(Based on UGC NET 2019 DEC-COMMERCE Business Environment Syllabus).

Following concepts will be fruitful to Students who write examination based on Business Environment. The important concepts explained are the following-

Business Environment and International Business

Concepts and elements of business environment: Economic environment- Economic systems, Economic policies(Monetary and fiscal policies); Political environment-Role of government in business; Legal environment- Consumer Protection Act, FEMA; Socio-cultural factors and their influence on business; Corporate Social Responsibility (CSR).

Scope and importance of international business; Globalization and its drivers; Modes of entry into international business

Theories of international trade; Government intervention in international trade; Tariff and non-tariff barriers; India’s foreign Trade policy

Foreign direct investment (FDI) and Foreign portfolio investment (FPI); Types of FDI, Costs and benefits of FDI to home and host countries; Trends in FDI; India’s FDI policy

Balance of payments (BOP): Importance and components of BOP.Regional Economic Integration: Levels of Regional Economic Integration; Trade creation and diversion effects; Regional Trade Agreements: European Union (EU),ASEAN, SAARC, NAFTA

International Economic institutions: IMF, World Bank, UNCTAD World Trade Organization (WTO): Functions and objectives of WTO; Agriculture Agreement; GATS; TRIPS; TRIMS

1. Economic Integration

An economic integration scheme is conceived as a building block of economic development of the member countries

2. Forms of Integration

a. Free trade union –Free trade

b. Customs union –a+ common external commercial policy.

c. Common market—b+ free factor mobility

d. Economic union –c+ harmonized economic policies

e. Economic integration –d+ supernational organizational structure

3. Different Case of Economic integration

A. European Union-1992.

The Maastricht Treaty of February, 1992 renamed the European Community as European Union.

B. ASEAN

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand.

Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN.

C.SAARC

Member countries

The South Asian Association for Regional Cooperation (SAARC) was established with the signing of the SAARC Charter in Dhaka on 8 December 1985. SAARC comprises of eight Member States: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The Secretariat of the Association was set up in Kathmandu on 17 January 1987.

D.NAFTA-The North American Free Trade Agreement

NAFTA came into force from January 1994

Countries

a. USA

b. Canada

c. Mexico

E. European free trade association-1960

F. CARICOM-Caribbean community-1973

G. APEC-1989-Asia Pacific Economic Cooperation

H. Andean Pact-1969

I. GCC-1981-Gulf cooperation council

J. SAPTA-1991

4. International Economic Institutions

1. IMF—International Monetary Fund.

A country consistently facing balance of payment deficiency can approach the IMF

Bretton woods conference resulted into the establishment of

a. IMF

b. World bank.

Special drawing rights

are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund. SDRs are units of account for the IMF, and not a currency per se. They instead represent a claim to currency held by IMF member countries for which they may be exchanged.

Special Drawing Rights equals

One SDR=97.81  Indian Rupee—on 191/9/2019

IMF’s various lending instruments

Low-income countries may borrow on concessional terms through facilities available under the Poverty Reduction and Growth Trust currently at zero interest rates.

Historically, for emerging and advanced market economies in crises, the bulk of IMF assistance has been provided through Stand-By Arrangements (SBAs) to address short-term or potential balance of payments problems.

The Standby Credit Facility (SCF) serves a similar purpose for low-income countries.

The Extended Fund Facility (EFF) and the corresponding Extended Credit Facility (ECF) for low-income countries are the Fund’s main tools for medium-term support to countries facing protracted balance of payments problems.

To help prevent or mitigate crises and boost market confidence during periods of heightened risks, members with already strong policies can use the Flexible Credit Line (FCL) or the Precautionary and Liquidity Line (PLL).

The Rapid Financing Instrument (RFI) and the corresponding Rapid Credit Facility (RCF) for low-income countries provide rapid assistance to countries with urgent balance of payments need, including from commodity price shocks, natural disasters, and domestic fragilities.

2.World Bank.

With 189 member countries, staff from more than 170 countries, and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries

The World Bank Group is one of the world’s largest sources of funding and

 knowledge for developing countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development.

World Bank Group includes the following.

a. IBRD—International Bank for Reconstruction and Development .

b. IDA-The international development Association.

Both a and b above is World Bank.

c. IFC—International Finance corporation.

d.MIGA—Multilateral investment Credit Guarantee Agency.

e.ICSID—International centre for settlement of Investment Disputes

3. UNCTAD.—The united Nations Conference on Trade and Development -1964

4.WTO-World Trade Organization .

Following five statements are as far as WTO is concerned

a. WTO is only international organization which deals with the rules of trade between organizations.

b. The limit of holding by individual foreign institutional investors in a company has been raised from 5 to 10 % of company’s shares while the aggregate limit has been increased from 24% to 34%.

c.WTO administers the Trade Review Mechanism.

d.WTO cooperates in an appropriate manner with the IMF and the World Bank.

e. Amended Patent Act of India, in compliance with WTO ,provides for grant of product patent as well as process patent for  a period 20 from the date of application

WTO

Prnciples of WTO

A. Non-discrimination

A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products, services or nationals.

B. More open

Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.

C. Predictable and transparent

Foreign companies, investors and governments should be confident that trade barriers should not be raised arbitrarily. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices.

D. More competitive

Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost to gain market share; the issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.

E. More beneficial for less developed countries

Giving them more time to adjust, greater flexibility and special privileges; over three-quarters of WTO members are developing countries and countries in transition to market economies. The WTO agreements give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions.

F. Protect the environment

The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health. However, these measures must be applied in the same way to both national and foreign businesses. In other words, members must not use environmental protection measures as a means of disguising protectionist policies.

FACT FILE

Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 164 members representing 98 per cent of world trade
Budget: 197 million Swiss francs for 2018
Secretariat staff: 625
Head: Roberto Azevêdo  (Director-General)

Functions:

i. Administering WTO trade agreements

ii. Forum for trade negotiations

iii. Handling trade disputes

iv. Monitoring national trade policies

v. Technical assistance and training for developing countries

vi. Cooperation with other international organizations

About WTO

The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

Top of Form

To facilitate the expansion and balanced growth of international trade

Components of WTO are

i. Ministerial Conference

ii. Disputes settlement body

iii. Director General

Important WTO Agreements

1. TRIPS—provides monopoly power to oweners of intellectual property

The areas of intellectual property that it covers are:

  • copyright and related rights (i.e. the rights of performers, producers of sound recordings and broadcasting organizations);
  • trademarks including service marks;
  • geographical indications including appellations of origin;
  • industrial designs;
  • patents including the protection of new varieties of plants;
  •  the layout-designs of integrated circuits;
  • and undisclosed information including trade secrets and test data.

2. TRIMS—liberalisation of international investments.

3.The General Agreement on Trade in Services (GATS)

The GATS applies in principle to all service sectors

5.MNCs

The companies having business in a large number of countries around the world at present are called—Global corporations

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