In 1966, Raymond Vernon published a model that described internationalisation patterns of organisations. .

Vernon focused on the dynamics of comparative advantage and drew inspiration from the product life cycle to explain how trade patterns change over time. His IPLC described an internationalisation process wherein a local manufacturer in an advanced country begins selling a new, technologically advanced product to high-come consumers in its home market. Production capabilities build locally to stay in close contact with its clientele and to minimize risk and uncertainty. As demand from consumers in other markets rises, production increasingly shifts abroad enabling the firm to maximise economies of scale and to bypass trade barriers. As the product matures and becomes more of a commodity, the number of competitors increases.

In the end, the innovator from the advanced nation becomes challenged in its own home market making the advanced nation a net importer of the product. This product is produced either by competitors in lesser developed countries or, if the innovator has developed into a multinational manufacturer, by its foreign based production facilities. The IPLC international trade cycle consists of three stages: 1. NEW PRODUCT The IPLC begins when a company in a developed country wants to exploit a technological breakthrough by launching a new, innovative product on its home market. Such a market is more likely to start in a developed nation because more high-income consumers are able to buy and are willing to experiment with new, expensive products (low price elasticy). Furthermore, easier access to capital markets exists to fund new product development. Production is also more likely to start locally in order to minimize risk and uncertainty: Export to other industrial countries may occur at the end of this stage that allows the innovator to increase revenue and to increase the downward descent of the products experience curve.

Other advanced nations have consumers with similar desires and incomes making exporting the easiest first step in an internationalisation effort. Competition comes from a few local or domestic players that produce their own unique product variations. 2. MATURING PRODUCT Exports to markets in advanced countries further increase through time making it economically possible and sometimes politically necessary to start local production. The products design and production process becomes increasingly stable. Foreign direct investments (FDI) in production plants drive down unit cost because labour cost and transportation cost decrease. Offshore production facilities are meant to serve local markets that substitute exports from the organisations home market. Production still requires high-skilled, high paid employees. Competition from local firms jump start in these non-domestic advanced markets. Export orders will begin to come from countries with lower incomes. 3. STANDARDISED PRODUCT During this phase, the principal markets become saturated. The firm begins to focus on the reduction of process cost rather than the addition of new product features.

As a result, the product and its production process become increasingly standardised. This enables further economies of scale and increases the mobility of manufacturing operations. Labour can start to be replaced by capital. If economies of scale are being fully exploited, the principal difference between any two locations is likely to be labour costs. To counter price competition and trade barriers or simply to meet local demand, production facilities will relocate to countries with lower incomes. As previously in advanced nations, local competitors will get access to first hand information and can start to copy and sell the product. The demand of the original product in the domestic country dwindles from the arrival of new technologies, and other established markets will have become increasingly pricesensitive. Whatever market is left becomes shared between competitors who are predominately foreign. A MNC will internally maximize offshore production to lowwage countries since it can move capital and technology around, but not labour. As a result, the domestic market will have to import relatively capital intensive products from low income countries. The machines that operate these plants often remain in the country where the technology was first invented.

FROM GATT TO WTO Achievements & Challenges (1998). GATT brought order to the Jungle of Trade. Eight rounds of trade negotiation. Only a few countries signed the Tokyo Round agreements of the 1970s. Uruguay Round started in 1986. 7 years and 125 countries. Most complex in trade history. Great political change taking place in the Soviet Union and Eastern Europe. Agreements signed in 1994. Two achievements of the Uruguay Round: New trade organization (WTO), Single package of agreements. 1. Agriculture & Intellectual Property. 2. Settlement of Disputes. Uruguay Round: Rules were agreed upon without reservations. No opting out. No loss of sovereignty (similar to signing a ontract). Additional negotiations after Uruguay at Singapore (1996). Three new agreements: Telecommunications. Information Technology. Financial services. Further topics subject to negotiations after Singapore (some left over and some new): agriculture and services.

Newer topics subject to discussion: competition, investment and government procurement. World trade is now 15 times larger than 50 years go. Trade contributes to development. Public opinion influences the WTO through its member governments. Broader issues confront the international community: poverty, environment Can use other organizations, but dont want these issues to cover protectionism. Newer challenges: Information technology (changing time and space for trade), Rules to be applied globally. (Bringing in other countries.) Regional groups to support global system. Looking after poorer nations. Regard to aspirations of people worldwide. v Cant impose policies or values on others. v Develop a rule-based system, trade relations not to be based upon power. v Nations have accepted non-discrimination and consensus as basis of economic relations. SINGAPORE CONFERENCE: Global Challenges (1997). The conference (1996) focused on globalization and the marginalization of the poorer countries. q Trade and Information Age. Technology has changed way of doing business, globally at real time.

 Singapore gave boost to three agreements: 1. Telecommunications Agreement. (1997). Promoting competition and foreign investment. 2. Information Technology Agreement. (1997). 3. Financial Services. q Trade as a Catalyst for Globalization. Open economies are more successful than closed ones. q Integrating Less Developed Countries. Erosion of preferential trade arrangements. Need to diversify export of goods and services. Open developed country markets. Investors invest because of stability and reliability of legal system. Need sound internal reforms. Link between trade and investment. Need to cooperate with other international organizations. q Functioning of the WTO. Universal rules for mutual benefit. By rule of law. Not sanctions or economic leverage. Multilateral system and multilateral rules. (Not bilateral trade relations based on economic power.) Rules based upon consensus. Have a dispute resolution system. Increasingly poorer countries are having access to the dispute system.

 Regional organizations are viewed as a first step (on a smaller scale) -- as long as complimentary to the multilateral system. q Trade and Environment. Exploring the relation of existing environment treaties relate to trade. q Exploring New Areas. Investment. o Trade and investment at the center of globalization. Competition o Avoid private barriers by private corporations and multinationals (not governmental). Government Procurement. o Only some countries are bound by existing rules. Big part of GNP. q Reaffirming Principles. General -- Economic globalization is creating anxious concerns. Labor Principles. o Concern for core labor principles (ILO). o Dont want to use as an excuse for protectionism. q Concluding Observations. Capital for economic growth is knowledge. This is the real revolution. Were at the threshold of real global economic growth. Need to develop the global trading system. SOLVING DISPUTES

First Litigation Case US Gas; Consultation Case Japan Recordings / TRIPS) v General: o Confidence & trust are essential for global trade, o Economic prosperity is at stake in discussion over rules concerning disputes. o The DSU is rule-based, not power based. o Settlement system is intended to minimize the politicization of trade disputes. Impact of a decision -- It benefits all states: A decision clarifies undertakings by states and creates an obligation for the losing party to bring laws into conformity with the decision (or pay compensation or face sanctions). A litigated decision applies to parties only. However when law is changed it benefits all states (multilateralization). States not party to a dispute will change own laws, even if not required by the limited nature of the decision or consultation outcome, since the obligations have become clearer. o Trade interacts with larger issues. o The dispute resolution system involves intersection of both diplomacy (consultation process) and law / litigation (the panel AB process). Pressure for greater transparency. Belief it will lead to greater acceptance of the WTO by international civil society. v Initial intent of drafters: o Automaticity. The decision is automatically adopted. o International rules into newer areas.

o Wanted an effective body (compared to the old GATT) and wanted enforcement. o The DSU deals with disputes between governments. o Consultation. 1st step. 60 days. Then have a panel. o Panel proceedings. Have appeal to AB. o Some aspects of arbitration (parties pick the panelists). o Appellate Body. Will recommend bringing into conformity with law. o Will have trade sanctions. o Time is short. 1 year or 15 months with an appeal. o Filing of a request for a panel will lead to an early settlement. o Governments cant act unilaterally to settle disputes. v Case Study: Venezuela v. U.S (Gasoline & Clean Air Act). (1996). o Venezuela challenged U.S. regulations as being in violation of GATT Article Three (National Treatment Principle). Treating foreign importers less favorably compared to domestic producers. o U.S. defended by relying on general exception clause of GATT Article 20 (protection of an exhaustible natural resource [clean air] and protection of human life and plant life). o Panel and AB rules against the U.S. o U.S. brought its regulations into conformity after 15 months. o Brazil had joined as a party. The EU as a Third Party. o This case shows that the DSU works in a neutral way. o Little interest in unilateral actions.

o Shows diversity of cases and when cases deals with issues wider than just trade it is a tough situation. v Amiable Settlement Case Japan Records / TRIP / Term of Protection. (1996). o Involves intellectual property rights. o TRIPS required protection back to 1946 (50 years). Law only provided back to 1971. o Impacted recording industry in the U.S. o Japan produced for own domestic market and then sold also overseas. o Japan changed its law. o Other countries changed their laws. Settlement was a precedent. v What to do in the Future? o DSU is a major success. o Large number of cases. Variety of cases. o Have less unilateral measures and less bilateral deals. o Less developed countries use the system. For example, India. o Smaller and poorer countries have a harder time. o Heavy weight on the secretariat. o Tougher cases dealing with newer issues: Bananas Beef Sea turtles. [FSC, Byrd Amendment, Bush Steel, GMO, Lumber, EGambling, U.S.-China litigation 2007-2011]

o NGOs want to have access to provide their views. Some opposition (e.g. India). o General demand by the U.S. (government and private interest groups) for more transparency e.g. making documents and pleadings more available. TO THE HEART OF THE WTO [DOHA Development Agenda: Perspectives of Brazil & Norway.] (Released: Jan. 2003). v Trade has often led to conflict over the centuries. v GATT (1948). v WTO (1995). v Seattle Ministerial (1999). Demonstrations raised many questions concerning globalization that the WTO needs to tackle (Pascal Lamy of the EU). v DOHA Ministerial (2001) -- Launched the new trade round. v Each country has its own economic and commercial interests in the WTO. Brazil and Norway represents countries at different stages of economic development. v Better cooperation with NGOs required to build a better civil society. The WTO is determined to have better connections with civil society (via NGOs) concerning traditionally non-trade issues (but now related to trade). v Former Director-General Mike Moore: No one gets everything they want. But all must get something. v The DOHA Conference (November 2001) -- Focus of new trade round will be on the marginalization of the LDCs.

v Norway: Concerned with fisheries and the resources of the sea, the sustainability of fisheries stock. Concerned about the preservation of subsidies in the fisheries area. Viewed as a way of life. v The DOHA Round is concerned with increasing the integration of the LDCs into the global trading system, e.g., liberalizing the agricultural sector. DOHA adopted a program of issues to be addressed. v Brazil: Has inequality within Brazil and looks to WTO and trade. Disagrees with the notion of Multi-functionality of Agriculture. Views this as an European theory. v Some complain that we live in an upside down world. Countries call for liberalization, but they subsidize. v Exporting is also important to Brazil. Exporting is of a high priority. Also concerned about three pillars of agriculture: production subsidy, export subsidy and restrictions on market access. For example, third largest exporter of short-range aircraft. (Brazil Canada issue decided by the WTO). v Norway: Concerned about other countries antidumping laws and subsidies. Wants to strengthen the service disciplines (maritime, energy and telecom). Concerned about high tariffs on exports of fish (Tariff Peaks of 20-40%). Non-trade concerns are also important. v Brazil: Objected to the rules concerning pharmaceutical patents in context of the TRIPS. Critical before DOHA, but glad of the Declaration at DOHA concerning pharmaceuticals and intellectual property rights (2001). Restrictions on poor countries in getting access to cheaper medicines (AIDS). Raises issues of public health. WTO is now sensitive to this.

v Three Pillars of Agriculture: Domestic Support (Subsidies); Export Subsidies; Market Access. These are areas that developing countries would like to see reformed so as to remove market restrictions and to promote global agriculture development among developing nations. v Dispute Resolution System. Composed of independent experts. Accepted by nations as a referee as to disputes between nations. Nearly 300 disputes brought to the WTO since 1995 (to January 2003). Both Norway and Brazil have gone to the DSU. v Even non-members of the WTO recognize the importance of expanding trade (integration into the global trading system) for national economic development. v Accession. In order to join the WTO need to bring economy into conformity with the WTO rules. This is through negotiations with trading partners and acceptance by national parliaments. Current negotiations concern Russia. Chinas accession was in December 2001 (1/5 of the worlds population). v Decisions are made at the WTO pursuant to the consensus principle. Never resorted to voting. This needs to be more open in the context of gaining support from civil society. The new Director-General: WTO is democratic and transparent because it relies on member states representing their peoples.

Etymologically, plurilateral and multilateral are synonyms for an agreement among more than two parties. In some international organizations, however, plurilateral is used to distinguish an agreement made among only some members of the whole from the multilateral agreements among all members.

Why WTO was established? The WTO was founded with the purpose of liberalizing international trade. Its aim was to help member nations reach cordial solutions to their trade-related problems. The main principles of WTO are: To promote fair competition encourage economic and development reforms increase predictability through transparency lower trade barriers for freer trade ensure fair treatment to locals and foreigners To To To To

Objectives of the WTO With manifold objectives like helping trade flow smoothly, freely, fairly and predictably it has become capable of organizing trade and commerce over the Globe through the mantra of liberalization, privatization and globalization. It is stepping forward with objectives like: 1) Rejecting all forms of protectionism. 2) Removing trade barriers and eliminating discriminatory treatment in international trade through successive multilateral trade negotiations. 3) Providing a fair, predictable and open rule-based trading system through overseeing the implementation of multilateral trade rules and enforcing legally binding obligations. 4) Providing a mechanism for settling trade disputes. 5) Integrates developing and least developed economies into the world trading system. Achievements of WTO The WTO has several achievements as listed below: Enhanced the value and quantity of trade. Eradicated trade and non trade barriers. Broadened the trade governance scope to trade in investment, services and intellectual property. Emerged as a greater institution than GATT. Expanded the WTO agenda by including developmental policies. Eased settlement of disputes by enforcing improved rules. Improved monitoring by introducing the Trade Policy Review and the World Trade Report Increased transparency by removing green room negotiations Encouraged sustainable trade development Challenges Ahead for WTO The WTO faces considerable challenges as listed below: Decision-making within the organization. Streamline reforms related to its dispute settlement system. Implement development-oriented

policies in an effective manner. Facilitate global trade liberalization in agriculture and textiles. Encourage Non Governmental Organizations or NGOs to become an important part of world trade governance. Devise ways to increase staff and resources to ensure effective regulation. In the years 2008 and 2009, the WTO witnessed increased economic uncertainty. Its main function is to ensure the smooth and free flow of global trade. The WTO continues to administer agreements, handle trade disputes and monitors countryspecific trade policies while training and cooperating with developing nations and other international organizations.

The EU had a mixed year in the WTO. 2011 saw Russia finally become a member of the organisation, fulfilling a long-held European strategic goal (see component 13). Montenegro also joined the WTO this year, which may help it draw closer to the EU. However, the decade-old Doha Round of talks on trade liberalisation continued to drift, threatening the WTOs credibility, and the EU was unable to either revitalise or end the talks. At the start of the year, efforts were made to get the process moving again, but by April it appeared that the round could fail altogether. The European Commission, which negotiates on behalf of the EU, continued to highlight the economic benefits of a potential deal and argued for an ambitious new round of discussions covering the recovery and rebalancing of the global economy. This goal appeared unlikely to be achieved and non-Western governments accused the EU and US of pushing bilateral trade deals in the meantime. The European Commission also highlighted the importance of addressing the concerns of the Least Developed Countries (LDCs).

At the G20 summit in Cannes in November, the assembled leaders concluded that a Doha deal was impossible without a new approach to negotiations, and they also noted the importance of the LDCs. If the G20s position echoed the EUs priorities, it was not sufficient to generate action at annual ministerial meetings at the WTO in December. Participants agreed on the need for new negotiating methods, and the diplomatic atmosphere reportedly improved, but there was no substantive progress. The EU also has other interests in the WTO. In particular, in late December, the US made an appeal for up to $10 billion in sanctions against the EU over subsidies to Airbus. But as protectionism becomes a greater threat against the background of the economic crisis, the failure of Doha is a source of increasing concern.

It provides an answer to perhaps the central political question of our time, concerning how to manage a globalizing world when democracy remains rooted in the nation-state. The WTO is not imposed on countries. Countries choose to belong to the WTO No one is told to join.No one is forced to sign agreements. Each and every one of the wtos rules is negotiated by member governments, agreed by consensus, and ratified by parliaments. Countries choose to participate in an open, rulesbased multilateral trading system for the simple reason that it is overwhelmingly in their interest to do so The multilateral trading system was initially concerned mainly with trade in goods, and it was based not on a permanent organization but on a provisional treaty, the General Agreement on Tariffs and Trade (gatt). By the end of the Uruguay Round in 1994, the system contained sweeping new rules for services, intellectual property, subsidies, textiles, and agriculture.No other international body oversees rules that extend so widely around the world, or so deeply into the fabric of economies. At the same time, no other body is as directly run by member governments, or as firmly rooted in consensus decision-making and collective rule. The multilateral trading system works precisely because it is based on persuasion, not coercion rules, not force. Two principles underpin the equal rights of wto members. One is the principle of non-discrimination. The wto treats all

members alike, be they rich or poor, big or small, strong or weak. The same rules apply to everyone, even the worlds largest and most powerful economies. Central among these rules is (i) the most-favored nation obligation which prevents wto members from discriminating between foreign goods, or treating products from one wto member as better than those from another one, and (ii) the national treatment rule which obliges governments to treat foreign and domestically-produced products equally.Non-discrimination has been key to the multilateral trading systems successNon-discrimination has also enshrined universality as a central objective of the trading systemEqually central to the multilateral trading system is the principle of consensus decision-making. Unlike other international agencies, the wto has no executive body with delegated authority to take decisions on behalf of member governments.Because no decision is taken unless all member governments agree, effectively every country from the largest to the smallest has the power of vetoOne problem is that the system continues to rely on major new negotiating rounds and package deals to create new rules or to clarify existing ones. This means that reforms to the system occur episodically and infrequently.The scope, complexity, and value of the wtos legal system continues to expand. Much of the controversy about implementation of Uruguay Round commitments stemmed from the human and resource constraints faced by developing countries in adapting legislation to new

obligations and building the infrastructure needed to implement them. That is why an increasingly important function of the wto is technical assistance and capacity building helping transitional, developing and least-developed countries to integrate into the multilateral trading system and to participate fully in negotiations.To help redress this imbalance the Advisory Center for wto Law was opened in October 2001.Multilateral negotiations allow weaker countries to pool their collective influence and interests as opposed to bilateral or even regional negotiations in which they have virtually no negotiating clout.In the same way, a system which replaces the role of power in international trade relations with the rule of law is invariably to the advantage of the smallest and weakest countries.argue that consensus rule-making should be reconsidered because reaching agreement among nearly 150 governments is simply too slow, cumbersome, bureaucratic. Since every member effectively has a veto, it is claimed that the wto can only move at the speed of its slowest or most obstinate member which is too slow for a fastglobalizing

world. Still others suggest that the issues now facing the wto are too complex to be effectively debated and decided upon by all of its member governments acting as a committee of the whole. As one trade expert puts it, mass membership simply does not lend itself to operational efficiency or serious policy discussion. This is why proposals for the creation of a smaller executive body like the World Banks Development Committee or even the uns Security Council are heard from time to time. But the more fundamental argument is political. The fact is that on certain issues international consensus simply does not exist.hoopla and hypeExempted from so much, developing countries have had little to offer fellow members. They have a seat at the negotiations, but nothing much on the table. As a result, many of the sectors in which they enjoy a comparative advantage, such as agriculture, textiles and clothing, were neglected by successive trade rounds.

India and eight other developing countries have formed a core group to counter the challenges posed by the ongoing WTO trade negotiations on non-agricultural market access (NAMA). The grouping of nations from Asia and Africa, which will attempt to pressurise developed countries to

cut their industrial tariffs was put together on December 13 the day crucial WTO ministerial talks began in Hong Kong. Jointly chaired by India and South Africa the newly-formed alliance includes Argentina, Brazil, Indonesia, Namibia, Venezuela, the Philippines and Egypt with more expected to join in , according to India's commerce and industries minister Kamal Nath. The group was formed since some developing countries expressed concern that the WTO Draft Ministerial Declaration and the NAMA
committee chair's report did not reflect some issues that had been raised in previous discussion papers, 'Flexibilities for Developing Countries' and 'Reclaiming Development in the WTO Doha Development Round'. "We want our concerns to be taken on board. Market access is not an issue of tariffs alone. Market access for India means elimination of tariff peaks and tariff escalation in developed country markets as also end of abuse of anti-dumping laws and removal of non-tariff barriers used to block goods from developing nations," Kamal Nath said. Criticising the European Union proposal on Non-Agriculture Market Access, Nath said the formula in itself was not important but what it actually translated into in real terms. The EU has offered to cut agricultural subsidies by 33% if India cuts its industrial and services tariffs by 77%, a deal that Nath says is not acceptable. While most developing countries continue to reform and industrialise their economies, including substantial autonomous tariff liberalisation, whereby real market access has already been granted, a number of sensitive sectors still exist in almost all of them, given their labour intensive nature, revenue implications and contribution to national employment and output. "Developing countries cannot be expected to pay for the much needed reforms in the agriculture sectors of developed countries. The disproportionate demands presently being made of developing countries would lead to an imbalanced outcome resulting in the exacerbation of the current difference in the treatment of agricultural and non-agricultural products. This is unacceptable, " said the new alliance. The group reiterated that unless the principles espoused by them are not fully respected, the NAMA negotiations won't move forward. The alliance had also written a letter to the Chairman of sixth Ministerial conference John Tsang pointing out that the draft text of the Hong Kong talks had not adequately reflected the three elements of "less than full reciprocity, special and differential treatment and non-tariff barriers."

"Less than full reciprocity" means developing countries would proportionately lower reduction commitments than developed nations.

have

"While the developing countries are prepared to make a contribution to the NAMA negotiations, we find the developed countries reluctant to offer their fair share," the letter noted. "Even though the developed countries are highly competitive in the industrial sector, they continue to maintain high tariffs, tariff peaks and tariff escalation on various products, particularly of export interest, to developing countries." With the "unequivocal" removal of these at the core of the Doha mandate, there were in addition, a large number of non-tariff barriers and abuse of trade remedial measures, which need to be addressed, the group felt. "We all recognise that this Round provides an opportunity to create a more transparent, predictable and inclusive trading system by substantially increasing the level of bindings by all WTO members," the letter noted. The G-20 and the G-33 nations have already opposed further negotiations in the agriculture sector unless subsidies in the developed world are reduced substantially and eventually eliminated. With the new group's formation, analysts say progress is unlikely on both agriculture and NAMA - the two most crucial components of this ministerial meeting. Only an EU and US climbdown will alter things as they stand now, they feel. Also read: India, Brazil make surprise offer on trade ahead of WTO talks