles of taxation?
International Taxation International taxation is a term that deals with international tax treaties and methods to resolve tax conflicts involving cross-border countries transactions. There are three vital elements of any taxable transaction that includes: Tax subject: It is a term used to identify the taxpayer who has a tax liability to pay off. Tax object: It is a term used to identity the components of the tax liability. Connecting factor: There must be a connecting factor between the State tax authorities and individual/business taxpayer without which a State authority cannot impose its taxing procedures. A different countries follow different tax procedures binding to its own legal systems and has to define its own connecting factors to compute tax liabilities with respective to tax accounting rules being followed in their countries. Principles of International Taxation There are two key principles of international taxation: Residence based taxation: An individual taxpayer has to pay his/her taxes based on its worldwide income in the country of his/her residence. Source based taxation: A company has to pay its taxes in the source country where it has its business establishments and a source of income is available from those establishments. A double taxation issues will be in limelight provided that companies have been taxed both in the country of residence and source. The country of residence has the sole rights to exempt a company from double taxation either by: Exemption of taxable income in the country of residence or Extending credit facilities for taxes to be paid in the country of source.

Q5.Discuss the Foreign exchange management Act.

The Foreign Exchange Management Act The Act came into existence on June 1, 2000 replacing the Foreign Exchange Regulation Act (FERA) of 1973. The FEMA replaced FERA, as the latter was inadequate to deal with the consequences of the postliberalisation policies introduced in India. However, FEMA maintained and promoted an orderly development foreign exchange market in India. The head office of FEMA is in New Delhi and is known as Enforcement Directorate headed by a director. The directorate is divided into five zonal level offices, located in Delhi, Mumbai, Chennai, Kolkata and Jalandhar. These zonal offices are headed by a deputy director. Each of these zones are further divided into sub-zonal offices and field units which are headed by assistant directors and chief enforcement officers. The FEMA is applicable to all parts of India and to agencies and offices which are located outside India, but controlled and owned by an Indian resident. The purpose of FEMA was to consolidate and amend the laws pertaining to foreign exchange and enhance external trade and payments.

Enforcement and regulation The following are the key points regarding the enforcement and regulations of FEMA:

 Dealing with the foreign exchange An individual is expected to take special permission from the RBI while transferring foreign exchange. It is more applicable to compensations which are made to an individual residing outside India. Holding of foreign exchange Without the sanction of the RBI, it is not possible for an individual residing in India to own, hold, transfer foreign exchange or acquire any immovable property outside India. Export of goods and services The exporter of goods and services should take the responsibility to furnish to the RBI. A statement enclosing details which signify the payments, pertains to the services of the concerned authorities. Understanding and repatriation of foreign exchange Residents of India should be responsible to take up reasonable steps to realise and repatriate foreign exchange. At times, certain categories of individuals are exempted from repatriation. Enforcement Directorate The director is empowered to investigate, violation of the Act, law, notifications or if any order is received in exercise of the powers under this Act. In such cases, the director manages the following issues: - The Directorate of Enforcement is concerned with the enforcement of the requirements of the FEMA in order to prevent leakage of foreign exchange which tends to occur due to malpractices. - The acquirement of foreign currency unlawfully by an individual in India. - The illegal maintenance of accounts in foreign countries. - The unlawful acquirement of foreign exchange through hawala.

Q6. Write short notes on (a) World Bank (b) Sale of Goods Act WTO
The World Trade Organisation (WTO) was established on 1st January 1995. Governments had concluded the Uruguay Round negotiations on 15th December 1993 and ministers had given their political backing to the results by signing the Final Act at a meeting in Marrakech, Morocco, in April 1994. The 'Marrakech Declaration' of 15th April 1994, affirmed that the results of the Uruguay Round would strengthen the world economy and lead to more trade, investment, employment and income growth throughout the world. The WTO is the embodiment of the Uruguay Round results and the successor to the General Agreement on Tariffs and Trade (GATT). The WTO has a larger membership than GATT (145 by the end of March 2002). India is one of the founder members of the WTO.

Objectives of WTO
It introduces the idea of "sustainable development" in relation to the optimal use of the world's resources, and the need to protect and preserve the environment in a manner consistent with various levels of national economic development. It recognises that there is a need for positive efforts to ensure that developing countries, and especially the least developed among them, secure a better share of the growth in international trade.

Sale of Goods Act

A contract whereby a seller transfers or agrees to transfer the property in the goods to the buyer for a price is a contract of sale of goods. Essential elements of law of sale of goods The law of sale of goods cannot be complete in its form without certain elements that form the basis of this law. The following elements are essential to constitute a contract of sale: Two parties There must be two parties to constitute a contract of sale, a buyer and a seller. The same person cannot be both a seller and a buyer. Agreement To constitute a sale, there must exist an agreement brought about by the mutual consent of the buyer and seller.

 Goods The subject matter of a contract of sale always has to be goods. Goods may be existing or future goods. Goods must be a movable property since transfer of immovable property is not regulated by the sale of goods Act. Money, immovable property, and actionable claims do not fall under the purview of goods according to the Act. Price Any sale must take place for some monetary consideration called price. In a contract, if the payment of consideration is not money, then it is not a contract of sale. Transfer of ownership In a contract of sale, the seller must transfer or agree to transfer the ownership in goods to the buyer. Essential of a valid contract All the essential elements of a valid contract must be present in a contract of sale (such as offer, acceptance, competent parties, free consent, and so on).