Global Business Environment

PRIVATISATION

Privatization, which has become a universal trend, means transfer of ownership and/or management of an enterprise from the public sector to the private sector. It also means the withdrawal of the state from an industry or sector, partially or fully. Another dimension of privatization is opening up of an industry that has been reserved for the public sector to the private sector. Privatization is an inevitable historical reaction to the indiscriminate expansion of the state sector and the associated problems. Even in the ‘communist’ countries it became a vital measure of economic rejuvenation.

PRIVATISATION ROUTES

The important ways of privatization are:

• Divestiture, or privatization of ownership, through the sales of equity.

• Denationalization or reprivatisation.

• Contracting – under which government contracts out services to other organizations that produce and deliver them.

• Franchising- authorizing the delivery of certain services in designated geographical areas- is common in utilities and urban transport.

• Government withdrawing from the provision of certain goods and services leaving then wholly or partly to the private sector.

• Privatization of management, using leases and management contracts

• Liquidation, which can be either formal or informal. Formal liquidation involves the closure of an enterprise and the sale of its assets. Under informal liquidation, a firm retains its legal status even though some or all of its operations may be suspended.

BENEFITS

The benefits of privatization may be listed down as follows:

• It reduces the fiscal burden of the state by relieving it of the losses of the SOEs (State Owned Enterprises) and reducing the size of the bureaucracy.

• Privatization helps the state to trim the size of the administrative machinery.

• It enables the government to concentrate more on the essential state functions

• Privatization helps accelerate the pace of economic developments as it attracts more resources from the private sector for development.

• It may result in better management of the enterprises.

• Privatization may also encourage entrepreneurship.

• Privatization may increase the number of workers and common man who are shareholders. This could make the enterprises subject to more public vigilance.

CRITICISMS

Some of the important argument against privatization is as follows:

• The public sector has been developed with certain noble objectives and privatization means discarding them in one stroke.

• Privatization will encourage concentration of economic power to the common detriment.

• If privatization results in the substitution of the monopoly power of the public enterprises by the monopoly power of private enterprises it will be very dangerous.

• Privatization many a time results in the acquisition of national firms by foreign firms.

• Privatization of profitable enterprises, including potentially profitable, means foregoing future streams of income for the government.

• Privatization of strategic and vital sectors is against national interests.

• There are well managed and ill-managed firms both in the public and private sectors. It is not sector that matters, but the quality and commitment of the management.

• The capital markets of developing countries are not developed enough for efficiently carrying out privatization.

• Privatization in many instances is a half-hearted measure and therefore it is not properly carried out. As a result that the expected results may not be achieved.

• In many instance, there are vested interested behind privatization and it amounts deceiving the nation. In many countries privatization often has been a “garage sale” to favored individuals and groups.

CONDITIONS FOR SUCCESS

• Privatization cannot be sustained unless the political leadership is committed to it, and unless it reflects a shift in the preferences of the public arising out of dissatisfaction with the performance of other alternatives.

• Replacement of a government monopoly by a private monopoly may not increase public welfare-there must a multiplicity of private suppliers. Freedom of entry to provide goods and services.

• Public services to be provided by the private sector must be specific or have measurable outcome.

• Lack of specificity makes it more difficult to control services provided by the private sector. Service delivery by non-governmental organizational or local governments may be more appropriate under these conditions.

• Consumers should be able to link the benefits they receive from a service to the costs they pay for it, since they will then shop more wisely for difficult services.

• The importance of educating consumers and disseminating information to the public is necessary.

• Privately provided services should be less susceptible to fraud than government services if they are to be effective.

• Equity is an important consideration in the delivery of public services. Broadly speaking, the benefits of privatization can accrue to the capital owner to the consumer and to public at large.

GLOBALISATION

Globalization may be defined as “ the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology”. Globalization may be considered at two levels .Viz, at the macro level (i.e., globalization of the world economy) and at the micro level (i.e., globalization of the business and the firm). Globalization of the world economy is achieved, quite obviously, by globalising the national economies. Globalization of the economies and globalization of business are very much interdependent.

REASONS FOR GLOBALISATION

• The rapid shrinking of time and distance across the globe thanks to faster communication, speedier transportation, growing financial flows and rapid technological changes.

• The domestic markets are no longer adequate rich. It is necessary to search of international markets and to set up overseas production facilities.

• Companies may choose for going international to find political stability, which is relatively good in other countries.

• To get technology and managerial know-how.

• Companies often set up overseas plants to reduce high transportation costs.

• Some companies set up plants overseas so as to be close to their raw materials supply and to the markets for their finished products.

• Other developments also contribute to the increasing international of business.

• The US, Canada and Mexico have signed the North American Free Trade agreement (NAFTA), which will remove all barriers to trade among these countries.

• The creation of the World Trade Organization (WTO) is stimulating increased cross-border trade.

FEATURES

The following are the features of the current phase of globalization:

New markets

• Growing global markets in services – banking, insurance, transport.

• New financial markets – deregulated, globally linked, working around the clock, with action at a distance in real time, with new instruments such as derivatives.

• Deregulation of anti – trust laws and proliferation of mergers and acquisitions.

• Global consumer markets with global brands.

New actors

• Multinational corporations integrating their production and marketing, dominating food production

• The World Trade Organization – the first multilateral organization with authority to enforce national governments compliance with rule

• An international criminal court system in the making

• A booming international network of NGOs

• Regional blocs proliferating and gaining importance – European Union, Association of South- East Asian Nations, Mercosur, North American Free Trade Association, Southern African Development Community, among many others

• More policy coordination groups – G-7, G40, G22, G77, OECD

New rules and Norms

• Market economic policies spreading around the world, with greater privatization and liberalization than in earlier decades

• Widespread adoption of democracy as the choice of political regime

• Human rights conventions and instruments building up in both coverage and number of signatories – and growing awareness among people around the world

• Consensus goals and action agenda for development

• Conventions and agreements on the global environment – biodiversity, ozone layer, disposal of hazardous wastes, desertification, climate change

• Multilateral agreements in trade, taking on such new agendas as environmental and social conditions

• New multilateral agreements- for services, intellectual property, communications – more binding on national governments than any previous agreements

• The multilateral agreements on investment under debate

New Tools of communication

• Internet and electronic communications linking many people simultaneously

• Cellular phones

• Fax machines

• Faster and cheaper transport by air, rail and road

• Computer-aided design

STAGES OF GLOBALISATION

There are five different stages in the development of a firm into global corporations.

First stage

The first stage is the arm’s length service activity of essentially domestic company, which moves into new markets overseas by linking up with local dealers and distributors.

Second stage

In the stage two, the company takes over these activities on its own.

Third stage

In the next stage, the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.

Four stage

In the stage four, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering. This stage calls on the managers to replicate in a new environment the hardware, systems and operational approaches that have worked so well at home.

Fifth stage

In the fifth stage, the company moves toward a genuinely global mode of operation.

GLOBALISATION STRATEGIES

The various strategies of transiting a firm into global corporation are as follows:

Exporting

Exporting, the most traditional mode of entering the foreign market is quite a common one even now.

Licensing and Franchising

Under international licensing, a firm in one country (the licensor) permits a firm in another country (the licensee) to use its intellectual property (such as patents, trademarks, copyrights, technology, technical know-how, marketing skill or some other specific skill).

Franchising is “a form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner.

Contract manufacturing

A company doing international marketing, contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibilities of marketing the product.

Management contracting

In a management contract the supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. The arrangement is especially attractive if the contracting firm is given an option to purchase some shares in the managed company within a stated period.

Turnkey contracts

A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller. Turnkey contracts are common in international business in the supply, erection and commissioning of plants, as in the case of oil refineries, steel mills, cement and fertilizer plants etc.

Wholly Owned Manufacturing Facilities

Companies with long term and substantial interest in the foreign market normally establish fully owned manufacturing facilities there. This method demands sufficient financial and managerial resources on the part of the company.

Assembly operations

A manufacturer who wants many of the advantages that are associated with overseas manufacturing facilities and yet does not want to go that far may find it desirable to establish overseas assembly facilities in selected markets. The establishment of an assembly operation represents a cross between exporting and overseas manufacturing.

Joint Ventures

Any form of association, which implies collaboration for more than a transitory period is a joint venture. Types of joint overseas operations are:

Sharing of ownership and management in an enterprise

Licensing / franchising agreements

Contract manufacturing

Management contracts

Third country location

When there are no commercial transactions between two nations because of political reasons or when direct transactions between two nations are difficultdue to political reasons or the like, a firm in one of these nations which wants toenter the other market will have to operate from a third country base. For example, Taiwanese entrepreneurs found it easy to enter People’s Republic ofchina through bases in Hong Kong.

Mergers and acquisitions

Mergers and acquisitions (M & A) have been a very important market entry strategy as well as expansion strategy. A number of Indian companies have also used this entry strategy.

Strategic alliance

This strategy seeks to enhance the long-term competitive advantage of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with each other. Strategic alliance is also sometimes used as a market entry strategy. For example, a firm may enter a foreign market by forming an alliance with a firm in the foreign market.

Counter trade

Counter trade refers to a variety of unconventional international trade practices which link exchange of goods- directly or indirectly – in an attempt to dispense with currency transactions. Counter trade is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments.

BENEFITS

The important arguments in favour of globalisation are:

• Productivity grows more quickly when countries produce goods and services in which they have comparative advantage.

• Living standards can go up faster.

• Global competition and imports keep a lid on prices, so inflation is less likely to derail economic growth.

• An open economy spurs innovation with fresh ideas from abroad.

• Export jobs often pay more than other jobs.

• Unfettered capital flows give access to foreign investment and keep interest rates low.

DISADVANTAGES

Following are the cases against globalisation:

• Millions have lost jobs due to imports or production shifts abroad. Most find new jobs that pay less.

• Millions of others fear losing their jobs, especially at those companies operating under competitive pressure.

• Workers face pay cut demands from employers, which often threaten to export jobs.

• Services and white-collar jobs are increasingly vulnerable to operations moving offshore.

• Employees can lose their comparative advantage when companies build advanced factories in low-wage countries, making them as productive as those at home.

ESSENTIALS FOR GLOBALISATION

They are some essential conditions to be satisfied on the part of the domestic economy as well as the firm for successful globalization of the business.

• Business freedom

There should not be unnecessary government restrictions like import restriction, restrictions on sourcing finance or other factors from abroad, foreign investments etc. the economic liberalization is regarded as a first step towards facilitating globalization.

• Facilities

The extent to which an enterprise can develop globally from home country base depends on the facilities available like the infrastructural facilities.

• Government support

Government support may take the form of policy and procedural reforms, development of common facilities like infrastructural facilities, R & D support, financial market reforms and so on.

• Resources

Resourceful companies may find it easier to thrust ahead in the global market. Resources include finance, technology, R & D capabilities, managerial expertise, company and brand image, human resource etc.

• Competitiveness

A firm derives competitive advantage from any one or more of the factors such as low costs and price, product quality, product differentiation, technological superiority, after sales services, marketing strength etc.

• Orientation

A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization.

 WTO-GATTS

After World War II, several international measures were undertaken to liberalise trade and payments between nations. Plans for the creation of a liberal, multilateral system of world trade were started while the war was still in progress. Initiated for the most part by the United States, these plans envisaged a close economic cooperation among the nations in the fields of international trade, payments and investment. International Monetary Fund and International Bank for Reconstruction and Development (World Band) were set up. Similarly, International Trade Organisation (ITO) was sought to set up to deal with the international trade. In 1945, United States were called for convening of a United Nations conference for the purpose of negotiating the international trade charter and for the establishment of an international trade organisation. In December 1945, the US in consultation with UK and Canada prepared a detailed draft trade charter. The suggested Charter was discussed in London during October-November of 1946. There were two major tasks for this discussion. First, was the completion of the draft trade for submission to UN Conference on Trade and Development scheduled for December 1947 in Havana and second, a series of detailed negotiations among the principal countries of the preparatory committee to reduce tariffs and tariff preferences. The results took the form of a tariff schedule for each participating country. These tariff schedules together with those Articles of the Draft Charter that were required to protect the integrity of the trade concessions were combined in an instrument entitled the “General Agreement on Tariffs and Trade”-the GATT. All the participants of the preparatory committee signed the Final Act establishing GATT. GATT came into force in 1948 with a membership of 23 industrial countries. By the mid 1980s, its membership had enlarged 90 embracing as many as countries that accounted for over four-fifth of world trade. The ever-expanding group of contracting parties to the GATT, the number of countries joining GATT was 128 when WTO was created. Main activities of GATT may be summarized as: tariff bargaining, bargaining on non-tariff trade barriers, elimination of quantitative restrictions and settlement of disputes between contracting parties. GATT is based on four major provisions: (i) the rules of non-discrimination in trade relations between the contracting countries, (ii) commitment to observe negotiated tariff concessions, (iii) prohibitions against use of quantitative restrictions (quotas) on exports and imports, and (iv) special provisions to promote the trade of developing countries. The remaining provisions of GATT are concerned with exceptions to these general provisions, which include trade measures other than tariffs and quotas, and sundry procedural matters. Uruguay Round took seven and a half years, almost twice the original schedule. By the end, 125 countries were taking part. It covered almost all trade, from toothbrushes to pleasure boats, from banking to telecommunications, from the plants to AIDS treatments.

It was quite simply the largest trade negotiation ever, and most probably the largest negotiation of any kind in history. The seeds of the Uruguay Round were sown in November 1982 at a ministerial meeting of GATT members in Geneva. Although the Ministers intended to launch a major new negotiation, the conference was stalled on the issue of agriculture and was widely regarded as a failure. In fact, the work programme that the Ministers agreed; formed the basis for what was to become the Uruguay Round negotiating agenda. Nevertheless, it took four more years of exploring, clarifying issues and painstaking consensus building, before the Ministers agreed to launch the new round in September 1986, in Punta del Este, (Uruguay). They eventually accepted a negotiating agenda, which covered almost every outstanding trade policy issue. The talks were going to extend the trading system into several new areas, particularly, trade in services and intellectual property, and to reform the trade in the sensitive sectors of agriculture and textiles. Two years later, in December 1988, ministers met again in Montreal (Canada). The purpose was to clarify the agenda for the remaining two years, but the talks ended in a deadlock that was not resolved until officials met more quietly in Geneva the following April. Despite the difficulty, during the Montreal meeting, Ministers did agree a package of early results. These included some concessions on market access for tropical products aimed at assisting developing countries, as well as a streamlined, which provided for the first comprehensive, systematic and regular reviews of national trade policies and practices of GATT members. The round was supposed to end when Ministers met once more in Brussels, in December 1990. But they disagreed on how to reform agricultural trade and decided to extend the talks. Despite the poor political outlook, a considerable amount of technical work continued, leading to the first draft of a final legal agreement. The then GATT director general, Mr. Arthur Dunkel, who chaired the negotiations at officials’ level, compiled this draft “Final Act”. It was placed on the table in Geneva in December 1991. The text fulfilled every part of the Punta del Este mandate, with one exception (it did not contain the participating countries’ lists of commitments for cutting the import duties and opening their services markets). The draft became the basis for the final agreement. In November 1992, the EU and US settled most of their differences on agriculture in a deal known informally as the “Blair House accord”. By July 1993, the “Quad” (US, EU, Japan and Canada) announced significant progress in negotiations on tariffs and related subjects including market access. On 15 April 1994, the deal was signed by ministers from most of the 125 participating governments at a meeting in Marrakesh (Morocco). 

The last round-the Uruguay Round-created a legal institution-the World Trade Organization to replace the provisional GATT. The WTO is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by a majority of the world’s trading nations and ratified by their Parliaments. The goal is to help the producers of goods and services, the exporters, and the importers conduct their business smoothly.

FACT FILE AND FUNCTIONS OF WTO

Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Round negotiations (1986-94)

Membership: 148 countries (on 13 October 2004)

Budget: 169 million Swiss francs for 2005

Secretariat staff: 630

FUNCTIONS:

• Administering WTO trade agreements

• Forum for trade negotiations

• Handling trade disputes

• Monitoring national trade policies

• Technical assistance and training for developing countries

• Cooperation with other international organizations

The WTO’s main functions are to do with trade negotiations and the enforcement of negotiated multilateral trade rules (including dispute settlement). Special focus is given to four particular policies supporting these functions:

• Assisting developing and transition economies

• Specialized help for export promotion

• Cooperation in global economic policy-making

• Routine notifications when members introduce new trade measure or alter old ones.

ASSISTING DEVELOPING AND TRANSITION ECONOMIES

Developing countries make up about three quarters of the total WTO membership. Together with countries currently in the process of “transition” to market-based economies, they play an increasingly important role in the WTO. Therefore, much attention is paid to the special needs and problems of developing and transition economies. The WTO Secretariat’s Training and Technical Cooperation Institute organizes a number of programmes to explain how the system works and to help train government officials and negotiators. Some of the events are in Geneva, others are held in the countries concerned. A number of the programmes are organized jointly with other international organizations. Some take the form of training courses. In other cases individual assistance might be offered. The subjects can be anything from help in dealing with negotiations to join the WTO and implementing WTO commitments to guidance in participating effectively in multilateral negotiations. Developing countries, especially the least developed among them, is helped with trade and tariff data relating to their own export interests and to their participation in WTO bodies.

SPECIALIZED HELP FOR EXPORTING: THE INTERNATIONAL TRADE CENTRE

GATT established the International Trade Centre in 1964 at the request of the developing countries to help them promote their exports. It is jointly operated by the WTO and the United Nations, the latter acting through UNCTAD (the UN Conference on Trade and Development). The centre responds to requests from developing countries for assistance in formulating and implementing export promotion programmes as well as import operations and techniques. It provides information and advice on export markets and marketing techniques. It assists in establishing export promotion and marketing services, and in training personnel required for these services. The centre’s help is freely available to the least-developed countries.

THE WTO IN GLOBAL ECONOMIC POLICY-MAKING

An important aspect of the WTO’s mandate is to cooperate with the International Monetary Fund, the World Bank and other multilateral institutions to achieve greater coherence in global economic policy-making. A separate Ministerial Declaration was adopted at the Marrakesh Ministerial Meeting in April 1994 to underscore this objective. The declaration envisages an increased contribution by the WTO to achieving greater coherence in global economic policy-making. It recognizes that different aspects of economic policy are linked, and it calls on the WTO to develop its cooperation with the international organizations responsible for monetary and financial matters – the World Bank and the International Monetary Fund. The declaration also recognizes the contribution that trade liberalization makes to the growth and development of national economies. It says this is an increasingly important component in the success of the economic adjustment programmes, which many WTO members are undertaking, even though it may often involve significant social costs during the transition.

WTO STRUCTURE

All WTO members may participate in all councils, committees, etc, except Appellate

Body, Dispute Settlement panels, Textiles Monitoring Body, and plurilateral committee

MULTINATIONAL CORPORATIONS

The dynamics of the business environment fostered by the drastic political changes in the erstwhile communist and socialist countries and the economic liberalization across the world has enormously expanded the opportunities for the multinational corporations, also known by such names as international corporation, transnational corporation, global corporation (or firm, company or enterprise) etc. The rapidity with which the MNC’s are growing is indicated by the fact that while according to the World Investment Report 1997 there were about 45000 MNC’s with some 280000 affiliates. According to the World Investment Report 2001 there were over 63,000 of them with about 822,000 affiliates. Only less than 12 % of these affiliates were in the developed countries. China was host to about 3.64 lakh of the affiliates (i.e., more than 44% of the total) compared to more than 1400 in India. The MNC’s account for a significant share of the world’s industrial investment, production, employment and trade.

DEFINITION AND MEANING

“A corporation that controls production facilities in more than one country, such facilities having been acquired through the process of foreign direct investment. Firms that participate in international business, however large they may be, solely by exporting or by licensing technology are not multinational enterprises.” The various benchmarks sometimes used to define “ multi nationality” are that the company must:

• Produce (rather than just distribute) abroad as well as in the headquarters country

• Operate in a certain minimum number of nations (six for example)

• Derive some minimum percentage of its income from foreign operations (e.g., 25%)

• Have a certain minimum ratio of foreign to total number of employees, or of foreign total value of assets

• Possess a management team with geocentric orientations.

• Directly control foreign investments (as opposed simply to holding shares in foreign companies).

MERITS OF MNC

The important arguments in favor of the MNCs are mentioned below:

• MNCs help increase the Investment level and thereby the income and employment in host country.

• The transnational corporation has become vehicles for the transfer technology, especially to the developing countries.

• They also kindle a managerial revolution in the host countries through professional management and the employment of highly sophisticated management techniques.

• The MNCs enable the host countries to increase their exports and decrease their import requirements.

• They work to equalize the cost of factors of production around the world.

• MNCs provide an efficient means of integrating national economies.

• The enormous resources of the multinational enterprises enable them to have very efficient research and development systems. Thus, they make a commendable contribution to inventions and innovations.

• MNCs also stimulate domestic enterprise because to support their own operations, the MNCs may encourage and assist domestic suppliers.

• MNCs help increase competition and break monopolies.

DEMERITS OF MNC

The various cases against MNCs are:

• The MNCs technology is designed for worldwide profit maximization, not the development needs of poor countries.

• Through their power and flexibility, MNCs can evade or undermine national economic autonomy and control, and their activities may be unfavorable to the national interests

• MNCs may destroy competition and acquire monopoly powers.

• The tremendous power of the global corporations poses the risk that they may threaten the sovereignty of the nations in which they do business.

• MNCs retard growth of employment in the home country.

• The transnational corporations cause fast depletion of some of the nonrenewable natural resources in the host country. They have also been accused of the environmental problems.

• The transfer pricing enables MNCs to avoid taxes by manipulating priceson intra company transactions

• The MNCs undermine local culture and traditions; change the consumption habits for their benefits against the long-term interests of the local community.

PRESPECTIVE

Future holds out an enormous scope for the growth of MNCs. The changes in the economic environment in a large number of countries indicate this. A united Nation’s report described several developments that points to a rapidly changing context for economic growth, along with a growing role transnational corporations in that process. These include:

• Increasing emphasis on the market forces and a growing role for the private sector in nearly all developing countries.

• Rapidly changing technologies that are transforming the nature of organization and location of international production.

• The globalization of firms and industries.

• The rise of services to constitute the largest single sector in the world economy and

• Regional economic integration, which involve both the world’ largest economies as well as selected developing countries.

Some facts:

• TATA Motors sells its passenger – car Indica in the UK through a marketing alliance with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and China.

• INFOSYS has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30 marketing offices across the world and 26 global software development centers in the US, Canada, Australia, the UK and Japan.

• Ranbaxy is the ninth largest generics company in the world. An impressive 76 % of its revenues come from overseas.

• Dr.Reddy’s Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001

• Asian paints are among the 10 largest decorative paints makers in the world and has manufacturing facilities across 24 countries.

AGREEMENT ON SOUTH ASIAN FREE TRADE AREA (SAFTA)

The Governments of the SAARC (South Asian Association for Regional Cooperation) Member States comprising the People’s Republic of Bangladesh, the Kingdom of Bhutan, the Republic of India, the Republic of Maldives, the Kingdom of Nepal, the Islamic Republic of Pakistan and the Democratic Socialist Republic of Sri Lanka hereinafter referred to as “Contracting States” Motivated by the commitment to strengthen intra-SAARC economic cooperation to maximise the realization of the region’s potential for trade and development for the benefit of their people, in a spirit of mutual accommodation, with full respect for the principles of sovereign equality, independence and territorial integrity of all States; Noting that the Agreement on SAARC Preferential Trading Arrangement (SAPTA) signed in Dhaka on the llth of April 1993 provides for the adoption of various instruments of trade liberalization on a preferential basis; Convinced that preferential trading arrangements among SAARC Member States will act as a stimulus to the strengthening of national and SAARC economic resilience, and the development of the national economies of the Contracting States by expanding investment and production opportunities, trade, and foreign exchange earnings as well as the development of economic and technological cooperation; Aware that a number of regions are entering into such arrangements to enhance trade through the free movement of goods; Recognizing that Least Developed Countries in the region need to be accorded special and differential treatment commensurate with their development needs; and Recognizing that it is necessary to progress beyond a Preferential Trading Arrangement to move towards higher levels of trade and economic cooperation in the region by removing barriers to cross-border flow of goods; Have agreed as follows:

Definitions; For the purposes of this Agreement:

I. Concessions mean tariff, para-tariff and non-tariff concessions agreed under the Trade Liberalisation Programme;

2. Direct Trade Measures mean measures conducive to promoting mutual trade of Contracting States such as long and medium-term contracts containing import and supply commitments in respect of specific products, buy-back arrangements, state trading operations, and government and public procurement;

3. Least Developed Contracting State refers to a Contracting State which is designated as.’ Least Developed Country” by the United Nations;

 4. Margin of Preference means percentage of tariff by which tariffs are reduced on products imported from one Contracting State to another as a result of preferential treatment.

5. Non-Tariff Measures include any measure, regulation, or practice, other than .’tariffs” and “para- tariffs”.

6. Para-Tariffs mean border charges and fees, other than “tariffs”, on foreign trade transactions of a tariff-Iike effect which are levied solely on imports, but not those indirect taxes and charges, which are levied in the same manner on like domestic products. Import charges corresponding to specific services rendered are not considered as para-tariff measures;

7. Products mean all products including manufactures and commodities in their raw, semiprocessed and processed forms;

8. SAPTA means Agreement on SAARC Preferential Trading Arrangement signed in Dhaka on the 11th of April 1993;

9. Serious injury means a significant impairment of the domestic industry of like or directly competitive products due to a surge in preferential imports causing substantial losses in terms of earnings, production or employment unsustainable in the short term;

10. Tariffs mean customs duties included in the national tariff schedules of the Contracting States;

11. Threat of serious injury means a situation in which a substantial increase of preferential imports is of a nature to cause “serious injury” to domestic producers, and that such injury, although not yet existing, is clearly imminent. A determination of threat of serious injury shall be based on facts and not on mere allegation, conjecture, or remote or hypothetical possibility.

Objectives and Principles

1. The Objectives of this Agreement are to promote and enhance mutual trade and economic cooperation among Contracting States by, inter-alia:

a) eliminating barriers to trade in, and facilitating the cross-border movement of goods between the territories of the Contracting States;

 b) promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development;

c) creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and

d) establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement.

2. SAFTA shall be governed in accordance with the following principles:

a) SAFTA will be governed by the provisions of this Agreement and also by the rules, regulations, decisions, understandings and protocols to be agreed upon within its framework by the Contracting States;

b) The Contracting States affirm their existing rights and obligations with respect to each other under Marrakesh Agreement Establishing the World Trade Organization and other Treaties/Agreements to which such Contracting States are signatories;

c) SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems; d) SAFTA shall involve the free movement of goods, between countries through, inter alia, the elimination of tariffs, para tariffs and non-tariff restrictions on the movement of goods, and any other equivalent measures;

 e) SAFTA shall entail adoption of trade facilitation and other measures, and the progressive harmonization of legislations by the Contracting States in the relevant areas; and

 f) The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis.

Instruments The SAFTA Agreement will be implemented through the following instruments:-

1. Trade Liberalisation Programme

 2. Rules of Origin

3. Institutional Arrangements

4. Consultations and Dispute Settlement Procedures

5. Safeguard Measures 6. Any other instrument that may be agreed upon.

Components SAFTA may, inter-alia, consist of arrangements relating to:

a) tariffs;

b) para-tariffs;

c) non-tariff measures;

d) direct trade measures.

Trade Liberalisation Programme

1. Contracting States agree to the following schedule of tariff reductions:

a) The tariff reduction by the Non-Least Developed Contracting States from existing tariff rates to 20% shall be done within a time frame of 2 years, from the date of coming into force of the Agreement. Contracting States are encouraged to adopt reductions in equal annual installments. If actual tariff rates after the coming into force of the Agreement are below 20%, there shall be an annual reduction on a Margin of Preference basis of 10% on actual tariff rates for each of the two years.

b) The tariff reduction by the Least Developed Contracting States from existing tariff rates will be to 30% within the time frame of 2 years from the date of coming into force of the Agreement. If actual tariff rates oIl the date of coming into force of the Agreement are below 30%, there will be an annual reduction on a Margin of Preference basis of 5 % on actual tariff rates for each of the two years.

c) The subsequent tariff reduction by Non-Least Developed Contracting States from 20% or below to 0-5% shall be done within a second time frame of 5 years, beginning from the third year from the date of coming into force of the Agreement. However, the period of subsequent tariff reduction by Sri Lanka shall be six years. Contracting States are encouraged to adopt reductions in equal annual installments, but not less than 15% annually.

d) The subsequent tariff reduction by the Least Developed Contracting States from 30% or below to 0-5% shall be done within a second time frame of 8 years beginning from the third year from the date of coming into force of the Agreement. The Least Developed Contracting States are encouraged to adopt reductions in equal annual installments, not less than 10% annually.

2. The above schedules of tariff reductions will not prevent Contracting States from immediately reducing their tariffs to 0-5% or from following an accelerated schedule of tariff reduction.

3. a) Contracting States may not apply the Trade Liberalisation Programme as in paragraph I above, to the tariff lines included in the Sensitive Lists which shall be negotiated by the Contracting States (for LDCs and Non-LDCs) and incorporated in this Agreement as an integral part. The number of products in the Sensitive Lists shall be subject to maximum ceiling to be mutually agreed among the Contracting States with flexibility to Least Developed Contracting States to seek derogation in respect of the products of their export interest; and

b) The Sensitive List shall be reviewed after every four years or earlier as may be decided by SAFTA Ministerial Council (SMC), established under Article 10, with a view to reducing the number of items in the Sensitive List.

 4. The Contracting States shall notify the SAARC Secretariat all non-tariff and para-tariff measures to their trade on an annual basis. The notified measures shall be reviewed by the Committee of Experts, established under Article 10, in its regular meetings to examine their compatibility with relevant WTO provisions. The Committee of Experts shall recommend the elimination or implementation of the measure in the least trade restrictive manner in order to facilitate intra- SAARC trade.

5. Contracting Parties shall eliminate all quantitative restrictions, except otherwise permitted under GA1T 1994, in respect of products included in the Trade Liberalisation Programme.

6. Notwithstanding the provisions contained in paragraph I of this Article, the Non-Least Developed Contracting States shall reduce their tariff to 0-5% for the products of Least Developed Contracting States within a timeframe of three years beginning from the date of coming into force of the Agreement.

BIMSTEC

Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) comprising Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, Thailand brings together 1.5 billion people – 21% of the world population, and a combined GDP of over US$ 2.5 trillion.

EVOLUTION OF BIMSTEC

BIST-EC (Bangladesh, India, Sri Lanka, Thailand – Economic Cooperation) was formed at a meeting in Jun 1997 in Bangkok. Myanmar was admitted in Dec 1997 and the organization was renamed as

 BIMST-EC. The grouping expanded when Nepal and Bhutan were admitted in Feb 2004. The grouping’s name was changed to

BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) at 1st Summit Meeting held in Bangkok in Jul 2004.

FUNCTIONING OF BIMSTEC

BIMSTEC organizes inter-governmental interactions through Summits, Ministerial Meetings, Senior Officials Meetings and Expert Group Meetings and through BIMSTEC Working Group (BWG) based in Bangkok. There have been two BIMSTEC Summit meetings (Bangkok Jul 2004, New Delhi Nov 2008), and 13 Foreign Ministerial meetings (13th MM held in Nay Pyi Taw in Jan 2011) and 15 SOMs so far. Myanmar is hosting the 3rd BIMSTEC Summit, 14th Ministerial Meeting, 16th SOM and 2nd Preparatory meetings from 1-4 March, 2014 in Nay Pyi Taw. BIMSTEC Chairmanship rotates among member countries (alphabetically). Myanmar is Chair of the Group since Dec 2009 and took over from previous chair India (Aug 2006-Dec 2009). Nepal has agreed to Chair after 3rd Summit.

BIMSTEC Permanent Secretariat

The BIMSTEC Permanent Secretariat is to be established in Dhaka with first SG to be nominated by Sri Lanka. India would be contributing 32% of the cost of Secretariat reflecting its strong commitment to BIMSTEC process.

AREAS OF COOPERATION

 BIMSTEC has identified 14 priority areas where a member country takes lead. India is lead country for Transport & Communication, Tourism, Environment & Disaster Management and Counter Terrorism & Transnational Crime.

Transport and Communications (India)

 BIMSTEC Transport Infrastructure and Logistics Study (BTILS) conducted by ADB in 2007 was endorsed in 12th Ministerial Meeting (Dec 2009). The Report was finalised in Dec 2013. ADB organised Inception Workshop on BTILS updating and 1st meeting of Expert Group on Road Development in Yangon in Jun 2013.

Tourism (India)

 A BIMSTEC Information Centre has been established in Jul 2007 in New Delhi. Ministry of Tourism organized a meeting on BIMSTEC Information Centre and contribution to Tourism Fund (1st JWG on Tourism) in Sep 2013 in New Delhi. 1st Round Table and Workshop of Tourism Ministers was held in Kolkata in Feb 2005; Nepal held 2nd Meeting in Kathmandu in Aug 2006; Bangladesh will host next meeting.

Counter-Terrorism and Transnational Crime (CTTC) 

BIMSTEC cooperation under CTTC has been divided into 4 sub-groups with lead shepherds – Intelligence Sharing (Sri Lanka); Combating Financing of Terrorism (Thailand), Legal and Law Enforcement Issues (India) and Prevention of Illicit Trafficking in Narcotics Drugs, Psychotropic Substances and Precursors (Myanmar).

 L&T Division of MEA hosted 5th Sub-group on Legal & Law enforcement

issues in Jan 2013 in New Delhi where draft Convention on Mutual Legal Assistance in Criminal Matters was finalised. Members signed ‘BIMSTEC Convention on Combating International Terrorism, Transnational Organized Crime and Illicit Drug Trafficking’ in Dec 2009; India has ratified it.

Environment and Disaster Management

 Ministry of Earth Sciences in association with MEA conducted a Workshop on “Seasonal Prediction and Application to Society” in June 2011. India is establishing BIMSTEC Weather and Climate Centre at National Weather Forecasting Centre at NOIDA. The MOA for establishment of the Centre was finalized at 10th Ministerial meeting in New Delhi in Aug 2008 and is expected to be signed during 3rd Summit.

 Trade & Investment (Bangladesh)

A Framework Agreement for BIMSTEC Free Trade Area was signed in Phuket, Thailand in Feb 2004. The Framework Agreement commits the parties to negotiate FTAs in goods, services and investments. An agreement on Trade in Goods and other provisions relating to Rules of Origin, Operational Certification Procedures and agreement on Customs Cooperation was finalised in Jun 2009 at 18th Trade Negotiating Committee (TNC) meeting in Phuket. 19th TNC was held in Bangkok in Feb 2011.India has exchanged its tariff preference schedules with member countries.

The 6th meeting of BIMSTEC Business and Economic Forum were held in Feb 2011 in Bangkok. India hosted a Business Summit meeting in Nov 2008 in association with CII, FICCI, and ASSOCHAM. India hosts an annual Integrating BIMSTEC Seminar held in the North East (Shillong 2013, Imphal 2014). To facilitate business travel among BIMSTEC member countries, three meetings of the Expert Group have been held on BIMSTEC Visa Scheme.

Cultural Cooperation (Bhutan)

 Members are expected to sign MoU on establishment of BIMSTEC Cultural Industries Commission (BCIC) and BIMSTEC Cultural Industries Observatory (BCIO), Bhutan during 3rd Summit. India hosted the 1st Expert Group Meeting BCIC&O in 2006 in New Delhi. The first BIMSTEC Ministerial meeting on Culture was held in Paro, Bhutan in May 2006.

Energy (Myanmar)

 Thailand hosted BIMSTEC Regional Workshop and Study Visit on Bio-Fuels Production and Utilization in Jun 2012 in Bangkok. Ministry of Power hosted 4thmeeting of Task Force on Power Exchange in Jan 2013 in New Delhi which discussed the draft text of MOU on Grid Interconnection. Meeting of Energy Ministers took place in Oct 2005 in New Delhi and in March 4- 5, 2010 in Bangkok, Thailand.

 India also hosted Task Force Meeting in Feb 2011

in Bengaluru and SOM in Feb 2011 in New Delhi on operationalisation of BIMSTEC Energy Centre (MOA signed during 13th MM). A land for the Centre has been allocated in premises of Central Power Research Institute, Bengaluru. Agriculture (Myanmar)

Sri Lanka hosted the 3rd meeting on Agriculture

 in Kandy in Nov 2010. Earlier, at the 2nd Expert Group Meeting held in New Delhi in Apr 2008, nine priority areas (along with lead countries), were finalised; India will lead in Prevention and control of transboundary animal diseases (India); Affiliation of Universities/Research Institutions (India); Development of agricultural biotechnology including bio-safety (India); Development of Seeds (India).

 Poverty Alleviation (Nepal)

Nepal hosted the 2nd Ministerial Meeting in Jan 2012 in Kathmandu where Plan of Poverty Alleviation was adopted.

Technology (Sri Lanka)

 Sri Lanka hosted the 3rd meeting on May 9-10, 2011 in Colombo on establishment of BIMSTEC Technology Transfer Exchange Facility. The meeting discussed the draft Concept Paper.

Fisheries (Thailand)

Thailand organized a training programme on Advance Aquatic Plants Tissue Culture in Aug 2013 in Bangkok.

Public Health (Thailand)

 Deptt. Of AYUSH in association with MEA hosted two Workshops on IPR issues and Regulatory issues in Traditional Medicines in October 2011 in New Delhi. Since 2005, India has granted 30 slots of AYUSH scholarships to study in India in the fields of traditional medicine in undergraduate, post-graduate and doctorate programs.  

Thailand hosted 2nd meeting of Network of National centres of Coordination in Traditional Medicine in Aug 2010 in Nonthaburi; Institute of PG Teaching and Research in Ayurveda (IPGTRA), Jamnagar is the Indian nominee.

People-to-People Contact (Thailand)

At India offers 1440 (Civilian), 274 (Defence) and 18 slots in NDC & DSSC under ITEC programme to BIMSTEC countries and the utilisation is almost 1200. India has set up BIMSTEC Network of Think Tanks with RIS as nodal agency. RIS hosted a twoday meeting of think tanks on 12-13 Feb, 2010. Climate

Change (Bangladesh)

 Bangladesh will be circulating a concept paper on cooperation in this area soon.

The North American Free Trade Agreement (NAFTA)

entered into force on January 1, 1994. The agreement was signed by President George H. W. Bush on December 17, 1992, and approved by Congress on November 20, 1993. The NAFTA Implementation Act was signed into law by President William J. Clinton on December 8, 1993 (P.L. 103-182). The overall economic impact of NAFTA is difficult to measure since trade and investment trends are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations. The agreement likely accelerated and also locked in trade liberalization that was already taking place in Mexico, but many of these changes may have taken place without an agreement. Nevertheless, NAFTA is significant, because it was the most comprehensive free trade agreement (FTA) negotiated at the time and contained several groundbreaking provisions. A legacy of the agreement is that it has served as a template or model for the new generation of FTAs that the United States later negotiated, and it also served as a template for certain provisions in multilateral trade negotiations as part of the Uruguay Round. The 115 th Congress faces numerous issues related to NAFTA and international trade. On May 18, 2017, the Trump Administration sent a 90-day notification to Congress of its intent to begin talks with Canada and Mexico to renegotiate NAFTA, as required by the 2015 Trade Promotion Authority (TPA). The administration also began consulting with Members of Congress on the scope of the negotiations. Alternatively President Trump, at times, has threatened to withdraw from the agreement without satisfactory results. Congress may wish to consider the ramifications of renegotiating or withdrawing from NAFTA and how it may affect the U.S. economy and foreign relations with Mexico and Canada. It may also wish to examine the congressional role in a possible renegotiation, as well as the negotiating positions of Canada and Mexico. Mexico has stated that, if NAFTA is reopened, it may seek to broaden negotiations to include security, counter-narcotics, and transmigration issues. Mexico has also indicated that it may choose to withdraw from the agreement if the negotiations are not favorable to the country. Congress may also wish to address issues related to the U.S. withdrawal from the proposed Trans-Pacific Partnership (TPP) free trade agreement among the United States, Canada, Mexico, and 9 other countries. Some observers contend that the withdrawal from TPP could damage U.S. competitiveness and economic leadership in the region, while others see the withdrawal as a way to prevent lower cost imports and potential job losses. Key provisions in TPP may also be addressed in “modernizing” or renegotiating NAFTA, a more than two decade-old FTA. NAFTA was controversial when first proposed, mostly because it was the first FTA involving two wealthy, developed countries and a developing country. The political debate surrounding the agreement was divisive with proponents arguing that the agreement would help generate thousands of jobs and reduce income disparity in the region, while opponents warned that the agreement would cause huge job losses in the United States as companies moved production to Mexico to lower costs. In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of U.S. GDP. However, there were worker and firm adjustment costs as the three countries adjusted to more open trade and investment.

The rising number of bilateral and regional trade agreements throughout the world and the rising presence of China in Latin America could have implications for U.S. trade policy with its NAFTA partners. Some proponents of open and rules-based trade contend that maintaining NAFTA or deepening economic relations with Canada and Mexico will help promote a common trade Congressional Research Service agenda with shared values and generate economic growth. Some opponents argue that the agreement has caused worker displacement, and renegotiation could cause further job losses.

Goals of NAFTA

NAFTA was created to eliminate barriers to trade and investment between the US, Canada and Mexico. The implementation of NAFTA immediately eliminated tariffs on more than one-half of Mexico’s exports to the US and more than one-third of US. exports to Mexico. Within 10 years of implementation, all US-Mexico tariffs would be eliminated except for some US agricultural exports that were to be phased out within 15 years. NAFTA also seeks to eliminate non-tariff trade barriers and to protect the intellectual property right of the products.

In the area of intellectual property, the North American Free Trade Agreement Implementation Act made changes to the copyright law of the US, foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright (within NAFTA) on certain motion pictures which had entered the public domain.

Trade

The agreement opened the door for free trade, ending tariffs on various goods and services, and implementing equality between Canada, the US and Mexico. Since the implementation of NAFTA, the countries involved have been able to do the following:

• The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latest data available).
• Foreign direct investment of Canada and Mexico in the US (stock) was $237.2 billion in 2009, up 16.5% from 2008.
• To alleviate concerns that NAFTA would have negative environmental impacts, in 1994 the Commission for Environmental Cooperation (CEC) was given a mandate to conduct ongoing ex-post environmental assessment of NAFTA.
• Agriculture is the only section that requires three separate agreements between each pair of parties. The Canada–US agreement contains significant restrictions and tariff quotas on agricultural products, whereas the Mexico–US pact allows for a wider liberalization within a framework of phase-out periods.
• Mexico has gone from a minor player in the pre-1994 US export market to the 2^ndlargest importer of U.S. agricultural products.
• According to the Department of Homeland Security Yearbook of Immigration Statistics (2006), 73,880 foreign professionals were admitted into the US for temporary employment under NAFTA.

Objectives

1.   The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency are to:

(a) eliminate barriers to trade in, and facilitate the  cross border movement of, goods and services between the territories of the Parties;

(b) promote conditions of fair competition in the free  trade area;

(c) increase substantially investment opportunities in  their territories;

(d) provide adequate and effective protection and enforcement of intellectual property rights in each

 Party’s territory;

(e) create effective procedures for the implementation and  application of this Agreement, and for its joint administration and the resolution of disputes; and

(f) establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.

2.   The Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law.

ASEAN an INTRODUCTION: BACKGROUND AND RATIONALE

 ASEAN is committed to build a Community by 2015. To realise this goal, a community of enhanced connectivity is essential because a well connected ASEAN, from its transportation networks to its peoples, will contribute towards a more competitive and resilient ASEAN as it will bring peoples, goods, services and capital closer together in accordance with the ASEAN Charter. This will ensure continued peace and prosperity for its peoples. This Master Plan on ASEAN Connectivity is a key step towards realising this vision.

2. The development of this Master Plan drew impetus from the 15th ASEAN Summit in Cha-am Hua Hin, Thailand on 24 October 2009, where ASEAN Leaders adopted a Statement on ASEAN Connectivity. At the 16th ASEAN Summit in Ha Noi, Viet Nam on 8-9 April 2010, the Leaders emphasised the need to identify specific measures in the Master Plan on ASEAN Connectivity, with clear targets and timelines as well as the need to develop viable infrastructure financing mechanisms for the implementation of the Master Plan.

3. Enhancing intra-regional connectivity within ASEAN and its sub-regional groupings would benefit all ASEAN Member States through enhanced trade, investment, tourism and development. As all of the overland transport linkages will have to go through the mainland Southeast Asian countries of Cambodia, Lao PDR, Viet Nam and Myanmar, these countries stand to benefit the most through infrastructure development, and the opening up of remote inland and less-developed regions. All these efforts would significantly narrow the development gap within ASEAN.

 4. In addition to the tangible economic benefits of ASEAN Connectivity, the linkages created would intensify and strengthen ASEAN Community building efforts, not only in terms of enhanced regional cooperation and integration, but also through people-to-people contacts. In this regard, the concept of ASEAN Connectivity would also complement the ongoing regional efforts to realise a people-oriented ASEAN Community by 2015 with a focus on fostering a sense of shared cultural and historical linkages.

5. While recognising the tangible benefits of closer connectivity, the problems caused by transnational crime, illegal immigration, environmental degradation and pollution, and other cross-border challenges should be addressed properly. As we advance ASEAN Connectivity, the need to address climate change and its consequences should also be taken into account.

 6. The Master Plan should encompass various aspects of economic and social development to achieve a broad-based and inclusive outcome in line with the Millennium Development Goals (MDGs). In this context, the Connectivity initiative should contribute towards promoting local economic and social development in the region.

Objectives

 To achieve the goals, the Master Plan sets out the following objectives for an enhanced ASEAN Connectivity:

(i) To consolidate existing work plans related to connectivity and prioritise and enhance actions, taking into account related existing sub-regional cooperation frameworks; Physical Connectivity (ii) To develop an integrated and well-functioning intermodal transport, ICT and energy networks in ASEAN and the wider region; Institutional Connectivity

(iii) To put in place strategies, agreements, and legal and institutional mechanisms to effectively realise the ASEAN Connectivity, including those to facilitate trade in goods and services, and the appropriate types of investment policies and legal frameworks to ensure that the investments are protected to attract the private sector investments; People-to-People Connectivity

 (iv) To develop initiatives that promote and invest in education and life-long learning, support human resource development, encourage innovation and entrepreneurship, promote ASEAN cultural exchanges, and promote tourism and the development of related industries; Operationalisation of ASEAN Connectivity

(v) To establish the principles of funding, recommend appropriate funding mechanisms and provide an estimate of the required funding to develop and/or enhance the linkages identified in the Master Plan;

(vi) To forge win-win partnerships among the public sector, the private sector, ASEAN peoples and the international community;

(vii) To enhance the role of private sector and local communities in the implementation of the ASEAN Connectivity initiatives;

(viii) To draw up specific timetables for realising the goals of ASEAN Connectivity which will complement the work being undertaken to realise the ASEAN Community by 2015 as well as take into account the different levels of development of ASEAN Member States; and (ix) To prepare capacity building cooperation arrangements in ASEAN such as the Initiative for ASEAN Integration (IAI) and other appropriate regional institutes in narrowing the development gap within the region, and in 9 complementing ongoing regional efforts to realise a people-oriented ASEAN Community by 2015.

Conclusions

1. The vision of ASEAN Leaders to build an ASEAN Community by 2015 calls for a well-connected ASEAN that will contribute towards a more competitive and resilient ASEAN, as it will bring peoples, goods, services and capital closer together. An enhanced ASEAN Connectivity is essential to achieve the ASEAN Community, namely the ASEAN Political-Security Community, ASEAN Economic Community and ASEAN Socio-Cultural Community. 2. In light of rapid developments in the region and the world resulting from globalisation, ASEAN must continue to strive to maintain its centrality and proactive role by being the driving force in the evolving regional architecture. To do so, ASEAN needs to accelerate its integration and Community building efforts while intensifying relations with external partners.

3. As a key step towards realising the ASEAN Community of continued economic growth, reduced development gap and improved connectivity among Member States and between Member States and the rest of the world by enhancing regional and national physical, institutional and people-to-people linkages, ASEAN has developed this Master Plan on ASEAN Connectivity.

4. Under the Master Plan, ASEAN has reviewed the achievements made and the challenges encountered or that are impeding each of these linkages. Key strategies and essential actions have been adopted with clear targets and timelines to address these challenges to further enhance ASEAN Connectivity in realising the ASEAN Community by 2015 and beyond.

 5. The Master Plan is both a strategic document for achieving overall ASEAN Connectivity and a plan of action for immediate implementation for the period 2011-2015 to connect ASEAN through enhanced physical infrastructure development (physical connectivity), effective institutions, mechanisms and processes (institutional connectivity) and empowered people (people-to-people connectivity). The three-pronged strategy will be supported by the required financial sources and coordinated institutional mechanisms. The Master Plan also ensures the synchronisation of ongoing sectoral strategies and plans within the frameworks of ASEAN and its sub-regions. Through an enhanced ASEAN Connectivity, the production and distribution networks in the ASEAN region will be deepened, widened, and become more entrenched in the East Asia and global economy.

6. For the Physical Connectivity, the challenges that need to be addressed in the region include poor quality of roads and incomplete road networks, missing railway links, inadequate maritime and port infrastructure including dry port, inland waterways and aviation facilities, widening of digital divide, and growing demand for power. This calls for the upgrading of existing infrastructure, the construction of new infrastructure and logistics facilities, the harmonisation of regulatory framework, and the nurturing of innovation culture. Seven strategies have been drawn up with the view to establish an integrated and seamless regional connectivity through multimodal transport system, enhanced Information and Communications Technology (ICT) infrastructure and a regional energy security framework.

7. With regard to Institutional Connectivity, ASEAN needs to resolve a number of key issues including impediments to movements of vehicles, goods, services and skilled labour ii across borders. To achieve this, ASEAN must continue to address non-tariff barriers to facilitate intra-ASEAN trade and investment, harmonise standards and conformity assessment procedures, and operationalise key transport facilitation agreements, including ASEAN Framework Agreement on the Facilitation of Goods in Transit (AFAFGIT), ASEAN Framework Agreement on the Facilitation of Inter-State Transport (AFAFIST), and ASEAN Framework Agreement on Multimodal Transport (AFAMT), to reduce the costs of moving goods across borders. In addition, ASEAN Member States must fully implement their respective National Single Windows towards realising the ASEAN Single Window by 2015 to bring about seamless flow of goods at, between and behind national borders. An ASEAN Single Aviation Market and an ASEAN Single Shipping Market must be pursued in order to contribute towards the realisation of a single market and production base. Essentially, ASEAN should further open up progressively to investments from within and beyond the region. Here, ten strategies have been adopted to ease the flow of goods, services and investment in the region.

8. Whereas for People-to-People Connectivity, two strategies have been formulated to promote deeper intra-ASEAN social and cultural interaction and understanding through community building efforts and, greater intra-ASEAN people mobility through progressive relaxation of visa requirements and development of mutual recognition arrangements (MRAs) to provide the needed impetus for concerted efforts in promoting awareness, collaboration, exchange, outreach and advocacy programmes to facilitate the ongoing efforts to increase greater interactions between the peoples of ASEAN.

9. While recognising the tangible benefits of closer connectivity, the problems caused by transnational crime, illegal immigration, environmental degradation and pollution, and other cross-border challenges should be addressed properly.

10. The Master Plan also identified prioritised projects from the list of key actions stipulated under the various strategies mentioned above, especially those, which implementation will have high and immediate impact on ASEAN Connectivity. These include:

(i) Completion of the ASEAN Highway Network (AHN) missing links and upgrade of Transit Transport Routes (TTRs);

 (ii) Completion of the Singapore Kunming Rail Link (SKRL) missing links;

 (iii) Establish an ASEAN Broadband Corridor (ABC);

(iv) Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia);

(v) West Kalimantan-Sarawak Interconnection (BIMP-EAGA: Indonesia);

(vi) Study on the Roll-on/roll-off (RoRo) network and short-sea shipping;

(vii) Developing and operationalising mutual recognition arrangements (MRAs) for prioritised and selected industries;

(viii) Establishing common rules for standards and conformity assessment procedures;

(ix) Operationalise all National Single Windows (NSWs) by 2012;

(x) Options for a framework/modality towards the phased reduction and elimination of scheduled investment restrictions/impediments;

(xi) Operationalisation of the ASEAN Agreements on transport facilitation;

(xii) Easing visa requirements for ASEAN nationals; (xiii) Development of ASEAN Virtual Learning Resources Centres (AVLRC);

(xiv) Develop ICT skill standards; and

(xv) ASEAN Community building programme.

11. Critical to the Master Plan is the mobilisation of required financial resources and technical assistance to implement the key actions and prioritised projects stipulated under the adopted strategies. Recognising the scarcity of available resources, ASEAN will be exploring and tapping on new sources and innovative approaches, which include, among others, the possible establishment of an ASEAN fund for infrastructure development, public-private sector partnerships (PPP), and development of local and regional financial and capital markets, particularly to finance the key deliverables identified to be achieved by 2015. ASEAN will further strengthen partnership with external partners, including Dialogue Partners, multilateral development banks, international organisations and others for effective and efficient implementation of the Master Plan.

12. To implement the Master Plan, relevant ASEAN sectoral bodies will coordinate the implementation of the strategies and actions under their respective purview while the National Coordinators and the relevant government agencies are responsible for overseeing the implementation of specific plans or projects at the national level.

13. An ASEAN Connectivity Coordinating Committee will be established comprising Permanent Representatives to ASEAN or special representatives appointed by the ASEAN Member States. The Committee will report regularly to the ASEAN Coordinating Council, ASEAN Political-Security Community Council, ASEAN Economic Community Council and the ASEAN Socio-Cultural Community Council on the progress of and challenges faced in the implementation of the Master Plan. Partnership arrangements and regular consultations with the private sector, industry associations and the wider community at the regional and national levels will also be actively sought to ensure the participation of all stakeholders in developing and enhancing the ASEAN Connectivity.

14. To monitor and evaluate achievements and constraints, a scorecard mechanism will be set up to effectively review, on a regular basis, the status of the Master Plan implementation and the impact of enhanced ASEAN Connectivity, and especially to ensure that all the list of priority measures and actions undertaken are responsive to the needs and priorities of ASEAN.

15. To ensure cohesiveness and close collaboration among stakeholders or constituents, a communications strategy, aimed at achieving the objectives of ASEAN Connectivity, is envisaged for outreach and advocacy purposes.

16. The desired outcomes emanating from the Master Plan would be to facilitate the deepening and widening of the production and distribution networks in ASEAN. Equally important, enhanced ASEAN Connectivity narrows development gaps in ASEAN and leads to increased opportunities for greater investment, trade, growth and employment in these areas. Finally, deeper intra-regional economic linkages and people-to-people interactions within ASEAN will contribute towards the achievement of an ASEAN Community by 2015, and which will reinforce the centrality of ASEAN in regional cooperation and integration.

PROTECTIONISM

The devices or methods which are used to restrict inflow of imports and increase exports are called protectionism. It is a debatable issue because some economists believe there should be free trade for best utilization of resources and other group thinks trade barriers are essential for the survival of certain economies.

The case for free trade is based on the analysis of trade theories i.e; absolute advantage theory and comparative advantage theory. Free trade allows the maximization of world production, thus making it possible for each consumer in the world to consume more goods then he or she could without free trade. As there more goods and service can be produced country’s GDP rises. This leads to rise in per capita income. On the side there is availability to consume more goods and services, therefore living standard can be improved. Besides comparative advantage free trade increases competition which rises efficiencies.

Free trade also expands market of a product which raises level of employment in the economy. Although some argue that rise is at the cost of employment opportunities in other countries. Other advantages may be in terms of economies of large scale, learning by doing, wider choice etc. The case for protectionism Non economic advantages of diversification Comparative advantage might dictate that a country specializes and should produce a narrow range of products. The might decide, that there are distinct social advantage in encouraging a more diverse economy. Citizens should be given wide range of occupation, and social and psychological advantage of diversification would more than compensate for reduction in living standard.

Risk of specialization If a country specializing in the production of few goods, it might face problems in the long run. One such risk is that technological changes may render its major products obsolete. This is why government encourage a more diversified economy should by protecting industries which otherwise cannot compete.

To alter the terms of trade Trade restrictions can be used to turn the terms of trade in favour of countries that produce and export a large fraction of world’s supply of some products. They can also be used to turn the terms of trade in favour of countries that constitute a large fraction of the world demand for some product that they import. To protect against ‘unfair’ actions by foreign firms and governments Tariff may be used to prevent foreign industries from gaining an advantage over domestic industries by use of predatory practices that will harm domestic industries. Two common practices are subsidies paid by foreign governments to their exporters and price discrimination which is called dumping when it is done across international borders. These practices are typically countered by levying tariffs called countervailing and anti-dumping duties. To protect infant and sunset industries This is the oldest valid argument for protectionism. In the beginning newly born industries produce on the small scale therefore cost will be high.

A trade restriction may protect these industries from foreign competition while they grow up. When they are large enough, they will be able to produce as cheaply as foreign rivals and thus will be able to compete without protection. Similarly there are many dwindling industries which play important role to maintain employment but cannot compete with foreign firms. Therefore government also protect such industries with the intention to protect employment.

To protect employment This is another important reason for protectionism. This reason is generally related with the developing economies where infant industries or small industries cannot compete with the large scale foreign industries and close down which create unemployment. To maintain the given level of employment government opt the policies of protectionism. To improve balance of payments A prolonged and large deficit in balance of payments is not desirable for any economy. It has large repercussions. For instance, government needs to pay out the deficit from foreign reserves or borrow from other financial institutions which increase national debts. If foreign reserves are drained out it will damage the credibility of the state for repayments and in case of national debts state may charge more taxes which are disincentive to work and produce and may raise cost of living in an economy. Retaliation Sometimes countries levy tariffs and quotas because rival country has already imposed trade restriction. There may or may not be any economic reason but just the retaliation. Methods of protection Tariff It is a type of policy that directly raises the prices of imported goods. It is often called as import duties. It is of two types, specific and advalorem. Specific tariff is per unit tariff, for example, $5 per unit, whereas advalorem tariff levies on the value of the product, for example, 5% of the price of the product. Tariffs not only restrict imports but are also main source of revenue for the state. Usually government levies high tax rates on imports of luxury goods and make large revenues.

Limitations of Tariff Tariff policy is effective if demand for imports is price elastic; if it is inelastic then there is no considerable change in imports and difficult to get desirable outcomes. However, government is able to generate large revenue. Secondly, sometimes domestic goods remain less competitive even tariff is added to prices of imported goods if importers absorb the tariff and do not increase their prices. In some cases even tariff amount is not that mush satisfactory to make imports less competitive. Thirdly, other economies may retaliate and they also levy tariffs on exports of the given economy, so there is possibility in reduction of exports. Lastly, if tariff is levied on imports of raw material or oil, it increases cost of production and which leads to cost push inflation. Import Quotas It is a non tariff barrier and do not raise revenue for the government. It is a physical restriction on the import of a product. It is relatively more restricted form of trade barriers as compare to tariff. In case of tariff any quantity one can import after paying custom duties but in quotas only the predefined quantity can be imported in the specified period of time. For example if government allows to import 100 cars in a year then importers cannot import even on additional car .