WTO and International Regulatory Environment-1

Section A

Q1. Fair trade and free trade must combine to present ‘globalization with a human face.’ Discuss this statement with reference to the special and differential clause in WTO agreements.

Q2. ‘Non Discrimination’ is an important principle in the working of WTO. List the important areas when this principle is implemented with examples.

Q3. MFN is an important WTO concept. What is the main derogation of the MFN principle?

Discuss with examples.

Q4. (a) What are main stages in a typical dispute settlement process at WTO? Please list and describe briefly.

(b) Give the event breakdown of a major dispute settlement case at WTO, for example, India’s case on QRs or India’s case on IPRs.

Q5. Write short notes on following

(a) Bound rate of tariffs

(b) Applied rate of tariffs

(c) Autonomous liberalization

Section B

Q1. Regional trade Agreements (RTA) have emerged as the main instrument if trade promotion in today’s world after the failure of the Doha process. What are the advantages of RTAs compared to MTAs (Multiateral trade agreements)? Does India stand to gain from MTAs?

Q2. Environment is a hot topic in the world i.e. WTO has taken this subject on board as one of the key points in negotiations during the Doha Round. Has environment become a ground for protectionism? Discuss with reference to the US tuna dolphin case.

Q3. China’s accession to WTO was the major event at the Doha Ministerial at the turn of the century. What were the major gains of China following accession? What were the significant concessions and special measures signed by China as conditions to its entry into WTO?

Case Study

Electrolux is Sweden’s largest manufacturer of electrical household appliances and was one of the world’s pioneers in the marketing of vacuum cleaners. However, not all the products the Electrolux name are controlled by the Swedish firm. Electrolux vacuum cleaner sold and manufacturer in the United States, for example, have not been connected with the Swedish Firm since the U.S subsidiaries were sold in the 1960s. The Swedish Firm reentered the U.S. market in 1974 by purchasing National Union Electric, which manufacturers Eureka vacuum cleaners.

Electrolux pursued its early international expansion largely to gain economies of scale through additional sales. The Swedish market was simply too small to absorb fixed costs as much as the home markets for competitive firms from larger countries. When additional sales were not possible by exporting, Electrolux was still able to gain certain scale economies through the establishment of foreign production. Research and development expenditures and certain administrative costs could thus be spread out over the additional sales made possible by foreign operations. Additionally, Electrolux concentrated on standardized production to achieve further scale economies and rationalization of parts.

Until the late 1960s, Electrolux concentrated primarily on vacuum cleaners and the building of its own facilities in order to effect expansion. Throughout the 1970s, though, the firm expanded largely by acquiring existing firms whose product lines differed from those of Electrolux. The compelling force was to add appliances lines to complement those developed internally. Its recent profits ($220 million in 1983) have enabled Electrolux to go an acquisitions binge. Electrolux acquired two Swedish firms that made home appliances and washing machines. Electrolux management felt that it could use its existing foreign sales networks to increase the sales of those firms in 1973, Electrolux acquired another Swedish firm, Facit, which already had extensive foreign sales and facilities. Vacuum cleaner producers were acquired in the United States and in France; and to gain captive sales for vacuum cleaner. Electrolux acquired commercial cleaning service firms in Sweden and in the United States. A French Kitchen equipment producer, Arthur Martin, was bought, as was a Swiss home appliance firm. Therma, and a U.S. cooking equipment manufacturer, Tappan.

Except the Facit purchase, the above acquisitions all involved firms that produced complementary lines that would enable the new parent to gain certain scale economies, However, not all the products of acquired firms were related, and Electrolux sought to sell off unrelated businesses. In 1978 for example, a Swedish firm, Husgvarna, was bought because of its kitchen equipment lines. Electrolux was able to sell Husqvarna’s motorcycle line but could not get a good price for the chain saw facility. Reconciled to being in the chain saw business. Electrolux then acquired chain saw manufacturers in Canada and Norway, thus becoming one of the world’s largest chain saw producers. The above are merely the most significant. Electrolux acquisitions: the firm made approximately fifty acquisitions in the 1970s.

In 1980, Electrolux announced a takeover that was very different from those of the 1970s. It offered $175 million, the biggest Electrolux acquisition, for Granges Sweden’s leading metal producer and fabrication Granges was itself a multinational firm (1979 sales of $ 1.2 billion) and made about 50 percent of its sales outside of Sweden. The managing Directors of the two firms indicated that the major advantage of the takeover would be the integration of Granges aluminum, copper plastic, and other materials into Electrolux production of appliances. Many analysts felt that the timing of Electrolux’s bid was based on indications that Baijerinvest, a large Swedish conglomerate, wished to acquire a non–ferrous matels mining company. Other analysis felt that Elctrolux would be better off to continue international horizontal expansion as it had in the 1970s. The analysts pointed to large appliance makers such as AEG Telefunken of West Germany that were likely candidates for takeover because of recent poor performance.

Case Study Question for Amity Assignments:

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1. What are Electrlox’s reasons for direct investment?

2. How has Electrolux’s strategy changed over time? How has this affected its direct investment activities?

3. What do you see as the main advantages and possible problems of expanding internationally primarily through acquisitions as opposed to building one’s own facilities?

4. Should Electrolux take over Granges?

Section C

Multiple-Choice Questions for Amity Assignments

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1. Which of the following are not third-world regions?
a. Latin America.
b. Asia.
c. Africa.
d. Australia.

2. Which of the following countries are not newly industrialized countries (NICs)?
a. Taiwan.
b. North Korea.
c. Singapore.
d. Hong Kong.

3. Which country is not a transitional economy
a. China.
b. Russia.
c. Hungary.
d. Mexico.

4. Development economics focuses primarily on the poorest ___________ of the world’s a. population.
b. two-thirds.
c. one-third.
d. 28 percent.
e. 5 percent.

5. The poorest region of the world is
a. the Middle East.
b. sub-Saharan Africa.
c. Asia.
d. Latin America.

6. Of the world’s population, what portion lives in developing countries?
a. approximately 35%.
b. approximately 80%.
c. nearly 10 billion people.
d. less than 1 billion people.

7. In which of the following countries would you expect material lifestyles to be most like those in the United States?
a. Nigeria.
b. Japan.
c. India.
d. Mali.

8. Compared to the income of the family of Balayya discussed in the text, the Smiths’ family income was roughly
a. twice as large.
b. 10 to 12 times as large.
c. 200 times larger.
d. -three-fourths as large.

9. Which of the following could be considered critical questions in development economics?
a. How do the poorest 2/3 of the world live?
b. What are the major theories of economic development?
c. What factors affect labor skills in the third world?
d. all of the above are correct.

10. Which of the following characteristics are most likely found in developing countries?
a. high population growth rates.
b. large number of people living in poverty.
c. very traditional methods of agricultural production.
d. all of the above
e. none of the above

11. Which of the following could not be considered a major economic system?
a. capitalism.
b. communism.
c. socialism.
d. physical quality of life index.
e. none of the above.

12. One classification of development levels used by the World Bank divides countries into three group on the basis of GNP per capita. They are
a. NIC, OPEC and G7
b. Low-income, middle-income and high-income
c. Southeast, Northeast and Southwest
d. Asia, America and Europe

13. The World Bank’s GNP per capita classification for low-income, middle-income and high income countries respectively is
a. less than $900, $900-$9,000 and more than $9,000.
b. less than $5,000, $5,000-$15,000 and more than $15,000.
c. less than $100, $100-$1,000 and more than $1000.
d. less than $50,000, $50,000-$150,000 and more than $150 000.

14. OPEC is the
a. Organization of Petroleum Exporting Country.
b. Organization of Pre- European Commission.
c. Oil Producing Economies Caucus.
d. Organization of Problematic Economies Committee

15. The Paasche index uses _______________ weights.
a. current-year
b. base-year
c. fisher ideal index
d. Purchasing Power Parity (PPP)

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16. Which of the following is not a problem in comparing developed and developing countries’ GNP?
a. GNP is understated for developed countries, since a number of items included in their national incomes are intermediate goods
b. The economic contribution of a housewife in a peasant family may not be measured in GNP in poor country.
c. GNP is understated for developing countries since many of their labor-intensive good have no impact on exchange rate since they are not traded.
d. GNP is overstated for countries where the price of foreign exchange is less than market clearing price.

17. The University of Pennsylvania researchers Summers and Heston compute the price level of GDP as the ratio of purchasing power parity (PPP) exchange rate to the actual exchange rate where
a. both exchange rates are measured as the domestic currency price of the US-dollar.
b. both exchange rates are not converted into international dollars.
c. both exchange rates are pegged.
d. both exchange rate are converted into Big Mac PPP formula.

18. PPP is
a. a theory that tells us that exchange rates between currencies are in equilibrium when their purchasing power is the same in both countries.
b. GDP divided by exchange rate.
c. a measure of income inequality.
d. a measure of infant mortality in developing countries.

19. The Physical Quality of Life Index (PQLI) combines three indicators. They are
a. infant mortality, life expectancy and adult literacy rate.
b. crime rate, clean environment and quality of housing.
c. air pollution rate, water pollution rate and sanitation.
d. health, education and environment.

20. Which of the following is not one of the Newly Industrialized Countries (NICs)?
a. Japan
b. South Korea
c. Taiwan
d. Singapore

21. According to the text, basic needs include
a. food, clothing and housing.
b. health, education and quality housing.
c. adequate nutrition, primary education, health, sanitation, water supply and housing.
d. longevity and living standards.

22. Which of the following statement is not true about LDCs?
a. Most LDCs have less than 1/10 the per capita GNP of the U.S.
b. A greater share of GNP would have to be devoted to education to attain the same primary enrollment rates as in the U.S.
c. Setting up western labor standard and minimum wages in labor-abundant LDCs is sensible.
d. Most LDCs have a greater shortage of qualified teachers than the U.S. does.

23. Imitating labor standards from rich countries in LDCs may increase
a. equality.
b. poverty.
c. employment.
d. human development.

24. Which of the following did Mahatma Gandhi, non-violent politician and leader of India’s nationalist movement, not advocate?
a. village economic development.
b. handicraft production and labor-intensive technology.
c. centralized decision making.
d. reduction of material wants.

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25. Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States are
a. G-7 countries.
b. countries with highest productivity growth in the world since 1960.
c. countries with decreasing TFP growth since 1990s.
d. countries with the lowest information technology equipment and software index prices.

26. Which of the following is not TRUE?
a. In 1990, the world had 98 mainline phones and 2 mobile phones per 1,000 people; in 2001, 169 mainline and 153 mobile per 1,000.
b. Mobile phones do not require the massive infrastructure investment that mainline telephones require.
c. In 2001, the world information technology expenditures were about 1/20 of 1% of world gross investment.
d. In 2001, internet users per 1,000 people in middle income countries were greater than high income countries.

27. Dani Rodrik points out that
a. an economy more open to foreign trade and investment faces a more inelastic demand for unskilled workers.
b. employers and consumers can more readily replace domestic workers with foreign workers by investing abroad or buying imports.
c. globalization increases job insecurity.
d. financial liberalization in LDCs leads to collapse of the economy.

28. Which of the following statement is NOT true about OECD aid?
a. During the 1980s, OECD countries contributed four-fifths of the world’s bilateral official development assistance to LDCs.
b. In the early 1990s, the OECD contributed 98 percent of all aid.
c. The OECD aid increased from $6.9 billion in 1970 to $8.9 billion in 2001.
d. In 2001, only Denmark, Norway, Sweden, the Netherlands, and Luxembourg exceeded the aid target for LDCs.

29. Japan’s aid programs
I are understaffed, politically muddled, and administratively complex.
II are biased toward Asia.
III go primarily to least developed countries in Africa.
IV focus on loans and the grant element of aid is low.
a. I, II and III.
b. I, II and IV.
c. II, III and IV.
d. I, II, III and IV.

30. Aid or official development assistance (ODA) includes
I development grants.
II loans with at least 25 percent grant element.
III military assistance.
IV technical cooperation.
a. I and II only.
b. I, II and III only.
c. I, II and IV only.
d. I, II, III and IV only.

31 I = S + F
The equation above states that a country can increase its new capital formation (or investment) through its
a. own domestic savings and by inflows of capital from abroad.
b. stock market and fiscal policy.
c. savings from abroad and financial outflow.
d. savings and financial liberalization.

32. MNCs can help the developing country to
I Finance a savings gap or balance of payments deficit.
II Obtain foreign technology and innovative methods of increasing productivity.
III Generate appropriate technology by adapting existing processes.
IV Employ domestic labor, especially in skilled jobs.
a. I and II only
b. III and IV only
c. I, II and III only
d. I, II, III and IV

33. The balance on current account
I equals the absolute value of the balance on capital account.
II is financed by savings.
III is net grants minus remittances.
IV includes goods, services, and unilateral transfers.
a. I and II only.
b. II and III only.
c. I and IV only.
d. None of the above.

34. Bilateral aid
a. is technical aid given by IMF.
b. is given directly by one country to another.
c. is aid with repayment in inconvertible currency.
d. is a loan at bankers’ standards.

35. International trade and specialization are determined by
a. absolute advantage.
b. comparative advantage.
c. absolute costs.
d. production possibility frontier.

36. India has a comparative cost advantage in
a. textiles.
b. steel.
c. both of them
d. none of them

37. Japan has comparative cost in
a. steel.
b. textiles.
c. both of them.
d. cannot be determined.

38. Factor proportions theory is also known as the
a. comparative advantage theory.
b. laissez-faire theorem.
c. Heckscher-Ohlin theorem.
d. product cycle model.
39. The product cycle model indicates that while a product requires _______labor in the beginning, later as markets grow and techniques become common knowledge, a good becomes standardized, so that less-sophisticated countries can mass produce the item with ________labor.
a. abundant, less.
b. less skilled, highly skilled.
c. a lot of , no.
d. highly skilled, less skilled.

40. The infant industry arguments refers to a tariff designed to
a. help foreign industries establish themselves in the local market.
b. protect young manufacturing products from foreign competition.
c. help consumers enjoy a variety of products in the local market.
d. provide incentives for established local manufacturing firms to venture in foreign markets.

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