GITAM University B.Tech V Sem IOE010: International Business Study

This document is a comprehensive study material for an Introduction to International Business course, likely for a B.Tech program at GITAM University. It covers key concepts such as globalization, international business environment, and the definition and scope of international business. The material traces the historical evolution of international business, highlighting the impact of industrial revolutions, trade barriers, and international organizations like the IMF, World Bank, and WTO. It delves into the factors influencing international business, including profit maximization, production capacity expansion, competition, technology, market share, economic development, tariffs, living standards, and socio-economic welfare. The study material also explores the benefits of international business, such as wider markets, economies of scale, and cultural transformation. It defines globalization, discusses its components (globalization of markets and products), and touches upon the debate of whether globalization is a boon or a bane. The document provides a detailed overview of the subject matter, making it a valuable resource for students.

GITAM
(Deemed to be university)
B. Tech: Computer Science and Engineering
Semester: V
OPEN ELECTIVE
COURSE CODE: IOE010
COURSE TITLE: INTRODUCTION TO INTERNATIONAL BUSINESS
STUDY MATERIAL
Dr.P.GIRIBABU
UNIT-I
GLOBALIZATION AND INTERNATIONAL BUSINESS ENVIRONMENT
DEFINITION AND SCOPE OF INTERNATIONAL BUSINESS
Introduction
The origin of international business goes back to human civilization. Historically periods of
greater openness to trade have been characterized by stronger but lopsided global growth.
The concept of international business - a broader concept relating to the integration of
economies societies, dates back to the 19th century. The first phase of globalization began
around 1870 and ended with the world war1 (1919) driven by the industrial revolution in UK,
Germany and the USA. The import of raw materials by colonial empires from their colonies
and exporting finished good to their overseas possessions was the main reason for the sharp
increase in the trade during this phase. The ratio of trade to GDP was as high as 22.1 in
1913. Later various governments initiated and imposed a number of barriers to trade to
protect their domestic production that led to decline in the ratio of trade to GDP to 9.1 during
the 1930’s.The international trade between two world wars has been described as “vast game
of beggar-my-neighbour” Advanced countries experienced a severe setback consequent upon
the imposition of trade barriers as they produced in excess of domestic demand and a decline
in the volume of international trade. Added to this, the breakdown of the gold standard
resulted in vacuum in the field of international trade. Then the world nations felt the need for
international cooperation in global trade and balance of payment affairs. These efforts
resulted in the establishment of the International Monetary fund (IMF) and the International
Bank for Reconstruction and development (IBRD -popularly known as the World Bank).
The prolonged recession before the World War 2 in the west, led to an International
consensus after the World War 2 that a different approach towards international trade was
required. Consequently, 23 countries conducted negotiations in 1947 in order to prevent the
protectionist’s policies and to revive the economies from recession aiming at the
establishment of the international trade organization. This attempt of the advanced countries
ended with the General Agreement of Trade and Tariffs (GATT) that provided a framework
for a series of ‘round’ of negotiations by which tariffs were reduced. Efforts to convert the
General Agreement on trade and Tariffs (GATT) into World Trade Organization (WTO)
were intensified during 1980’s and ultimately GATT was replaced by the WTO on 1 st
January.1995, envisaging trade liberalization. The efforts of IMF, World Bank and WTO

along with the efforts of individual countries due to economic limitations of the closed
economies led to globalization of business. Globalization gave fill up to international
business particularly during 1990’s.
Definition and Meaning:-International business is the process of focusing on the resources
of the globe and objectives of the organization on global business opportunities and threats,
in order to produce, buy, sell or exchange of goods/services worldwide.
Nature and Scope of International Business
We have discussed the characteristic feature off international business and the precautions
that the multinational companies should take while operating in foreign countries. Now, we
study the factors affecting international business.
A. To achieve higher rates of profits: As we have discussed in various courses/subjects like
principles and practice of management, managerial Economics and Financial Management
that the basic objective of the business firms is to earn profits. When the domestic markets do
not promise a higher rate of profits, business firms search for foreign markets that hold
promise for the higher rates of profits. Thus, the objective of profit affects and motivates the
business to expand its operation to foreign countries. For example, Hewlett Packard in US
earned 86.2 % of its profits from the foreign markets compared to that of domestic markets in
2007. Apple earned US$ 730 million as net profit from the foreign markets and only US $620
million as net profit from its domestic markets in 2007.
B. Expanding the production capacities beyond the demand of the domestic country:
Some of the domestic companies expanded their production capacities more than the demand
for the product in the domestic countries. These companies, in such case, are forced to sell
their excess production in foreign developing countries. Toyota of Japan is an example.
C. Severe competition in the home country: The countries oriented towards market
economies since 1960s experienced severe competition from other business firms in the home
countries. The weak companies which could not meet the competition of the strong
companies in the domestic country started entering the market of developing countries.
D. Availability of technology and competent human resources: Availability of advanced
Technology and competent human resources in some countries act as pulling factors for
business firms from the home country. The developed countries due to these reasons attract
companies from the developing world. In fact, American and European companies, in recent
years, depended on Indian companies for software products and services through their
business process outsourcing.
E. To increase market share: Some of the large-scale business forms would like to enhance
their market share in the global market by expanding and intensifying their operations in
various foreign countries. Companies that expand internally tend to be ‘oligopolistic’.
Smaller companies expand internationally for survival while the larger companies expand to
increase the market share. For example, Ball Corporation, the third largest beverage cans
manufacture in the USA, bought the European packaging operation of continental can
company. Then it expanded its operations to Europe and met the Europe demand which is
200% more than that of the USA. Thus, it increased its global market share of soft drink cans.
F. To achieve higher rate of economic development: International business helps the
governments to achieve higher growth rate of economy, increase the total and per capita
GDP, industrial growth, employment and income levels.

G. Tariffs and import Quotas: It is quite common before the globalization that the
governments imposed tariffs or duty on imports to protect the domestic company. Sometimes
government also fixes import quotas in order to reduce the competition to the domestic
companies from the competent foreign companies. These practices are prevalent not only in
developing countries but also in advanced countries.
H. High living standards: Comparative cost theory indicates that the companies which have
the advantage of raw materials , human resources , natural resources and climatic conditions
in producing particular goods can produce the products at low cost and also of high quality.
Customers in various countries can buy more products with same amount of money. In turn,
it can also enhance the living standards of the people through enhanced purchasing power and
by consuming high quality products.
I. Increased socio-economic Welfare: International business enhances consumption level,
and economic welfare of the people of the trading countries. For example, the people of
China are now enjoying a variety of products of various countries than before as China has
been actively involved in international business like Coca-Cola, McDonald’s range of
products, electronic products of Japan and coffee from Brazil. Thus, the Chinese
consumption levels and socio-economic welfare are enhanced.
J. Wider Market: International business widens the market and increases the market size.
Therefore, the companies need not depend on the demand for the products in a single country
or customer’s tastes and preferences of a single country. Due to that enhanced market the Air
France, now, mostly depends on the demand for air travel of the customers from countries
other than France. This is true in case of most of the MNCs like Toyota, Honda, Xerox and
Coca-Cola.
K. Large-scale economies: multinational companies due to the wider and larger markets
produce large quantities, which provide the benefit of large scale economies like reduced cost
of the production, availability of expertise, quality etc.
L. Provides the opportunity For and challenge to domestic business: International
business firms provides the opportunities to the domestic companies. These opportunities
include technology, management expertise, market intelligence, product developments etc.
For example, Japanese firms operating in the US provide these opportunities to the US
companies. This is more evident in the case of the developing countries like India, African
countries and Asian countries.
M. Economic growth of the world: Specialization, division of labour, enhancement of
productivity, posing challenges, development to meet them, innovations and creations to meet
the competition lead to overall economic growth of the world nations. International business
particularly helped the Asian countries Like Japan, Taiwan, Korea, Philippines, Singapore,
Malaysia, and the United Arab emirates.
N .Optimum and proper utilization of world resources:
International business provides for the flow of raw materials, natural resources and human
resources from the countries where they are in excess supply to those countries which are in
short supply or need most. For example, flow of human resources from India, consumer
goods from UK, France, Italy and Germany to developing countries. This, in turn, helps in
the optimum and proper utilization of world resources.

O. Cultural transformation:
International business benefits are not purely economic or commercial; they are even social
and cultural. These days, we observe that the west is slowly tending towards the east and vice
versa. It does mean that the good cultural factors and values of the east are acquired by the
west and vice versa. Thus, there is close cultural transformation and integration.
GLOBALIZATION
Globalization involves removing restrictions on foreign trade and foreign investment so as to
leverage the benefits of comparative advantage in terms of capital, technology and skilled
labour. International business as a separate subject is also gaining importance day by day as
trade between nations is taking place at a very fast pace. Even small scale industries have
started to look for foreign markets. Apart from this, with the relaxation in the exchange
control regulations by many countries, capital flows, both foreign direct investment and
foreign portfolio investment, are common as compared to yesteryears. Exchange rates also
play a vital role in the transactions.
Globalization of the economy means integrating the economy with the global economy. This
involves dismantling of high tariff walls, i.e., reduction of import duties, thereby facilitating
the transition from a protected economy to an open economy, removal of non – tariff
restrictions on trade such as exchange control, import licensing, quotas, allowing Foreign
Direct Investment (FDI) and Foreign Portfolio Investment (FPI), permitting companies to
raise capital abroad, and encouraging domestic companies to grow beyond national
boundaries. In the process of globalization, national economies are integrated in several
fundamental ways – through trade, finance, production, and a growing web of global treaties
and institutions. Both foreign investment and international trade volume have grown rapidly
over the last few years.
Globalization refers to the shift towards a more integrated and independent world economy. It
has two main components – the globalization of markets and the globalization of products.
The former refers to the fact that in many industries historically distinct and separate national
markets are merging into one huge global marketplace. It has been argued that the tastes and
preferences of customers in different nations are converging on some global norm, thereby
helping to create a global market. By offering a standardized product worldwide, companies
are helping to create a global market. Very few significant differences in consumer tastes and
preferences among national markets still remain in many industries. Particularly, for a
number of consumer products, these differences frequently require that marketing strategies
and product features be customized to local conditions. The globalization of products refers
to the tendency among many firms to source goods and services from different locations
around the globe in an effort to take advantage of national differences in the cost and quality
of the factors of production.
GLOBALIZATION: BOON OR BANE?
Is the shift toward a more integrated and independent global economy a good sign? Many
influential economists, politicians, and business leaders seem to think so. They argue that
falling barriers to international trade and investment are the twin engines driving the global
economy toward greater prosperity. They contend that increased international trade and

investment will result in lower prices for goods and services. They believe that globalization
stimulates economic growth, raises the incomes of consumers and helps create jobs in all
countries that choose to participate in the global trading system. There are a few good reasons
to believe that declining barriers to international trade and investment do simulate economic
growth, create jobs and raise income levels. Considerable empirical evidence lends support to
the predictions of this theory. However, despite the existence of a wide band of supporters,
the process of globalization has its fierce critics.
The phenomenon of globalization may be traced to innovations taking place at a
revolutionary pace in all facets of technology and in all fields, including ‘communication’
and ‘transportation’. Innovations in basic and applied technology generate new products and
processes, either for an already existing or identified application or for an altogether new
application. Innovations in communication technology catalyze the process of spreading the
information and knowledge about product and process innovations taking place in different
parts of the world. Innovations in the area of transportation make the new product or process
available to all those interested in the same, irrespective of their geographical locations. A
combination of all these innovations is the global challenge for business today.
The globalization drive, it is assumed, would help the country achieve higher levels of
efficiency, international competitiveness and industrial growth. In its most general sense,
globalization refers to a process that ensures unfettered cross-national flows of capital,
technology and commodities. The rationale of globalization attempts in a developing country
rests on the view that it contributes to foreign exchange reserves, supplements domestic
savings and is associated with substantial technology diffusion and stimulation of
competition.
Even though many aspects of globalization- capital flows, labor standards, environmental
problems, etc. have captured world-wide attention, the driving force behind the global
integration has been liberalization of trade in goods and services. The trade liberalization and
industrial production can be analyzed as follows: First, when tariffs are lowered, relative
prices change and resources are reallocated to production activities that raise industrial
output. Second, larger long-run benefits accrue as economies adjust to technological
innovation, new production structures and changing patterns of competition. With the
establishment of World Trade Organization (WTO) on 1st January 1995, and its ongoing
attempts to promote free trade, exports and imports have become most dynamic factors in the
process of industrialization of the developing countries.
Imports have become a necessity in the process of industrialization in the developing
countries. The programmes of industrialization make a heavy demand for capital goods,
equipment, machinery and raw materials, which have to be imported from advanced
industrialized countries. Hence, a positive relationship can exist between imports and
industrial production. Exports play dual role in a developing country like India. First, exports
are related to income through foreign trade multiplier. Second, foreign exchange earnings
obtained from exports facilitate expansion of imports.

DIFFERENCES BETWEEN DOMESTIC BUSINESS AND INTERNATIONAL
BUSINESS:
Basically, domestic business and international business operate on similar lines. But therewas
are certain differences between these two businesses. The significant differences between
these two emerge from foreign exchange, quotas, tariffs regulations of a number of
governments, wide variations in culture and the like.
S.No Domestic business International business
1. Approach: Domestic business’s
approach is ethnocentric. It does mean
that domestic companies formulate
strategies, product design etc. towards the
national markets, customers and
competitors.
International business approach can be
Can be polycentric or Regio centric or
geocentric. International business under
polycentric approach and enters foreign
markets by establishing foreign
subsidiaries. Under the Regio centric,
they export the product to the neighboring
countries of the host country. Under the
geocentric approach they treat the entire
world as a single market for the
production, marketing, investment and
drawing various inputs.
2. Geographic scope: Domestic business
geo graphic scope is within the national
boundaries of domestic country
Geographic scope of the international
business varies from the national
boundaries of a minimum of two
countries up to a maximum of the entire
globe.
3. Operating Style: Domestic business
operating style including production,
marketing, investment, R&D etc. is
limited to the domestic country.
Operating style of international business
can be spread to the entire globe.
4. Environment: Domestic business mostly
analyses and scans the domestic
environment.
International business analyses and scans
the relevant International environment.
5. Quotas: The quotas imposed by various
countries on the exports and imports not
directly and significantly influence
domestic business.
The International business has to operate
with the quotas imposed by various
countries on their imports and exports.
6. Tariffs: The tariff rates of various
countries do not directly and significantly
affect the domestic business.
The tariffs rates of various countries
directly and significantly influence the
international business.

7. Foreign exchange rates: Foreign
exchange rates and their fluctuations do
not directly and significantly affect the
domestic business.
Foreign exchange rates and their
fluctuations directly and significantly
affect the international business.
8. Culture: Mostly, domestic culture of the
country affects the business operations
including product design.
Mostly, culture of various countries
affects the business operations including
product design of international business.
9. Export-import procedures: Domestic
business is not normally influenced by
the export -import procedures of the
country.
International business is significantly
influenced by export-import procedures
of various countries. They need to follow
those procedures.
10. Human Resources: Domestic business
normally employs the people from the
same country. Therefore, the task of
human resources management is not
much complicated.
International business normally employs
the people from various countries.
Therefore, the task of human resources
management is much complicated.
11. Markets and customers: Domestic
companies meet the needs of the
domestic markets and customers. As
such, it would be appropriate for them to
understand the domestic markets and
customers.
International business should understand
markets and customers of various
countries.
INTERNATIONAL TRADE THEORIES
1. MERCANTILISM:
Mercantilism is the oldest international trade theory that formed the foundation of the
economic thought during about 1500 to 1800. According to this theory, the holdings of the
country’s treasure primarily in the form of gold constituted its wealth. This theory specifies
that countries should export more than they import and receive the value trade surplus in the
form of gold form those countries which experience trade deficits.
2. ADAM SMITH: “THEORY OF ABSOLUTE COST ADVANTAGE”-
Adam Smith, the Scottish economist view that the mercantilism weakens a country. He
advocated free trade among countries to increase a country’s wealth. Free trade enables a
country to provide a variety goods and services to its people by specializing in production of
some goods and services and importing others. Which goods should a country produce and
which goods it should import? Adam Smith proposed a theory to answer this question.
Adam Smith proposed Absolute cost advantage of theory of international trade (1776)
based on the principle of division of labour. According to him application of this principle to

international scenario helps the countries to specialize in production of those goods in which
they have cost advantage over other countries.
According to Adam Smith, every country should specialize in producing those products
which it can produce at less cost than that of other countries and exchange these products
with their products produced cheaply by other countries. Trade between two countries takes
place when one country produces one product at less cost than that of another country and the
other country has an absolute cost advantage over the first country in producing in other
product.
A. skilled labour and specialization advantage:
Countries have absolute cost advantage due to the following reasons.
1. Suitability of the skill of the labour of the country in producing certain products.
2. Specialization of labour in producing certain products leads to higher productivity and
less labour cost per unit of output.
3. Economies of scale would reduce the labour cost per unit of output.
B. Natural advantage: In addition to the skilled labour and specialization advantage,
countries do also have natural advantage in producing certain products due to climatic
conditions access to certain natural resources, etc. For example, Indian climate suits the
production of sweets, mangoes, coconuts, cotton and cashew nuts. Sri Lankan climate suits
the production of tea, rubber, etc. The USA climate supports the production of wheat.
Countries with a natural advantage produce specific products at low cost. Indian soil and
tropical climate in southern India are suitable for growing cashew nuts in India. As such,
India’s cashew nuts exports accounted for 65% (US $208 million) of the global cashew
exports. The skill of Indian labour helped the country to process the cashew skilfully and
produce higher grade cashew and compete with Mozambique, Indonesia and south East
Asian countries. Indian farmers use fewer fertilizers than those of Brazil, which gives Indian
nuts a better flavour and consequently better price in the global market. But the cashew yield
in Brazil is nearly three times higher than that of India. Vietnam has been growing as a close
competitor to Indian by processing the nuts of its own and also to India by processing the
nuts of its own and also from the neighbouring countries. Now, the cashew fruit is used in
producing candy, jams, juice, wine etc.…. in India. The unfavourable climates conditions in
other countries have also been helping India to remain as the leading exporter of cashew.
C. Acquired advantage
In addition to the skilled labour and natural advantages, countries also acquired advantages
to technology and skilled development. Japan acquired advantage in steel production through
the imports of both iron and coal. The reason for this success is that japan acquired labour
saving and material saving technology. Denmark exports silver table ware due to the ability
of Danish companies in developing distinctive products. Technologically advanced countries
acquired abilities to develop substitute products for a number of natural products. Thus,
countries have absolute advantages in producing certain products as discussed above. For
example, England had the absolute advantage in producing textiles, whereas France had the
absolute advantage in producing wine. Similarly, India has the absolute advantage in
producing pens and Japan has the absolute advantage in producing audio tape recorders.

Assumptions of the theory:
Adam Smith proposed the absolute cost advantage theory based in the following
assumptions:
1. Trade is in between two countries.
2. Only two commodities are traded.
3. Free trade exists between the countries.
4. The only element of cost of production is labour.
Now, we discuss the absolute cost advantage through a numerical example. We explain the
absolute advantage using two countries and two products. In this example, the countries are
India and Japan and the commodities are pens and audio tape recorders. We treat the cost of
production in terms of labour input.
3. DAVID RICARDO’S - THEORY OF COMPARATIVE COST ADVANTAGES
As indicated earlier, absolute cost advantage theory fails explain the situation when one
country has absolute cost advantage in producing many products. David Ricardo a British
economist-expanded the absolute cost advantage theory to clarify this situation and
developed the theory of comparative cost advantage.
Comparative cost advantage theory states that a country should produce and export those
products for which it is relatively more productive than that of other countries and import
those goods for which other countries relatively more productive than it is.
The comparative cost advantage theory is based on relative productivity differences and
incorporates the concept of opportunity cost.
Assumptions of the theory
The assumptions of the comparative cost advantage theory include.
1. There exists full employment.
2. The only element of cost of production is labour .production is the subject to the law of
constant returns.
3. There are no trade barriers.
4. Trade is free from cost of production.
5. Trade takes place is only between two countries.
6. Only two products are traded.
7. There are no costs of transport, etc.
GATT AND WTO
GATT (General Agreement on Tariffs and Trade) is established on 30th October 1947 is a
legal agreement conference between many countries, whose overall purpose was to promote
international trade by reducing the trade barriers such as tariffs and quotas. GATT was signed
by 23 nations in Geneva on 30th October 1947 and took effect on 1st January 1948.
The main objectives of GATT are
1. To raise standard of living
2. To ensure full employment and growing volume of real income.
3. To develop the full use of the resources of the world
4. To expand production and international trade

WTO (World Trade Organization)
Governments of the member countries of GATT concluded the Uruguay round negotiations,
the ministers expressed their political support to the outcome of the meeting by signing the
Final Act in Marrakesh, Morocco on 15th April 1994. According to Marrakesh declaration,
the results of the Uruguay round would “strengthen the world economy and lead to more
trade, investment, employment, and income growth throughout the world. According to final
Act of Marrakesh the World Trade Organization came into force from on 1 st January 1995.
WTO’s membership increased from 104 as on 1st January 1995 to 159 countries as on 31 st
march 2014.
The World Trade Organization (WTO) is global international organization dealing with the
rules of trade between nations.
Functions of WTO
1. WTO examines regularly the trade regime of industrial member countries. Thus it
acts as a watch dog of international trade.
2. It provides a forum for negotiations and for settling disputes.
3. WTO acts as a Management consultant for world trade.
4. Technical co-operation and training to developing countries.
5. WTO cooperates with other international institutions and like IMF, ILO, World
Bank involved in global economic policy making.
WTO: IMPORTANT PROVISIONS AND AGREEMENTS
1) AGREEMENT ON AGRICULTURE (AOA)
The original GATT did apply to agriculture trade, but it contained loopholes. Agricultural
trade became highly distorted, especially with the use of export subsidies which would not
normally have been allowed for industrial products.
The Uruguay round Agreement was a significant first step towards fair competition, and a
less distorted sector. The least developed countries do not need have to make commitments to
reduce tariffs or subsidies. Although the reductions in agriculture subsidies were agreed in the
Uruguay Round, only the figures for cutting export subsidies appear in the Agreement.
The main objective of Agriculture Agreements is to reform trade in the sector and to make
policies more market oriented.
New Rules and Commitments
1) Developing countries do not have to cut their subsidies or lower their tariffs as
much as developed Countries, and they are given extra time to complete their obligation.
2) The new rule for market access in agriculture products is “tariffs only”. Before
Uruguay round, some agricultural imports were restricted by quotas and other non-tariff
measures. These have been replaced by tariffs that provide more – or – less equivalent levels
of protection. If in previous policy domestic prices were 75 % higher than world prices, the
new tariff could be around 75 %.
3) The Uruguay round participants agreed that developed countries would cut the
tariffs by an average of 36 % in equal steps over six years, and developing countries would
make 24 % cuts over 10 years.
Under the Agriculture Agreement, WTO members have to reduce their subsidized
exports. But some countries have been highly dependent on supplies of cheap, subsidized

food imported from the major industrialized nations. They include some of the poorest
countries, and although their farming sector might receive a boost from higher prices, they
might need temporary assistance to make the necessary adjustments to deal with higher
priced imports, and eventually to export. A special ministerial decision sets out objectives,
and certain measures, for the provision of aid for food and agricultural development. It also
refers to the possibility of assistance from the IMF and World Bank to finance commercial
food imports.
2) AGREEMENT ON TEXTILES AND CLOTHING (ATC)
Before the Agreement took effect, a large portion of textiles and clothing exports from
the developing countries to the industrialized countries was subject to quotas under a special
regime the normal GATT rules up to the end of the Uruguay round, textiles and clothing
quotas were negotiated by the rules of Multitier Agreement (MFA). This provided for the
application of selective quantitative restrictions when surges in imports of particular products
caused, or threatened to cause, serious damage to the industry of the importing country. The
Multifiber Agreement was a major departure from the basic GATT rules. On 1st January
1995, it was replaced by the WTO Agreement on Textiles and Clothing.
The ATC built on the following Key elements
a) The product coverage basically encompassing yarns, fabrics, made – up textile
products and clothing.
b) A special safeguard mechanism to deal with new cases of serious damage or threat
there for domestic producers during the transition period.
c) Establishment of a textiles Monitoring Body (TMB) to supervise the
implementation of the Agreement and ensure that the rules are faithfully followed.
3) GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)
The General Agreement on Trade in Services (GATS) is the first ever set of
multilateral, legally enforceable rules covering international trade in services. A WTO
Council for trade in services overseas the operation of Agreement. Negotiations and
commitments have taken place after the Uruguay round. GATS require more negotiations.
The goal is to take the liberalization process further by increasing the level of commitments
in schedules. The Agreement covers all internationally traded services. It includes all the
different ways of providing an international services – GATS defines four
1. Services supplied from one country to another (e.g. international telephone calls)
officially known as cross – border supply.
2. Consumers or firms making use of a service in another country (e.g. tourism),
officially known as consumption abroad.
3. Individuals travelling from their own country to supply services in another (e.g.
fashion models or consultants), officially known as presence of natural persons.
4. A foreign company setting up subsidiaries or branches to provide services in
another country (e.g. foreign banks setting up operations in a country), officially termed as
commercial presence.
4) AGREEMENT ON RULES OF ORIGIN
“Rules of Origin” are the criteria used to define the where a product was made. They
are an essential part of trade rules because a number of policies discriminate between

exporting countries, quotas, preferential tariffs, anti – dumping actions, countervailing duty
and more. Rules of Origin are also used to compile trade statistics. This first – ever
agreements on the subject requires WTO members to ensure their rules of origin are
transparent, that they do not have restricting, distorting or disruptive effects on international
trade, that they are administrated in a consistent, uniform, impartial and reasonable manner
and that they are based on a positive standard for the longer term, that Agreement aims at
common rules of origin among all WTO members.
5) AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMS)
The agreement on the Trade Related Investment Measures calls for introducing
national treatment of foreign investment and removal of quantities restrictions. These are
measures which are imposed on the foreign investors the obligation to use local inputs, to
produce for export as a condition to obtain imported goods as inputs, to balance foreign
exchange outgo on importing inputs with foreign exchange earnings through export and not
to export more than a specified proportion of the local production. TRIMS are rules that
restrict preference of domestic firms and thereby enable international firms to operate more
easily within foreign markets.
TRIMS may include requirements to:
1. Achieve a certain level of local content
2. Produce locally.
3. Export a given level / percentage of goods.
4. Balance the amount / percentage of imports with the amount / percentage of
exports.
5. Transfer of technology or property business information to local persons.
These requirements may be mandatory conditions for investment, or can be attached
to fiscal or other incentives. The TRIMS agreement does not cover services.
6. AGREEMENT ON ANTI – DUMPING
If a company exports a product at a price lower than the price it normally charges on
its own home market, is said to be dumping the product. The WTO Agreement allows
governments to act against dumping where there is genuine injury to the competing domestic
industry. In order to do that, the government has to be able to show that dumping is taking
place, calculate the extent of dumping (how much lower the export – price compared to the
exporters have market price) and how that dumping is causing injury.
The WTO Anti – dumping Agreement introduces the following modifications:
1. The detailed rules for calculating the amount of dumping.
2. More elaborate procedures for initializing and conducting anti – dumping
investigations.
3. Rules on the implementation and duration (normally five years) of anti –
dumping measures.
4. Particular standards for dispute settlement panels to apply in ant – dumping
disputes.