UNDERSTANDING
INTERNATIONAL BUSINESS
ENVIRONMENT
IB104
by
Dr. Avani Bharadwaj
Module IV
International Economic Institutions and
Agreements
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Module IV International
Economic Institutions and
Agreements
• International Economic Institutions –
WTO,
World Bank,
IMF
Their importance to India
• Foreign Trade Policy
• Regional Economic Groupings in Practice: Regionalism vs.
Multilateralism
• Structure and functioning of Regional economic cooperation
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1. INTERNATIONAL ECONOMIC
INSTITUTIONS
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1. INTERNATIONAL ECONOMIC
INSTITUTIONS
International Economic Institutions (IEIs) are organizations that
facilitate the global economic and development system by promoting
cooperation, stability, and development among countries.
By working collectively, these institutions aim to foster economic
stability, sustainable development, and poverty reduction globally.
Some examples of key international economic institutions are: the
UNO, WTO, World Bank, IMF, SAARC, and NAFTA.
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1.1
• Established in 1995, replacing General Agreement on Trade and Tariffs
(GATT). GATT was signed by 23 nations in Geneva on 30 October 1947 and
took effect on 1 January 1948.
• 166 members since 30 August 2024.
• The WTO Secretariat, based in Geneva, has around 600 staff and is headed
by a Director- General. It does not have branch offices outside Geneva.
• WTO agreements: Through these agreements, WTO members operate a
non- discriminatory trading system that spells out their rights and their
obligations. Each member receives guarantees that its exports will be
treated fairly and consistently in other members’ markets.
• The WTO covers not just goods, but also trade in services and trade-
related aspects of intellectual property
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1.1.1 Functions of WTO
The WTO’s overriding objective is to help its members use trade as a
means to raise people's living standards. It does this by:
• administering trade agreements
• acting as a forum for trade negotiations
• settling trade disputes
• reviewing national trade policies
• building the trade capacity of developing economies
• cooperating with other international organizations
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1.1.2 Important WTO
Agreements:
• Trade-Related Investment Measures (TRIMS)
• Trade-Related Intellectual property rights (TRIPS)
• Agreement on Agriculture
• General Agreement on Trade in Services (GATS)
• Agreement on Subsidies and Countervailing Measures (“SCM
Agreement”)
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1.1.3 INDIA & WTO
Positive Impacts:-
Increased trade
Foreign investment
Technology transfer
Competition
Economic growth
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1.1.3 INDIA & WTO (contd.)
Negative Impacts:-
Loss of tariff revenue
Farmers issue
Intellectual property rights
Agriculture dumping
Loss of policy space
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1.2 WORLD BANK
• Establishment
The World Bank was founded in 1944 at the UN Monetary and Financial
Conference (commonly known as the Bretton Woods Conference), convened to establish a
new, post-World War II international economic system.
The World Bank officially began operations in June 1946.
Its official name was the International Bank for Reconstruction and Development
(IBRD). The IBRD later became the World Bank.
• Headquarters: Washington DC, United States.
• Member countries: 189 countries (India is a founding member).
To become a member of the Bank, a country must first join the
International Monetary Fund (IMF).Membership in IDA, IFC, and MIGA are conditional on
membership in IBRD.
The Bank’s first loan was to France. The firstA. loan to a non-European country was to Chile
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in
1.2.2 World Bank Goals:
Ending extreme poverty by 2030.
Boosting shared prosperity of the poorest
40% of the population in all countries.
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1.2.3 World Bank Group
• Together, the International Bank for Reconstruction and
Development (IBRD) and the International Development Association
(IDA) form the World Bank.
• IBRD and IDA, along with MIGA, IFC, and ICSID, form the ‘World Bank
Group.’
• India is a member of four of the five constituents of the World Bank
Group. India is not a member of the International Centre for
Settlement of Investment Disputes (ICSID).
• India is one of the founder members of IBRD, IDA and IFC.
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International Bank for Reconstruction
and Development (IBRD)
• established in 1944 under the World Bank, as part of Bretton Woods
Twins along with IMF
• Members: 189 member countries.
• offers loans to middle-income developing countries.
• to fund projects that seek to improve transportation and
infrastructure, education, domestic policy, environmental
consciousness, energy investments, healthcare, access to food,
potable water, and sanitation.
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International Development
Association (IDA)
• established in 1960
• Members: 174 member countries
• Interest-free loans are provided for a period of 25-40 years with a
grace period of 10 years,
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International Finance
Cooperation (IFC)
• Established in 1956
• Member Countries: 186 countries
• It is the largest global development institution focused exclusively on
the private sector in developing countries.
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Multilateral Investment
Guarantee Agency (MIGA)
• established in 1988
• Member Countries: 182 countries
• provides non-commercial guarantees (insurance) for cross-border
investments in developing countries.
• MIGA issues guarantees for up to 15 years and, occasionally, 20 years.
The minimum length of a guarantee is three years.
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International Centre for Settlement
of Investment Disputes (ICSID)
• Established in 1966
• Member Countries: 158 countries
• It is the world’s leading institution devoted to international
investment dispute settlement. It is a forum for investor-state dispute
settlement.
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1.2.4 Governance
• The World Bank is run by a president and executive directors, and
various vice presidents.
• The Executive Directors are responsible for conducting the day-to-day
business of the World Bank. There are 25 Executive Directors and 25
Alternate Executive Directors representing the 189 member countries.
• The President of the World Bank Group serves as Chairman of the
Board of Executive Directors and is selected by the Executive
Directors.
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1.2.5 Voting Power in World
Bank
• Voting power is based on a country’s capital subscription, which is
based on its economic resources.
• Thus, the wealthier and more developed countries constitute the
bank’s major shareholders and exercise greater power and influence.
• The United States is the largest single shareholder, with 16.41% of the
votes, followed by Japan (7.87%), Germany (4.49%), the United
Kingdom (4.31%), and France (4.31%). The rest of the shares are
divided among the other member countries.
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1.2.6 Functions of the World Bank
• Financing Development Projects: The World Bank Group funds projects across various
sectors, including infrastructure, education, health, agriculture, and environmental
protection.
• Advisory Services: Provides expert advice and capacity-building support to help
countries implement effective policies and strategies for development.
• Data and Research: Generates and disseminates data and research on global economic
trends, development challenges, and best practices to inform policy decisions.
• Capacity Building: Offers training and capacity-building initiatives to help countries
improve governance, institutional frameworks, and development outcomes.
• Promoting Private Sector Development: The World Bank Group mobilizes private
capital and expertise through the IFC to foster economic growth in developing
countries.
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1.2.7 India and the World Bank
• In 1949, India took its first World Bank loan for the development of
the Indian Railways.
• The World Bank and India have been working together to meet the
developmental goals of growth, stability and social development.
• The World Bank has provided assistance to India in multiple fields,
such as agriculture, infrastructure, health, education, rural
development, and supporting the development of oil and gas
extraction facilities.
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1.2.8 Projects funded by the
World Bank in India
• Pradhan Mantri Gram Sadak Yojana
• National Ganga River Basin Project
• Dam Rehabilitation and Improvement Project
• Eastern Dedicated Freight Corridor
• Bihar Kosi Flood Recovery Project
• Grid-Connected Rooftop Solar Program Project
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1.3 International Monetary Fund
(IMF)
• initially formed at the Bretton Woods Conference in 1944.
• came into operation on 27th December 1945
• 189 member countries
• Headquartered in Washington, D.C.
• focuses on fostering global monetary cooperation, securing financial
stability, facilitating and promoting international trade, employment,
and economic growth around the world.
• The IMF is a specialized agency of the United Nations.
• headed by a Managing Director who is elected by the Executive Board
for a 5-year term of office.
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1.3.1 Objectives of the IMF
• To improve and promote global monetary cooperation of the world.
• To secure financial stability by eliminating or minimizing the exchange
rate stability.
• To facilitate a balanced international trade.
• To promote high employment through economic assistance and
sustainable economic growth.
• To reduce poverty around the world.
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1.3.2 Functions of the IMF
IMF mainly focuses on supervising the international monetary system along
with providing credits to the member countries.
• Regulatory functions: IMF functions as a regulatory body and as per the rules
of the Articles of Agreement, it also focuses on administering a code of
conduct for exchange rate policies and restrictions on payments for current
account transactions.
• Financial functions: IMF provides financial support and resources to the
member countries to meet short term and medium term Balance of
Payments (BOP) disequilibrium.
• Consultative functions: IMF is a centre for international cooperation for the
member countries. It also acts as a source of counsel and technical
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1.3.3 India & IMF
• India is a founder member of the IMF.
• India’s Union Finance Minister is the Ex Officio Governor on the IMF’s
Board of Governors. Each member country also has an alternate
governor. The alternate governor for India is the Governor of the RBI.
There is also an Executive Director for India who represents the
country at the IMF.
• India is the eight largest quota holding country at the organization.
• In 2000, India completed the repayment of all the loans it had taken
from the IMF.
• Now, India is a contributor to the IMF.
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2. FOREIGN TRADE POLICY (FTP)
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2. FOREIGN TRADE POLICY (FTP)
The foreign trade policy is a framework that gives direction to the exports
and imports of a country. It is also called as Export-Import policy.
It is a policy statement that spells out in clear terms the policy of the
government to external trade comprising exports and imports (merchandise
and services), the measures to promote exports and the means and ways to
curb unnecessary imports.
Such policy is important for the developing countries like India as it
influences country’s external trade and balance of payments.
In India, Foreign Trade Policy is announced by the Ministry of Commerce
and Industry of the Government of India for a five year period. However,
the latest FTP 2023 has no end date.
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2.1 INDIA’S FOREIGN TRADE
POLICY (FTP)
Historic Perspective
1970 : Export Policy Resolution passed in the Parliament.
1978 : Export-Import and procedures by Alexander committee.
1980 : Export strategies for eighties by Tandon committee.
1984 : Trade Policies by Abid Hussain committee.
1985 : Exim Policy by Viswanath Pratap Singh Government. (3 year Policy)
1990-93: 3-year Import Export Policy.
1992-97: Export-Import Policy (to coincide with Plan period)
1997-02: Exim Policies with major changes.
2002-02: Exim Policies
2004-09: New Foreign Trade Policy (NFTP) was introduced due to change in Government.
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2.2 OBJECTIVES OF THE FTP OF
INDIA
• Boost exports of goods and services to other countries.
• Increase jobs and other economic chances by improving exports.
• Enhance industrial growth by providing incentives to exporters.
• Diversify the range of goods and services being exported to reduce
dependence on just a few sectors.
• Make exporters more competitive in the global market by reducing their costs
and helping improve their efficiency.
• Increase foreign exchange reserves and improve the country’s balance of trade
and balance of payments situation.
• Encourage the adoption of new and cutting-edge technologies and
innovations.
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2.3 Highlights of Foreign Trade
Policy, 2023
The Foreign Trade Policy 2023 has been designed around four pillars:-
• Incentive to remission
• Export promotion through collaboration – exporters, states, districts
and Indian missions
• Ease of doing business, reduction in transaction cost and e-initiatives
• Emerging Areas – E-Commerce Developing Districts as Export Hubs
and streamlining SCOMET policy
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3. REGIONAL ECONOMIC
GROUPINGS IN PRACTICE:
REGIONALISM Vs
MULTILATERALISM
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3.1 REGIONAL ECONOMIC
GROUPINGS
Regional economic integration refers to a way where neighbouring
nations work to merge their thrifts by falling barriers to trade,
investment, and mobility of labour and capital within the region.
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3.2 TYPES OF REGIONAL
ECONOMIC GROUPINGS
(STRUCTURE OF REIs)
There are FIVE levels of economic integration starting from lower
lever of preferential trade agreement to deeper level of political
union:
A. Preferential Trade Agreement (Free Trade Agreement)
B. Custom Union
C. Common Market
D. Economic Union
E. Political Union
F. Monetary Union
According to WTO, as of 22 January 2025, 373 RTAs were in force.
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3.3 Objectives of Regional
Economic Integration
• Promote trade
• Create larger markets
• Specialize in what you do best
• Attract more investment
• Foster economic growth
• Improve living standards
• Enhance stability
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3.4 ADVANTAGES OF REIs
3.4.1 Grown trade- By reducing trade barriers, regional integration
boosts the flow of goods, services, and investment within the bloc. This
allows members to benefit more from international trade.
3.4.2 Economies of scale- An integrated regional market provides
access to a larger customer base, allowing firms to produce at larger
scales and reduce costs through efficiency gains.
3.4.3 Specialization and efficiency- Members can specialize in making
and exporting goods they have a comparative advantage while
importing others from the larger regional market. This enhances overall
productivity and efficiency.
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3.4 ADVANTAGES OF REIs
(contd.)
3.4.4 Increased investment- A larger integrated market makes the region a more
attractive destination for foreign direct investment that benefits all member
economies.
3.4.5 Technology transfer- Greater trade and investment flows within the bloc
facilitate the transfer of technology, knowledge, and skills among members. This
boosts creation and productivity.
3.4.6 Political stability- Economic interdependence fosters alliance, stability, and
security among member states. Regional integration becomes multi-dimensional.
3.4.7 Reduced poverty- By increasing growth potential, regional integration aims
to reduce poverty and raise income levels across the merged region. A rising tide
lifts all boats.
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3.4 ADVANTAGES OF REIs
(contd.)
3.4.8 Global competitiveness- Regional integration allows fellows to
jointly address regional and global issues, giving the bloc more weight
and voice on the world stage.
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3.5 DISADVANTAGES OF
REGIONAL ECONOMIC
INTEGRATION
3.5.1 Loss of sovereignty- Member states may lose some control over their
trade policies and regulations.
3.5.2 Increased competition- Domestic industries may face more competition
from other member nations. This can lead to job losses and eviction of
workers.
3.5.3 Increased economic contrasts- The benefits of integration may not be
evenly distributed across nations. More grown members may benefit more,
raising the economic gap.
3.5.4 Risk of conflicts- There could be conflicts over the allocation of benefits
and costs among member nations. This can strain the integration.
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3.5 DISADVANTAGES OF
REGIONAL ECONOMIC
INTEGRATION (contd.)
3.5.5 Cost of coordination- Costs are associated with blending policies, rules, and
governance forms across nations. This can be weak.
3.5.6 Trade diversion- Members may trade more with each other at the cost of
lower-cost non-members. This can be weak.
3.5.7 Raised barriers to non-members- Integration may raise barriers to trade with
non-members, disabling them.
3.5.8 Policy imposition- There is a risk of larger members imposing their policies on
smaller members. This can exacerbate tensions.
3.5.9 Slower decision-making- Decision-making may become more complex with
multiple members, slowing down the process.
3.5.10 Spread of economic issues- Issues like financial crises, downturns, and
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3.6 FUNCTIONING OF REIs
Regional economic integration can be either bilateral or multilateral.
Bilateral trade agreements are between two nations at a time. They
are easy to negotiate and even provide both the nations favoured
trading status.
Multilateral trade agreements are negotiated among many nations at a
given time forming a bloc. They are complicated to negotiate but very
powerful once all parties sign the agreement.
Egs. of REIs: EU, NAFTA, ASEAN, SAFTA, MERCOSUR, etc.
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3.7 FUNCTIONS OF REIs
The strengthening of trade integration in the region leads to:-
• The creation of an appropriate enabling environment for private sector
development
• The development of infrastructure programmers in support of economic
growth and regional integration
• The development of strong public sector institutions and good governance;
• The reduction of social exclusion and the development of an inclusive civil
society
• Contribution to peace and security in the region
• The building of environment programmes at the regional level
• The strengthening of the region’s interaction
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4. REGIONALISM VS
MULTILATERALISM
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4.1 REGIONALISM
Regionalism is loosely defined as any policy designed to reduce trade
barriers between a sub-set of countries, regardless of whether the
countries are contiguous or close to one another (Winters, 1996).
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4.1.1 REASONS FOR GROWTH
OF REGIONALISM
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4.2 MULTILATERALISM
It is multiple countries working together on a given issue.
The term Multilateralism can be defined as interaction between States in regular
pattern guided by generalized principles of conduct – i.e., principles which
specify appropriate conduct for a class of actions, without regard to the
particularistic interests of the parties or the strategic exigencies at the time. It
also denotes consultation and cooperation between states over shared aims
without resorting to coercion, bribery and blackmail. In such a system, States do
not take unilateral action or exert bilateral pressure.
Egs. NATO, UN, WTO, etc.
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4.2.1 REASONS FOR GROWTH
OF MULTILATERALISM
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Thank You!
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