how global marketing differs from international marketing

8/8/2019 How Global Marketing Differs From International Marketing

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HOW GLOBAL MARKETING DIFFERS FROM INTERNATIONAL

MARKETING

Global Marketing is a lot different from international

marketing. They seem similar but when you are

creating and expanding your business you have to

know the differences between the two. This way, when

you are ready to expand, you will know which way is better and not worry

about doing everything at once.

Global marketing is defined by the Oxford University Press as "marketing on

a worldwide scale reconciling or taking commercial advantage of global

operational differences, similarities and opportunities in order to meet global

objectives." So basically global marketing is selling your product all over the

world. It sounds a lot like international marketing or like the two are exactly

the same but here are the differences.

Global marketing is basically when a company looks at the entire world as

one market. There are no differences between a local market and the market10,000 miles away. It views everything in the same way and not like it is

any different in any specific ways. Global marketing is used by huge chain

stores that sell only certain products. They usually won't bring anything

different or new to the store near to you that might cater to a certain

religion or cultural group, because they are based somewhere else. They

usually won't bring in cultural foods or products, just because they are a

general store. They sell the same exact products all over the world and the

exact same things in every single store.

To become a global company a company has to use the "Four P's of

marketing." They are price, promotion, product, and placement. A company

doesn't just become a global company overnight but goes through several

steps to become global. They have to have a global team. They have to have


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a global marketing plan. It takes time for a company to evolve from a local

company to one that sells products all over the world.

International marketing is a little different still from global marketing.

International marketing is when a company that is based in one country

decides to sell products in another. It sets up offices and headquarters in the

other countries. International marketing is almost like a franchise is being

built, just in another country. The company still owns and operates the

business in the other country, but the headquarters in the specific country

cater the business to the country's needs.

You can still have a huge chain store using international marketing. The

chain store still has its name and logos and products, but it sells mostly

items that are specific to the country. It isn't based off of things that are say

just American, but has things that are say French as well.

The advantages of the international marketing is that the executives are

usually native to the country and so are familiar with customs and ideas that

are best suited for the area. They still make most of the marketing and

business decisions but have to report to the main headquarters in the

country where the business started.

When you start off your business you usually start off with just one store or

location and in your immediate area. Then you expand. When you are ready

to expand and to start selling your products in different countries look at

your product and how to want to portray it. Look at the pros and cons for

global marketing versus international marketing and decide which would be

better for your company and product.

Franchising Vs. Licensing

You might have come across the terms franchising and licensing. As similar as these two may sound, theresquite a lot of differences between the two.

While franchising is a recognized legal terminology, in the sense that it subjects the party offering these services to


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certain rules and regulations, licensing does not come with these issues, but it is necessary to be careful aslicensing can also be considered a franchise from a legal standpoint.

In franchising, the franchisee and the franchisor are very closely linked and have better working relationships. Thefranchisee gets to retain the rights to the franchisors logo and trademark. This also goes a long way in providing avisible presentation of the relationship between the two. Franchisees are often an extension of the parent

company, in that they represent the parent companys brand and image. Therefore, they are usually providedsome level of training and support. Also, they get to leverage some amount of territorial exclusivity in addition tocontrol over the products and services offered.

The relationship between a licensee and the parent company is not as tight-knit as a Licensee franchisorrelationship. That is because a licensee does not hold the rights to the trademark and logo of the parent companysbrand. Also, the franchisee is expected to create its own niche and identity in the market. Another key difference isin the fact that licensees do not get to have territorial rights from the parent company. Which means that licensingorganization gets to sell similar licenses and products in the same geographical area. Licensees also do notreceive the same extent of support and training as compared to a franchisee.

Even though from the looks of it, a licensing opportunity seems to be less advantageous as compared to afranchising business, licensing has its advantages as well. One advantage is that licensing costs much lesser interms of the initial investment and ongoing charges. While a franchising business may require you to pay royalty

every time a profit is made, a licensing opportunity does not demand such an expense. Also, once the licensee isable to successfully set up its business and spin off on its own, the relationship between licensee and the parentcompany is restricted to the frequent purchase of products.

Franchisees Versus Licensees

What's the difference between franchising and licensing? This article compares and contrasts

franchisees versus licensees. Offering a franchise subjects the offering party to FTC and stateregulations. Licensing doesn't come with as much regulatory baggage, but be careful. Just

because you call it a licensing arrangement, it may still actually be a franchise from a legalperspective.

Becoming a small business owner is an exciting transition, especially for ambitiousentrepreneurs who have left more traditional career paths.(article continues below)

The change from employee to owner brings with it new roles and new responsibilities. Possiblyfor the first time, new business owners now have to deal with issues such as managingemployees, maintaining accurate records, and marketing their products. Unless new businessowners know what they are getting into ahead of time, their foray into business ownership is

likely to be difficult and in many cases, short-lived.

But the challenges of business ownership are multiplied for entrepreneurs who invest infranchises and otherbusiness opportunities. They not only have to navigate the waters of owninga business, but also have to understand the additional challenges involved with becoming afranchisee or, in the case of abusiness opportunity, a licensee.


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Many new or prospective business owners mistakenly believe that the words franchisee andlicensee are synonymous. They're not! In fact, a misunderstanding of the differences between afranchisee and a licensee can be a recipe for a small business disaster. Knowing the difference isan important first step toward success in your new business venture.

Franchisees

The primary difference between a franchisee and a licensee is that franchisees can expect to havea much closer relationship with their parent company than their licensee counterparts. First andforemost, franchisees typically retain rights to theparent company'strademarkand logo. This isimportant because it is a visible representation of the connection between franchisor andfranchisee.

In many ways, franchisees are the public face of the company and so their relationship with thefranchisor will be close. For that reason, franchisors usually provide a certain level of trainingand support to franchisees and their employees. Franchisees can also expect a certain amount of

territorial exclusivity as well as controls over the products and services they offer.

Licensees

The relationship between licensees and the licensing company is looser than the relationshipbetween franchisors and franchisees. In most cases, the licensee does not retain rights to use thecompany's trademark. Instead, the licensee is expected to establish its own identity in themarketplace.

Similarly, licensees usually don't receive exclusive territorial rights. This means that thelicensing company is free to sell similar licenses and products to other people in the same

geographic area. Licensees also don't receive much in the way of training or ongoing supportfrom the licensing company.

On the upside, license opportunities are often less expensive than franchises in both the upfrontinvestment and ongoing fees. Once the licensee launches the operation, the relationship with thelicensing company is frequently limited to purchasing products whereas franchisees can expectto pay royalties on a go-forward basis.

Licensing and franchsing are BIG business tools.

Licensing, in the business world, is a contractual agreement to use a brand name, patent or property

that is owned by another business entity. For example, a greeting card company can obtain a

license to use images of Hannah Montana or "The Simpsons" characters on greeting cards.

A franchise is a business that operates under an existing brand name. Many popularbusinesses are

franchises, including McDonald's, Subway and H&R Block.


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Licensees

1.

A franchise can help establish a business.

When a business enters into a licensing agreement to use a celebrity, characters or

property, they become a licensee. A licensing agreement is structured, stipulating the terms

and fees to use names and images on products.

Using the images of TV characters such as Hannah Montana or the Simpsons, or celebritiessuch as The Jonas Brothers, to sell products requires a license. A food or beverage

manufacturer can become a licensee to use Splenda to sweeten theirfoods or beverages. A

computer manufacturer can obtain a license from Microsoft to include their software, and

become a licensee.

Licensors

2.

Licensing can help make a product sell.

Companies strive to create brands, characters and celebrities that they can license to other

businesses. Licensing helps them increase their market share, drive consumer preference

and loyalty for their artists and brands, maximize exposure and increase sales revenue.

Licensing provides the channel to do so without getting into businesses that are outside oftheir "core" operations. For example, Hannah Montana is a character/entertainer -- not a

greeting card publisher or clothing retailer. But companies such as Wal-Mart are, and

consequently will enter into a licensing deal.

Lawyers and agents typically serve as licensor representatives, responsible for structuring

the terms and closing licensing deals. Licensors are paid royalties that are typically based

on sales, along with an upfront fee for licensing usage rights.


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Franchisees

3. If you want to open a business, you have several options. You can open a business underyour own chosen name -- or opt to open a franchise.

By opening a franchise, a business owner gains instant brand and name recognition,employee training, and advertising and marketing support. As a result, franchisees oftenstand a better chance of becoming profitable, increasing the odds for business survival.

Franchisors

4. Providing franchise opportunities allows companies to expand locations and at the sametime maintain control of their brand. Most often, this includes products, services, formulas,pricing, employee training and the overall look of the business.

Franchisors require franchisees to meet stringent qualifications, both financially andpersonally, before they are granted a franchise. They also require extensive

franchisee/owner training. Franchisors earn revenue by charging fees and getting apercentage of sales revenue.

Some Businesses Are More Than One

5. Big businesses are often a franchisor and a licensee. For example, McDonald's is afranchisor, selling franchise rights to qualified individuals to open a restaurant. McDonald'sis also and often a licensee for usage rights to images and characters from hit movies ortelevision shows such as Spiderman or SpongeBob SquarePants.

Licensing and franchising can be good bets for entrepreneurs to make their businesses

successful.

Franchising & Licensing - What are they?

and how can you benefit from them?

(The document is also available in PDF format)

By Ian Cockburn1

Almost everyone is familiar with the term franchising, or has at least had some contact with theproducts or services offered by franchises. What is franchising? How does it work? And why,over the last 10 to 20 years, has franchising become the fastest growing way of doing business injust about every country in the world? And What makes a Good Franchise the Four Is.


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Why are Franchises so Attractive?

There are a number of reasons why franchises have become the fastest growing way of doing business but the mostworthy explanation is that franchising and franchises are simply filling a market need.

The 1980s and 1990s brought radical changes to the employment market and the way people worked. A series of

oil-shocks and severe stock market corrections, a freeing up of the world economy, reduction in subsidies,government deregulation and downsizing has thrust into the job market capable, energetic and resourceful peoplewho want to work for themselves.

Franchisees are, in the majority of cases, people who have previously been employed by someone else and afranchise opportunity is seen as a more relaxed way of making the transition from working for an employer to beingself employed. The risk factor of a proven business is also seen as a better option than breaking totally new ground.

Most importantly though, franchises are invariably taken up by people who are prepared to invest in themselves,their personality and their skills - those fleeing the angst of office or corporate politics and looking for employmentfreedom and the rewards that hard work will bring.

Because franchises are a personal investment, not only in the equity invested in the business, but also in the time andenergy required to achieve success, it is important when choosing a franchise to take that a few commonsense

precautions.

Background

Franchising is a system of business that has grown steadily in the last 50 years and is estimated to account for morethan one-third of the worlds retail sales. There are few of us how who are not touched by the results of franchising.Franchises range from the ubiquitousMcDonalds to lawn mowing services such as Mr Green, valet services,medical and dental services, to book keeping services and even to services helping us to prepare our tax forms.

Franchising is not restricted just to fast food outlets and gardening contractors. There are now franchises formentoring managers and sportspeople and franchises for internet shopping.

Who knows what the future will bring? The only thing that we can be sure of, is that if there is a need in the marketplace, it is more than likely going to be filled by an innovative and creative business which is seeking to capitaliseon its market lead and Intellectual Property advantage through some form of franchising scheme.

Franchising What is it?

Franchising is a term which can be applied to just about any area of economic endeavour. Franchising encompassesproducts and services from the manufacture, supply for manufacture, processing, distribution and sale of goods, tothe rendering of services, the marketing of those services, their distribution and sale.

Definition of Franchising:

Franchising may be defined as a business arrangement which allows for the reputation, (goodwill)innovation, technical know-how and expertise of the innovator (franchisor) to be combined with

the energy, industry and investment of another party (franchisee) to conduct the business of

providing and selling of goods and services.

The fact that, as a method of doing business, franchise arrangements have grown so rapidly in the last 10 or 20 years(world wide) is due simply to the fact that franchises are an effective way of combining the strengths, skills andneeds of both the franchisor and the franchisee. To be truly successful, the one is reliant on the other.


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In most instances, franchising combines the know-how of the franchisor with the where-withall of the franchiseeand, in the more successful franchising systems, the energy of both.

Franchising the Basics how does it Work?

In a basic franchising arrangement the franchisor has developed a system for conducting business. The system has

been found to be successful. The franchisor wishing to emulate the success of that business system, usually in adifferent geographic area, establishes a blueprint for others also wishing to emulate this success to operate the same

business using the same name and same systems.

Advantages of Owning a Franchise

The main advantage of owning a franchise is the feeling of freedom that being self-employed brings. This freedomis tempered with the knowledge that the owner has invested in a proven system and has the training, support andencouragement of other franchisees and the franchisor.

Owning a franchise should also provide a semi-monopoly environment in which to conduct business in a particulararea. Generally, there is also an informed ready-made customer base. There will of course be competitors but the

franchisee will be granted the sole franchise for a given area and often will be given client listings or job sheets.

Most importantly though, being part of a franchise ensures the franchisee is part of an instantly recognisable brand,the product or service expectations that a brand brings, and the reputation gained by the brand over time.

A franchise also offers the franchisee with the ability to capitalise on the know-how and systems that have beenproven to be successful. The quality of the product or service provided is therefore in many ways guaranteed. Someof the advantages a franchise offers are:

y Freedom of employment

y Proven product or service outcomes

y Semi-monopoly; defined territory or geographical boundaries

y Proven brand, trade mark, recognition

y Shared marketing, advertising, business launch campaign costs

y Industry know-how

y Reduced risk of failure

y Access to proprietary products or services

y Bulk buying advantages

y On-going research and development

What Makes a Good Franchise? the four Is

Franchising to the uninformed is often seen as easy money or a get rich quick scheme.

These perceptions are usually the result of looking from the outside and seeing a successful, flourishing business,being run efficiently, with charm and grace - seemingly with a minimum of fuss.

Successful franchises are the result of innovation, initiative, investment and industry.


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A good franchise is always sparked by a good idea which fills a market need. The good idea, for example the Hire-a-Hubby, Mr Green or the All Around concepts happened along at the right time and at the right place The good idea was reinforced by the initiative and drive of their creator to make the idea work.

A blueprint system for repeating success was established, developed, updated and monitored requiring theinvestment of time, money and innovation. This innovation ensured that client expectations are met, anticipated

and managed and, of course the innovation resulted in a unique, memorable and exclusive name being devised andan unique brand established

Franchise Arrangement

The franchise arrangement is an arrangement whereby the franchisor permits licenses the franchisee, in exchangefor a fee, to exploit the system developed by the franchisor.

The franchised system is generally a package including the intellectual property rights such as the rights to use theTrade Mark, trade names, logos, and get-up associated with the business; any inventions such as patents ordesigns, trade-secrets, and know-how of the business and any relevant brochures, advertising or copyrighted worksrelating to the manufacture, sale of goods or the provision of services to customers. The Intellectual Property isunique to the business and provides the business with its competitive advantage and market niche.

Typical Franchise System

A typical franchise system will generally include:

1. A license to use the system

In return for an agreed amount the franchisee is granted a license to conduct his or her business along the linesprescribed by the franchisor. This will usually include the use of all relevant Intellectual Property, marketing andadvertising publications, store design and get-up, as well specialised equipment necessary to operate the systemsand on-going or development and improvements to the system.

2. A shared development and improvement obligation

Most franchising arrangements have an on-going shared development and improvement obligation which isencumbent on both the franchisor and franchisee. This requires a mutual trust and respect and a sharing of theoverall aims and goals of the franchise. The basic tenant for this approach is that what is good for one must be goodfor the other.

The franchisor is also obligated in the arrangement to nurture, encourage and provide assistance to the franchisee.

The franchisee for their part is required to maintain and promote the franchise and to conduct business prescribed inthe system manuals and best practice guidelines.

The franchisee also has the continuing obligation to pay maintenance fees to the franchisor in accordance with thefranchise arrangement. These fees usually include an advertising / marketing component as well as an on-goingmanagement service fee.

3. The franchisors right to determine how the business operates

Most Franchise arrangements contain a component which stipulates that the franchisee is to conduct the businessalong prescribed guidelines and in accordance with the franchise best operating practice. The franchisor for his part


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is required to maintain, distribute and update the manuals, operating procedures and quality requirements whenchanges are made and to provide on-going training.

The franchise arrangement will usually also require the franchisee to protect the Intellectual Property of thefranchise system, and to operate in accordance with territorial or geographical obligations agreed. Both parties will

be required to conform to the agreed accounting disclosure provisions.

The franchising arrangement is a legal document relying on contract law and inevitably on mutual trust betweenboth parties.

Licensing

There is no such thing as a standard license. Every arrangement is unique and has its own special requirements, aimsand objectives.

All licenses should be read and re-read and should be placed before a licensing professional or IP professionalbefore being signed.

Needless to say, every license should be clear to all parties concerned. The individual parties should be aware of theobligations that the contract places on them, the conditions that have to be met and the time lines by which specificfunctions are to be performed. All of these features should be transparent and measurable. Each party should also beacutely aware of the other parties responsibilities.

Territorial or geographical boundaries should be made clear, as should all payment obligations and the amounts thatare to be paid (and how they are calculated). All payment, dates should be clearly laid out, preferably in a schedule.

Penalties, such as default payments, breach of contract conditions, rights to assign, the term of the contract, and theright to renew are also important considerations that are often overlooked or not fully understood.

Bonus conditions might also be negotiated and should not be dismissed in a licensing agreement

There are, though certain features that should be considered in the development of every license. The following is alist of some of the things that should be considered:

y Is the license exclusive, i.e. granted to only one person, or non-exclusive?

y Can the licensee sub-license?

y Are there any limitations to the license eg, geographic or territorial?, minimum sales, mimimum

production requirement etc?

y What is the amount, frequency, and form of payment, eg either lump sum or by way of royalty, or

both, or other payment schedule?

y Who pays for prosecution and maintenance of any IP (patents, trade marks, designs)?

y How are any developments, modifications or improvements to be protected and who owns them?

y Who is responsible for filing for further improvement patents NZ/AU/overseas?

y In whose name will the applications be made in?


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y Are there specific clauses relating to co-operation of licensor in matters relating to the IP such as

infringement?

y Who pays for any matters such as preparation of the license, recordal of licensee, etc?

y Is there a required commitment on the part of the licensee to fully exploit the invention?

y Does the license contain a clause which allows for the license to be cancelled if the IP is not

being used?

y What is the term of license?

y Is there a right to renew?

y What are the conditions of termination?

y When are royalty or other payments due?

y If sub-licensing is permitted what payment does the licensor receive?

y What information is the licensee committed to providing to the licensor?

y What happens if the IP under which the license is granted is refused, infringed, opposed, revoked

or other?

y Is copyright a consideration?

y Does the licensee agree not to challenge the validity of the patent?

y Does the licensor agree to provide essential know-how?

y What provisions for any hardware, should the license be terminated?

y How will any disputes be resolved?

y What happens in the event of death of one of the parties?

What is the Difference between a Distribution, License and Franchise Agreement?

Distribution agreements, licenses and franchise agreements are all legal vehicles which allow business to beconducted efficiently and the business interests of both parties to be identified and protected.

The agreements do not have to be complicated documents shrouded in mystery. They should be simple scripts whichare easily understood and simple to read.

Ideally the agreements should lay a platform for the success of the business arrangement and should be reviewed at aregular basis.

No agreement should be entered into without seeking the advise of an IP professional or franchising lawyer.

Distribution Agreement

The majority of distributorships are non-exclusive. As a consequence a franchise may offer significant advantages interms of market presence dominance.

A distribution agreement is a contract between a manufacturer, producer or importer and the seller or distributor.


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The distributor may be an exclusive agent selling only those goods belonging to the producer or, as is normally thecase, the exclusive agent is the only distributor of a particular producers goods in the market. And exclusivedistributorship may allow the distributor to grant sub-distribution licenses.

License Agreement

A license arrangement is a business arrangement where a licensor via a monopoly right such as a Patent, a TradeMark, a design or a copyright has to exclusive right which prevents others from exploiting the idea, design, name orlogo commercially.

The license allows the licensee to use make and sell, the product or name for a fee without censure.

In a Trade Mark license, for example, the licensee will be granted full privilege to use the Trade Mark on goods orservices provided that the use is in accordance with agreed signage protocols and quality guidelines.

There is usually no training component, product development strategy and limited marketing support.

Franchise Agreement

As previously discussed, a franchising arrangement might be considered to be a more robust arrangement for newentrants into a line of business. The franchise agreement covers obligations on both parties and includes a training,mentoring and technical advise component for the franchisee. A franchise agreement is a specialised license and willcover all aspects of IP, user obligations and use provisions.

Things to be Aware of When Choosing a Franchise

Franchising is business. It is the buying and selling of goods and services and, like every business transaction,requires careful thought before the transaction action is completed.

Buying a franchise is just the same as buying into any business. The purchase needs to be made in the cold light of

day and not on impulse.

Balance sheets need to be looked at and bottom lines investigated. The franchise should also be compared withsimilar franchises in similar areas so the at pears are compared with pears and realistic expectations and incomesascertained.

The most overlooked aspect of franchising and one that is invariably taken for granted is the Intellectual Propertyowned by the franchisor or in some cases not owned by him.

An essential factor of a franchise is its name. This is how franchises products and services are brought, sold andmarketed. It is how its customers know the business. Particularly when entering into a new franchise system, or intoa new area it is imperative that the monopoly position encompassed in the name of the franchise is investigatedthoroughly.

The brand and the exclusivity that it brings to a business will after all form a large part of the purchase price of thefranchise and is one of the most attractive forces to potential customers.

A name-brand availability search is therefore essential and should be performed by a professional search service.

Other aspects of Intellectual Property such as patent ownership, copyright and marketing wishes should also beinvestigated and their ownership (right to use) determined.


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Just about all franchisees have a genuine passion for their products and the business that they are in so it isimportant that when choosing a franchise that it is not chosen because you like the product but with an eye to the

bottom line today and in the future. Conversely, a franchise shall not be chosen simply because the bottom line looksgood.

Bottom lines and profit can easily evaporate if there is no passion for the product, the business or a commitment to

the customer.

The Franchisor Starting a Franchise Chain

Franchising is in many ways as knowledge industry. The franchisor has as a result of innovation, intensive systemdevelopment and product refinement gained market acceptance and customer loyalty. The franchisor wishing toexploit his market position shares his knowledge with the franchisee.

The platform on which the franchise is built is its Intellectual Property. Franchisors gain their income by partingwith this knowledge.

The franchisor would be wise therefore to protect the Intellectual Property involved in the franchise and ensure themonopoly position is not eroded by seeking the advice of an IP professional [link to Pipers People] with the aim of(where appropriate) giving TradeMarks, Patent or Design rights.

The franchisor in order to successfully impart his knowledge and to assist franchisees also run successful businessesusing his methods will communicate his methods via basic operating procedures manual, quality assurance manualsand training manuals. The strongest most durable franchise invariably has the most comprehensive work manualsand maintenance programmes.

This aspect of starting a franchise is often the biggest hurdle facing prospective franchisors but it is, along with aconsistent brand, the platform which will bring the biggest reward. It is also the franchisors only assurance that thesystems, innovation and development (the IP) that may have taken to refine are carried out in a consistent mannerand the investment in the Intellectual Property is protected and not diluted.

GoodwillGoodwill has been defined as The benefit and advantage of the good name, reputation and correction of

a business with its customers, suppliers, and distributors.

It is often referred to as the attractive force, which brings in custom.

Goodwill as the subject of proprietary rights cannot exist by itself. It has no independent existence apart from thebusiness to which it is attached.

The most obvious form of goodwill is seen as the name sign or trademarks under which a business trades and bywhich it is recognized in the market place.

In franchising, a franchiser by building a successful brand through marketing, good practice and innovation createsgoodwill which is utilised by the franchisees to further give the goodwill and add value to the business.

The franchisee will undoubtedly pay for this attractive force and the immediate customer recognition that it brings toa new business in the franchise arrangement.

In most agreements new franchises will have limited reputation or goodwill and the payments they be minimized.As the business grows and market recognition increases, the goodwill coming to the business will also increase.


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Consequently, there is a stronger attractive force bringing with it more custom, and the payments for even newentrants will be substantially greater than for earlier franchisees.

Goodwill therefore is an important component when valuing a business and should be evaluated and protected. Goodwill can be most easily be defined andprotected by gaining Registered Trade Marks for the trading name and logs of the franchise, and even in some cases for the shapes and colours of its

goods.

Goodwill may also be protected by asserting copyright relating, to manuals, advertising and marketing brochures, recipes, management and accountingsoftware and even the design and layout of shop premises, the design of employees uniforms and TV ads.

Disclaimer: PIPERS endeavors to be as accurate as possible when preparing its articles and has taken all

reasonable steps to ensure that the information contained herein is accurate. The contents of this article arefor purposes of information only. If you require any clarification please seek the advice of an IP professional

or contact http://www.piperpat.com/

The author is Web Editor, Manager Advertising & Marketing at PIPERS - Global, A Patent attorney Firm withOffices in the United Kingdom, New Zealand, Australia, Singapore and Malaysia. The views expressed in this

article are those of the author and do not necessarily represent those of this magazine.

Countertrade means exchanging goods or services which are paid for, in whole or part, withother goods or services, rather than with money. A monetary valuation can however be used incounter trade for accounting purposes. In dealings between sovereign states, the termbilateraltrade is used.

Contents

[hide]

y 1Types of countertrade

y 2Necessity

y 3Role of countertrade in the world market

y 4References

[edit] Types of countertrade

There are five main variants of countertrade:

y Barter: Exchange of goods or services directly for other goods or services without the use of

money as means of purchase or payment. Barter is the direct exchange of goods between two

parties in a transaction. The principal exports are paid for with goods or services supplied from

the importing market. A single contract covers both flows, in its simplEst form involves no cash.

In practice, supply of the principal exports is often held up until sufficient revenues have been

earned from the sale of bartered goods. One of the largest barter deals to date involved

Occidental Petroleum Corporations agreement to ship sulphuric acid to the former Soviet Union

for ammonia urea and potash under a 2 year deal which was worth 18 billion euros.

Furthermore,during negotiation stage of a barter deal, the seller must know the market price for


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items offered in trade. Bartered goods can range from hams to iron pellets, mineral water,

furniture or olive-oil all somewhat more difficult to price and market when potential customers

must be sought.

y Switch trading: Practice in which one company sells to another its obligation to make a purchase

in a given country.

y Counter purchase: Sale of goods and services to a country by a company that promises to make

a future purchase of a specific product from the country.

y Buyback: occurs when a firm builds a plant in a country - or supplies technology, equipment,

training, or other services to the country and agrees to take a certain percentage of the plant's

output as partial payment for the contract.

y Offset: Agreement that a company will offset a hard - currency purchase of an unspecified

product from that nation in the future. Agreement by one nation to buy a product from another,

subject to the purchase of some or all of the components and raw materials from the buyer of

the finished product, or the assembly of such product in the buyer nation.

[edit] Necessity

Countertrade also occurs when countries lack sufficient hard currency, or when other types ofmarket trade are impossible.

In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approvalunder Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oildelivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued atabout $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-for-food program.

The Security Council noted: "... although locally produced food items have become increasinglyavailable throughout the country, most Iraqis do not have the necessary purchasing power to buythem. Unfortunately, the monthly food rations represent the largest proportion of their householdincome. They are obliged to either barter or sell items from the food basket in order to meet theirother essential needs. This is one of the factors which partly explains why the nutritionalsituation has not improved in line with the enhanced food basket. Moreover, the absence ofnormal economic activity has given rise to the spread of deep-seated poverty."

[edit] Role of countertrade in the world market

Noted US economist Paul Samuelson was skeptical about the viability of countertrade as amarketing tool, claiming that "Unless a hungry tailor happens to find an undraped farmer, who

has both food and a desire for a pair of pants, neither can make a trade". (This is called "doublecoincidence of wants".) But this is arguably a too simplistic interpretation of how marketsoperate in the real world. In any real economy, bartering occurs all the time, even if it is not themain means to acquire goods and services.

The volume of countertrade is growing. In 1972, it was estimated that countertrade was used bybusiness and governments in 15 countries; in 1979, 27 countries; by the start of 1990s, around


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100 countries. (Vertariu 1992). A large part of countertrade has involved sales of militaryequipment (weaponry, vehicles and installations).

More than 80 countries nowadays regularly use or require countertrade exchanges. Officials ofthe General Agreement on Tariffs and Trade (GATT) organization claimed that countertrade

accounts for around 5% of the world trade. The British Department of Trade and Industry hassuggested 15%, while some scholars believe it to be closer to 30%, with east-west trade havingbeen as high as 50% in some trading sectors of Eastern European and Third World Countries forsome years. A consensus of expert opinions (Okaroafo, 1989) has put the percentage of the valueof world trade volumes linked to countertrade transactions at between 20% to 25%.

According to an official US statement, "The U.S. Government generally views countertrade,including barter, as contrary to an open, free trading system and, in the long run, not in theinterest of the U.S. business community. However, as a matter of policy the U.S. Governmentwill not oppose U.S. companies' participation in countertrade arrangements unless such actioncould have a negative impact on national security." (Office ofManagement and Budget; "Impact

of Offsets in Defense-related Exports," December, 1985).

LEARNING

OBJECTIVESThe purpose of this section is to introduce the student to

o the importance of Countertrade and

o demonstrate, by example, the different ways Countertrade can be done

.

An introduction to Countertrade, and the forms in

which Countertrade can take place, may be seen on

the website of the London Countertrade Roundtable.www.londoncountertrade.org/index.html

.

Countertrade

Explained

LCR explains

"Countertrade is inherently an ad hoc activity - practice varies according to local

regulations and requirements, the nature of the goods to be exported and the

current priorities of thee parties involved. Also, the terms used to describe the main

modes of trading vary, often interchangeably causing confusion. "

- which is a fancy way of saying - countertrade can be a lot of things depending onwho is involved

permission to quote , and link, given to Prof. Richardson by Robert Scallon [email protected] an email 2004 Dec 02. Copy of the email is on file in Richardson's permissions binder

.


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Countertrade

and

Barter

- an

introduction

from www.cob.ohio-state.edu/citm/expa/countertrade.html

from Fisher College of Business, Ohio State University

"Countertrade consists of transactions which have as a basic characteristic a linkage,legal or otherwise, between exports and imports of goods or services in addition to, orin place of, financial settlements. Countertrade can be used as an effective

international business tool. Countertrade plays a part in 20-25 percent of world trade."

forms of countertradehttp://www.cob.ohio-state.edu/citm/expa/countertrade_list.html

.

Countertrade

and

Barter

- an

introduction

Why Countertrade?

1. The world debt crisis has made ordinary trade financing very risky.- large banks and financial institutions are "risk adverse" in many of the hostileregions of the world opening to trade

2. Many countries cannot obtain the trade credit or financial assistance to pay fordesired imports.- the IMF and World Bank are increasingly restrictive in the way they allowgovernments to operate3. Countries are increasingly returning to the notion of bilateralism as a way to reducetrade imbalances.- some multilateral blocks have developed - but politics is easier on a one2one basis -so many nations find it easier to cur deals directly with another single country4. Countertrade is often viewed as an excellent mechanism to gain entry into newmarkets. The party receiving the goods may become a new distributor, opening upnew international marketing channels and ultimately expanding the market.- especially where 4X problems are challenging to solve5. Providing countertrade services helps sellers differentiate its products from those of

competitors.- flexibility is key to winning business in a global market that is more and morecompetitive to vendors

from Fisher College of Business, Ohio State University - with notes added by witiger

.

Countertrade

and

Barter

- an

introduction

Why Countertrade?

Elderkin & Norquist, in their book "Creative Countertrade," say that companiescountertrade in order to:

y Expand or maintain foreign marketsy Increase salesy Sidestep liquidity problemsy Repatriate blocked fundsy Clean up bad debt situationsy Build customer relationshipsy Keep from losing markets to competitors


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y Gain foreign contracts for future sales

y Find lower-cost purchasing sources

.

Countertrade

and

Barter

- an

introduction

According to the LCR, There are

Four main reasons why countertrade is used:

y Money - some people cannot pay in the currency you want"to enable trade to take place in markets which are unable to pay for imports.This can occur as a result of a non-convertible currency, a lack of commercialcredit or a shortage of foreign exchange"

y The Political Environment - local jobs and industry"to protect or stimulate the output of domestic industries (including agricultureand mineral extraction) and to help find new export markets"

y The Political Environment - rules and regulations to protect the host country"as a reflection of political and economic policies which seek to plan andbalance overseas trade"

y "to gain a competitive advantage over competing suppliers."

.

.

Countertrade

Strategiesfrom http://www.barternews.com/american_way.htm

By: C.G. Alex and Barbara Bowers

Four Countertrade Strategies

Defensive. "Companies with a defensive countertrade strategy ostensibly do notcountertrade at all; however, they make many countertrade-type arrangements withbuyer countries. These companies will avoid any contractual countertradeobligations, but they make it clear to the country that they will reciprocate in someway for the sale. Some companies will sell their products at rock-bottom prices andpromise to help the country with export development."

Passive. "Companies with passive countertrade strategies regard countertrade as anecessary evil. They participate in countertrade at minimal level, on an ad hoc basis.Some companies operate this way because they have product leverage (i.e., little orno competition), while others follow the passive strategy because of disinterest incountertrade."

Reactive. "This is the most common strategy among American companies.Companies with reacting strategies will cooperate with the buyer country inoffset/countertrade requirements, they use countertrade strictly as a competitive tool,on the theory that they cannot make the sale unless they agree to countertrade."

Proactive. "Companies with proactive strategies have made a commitment tocountertrade. They use countertrade aggressively as a marketing tool, and areinterested in making trading an active and profitable part of their business. They


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regard offset and counterpurchase as an opportunity to make money through trading,rather than as an inconvenience."

..

Types of

countertrades

According to the LCR, There areSix main types of countertrade

1. Offset2. Counterpurchase3. Tolling4. Barter5. Buyback6. Switch Trading

.

Types ofcountertrades

As explained by the LCF website FAQwww.londoncountertrade.org/countertradefaq.htm

1. Offset

"Offset has traditionally been used by governments around the world when theyhave made major purchases of military goods but is becoming increasinglycommon in other sectors. There are two distinct types:

A. direct offset: "the supplier agrees to incorporate materials, components orsub-assemblies which are procured from the importing country. In some largecontracts, successful bidders may be required to establish local production. Direct

offset has been particularly common for trade in defence systems and aircraft."B. indirect offset: "the purchaser requires suppliers to enter into long termindustrial (and other) co-operation and investment but these are unconnnected tothe supply contract and may be either defence related or in the civil sector."

"The overall objective of offset either, direct or indirect, in the defence sectorgenerally to promote import substitution and to minimise the balance of paymentsdeficit for military purchases by developiing an indigenous industrial defencecapability."

.

Types of

countertrades

2. Cou

nterpu

rchase

"A foreign supplier undertakes to purchase goods and services from thepurchasing country as a condition of securing the order. Counterpurchase isgenerally imposed for two reasons: first, to stimulate exports and second, toalleviate the balance of payment deficit resulting from imported goods."

.


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Types of

countertrades

3. Tolling

Manufacturers, in regions such as the Former Soviet Union, may sometimes beunable to service customers because they lack the foreign exchange to buy rawmaterials. In a tolling deal, a supplier himself provides the raw material (steelingots, say) and hires capacity of the factory to turn it into finished goods (e.g.

steel tubes). These are then bought by a final customer who pays the supplier incash - throughout the process the supplier retains ownership of the material as it isprocecessed by the factory." - this is similar to Contract Manufacturing where theContractor provides much of the materials.

.

Types of

countertrades

4. Barter

Barter is one of the most common methods of Countertrade. "In a barter deal,goods are exchanged for goods - the principal export is paid for with goods (orservices) from the importing market. A single contract covers both flows and in the

simpler case, no cash is involved. In practice, however, the supply of the principalexport is often released only when the sale of the bartered goods has generatedsufficient cash."This means if Country A sells mining equipment to Country B in return for cigars -they will probably hold some of the mining equipment back until they have madesome good profit from the cigars.

.

Types of

countertrades

5. Buyback

"Here, suppliers of capital plant or equipment agree to be paid by the future output

of the investment concerned. For example exporters of equipment for a chemicalplant may be repaid with part of the resulting output from the factory. This practiceis most common with exports of process plant, mining equipment and similarorders. Buyback arrangements tend to be much longer term and for largerammounts than counterpurchase or barter deals."

.

Types of

countertrades

6. Switch Trading

"Imbalances in long term bilateral trading agreements sometimes lead to theaccumulation of uncleared credit surpluses in one or other country, For example,Brazil at one time had a large credit surplus with Poland. These surpluses cansometimes be tapped by third countries so that, for example UK exports to Brazilcould be financed from the sale of Polish goods to the UK or elsewhere. Suchtransactions are known as switch' or swap' deals because they typically involveswitching the documentation (and destination) of goods on the high seas."


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LCR advises that "...deals seldom fit these categories precisely. It is not unusual

for a large export deal to involve several countertrade arrangements - for example,

some long term buyback plus counterpurchase or barter to finance initial down

payments."

.

The L.C.R.

"The London Countertrade Roundtable (LCR) was established in 1988 as a focal

point for all those involved in countertrade, offset and related activities. Its main

objective is "to bring together companies and individuals engaged in the profession

of countertrade in its broadest sense", and to promote co-operation, exchange of

information, and opportunities for networking."

.

Countertrade

and

Barter

Pepsi & Vodka

The countertrade arrangement where the rights to sell Russian vodka in the US in

exchange for Pepsi (to be sold in Russia) was a huge story years ago

John G. Swanhaus, Jr., vice president, Pepsi Cola CompanyAs president of PepsiCo Wines & Spirits International, a major part of hisresponsibility was PepsiCo's supply to the U.S. market of Stolichnaya Russian Vodka

as part of a countertrade agreement to sell Pepsi products in the Soviet Union.

Pepsi & Vodka -how did it work,Pepsi-Cola delivers syrup that is paid for with Stolichnaya Vodka. Pepsi has themarketing rights of all Stolichnaya Vodka in the U.S.

Recently Pepsi has made another innovative step by taking 17 submarines, a cruiser,a frigate, and a destroyer in payment for Pepsi products. In turn, this rag tag fleet of20 naval vessels will be sold for scrap steel, thereby paying for Pepsi products beingmoved to the Soviet Union.

The International Finance Corporation (IFC) promotes sustainable private sector investmentin developing countries.

IFC is a member of the World Bank Group and is headquartered in Washington, DC. It sharesthe primary objective of all World Bank Group institutions: to improve the quality of the lives ofpeople in its developing member countries.


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Established in 1956, IFC is the largest multilateral source of loan and equity financing for privatesector projects in the developing world. It promotes sustainable private sector developmentprimarily by:

1. Financing private sector projects and companies located in the developing world.2

. Helping private companies in the developing world mobilize financing in international financialmarkets.

3. Providing advice and technical assistance to businesses and governments.

Contents

[hide]

y 1Ownership and management

y 2Funding

y 3Activities

y

4

See alsoy 5References

y 6External links

[edit] Ownership and management

IFC has 182 member countries , which collectively determine its policies and approveinvestments. To join IFC, a country must first be a member of the International Bank forReconstruction and Development (IBRD). IFC's corporate powers are vested in its Board ofGovernors, to which member countries appoint representatives. IFC's share capital, which is paid

in, is provided by its member countries, and voting is in proportion to the number of shares held.IFC's authorized capital (the sums contributed by its members over the years) is $2.4 billion;IFC's net worth (which includes authorized capital and retained earnings) was $9.8 billion as ofJune 2005.[2]

The Board of Governors delegates many of its powers to the Board of Directors, which iscomposed of the Executive Directors of the IBRD, and which represents IFC's membercountries. The Board of Directors reviews all projects.

The President of the World Bank Group, Robert Zoellick, also serves as IFC's president. IFC'sCEO and Executive Vice President, Lars H. Thunell, is responsible for the overall management

of day-to-day operations. He was appointed onJanuary 15, 2006.

Although IFC coordinates its activities in many areas with the other institutions in the WorldBank Group, IFC generally operates independently as it is legally and financially autonomouswith its own Articles of Agreement, share capital, management and staff.


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[edit] Funding

The IFC's equity and quasi-equity investments are funded out of its paid-in capital and retainedearnings (which comprise its net worth). Strong shareholder support, triple-A ratings, and asubstantial capital base allow the IFC to raise funds on favorable terms in international capital

markets. As ofJune 30, 2006, retained earnings represented almost three-quarters of the IFC's$9.8 billion net worth.

[edit] Activities

Within the World Bank Group, the World Bank finances projects with sovereign guarantees,while the IFC finances projects without sovereign guarantees. This means that the IFC isprimarily active in private sector projects, although some projects in the public sector (at themunicipal or sub-national level) have recently been funded.

Private sectorfinancing is IFC's main activity, and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history). Like a bank, IFC lends orinvests its own funds and borrowed funds to its customers and expects to make a sufficient risk-adjusted return on its global portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in poverty inline with its mandate. In practice, this is broadly interpreted, but considerable time and effort isdevoted to both (i) selecting projects with positive developmental outcomes, and (ii) improvingthe developmental outcome of projects by various means.

IFC provides both investment and advisory services. IFC also carries out technical cooperationprojects in many countries to improve the investment climate. These activities may be linked to a

specific investment project, or, increasingly, to broader goals such as improving the legislativeenvironment for a specific industry. IFC's technical cooperation projects are generally funded bydonor countries or from IFC's own budget.

IFC's Advisory Services focus on five core areas: Access to Finance, Business EnablingEnvironment, Environmental & Social Sustainability, Infrastructure Advisory, and CorporateAdvice. Advisory services to expand access to finance (A2F) often accompanies IFC's financialinvestments, and includes assistance to banks and specialized financial institutions in improvingtheir ability to provide financial services to micro, small, and medium enterprises.

After successful pilots in several countries, the WorldHotel-Linkproject was successfully spun

off from the IFC on 31 March 2006 and is now a private company with global reach helpinglocally owned small scale travel service providers in developing-world destinations overcomemarket access barriers.

CommDev (The Oil, Gas and Mining Sustainable Community Development Fund) is a fundingmechanism for practical capacity building, training, technical assistance, implementationsupport, awareness-raising, and tool development. Operating flexibly and efficiently, CommDevserves as an integral component of an extractive industry project, enhancing, accelerating, and


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extending the value-added support given to communities beyond the compliance requirements ofIFC investment projects and World Bank loan.

Critics have questioned the sustainability of some IFC-funded projects. The IFC recentlyinvested $9 million in the upgrading of a slaughterhouse facility in the Amazon region owned by

Brazil's biggest beef producer, despite opposition from local NGOs and the Sierra Club.

[3]

In2009 an internal audit found that the IFC had ignored its own environmental and socialprotection standards when it approved nearly $200 million in loan guarantees for palm oilproduction in Indonesia

[4].

IFC or International Finance Corporation boosts private sector investments across different developingnations. This helps in reduction of poverty and social advancements. International Finance Corporation is amember of the World Bank Group. With its headquarter situated in Washington, World bank successfully

operates across different global destinations. International Finance Corporation has contributed significantlyin improvement of living standards in the developing nations.

International Finance Corporation was established in the year 1956 and since then it has been a source ofloan and equity financing for various private sector projects.

Some of the major ways followed by IFC for development of private sector are as mentioned below:

y IFC has helped the private companies in mobilizing finances in international financial markets

y Financing private sector projects located in the developing world. It has provided advice andtechnical assistance to businesses and governmental agencies

At present International Finance Corporation has around 179 member countries. The policies and strategies

of International Finance Corporation are determined by the representatives from the member countries. The

member countries of International Bank for Reconstruction and Development (IBRD) are eligible to become

members of the International Bank for Reconstruction and Development (IBRD).

The governing body of International Finance Corporation comprise of Board of Governors and Board of

Directors. The Board of Director is composed of Executive directors or ED's and almost all of the projects arereviewed by the Board of Directors.

Beside core investment activities, a wide range of technical cooperation projects are also promoted by

International Finance Corporation. These activities often remain linked to specific investment projects.

IFC's technical cooperation activities are usually funded by donor countries. IFC usually functions

independently as the organization is financially and legally autonomous. It has its own Articles of

Agreement, management, staff, share capital etc.


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International Finance Corporation (IFC)

The International Finance Corporation (IFC) is a Washington, DC-headquartered organization

that promotes private sector investments in developing countries. To obtain assistance from the

IFC, countries must become its members. The organization has a total of181 members. TO

become a member of the IFC, a country has to be a member of the World Bank. It is also

required to sign the Worlds Articles of Agreement and deposit its Instrument of Acceptance at

the Corporate Secretariat of the World Bank Group. The primary objective of the IFC is the

same as that of the World Bank.

What is the IFC?

The IFC was founded in 1956 and is a member of the World Bank Group. It provides

investments to promote the private sector in developing countries. The organization also

provides technical assistance and consultations to businesses and government. This is done

with the aim of enhancing the standard of living of the people in these nations. The IFC's

advisory services focus on access to finance, business enabling environment, environmental &

social sustainability, infrastructure advisory, and corporate advice.

IFC: How It Works

The organization provides loans and equity financing for private sector industries in developing

nations. The equity investments are funded from the organizations retained earnings and paid-

in capital. The IFC also helps private companies mobilize financing in the international financial

markets. This is made possible because of the IFCs triple-A ratings, strong shareholder support

and considerable capital base.

IFC: Main Countries Involved


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Countries that actively contribute to the efficient functioning of the IFC include Australia, Austria,

Belgium, Canada, France, Greece, India, Switzerland, the United Kingdom and the United

States. Besides these countries, other government entities also support the IFC.

IFC: Achievements

The IFC has successfully launched and promoted projects in different countries. Some of these

are the Bujagali Hydro Project, Azerbaijan Advisory Projects, IFC against AIDS, Russia

Corporate Governance and the WorldHotel-Link project.

IFC: Pipeline

Some of the important projects in the IFCs pipeline as of May 2009 are:

y Assistance to Saudi Banks to cope with risks

y Investment in Kazakhstan retail to create jobs and fuel growth

y Trade finance expansion with the Banco de Credito of Bolivia

y Launch of National Strategy for business inspection improvement in Jordan


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29/93

The WorldTrade Organization (WTO) is an organization that intends to supervise andliberalizeinternational trade. The organization officially commenced on January 1, 1995 underthe Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT),which commenced in 1948. The organization deals with regulation of trade between participatingcountries; it provides a framework for negotiating and formalizing trade agreements, and a

dispute resolution process aimed at enforcing participants' adherence to WTO agreements whichare signed by representatives of member governments and ratified by theirparliaments.[4][5]Mostof the issues that the WTO focuses on derive from previous trade negotiations, especially fromthe Uruguay Round (1986-1994).

The organization is currently endeavoring to persist with a trade negotiation called the DohaDevelopment Agenda (or Doha Round), which was launched in 2001 to enhance equitableparticipation of poorer countries which represent a majority of the world's population. However,the negotiation has been dogged by "disagreement between exporters of agricultural bulkcommodities and countries with large numbers of subsistence farmers on the precise terms of a'special safeguard measure' to protect farmers from surges in imports. At this time, the future of

the Doha Round is uncertain."

[6]

The WTO has 153 members,[7] representing more than 97% of total world trade[8] and 30observers, most seeking membership. The WTO is governed by a ministerial conference,meeting every two years; a general council, which implements the conference's policy decisionsand is responsible for day-to-day administration; and a director-general, who is appointed by theministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva,Switzerland.


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Contents

[hide]

y 1History

o 1.1ITO and GATT 1947o 1.2GATT rounds of negotiations

1.2.1From Genve to Tokyo

1.2.2Uruguay Round

o 1.3Ministerial conferences

o 1.4Doha Round

y 2Functions

y 3Principles of the trading system

y 4Organizational structure

o 4.1Voting system

y 5Dispute settlement

y 6Accession and membership

o 6.1Accession process

o 6.2Members and observers

y 7Agreements

y 8Effectiveness

y 9See also

y 10References and notes

y 11External links

o 11.1Official WTO pages

o 11.2Government pages on the WTO

o 11.3Media pages on the WTO

o 11.4Non-governmental organization pages on the WTO

[edit] History

See also: Timeline of the World Trade Organization

Gunjan KothariMihir Soni

[edit] ITO and GATT 1947

See also: International Trade Organization


31/93

Harry Dexter White (l) and John Maynard Keynes at the Bretton Woods Conference Both economists

had been strong advocates of a liberal international trade environment, and recommended the

establishment of three institutions: the IMF (fiscal and monetary issues), the WorldBank (financial and

structural issues), and the ITO (international economic cooperation).[9]

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was establishedafterWorld War II in the wake of other new multilateral institutions dedicated to internationaleconomic cooperation notably the Bretton Woods institutions known as the World Bankandthe International Monetary Fund. A comparable international institution for trade, named theInternational Trade Organization was successfully negotiated. The ITO was to be a UnitedNations specialized agency and would address not only trade barriers but other issues indirectly

related to trade, including employment, investment, restrictive business practices, andcommodity agreements. But the ITO treaty was not approved by the U.S. and a few othersignatories and never went into effect.[10][11][12]

In the absence of an international organization for trade, the GATT would over the years"transform itself" into a de facto international organization.[13]

[edit] GATT rounds of negotiations

See also: General Agreement on Tariffs and Trade

The GATT was the only multilateral instrument governing international trade from 1948 until

the WTO was established in 1995.[14] Despite attempts in the mid 1950s and 1960s to createsome form of institutional mechanism for international trade, the GATT continued to operate foralmost half a century as a semi-institutionalized multilateral treaty regime on a provisionalbasis.[15]


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[edit] From Genve to Tokyo

Seven rounds of negotiations occurred under the GATT. The first real GATT trade roundsconcentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties broughtabout a GATT anti-dumping Agreement and a section on development. The Tokyo Round during

the seventies was the first major attempt to tackle trade barriers that do not take the form oftariffs, and to improve the system, adopting a series of agreements on non-tariff barriers, whichin some cases interpreted existing GATT rules, and in others broke entirely new ground. Becausetheseplurilateral agreements were not accepted by the full GATT membership, they were ofteninformally called "codes". Several of these codes were amended in the Uruguay Round, andturned into multilateral commitments accepted by all WTO members. Only four remainedplurilateral (those on government procurement, bovine meat, civil aircraft and dairy products),but in 1997 WTO members agreed to terminate the bovine meat and dairy agreements, leavingonly two.[14]

[edit] Uruguay Round

During the Doha Round, the US government blamed Brazil and India for being inflexible, and the EU for

impeding agricultural imports.[16]

The President ofBrazil, Luiz Incio Lula da Silva, responded to the

criticisms by arguing that progress would only be achieved if the richest countries (especially the US and

countries in the EU) make deeper cuts in their agricultural subsidies, and further open their markets for

agricultural goods.[17]

Main article: Uruguay Round

Well before GATT's 40th anniversary, its members concluded that the GATT system wasstraining to adapt to a new globalizing world economy.[18][19] In response to the problemsidentified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts ofcertain countries' policies on world trade GATT could not manage etc.), the eighth GATT round known as the Uruguay Round was launched in September 1986, in Punta del Este,

Uruguay.

[18]

It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend thetrading system into several new areas, notably trade in services and intellectual property, and toreform trade in the sensitive sectors of agriculture and textiles; all the original GATT articleswere up for review.[19] The Final Act concluding the Uruguay Round and officially establishingthe WTO regime was signed during the April 1994 ministerial meeting at Marrakesh, Morocco,and hence is known as the Marrakesh Agreement.[20]


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The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of theUruguay Round negotiations (a distinction is made between GATT 1994, the updated parts ofGATT, and GATT 1947, the original agreement which is still the heart of GATT 1994).

[18]GATT

1994 is not however the only legally binding agreement included via the Final Act at Marrakesh;a long list of about 60 agreements, annexes, decisions and understandings was adopted. The

agreements fall into a structure with six main parts:

y The Agreement Establishing the WTO

y Goods and investment the Multilateral Agreements on Trade in Goods including the GATT

1994 and the Trade Related Investment Measures

y Services the General Agreement on Trade in Services

y Intellectual property the Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS)

y Dispute settlement (DSU)

y Reviews of governments' trade policies (TPRM)[21]

[edit] Ministerial conferences

The topmost decision-making body of the WTO is the Ministerial Conference, which usuallymeets every two years. It brings together all members of the WTO, all of which are countries orcustoms unions. The Ministerial Conference can take decisions on all matters under any of themultilateral trade agreements. The inaugural ministerial conference was held in Singapore in1996. Disagreements between largely developed and developing economies emerged during thisconference over four issues initiated by this conference, which led to them being collectivelyreferred to as the "Singapore issues". The second ministerial conference was held in Geneva inSwitzerland. The third conference in Seattle, Washington ended in failure, with massivedemonstrations and police and National Guard crowd control efforts drawing worldwideattention. The fourth ministerial conference was held in Doha In Persian Gulfnation ofQatar.The Doha Development Round was launched at the conference. The conference also approvedthe joining of China, which became the 143rd member to join. The fifth ministerial conferencewas held in Cancn, Mexico, aiming at forging agreement on the Doha round. An alliance of 22southern states, the G20 developing nations (led by India, China[22], Brazil, ASEAN led by thePhilippines), resisted demands from the North for agreements on the so-called "Singaporeissues" and called for an end to agricultural subsidies within the EU and the US. The talks brokedown without progress.

The sixth WTO ministerial conference was held in Hong Kong from 13-18 December 2005. Itwas considered vital if the four-year-old Doha Development Agenda negotiations were to moveforward sufficiently to conclude the round in 2006. In this meeting, countries agreed to phase outall their agricultural export subsidies by the end of 2013, and terminate any cotton exportsubsidies by the end of 2006. Further concessions to developing countries included an agreementto introduce duty free, tariff free access for goods from the Least Developed Countries, followingthe Everything but Arms initiative of the European Union but with up to 3% of tariff linesexempted. Other major issues were left for further negotiation to be completed by the end of2010. The WTO General Council, on 26 May 2009, agreed to hold a seventh WTO ministerialconference session in Geneva from 30 November-3 December 2009. A statement by chairmanAmb. Mario Matus acknowledged that the prime purpose was to remedy a breach of protocol


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requiring two-yearly "regular" meetings, which had lapsed with the Doha Round failure in 2005,and that the "scaled-down" meeting would not be a negotiating session, but "emphasis will be ontransparency and open discussion rather than on small group processes and informal negotiatingstructures". The general theme for discussion is "The WTO, the Multilateral Trading System andthe Current Global Economic Environment"[23]

[edit] Doha Round

Main article: Doha Round

The Doha Development Round started in 2001 and continues today.

The WTO launched the current round of negotiations, the Doha Development Agenda (DDA) orDoha Round, at the fourth ministerial conference in Doha, Qatarin November 2001. The Doharound was to be an ambitious effort to make globalization more inclusive and help the world'spoor, particularly by slashing barriers and subsidies in farming.[24] The initial agenda comprisedboth further trade liberalization and new rule-making, underpinned by commitments to

strengthen substantial assistance to developing countries.

[25]

The negotiations have been highly contentious and agreement has not been reached, despite theintense negotiations at several ministerial conferences and at other sessions. Disagreements stillcontinue over several key areas including agriculture subsidies.[26]

[show]GATT and WTO trade rounds[27]

[edit] Functions

Among the various functions of the WTO, these are regarded by analysts as the most important:

y It oversees the implementation, administration and operation of the covered agreements.[28][29]

y It provides a forum for negotiations and for settling disputes.[30][31]

Additionally, it is the WTO's duty to review and propagate the national trade policies, and toensure the coherence and transparency of trade policies through surveillance in global economicpolicy-making.[29][31] Another priority of the WTO is the assistance ofdeveloping, least-developed and low-income countries in transition to adjust to WTO rules and disciplines throughtechnical cooperation and training.[32]

The WTO is also a center of economic research and analysis: regular assessments of the globaltrade picture in its annual publications and research reports on specific topics are produced by


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the organization.[33] Finally, the WTO cooperates closely with the two other components of theBretton Woods system, the IMF and the World Bank.[30]

[edit] Principles of the trading system

The WTO establishes a framework for trade policies; it does not define or specify outcomes.That is, it is concerned with setting the rules of the trade policy games.[34] Five principles are ofparticular importance in understanding both the pre-1994 GATT and the WTO:

1. Non-Discrimination. It has two major components: the most favoured nation (MFN) rule, andthe national treatment policy. Both are embedded in the main WTO rules on goods, services,

and intellectual property, but their precise scope and nature differ across these areas. The MFN

rule requires that a WTO member must apply the same conditions on all trade with other WTO

members, i.e. a WTO member has to grant the most favorable conditions under which it allows

trade in a certain product type to all other WTO members.[34] "Grant someone a special favour

and you have to do the same for all other WTO members."[35] National treatment means that

imported goods should be treated no less favorably than domestically produced goods (at leastafter the foreign goods have entered the market) and was introduced to tackle non-tariff

barriers to trade (e.g. technical standards, security standards et al. discriminating against

imported goods).[34]

2. Reciprocity. It reflects both a desire to limit the scope offree-riding that may arise because ofthe MFN rule, and a desire to obtain better access to foreign markets. A related point is that for

a nation to negotiate, it is necessary that the gain from doing so be greater than the gain

available from unilateral liberalization; reciprocal concessions intend to ensure that such gains

will materialise.[36]

3. Binding and enforceable commitments. The tariff commitments made by WTO members in amultilateral trade negotiation and on accession are enumerated in a schedule (list) of

concessions. These schedules establish "ceiling bindings": a country can change its bindings, but

only after negotiating with its trading partners, which could mean compensating them for loss of

trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute

settlement procedures.[35][36]

4. Transparency. The WTO members are required to publish their trade regulations, to maintaininstitutions allowing for the review of administrative decisions affecting trade, to respond to

requests for information by other members, and to notify changes in trade policies to the WTO.

These internal transparency requirements are supplemented and facilitated by periodic country-

specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM).[37]

The WTO system tries also to improve predictability and stability, discouraging the use ofquotas

and other measures used to set limits on quantities of imports.[35]

5. Safety valves. In specific circumstances, governments are able to restrict trade. There are three

types of provisions in this direction: articles allowing for the use of trade measures to attainnoneconomic objectives; articles aimed at ensuring "fair competition"; and provisions

permitting intervention in trade for economic reasons.[37]

Exceptions to the MFN principle also

allow for preferential treatment ofdeveloping countries, regional free trade areas and customs

unions.[citation needed]


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[edit] Organizational structure

The General Council has multiple bodies which oversee committees in different areas, and theyare the following:

Council for Trade in Goods

There are 11 committees under the jurisdiction of the Goods Council each with a specific task.

All members of the WTO participate in the committees. The Textiles MonitoringBody is

separate from the other committees but still under the jurisdiction of Goods Council. The body

has its own chairman and only 10 members. The body also has several groups relating to

textiles.[38]

Council for Trade-Related Aspects of Intellectual Property Rights

Information on intellectual property in the WTO, news and official records of the activities of the

TRIPS Council, and details of the WTOs work with other international organizations in thefield.

[39]

Council for Trade in Services

The Council for Trade in Services operates under the guidance of the General Council and is

responsible for overseeing the functioning of the General Agreement on Trade in Services

(GATS). It is open to all WTO members, and can create subsidiary bodies as required.[40]

Trade Negotiations Committee

The Trade Negotiations Committee (TNC) is the committee that deals with the current tradetalks round. The chair is WTOs director-general. The committee is currently tasked with the

Doha Development Round.[41]

The Service Council has three subsidiary bodies: financial services, domestic regulations, GATSrules and specific commitments.

[38]The General council has several different committees,

working groups, and working parties.[42] There are committees on the following: Trade andEnvironment; Trade and Development (Subcommittee on Least-Developed Countries); RegionalTrade Agreements; Balance of Payments Restrictions; and Budget, Finance and Administration.There are working parties on the following: Accession. There are working groups on thefollowing: Trade, debt and finance; and Trade and technology transfer.

[edit] Voting system

The WTO operates on a one country, one vote system, but actual votes have never been taken.Decision making is generally by consensus, and relative market size is the primary source ofbargaining power. The advantage of consensus decision-making is that it encourages efforts tofind the most widely acceptable decision. Main disadvantages include large time requirementsand many rounds of negotiation to develop a consensus decision, and the tendency for final


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agreements to use ambiguous language on contentious points that makes future interpretation oftreaties difficult.[citation needed]

In reality, WTO negotiations proceed not by consensus of all members, but by a process ofinformal negotiations between small groups of countries. Such negotiations are often called

"Green Room" negotiations (after the colour of the WTO Director-General's Office in Geneva),or "Mini-Ministerials", when they occur in other countries. These processes have been regularlycriticised by many of the WTO's developing country members which are often totally excludedfrom the negotiations..

[citation needed]

Richard Harold Steinberg (2002) argues that although the WTO's consensus governance modelprovides law-based initial bargaining, trading rounds close through power-based bargainingfavouring Europe and the U.S., and may not lead to Pareto improvement.[43] 123

[edit] Dispute settlement

Main article: Dispute settlement in the WTO

In 1994, the WTO members agreed on the Understanding on Rules and Procedures Governingthe Settlement of Disputes (DSU) annexed to the "Final Act" signed in Marrakesh in 1994.[44]Dispute settlement is regarded by the WTO as the central pillar of the multilateral tradingsystem, and as a "unique contribution to the stability of the global economy".[45] WTO membershave agreed that, if they believe fellow-members are violating trade rules, they will use themultilateral system of settling disputes instead of taking action unilaterally.

[46]

The operation of the WTO dispute settlement process involves the DSB panels, the AppellateBody, the WTO Secretariat, arbitrators, independent experts and several specializedinstituti

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