Recent decades have seen rapid growth of the world economy.

This growth has been driven in part by the even faster rise in international trade. The growth in trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers. Some developing countries have opened their own economies to take full advantage of the opportunities for economic development through trade, but many have not. Remaining trade barriers in industrial countries are concentrated in the agricultural products and labor-intensive manufactures in which developing countries have a comparative advantage. Further trade liberalization in these areas particularly, by both industrial and developing countries, would help the poorest escape from extreme poverty while also benefiting the industrial countries themselves. I. International Trade and the World Economy Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction. Over the past 20 years, the growth of world trade has averaged 6 percent per year, twice as fast as world output. But trade has been an engine of growth for much longer. Since 1947, when the General Agreement on Tariffs and Trade (GATT) was created, the world trading system has benefited from eight rounds of multilateral trade liberalization, as well as from unilateral and regional liberalization. Indeed, the last of these eight rounds (the so-called "Uruguay Round" completed in 1994) led to the establishment of the World Trade Organization to help administer the growing body of multilateral trade agreements. The resulting integration of the world economy has raised living standards around the world. Most developing countries have shared in this prosperity; in some, incomes have risen dramatically. As a group, developing countries have become much more important in world tradethey now account for one-third of world trade, up from about a quarter in the early 1970s. Many developing countries have substantially increased their exports of manufactures and services relative to traditional commodity exports: manufactures have risen to 80 percent of developing country exports. Moreover, trade between developing countries has grown rapidly, with 40 percent of their exports now going to other developing countries. However, the progress of integration has been uneven in recent decades. Progress has been very impressive for a number of developing countries in Asia and, to a lesser extent, in Latin America. These countries have become successful because they chose to participate in global trade, helping them to attract the bulk of foreign direct investment in developing countries. This is true of China and India since they embraced trade liberalization and other market-oriented reforms, and also of higher-income countries in Asialike Korea and Singaporethat were themselves poor up to the 1970s. But progress has been less rapid for many other countries, particularly in Africa and the Middle East. The poorest countries have seen their share of world trade decline substantially, and without lowering their own barriers to trade, they risk further marginalization. About 75 developing and transition economies, including virtually all of the least developed countries, fit this description. In contrast to the successful integrators, they depend disproportionately on production and exports of traditional commodities. The reasons for their marginalization are complex, including deep-seated structural problems, weak policy frameworks and institutions, and protection at home and abroad.

II. The Benefits of Trade Liberalization Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998.1 There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking.2 Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10.3 Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction.4 On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not.5 Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests, that trade protection provides. Moreover, the increased growth that results from freer trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole.6 New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization.7 The potential gains from eliminating remaining trade barriers are considerable. Estimates of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. Moreover, developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers. Although there are benefits from improved access to other countries' markets, countries benefit most from liberalizing their own markets. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The group of low-income countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. III. The Need for Further Liberalization of International Trade These considerations point to the need to liberalize trade further. Although protection has declined substantially over the past three decades, it remains significant in both industrial and developing countries, particularly in areas such as agriculture products or labor-intensive manufactures and services (e.g., construction) where developing countries have comparative advantage.

Industrial countries maintain high protection in agriculture through an array of very high tariffs, including tariff peaks (tariffs above 15 percent), tariff escalation (tariffs that increase with the level of processing), and restrictive tariff quotas (limits on the amount that can be imported at a lower tariff rate). Average tariff protection in agriculture is about nine times higher than in manufacturing. In addition, agricultural subsidies in industrial countries, which are equivalent to 2/3 of Africa's total GDP, undermine developing countries' agricultural sectors and exports by depressing world prices and pre-empting markets. For example, the European Commission is spending 2.7 billion euro per year making sugar profitable for European farmers at the same time that it is shutting out low-cost imports of tropical sugar. In industrial countries, protection of manufacturing is generally low, but it remains high on many laborintensive products produced by developing countries. For example, the United States, which has an average import tariff of only 5 percent, has tariff peaks on almost 300 individual products. These are largely on textiles and clothing, which account for 90 percent of the $1 billion annually in U.S. imports from the poorest countriesa figure that is held down by import quotas as well as tariffs. Other laborintensive manufactures are also disproportionately subject to tariff peaks and tariff escalation, which inhibit the diversification of exports toward higher value-added products. Many developing countries themselves have high tariffs. On average, their tariffs on the industrial products they import are three to four times as high as those of industrial countries, and they exhibit the same characteristics of tariff peaks and escalation. Tariffs on agriculture are even higher (18 percent) than those on industrial products.8 Nontraditional measures to impede trade are harder to quantify and assess, but they are becoming more significant as traditional tariff protection and such barriers as import quotas decline. Antidumping measures are on the rise in both industrial and developing countries, but are faced disproportionately by developing countries. Regulations requiring imports to conform to technical and sanitary standards comprise another important hurdle. They impose costs on exporters that can exceed the benefits to consumers. European Union regulations on aflotoxins, for example, are costing Africa $1.3 billion in exports of cereals, dried fruits, and nuts per European life saved.9 Is this an appropriate balance of costs and benefits? For a variety of reasons, preferential access schemes for poorer countries have not proven very effective at increasing market access for these countries. Such schemes often exclude, or provide less generous benefits for, the highly protected products of most interest to exporters in the poorest countries. They are often complex, nontransparent, and subject to various exemptions and conditions (including noneconomic ones) that limit benefits or terminate them once significant market access is achieved. Further liberalizationby both industrial and developing countrieswill be needed to realize trade's potential as a driving force for economic growth and development. Greater efforts by industrial countries, and the international community more broadly, are called for to remove the trade barriers facing developing countries, particularly the poorest countries. Although quotas under the so-called Multifiber Agreement are due to be phased out by 2005, speedier liberalization of textiles and clothing and of agriculture is particularly important. Similarly, the elimination of tariff peaks and escalation in agriculture and manufacturing also needs to be pursued. In turn, developing countries would strengthen their own economies (and their trading partners') if they made a sustained effort to reduce their own trade barriers further. Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction. Offering the poorest countries duty- and quota-free access to world markets would greatly benefit these countries at little cost to the rest of the world. The

recent market-opening initiatives of the EU and some other countries are important steps in this regard.10 To be completely effective, such access should be made permanent, extended to all goods, and accompanied by simple, transparent rules of origin. This would give the poorest countries the confidence to persist with difficult domestic reforms and ensure effective use of debt relief and aid flows.

Issue Of Trade Liberalisation In India

Domestic and industrial trade liberalisation opened up the Indian economy to foreign competition. How can Indias domestic industry respond to this challenge? What could the implication be for multinationals seeking new opportunities for location or relocation in India? Introduction: India which is emerging as super power has opened its economy to foreign competitors during 1990s. This trade liberalisation played a vital role in development of Indian economy though its been considered as India allowing other countries to explore them. Analysts initially predicted that trade liberalisation would be a great barrier for developing country such as India but ultimately this landed up against the prediction though there were been certain issues were considered to set back Indian economy major policies favoured growth of Indian economy. This paved way for MNCs to enter into Indian market which eventually helped domestic market to get support for their expansion along with knowledge sharing. The small industries in India joined hands with theses MNCs in order to expand these growth in global market though initial stages where tough for theses industries but in later it helped them allot for their growth. Foreign competition in Indian Economy: Industrialisations along globalisation are the key factors to be considered by a developing country which Indian trade liberalisation paved way. Industrialisation is considered to be cornerstone in the tradition as modern economic growth by a la Kuznets and Clark". The future of the developing world lies in industrialisation in this age of integration and globalisation. (Weiss, 2002) The Indian industry under the WTO bogey to a find a solution for economic fall introduced many policies which was favouring foreign competition. India was indicated as one of the fully closed economies during 1960-92 which in later changed into open economic in 1990s which was the major reason for its development along with foreign investors in India. Foreign direct investments where flowing into Indian market due its mix of policy, though it was considered to be drawback for domestic industries initially later it helped them to join hands with MNCs in order to expand and R&D outcomes. It was unrealistic to practice and reach industrialisation since it was been set for both foreign finance and technology. Meanwhile, the public possession in a socialist path to industrialisation cannot be ruled out, the state governments lacked to provide it to the domestic markets which made no other option for India to join the process of integration and globalisation for sustained economic growth. The credit flow to the small-scale sector was dried up with the financial liberalisation in 1990s due to technology and technical change with the central role in industrialisation. R&D expenditure in India was quoted to be 1 per cent of GDP in 1992, which was

considered to be high by international standards. These issues made foreign investments high into India along with capturing domestic small market. MNC companies invested more into telecommunication, transport and financial services into Indian market leaving domestic market to take care of sub orders provided by them since they were not much know about Indian trend and geographical aspect of market. On considering about agricultural aspects the unilateral trade liberalisation in India was later followed by the multilateral liberalisation of trade in agriculture, since Indian economy was mainly based upon its agricultural market. The liberalisation in agricultural and intellectual property rights of domestic market was the integral part of the Uruguay Round. Domestic comparative prices of agricultural commodities in India are quite different from world price, so that price signals received by domestic producers are different from those constant with India's comparative advantage.(Jain, 2005) Indian Market for MNCs: There are a number of reasons why the multinational companies are coming down to India. India has got a vast market with one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. Multinational companies are the organizations or enterprises that manage production or offer services in more than one country entered into Indian market since the financial liberalisation was introduced in 1991.Though majority of the multinational companies in India are from United States initially which slowly brought many companies from other countries. Initially, the multinational companies in India represent a diversified portfolio such as the American companies which are the majority of the MNC in India, report for about 37% of the turnover of the top 20 firms operating in India, but the situation has changed off late. Additional enterprises from European Union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland entered Indian market and also have outsourced their works to Indian domestic industries. Finnish mobile giant Nokia has their second largest base in Indi also MNCs like British Petroleum and Vodafone entered the market. India has a huge market for automobiles and hence a number of automobile giants have stepped into the Indian market. The showrooms of the multinational automobile companies like Fiat, Piaggio, Rolls Royce, Volkswagen, Benz, Audi and Ford Motors are in India right now. French Heavy Engineering major Alstom and pharmacy major Sanofi Aventis have also started their operations in India targeting growth of Indian population. There are also a number of oil companies and infrastructure builders from Middle East. Electronics giants like Samsung and LG Electronics from South Korea have already made a substantial impact on the Indian electronics market. Hyundai Motors has also done well in mid-segment car market in India. For relatively a long time, India had a restricted policy in terms of foreign direct investment. As a result, there was smaller number of companies that showed interest in investing in Indian market. On the other hand, the scenario changed during the financial liberalization, especially after 1991. Government these days makes continuous efforts

to attract foreign investments by relaxing many of its policies. As an outcome of it a number of multinational companies have shown interest in Indian market. On considering certain key issues which made foreign organisation to use the trade liberalisation where, Huge market potential in India. Attractiveness for foreign direct investments. Cheap labour in India Macro-economic stability Challenges faced by domestic industries: Indian economy grew at an astonishing pace of 9.5% before the global financial crisis also trade in goods and services accounted for 48% of GDP with the economy substantially depended on large capital inflows to sustain Indian growth even during global financial crisis. India was among the few country which recovered soon from this crisis since its domestic market was not directly supported by foreign investments. Inherent resilience arising from Indias large domestic demand, a stable financial system, high domestic saving rate, prudent monetary policy and fiscal improvement along with other policies helped India cope with the global crisis better than most others. The correction in industrial growth made domestic industries to be aware of global crisis and certain key issues in global economy such as even before the Lehman struck the financial markets. Monetary policy was indeed favouring the market with large liquidity flowing from MNCs by open market operations. These moves were in time with those in fiscal space that included large tax cuts and an expenditure motivation. This show cased a rare exemplary monetary-fiscal organization that enabled the economy to limit the downturn. Industrial growth bounced back and had moved back to a double-digit trajectory along with services sector. The resilience of the Indian economy was still evident as higher rural incomes and greater diversification in rural activity helped agriculture to record a positive growth. These favourable base effects may in the short-run be difficult to step up growth without overheating the economy. The near term growth prospects remain very encouraging even if there where slight adjustment in growth numbers ahead arising from unfavourable base effects. It is important to manage both demand and supply conditions and see investment response in while maintaining price stability. On the one hand, the new spell of quantitative easing by some advanced economies has increased the uncertainty about future output and inflation gaps and is risking new short term investment. On the other hand, the central banks in the advanced economies are trying to boost short term inflation expectations, but are risking of long-term inflation expectations. However, the direction of change and the relative weights in reaction functioned favouring MNCs the domestic market was strong enough to survey with their domestic customers. The level of capital flows in recent period has been in

line with our absorptive capacity, but the potential volatility has to be bear in mind by policy-makers as well as private agents in planning their risk management. It is not without significance that in a world where global imbalances and currency battles have again come to fore, India has managed the impossible trinity without any significant interventions and capital controls. This in many ways reflects a new maturity level for the Indian economy that augurs well for its growth prospects of its domestic industry. (Chakrabarty, 2010)However, the available empirical evidence on this issue has been far from conclusive studies for developing countries that use firm or industry level data do not find an unequivocal positive relationship between trade reforms and productivity growth (Rodrik, 1995). Also, most of these studies have been plagued by both conceptual and empirical shortcomings. Firstly, the studies rarely pay attention to the explicit theoretical mechanisms through which trade policy may impact on productivity growth. As mentioned by Rodrik, since the conceptual issues are rarely sorted out as a prelude to empirical analysis, the hypothesized cause-and-effect are difficult to interpret. (Rodrik, 1995).On considering Indian manufacturing industry initially the reform process has been slow, so that an analysis of this segment is tough. Indian reform with respect to the final and intermediate goods sectors has been different, allowing for the assessment of the suggestion that the liberalization of the intermediate good sectors is high important than that of the final goods sectors. Finally, data on variables of interest are available such as annual report of theses organisation represents a stead state growth. . Following are some of the major multinational companies operating their businesses in India: British Petroleum Vodafone Ford Motors LG Samsung Hyundai Accenture Reebok Skoda Motors After more than forty years of import quotas the textile and clothing sector became subject to the general rules of the General Agreement on Tariffs and Trade after 2005.Liberalization has been divisive because both textiles and clothing contribute to employment in India, particularly in regions where other jobs where difficult to find. In the European Union, for example, the sector is dominated by small and

medium-sized enterprises concentrated in a number of regions that are highly dependent on this sector. (communities, 2003). Textiles and clothing are also among the sectors where India has the most to gain from multilateral trade liberalization. In fact, the viewpoint of liberalization of the textiles and clothing sectors was one of the reasons why India accepted to include services and intellectual property rights areas to which it was sceptical at the outset in the Uruguay. At the same time, the textile and clothing industry has high value added segments where design, research and development (R&D) are important competitive factors. The high end of the fashion industry uses human capital intensively in design and marketing. The same applies to market segments such as sportswear where both design and material technology are important. Finally, R&D is important in textile industry where material technology is an important competitive which been easily accessed by domestic industries Conclusion: On concluding the trade liberalisation which developed major sectors in India eventually brought many multinational companies. These companies where helpful in developing infrastructures, transport, telecommunication sector, financial sector, etc, But the current position in India is very much different due to many MNCs companies which are competition among themselves in order to expand these business in domestic market rather than competition with Indian domestic companies. These pave way for domestic industries development. Multinational companies are facing major problem right now in locating the best part of the country for their business since almost all part of India is developed and more skilled manpower is available in all parts of the country. Ultimately they are cheap and also skilled which makes more completion among these multinations to find the right location for their business. These eventually indicates India is developing with its resources and is also been watched by major countries.