International Business

Project Assignment 2

Question - Write a brief note on –

1. WTO
2. NAFTA
3. EU

Answer –

1. World Trade Organisation:

 The World Trade Organization (WTO) is the only international organization that deals with
global rules of trade between nations. It provides a framework for conduct of international
trade in goods and services. It lays down the rights and obligations of governments in the set
of multilateral agreements.
 In addition to goods and services, it also covers a wide range of issues related to
international trade, such as protection of intellectual property rights and dispute settlement,
and prescribes disciplines for governments in formulation of rules, procedures, and practices
in these areas. Moreover, it also imposes discipline at the firm level in certain areas, such as
export pricing at unusually low prices.
 The basic objective of the rule-based system of international trade under the WTO is to
ensure that international markets remain open and their access is not disrupted by the
sudden and arbitrary imposition of import restrictions.
 Under the Uruguay Round, the national governments of all the member countries have
negotiated improved access to the markets of the member countries to enable business
enterprises to convert trade concessions into new business opportunities.
 The emerging legal systems not only confer benefits on manufacturing industries and
business enterprises but also create rights in their favour. The WTO also covers areas of
interest to international business firms, such as customs valuation, pre-shipment inspection
services, and import licensing procedures, wherein the emphasis has been laid on
transparency of the procedures so as to restrain their use as non-tariff barriers.
 The agreements also stipulate rights of exporters and domestic procedures to initiate actions
against dumping of foreign goods. An international business manager needs to develop a
thorough understanding of the new opportunities and challenges of the multilateral trading
system under the WTO.
 The WTO came into existence on 1 January 1995 as a successor to the General Agreements
on Tariffs and Trade (GATT). Its genesis goes back to the post-Second- World-War period in
 the late 1940s when economies of most European countries and the US were greatly
disrupted following the war and the great depression of the 1930s.
 Consequently, a United Nations Conference on Trade and Employment was convened at
Havana in November 1947.
 It led to an international agreement called Havana Charter to create an International Trade
Organization (ITO), a specialized agency of the United Nations to handle the trade side of
international economic cooperation.
 The draft ITO charter was ambitious and extended beyond world trade discipline to rules on
employment, commodity agreements, restrictive business practices, international
investment, and services. However, the attempt to create the ITO was aborted as the US did
not ratify it and other countries found it difficult to make it operational without US support.
 The combined package of trade rules and tariff concessions negotiated and agreed by 23
countries out of 50 participating countries became known as General Agreement on Tariffs
and Trade (GATT): an effort to salvage from the aborted attempt to create the ITO.
 India was also a founder member of GATT, a multilateral treaty aimed at trade liberalization.
GATT provided a multilateral forum during 1948-94 to discuss the trade problems and
reduction of trade barriers.
 World Trade Organization membership increased from 23 countries in 1947 to 123 countries
by 1994. GATT remained a provisional agreement and organization throughout these 47
years and facilitated considerably, tariff reduction. During its existence from 1948 to 1994,
average tariffs on manufactured goods in developed countries declined from about 40 per
cent to a mere 4 per cent.
 It was only during the Kennedy round of negotiations in 1964-67, that an anti-dumping
agreement and a section of development under the GATT were introduced. The first major
attempt to tackle non-tariff barriers was made during the Tokyo round. The eighth round of
negotiations known as the Uruguay Round of 1986-94 was the most comprehensive of all
and led to the creation of the WTO with a new set up of agreements.

2. NAFTA - North American Free Trade Agreement

The North American Free Trade Agreement is a treaty between Canada, Mexico, and the

United States. That makes NAFTA the world’s largest free trade agreement. The gross domestic
product of its three members is more than $20 trillion. NAFTA is the first time two developed
nations signed a trade agreement with an emerging market country. 

Through NAFTA, the three signatories agree to remove trade barriers between them. By eliminating
tariffs, NAFTA increases investment opportunities. The NAFTA agreement is 2,000 pages, with eight
sections and 22 chapters.

On November 30, 2018, the United States, Mexico, and Canada renegotiated the North American
Free Trade Agreement. The new deal is called the United States-Mexico-Canada Agreement. It must
be ratified by each country's legislature. The implementation act passed the House in December
2019, the Senate on Jan. 16, 2020, and signed by Trump on Jan. 29, 2020. It was ratified in Mexico in
2019. Ratification is pending in Canada. Until the USMCA is ratified, NAFTA remains in effect. The
Trump administration wanted to lower the trade deficit between the United States and Mexico.
The new deal changes NAFTA in six areas -

 Included in the USMCA agreement, sometimes colloquially referred to as NAFTA 2.0, are:
 Allowing American farmers access to American dairy products, which had previously been
more restricted
 Automobiles must have at least 75% of its components made in the United States, Canada or
Mexico, an increase from NAFTA's requirements of 62.5%
 By 2023, 40-45% of automobile components must be made by North American workers
making at least $16 an hour.
 The terms of copyright increase to 70 years after the life of the author, an increase from the
current limit of 50 years after the life of the author
 Prohibition on duties for products like music or e-books purchased electronically
 Scrapping parts of Chapter 11, the NAFTA provision also known as the Investors-State
Dispute Settlement (ISDS) that allowed investors of companies to sue governments

There is also A "sunset" clause, in which the terms of the agreement expire after 16 years. The
USMCA would be reviewed every 6 years, during which it can be extended for another 16-year term.
While the leaders of all 3 countries have signed the agreement, it cannot go into effect until the
governments of all 3 countries pass it. However, the United States has yet to pass the USMCA as a
bill. House Democrats have urged additions to the USMCA that, among other things, strengthen
labor laws and add environmental protections.

3. EU – European Union:

The most prominent development in the field of economic integration has been the organisation of
European Economic Community (EEC) now known as European Union (EU). Initially it was called
European Common Market (ECM). It was formed on January 1, 1958 based on the Treaty of Rome
signed in March 1957 by the countries like W. Germany, France, Italy, Belgium, Netherlands and
Luxembourg.

Starting with six member countries, its membership increased to nine when the United Kingdom,
Denmark and Ireland joined it in 1973.

Subsequently, Greece joined it in 1981, followed by Spain and Portugal in 1986. During 1990’s, the
membership of EU had risen to 15 with some African, Caribbean and Pacific region countries having
its associate membership. On May 1, 2004 there was enlargement of European Union (EU) with the
joining of 10 new member countries.

With this the membership of EU has risen to 25. The new member countries include Czech Republic,
Estonia, Hungary, Slovak Republic, Malta, Cyprus, Poland, and Lithuania. Latvia and Slovania.

Presently, the membership of the EU stands at 28. The estimated GNP of the enlarged EU would be
around Euro 9,712 billion with a population more than 455 million. The enlarged EU would represent
20 percent of the world trade, 26 per cent of foreign direct investment and 46 percent of the total
outbound investments. As a matter of fact, EU would become the largest trading block in the world.
The Intra-EU trade would be over twice of what it would have been in the absence of integration.
The EEC had been created based on the Treaty of Rome which specified its objective. So, under the
Treaty of Rome, the member countries of EEC are committed to:

 The abolition of tariff and non-tariff quantitative and other restrictions regarding the
import and export of goods between the member states.
 The abolition of all restrictions upon the free movement of persons, services and capital
between the member states.
 The establishment of common customs tariff and of a common commercial policy
towards the non-member countries.
 The establishment of a common farm policy.
 The adoption of a common policy in the sphere of transport.
 The establishment of a system ensuring that competition shall not be distorted in the
common market.
 The application of the procedures for ensuring the co-ordination of the economic
policies of the member states and for remedying their balance of payments disequilibria.
 The creation of a European Social Fund for improving the possibilities of employment for
the workers and for ensuring a rise in their standard of living.
 The establishment of a European Investment Bank to facilitate the economic expansion
of the community by opening fresh resources.
 The approximation of the legislations of the member states to the extent necessary for
the efficient functioning of the common market.

It follows from the above that the fundamental objectives which the EEC sought to realise include
the elimination of all restrictions from the free movement of goods, labour, capital and services,
maintenance of common external tariffs against the non-member countries, the establishment of
common policies in the spheres of transport and agriculture and closer integration in the fields of
monetary and fiscal matters in the entire region.

By,
Aishwarya Bawa
27/059
Section B