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7/27/2019 Defination of International Marketing
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INTERNATIONAL MARKETING
AND
WTO (WORLD TRADE ORGANISATION)
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Chapter 1
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A. DEFINITION OF INTERNATIONAL MARKETING
International Marketing can be defined as exchange of goods and services between different
national markets involving buyers and sellers.
According to the American Marketing Association, ―International Marketing is the multi-
national process of planning and executing the conception, prices, promotion and
odistribution of ideal goods and services to create exchanges that satisfy the individual and
organizational objectives.‖
B. CONCEPTS OF INTERNATIONAL MARKETING
I. Domestic Marketing:
Domestic Marketing is concerned with marketing practices within the marketer‘s home country.
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II. Foreign Marketing:
It refers to domestic marketing within the foreign country.
III. Comparative Marketing:
When two or more marketing systems are studied, the subject of study is known as comparative
marketing. In such a study, both similarities and dis-similarities are identified. It involves an
analytical comparison of marketing methods practiced in different countries.
IV. International Marketing:
It is concerned with the micro aspects of a market and takes the company as a unit of analysis.
The purpose is to find out as to why and how a product succeeds or fails in a foreign country and
how marketing efforts influence the results of international marketing.
V. International Trade:
International Trade is concerned with flow of goods and services between the countries. The
purpose is to study how monetary and commercial conditions influence balance of payments and
resource transfer of countries involved. It provides a macro view of the market, national and
international.
VI. Global Marketing:
Global Marketing consider the world as a whole as the theatre of operation. The purpose of
global marketing is to learn to recognize the extent to which marketing plans and programmes
can be extended world wide and the extent to which they must be adopted.
C. DIFFERENCE BETWEEN DOMESTIC MARKETING AND
INTERNATIONAL MARKETING
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Marketing is the process of focusing the resources and objectives of an organisation on
environmental opportunities and needs. It is a universal discipline. However, markets and
customers are different and hence the practice of marketing should be fine tuned and adjusted to
the local conditions of a given country. The marketing man must understand that each person is
different and so also each country which means that both experience and techniques obtained and
successful in one country or countries. Every country has a different set of customers and even
within a country there are different sub-sets of customers, distribution channels and media are
different. If that is so, for each country there must be a unique marketing plan. For instance,
nestle tried to transfer its successful four – flavour coffee from Europe to the united states lost a
1% market share in the us. It is important in international marketing to recognize the extent to
which marketing plans and programmes can be extended to the world and the extent to which
marketing plans must be adapted. Prof.Theodore Levitt thought that the global village or the
world as a whole was a homogeneous entity from the marketing point of view. He advocated
organisation to develop standardized high quality word products and market them around the
world using standardized advertising, pricing and distribution. The companies who followed
Prof. Levitt‘s prescription had to fail and a notable failure amongst them was Parker pen. Carl
Spiel Vogel, Chairman and CEO of the Backer Spiel Vogel Bates worldwide advertising agency
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expressed his view that Levitt‘s idea of a homogeneous world is non – sensible and the global
success of Coca Cola proved that Prof. Levitt was wrong. The success of Coca Cola was not
based on total standardization of marketing mix. According to Kenichi Ohmae, Coke succeeded
in Japan because the company spent a huge amount of time and money in Japan to become an
insider. Coca Cola build a complete local infrastructure with its sales force and vending machine
operations. According to Ohmae, Coke‘s success in Japan was due to the ability of the company
to achieve global localisation or ‗Glocalisation‘ i.e. the ability to be an insider or a local
company and still reap the benefits of global operations. Think global and act local is the
meaning of Glocalisation and to be successful in international marketing, companies must have
the ability to think global and act local. International marketing requires managers to behave
both globally and locally simultaneously by responding to similarities and dissimilarities in
international markets. Glocalisation can be a source of competitive advantage. By adapting sales
promotion, distribution and customer service to local needs, Coke capture 78% of soft drink
market share in Japan. Apart from the flagship brand Coca Cola, the company produces 200
other non- alcoholic beverages to suit local beverages. There are other companies who have
created strong international brands through international marketing. For instance, Philip Morris
has made Marlboro the number one cigarette brand in the world. In automobiles, Daimler
Chrysler gained global recognition for its Mercedes brand like his competitor Bayerische. Mc
Donald‘s has designed a restaurant system that can be set up anywhere in the world. Mc
Donald‘s customizes its menu in accordance with local eating habits.
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D. SCOPE OF INTERNATIONAL MARKETING
International Marketing constitutes the following areas of business:-
Exports and Imports: International trade can be a good beginning to venture into international
marketing. By developing international markets for domestically produced goods and services a
company can reduce the risk of operating internationally, gain adequate experience and then go
on to set up manufacturing and marketing facilities abroad.
Contractual Agreements: Patent licensing, turn key operations, co – production, technical and
managerial know – how and licensing agreements are all a part of international marketing.
Licensing includes a number of contractual agreements whereby intangible assets such as
patents, trade secrets, know – how, trade marks and brand names are made available to foreign
firms in return for a fee.
Joint Ventures: A form of collaborative association for a considerable period is known as joint
venture. A joint venture comes into existence when a foreign investor acquires interest in a local
company and vice versa or when overseas and local firms jointly form a new firm. In countries
where fully owned firms are not allowed to operate, joint venture is the alternative.
Wholly owned manufacturing: A company with long term interest in a foreign market may
establish fully owned manufacturing facilities. Factors like trade barriers, cost differences,
government policies etc. encourage the setting up of production facilities in foreign markets.
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Manufacturing abroad provides the firm with total control over quality and production.
Contract manufacturing: When a firm enters into a contract with other firm in foreign country to
manufacture assembles the products and retains product marketing with itself, it is known as
contract manufacturing. Contract manufacturing has important advantages such as low risk, low
cost and easy exit.
Management contracting: Under a management contract the supplier brings a package of skills
that will provide an integrated service to the client without incurring the risk and benefit of
ownership.
Third country location: When there is no commercial transactions between two countries due to
various reasons, firm which wants to enter into the market of another nation, will have to operate
from a third country base. For instance, Taiwan‘s entry into china through bases in Hong Kong.
Mergers and Acquisitions: Mergers and Acquisitions provide access to markets, distribution
network, new technology and patent rights. It also reduces the level of competition for firms
which either merge or acquires.
Strategic alliances:
A firm is able to improve the long term competitive advantage by forming a strategic alliance
with its competitors. The objective of a strategic alliance is to leverage critical capabilities,
increase the flow of innovation and increase flexibility in responding to market and technological
changes. Strategic alliance differs according to purpose and structure. On the basis of purpose,
strategic alliance can be classified as follows:
i. Technology developed alliances like research consortia, simultaneous engineering agreements,
licensing or joint development agreements.
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ii. Marketing, sales and services alliances in which a company makes use of the marketing
infrastructure of another company in the foreign market for its products.
iii. Multiple activity alliance involves the combining of two or more types of alliances. For
instance technology development and operations alliances are generally multi- country alliances.
On the basis of structure, strategic alliance can be equity based or non equity based. Technology
transfer agreements, licensing agreements, marketing agreements are non equity based strategic
alliances.
Counter trade: Counter trade is a form of international trade in which export and import
transactions are directly interlinked i.e. import of goods are paid by export of goods. It is
therefore a form of barter between countries. Counter trade strategy is generally used by UDCs
to increase their exports. However, it is also used by MNCs to enter foreign markets. For
instance, PepsiCo‘s entry in the former USSR. There are different forms of counter trade such as
barter, buy back, compensation deal and counter purchase. In case of barter, goods of equal value
are directly exchanged without the involvement of monetary exchange. Under a buy back
agreement, the supplier of a plant, equipment or technology. Payments may be partly made in
kind and partly in cash. In a compensation deal the seller receives a part of the payment in cash
and the rest in kind. In case of a counter purchase agreement the seller receives the full payment
in cash but agrees to spend an equal amount of money in that country in a given period.
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Chapter 2
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A.GLOBALISATION OF INDIAN BUSINESS:
Globalization, liberalization and privatization were the three cornerstones of India‘s New
Economic Policy of 1991. The year 1991 marks the beginning of a new era in the Indian
economy. The new objective to be pursued by the policy makers, strategists and executives was
to make India the largest free market economy of the 21st century. In pursuit of this objective,
the Indian economy was to be integrated with the world economy through a programme of
structural adjustment and stabilization. While the stabilization programme included inflation
control, fiscal adjustment and BOP adjustment, the structural reforms included trade and capital
flows reforms, industrial deregulation, disinvestment and public enterprise reforms and financial
sector reforms. The programme of economic reforms has not been entirely successful and as a
result, the globalization process of the Indian economy has not gathered momentum. Indian
business continues to face a number of difficulties and obstacles in their effort to globalize their
business. These obstacles are as follows:
B. GOVERNMENT POLICY AND PROCEDURES:
Government policy and procedures in India are extremely complex and confusing. Swift and
efficient action is a pre-requisite for globalization- which sadly missing. The procedures and
practice continue to be bureaucratic and hence a speed breaker in the globalization effort.
HIGH COST OF INPUTS AND INFRASRUCTURAL FACILITIES:
The cost of raw materials, intermediate goods, power, finance, infrastructural facilities etc. in
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India is high which reduces the global competitiveness of Indian business. The quality and
adequacy of infrastructural facilities in India is far from satisfactory. Further the technology
employed by Indian industries and the style of operation is generally out dated.
C. RESISTANCE TO CHANGE:
The pre-reform era (1951- 1991) breeded lethargy, created rigid structures, systems, practices
and procedures and generally instilled a laid back attitude. These factors are a hindrance to the
processes of modernization, rationalization and efficiency improvement. Technological change is
generally perceived to be employment reducing and hence resisted to the extent possible. For
instance, information technology was introduced in India in the early eighties. However,
computerization process of nationalized banks began only in the mid nineties. Excess labour is
particularly employed in the public sectors in areas such as banking, insurance, and the railways
and Indian industry in general. As a result, labour productivity is low and cheap labour in many a
cases turns out to be dear.
D. NON – TARIFF BARRIERS (NTBs)
Member nations of the World Trade Organizations are bound to progressively reduce tariff rates
across the board over a definite period of time so that level playing field is created in global
trade. Tariff barriers are therefore not of much concern. What concerns developing nations in
particular, are non- tariff barriers imposed by the developed countries. Issues such as child labor
content in some of the products exported by India to the developed nations had cropped up and
remain unresolved.
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E. ADVANTAGES OF GLOBALISATION:
For successful globalization, countries need to chalk out strategies and policies to open up the
doors for the inflows of foreign direct investment (FDI). The FDI by the MNCs brings with it
flow of foreign exchange/ foreign capital, inflow of technology, real capital goods, managerial
and technical skills and know- how.
Globalization can easily promote exports of the country by exploiting its export potentials in a
right way. Globalization can be the engine of growth by facilitating export- led growth strategy
of developing country. ASEAN countries such as Indonesia, Malaysia and Thailand have
demonstrated their success of export- led growth strategy supported by the FDI under
globalization approach.
Globalization can provide sophisticated job opportunities to the qualified people and check
‗brain drain‘ in a country. Globalization would provide varieties of products to consumers at a
cheaper rate when they are domestically produced rather than imported. This would help in
improving the economic welfare of the consumer class.
Under globalization, the rising inflow of capital would bring foreign exchange into the country.
Consequently, the exchange reserve and balance of payments position of the country can
improve. This also helps in stabilizing the external value of the country‘s currency.
Under global finance, companies can meet their financial requirements easily. Global banking
sector would facilitate e banking and e-business. This would integrate countries economy
globally and its prosperity would be enhanced.
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F. DISADVANTAGES OF GLOBALIZATION
Globalization is never accepted as unmixed blending. Critics have pessimistic views about its ill-
consequences.
When a country is opened up and its market economy and financial sectors are well liberalized,
its domestic economy may suffer owing to foreign economic invasion.
A developing economy hen lacks sufficient maturity; globalization may have adverse effect on
its growth.
Globalization may kill domestic industries when they fail to improve and compete with foreign
well-managed, well-established firms.
Globalization may result into economic imperialism.
Unguarded openness may become a playground for speculators. Currency speculation and
speculators attacks, as happened in case of Indonesia, Malaysia, Philippines, Thailand, etc.
recently, may lead to economic crisis. It may lead to unemployment, poverty and growing
economic inequalities.
G. STRATEGIES FOR GLOBALISATION:
Ans. When a company makes the commitment to go international, it must choose an entry
strategy. This decision should reflect an analysis of market potential, company capabilities and
the degree of marketing involvement and commitment management is prepared to make. The
approach to foreign marketing can range from minimal investment with infrequent and indirect
exporting with little thought given to market development, to large investments of capital and
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management in an effort to capture and maintain a permanent, specific share of world markets.
Depending on the firm‘s objectives and market characteristics, either approach can be profitable.
In fact, a company in various country markets may employ a variety of entry modes since each
country market poses a different set of conditions. Having more than one strategy allows the
company to match its expertise with the specific needs of each country market.
The various strategies available to Indian firms to enter the international environment are
discussed as follows:
H. EXPORTING
Exporting is perhaps the first step for a company to go global. It is the first of the attempts to
understand the international environment develop markets abroad.
Exporting can be direct or indirect. With direct exporting the company sells to a customer in
another country. This is the most common approach employed by companies taking their first
international step because the risks of financial loss can be minimized. In contrast, indirect
exporting usually means that the company sells to a buyer in the home country who in turn
exports the product. Customers include large retailers like Wal-Mart or Sears, Wholesale supply
houses, trading companies, and others that buy to supply customers abroad.
In a global environment, the sourcing of finance, materials, managerial inputs etc. will also be
global. However, with 0.5 percent share in the world trade, India is an insignificant player. There
are a number of products with large export potential but these have not been tapped properly.
With a more pragmatic and realistic export policy, procedural reforms and institutional support,
with technological development, modernization and expansion of production facilities, India can
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definitely improve its share in the world trade from its present poor status. There are three
strategies to increase export revenue. These are:
1. Increase the average unit value realization,
2. Increase the quantity of exports and
3. Export new products.
Value added exports assume significance in the context of increasing the average unit value
realization. The bulk of India‘s manufactured exports constitute the low price segment of
international markets. Quality improvement and aggressive marketing is required to enter the
high price segments of the markets. This can be achieved by technology imports and or foreign
collaborations.
The size of India‘s export basket needs to be expanded by adding new products. In order to
identify new products for exports, export opportunities needs to be explored and products with
high foreign demand also need to be identified.
There are also market segments, and industries which are abandoned by the developed countries
on account of factors such as environmental consideration, lack of competitiveness etc. For
instance, developed countries are progressively vacating production of a range of chemicals due
to higher expenditure on overheads and wages. Yet another strategy available to Indian
Companies is Niche Marketing.
I. FOREIGN INVESTMENT
It refers to investment in foreign country. Foreign investment by Indian Companies have been
negligible because of factors such as assured domestic market, want of global orientation,
protective government regulation etc. However, this inward orientation has undergone
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substantial change after the adoption of the new economic policy 1991. With the economic
liberalization and growing global orientation, many Indian firms are setting up manufacturing,
assembling and trading bases overseas. These facilities are either wholly owned or foreign
partnership firms.
Further, through acquisition route, Indian companies have made substantial investments abroad.
The Aditya Birla Group has been pioneer in making foreign investments much before the
adoption of the new economic credo. Indian companies are also setting up production bases in
foreign countries to get an easy entry into the regional trade blocks. For instance, a production
facility in Mexico opens the doors to the NAFTA area for Arvind Mills. Yet another example is
that of Cheminoor Drugs by Dr. Reddy‘s Labs in New Jersey which is set up as a subsidiary.
J. MERGERS AND ACQUISITIONS
In merger, two companies come together but only one survives and the other goes out of
existence as it is merged in the other company. While in acquisition, one company (acquirer)
gets control over the other company (acquired) at the willingness of each of the companies.
Mergers and acquisitions is an important entry strategy in international business. Mergers and
acquisitions can be used to acquire new technology, reduce the level of competition and provides
quick access to markets and distribution network. Many Indian firms have resorted to the
acquisition route to gain a foothold in the foreign market. For instance, Indian companies had
spent $ 711.4 million in acquisitions abroad in 2000 in industries such as InfoTech, drugs and
pharmaceuticals, paints, tele-communication, petroleum and broadcasting. Some of the major
acquisitions include investments by Zee Telefilms, Leading Edge System BPL Software and
Tata Tea. Dataline Transcription, Teamasia semiconductors, Goa Carbons, Wockhordt and Acro
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lab are few other firms to name from a long list.
A very important acquisition has been the $ 271 billion leveraged buy out of Tetley by Tata Tea.
With the acquisition of Tetley, Tata Tea, having been the largest integrated tea producer in the
world, also got possession of the second largest global tea marketer.
Indian companies have also acquired foreign brands. Nicholas Piramal India has acquired the
Indian rights for three anti-infective brands from the US firm Eli Lilly.
Ranbaxy interred the German pharma market by acquiring the generics business of Bager Ali.
The Indian Rayon acquired Madura Garments; a subsidiary of the UK based coats Viyella and
also acquired global rights for Coats Viyella brands such as Louis Phillipe, Allen Solly and Peter
England.
K. JOINT VENTURES
Joint Ventures as a means of foreign market entry have accelerated sharply since the 970s. Joint
ventures refer to joining with foreign companies to produce or market the products or services.
Besides serving as a means of lessening political and economical risks by the amount of the
partner‘s contribution to the venture, JVs provide a less risky way to enter markets that pose
legal and cultural barriers than would be the case in an acquisition of an existing company.
There are two types of JVs, namely:
1. Contractual JVs and
2. Equity based JVs.
A contractual JV consists of a contractual arrangement between two or more companies in which
certain assets and liabilities are shared for a specific purpose and time. Contractual JVs are
common in the construction, extractive and consultancy services.
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An equity JV is a capital sharing arrangement between an MNC and a local company or another
MNC or even a foreign government. Each partner holds share in the subsidiary and shares the
profits in proportion to its ownership share.
The advantage of a JV for MNC is that it can spread its investment across locations, and thereby
minimize its risks.
The liberalization of policy towards the foreign investment by Indian firms along with the new
economic environment seems to have given joint venture a boost. At the beginning of 1995
although there were 177 JVs in operation, there were 347 under implementation. Not only the
number of JVs is increasing but also the number of countries and industries in the map of Indian
JVs is expanding. Companies like Ranbaxy, Dr. Reddy‘s Lab, Lupin etc. have taken the JV route
to mark their presence in the overseas market.
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Chapter 3
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A. STRATEGIC ALLIANCE:
A Strategic International Alliance (SIA) is a business relationship established by two or more
companies to cooperate out of mutual need and to share risk in achieving a common objective.
It is an agreement between companies that is of strategic importance to one or both companies‘
competitive viability. Strategy refers to the means to fulfill company‘s objectives. In everyday
business, the term ‗strategic alliance‘ is generally used to describe a wide variety of
collaborations, irrespective of strategic importance. In a strategic alliance, a firm could establish
relationships with organization that have the potential to add values. Bench marking, re-
engineering, outsourcing, merger and acquisition are examples of strategic alliance.
On the basis of structure, strategic alliances can be classified into equity based and non- equity
based.
Non-equity based alliances such as licensing agreements, marketing agreements, technology
transfer agreements etc. are found to be more dynamic, constructive and strategic. The scope of
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strategic alliance ranges from Research and Development to distribution.
B. LICENSING AND FRANCHISING:
A means of establishing a foothold in foreign markets without large capital outlays is licensing.
It is a favorite strategy for small and medium sized companies. International licensing helps a
firm from one country (licensor) to permit another firm in a foreign country (licensee) to use its
intellectual property such as patents, trademarks, copyrights, technology, technical know-how,
marketing skill etc. in return for royal payments. Royal payments or license fee is regulated in
most of the countries.
The advantages of licensing are most apparent when: capital is scarce, import restrictions forbid
other means of entry, a country is sensitive to foreign ownership, or it is necessary to protect
trademarks and patents against cancellation of nonuse.
An important risk of licensing is that the licensor may give birth to his own competitor i.e. the
licensee can become a competitor after the expiry of the licensing agreement. The only anti-dote
that is available to the licensor to pre-empt any potential or actual competition is continuous
innovation. Only innovation will provide sustainable competitive advantage.
Franchising is a form of licensing in which a parent company (franchiser) grants another
company (franchisee) the right to do business in a specific manner. Franchising can assume
various forms such as selling the franchiser‘s products, using the name of the franchiser,
production and marketing techniques etc. Important forms of franchising are:
1. Manufacturer- retailer systems e.g. automobile dealership
2. Manufacturer- wholesaler system e.g. soft drink companies
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3. Service firm- retailer systems e.g. lodging and fast food outlets.
Potentially, the franchise system provides an effective blending of skill centralization and
operational decentralization, and has become increasingly important form of international
marketing.
C. Political & Social Environment
The various issues that needs to be considered by an international business organization while
studying the political environment of a country.
The International Marketing activities take place within the political environment of national
political institutions such as the government, political executive, legislative and the judiciary.
Any company doing business overseas should Carefully study the political environment of he
country it intends to operate and analyze issues such as the attitude of the political party in power
toward
(a) Sovereignty,
(b) Political Risk,
(c) Taxes,
(d) Threat of Equity dilution and
(e) Expropriation.
a. Sovereignty:
The sovereign political power of a country in a command economy may determine every aspect
of economic life of the people. In contrast, in a market economy, the government may only play
the role of a facilitator and a regulator. However, after the fall of the Soviet Union, the command
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economics around the world have progressed towards a market oriented system. Eastern
European countries, countries in Central America, and most importantly, India and China have
also adopted the free market system. With globalization and economic integration, political
sovereignty of individual nation states is on the wane. However, erosion of political sovereignty
is not without a quid pro quo. There are definite economic advantages in forging a regional
economic union as exemplified in cases such as the European Union, NAFT A, ASEAN and
others.
b. Political Risk:
There is always a political risk involved in making investments both within and without the
country. The element of risk and its severity is relatively high in foreign countries. More
objectively, the extent of political risk depends upon the political stability of the host country. An
unstable country is fraught with investment risks. A country needs to be stable both internally
and externally. Frequent changes in the government and attendant changes in the economic
policy of the government will increase the element of uncertainty and adversely effect upon a
company's ability to operate effectively in a foreign country. Investments in highly destabilized
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countries like Afghanistan and Iraq may be very attractive economically speaking but the
political risks involved are overwhelming. Political instability is therefore a great .deterrent to
foreign investment. In order to justify investment in a foreign country, risk assessment should be
undertaken on a regular basis and investments should be made only when opportunities to make
profits are much greater than the risks involved.
c. Taxes:
A company which is geographically diversified needs to take care of the tax laws of the countries
in which it operates. Companies, generally minimizes their tax liability by shifting the location of
their income. One method of reducing tax liability is called earnings stripping. Foreign
companies reduce earnings by' making loans to their affiliates in a country rather than making
direct foreign investment. The subsidiary company which takes the loan can deduct the interest it
pays on such loans and reduce its tax burden. There is an absence of international laws to govern
the levy of taxes on companies that are into international business. In order to provide fair
treatment, governments in many countries have negotiated bilateral tax treaties to provide tax
credits for taxes paid abroad. Generally foreign' companies are taxed by the host country up to
the level imposed in the home country.
D. International Social & Cultural Environment
Illustrate the impact of social and cultural environment on the marketing of industrial products.
The social and cultural environment encompassing the religious aspects; language; customs;
traditions and beliefs; tastes and preferences; social stratification; social institutions; buying and
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consumption habits etc are all very important factors for business. What is liked by people of one
culture may not be liked by those of some other culture. One of the most important reasons for
the failure of a number of companies in foreign markets is their failure to understand the cultural
environment of these markets and to suitably formulate their business strategies.
Many companies modify their products and/or promotion strategies to suit the tastes and
preferences or other characteristics of the population of the different countries. Significant
differences in the tastes and preferences may exist even within the same country, particularly
when the country is very vast, populous and multi-cultural like India.
For a business to be successful, its strategy should be the one that is appropriate in the socio-
cultural environment. The marketing mix will have to be so designed as best to suit the
environmental characteristics of the market. In Thailand, Helene Curtis switched to black
shampoo because Thai women felt that it made their hair look glossier.
Even when people of different cultures use the same basic product, the mode of consumption,
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conditions of use, purpose of use or the perceptions of the product attributes may vary so much
so that the product attributes, method of presentation, positioning, or method of promoting the
product may have to be varied to suit the characteristics of different markets.
The differences in language sometime pose a serious problem, even necessitating a change in the
brand name. For instance, Chevrolet‘s brand name Nova in Spanish means ―it doesn‘t go‖. In
some languages, Pepsi-Cola‘s slogan ―come alive‖ translates as ―come out of the grave‖.
The values and beliefs associated with colour vary significantly between different cultures.
White indicates death and mourning in China and Korea; but in some countries, it expresses
happiness and is the colour of the bridal dress. Boeing an United States based aero-space
manufacturer has felt the impact of an unwritten ―buy national policy‖ in Europe. As a result, the
market share of Airbus for commercial planes which is a consortium of European countries grew
to 50 percent. The market share of Boeing in Europe declined resulting in a loss. Boeing
attempted joint venture with Russian, Ukrainian and Norwegian partners and hired a designer to
decorate a facility to watch the launch of the Sea Launch rocket. The designer decorated the
facility in black which is considered as bad luck colour in Russia. The Russians were furious to
see black colour. Boeing repainted the facility with a shade of blue to avoid a cultural blunder.
While dealing with the social environment, we must also consider the social environment of the
business which encompasses its social responsibility and the alertness or vigilance of the
consumers and of society at large. Marketing people are at interface between company and
society. In this position, they have the responsibility not merely for designing a competitive
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marketing strategy, but for sensitizing business to the social as well as the product, demand of
the society.
Self-reference criterion: - A person understands or perception of market needs is determined by
his or her own cultural experience. James Lee – developed a systematic framework to reduce
perceptual blockage and distortion. This framework is known as the self-reference criterion
(SRC) – which addresses the problem of unconscious reference to one‘s own cultural values. In
order to reduce cultural myopia or short sightedness, James Lee proposed a four-step framework
which is as below:
(1) Define the problem or goal in terms of home-country cultural traits, habit and norms.
(2) Define the problem or goal in terms of host culture, traits, habits and norms. Make no
value judgments.
(3) Isolate the self-references criterion influence and examine it carefully to see how it
complicates the problems and
(4) Redefine the problem without the self-references criterion influence and solve for the
host-country market situation.
An important skill that an international marketer needs to possess is that of unbiased perception.
The framework of self-references criterion brings out this important skill to be learnt by
international marketers. The use of SRC and the tendency towards ethnocentrism is widespread
and it can become a strong negative form in international business. The international marketer
must check this tendency to avoid misunderstanding and failure. In order to avoid SRC, a person
needs to forget assumptions based on earlier experience and success and be prepared to acquire
new understanding and knowledge about human behaviour and motivation.
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Communication and Negotiation: -Language is the medium through which any given culture is
expressed and the subtleties of a culture can best be expressed only through a language that is
home to a given culture. Cultural transliterations are only approximations and hence a
compromise on the meaning and essence of a certain context. The international marketer with a
hold over multiple languages has an edge over those who do not. Whenever, languages and
cultures change, communication challenges comes to the fore. For instance, ‗yes‘ and ‗no‘ are
used differently in Japanese than in western languages. In English, the answer ‗yes‘ or ‗no‘ to a
question is based on whether the answer is affirmative or negative. In Japanese, the answer ‗yes‘
or ‗no‘ may indicate whether or not the answer affirms or negates the question. For instance, in
Japanese the question, ―Don‘t you like meat!‖ would be answered ―yes‖. If the answer is
negative, as in, ―Yes, I don‘t like meat.‖ The word ―Wakarimashita‖ means both ―I understand‖
and ―I agree‖. In order to avoid misunderstandings, foreigners must learn to distinguish which
interpretation is correct in terms of the entire context of conversation. The challenges of non-
verbal communication are more formidable.
Environmental Sensitivity: -Environmental sensitivity is the extent to which products must be
adapted to the culture-specific needs of different needs of different national markets.
Environmental sensitivity can be measured by viewing product on an environmental sensitivity
continuum. At one end of the continuum are environmentally insensitive products that do not
require significant adaptation to the environments of local markets in the world. At the other end
of the continuum are products that are highly sensitive to different environmental factors. A firm
with environmental insensitive products will spend less time determining the specific conditions
of local markets as the product in question is universal in nature. In case of environmentally
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sensitive products, managers need to address country-specific economic, regulations,
technological, social and cultural environmental conditions.
The sensitivity of products can be represented on a two dimensional scare wherein the horizontal
axis shows environmental sensitivity and the vertical axis shows the extent of need for product
adaptation. Products showing low levels of environmental sensitivity such as technical products
belong to the lower left of the figure. As we move to the right or the horizontal axis, the
environmental sensitivity increases along with the need for adaptation. Computers have low
levels of environmental sensitivity but variations in country voltage requirements require some
adaptation. At the top right of the figures we have products with high environmental sensitivity.
For example, food is highly sensitive to climate and culture.
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Chapter 4
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A. World Trade Organization
The World Trade Organization (WTO) is an organization that intends to supervise
and liberalize international trade. The organization officially commenced on January 1,
1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and
Trade (GATT), which commenced in 1948.[5]The organization deals with regulation of
trade between participating countries; it provides a framework for negotiating and
formalizing trade agreements, and a dispute resolution process aimed at enforcing
participants' adherence to WTO agreements, which are signed by representatives of
member governments[6]:fol.9-10 and ratified by their parliaments.[7] Most of the issues that
the WTO focuses on derive from previous trade negotiations, especially from
the Uruguay Round (1986 – 1994).
The organization is attempting to complete negotiations on the Doha Development
Round, which was launched in 2001 with an explicit focus on addressing the needs of
developing countries. As of June 2012, the future of the Doha Round remains uncertain:
the work programme lists 21 subjects in which the original deadline of 1 January 2005
was missed, and the round is still incomplete.[8] The conflict between free trade on
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industrial goods and services but retention of protectionism on farm subsidies to domestic
agricultural sector (requested by developed countries) and the substantiationof the
international liberalization of fair trade on agricultural products (requested by developing
countries) remain the major obstacles. These points of contention have hindered any
progress to launch new WTO negotiations beyond the Doha Development Round. As a
result of this impasse, there has been an increasing number of bilateral free trade
agreements signed.[9] As of July 2012, there are various negotiation groups in the WTO
system for the current agricultural trade negotiation which is in the condition of
stalemate.
[10]
WTO's current Director-General is Pascal Lamy, who leads a staff of over 600 people in
Geneva, Switzerland.
B. History
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was
established after World War II in the wake of other new multilateral institutions
dedicated to international economic cooperation — notably the Bretton Woods
institutions known as the World Bank and the International Monetary Fund. A
comparable international institution for trade, named the International Trade
Organization was successfully negotiated. The ITO was to be a United Nations
specialized agency and would address not only trade barriers but other issues indirectly
related to trade, including employment, investment, restrictive business practices, and
commodity agreements. But the ITO treaty was not approved by the U.S. and a few other
signatories and never went into effect.
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In the absence of an international organization for trade, the GATT would over the years
"transform itself" into a de facto international organization.
C. GATT rounds of negotiations
General Agreement on Tariffs and Trade
The GATT was the only multilateral instrument governing international trade from 1946
until the WTO was established on January 1, 1995. Despite attempts in the mid 1950s
and 1960s to create some form of institutional mechanism for international trade, the
GATT continued to operate for almost half a century as a semi-institutionalized
multilateral treaty regime on a provisional basis.
D. From Geneva to Tokyo
Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds
concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties
brought about a GATT anti-dumping Agreement and a section on development. The
Tokyo Round during the seventies was the first major attempt to tackle trade barriers that
do not take the form of tariffs, and to improve the system, adopting a series of agreements
on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others
broke entirely new ground. Because these plurilateral agreements were not accepted by
the full GATT membership, they were often informally called "codes". Several of these
codes were amended in the Uruguay Round, and turned into multilateral commitments
accepted by all WTO members. Only four remained plurilateral (those on government
procurement, bovine meat, civil aircraft and dairy products), but in 1997 WTO members
agreed to terminate the bovine meat and dairy agreements, leaving only two.[16]
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E. Uruguay Round
Well before GATT's 40th anniversary, its members concluded that the GATT system was
straining to adapt to a new globalizing world economy.[20][21] In response to the problems
identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts
of certain countries' policies on world trade GATT could not manage etc.), the eighth
GATT round — known as the Uruguay Round — was launched in September 1986,
in Punta del Este, Uruguay.[20]
It was the biggest negotiating mandate on trade ever agreed: the talks were going to
extend the trading system into several new areas, notably trade in services and intellectual
property, and to reform trade in the sensitive sectors of agriculture and textiles; all the
original GATT articles were up for review.[21] The Final Act concluding the Uruguay
Round and officially establishing the WTO regime was signed April 15, 1994, during the
ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh
Agreement.
The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result
of the Uruguay Round negotiations (a distinction is made between GATT 1994, the
updated parts of GATT, and GATT 1947, the original agreement which is still the heart
of GATT 1994). GATT 1994 is not however the only legally binding agreement included
via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and
understandings was adopted. The agreements fall into a structure with six main parts:
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The Agreement Establishing the WTO
Goods and investment — the Multilateral Agreements on Trade in Goods
including the GATT 1994 and the Trade Related Investment Measures (TRIMS)
Services — the General Agreement on Trade in Services
Intellectual property — the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS)
Dispute settlement (DSU)
Reviews of governments' trade policies (TPRM)
In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3), the Uruguay
Round has been successful in increasing binding commitments by both developed and
developing countries, as may be seen in the percentages of tariffs bound before and after
the 1986-1994 talks.
F. Ministerial conferences
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The topmost decision-making body of the WTO is the Ministerial Conference, which
usually meets every two years. It brings together all members of the WTO, all of which
are countries or customs unions. The Ministerial Conference can take decisions on all
matters under any of the multilateral trade agreements. The inaugural ministerial
conference was held in Singapore in 1996. Disagreements between largely developed and
developing economies emerged during this conference over four issues initiated by this
conference, which led to them being collectively referred to as the "Singapore issues".
The second ministerial conference was held in Geneva in Switzerland. The third
conference in Seattle, Washington ended in failure, with massive demonstrations and
police and National Guard crowd control efforts drawing worldwide attention. The fourth
ministerial conference was held in Doha in the Persian Gulf nation of Qatar. The Doha
Development Round was launched at the conference. The conference also approved the
joining of China, which became the 143rd member to join. The fifth ministerial
conference was held in Cancún, Mexico, aiming at forging agreement on the Doha round.
An alliance of 22 southern states, the G20 developing nations (led by India,
China, Brazil, ASEAN led by the Philippines), resisted demands from the North for
agreements on the so-called "Singapore issues" and called for an end to agricultural
subsidies within the EU and the US. The talks broke down without progress.
The sixth WTO ministerial conference was held in Hong Kong from 13 – 18 December
2005. It was considered vital if the four-year-old Doha Development Round negotiations
were to move forward sufficiently to conclude the round in 2006. In this meeting,
countries agreed to phase out all their agricultural export subsidies by the end of 2013,
and terminate any cotton export subsidies by the end of 2006. Further concessions to
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developing countries included an agreement to introduce duty free, tariff free access for
goods from the Least Developed Countries, following the Everything but Arms initiative
of the European Union — but with up to 3% of tariff lines exempted. Other major issues
were left for further negotiation to be completed by the end of 2010. The WTO General
Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session
in Geneva from 30 November-3 December 2009. A statement by chairman Amb. Mario
Matus acknowledged that the prime purpose was to remedy a breach of protocol
requiring two-yearly "regular" meetings, which had lapsed with the Doha Round failure
in 2005, and that the "scaled-down" meeting would not be a negotiating session, but
"emphasis will be on transparency and open discussion rather than on small group
processes and informal negotiating structures". The general theme for discussion was
"The WTO, the Multilateral Trading System and the Current Global Economic
Environment"
G. Doha Round (The Doha Agenda)
The WTO launched the current round of negotiations, the Doha Development Round, at
the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an
ambitious effort to make globalization more inclusive and help the world's poor,
particularly by slashing barriers and subsidies in farming. The initial agenda comprised
both further trade liberalization and new rule-making, underpinned by commitments to
strengthen substantial assistance to developing countries.
The negotiations have been highly contentious. Disagreements still continue over several
key areas including agriculture subsidies, which emerged as critical in July
2006. According to a European Union statement, "The 2008 Ministerial meeting broke
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down over a disagreement between exporters of agricultural bulk commodities and
countries with large numbers of subsistence farmers on the precise terms of a 'special
safeguard measure' to protect farmers from surges in imports." The position of
the European Commission is that "The successful conclusion of the Doha negotiations
would confirm the central role of multilateral liberalisation and rule-making. It would
confirm the WTO as a powerful shield against protectionist backsliding." An impasse
remains and As of June 2012, agreement has not been reached, despite intense
negotiations at several ministerial conferences and at other sessions.
Functions
Among the various functions of the WTO, these are regarded by analysts as the most
important:
It oversees the implementation, administration and operation of the covered
agreements.
It provides a forum for negotiations and for settling disputes.
Additionally, it is the WTO's duty to review and propagate the national trade policies,
and to ensure the coherence and transparency of trade policies through surveillance in
global economic policy-making. Another priority of the WTO is the assistance
of developing, least-developed and low-income countries in transition to adjust to WTO
rules and disciplines through technical cooperation and training.
The WTO is also a center of economic research and analysis: regular assessments of the
global trade picture in its annual publications and research reports on specific topics are
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produced by the organization. Finally, the WTO cooperates closely with the two other
components of the Bretton Woods system, the IMF and the World Bank.
H. Principles of the trading system
The WTO establishes a framework for trade policies; it does not define or specify
outcomes. That is, it is concerned with setting the rules of the trade policy games. Five
principles are of particular importance in understanding both the pre-1994 GATT and the
WTO:
1. Non-discrimination. It has two major components: the most favoured
nation (MFN) rule, and the national treatment policy. Both are embedded in the main
WTO rules on goods, services, and intellectual property, but their precise scope and
nature differ across these areas. The MFN rule requires that a WTO member must apply
the same conditions on all trade with other WTO members, i.e. a WTO member has to
grant the most favorable conditions under which it allows trade in a certain product type
to all other WTO members. "Grant someone a special favour and you have to do the same
for all other WTO members." National treatment means that imported goods should be
treated no less favorably than domestically produced goods (at least after the foreign
goods have entered the market) and was introduced to tackle non-tariff barriers to
trade (e.g. technical standards, security standards et al. discriminating against imported
goods).
2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may
arise because of the MFN rule, and a desire to obtain better access to foreign markets. A
related point is that for a nation to negotiate, it is necessary that the gain from doing so be
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greater than the gain available from unilateral liberalization; reciprocal concessions
intend to ensure that such gains will materialise.
3. Binding and enforceable commitments. The tariff commitments made by WTO
members in a multilateral trade negotiation and on accession are enumerated in a
schedule (list) of concessions. These schedules establish "ceiling bindings": a country can
change its bindings, but only after negotiating with its trading partners, which could mean
compensating them for loss of trade. If satisfaction is not obtained, the complaining
country may invoke the WTO dispute settlement procedures.
4. Transparency. The WTO members are required to publish their trade
regulations, to maintain institutions allowing for the review of administrative decisions
affecting trade, to respond to requests for information by other members, and to notify
changes in trade policies to the WTO. These internal transparency requirements are
supplemented and facilitated by periodic country-specific reports (trade policy reviews)
through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to
improve predictability and stability, discouraging the use of quotas and other measures
used to set limits on quantities of imports.
5. Safety valves. In specific circumstances, governments are able to restrict trade.
The WTO‘s agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health.
There are three types of provision in this direction:
articles allowing for the use of trade measures to attain non-economic objectives;
articles aimed at ensuring "fair competition"; members must not use
environmental protection measures as a means of disguising protectionist policies.
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provisions permitting intervention in trade for economic reasons.
Exceptions to the MFN principle also allow for preferential treatment of developing
countries, regional free trade areas andcustoms unions.
I. Organizational structure
The General Council has the following subsidiary bodies which oversee committees in
different areas:
Council for Trade in Goods
There are 11 committees under the jurisdiction of the Goods Council each with a specific
task. All members of the WTO participate in the committees. The Textiles Monitoring
Body is separate from the other committees but still under the jurisdiction of Goods
Council. The body has its own chairman and only 10 members. The body also has several
groups relating to textiles.
Council for Trade-Related Aspects of Intellectual Property Rights
Information on intellectual property in the WTO, news and official records of the
activities of the TRIPS Council, and details of the WTO's work with other international
organizations in the field.
Council for Trade in Services
The Council for Trade in Services operates under the guidance of the General Council
and is responsible for overseeing the functioning of the General Agreement on Trade in
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Services (GATS). It is open to all WTO members, and can create subsidiary bodies as
required.
J. Trade Negotiations Committee
The Trade Negotiations Committee (TNC) is the committee that deals with the current
trade talks round. The chair is WTO's director-general. As of June 2012 the committee
was tasked with the Doha Development Round.
The Service Council has three subsidiary bodies: financial services, domestic regulations,
GATS rules and specific commitments. The General council has several different
committees, working groups, and working parties. There are committees on the
following: Trade and Environment; Trade and Development (Subcommittee on Least-
Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions;
and Budget, Finance and Administration. There are working parties on the following:
Accession. There are working groups on the following: Trade, debt and finance; and
Trade and technology transfer.
Decision-making
The WTO describes itself as "a rules-based, member-driven organization — all decisions
are made by the member governments and the rules are the outcome of negotiations
among members". The WTO Agreement foresees votes where consensus cannot be
reached, but the practice of consensus dominates the process of decision-making.
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Richard Harold Steinberg (2002) argues that although the WTO's consensus governance
model provides law-based initial bargaining, trading rounds close through power-based
bargaining favouring Europe and the U.S., and may not lead to Pareto improvement.
Dispute settlement
Main article: Dispute settlement in the WTO
In 1994, the WTO members agreed on the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU) annexed to the "Final Act" signed in
Marrakesh in 1994. Dispute settlement is regarded by the WTO as the central pillar of the
multilateral trading system, and as a "unique contribution to the stability of the global
economy". WTO members have agreed that, if they believe fellow-members are violating
trade rules, they will use the multilateral system of settling disputes instead of taking
action unilaterally.
The operation of the WTO dispute settlement process involves the DSB panels, the
Appellate Body, the WTO Secretariat, arbitrators, independent experts and several
specialized institutions. Bodies involved in the dispute settlement process, World Trade
Organization.
Accession and membership
Main article: World Trade Organization accession and membership
The process of becoming a WTO member is unique to each applicant country, and the
terms of accession are dependent upon the country's stage of economic development and
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current trade regime.[54] The process takes about five years, on average, but it can last
more if the country is less than fully committed to the process or if political issues
interfere. The shortest accession negotiation was that of the Kyrgyz Republic, while the
longest was that of Russia, which, having first applied to join GATT in 1993, was
approved for membership in December 2011 and became a WTO member on August 22,
2012.[55] The second longest was that of Vanuatu, whose Working Party on the Accession
of Vanuatu was established on 11 July 1995. After a final meeting of the Working Party
in October 2001, Vanuatu requested more time to consider its accession terms. In 2008, it
indicated its interest to resume and conclude its WTO accession. The Working Party on
the Accession of Vanuatu was reconvened informally on 4 April 2011 to discuss
Vanuatu‘s future WTO membership. The re-convened Working Party completed its
mandate on 2 May 2011. The General Council formally approved the Accession Package
of Vanuatu on 26 October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its
157th member. An offer of accession is only given once consensus is reached among
interested parties.
Accession process
A country wishing to accede to the WTO submits an application to the General Council,
and has to describe all aspects of its trade and economic policies that have a bearing on
WTO agreements. The application is submitted to the WTO in a memorandum which is
examined by a working party open to all interested WTO Members.
After all necessary background information has been acquired, the working party focuses
on issues of discrepancy between the WTO rules and the applicant's international and
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domestic trade policies and laws. The working party determines the terms and conditions
of entry into the WTO for the applicant nation, and may consider transitional periods to
allow countries some leeway in complying with the WTO rules.
The final phase of accession involves bilateral negotiations between the applicant nation
and other working party members regarding the concessions and commitments on tariff
levels and market access for goods and services. The new member's commitments are to
apply equally to all WTO members under normal non-discrimination rules, even though
they are negotiated bilaterally.
When the bilateral talks conclude, the working party sends to the general council or
ministerial conference an accession package, which includes a summary of all the
working party meetings, the Protocol of Accession (a draft membership treaty), and lists
("schedules") of the member-to-be's commitments. Once the general council or
ministerial conference approves of the terms of accession, the applicant's parliament must
ratify the Protocol of Accession before it can become a member.
Members and observers
The WTO has 157 members and 27 observer governments. In addition to states, the
European Union is a member. WTO members do not have to be full sovereign nation-
members. Instead, they must be a customs territory with full autonomy in the conduct of
their external commercial relations. Thus Hong Kong (as "Hong Kong, China" since
1997) became a GATT contracting party, and theRepublic of China (Taiwan) acceded to
the WTO in 2002 as "Separate Customs Territory
of Taiwan, Penghu, Kinmen and Matsu" (Chinese Taipei) despite its disputed
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status.[61] The WTO Secretariat omits the official titles (such as Counselor, First
Secretary, Second Secretary and Third Secretary) of the members of Chinese Taipei's
Permanent Mission to the WTO, except for the titles of the Permanent Representative and
the Deputy Permanent Representative.
Iran is the biggest economy outside the WTO. With the exception of the Holy See,
observers must start accession negotiations within five years of becoming observers. A
number of international intergovernmental organizations have also been granted observer
status to WTO bodies. 14 states and two territories so far have no official interaction with
the WTO.
Agreements
Uruguay Round
The WTO oversees about 60 different agreements which have the status of international
legal texts. Member countries must sign and ratify all WTO agreements on accession. A
discussion of some of the most important agreements follows. The Agreement on
Agriculture came into effect with the establishment of the WTO at the beginning of 1995.
The AoA has three central concepts, or "pillars": domestic support, market
access and export subsidies. The General Agreement on Trade in Services was created to
extend the multilateral trading system to service sector, in the same way as the General
Agreement on Tariffs and Trade (GATT) provided such a system for merchandise trade.
The agreement entered into force in January 1995. The Agreement on Trade-Related
Aspects of Intellectual Property Rights sets down minimum standards for many forms
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of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round
of the General Agreement on Tariffs and Trade (GATT) in 1994.
The Agreement on the Application of Sanitary and Phytosanitary Measures — also known
as the SPS Agreement — was negotiated during the Uruguay Round of GATT, and
entered into force with the establishment of the WTO at the beginning of 1995. Under the
SPS agreement, the WTO sets constraints on members' policies relating to food safety
(bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant
health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an
international treaty of the World Trade Organization. It was negotiated during
the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into
force with the establishment of the WTO at the end of 1994. The object ensures that
technical negotiations and standards, as well as testing and certification procedures, do
not create unnecessary obstacles to trade".[66] The Agreement on Customs Valuation,
formally known as the Agreement on Implementation of Article VII of GATT, prescribes
methods of customs valuation that Members are to follow. Chiefly, it adopts the
"transaction value" approach.
Directors-General
The Directors-General of the WTO have been:
Pascal Lamy, 2005 –
Supachai Panitchpakdi, 2002 – 2005
Mike Moore, 1999 – 2002
Renato Ruggiero, 1995 – 1999
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Peter Sutherland, 1995
The Directors-General of the precursor organization, GATT, were:
Peter Sutherland, 1993 – 1995
Arthur Dunkel, 1980 – 1993
Olivier Long, 1968 – 1980
Eric Wyndham White, 1948 – 1968
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REFERENCES
http://wikipedia.org/wto//
http://scribid.com/wto/types//
http://managementparadise.com/international/3338772662/00ikk/file
http://wto.org//
http://google.com/internationalmarketing/files/3339447iee/333774hfr//