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he WTO agreements are lengthy and complex because they are legal texts covering a wide rangeof activities. They deal with: agriculture, textiles and clothing, banking, telecommunications,government purchases, industrial standards and product safety, food sanitation regulations,intellectual property, and much more. But a number of simple, fundamental principles runthroughout all of these documents. These principles are the foundation of the multilateral tradingsystem.

A closer look at these principles:

The principles

The trading system should be ...

without discrimination a country should not discriminate between its trading partners(giving them equally most-favoured-nation or MFN status); and it should not discriminatebetween its own and foreign products, services or nationals (giving them national treatment);

freer barriers coming down through negotiation;

predictable foreign companies, investors and governments should be confident that tradebarriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates andmarket-opening commitments are bound in the WTO;

more competitive discouraging unfair practices such as export subsidies and dumpingproducts at below cost to gain market share;

more beneficial for less developed countries giving them more time to adjust, greaterflexibility, and special privileges.

Why most-favoured?

This sounds like a contradiction. It suggests special treatment, but in the WTO it actually meansnon-discrimination treating virtually everyone equally.

This is what happens. Each member treats all the other members equally as most-favouredtrading partners. If a country improves the benefits that it gives to one trading partner, it has to

give the same best treatment to all the other WTO members so that they all remain most-favoured.

Most-favoured nation (MFN) status did not always mean equal treatment. The first bilateral MFNtreaties set up exclusive clubs among a countrys most-favoured trading partners. Under GATTand now the WTO, the MFN club is no longer exclusive. The MFN principle ensures that eachcountry treats its over140 fellow-members equally.

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But there are some exc

Plurilaterals: of minority interest

For the most part, all WTO members subscribe to all WTO agreements. After the UruguayRound, however, there remained four agreements, originally negotiated in the Tokyo Round,which had a narrower group of signatories and are known as plurilateral agreements. All otherTokyo Round agreements became multilateral obligations (i.e. obligations for all WTO members)when the World Trade Organization was established in 1995. The four were:

trade in civil aircraft

government procurement

dairy products

bovine meat.

Fair trade in civil aircraftbacktotop

The Agreement on Trade in Civil Aircraftentered into force on 1 January 1980. It now has 30signatories. The agreement eliminates import duties on all aircraft, other than military aircraft, aswell as on all other products covered by the agreement civil aircraft engines and their parts andcomponents, all components and sub-assemblies of civil aircraft, and flight simulators and theirparts and components. It contains disciplines on government-directed procurement of civilaircraft and inducements to purchase, as well as on government financial support for the civilaircraft sector.

> more on civil aircraft

Government procurement: opening up for competition backtotop

In most countries the government, and the agencies it controls, are together the biggest purchasersof goods of all kinds, ranging from basic commodities to high-technology equipment. At thesame time, the political pressure to favour domestic suppliers over their foreign competitors canbe very strong.

An Agreement on Government Procurement was first negotiated during the Tokyo Round andentered into force on 1 January 1981. Its purpose is to open up as much of this business aspossible to international competition. It is designed to make laws, regulations, procedures and

practices regarding government procurement more transparent and to ensure they do not protectdomestic products or suppliers, or discriminate against foreign products or suppliers.

The agreement has 28 members. It has two elements general rules and obligations, andschedules of national entities in each member country whose procurement is subject to theagreement. A large part of the general rules and obligations concern tendering procedures.

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The present agreement and commitments were negotiated in the Uruguay Round. Thesenegotiations achieved a 10-fold expansion of coverage, extending international competition toinclude national and local government entities whose collective purchases are worth severalhundred billion dollars each year. The new agreement also extends coverage to services(including construction services), procurement at the sub-central level (for example, states,provinces, departments and prefectures), and procurement by public utilities. The new agreement

took effect on 1 January 1996.

It also reinforces rules guaranteeing fair and non-discriminatory conditions of internationalcompetition. For example, governments will be required to put in place domestic procedures bywhich aggrieved private bidders can challenge procurement decisions and obtain redress in theevent such decisions were made inconsistently with the rules of the agreement.

The agreement applies to contracts worth more than specified threshold values. For centralgovernment purchases of goods and services, the threshold is SDR 130,000 (some $185,000 inJune 2003). For purchases of goods and services by sub-central government entities the thresholdvaries but is generally in the region of SDR 200,000. For utilities, thresholds for goods andservices is generally in the area of SDR 400,000 and for construction contracts, in general the

threshold value is SDR 5,000,000.

> more on government procurement

Dairy and bovine meat agreements: ended in 1997 backtotop

The International Dairy Agreementand International Bovine Meat Agreement were scrapped atthe end of 1997. Countries that had signed the agreements decided that the sectors were betterhandled under the Agriculture and Sanitary and Phytosanitary agreements. Some aspects of their

work had been handicapped by the small number of signatories. For example, some majorexporters of dairy products did not sign the Dairy Agreement, and the attempt to cooperate onminimum prices therefore failed minimum pricing was suspended in 1995.

How long to settle a dispute?backtotop

These approximate periods for each stage of a dispute settlement procedure are target figures the agreement is flexible. In addition, the countries can settle their dispute themselves at anystage. Totals are also approximate.

60 daysConsultations, mediation, etc

45 daysPanel set up and panellists appointed

6 monthsFinal panel report to parties

3 weeksFinal panel report to WTO members

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60 daysDispute Settlement Body adopts report (if no appeal)

Total = 1 year

(without appeal)

60-90 daysAppeals report

30 daysDispute Settlement Body adopts appeals report

Total = 1y 3m

(with appeal)

Protectionist policies

A variety of policies can be used to achieve protectionist goals. These include:

1. Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usuallyvary according to the type of goods imported. Import tariffs will increase the cost toimporters, and increase the price of imported goods in the local markets, thus loweringthe quantity of goods imported. Tariffs may also be imposed on exports, and in aneconomy with floating exchange rates, export tariffs have similar effects as import tariffs.However, since export tariffs are often perceived as 'hurting' local industries, whileimport tariffs are perceived as 'helping' local industries, export tariffs are seldomimplemented.

2. Import quotas: To reduce the quantity and therefore increase the market price of imported

goods. The economic effects of an import quota is similar to that of a tariff, except thatthe tax revenue gain from a tariff will instead be distributed to those who receive importlicenses. Economists often suggest that import licenses be auctioned to the highestbidder, or that import quotas be replaced by an equivalent tariff.

3. Administrative barriers: Countries are sometimes accused of using their variousadministrative rules (eg. regarding food safety, environmental standards, electrical safety,etc.) as a way to introduce barriers to imports.

4. Anti-dumping legislationSupporters of anti-dumping laws argue that they prevent"dumping" of cheaper foreign goods that would cause local firms to close down.However, in practice, anti-dumping laws are usually used to impose trade tariffs onforeign exporters.

5. Directsubsidies: Government subsidies (in the form of lump-sum payments or cheaploans) are sometimes given to local firms that cannot compete well against foreignimports. These subsidies are purported to "protect" local jobs, and to help local firmsadjust to the world markets.

6. Exportsubsidies: Export subsidies are often used by governments to increase exports.Export subsidies are the opposite of export tariffs, exporters are paid a percentage of thevalue of their exports. Export subsidies increase the amount of trade, and in a countrywith floating exchange rates, have effects similar to import subsidies.

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7. Exchange ratemanipulation: A government may intervene in the foreign exchangemarket to lower the value of its currency by selling its currency in the foreign exchangemarket. Doing so will raise the cost of imports and lower the cost of exports, leading toan improvement in its trade balance. However, such a policy is only effective in the shortrun, as it will most likely lead to inflation in the country, which will in turn raise the costof exports, and reduce the relative price of imports.

8. International patent systems: There is an argument for viewing national patent systems asa cloak for protectionist trade policies at a national level. Two strands of this argumentexist: one when patents held by one country form part of a system of exploitable relativeadvantage in trade negotiations against another, and a second where adhering to aworldwide system of patents confers "good citizenship" status despite 'de factoprotectionism'. PeterDrahos explains that "States realized that patent systems could beused to cloak protectionist strategies. There were also reputational advantages for statesto be seen to be sticking to intellectual property systems. One could attend the variousrevisions of the Paris and Berne conventions, participate in the cosmopolitan moraldialogue about the need to protect the fruits of authorial labor and inventivegenius...knowing all the while that one's domestic intellectual property system was ahandy protectionist weapon."[7]

In international economic relations and international politics, most favoured nation (MFN) is astatus or level treatment accorded by one state to another in international trade. The term meansthe country which is the recipient of this treatment must, nominally, receive equal tradeadvantages as the "most favored nation" by the country granting such treatment. (Tradeadvantages include low tariffs or high import quotas.) In effect, a country that has been accordedMFN status may not be treated less advantageously than any other country with MFN status bythe promising country.

The members of the World Trade Organization (WTO) agree to accord MFN status to each other.Exceptions allow for preferential treatment ofdeveloping countries, regional free trade areas andcustoms unions.[citation needed] Together with the principle ofnational treatment, MFN is one of thecornerstones of WTO trade law.

Most favoured nation relationships extend reciprocalbilateral relationships following bothGATT and WTO norms of reciprocity and non-discrimination. In bilateral reciprocalrelationships a particular privilege granted by one party only extends to other parties whoreciprocate that privilege, while in a multilateral reciprocal relationship the same privilege wouldbe extended to the group that negotiated a particular privilege. The non-discriminatorycomponent of the GATT/WTO applies a reciprocally negotiated privilege to all members of theGATT/WTO without respect to their status in negotiating the privilege.

An unfair trade practice means a trade practice, which, for the purpose of promoting any sale, useor supply of any goods or services, adopts unfair method, or unfair or deceptive practice.

Unfair practices may be categorised as under:

1.FALSE REPRESENTATION

The practice of making any oral or written statement or representation which:

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Offering any gifts, prizes or other items along with the goods when the real intention isdifferent, or

Creating impression that something is being offered free alongwith the goods, when infact the price is wholly or partly covered by the price of the article sold, or

Offering some prizes to the buyers by the conduct of any contest, lottery or game ofchance or skill, with real intention to promote sales or business.

4.NON-COMPLIANCE OF PRESCRIBED STANDARDS

Any sale or supply of goods, for use by consumers, knowing or having reason to believe that thegoods do not comply with the standards prescribed by some competent authority, in relation totheir performance, composition, contents, design, construction, finishing or packing, as arenecessary to prevent or reduce the risk of injury to the person using such goods, shall amount toan unfair trade practice.

5.HOARDING, DESTRUCTION, ETC.

Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods orprovide any services, with an intention to raise the cost of those or other similar goods orservices, shall be an unfair trade practice.

INQUIRY INTO UNFAIR TRADE PRACTICES

The Commission may inquire into

Any unfair trade practice

Upon receiving a complaint from any trade association, consumer or a registeredconsumer association, or

Upon reference made to it by the Central Government or State Government

Upon an application to it by the Director General or Upon its own knowledge or information.

Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade:

1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to domestic goods (local content requirements)4. Minimum import price limits

5. Embargoes2. Customs and Administrative Entry Procedures:

1. Valuation systems

2. Antidumping practices3. Tariff classifications4. Documentation requirements

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5. Fees3. Standards:

1. Standard disparities2. Intergovernmental acceptances of testing methods and standards3. Packaging, labeling, and marking

4. Government Participation in Trade:

1. Government procurement policies2. Export subsidies3. Countervailing duties4. Domestic assistance programs

5. Charges on imports:1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5. Variable levies6. Border taxes

6. Others:

1. Voluntary export restraints2. Orderly marketing agreements

Higher Support for Market and Product Diversification

1. Incentive schemes under Chapter 3 have been expanded by way of addition of newproducts and markets.

2. 26 new markets have been added under Focus Market Scheme. These include 16new markets in Latin America and 10 in Asia-Oceania.

Technological Upgradation

3. To aid technological upgradation of our export sector, EPCG Scheme at Zero Dutyhas been introduced. This Scheme will be available for engineering & electronicproducts, basic chemicals & pharmaceuticals, apparels & textiles, plastics,handicrafts, chemicals & allied products and leather & leather products (subject toexclusions of current beneficiaries under Technological Upgradation Fund Schemes(TUFS), administered by Ministry of Textiles and beneficiaries of Status HolderIncentive Scheme in that particular year). The scheme shall be in operation till31.3.2011.

4. Jaipur, Srinagar and Anantnag have been recognised as Towns of ExportExcellence for handicrafts; Kanpur, Dewas and Ambur have been recognised asTowns of Export Excellence for leather products; and Malihabad for horticulturalproducts.

EPCG Scheme Relaxations

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5. To increase the life of existing plant and machinery, export obligation on import ofspares, moulds etc. under EPCG Scheme has been reduced to 50% of the normalspecific export obligation.

6. Taking into account the decline in exports, the facility of Re-fixation of Annual

Average Export Obligation for a particular financial year in which there is declinein exports from the country, has been extended for the 5 year Policy period 2009-14.

Support for Green products and products from North East

7. Focus Product Scheme benefit extended for export of green products; and forexports of some products originating from the North East.

Stability/ continuity of the Foreign Trade Policy

8. To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB)Scheme is extended beyond 31-12- 2009 till 31.12.2010.

9. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has beenextended till 31.3.2010 in the Budget 2009-10.

10. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and10A of Income Tax Act, has been extended for the financial year 2010-11 in theBudget 2009-10.

11. The adjustment assistance scheme initiated in December, 2008 to provide enhancedECGC cover at 95%, to the adversely affected sectors, is continued till March,2010.

Marine sector

12. Fisheries have been included in the sectors which are exempted from maintenanceof average EO under EPCG Scheme, subject to the condition that Fishing Trawlers,boats, ships and other similar items shall not be allowed to be imported under thisprovision. This would provide a fillip to the marine sector which has been affectedby the present downturn in exports.

13. Additional flexibility under Target Plus Scheme (TPS) / Duty Free Certificate ofEntitlement (DFCE) Scheme for Status Holders has been given to Marine sector.

Gems & Jewellery Sector

14. To neutralize duty incidence on gold Jewellery exports, it has now been decided toallow Duty Drawback on such exports.

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15. In an endeavour to make India a diamond international trading hub, it is planned toestablish Diamond Bourse (s).

16. A new facility to allow import on consignment basis of cut & polished diamondsfor the purpose of grading/ certification purposes has been introduced.

Agriculture Sector

17. To reduce transaction and handling costs, a single window system to facilitateexport of perishable agricultural produce has been introduced. The system willinvolve creation of multi-functional nodal agencies to be accredited by APEDA.

Leather Sector

18. Leather sector shall be allowed re-export of unsold imported raw hides and skinsand semi finished leather from public bonded ware houses, subject to payment of50% of the applicable export duty.

19. Enhancement of FPS rate to 2%, would also significantly benefit the leather sector.

Tea

20. Minimum value addition under advance authorisation scheme for export of tea hasbeen reduced from the existing 100% to 50%.

21. DTA sale limit of instant tea by EOU units has been increased from the existing

30% to 50%.

22. Export of tea has been covered under VKGUY Scheme benefits.

Pharmaceutical Sector

23. Export Obligation Period for advance authorizations issued with 6-APA as inputhas been increased from the existing 6 months to 36 months, as is available forother products.

24. Pharma sector extensively covered under MLFPS for countries in Africa and LatinAmerica; some countries in Oceania and Far East.

Handloom Sector

25. To simplify claims under FPS, requirement of Handloom Mark for availingbenefits under FPS has been removed.

EOUs

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26. EOUs have been allowed to sell products manufactured by them in DTA upto alimit of 90% instead of existing 75%, without changing the criteria of similargoods, within the overall entitlement of 50% for DTA sale.

27. To provide clarity to the customs field formations, DOR shall issue a clarification

to enable procurement of spares beyond 5% by granite sector EOUs.

28. EOUs will now be allowed to procure finished goods for consolidation along withtheir manufactured goods, subject to certain safeguards.

29. During this period of downturn, Board of Approvals (BOA) to consider, extensionof block period by one year for calculation of Net Foreign Exchange earning ofEOUs.

30. EOUs will now be allowed CENVAT Credit facility for the component of SADand Education Cess on DTA sale.

Thrust to Value Added Manufacturing

31. To encourage Value Added Manufactured export, a minimum 15% value additionon imported inputs under Advance Authorization Scheme has now been prescribed.

32. Coverage of Project Exports and a large number of manufactured goods under FPSand MLFPS.

DEPB

33. DEPB rate shall also include factoring of custom duty component on fuel wherefuel is allowed as a consumable in Standard Input-Output Norms.

Flexibility provided to exporters

34. Payment of customs duty for Export Obligation (EO) shortfall under AdvanceAuthorisation / DFIA / EPCG Authorisation has been allowed by way of debit ofDuty Credit scrips. Earlier the payment was allowed in cash only.

35. Import of restricted items, as replenishment, shall now be allowed againsttransferred DFIAs, in line with the erstwhile DFRC scheme.

Waiver of Incentives Recovery, On RBI Specific Write off

36. In cases, where RBI specifically writes off the export proceeds realization, theincentives under the FTP shall now not be recovered from the exporters subject tocertain conditions.

Simplification of Procedures

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37. To facilitate duty free import of samples by exporters, number of samples/pieceshas been increased from the existing 15 to 50. Customs clearance of such samplesshall be based on declarations given by the importers with regard to the limit ofvalue and quantity of samples.

38. To allow exemption for up to two stages from payment of excise duty in lieu ofrefund, in case of supply to an advance authorisation holder (against invalidationletter) by the domestic intermediate manufacturer. It would allow exemption forsupplies made to a manufacturer, if such manufacturer in turn supplies the productsto an ultimate exporter. At present, exemption is allowed upto one stage only..

Reduction of Transaction Costs

39. No fee shall now be charged for grant of incentives under the Schemes in Chapter3 of FTP. Further, for all other Authorisations/ licence applications, maximumapplicable fee is being reduced to Rs. 100,000 from the existing Rs1,50,000 (for manual applications) and Rs. 50,000 from the existing Rs.75,000 (forEDI applications).

Directorate of Trade Remedy Measures

40. To enable support to Indian industry and exporters, especially the MSMEs, inavailing their rights through trade remedy instruments, a Directorate of TradeRemedy Measures shall be set up.

Porter's theory of national competitive advantage

In the early 1990s, Michael Porter, following the comprehensive study of 100 industriesin 10 nations, introduced a model that allows performing analysis on why some nationsare more competitive than others, and why some industries within nations are morecompetitive than others. He elaborated his findings in his bookThe CompetitiveAdvantage of Nations. The developed model, targeting the main factors of nationaladvantage, has become known as national diamond, or Porter Diamond theory (Recklies,2001).

The traditional economic theory suggests the there are several general factors competitiveadvantage of regions and countries is based on (12Manage, 2008):

1. Land.2. Location.3. Natural resources.4. Labor.5. Local population size.

Michael Porter criticized the traditional theory for its passive approach, and lack ofability to explain and encourage successful development of the certain industries in theparticular geographic locations. Porters national diamond theory provided a framework

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for the competitive advantages of the nations giving the theoretical ability to thegovernments to influence proactively its economic development on the worldwide arenaby creating new deliberate impacts to encouraging growth of skilled labor, strongtechnology and knowledge base, government support, and altering business culture permodern world needs. Porters national diamond theory can be applied to different levels

of analysis: firms, regions, and countries.

Based on the theory, competitive advantage of the company or the entire nation is basedon combination and interaction of the four main attributes (see attachment A):

Fastor conditionDemand conditionRelated supportive industriesFirm strategy structure rivalry