Unit IV

International Environment

Question bank

Q1) What is international environment? Discuss the components of business environment. State its features.                                                                                                        8    

A1) International trade environment refers to the sum total of external forces where the international trading organisation operates. Such trading environment is influenced by both domestic environment of the country where the firm located and also by the global environment where it provides services/sell products. The figure 1 shows elements of international trading environment-

Figure 1:  Elements of international trading environment

1. Political-legal environment

Political environment refers to the existing political system, governance etc. that prevails in the world. Their stability, values, beliefs, support all these influence on the sustainability, growth and expansion of international trade in different parts of the world.

Legal environment refers to the set of rules, regulations, acts, legal system formulated to control and regulate the global trade. The stakeholders of international trade must follow such rules and regulation others penalty or other punishment will be imposed on international trading firms.

2.  Economic Environment

It consist of different economic factors like economic conditions, economic policies, economic system, phases of trade cycle, international organisations, international agreements which issue different guidelines, rules and regulations for smooth conduct of international trade. WTO, IMF, World Bank, UNCTAD, etc. supervise the activities and trends of international trade.

3.  Cultural environment

The cultural environment of international trade is highly volatile and influences their decision making, problem solving, exchanging information and ideas etc. The trading organisations should plan their promotion policies depending on the values, beliefs, social life style, food habits, preferences etc. of the global customers.

4.  Technological environment

The technological environment helps to easily access the customers of every knock and corner of the globe, collect material information and deliver the service/ product without delay. Technological environment promotes e-commerce business, international banking and insurance services, telecommunication services, fast transport of cargo by airways etc. It helps the customers to consume imported goods with reasonable price.

Features of international trading environment

1. It is very complex because of existence of different laws, different cultures, different political system etc.
2. Common trading policies are followed by all stakeholders of international trade.
3. There are different trade and non-trade barrier are present in the trading environment. Thus trade agreements are formed among the countries to negotiate such trade barriers.
4. The trading environment is based on different trade theories provided by different scholars from time to time.
5. The trading countries exchange their products or services with a common currency (dollar, euro, pound, yuan, yen etc.) other than home currency. 

Q2) Highlight the recent trend in international trading environment. 5

A2) During the last few years international trade patterns have been characterized first by a cyclical pattern: anaemic growth in 2012-2014, a downturn in 2015 and 2016 followed by a rebound in 2017 and 2018. Some of trends in international trade are highlighted below-

1. Forced dynamism:

International trade is forced to tend that shape the global, cultural and economic environment. It constantly influences the trade environment to bring changes among the stakeholders.

2.  Cooperation among countries:

Recently the countries constantly cooperate with each other through forming trade agreements and groups. They are constantly focussing on reduction of trade barriers and assisting each other to promote international trade among each other’s.

3.  Liberalisation of cross border trade:

The countries participating in trade agreements to liberalise trade among them through free transfer of technology, fund flow, know how, human resources etc. Consumers are also able to consume variety of products due to free flow of goods and services.

4.  Growth in emerging markets:

The emerging markets like India, China, Brazil and other parts of Asia, South America grow positively and greatly influences on the international market. It is witnessing that the economic powers is shifting from USA and Europe to Asia due to rapid expansion of international trade.

5.   Growth of trading in services:

Advancement of technology promotes the services of banking, insurance, logistic, telecommunication, marketing etc. in the international market. The customers can easily access these services from different parts of the globe.

6.  Growth in supply chain:

The supply chain system is growing rapidly due to increase in trading partners. Huge investments are made by countries to use the services of artificial intelligence in supply chain.

Q3)  What is the importance / role of international trade in economic growth?                                                                                                                                                          5

A3) The importance of international trade in economic growth are:

1. Trade as an Enabler for Comprehensive and Sustainable Development

International trade is a powerful enabler of economic development. By connecting the world market to producers and consumers in developing countries, trade is the flow of finance, technology and services needed to further increase the capacity of agriculture, industry and services through both exports and imports. Provides an important channel. These are in turn needed for structural transformation of the economy. The fundamental factors behind their rapid economic growth are first in the traditional agriculture and textile / clothing sectors, and then in labour-intensive manufacturing, which has rapidly transitioned to high-tech manufacturing such as electronics. It was the ability to strengthen competitive production capacity and export capacity.

2. Income channel

The impact of trade on national income can be called the "income channel." Trade can increase the opportunity to generate income for the economy, especially through “surplus escape routes”. Participation in international trade through income channels affects a wide range of development outcomes by affecting the relative prices of the domestic economy. Income changes can affect the incentives faced by certain groups in deciding whether to join the formal workforce, which can have a significant impact on social inclusion, for example with respect to gender equality. There is sex.

3. Reduce the cost of goods and services

Trade can reduce the cost of goods and services that are not available at reasonable prices in the country and increase the quality and variety of such goods and services on the market. Better and more diverse import and input factors (e.g. Fuels and raw materials, intermediate goods and machinery) may lower production costs and enable production that would otherwise be unrealizable domestically. Improving access to critical products and services such as medicines and vaccines, medical devices, food, energy and environment-related products will not only bring direct development benefits to consumers, but also to health and more. It also improves the cost-effectiveness of certain public spending.

4. Comprehensive economic development and poverty reduction

Comprehensive economic development and poverty reduction should be pursued with the intentional purpose of increasing participation in international trade. Trade already accounts for a significant portion of the economy of least developed countries (LDCs). Poverty reduction in least developed countries lags far behind poverty reduction in developed countries as a whole. The poverty rate of LDCs in recent years remains very high compared to other developing countries, where the rate ranges from about 10% to less than 2%, often exceeding 40% of the population.

5. Strengthen the economic environment

Participation in international trade strengthens the economic environment in favour of achieving broader development goals such as poverty reduction, employment, food security, gender inclusiveness, health and environmental sustainability. However, the role that enables trade development, or the role of comprehensive economic growth as a whole, is not properly reflected in the current UN Millennium Development Goals.

6. Benefits of Free Trade Agreements (FTAs)

A new generation of FTAs, often referred to as deeper integration agreements, covers areas such as government procurement, investment, technology transfer, intellectual property rights, the environment, dedicated dispute resolution mechanisms, competition policy, and mutual recognition agreements. .. This can benefit countries that have the ability to implement such deeper integration commitments.

7. Access to the market

This gives countries access to international markets by forming groups and participating in various trade agreements to eliminate or reduce tariffs and tariff barriers.

8. Bridging trade and development

International trade interconnects trade and development in a particular region. Promoting trade in one country increases the inflow of funds, strengthens the financial position and enhances the image of the world market. It also promotes the economic development of the country.

Q4) What is WTO? Discuss its objectives.      8

A4)  The WTO was established in 1995 as an alternative to the General Agreement on Tariffs and Trade (GATT), which began in 1948. GATT was replaced by WTO because it was biased towards developed countries. The WTO was established as a global international organization dealing with the rules of international trade between countries.

The main purpose of the WTO is to help global organizations run their businesses. Headquartered in Geneva, Switzerland, the WTO is made up of 153 member states and accounts for more than 97% of world trade.

The World Trade Organization Establishment Agreement was signed in April 1994 by Morocco's GATT member states. However, it came into effect on January 1, 1995, on behalf of GAAT, an informal organization that regulates world trade since 1948. Establishment of the World Trade Organization and its Purpose This was necessary because it is a formal and permanent organization based on an approved international treaty involving all participating countries. This gave them international status like the World Bank and the IMF. However, the World Trade Organization is not a United Nations agency. This article focuses on the purpose of the World Trade Organization.

Main purpose

The World Trade Organization has many purposes, as explained by the agreement, which is basically a legal document covering a variety of activities. However, it has an important purpose to guide most of the activities of this organization. These are at the core of establishing a system for multilateral trade.

In general, the World Trade Organization has the following main objectives:

1. Set international trade rules and enforce them.
2. Create a forum for negotiations and surveillance for further liberalization of trade.
3. To resolve any trade disputes that arise.
4. To increase transparency in the decision-making process.
5. Cooperate with various world economic institutions involved in managing the world economy.
6. Helping developing countries fully benefit from the global trading system.
7. Improving living standards and income while ensuring that citizens of Member States are fully employed.
8. Ensuring non-discriminatory trade by applying the Most Favoured Nation (MFN) principle. This principle requires the member states of the World Trade Organization to give other member states similar incentives for concessions or tariff reductions.
9. To ensure that the world's resources are used optimally to expand production globally and expand trade in services and commodities.
10. Ensuring that the world's environment is protected and protected in order to benefit all the countries of the world.
11. Ensuring the growth of developing countries by allowing them to secure part of the growth of international trade.
12. Expanding trade and production of services and goods.

Q5) What are the advantages and disadvantages of WTO?   5

A5)  The World Trade Organization has the following advantages.

1. Simplify commerce.

The World Trade Organization is working to establish rules that facilitate business. The WTO creates these laws and regulations, ensuring that all countries comply with the trade regulations established by them and simplifying business.

2. Support harmony

One of the WTO's main goals is to ensure that countries continue to comply with the provisions of trade agreements established by them in order to promote trade between member states and maintain unity and peace of trade between member states.

3. Impede financial progress

The World Trade Organization is a multinational organization that deals with all trade issues in member countries. As a result, countries are encouraged to diversify their product offerings to simulate financial growth in order to demonstrate that consumers have a variety of options.

4. Productively Knob Quarrel

The World Trade Organization's responsibility is also to limit possible conflicts between nations when trading between nations. As a result, the WTO ensures that each dispute is clearly heard and given appropriate jurisdiction to resolve it productively.

5. Increase the country's net income

The WTO's main goal is to promote international trade and ensure a smooth flow of goods. This facilitates transactions with other countries, maintains economic flow, diversifies capital and increases net income in each country.

World Trade Center Disadvantages (Disadvantages):

1. Uncertainty

The World Trade Organization's sole concern is to regulate and maintain trade-related conditions, and therefore verify government protection only in the case of trade. Other than that, the WTO is not responsible for maintaining the defense of the country in any other way.

2. Injustice

The WTO has long been accused of being unjustified by the governments of developing countries because it operates to allow strong governments and large corporations to make policy decisions. Under WTO regulations, developing countries are more likely to suffer as a result of the termination of trade agreements with other countries due to their small impact on the world economy.

3. Ignore workers' rights

The WTO's primary concern is the needs of large corporations and governments, and therefore there is no concern about unfair trade practices for workers and employees. The WTO does not guarantee the interests of workers or consumers.

4. Devoted to multinational corporations

Despite the WTO's claim that it has established trade rules and regulations to treat all companies equally, the rules are primarily designed to benefit multinational and strong companies. This jeopardizes a company's trade balance and makes other SMEs inefficient.

Q6) Define IMF. What is the importance of IMF?     8

A6)  Founded in 1945, the IMF is made up of 187 member states. We are working to ensure financial stability, develop global financial cooperation, promote international trade, reduce poverty and maintain sustainable economic growth around the world. Headquartered in Washington, D.C., USA.

Important role of the International Monetary Fund

The International Monetary Fund (IMF) played an important role in stabilizing exchange rates, thereby facilitating international payment adjustments. Economists around the world admire its role in strengthening financial discipline among its members.

1. The IMF provides exchange rate stability:

The IMF provides clear guidance on foreign exchange policy. The policy prevents member states from making competitive devaluations to boost exports. As a result of all this, the exchange system under the IMF is stable.

b.    The role of the IMF in the development of international trade:

The IMF has contributed to the growth of international trade. It acts as a storehouse for the currencies of all Member States. Borrowing countries can borrow the currencies of other countries from this reservoir. It provides Forex loans to Member States to fund current transactions. It also provides technical advice on financial and financial issues. We carry out research and publish it. This multilateral aid helps Member States solve trade problems, thereby facilitating international trade.

The IMF is strict on multiple exchange rates.

The IMF does not allow Member States to adopt multiple exchange rates that lead to restrictive practices. The exchange rate system combines stability and flexibility. Maintains exchange rate stability.

c.     IMF's elaborate lending business:

The main operation of the fund is lending to member countries. We have introduced various credit lines to our members. Initially, lending operations were limited only to solving the problem of deficit payments. But now they are significantly expanded. Member States can have regular facilities, concessional facilities, and special facilities. Credit tranches and extended fund facilities are part of the regular facilities. Structural adjustment facilities and enhanced structural adjustment facilities are several concessional schemes offered to Member States. Special facilities offered by the IMF Fund include compensatory and contingent lending facilities, systematic transformation facilities, and contingent credit lines.

d.    The role of the IMF in currency convertibility:

Fees introduced in the international monetary system since 1973 allow members to lock their currencies into either a single major currency or a basket of currencies, or to fluctuate them independently.

Currencies are said to be fluctuating if they are left free to find their own equivalence in the international market. The IMF is a convertible catalyst for currencies. We strive to achieve full global convertibility of currencies in the next decade. All developing countries achieve full convertibility.

e.     The role of the IMF in consultation and guidance:

The IMF provides the necessary mechanisms for consultation and cooperation on international currency issues. Financial, financial and financial issues, as well as exchange and trade related issues that affect international payments, are clearly studied. Represent experts to Member States to address balance of payments issues. We also offer short-term training courses on finance, money and balance of payments for staff in member countries.

f.       The IMF benefits developing countries:

1. The IMF benefits developing countries. Least developed countries receive a great deal of support from the IMF.
2. Financial support to eliminate the balance of payments deficit
3. Concessional financial assistance to promote exports
4. Suggestions for overcoming constraints in the development process
5. Support in developing development-oriented financial, fiscal, exchange and trade policies
6. Expanding Central Bank Advisory Services to Developing Countries to Improve Central Bank Functions
7. Institutional training for staff in member countries. When
8. Special Drawing Rights (SDR) to solve international liquidity issues.

Q7) What is UNCTAD? Discuss the features of UNCTAD.   5

A7)  Founded in 1964, UNCTAD is the main body of the United Nations General Assembly. It provides a forum where developing countries can discuss issues related to economic development. UNCTAD is headquartered in Geneva, Switzerland, with 193 member states.

Meetings of these member states are held every four years. UNCTAD was created because existing institutions such as GATT, the IMF and the World Bank were not interested in the issues of developing countries. UNCTAD's main purpose is to develop policies related to development areas such as trade, finance, transportation and technology.

UNCTAD features

The UN General Assembly has set out certain important functions of UNCTAD. Therefore, by appropriately addressing the problem of slow export expansion facing developing countries, we will promote the acceleration of development in developing countries around the world. Other important features of UNCTAD are:

1. With a view to accelerating economic development, special emphasis should be placed on accelerating the development of developing countries in order to promote international trade between developed and developing countries.

2. Develop principles and policies regarding international trade.

3. Negotiate a multinational trade agreement.

4. Make suggestions to implement the principles and policies.

5. Technical refinement of new trade activities designed to support the areas of trade and capital in developing countries to facilitate research on commodity agreements and support negotiations.

6. To generally review and coordinate the activities of other institutions within the United Nations in relation to international trade and economic development.

7. To serve as the center of harmonious trade-related policies of governments and regional economic organizations in accordance with Article 7 of the Charter of the United Nations.

Q8)  What is GATT? Discuss its advantages.     5

A8)  The General Agreement on Tariffs and Trade (GATT), signed via way of means of 23 international locations on October 30, 1947, promotes worldwide exchange via way of means of disposing of or lowering quotas, price lists and subsidies even as preserving crucial regulations. It changed into a criminal settlement that minimized barriers.

GATT aimed to assist monetary healing thru the reconstruction and liberalization of global wide exchange after World War II.

GATT got here into impact on January 1, 1948. Since then, GATT has been delicate and sooner or later the World Trade Organization (WTO) changed into set up on January 1, 1995, which changed into absorbed and expanded. By this time, a hundred twenty five international locations had signed the settlement, overlaying approximately 90% of global wide exchange.

The Goods Trade Council (Goods Council) is accountable for GATT and is made of representatives from all WTO member states. As of September 2020, the Product Council is chaired via way of means of Swedish Ambassador Michael Anzen. The council has 10 committees running on topics inclusive of marketplace access, agriculture, subsidies and anti-dumping measures.

Advantages

1. Encourage international trade: GATT reduced tariffs, which boosted trade between countries. As countries traded more freely with each other, more countries recognized the benefits of free trade and wanted to join the agreement. By the time GATT was replaced by the WTO, more than 100 countries had joined the first 23 signatories.

b.     Reduce the likelihood of war: By increasing trade, GATT has promoted world peace. It set the stage for the European Union (EU). Despite EU issues, the EU has helped prevent wars between member states. The general idea is that if an economy relies on trade with a country, it is unlikely to go to war with that country. The more countries trade with each other, the less likely they are to go to war.

c.      Improving Communication: In addition to reducing the likelihood of war, GATT has provided incentives for countries to better communicate with each other. Nowadays, even the average citizen is more likely to learn a foreign language because he has access to a larger consumer market than in the country. For example, many can learn English, the language of the world's largest consumer market, and work in the call centers of companies based in English countries8.

Q9) What are the disadvantages of GATT?       5

A9)  Domestic industry can struggle to compete. Low tariffs destroy some domestic industries and contribute to the high unemployment rate in those sectors. Governments with more money and policy power can operate industry for their benefit than smaller countries. Rich countries can use subsidies for industry to make it more competitive on a global scale. Another example comes from the Nixon administration. When the US dollar deviated from the gold standard in 1973, the value of the dollar fell compared to other currencies. This further reduced the international price of US exports10. Other countries did not have the same tools to make their exports more competitive.

It exposes more of the world to risks within a particular domestic industry. By the 1980s, the nature of world trade had changed. GATT did not address the trade in services that would allow it to grow beyond the capacity of a single country to manage services. For example, financial services have been globalized. Foreign direct investment has become more important. As a result, when the US investment bank Lehman Brothers collapsed, it threatened the entire world economy. The central bank scrambled to work together to deal with the 2008 financial crisis11. Central banks have been forced to provide liquidity to the frozen credit market.

The government entrusts some control to international agreements. Like other free trade agreements, GATT has reduced the country's right to govern its own people. The agreement required them to change domestic law in order to gain trade benefits. For example, India allowed companies to make generic versions of medicines without paying a license fee. This helped more people afford the drug. However, this also led to conflicts with other GATT countries, as other countries had stricter requirements.

Q10) What is WTO? State the main targets of WTO?    8

A10)  The World Trade Organization (WTO) is the simplest international worldwide organisation that offers with the guidelines of alternate among countries. At its center is the WTO Agreement, which has been negotiated and signed via way of means of maximum of the world's buying and selling countries and ratified via way of means of Parliament. The purpose is to assist producers, exporters and importers of products and offerings do business.

Purpose of WTO

The six major targets of the World Trade Organization are mentioned below.

1. Establishment and enforcement of regulations for worldwide change

International change regulations via way of means of the World Trade Organization are mounted below 3 separate agreements. The Agreement on Trade-associated Aspects of Intellectual Property (TRIPS) and the General Agreement on Trade in Services (GATS).

The WTO's enforcement of the regulations is achieved via way of means of a multilateral machine of dispute decision withinside the occasion of a change rule violation via way of means of a member state. Members are obliged to admire and follow processes and judgments below ratified agreements.

b.    Serve as a worldwide apex discussion board

The World Trade Organization is a worldwide discussion board for tracking and negotiating similarly change liberalization. The premise of the WTO's change liberalization measures is primarily based totally at the pastimes of Member States to great make use of their comparative benefit in a unfastened and truthful change machine.

c.     Resolution of change disputes

Pre-WTO change disputes generally end result from deviations from agreements among member states. Such change disputes aren't settled unilaterally, however via a multilateral machine that consists of regulations and processes mounted in the front of the dispute decision body.

d.    Increased transparency withinside the decision-making process

The World Trade Organization seeks to boom the transparency of the decision-making process, mainly via way of means of growing participation in decision-making and consensus regulations. The mixed outcomes of those measures assist boom the transparency of the machine.

e.     Cooperation among worldwide financial establishments

World Economic Organizations encompass the World Trade Organization, the International Monetary Fund, the United Nations Conference on Trade and Development, and the World Bank.

The creation of globalization has required near cooperation among multilateral establishments. These establishments feature withinside the vicinity of ​​growing and enforcing worldwide financial coverage frameworks. Without every day session and mutual cooperation, policymaking may be interrupted.

f.       Protecting change pastimes in growing countries

Strict rules are being enforced via way of means of the WTO to shield the change pastimes of growing countries. It enables such Member States make use of their capacity to perform the missions of the organization, manipulate conflicts and enforce applicable technical standards.

Q11)  Define world bank. What are its functions ?     5

A11. The World Bank is a entire World Bank Group, an global corporation that may be a member of the United Nations (UN) and is designed to fund tasks that sell financial improvement in Member States. Headquartered in Washington, D.C., the financial institution is the biggest supply of investment for growing countries. It additionally affords technical help and coverage recommendation on behalf of global lenders and oversees the implementation of unfastened marketplace reforms. Together with the International Monetary Fund (IMF) and the World Trade Organization, it oversees financial regulations in growing countries, reforms public establishments and performs a critical position in defining the worldwide macroeconomic agenda.

World Bank: Founded on the Bretton Woods convention in 1944. The World Bank promotes lengthy-time period monetary improvement and poverty discount with the aid of using presenting technical and economic guide to assist nations reform sure sectors or put into effect particular projects which includes constructing colleges and fitness centers, presenting water and electricity, preventing disease, and defensive the environment. World Bank help is usually long time and is funded each with the aid of using member Country contributions and thru bond issuance. World Bank body of workers is frequently experts on specific issues, sectors, or strategies.

Functions of the World Bank

1. It enables the war-devasted nations with the aid of using granting the ones loans for reconstruction.

2. Thus, they offer vast enjoy and the economic sources of the financial institution assist the terrible nations boom their financial growth, decreasing poverty and a higher fashionable of living.

3. Also, it enables the underdeveloped nations with the aid of using granting improvement loans.

4. So, it additionally offers loans to diverse governments for irrigation, agriculture, water deliver, health, education, etc.

5. It promotes overseas investments to different groups with the aid of using making sure the loans.

6. Also, the World Bank offers financial, economic, and technical recommendation to the member nations for any in their initiatives.

7. Thus, it encourages the improvement of of-industries in underdeveloped nations with the aid of using introducing the diverse financial reforms.

Q12)  What is IMF? State its functions.      8

A12)  Founded on the Bretton Woods convention in 1944. The IMF promotes worldwide financial cooperation and presents coverage recommendation and potential improvement guide to assist nations construct and preserve sturdy economies. The IMF additionally presents medium-time period loans and allows nations layout coverage applications to clear up stability of bills troubles whilst enough financing can't be received to fulfil internet worldwide bills. IMF loans are quick and medium time period and funded especially with the aid of using the pool of quota contributions that its contributors offer. IMF body of workers is more often than not economists with huge revel in macroeconomic and economic rules.

Functions:

Some of the main functions of the International Monetary Fund are:

1. Replacement stability:

The first important function of the IMF is to maintain exchange stability and thereby prevent exchange rate fluctuations. Founders need to carry out face value declarations of all members' currencies regarding gold or US dollars, enforce devaluation criteria, with more information or permission from the IMF, such as up to 10% or more each. We ensure such stability by making arrangements. , Members are prohibited from depositing at multiple exchange rates and buying or selling gold at prices other than the declared par value.

2. Elimination of BOP imbalance:

By selling or lending foreign currency to Member States, the Fund assists Member States in eliminating or minimizing the short-term balance of payments. The fund also assists member states in eliminating long-term balance of payments imbalances. If there is a fundamental change in a member's economy, the fund can advise the member to change the face value of the currency.

3. Per-value determination:

The IMF has a system in place to determine the par value of the currency of member states. In accordance with the IMF's original agreement, all Member States must declare the par value of their currency in gold or US dollars. Under the revised provisions, members are given the autonomy to fluctuate or change exchange rates according to the supply and demand conditions of the foreign exchange market and at the same level as the internal price level.

According to this article, the IMF is monitoring to ensure the proper functioning and balance of the international monetary system. In other words, we have adopted an intervention policy to avoid exchange rate manipulation and counter short-term movements in the exchange value of currencies.

4. Stabilize the economy:

The IMF has an important function in advising Member States on a variety of economic and financial issues, thereby helping to stabilize their economies.

5. Credit Facility:

The IMF maintains a variety of borrowings and credit lines to help Member States correct their balance of payments imbalances. These credit lines include a basic credit line, a three-year extended line of credit, a compensation line of credit, a rosy line of credit to support primary producers, a supplementary line of credit, special oil facilities, trust funds, structural adjustment facilities, etc. It is included. The fund also charges interest from the borrowing country on their credit.

6. Maintain a balance between supply and demand of currency:

The IMF is also entrusted with important functions to balance the supply and demand of various currencies. Therefore, the fund can increase its supply by declaring the currency as a rare currency in high demand and borrowing it from the countries concerned or buying the same currency in exchange for gold.

7. Maintaining liquidity:

Maintaining the liquidity of its resources is another important function of the IMF. Therefore, there is a provision for member states to borrow from the IMF by handing over their currency in exchange. Again, in response to the fund's accumulation of less demanding currencies, the borrowing country is instructed to repurchase its own currency by paying back the loan in a convertible currency.

8. Technical assistance:

The IMF also serves a useful function in providing technical assistance to Member States. Such technical assistance is provided in two ways. One is to provide member countries with the services of their specialists and specialists, and the other is to dispatch outside specialists.

In addition, the fund has also established two new specialized divisions.

(A) Central Bank Services Department and

(B) The Finance Bureau, which dispatches experts to member countries to manage the central bank and also manages the finances.

9. Tariff reduction:

The fund also aims to reduce tariffs and other restrictions imposed on international trade by Member States in order to lift restrictions on the remittance of funds or to avoid discriminatory practices.

10. General clock:

The IMF also comprehensively monitors the monetary and fiscal policies that Member States follow to ensure they do not violate the provisions of the Charter.

Q13)  Write a short note on GSP.       5

A13)  Generalized System of Preferences or GSP is a preferential tariff system that developed countries extend to developing countries. This topic is regularly covered in the news and is important for the UPSC exam economy and international affairs segment.

GSP was founded by UNCTAD in 1971. The 13 countries that provide GSP priorities to emerging and developing countries are:

1. Australia
2. Belarus
3. Canada
4. European Union
5. Iceland
6. Japan
7. Kazakhstan
8. New Zealand
9. Norway
10. Russia
11. Switzerland
12. Turkey
13. USA

The motivation behind the grant of GSP is to help developing countries, especially the least developed countries (LDCs), promote capacity development and promote trade and investment.

GSPs support economic growth and development in many developing countries.

Under the GSP Agreement, certain imports from beneficiary countries are allowed concessions such as zero tariffs.

GSP includes tariff reductions / zero on eligible products exported from beneficiary countries to the markets of GSP donor countries.

The United States has a strong GSP system for developing countries. It was released in 1976.

About 120 countries have benefited from the US GSP system. In addition, the United States has also benefited from GSP by reducing the cost of imports (to the United States) that US companies use to manufacture.

According to exports (2017 data), India and Brazil were the main beneficiaries of the US GSP system.

China and some other developing countries were not considered GSP targets by the United States.

Most of the products covered by GSP are agricultural products such as fisheries, meat, livestock and handicrafts. In general, these are also special products of developing countries.

Under this, the United States selects developing countries or groups of developing countries and lists products that are subject to preferential zero tariffs or lower tariffs compared to other countries of the World Trade Organization (WTO). Also select. This list of beneficiaries and products is revised annually by the US Trade Representative (USTR) office.

Q14)  What is counter trade? State its types.     8

A14) Countertrade accounts for an estimated 5-30 percent of total world trade. Countertrade surged significantly in the 1980s. Perhaps the only and most important factor is that least developed countries (LDCs) are declining their ability to fund import needs through bank lending.

One of the oldest forms of trade, countertrade, is the government's obligation to pay for goods and services by means other than cash. This is a practice that requires the seller to contractually promise to return and undertake certain business initiatives that indemnify and benefit the buyer as a condition of sale. In short, commodity-to-commodity transactions are counter trades. Unlike monetary transactions, suppliers must bring in customers' products to use or resell. In most cases, there are multiple transactions that are separate but related, and the contract links these separable transactions. Counter trades may include multiple products, which may move at different times if they are related to multiple countries. Payment of money may or may not be part of the transaction.

There are three main reasons for foreign trade: (1) foreign trade offers trade finance options to replace countries with international debt and liquidity problems, (2) foreign trade relations It may provide LDCs and multinationals with access to new markets. Conceptually, it is very similar to the resurgence of bilateral trade agreements between governments. The benefits of countertrade clusters are related to three themes: market access, forex and pricing. Counter trading has several advantages. Move inventory for both buyers and sellers. The seller also gets other benefits. In addition to tax incentives, sellers can sell their products in full and convert their inventory into accounts receivable. Cash-tight buyers who lack hard currency can use the cash they receive for other operational purposes.

Types of counter trades

There are several types of counter trades such as barter, counter purchases, reward transactions, switch transactions, offsets and clearing contracts.

1. Barter-Barter is probably the simplest of many types of countertrade, exchanging products of the same value directly and simultaneously (ie, one product to another). Trade). By removing money as a medium for bartering, it allows countries that are short of cash to buy and sell. Prices must be considered in any countertrade, but in the case of barter, prices are at best implicit. For example, Chinese coal was exchanged for port construction by the Dutch, and Polish coal was exchanged for a concert performed by a Swedish band in Poland. In these cases. The agreement dealt with how many tons of coal would be given by China and Poland, not the actual monetary value of construction projects and concerts. It is estimated that about half of US companies are doing some form of barter, primarily in the US local market.

b.     Parallel Barter – A counter purchase occurs when you have two contracts or a series of parallel cash sales contracts, each paid in cash. It is different from bartering, which is a single transaction where the exchange price is only implied. Counter purchases include two separate transactions-each with its own cash value. The supplier sells the facility or product at a set price and orders an irrelevant or unsuccessful product to offset the cost of the original purchaser. Therefore, the buyer pays with hard currency, but the supplier agrees to purchase a particular product within the specified time period. Therefore, money does not have to change hands. In effect, this practice allows the original purchaser to regain the currency. GE won a $ 300 million contract to manufacture aircraft engines for Swedish JAS fighters in cash only after agreeing to purchase Swedish industrial products for the same amount through a counter purchase contract over a period of time. .. Brazil exports automobiles, steel and agricultural products to oil-producing countries and purchases oil from them.

c.      Compensation Transaction (Repurchase) – A compensation transaction requires a company to provide a machine, factory, or technology and purchase products manufactured from this machine for an agreed period of time. Unlike counter purchases, which include two unrelated products, the two contracts for reward transactions are very relevant. Under another contract for the sale of the plant or equipment, the supplier agrees to purchase some of the plant's products for several years. For example, a Japanese company sold a sewing machine to China and received payment in the form of 300,000 pairs of pajamas. Russia welcomes buybacks.

d.     Switch Trading – Switch buying and selling consists of triangular exchange agreements in preference to bilateral exchange agreements. You might also additionally want to carry a 3rd celebration to put off the item. Third events pay tough forex for undesirable gadgets at great discounts. As a fictitious example, Italy might also additionally have a $ four million credit score to Austrian ham, which Italy can't use. A third-celebration business enterprise might also additionally determine to promote a favoured product worth $ three million to Italy for Austrian ham billing. Price variations or margins are diagnosed as essential to cowl the prices of doing commercial enterprise this way. The business enterprise can promote the obtained ham to Switzerland in Swiss francs. Swiss francs may be freely transformed into dollars.

e.     Offset – Offset calls for overseas providers to fabricate / bring together merchandise regionally or buy nearby additives in alternate for the proper to promote the product regionally. In effect, providers want to fabricate in places that won't be optimum from a financial factor of view. Offsets are not unusual place in the acquisition of plane and army equipment. One observe located that greater than 1/2 of the organizations engaged in counter-exchange with the Middle East have been withinside the protection industry, offsetting the maximum not unusual place kind of counter-exchange. These organizations felt that counter-buying and selling changed into a vital detail for you to input those markets.

f.        Clearing Contracts – Clearing contracts are bartering of clearing bills that don't require forex transactions. Trade is ongoing on this case, as credit score strains were set up withinside the imperative banks of each countries, and the alternate of products among the 2 governments is an unconvertible aggregated or calculated agreed cost or transaction. Designed to reap quantity "clearing with the aid of using account". For example, the previous Soviet Union imports best for tough forex and distributes copier payments. Rank Xerox has determined to keep away from the hassle with the aid of using promoting copiers to the Soviet Union in India below a "clearing" settlement with India. The agreement describes the products, the alternate rate, and the time to completion. Post-year-quit imbalances have been resolved with the aid of using crediting the subsequent year, accepting undesirable goods, paying penalties, or paying tough currencies. Although theoretically now no longer convertible, the real clearing unit may be bought at a reduced rate to buying and selling professionals who use them to buy sellable merchandise.