impact of free trade on indian garment industry 1;
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Presented by-
Neha Kasat
Aakanksha Dugar
Sonal Malhotra
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y Free trade is a system of trade policy that allowstraders to act and or transact without interference
from government. According to the law of comparativeadvantage the policy permits trading partners mutualgains from trade of goods and services.
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y The theoretical questioning of protectionism
began in England and other parts of Europe
during the sixteenth century. Rationalizationswere made to advocate the policy of free trade.
Adam Smith, in the mid-eighteenth century,
proposed the thought that free trade was the
reason for the prosperity of most of thecivilizations.
y The emergence of the Dutch as an
economic power, after the dominance of Spain
declined, brought the free trade versus
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y Free trade policies have battledwith mercantilist, protectionist, isolationist, comm
unist, populist, and other policies over thecenturies.
y Wars have been fought over trade, such asthe Peloponnesian War between Athens andSparta, the Opium Wars between China andGreat Britain, and other colonial wars.
y The theory, known as import Substitutionindustrialization, is largely considered to beineffective for currently developing nations, have
determined that export-oriented
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y Under a free trade policy, prices are a reflectionof true supply and demand, and are the soledeterminant of
y Free trade differs from other forms of tradepolicy where the allocation of goods andservices among trading countries are determinedby artificial prices that may or may not reflect the
true nature of supply and demand.
y These artificial prices are the resultof protectionist trade policies, wherebygovernments intervene in the market through
price adjustments and supply restrictions.
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y Interventions
include subsidies, taxes and tariffs, non-tariff
barriers, such as
regulatory legislation and quotas, and even inter-government managed trade agreements such as
the North American Free Trade
Agreement (NAFTA) and Central America Free
Trade Agreement (CAFTA) (contrary to theirformal titles) and any governmental market
intervention resulting in artificial prices.
y Free trade agreements are a key element
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y Trade of goods without taxes (including tariffs) or
other trade barriers (e.g., quotas on imports or subsidies
for producers)
y
Trade in services without taxes or other trade barriersy The absence of "trade-distorting" policies (such
as taxes, subsidies, regulations, or laws) that give
some firms, households, or factors of production an
advantage over others
y Free access to markets
y Free access to market information
y Inability of firms to distort markets through government-
imposed monopoly or oligopoly power
y The free movement of labor between and within countries
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y Current free trade areas with more than threemember countries.
y Status of WTO negotiations has changed.
y
Most countries in the world are members ofthe World Trade Organization which limits in certainways but does not eliminate tariffs and other tradebarriers. Most countries are also members ofregional free trade areas which lower trade barriers
among participating countries.y Most countries prohibit foreign airlines
from sabotage , and foreign landing rights aregenerally restricted, but open skies agreements havebecome more common.
y Notable contemporary trade barriers include
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IMPACT OF
FREE TRADE-
SWOT
ANALYSIS
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A technique that enables a group or individual tomove from everyday problems and traditionalstrategies to a fresh perspective.
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S Strengths
W Weaknesses
O Opportunities
T Threats
Internal Environment
External Environment
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Any existing or potential resources or
capability within the organisation that
provides a competitive advantage in the
market.
Example:
Strong distribution network Intense Staff commitment and loyalty Increasing profit margin
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Any existing or potential force which could
serve as a barrier to maintaining or achieving a
competitive advantage in the market.
Example:
Lack of a clear company strategy Lack of training opportunities for using a newsoftware
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Any existing or potential force in the external
environment that, if properly leveraged, could
provide a competitive advantage.
Example:
Organization's geographic location
New technology
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Any existing or potential force in the external
environment that could erode a competitive
advantage.
Example:
A new competitor entrant A recession, rising interest rates, or tightcredit lines
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1. Take advantage of strengths and
opportunities.
2. Minimize weaknesses and eliminate
threats
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A Department/Business Unit
y When the team has not met its targets;
y Customer service can be better;
y A new business unit to pursue a new business;
y A new team leader is appointed; etc
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Job Holder
y
When supervisor has issues with work output;y Assigned to a new job;
y New financial year fresh targets;
y Job holder seeks to improve performance on thejob; etc.
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ASWOT analysis is usefulonlywhen action
plans and strategies are developed from theresults
PrepareAction Plans
Analyze Internal& External
Environment
Perform SWOTAnalysis and
Document
Step 1 Step 2 Step 3
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SWOT analysis will be useful if:
y You are thinking outside the box
y Availability of varied perspectives groupdiscussion
y Liberty to say your mind
y Willingness to break away from traditionalmethods
y Appetite for change
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y
No idea is stupid,everyones contributionis valid and important
You dont have toagree with anyone else
Build on the ideas of others-use initial ideas as a jumping
-off point for more ideas
Always ask questions Seek first to understandbefore being understood Have fun!!!Be open-minded
Everyone mustparticipate
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y Free Trade Areas (FTA) This is the
simplest kind of trading bloc and
incorporates a two or more countries that
have agreed to eliminate tariffs and other
barriers to trade amongst members, but
individually each country retains its owntariffs on imports from other non-member
countries. Perhaps the best example of a
FTA is the North American Free trade Area
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Some of the important free trade agreements
operating among the various nations of the world
are listed below:
y North American Free Trade Agreement (NAFTA):Mexico, Canada and the US.
y European Economic Area (EEA) : EU and non-
EU members of Europe
yASEAN Free Trade Area (AFTA) : Southeast
Asian nations
y Latin American Integration Association (ALADI) :
South American countries
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y In June 2007, the European Union (EU)s European
Commission and the Government of India started
negotiating a Free Trade Agreement (FTA). This new
generationF
TA covers many areas other than tradein goods viz. trade in services, investment,
intellectual property rights, competition policy,
government procurement etc. So far, five rounds of
the negotiations have been completed and a
proposed sixth round which was meant to take place
in New Delhi in the last week of November has just
been postponed. In addition to the EU, India is
currently negotiating with 20 other countries and
regions including Japan and the European Free
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y Massive reductions in tariff
y Import surge.
y Impact on livelihoods.
y Unequal impact of tariff reductions
y Automatic extension of MFN clause to EU.y Imposition of full reciprocity; undermining Indias special
and differential treatment
y Inclusion of Singapore Issues
y Expansive liberalization in services and investment
y TRIPS-plus intellectual property protectiony Creating advantages for MNCs through effective
competition
y Liberalizing government procurement
y Extreme and unwarranted secrecy in negotiation.
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yAs perICRA report India , all other Asian
economies have increased their market
size and share even during this period.
y The drawback over the last four years has
come down , in case of cotton yarn the
reduction in benefits is 43 % and in fabrics
the reduction is by as much as 19%y The short and medium term solution for
increasing exports of cotton textiles could
be achieved by restoring the
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y Additional allocation of RS 1,400 crore to clear the entire
backlog of Technology Upgradation Fund Scheme
(TUFS)
y All items of handicraft to be included under Vishesh
Krishi and gram Udyog, Yojana (VK&GUY).
y Across the border cut of 4% in the ad-valorem cenvat
rate till 31.3.2009.
y Interest subvention of 2% upto 31.3.2009 on pre and post
shipment export credit.
y Provision of additional funds for full refund of terminal
Excise Duty/Central Sales Tax.
y Enhanced back up guarantee to ECGC to cover for
export to difficult market / products.
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yLarge Industry 3% of GDP,27% ofForex earnings, 21% of
total employmentyVery large unorganized sector about 76% of total fabricsproduction
yMarket is very diverse, does
not lend itself to comparative
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yThe end of the MFA arrangement
yCompetitiveness ofIndian industry L
ow level of modernization Fragmented nature low capacities Infrastructure, Labour laws
yExports have risen by 10% but at thesame time Chinas exports have risenby more than 20%, even countries likePakistan and Bangladesh have done
better
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