INTERNATIONAL TRADE

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Section A:

Part One:

Multiple Choices:

1. _________is beneficial between two nations that have strong markets in two different sectors.

a. Economic Growth

b. International Trade

c. Trade Integration

d. Trade Diversion

2. What is the full form of UNCTAD?

a. United Nation Conference on Trade and Development

b. Union Nations Committee of Trade and Development

c. Union Nations Conference on Trade and Development

d. None of the above

3. ______is fixed through negotiation between the importing country and the exporting country.

a. Tariff Quota

b. Bilateral Quota

c. Mixing Quota

d. Unilateral Quota

4. Under which Act Reserve Code Number is required?

a. Foreign Exchange Regulation Act

b. Custom Act

c. Export Import Control Act

d. Foreign Trade Act

5. Which policy of the government will have a direct bearing on the exchange rate of the country?

a. Fiscal Policy

b. Instrument of Trade Policy

c. Monetary Policy

d. Both ‘a’ & ‘c’

6. Which scheme helps the exporters in procuring imported raw materials?

a. IES

b. C.C.S.

c. IRS

d. None of the above

7. Which of the following factor affecting the Exchange rate?

a. Purchasing power Parity

b. Exchange Control

c. Balance of Payments

d. All of the above

8. The system of permitting the currencies to move within a band is called___________.

a. Snake in the tunnel

b. Turtle Device

c. UNCTAD

d. None of the above

9. Periodic, as often as daily devaluations of pre-announced magnitude means________.

a. Managed Float Regime

b. The crawling Peg Regime

c. Single currency Peg

d. Composite currency Peg

10. The Export Policy of Government of India can be divided into_______ distinct phases.

a. 2

b. 3

c. 4

d. 5

Part Two:

1. Write a brief note on “INTERNATIONAL MONETARY FUND”.

2. Write the components of the Uruguay Round Agreement.

3. Differentiate between Export Expansion and Import Substitution.

4. Explain the Term:-

1. Bill of Landing
2. Marine Insurance Policy

Section B: Case lets

Case let 1

India’s tea export rose to 46.74 million kg during the first quarter of the current financial year from 35.47 million kg in the previous comparable period. Export earnings from this item aggregates Rs. 81.61 crores during April-June 1981, against Rs. 68.03 crores in the corresponding period last year. Thus, although in terms of quantity our tea exports have looked upon this year, the unit value realization dropped from Rs. 19.8 per kg, to Rs 17.46 per kg.

The drop in unit value realization is attributed to the slackness in the international tea market due to the global oversupply in this commodity. Since 1975, world tea production has gone up by 41 percent whereas increase in consumption by the tea importing countries has been only of the order of the 9 percent. Naturally, the prospects of a revival in international tea price are dim at least in the immediate future. The recommendations made by the recent national meet on tea; ‘revitalize’ the tea industry in the country have to be viewed in this context.

The national meet on tea, organized by the Union Commerce Ministry, was held in the first week of August to take a close look at the various problems confronting the tea industry the meeting which was attended by the representatives of the Central Government, tea producing states, planter’s associations and small growers, has recommended a package of fiscal reliefs –both at the Central and State levels.

The package includes, among other things, a substantial reduction in excise duty on tea, refund of indirect taxes paid on tea exports, simplification of drawback procedures, substantial reduction or removal of the exercise duty on packet tea until further review,, suspension of sales tax an auction teas, concessional credit and a significant cut in the agriculture income tax and other local taxed by the respective state governments. It was also recommended that the state government should consider grant of exemption from rural employment cess to all export sales of tea and teas used for packaging by the procedures themselves. According to the available information these recommendations are being considered by the central and states concerned by the central and states concerned for implementation.

The basic problem that confronts the tea industry in the international sphere is one of depressed price. More and more black tea is coming into the international markets from several new tea producing export countries leading to oversupply, lower realization. Among the tea producing nations area realizing without greater cooperation among them, to bring a better equilibrium between demand and supply, they cannot get incentives for tea exports. Because of lower production cost, some of our competitors have an edge over us in export makers, and incentives may be necessary to an extent for offsetting this price disadvantage. Similarly, assistance for exports of non-traditional items such as tea bags and packet tea would be advantageous for establishing markets for these high value added items whose share in our overall a tea exports is small at present.

Questions:

1. Discuss the problem that comforts the Tea Industry in the International sphere.

2. How you asses would the Tea producing states has recommended a package of fiscal reliefs?

Case let 2

August 12, 1992 was a really bad day for John Martin. That was the day Canada, Mexico and the United States announced an agreement, in principle, to the North America Free Trade Agreement (NAFTA). Under the plan, all tariffs between the three countries would be eliminated within the next 10 to 15 years, with most being cut in five years. What disturbed Martin most was the plan’s provision that all tariffs on trade of textiles among the three countries are to be removed within 10 years. Under the proposed agreement, Mexico and Canada would also be allowed to ship a specific amount of clothing and textiles made from foreign materials to the United States each year, and this quota would raise slightly over the first five years of the agreement. “My God!” thought Martin.

Martin is the CEO of a New York based textile company, Martin’s Textiles. The company has been in the Martin family for four generations, having been founded by his great grandfather in 1910. Today, the company employs 1500 people in three New York plants that produce cotton based clothes, primarily underwear. All production employees are union members and the company has a long history of good labour relations. The company has never had a labour dispute and Martin, like his father, grandfather, and great -grandfather before him, regards the workforce as part of the "Martin family". Martin prides himself not only in knowing many of the employees by name, but also in knowing a great deal about the family circumstances of many of the long time employees.

Over the past 20 years the company has experienced increasingly tough competition, both from overseas and at home. The mid 1980s was particularly difficult. The strength of the dollar on the foreign exchange market during that period enabled Asian producers to enter the US market with very low prices. Since then, although the dollar has weakened against many major currencies, the Asian producers have not raised their prices in response to the falling driven by wage rates and labour productivity. Not surprisingly, most of Martin’s competitors in the north-eastern United States respond to the intense cost competition by moving production south, first to states such as South Carolina and Mississippi where non –union labour could be hired for significantly less than in the unionized North-east, and then to Mexico, where labour costs for textile workers were less than $2 per hour. In contrast, wage rates are $12.50 per hour at Martin’s New York plant and $8 to $10 per hour at non-union textile plants in the south eastern United States.

The last three years have been particularly tough at Martin’s Textiles. The company has registers a small loss each year, and Martin knows the company cannot go on like this. His major customers, while praising the quality of Martin’s products, have worried him that his prices are getting too high and they may not be able to continue to do business with him, His long-time banker has told him he must get his labour costs down. Martin agrees, but he knows of only one surefire way to do that, to move production south, way south, to Mexico. He has always been reluctant to do that, but now he seems to have little choice. He fear as that in a5 years the Us market will be flooded with cheap imports from Asian, US and Mexican companies, all producing in Mexico. It looks like the only way for Martin’s Textiles to survive is to close the New York plant and move production to Mexico. All that would be left in the United States would be the Sales force.

Martin’s mind was spinning. How could something that throws good honest people out of work be good for the country? The politicians said it would be good for trade, good for economic growth and good for the three countries. Martin could not see it that way. What about Mary Morgan who has worked for Martin’s for 30 years? She is now 54 year as old. How will she and others like her find another job? What about his moral obligation to his workers? What about the loyalty his workers have shown his family over the years? Is this a good way to repay it? How would he break the news to his employees, many of whom have worked for the company for 10 to 20 years? And what about the Mexican workers? Could they be as loyal and production in Mexico, he had heard stories of low productivity, poor workmanship high turnover and high absenteeism. Is this true? If so, how could be ever cope with that? Martin has always felt that the success of Martin’s textiles was partly due to the family atmosphere, which encourages worker loyalty, productivity and attention to quality, an atmosphere that has been built up over four generations. How could he replicate that in Mexico with a bunch of foreign workers who speak a language he doesn’t even understand?

Questions:

1. What are the social costs of benefits to Martin’s Textiles of shifting production to Mexica?

2. What seems to be the most ethical action?

Section C: Applied Theory

1. Describe the current issues affecting the Exchange Rate of India.

2. Explain briefly “New Trade Theory”.