International Business

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Jitendra K. Gajera (M.A., M.Phil) & Dinesh R. Chavda (M.Com, M.Phil, G-slet)

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ARTICLE BY

Jitendra K. Gajera & Dinesh R. Chavda

© Kinjal J. Gajera First edition: 2013 Prize: 150 Copy: 500 Type & Setting: Dinesh R. Chavda At. - Kerala, Ta-Dist Junagadh Pin: 362310

ISBN: 978-81-925441-8-2

Publisor: Jitendra K. Gajera, At. - Makhiyala, Ta - Dist Junagadh Pin: 362014 Printed by: Vaibhav Printing Press – Makhiyala

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Dedication

“Supreme sacred respected father and my mother stages”

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PREFACE

The overarching logic of the book is intuitive organized around answers to the what, where, why, and how of international business.

WHAT ? Section one introduces what is international business and who has an interest in it. Students will sift through the globalization debate and understanding the impact of ethics on global businesses. Additionally, students will explore the evolution of international trade from past to present, with a focus on how firms and professionals can better understand today’s complex global business arena by understanding the impact of political and legal factors. The section concludes with a chapter on understanding how cultures are defined and the impact on business interactions and practices with tangible tips for negotiating across cultures.

WHERE ? Section two develops student knowledge about key facets of the global business environment and the key elements of trade and cooperation between nations and global organizations. Today, with increasing numbers of companies of all sizes operating internationally, no business or country can remain an island. Rather, the interconnections between countries, businesses, and institutions are inextricable. Even how we define the world is changing. No longer classified into simple and neat categories, the rapid changes within countries are redefining how global businesses think about developed, developing, and emerging markets. This section addresses the evolving nature of country classifications and helps develop a student’s ability to comprehend the rationale of how to analyze a specific country’s stage of development rather than just

V memorize which countries are emerging. Further, this section provides a unique approach and takes country-related “deep dives” that give greater detail about specific key countries. This section ends with chapters devoted to providing accessible discussions of complex financial concepts within the global monetary system and the global capital markets, including currency and global venture capital.

WHY ? Section three develops knowledge about how a student or organization can exploit opportunities in that global environment. Students will learn about the fundamental choices they have in terms of international expansion and why such choices matter. Using different models of internationalization and global market assessment, they will also learn why international business opportunities vary in their promise and complexity. In this section, students also do a deeper dive into the topics of exporting, importing, and global sourcing since these are likely to be the first forms of international business a student will encounter.

HOW ? Section four is devoted to strategy and entrepreneurship in a flattening world and how key organizational activities can be managed for global effectiveness. This part of the book shifts gears from the perspective of existing businesses to that of new business possibilities. Our objective is to highlight strategy, entrepreneurship, and strategic and entrepreneurial opportunities in a flat and flattening world. Beyond the basics of international strategy and entrepreneurship, students will be exposed to international human resource management so that they can better understand the global war for talent. They will also develop good fundamental knowledge of international research and development, marketing, distribution, finance, and accounting.

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INTERNATIONAL BUSINESS

INDEX

SR. CHAPTER NAME PAGE NO NO 1 International Monetary Fund 1

2 World Bank 28 3 World Trade Organization 52 4 International Finance 73 Corporation 5 International Institution 87 6 SAARC 104 7 ASEAN 121 8 NAFTA 161 Bibliography

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CHAPTER 1

International Monetary Fund

International Monetary Fund

Official logo for the IMF

Abbreviation IMF FMI Formation Formally December 27, 1945 (67 years ago) Actually March 1, 1947 (66 years ago)

Type International Economic Organization

Headquarters Washington, D.C., United States

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Membership 29 countries (founding); 188 countries (to date) Official languages English, French, and Spanish Managing Christine Lagarde Director Main organ Board of Governors Website www.imf.org

The International Monetary Fund ( IMF ) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world’s international payment system post-World War II . Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries.

The IMF describes itself as “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's stated objectives are to promote international economic cooperation, international trade , employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C. , United States .

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1.1 History of International Monetary Fund (IMF)

The International Monetary Fund was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the earlier Great Depression , countries sharply raised barriers to foreign trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade.

This breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire in the United States, to discuss framework for post- World War II international economic cooperation. The participating countries were concerned with the rebuilding of Europe and the global economic system after the war.

There were two views on the role the IMF should assume as a global economic institution. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and to act as the US government had during the New Deal in

X response to World War II. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time. Most of White’s plan was incorporated into the final acts adopted at Bretton Woods.

The International Monetary Fund formally came into existence on December 27, 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the Fund had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

The IMF was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism . The IMF’s influence in the global economy steadily increased as it accumulated more members. The increase reflected in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet sphere of influence did not join the IMF.

The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold . This is known as the Nixon Shock . As of January 2012, the largest borrowers from the fund in order are Greece , Portugal , Ireland , Romania and Ukraine

1.2 Member countries of IMF

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IMF member states

The 188 members of the IMF include 187 members of the UN and the Republic of Kosovo . All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa.

Former members are Cuba (which left in 1964) and the Republic of China , which was ejected from the UN in 1980 after losing the support of then U.S. President Jimmy Carter and was replaced by the People's Republic of China . However, "Taiwan Province of China" is still listed in the official IMF indices.

Apart from Cuba, the other UN states that do not belong to the IMF are North Korea , Andorra , Monaco , Liechtenstein , and Nauru . Also non-members are Cook Islands , Niue , Vatican City , Palestine and the states with limited recognition (other than Kosovo ).

The former Czechoslovakia was expelled in 1954 for "failing to provide required data" and was readmitted in 1990, after the Velvet Revolution . Poland withdrew in 1950 allegedly pressured by the Soviet Union but returned in 1986

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1.2.1 Qualifications

Any country may apply to be a part of the IMF. Post- IMF formation, in the early postwar period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were imposed on governments that applied to the IMF for funding.

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.

Some members have a very difficult relationship with the IMF and even when they are still members they do not allow themselves to be monitored. Argentina for example refuses to participate in an Article IV Consultation with the IMF.

1.2.2 Benefits

Member countries of the IMF have access to information on the economic policies of all member countries, the opportunity to influence other members’ economic policies, technical assistance in banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment

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1.3 Leadership of IMF

1.3.1 Board of Governors

The Board of Governors consists of one governor and one alternate governor for each member country. Each member country appoints its two governors. The Board normally meets once a year and is responsible for electing or appointing executive directors to the Executive Board. While the Board of Governors is officially responsible for approving quota increases, special drawing right allocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By-Laws, in practice it has delegated most of its powers to the IMF's Executive Board.

The Board of Governors is advised by the International Monetary and Financial Committee and the Development Committee . The International Monetary and Financial Committee have 24 members and monitors developments in global liquidity and the transfer of resources to developing countries. The Development Committee has 25 members and advises on critical development issues and on financial resources required to promote economic development in developing countries. They also advise on trade and global environmental issues.

1.3.2 Executive Board

24 Executive Directors make up Executive Board. The Executive Directors represent all 188 member-countries. Countries with large economies have their own Executive Director, but most countries are grouped in constituencies representing four or more countries.

Following the 2008 Amendment on Voice and Participation, eight countries each appoint an Executive

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Director the United States, Japan, Germany, France, the United Kingdom, China, the Russian Federation, and Saudi Arabia. The remaining 16 Directors represent constituencies consisting of 4 to 22 countries. The Executive Director representing the largest constituency of 22 countries accounts for 1.55% of the vote.

1.3.3 Managing Director

The IMF is led by a Managing Director, who is head of the staff and serves as Chairman of the Executive Board. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors. Historically the IMF’s managing director has been European and the president of the World Bank has been from the United States. However, this standard is increasingly being questioned and competition for these two posts may soon open up to include other qualified candidates from any part of the world.

In 2011 the world's largest developing countries, the BRIC nations , issued a statement declaring that the tradition of appointing a European as managing director undermined the legitimacy of the IMF and called for the appointment to be merit-based. The head of the IMF's European department is Antonio Borges of Portugal , former deputy governor of the Bank of Portugal . He was elected in October 2010.

Dates Name Nationality

May 6, 1946 – May 5, 1951 Camille Gutt Belgium

August 3, 1951 – October 3, Ivar Rooth Sweden 1956

November 21, 1956 – May Per Jacobsson Sweden 5, 1963

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September 1, 1963 – August Pierre-Paul France 31, 1973 Schweitzer

September 1, 1973 – June Johan 16, 1978 Witteveen Netherlands

June 17, 1978 – January 15, Jacques de France 1987 Larosière

January 16, 1987 – Michel France February 14, 2000 Camdessus

May 1, 2000 – March 4, Horst Kohler Germany 2004

June 7, 2004 – October 31, Rodrigo Rato Spain 2007

November 1, 2007 – May Dominique France 18, 2011 Strauss-Kahn

July 5, 2011 – Christine France Lagarde

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On June 28, 2011, Christine Lagarde was named Managing Director of the IMF, replacing Dominique Strauss-Kahn.

Previous Managing Director Dominique Strauss-Kahn was arrested in connection with charges of sexually assaulting a New York room attendant. Strauss-Kahn subsequently resigned his position on May 18. On June 28, 2011 Christine Lagarde was confirmed as Managing Director of the IMF for a five-year term starting on July 5, 2011.

1.4 Voting power

Voting power in the IMF is based on a quota system. Each member has a number of “basic votes" (each member's number of basic votes equals 5.502% of the total votes), plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country’s quota. The Special Drawing Right is the unit of account of the IMF and represents a claim to currency. It is based on a basket of key international currencies. The basic votes generate a slight bias in favor of small countries, but the additional votes determined by SDR outweigh this bias.

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♦ Effects of the quota system

The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization.

This system follows the logic of a shareholder- controlled organization: wealthy countries have more say in the making and revision of rules. Since decision making at the IMF reflects each member’s relative economic position in the world, wealthier countries that provide more money to the fund have more influence in the IMF than poorer members that contribute less; nonetheless, the IMF focuses on redistribution.

1.4.1 Developing countries

Quotas are normally reviewed every five years and can be increased when deemed necessary by the Board of Governors. Currently, reforming the representation of developing countries within the IMF has been suggested. These countries’ economies represent a large portion of the global economic system but this is not reflected in the IMF's decision making process through the nature of the quota system. Joseph Stiglitz argues "There is a need to provide more effective voice and representation for developing countries, which now represent a much larger portion of world economic activity since 1944, when the IMF was created." In 2008, a number of quota reforms were passed including shifting 6% of quota shares to dynamic emerging markets and developing countries.

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1.4.2 United States influence

A second criticism is that the United States’ transition to neoliberalism and global capitalism also led to a change in the identity and functions of international institutions like the IMF. Because of the high involvement and voting power of the United States, the global economic ideology could effectively be transformed to match the US's. This is consistent with the IMF’s function change during the 1970s after the Nixon Shock ended the Bretton Woods system . Another criticism is that allies of the United States are able to receive bigger loans with fewer conditions.

1.4.3 Overcoming borrower/creditor divide

The IMF’s membership is divided along income lines: certain countries provide the financial resources while others use these resources. Both developed country “creditors” and developing country “borrowers” are members of the IMF. The developed countries provide the financial resources but rarely enter into IMF loan agreements; they are the creditors. Conversely, the developing countries use the lending services but contribute little to the pool of money available to lend because their quotas are smaller; they are the borrowers. Thus, tension is created around governance issues because these two groups, creditors and borrowers, have fundamentally different interests in terms of the conditions of these loans.

The criticism is that the system of voting power distribution through a quota system institutionalizes borrower subordination and creditor dominance. The resulting division of the Fund's membership into borrowers and non-borrowers has increased the controversy around conditionality because the borrowing members are interested in making loan access easier while the creditor members want to maintain reassurance that the loans will be repaid.

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1.5 Functions of International Monetary Fund

The IMF works to foster global growth and economic stability . It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty . The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance of payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse effects on both national and international economic prosperity. The IMF can provide other sources of financing to countries in need that would not be available in the absence of an economic stabilization program supported by the Fund.

Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates and allowing these governments to prioritize economic growth , and to provide short-term capital to aid balance-of-payments . This assistance was meant to prevent the spread of international economic crises . The Fund was also intended to help mend the pieces of the international economy post the Great Depression and World War II .

The IMF’s role was fundamentally altered after the floating exchange rates post 1971. It shifted to examining the economic policies of countries with IMF loan agreements to determine if a shortage of capital was due to economic fluctuations or economic policy. The IMF also researched what types of government policy would ensure economic recovery. The new challenge is to promote and implement policy that reduces the frequency of crises among the emerging market countries, especially the middle-income countries that are open

XX to massive capital outflows. Rather than maintaining a position of oversight of only exchange rates, their function became one of “ surveillance ” of the overall macroeconomic performance of its member countries. Their role became a lot more active because the IMF now manages economic policy instead of just exchange rates.

In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality , which was established in the 1950s. Low-income countries can borrow on concessional terms , which means there is a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). No concessional loans, which include interest rates, are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via the newly introduced Rapid Financing Instrument (RFI) to all its members facing urgent balance of payments needs.

1.5.1 Surveillance of the global economy

The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its 188 member countries. This activity is known as surveillance and facilitates international cooperation. Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations. The responsibilities of the Fund changed from those of guardian to those of overseer of members’ policies.

The Fund typically analyzes the appropriateness of each member country’s economic and financial policies for achieving orderly economic growth , and assesses the

XXI consequences of these policies for other countries and for the global economy .

IMF Data Dissemination Systems participants:

In 1995 the International Monetary Fund began work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers, The General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS).

The International Monetary Fund executive board approved the SDDS and GDDS in 1996 and 1997 respectively, and subsequent amendments were published in a revised Guide to the General Data Dissemination System. The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers.

The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. Upon building a framework, a country can evaluate statistical needs, set priorities in improving the timeliness, transparency , reliability

XXII and accessibility of financial and economic data. Some countries initially used the GDDS, but later upgraded to SDDS.

Some entities that are not themselves IMF members also contribute statistical data to the systems:

→→→ Palestinian Authority – GDDS →→→ Hong Kong – SDDS →→→ Macao – GDDS →→→ EU institutions:

o the European Central Bank for the Eurozone – SDDS o Eurostat for the whole EU – SDDS, thus providing data from Cyprus (not using any DDSystem on its own) and Malta (using only GDDS on its own)

1.5.2 Conditionality of loans

IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources. The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the conditions are not met, the funds are withheld. Conditionality is perhaps the most controversial aspect of IMF policies. The concept of conditionality was introduced in an Executive Board decision in 1952 and later incorporated in the Articles of Agreement.

Conditionality is associated with economic theory as well as an enforcement mechanism for repayment. Stemming primarily from the work of Jacques Polak in the Fund’s research department, the theoretical underpinning of conditionality was the “monetary approach to the balance of payments."

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A. Structural adjustment

Some of the conditions for structural adjustment can include:

→→→ Cutting expenditures, also known as austerity . →→→ Focusing economic output on direct export and resource extraction , →→→ Devaluation of currencies, →→→ Trade liberalization , or lifting import and export restrictions, →→→ Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets ), →→→ Balancing budgets and not overspending, →→→ Removing price controls and state subsidies , →→→ Privatization , or divestiture of all or part of state-owned enterprises, →→→ Enhancing the rights of foreign investors vis-a-vis national laws, →→→ Improving governance and fighting corruption .

These conditions have also been sometimes labeled as the Washington Consensus .

B. Benefits

These loan conditions ensure that the borrowing country will be able to repay the Fund and that the country won’t attempt to solve their balance of payment problems in a way that would negatively impact the international economy . The incentive problem of moral hazard , which is the actions of economic agents maximizing their own utility to the detriment of others when they do not bear the full consequences of their actions, is mitigated through conditions rather than providing collateral, countries in need of IMF loans do not generally possess internationally valuable collateral anyway.

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Conditionality also reassures the IMF that the funds lent to them will be used for the purposes defined by the Articles of Agreement and provides safeguards that country will be able to rectify its macroeconomic and structural imbalances. In the judgment of the Fund, the adoption by the member of certain corrective measures or policies will allow it to repay the Fund, thereby ensuring that the same resources will be available to support other members.

As of 2004, borrowing countries have had a very good track record for repaying credit extended under the Fund's regular lending facilities with full interest over the duration of the loan. This indicates that Fund lending does not impose a burden on creditor countries, as lending countries receive market-rate interest on most of their quota subscription, plus any of their own-currency subscriptions that are loaned out by the Fund, plus all of the reserve assets that they provide the Fund.

C. Criticisms

In some quarters, the IMF has been criticized for being 'out of touch' with local economic conditions, cultures, and environments in the countries they are requiring policy reform. The Fund knows very little about what public spending on programs like public health and education actually means, especially in African countries, they have no feel for the impact that their proposed national budget will have on people. The economic advice the IMF gives might not always take into consideration the difference between what spending means on paper and how it is felt by citizens.

For example, some people believe that Jeffrey Sach's work shows that "the Fund’s usual prescription is 'budgetary belt tightening to countries that are much too poor to own belts'. It has been said that the IMF’s role as a generalist institution specializing in macroeconomic issues needs reform.

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Conditionality has also been criticized because a country can pledge collateral of “acceptable assets” in order to obtain waivers on certain conditions. However, that assumes that all countries have the capability and choice to provide acceptable collateral.

One view is that conditionality undermines domestic political institutions. The recipient governments are sacrificing policy autonomy in exchange for funds, which can lead to public resentment of the local leadership for accepting and enforcing the IMF conditions. Political instability can result from more leadership turnover as political leaders are replaced in electoral backlashes. IMF conditions are often criticized for their bias against economic growth and reduce government services, thus increasing unemployment.

Another criticism is that IMF programs are only designed to address poor governance, excessive government spending, excessive government intervention in markets, and too much state ownership. This assumes that this narrow range of issues represents the only possible problems; everything is standardized and differing contexts are ignored. A country may also be compelled to accept conditions it would not normally accept had they not been in a financial crisis in need of assistance.

It is claimed that conditionality’s retard social stability and hence inhibit the stated goals of the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient countries. The IMF sometimes advocates “ austerity programmers ,” cutting public spending and increasing taxes even when the economy is weak, in order to bring budgets closer to a balance, thus reducing budget deficits . Countries are often advised to lower their corporate tax rate. In Globalization and Its Discontents , Joseph E. Stiglitz , former chief economist and senior vice president at the World Bank , criticizes these policies. He argues that by converting to a more monetarist approach, the purpose of the fund is no longer

XXVI valid, as it was designed to provide funds for countries to carry out Keynesian reflations, and that the IMF “was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community.”

1.5.3 Reform

The IMF is only one of many international organizations and it is a generalist institution for macroeconomic issues only; its core areas of concern in developing countries are very narrow. One proposed reform is a movement towards close partnership with other specialist agencies in order to better productivity. The IMF has little to no communication with other international organizations such as UN specialist agencies like UNICEF , the Food and Agriculture Organization (FAO), and the United Nations Development Program (UNDP).

Jeffrey Sachs argues in The End of Poverty : “international institutions like the International Monetary Fund (IMF) and the World Bank have the brightest economists and the lead in advising poor countries on how to break out of poverty, but the problem is development economics”. [18] Development economics needs the reform, not the IMF. He also notes that IMF loan conditions need to be partnered with other reforms such as trade reform in developed nations , debt cancellation , and increased financial assistance for investments in basic infrastructure in order to be effective. IMF loan conditions cannot stand alone and produce change; they need to be partnered with other reforms.

1.6 Use of IMF

A recent study reveals that the average overall use of IMF credit per decade increased, in real terms, by 21% between the 1970s and 1980s, and increased again by just over 22% percent from the 1980s to the 1991–2005 periods.

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Another study has suggested that since 1950 the continent of Africa alone has received $300 billion from the IMF, the World Bank and affiliate institutions.

A study done by Bumba Mukherjee found that developing democratic countries benefit more from IMF programs than developing autocratic countries because policy- making, and the process of deciding where loaned money is used, is more transparent within a democracy. One study done by Randall Stone found that although earlier studies found little impact of IMF programs on balance of payments, more recent studies using more sophisticated methods and larger samples “usually found IMF programs improved the balance of payments.”

1.7 IMF and globalization

Globalization encompasses three institutions: global financial markets and transnational companies , national governments linked to each other in economic and military alliances led by the US, and rising “global governments” such as World Trade Organization (WTO), IMF, and World Bank . Charles Derber argues in his book People before Profit , "These interacting institutions create a new global power system where sovereignty is globalized, taking power and constitutional authority away from nations and giving it to global markets and international bodies." Titus Alexander argues that this system institutionalizes global inequality between western countries and the Majority World in a form of global apartheid, in which the IMF is a key pillar.

The establishment of globalized economic institutions has been both a symptom of and a stimulus for globalization. The development of the World Bank, the IMF. Regional development banks such as the European Bank for Reconstruction and Development (EBRD), and, more recently, multilateral trade institutions such as the WTO indicates the

XXVIII trend away from the dominance of the state as the exclusive unit of analysis in international affairs. Globalization has thus been transformative in terms of a reconceptualizing of state sovereignty.

1.8 Criticisms of IMF

Overseas Development Institute (ODI) research undertaken in 1980 pointed to five main criticisms of the IMF which support the analysis that it is a pillar of what activist Titus Alexander calls global apartheid. Firstly, developed countries were seen to have a more dominant role and control over less developed countries (LDCs) primarily due to the Western bias towards a capitalist form of the world economy with professional staff being Western trained and believing in the efficacy of market-oriented policies.

Secondly, the Fund worked on the incorrect assumption that all payments disequilibria were caused domestically. The Group of 24 (G-24), on behalf of LDC members, and the United Nations Conference on Trade and Development (UNCTAD) complained that the Fund did not distinguish sufficiently between disequilibria with predominantly external as opposed to internal causes. This criticism was voiced in the aftermath of the 1973 oil crisis . Then LDCs found themselves with payments deficits due to adverse changes in their terms of trade, with the Fund prescribing stabilization programmers similar to those suggested for deficits caused by government over-spending. Faced with long-term, externally generated disequilibria, the Group of 24 argued that LDCs should be allowed more time to adjust their economies and that the policies needed to achieve such adjustment are different from demand-management programmers devised primarily with internally generated disequilibria in mind.

The third criticism was that the effects of Fund policies were anti-developmental. The deflationary effects of IMF

XXIX programmers’ quickly led to losses of output and employment in economies where incomes were low and unemployment was high. Moreover, it was sometimes claimed that the burden of the deflationary effects was borne disproportionately by the poor.

Fourthly is the accusation that harsh policy conditions were self-defeating where a vicious circle developed when members refused loans due to harsh conditionality, making their economy worse and eventually taking loans as a drastic medicine.

Lastly is the point that the Fund's policies lack a clear economic rationale. Its policy foundations were theoretical and unclear due to differing opinions and departmental rivalries whilst dealing with countries with widely varying economic circumstances.

ODI conclusions were that the Fund’s very nature of promoting market-oriented economic approach attracted unavoidable criticism, as LDC governments were likely to object when in a tight corner. Yet, on the other hand, the Fund could provide a ‘scapegoat service’ where governments could take loans as a last resort, whilst blaming international bankers for any economic downfall. The ODI conceded that the fund was to some extent insensitive to political aspirations of LDCs, while its policy conditions were inflexible.

Argentina , which had been considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic crisis in 2001, which some believe to have been caused by IMF-induced budget restrictions—which undercut the government’s ability to sustain national infrastructure even in crucial areas such as health, education, and security—and privatization of strategically vital national resources. Others attribute the crisis to Argentina’s misdesigned fiscal federalism, which caused subnational spending to increase

XXX rapidly. [69] The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region’s economic problems. The current as of early 2006 trend toward moderate left-wing governments in the region and a growing concern with the development of a regional economic policy largely independent of big business pressures has been ascribed to this crisis.

1.8.1 Support of military dictatorships

The role of the Bretton Woods institutions has been controversial since the late Cold War period, due to claims that the IMF policy makers supported military dictatorships friendly to American and European corporations and other anti- communist regimes. Critics also claim that the IMF is generally apathetic or hostile to their views of human rights, and labor rights . The controversy has helped spark the Anti-globalization movement .

Arguments in favor of the IMF say that economic stability is a precursor to democracy; however, critics highlight various examples in which democratized countries fell after receiving IMF loans.

1.8.2 Impact on access to food

A number of civil society organizations have criticized the IMF’s policies for their impact on people’s access to food, particularly in developing countries. In October 2008, former U.S. president Bill Clinton presented a speech to the United Nations World Food Day , which criticized the World Bank and IMF for their policies on food and agriculture:

We need the World Bank, the IMF, all the big foundations, and all the governments to admit that, for 30 years, we all blew it, including me when I was president. We

XXXI were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture.

1.8.3 Impact on public health

In 2009 a study by analysts from Cambridge and Yale university’s published on the open-access Public Library of Science concluded that strict conditions on the international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21 countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.

In 2009, a book by Rick Rowden titled The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight Against AIDS, claimed that the IMF’s monetarist approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was unnecessarily restrictive and has prevented developing countries from being able to scale up long-term public investment as a percent of GDP in the underlying public health infrastructure. The book claimed the consequences have been chronically underfunded public health systems, leading to dilapidated health infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have fueled the “push factors” driving the brain drain of nurses migrating from poor countries to rich ones, all of which has undermined public health systems and the fight against HIV/AIDS in developing countries.

1.8.4 Impact on environment

IMF policies have been repeatedly criticized for making it difficult for indebted countries to avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forest-destroying lumber and agriculture projects. Ecuador for

XXXII example had to defy IMF advice repeatedly in order to pursue the protection of its rain forests , though paradoxically this need was cited in IMF argument to support that country. The IMF acknowledged this paradox in a March 2010 staff position report which proposed the IMF Green Fund, a mechanism to issue special drawing rights directly to pay for climate harm prevention and potentially other ecological protection as pursued generally by other environmental finance .

While the response to these moves was generally positive possibly because ecological protection and energy and infrastructure transformation are more politically neutral than pressures to change social policy. Some experts voiced concern that the IMF was not representative, and that the IMF proposals to generate only US$200 billion a year by 2020 with the SDRs as seed funds, did not go far enough to undo the general incentive to pursue destructive projects inherent in the world commodity trading and banking systems criticisms often leveled at the World Trade Organization and large global banking institutions.

In the context of the May 2010 European banking crisis, some observers also noted that Spain and California , two troubled economies within Europe and the United States respectively, and also Germany , the primary and politically most fragile supporter of a euro currency bailout would benefit from IMF recognition of their leadership in green technology , and directly from Green Fund–generated demand for their exports, which might also improve their credit standing with international bankers.

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CHAPTER 2

World Bank

World Bank

World Bank

World Bank logo Type International organization Legal status Treaty Purpose/focus Crediting Location Washington, D.C., U.S. Membership 188 countries (IBRD)

172 countries (IDA) President Jim Yong Kim Main organ Board of Directors Parent organization World Bank Group Website worldbank.org

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The World Bank is an international financial institution that provides loans to developing countries for capital programs .

The World Bank's official goal is the reduction of poverty . According to its Articles of Agreement (as amended effective 16 February 1989), all its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment.

The World Bank comprises two institutions the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

The World Bank should not be confused with the World Bank Group , which comprises the World Bank, the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).

2.1 History of World Bank

The World Bank was created at the 1944 Bretton Woods Conference , along with three other institutions, including the International Monetary Fund (IMF). The World Bank and the IMF are both based in Washington DC, and work closely with each other.

Although many countries were represented at the Bretton Woods Conference, the United States and United Kingdom were the most powerful in attendance and dominated the negotiations.

Traditionally, the World Bank has been headed by a citizen of the United States, while the IMF has been led by a European citizen

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Lord Keynes (right) and Harry Dexter White, the "founding fathers" of both the World Bank and the International Monetary Fund (IMF). Seen here at the Bretton Woods conference, where plans were laid to launch the two institutions.

2.1.1 1944–1968

Before 1968, the reconstruction and development loans provided by the World Bank were relatively small. The Bank's staff was aware of the need to instill confidence in the bank. Fiscal conservatism ruled, and loan applications had to meet strict criteria.

The first country to receive a World Bank loan was France. The Bank's president at the time, John McCloy , chose France over two other applicants, Poland and Chile. The loan was for US$250 million, half the amount requested, and it came with strict conditions. France had to agree to produce a balanced budget and give priority of debt repayment to the World Bank over other governments. World Bank staff closely

XXXVI monitored the use of the funds to ensure that the French government met the conditions. In addition, before the loan was approved, the United States State Department told the French government that its members associated with the Communist Party would first have to be removed. The French government complied with this diktat and removed the Communist coalition government . Within hours, the loan to France was approved.

When the Marshall Plan went into effect in 1947, many European countries began receiving aid from other sources. Faced with this competition, the World Bank shifted its focus to non-European countries. Until 1968, its loans were earmarked for the construction of income-producing infrastructure, such as seaports, highway systems, and power plants, which would generate enough income to enable a borrower country to repay the loan.

2.1.2 1968–1980

From 1968 to 1980, the bank concentrated on meeting the basic needs of people in the developing world. The size and number of loans to borrowers was greatly increased as loan targets expanded from infrastructure into social services and other sectors.

These changes can be attributed to Robert McNamara who was appointed to the presidency in 1968 by Lyndon B. Johnson . McNamara imported a technocratic managerial style to the Bank that he had used as United States Secretary of Defense and President of the Ford Motor Company . McNamara shifted bank policy toward measures such as building schools and hospitals, improving literacy and agricultural reform. McNamara created a new system of gathering information from potential borrower nations that enabled the bank to process loan applications much faster. To finance more loans, McNamara told bank treasurer Eugene

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Rotberg to seek out new sources of capital outside of the northern banks that had been the primary sources of bank funding. Rotberg used the global bond market to increase the capital available to the bank. One consequence of the period of poverty alleviation lending was the rapid rise of third world debt . From 1976 to 1980 developing world debt rose at an average annual rate of 20%.

In 1980, the World Bank Administrative Tribunal was established to decide on disputes between the World Bank Group and its staff where allegation of non-observance of contracts of employment or terms of appointment had not been honored. [

2.1.3 1980–1989

In 1980, McNamara was succeeded by US President Jimmy Carter 's nominee, A.W. Clausen . Clausen replaced many members of McNamara's staff and instituted a new ideological focus. His 1982 decision to replace the bank's Chief Economist, Hollis B. Chenery , with Anne Krueger was an indication of this new focus. Krueger was known for her criticism of development funding and for describing Third World governments as " rent-seeking states."

During the 1980s, the bank emphasized lending to service Third-World debt, and structural adjustment policies designed to streamline the economies of developing nations. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank had been responsible

XXXVIII for "reduced health, nutritional and educational levels for tens of millions of children in Asia, Latin America, and Africa".

2.1.4 1989–present

Beginning in 1989, in response to harsh criticism from many groups, the bank began including environmental groups and NGOs in its loans to mitigate the past effects of its development policies that had prompted the criticism. It also formed an implementing agency, in accordance with the Montreal Protocols, to stop ozone-depletion damage to the Earth's atmosphere by phasing out the use of 95% of ozone- depleting chemicals, with a target date of 2015. Since then, in accordance with its so-called "Six Strategic Themes," the bank has put various additional policies into effect to preserve the environment while promoting development. For example, in 1991, the bank announced that to protect against deforestation, especially in the Amazon, it would not finance any commercial logging or infrastructure projects that harm the environment.

In order to promote global public goods, the World Bank tries to control communicable disease such as malaria, delivering vaccines to several parts of the world and joining combat forces. In 2000, the bank announced a "war on AIDS", and in 2011, the Bank joined the Stop Tuberculosis Partnership.

Traditionally, based on a tacit understanding between the United States and Europe, the president of the World Bank has always been selected from candidates nominated by the United States. In 2012, for the first time, two non-US citizens were nominated.

On 23 March 2012, U.S. President Barack Obama announced that the United States would nominate Jim Yong Kim as the next president of the Bank. [16] Jim Yong Kim was elected on 27 April 2012.

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The World Bank headquarters in Washington, DC

2.2 Criteria World Bank

Many achievements have brought the Millennium Development Goals (MDGs) targets for 2015 within reach in some cases. For the goals to be realized, six criteria must be met: stronger and more inclusive growth in Africa and fragile states, more effort in health and education, integration of the development and environment agendas, more and better aid, movement on trade negotiations, and stronger and more focused support from multilateral institutions like the World Bank.

1. Eradicate Extreme Poverty and Hunger : From 1990 through 2004, the proportion of people living in extreme poverty fell from almost a third to less than a fifth. Although results vary widely within regions and countries, the trend indicates that the world as a whole can meet the goal of halving the percentage of people living in poverty. Africa's poverty, however, is expected to rise, and most of the 36 countries where 90% of the world's undernourished children live are in Africa. Less than a quarter of countries are on track for achieving the goal of halving under-nutrition.

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2. Achieve Universal Primary Education : The number of children in school in developing countries increased from 80% in 1991 to 88% in 2005. Still, about 72 million children of primary school age, 57% of them girls, were not being educated as of 2005. 3. Promote Gender Equality : The tide is turning slowly for women in the labor market, yet far more women than men- worldwide more than 60% are contributing but unpaid family workers. The World Bank Group Gender Action Plan was created to advance women's economic empowerment and promote shared growth. 4. Reduce Child Mortality : There is somewhat improvement in survival rates globally accelerated improvements are needed most urgently in South Asia and Sub-Saharan Africa. An estimated 10 million-plus child under five died in 2005; most of their deaths were from preventable causes. 5. Improve Maternal Health : Almost the entire half million women who die during pregnancy or childbirth every year live in Sub-Saharan Africa and Asia. There are numerous causes of maternal death that require a variety of health care interventions to be made widely accessible. 6. Combat HIV/AIDS, Malaria, and Other Diseases : Annual numbers of new HIV infections and AIDS deaths have fallen, but the number of people living with HIV continues to grow. In the eight worst-hit southern African countries, prevalence is above 15 percent. Treatment has increased globally, but still meets only 30 percent of needs (with wide variations across countries). AIDS remains the leading cause of death in Sub-Saharan Africa (1.6 million deaths in 2007). There are 300 to 500 million cases of malaria each year, leading to more than 1 million deaths. Nearly all the cases and more than 95 percent of the deaths occur in Sub-Saharan Africa. 7. Ensure Environmental Sustainability : Deforestation remains a critical problem, particularly in regions of

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biological diversity, which continues to decline. Greenhouse gas emissions are increasing faster than energy technology advancement. 8. Develop a Global Partnership for Development : Donor countries have renewed their commitment. Donors have to fulfill their pledges to match the current rate of core program development. Emphasis is being placed on the Bank Group's collaboration with multilateral and local partners to quicken progress toward the MDGs' realization.

To make sure that World Bank-financed operations do not compromise these goals but instead add to their realization, environmental, social and legal Safeguards were defined. However these Safeguards have not been implemented entirely yet. At the World Bank's annual meeting in Tokyo 2012 a review of these Safeguards has been initiated which was welcomed by several civil society organisations.

2.3 Leadership

The President of the Bank, currently Jim Yong Kim , is responsible for chairing the meetings of the Boards of Directors and for overall management of the Bank. Traditionally, the Bank President has always been a US citizen nominated by the United States, the largest shareholder in the bank. The nominee is subject to confirmation by the Board of Executive Directors, to serve for a five-year, renewable term. While most World Bank presidents have had banking experience, some have not.

The vice presidents of the Bank are its principal managers, in charge of regions, sectors, networks and functions. There are two Executive Vice Presidents, three Senior Vice Presidents, and 24 Vice Presidents.

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The Boards of Directors consist of the World Bank Group President and 25 Executive Directors. The President is the presiding officer, and ordinarily has no vote except a deciding vote in case of an equal division. The Executive Directors as individuals cannot exercise any power nor commit or represent the Bank unless specifically authorized by the Boards to do so. With the term beginning 1 November 2010, the number of Executive Directors increased by one, to 25.

2.3.1 List of Presidents Name Dates Nationality Background

Eugene 1946 United Newspaper publisher Meyer – States 1946

John J. 1947 United Lawyer and US Assistant McCloy – States Secretary of War 1949

Eugene R. 1949 United Bank executive with Black, Sr. – States Chase and executive 1963 director with the World Bank

George 1963 United Bank executive with First Woods – States Boston Corporation 1968

Robert 1968 United US Defense Secretary, McNamara – States business executive with 1981 Ford Motor Company

Alden W. 1981 United Lawyer, bank executive Clausen – States with Bank of America

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1986

Barber 1986 United New York State Senator Conable – States and US Congressman 1991

Lewis T. 1991 United Bank executive with J.P. Preston – States Morgan 1995

Sir James 1995 United Wolfensohn was a Wolfensoh – States naturalised American n 2005 citizen before taking office. Corporate lawyer and banker

Paul 2005 United Various cabinet and Wolfowitz – States government positions; US 2007 Ambassador to Indonesia, US Deputy Secretary of Defense

Robert 2007 United Bank executive with Zoellick – States Goldman Sachs , Deputy 2012 Secretary of State and US Trade Representative

Jim Yong 2012 United A naturalised American Kim – States citizen before taking prese office. Physician and nt anthropologist, co-founder of Partners in Health and 17th President of Dartmouth College .[23]

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Elected on 16 April 2012.

Jose Antonio Ocampo , Ngozi Okonjo-Iweala , and Jim Yong Kim were candidates for the 2012 election . It was announced on 16 April 2012, that Jim Yong Kim will succeed Robert Zoellick as president, continuing the chain of successive World Bank president nominees from the United States

2.3.2 List of chief economists

Hollis B. Chenery (1972–1982) Anne Osborn Krueger (1982–1986) Stanley Fischer (1988–1990) Lawrence Summers (1991–1993) Michael Bruno (1993–1996) Joseph E. Stiglitz (1997–2000) Nicholas Stern (2000–2003) François Bourguignon (2003–2007) Justin Yifu Lin (June 2008 – 2012 ) Kaushik Basu (September 2012-)

2.4 Members of World Bank

The International Bank for Reconstruction and Development (IBRD) has 188 member countries, while the International Development Association (IDA) has 172 members. Each member state of IBRD should be also a member of the International Monetary Fund (IMF) and only members of IBRD are allowed to join other institutions within the Bank (such as IDA).

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♦ Voting power

In 2010, voting powers at the World Bank were revised to increase the voice of developing countries, notably China. The countries with most voting power are now the United States (15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), France (3.75%), India (2.91%), Russia (2.77%), Saudi Arabia (2.77%) and Italy (2.64%). Under the changes, known as 'Voice Reform – Phase 2', countries other than China that saw significant gains included South Korea , Turkey, Mexico , Singapore, Greece , Brazil, India , and Spain. Most developed countries' voting power was reduced, along with a few poor countries such as Nigeria . The voting powers of the United States, Russia and Saudi Arabia were unchanged.

The changes were brought about with the goal of making voting more universal in regards to standards, rule- based with objective indicators, and transparent among other things. Now, developing countries have an increased voice in the "Pool Model," backed especially by Europe. Additionally, voting power is based on economic size in addition to International Development Association contributions.

2.5 Poverty reduction strategies

For the poorest developing countries in the world, the bank's assistance plans are based on poverty reduction strategies ; by combining a cross-section of local groups with an extensive analysis of the country's financial and economic situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country's priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.

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Forty-five countries pledged US$25.1 billion in "aid for the world's poorest countries", said that goes to the World Bank International Development Association (IDA) which distributes the loans to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the former president of the World Bank, said when the loans were announced on 15 December 2007, that IDA money "is the core funding that the poorest developing countries rely on".

World Bank organizes Development Marketplace Awards which is a competitive grant program that surfaces and funds innovative, development projects with high potential for development impact that are scalable and/or replicable. The grant beneficiaries are social enterprises with projects that aim to deliver a range of social and public services to the most underserved low-income groups.

2.6 Global Partnerships and Initiatives

The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plants .

Together with the WHO , the World Bank administers the International Health Partnership (IHP+). IHP+ is a group of partners committed to improving the health of citizens in developing countries. Partners work together to put international principles for aid effectiveness and development cooperation into practice in the health sector. IHP+ mobilizes national governments, development agencies, civil society and

XLVII others to support a single, country-led national health strategy in a well-coordinated way.

♦ Climate change

Climate change Report 2012: Even with the current mitigation commitments and pledges fully implemented, there is roughly a 20 percent likelihood of exceeding 4°C by 2100. A series of recent extreme events worldwide highlight the vulnerability of all countries. No nation will be immune to the impacts of climate change. The global community has committed itself to holding warming below 2°C to prevent "dangerous" climate change. World Bank Group President Jim Yong Kim (2012): "Climate change is one of the single biggest challenges facing development, and we need to assume the moral responsibility to take action on behalf of future generations, especially the poorest. 4°C warmer world can, and must be, avoided – we need to hold warming below 2°C. Lack of action on climate change threatens to make the world our children inherit a completely different world than we are living in today".

Report 2013: The World Bank doubled its aid for climate change adaptation from $2.3bn (£1.47bn) in 2011 to $4.6bn in 2012. The planet is now 0.8 ºC warmer than in pre- industrial times. 2ºC warming is reached in 20 to 30 years.

2.7 Training wings

2.7.1 World Bank Institute

The World Bank Institute (WBI) creates learning opportunities for countries, World Bank staff and clients, and people committed to poverty reduction and sustainable development. WBI's work program includes training, policy consultations, and the creation and support of knowledge

XLVIII networks related to international economic and social development.

The World Bank Institute (WBI) can be defined as a "global connector of knowledge, learning and innovation for poverty reduction". It aims to inspire change agents and prepare them with essential tools that can help achieve development results. WBI has four major strategies to approach development problems: innovation for development, knowledge exchange, leadership and coalition building, and structured learning. World Bank Institute (WBI) was formerly known as Economic Development Institute (EDI), established on March 11, 1955 with the support of the Rockefeller and Ford Foundations. The purpose of the institute was to serve as provide an open place where senior officials from developing countries could discuss development policies and programs. Over the years, EDI grew significantly and in 2000, the Institute was renamed as the World Bank Institute. Currently Sanjay Pradhan is the Vice President of the World Bank Institute.

2.7.2 Global Development Learning Network

The Global Development Learning Network (GDLN) is a partnership of over 120 learning centers (GDLN Affiliates) in nearly 80 countries around the world. GDLN Affiliates collaborate in holding events that connect people across countries and regions for learning and dialogue on development issues.

GDLN clients are typically NGOs, government, private sector and development agencies who find that they work better together on sub regional, regional or global development issues using the facilities and tools offered by GDLN Affiliates. Clients also benefit from the ability of Affiliates to help them choose and apply these tools effectively, and to tap development practitioners and experts worldwide. GDLN

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Affiliates facilitate around 1000 videoconference-based activities a year on behalf of their clients, reaching some 90,000 people worldwide. Most of these activities bring together participants in two or more countries over a series of sessions. A majority of GDLN activities are organized by small government agencies and NGOs.

2.7.3 GDLN Asia Pacific

The GDLN in the East Asia and Pacific region has experienced rapid growth and Distance Learning Centers now operate, or are planned in 20 countries: Australia, Mongolia, Cambodia, China, Indonesia, Singapore, Philippines, Sri Lanka, Japan, Papua New Guinea, South Korea, Thailand, Laos, Timor Leste, Fiji, Afghanistan, Bangladesh, India, Nepal and New Zealand. With over 180 Distance Learning Centers, it is the largest development learning network in the Asia and Pacific region. The Secretariat Office of GDLN Asia Pacific is located in the Center of Academic Resources of Chulalongkorn University, Bangkok, Thailand.

GDLN Asia Pacific was launched at the GDLN's East Asia and Pacific regional meeting held in Bangkok from 22 to 24 May 2006. Its vision is to become "the premier network exchanging ideas, experience and know-how across the Asia Pacific Region". GDLN Asia Pacific is a separate entity to The World Bank. It has endorsed its own Charter and Business Plan and, in accordance with the Charter, a GDLN Asia Pacific Governing Committee has been appointed.

The committee comprises China (2), Australia (1), Thailand (1), The World Bank (1) and finally, a nominee of the Government of Japan (1). The organization is currently hosted by Chulalongkorn University in Bangkok, Thailand, founding member of the GDLN Asia Pacific.

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The Governing Committee has determined that the most appropriate legal status for the GDLN AP in Thailand is a "Foundation". The World Bank is currently engaging a solicitor in Thailand to process all documentation in order to obtain this legal status.

GDLN Asia Pacific is built on the principle of shared resources among partners engaged in a common task, and this is visible in the organizational structures that exist, as the network evolves. Physical space for its headquarters is provided by the host of the GDLN Centre in Thailand – Chulalongkorn University, Technical expertise and some infrastructure is provided by the Tokyo Development Learning Centre (TDLC), Fiduciary services are provided by Australian National University (ANU) Until the GDLN Asia Pacific is established as a legal entity tin Thailand, ANU, has offered to assist the governing committee, by providing a means of managing the inflow and outflow of funds and of reporting on them. This admittedly results in some complexity in contracting arrangements, which need to be worked out on a case by case basis and depends to some extent on the legal requirements of the countries involved.

2.7.4 The JUSTPAL Network

A Justice Sector Peer-Assisted Learning (JUSTPAL) Network was launched in April 2011 by the Poverty Reduction and Economic Management (PREM) Department of the World Bank’s Europe and Central Asia (ECA) Region. The JUSTPAL objective is to provide an online and offline platform for justice professionals to exchange knowledge, good practices and peer- driven improvements to justice systems and thereby support countries to improve their justice sector performance, quality of justice and service delivery to citizens and businesses.

The JUSTPAL Network includes representatives of judiciaries, ministries of justice, prosecutors, anti-corruption

LI agencies and other justice-related entities from across the globe. The Network currently has active members from more than 50 countries.

To facilitate fruitful exchange of reform experiences and sharing of applicable good practices, the JUSTPAL Network has organized its activities under (currently) five Communities of Practice (COPs): (i) Budgeting for the Justice Sector, (ii) Information Systems for Justice Services, (iii) Justice Sector Physical Infrastructure, (iv) Court Management and Administration and (v) Prosecution and Anti-Corruption Agencies.

2.8 Country assistance strategies

As a guideline to the World Bank's operations in any particular country, a Country Assistance Strategy is produced, in cooperation with the local government and any interested stakeholders and may rely on analytical work performed by the Bank or other parties.

2.9 Clean Air Initiative

Clean Air Initiative (CAI) is a World Bank initiative to advance innovative ways to improve air quality in cities through partnerships in selected regions of the world by sharing knowledge and experiences. It includes electric vehicles .

2.10 United Nations Development Business

Based on an agreement between the United Nations and the World Bank in 1981, Development Business became the official source for World Bank Procurement Notices, Contract Awards, and Project Approvals.

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The World Bank or the World Bank Group is also a sitting observer in the United Nations Development Group .

2.11 Open Data initiative

The World Bank collects and processes large amounts of data and generates them on the basis of economic models. These data and models have gradually been made available to the public in a way that encourages reuse, whereas the recent publications describing them are available as open access under a Creative Commons Attribution License , for which the bank received the SPARC Innovator 2012 award.

2.12 Criticisms

One of the strongest criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 188 countries, it is run by a small number of economically powerful countries. These countries (which also provide most of the institution's funding) choose the leadership and senior management of the World Bank, and so their interests dominate the bank. Titus Alexander argues that the unequal voting power of western countries and the World Bank's role in developing countries makes it similar to the South African Development Bank under apartheid, and therefore a pillar of global apartheid.

In the 1990s, the World Bank and the IMF forged the Washington Consensus , policies which included deregulation and liberalization of markets, privatization and the downscaling of government . Though the Washington Consensus was conceived as a policy that would best promote development, it was criticized for ignoring equity, employment and how reforms like privatization were carried out. Joseph Stiglitz argued that the Washington Consensus placed too much emphasis on the growth of GDP, and not enough on the

LIII permanence of growth or on whether growth contributed to better living standards.

The United States Senate Committee on Foreign Relations report criticized the World Bank and other international financial institutions for focusing too much "on issuing loans rather than on achieving concrete development results within a finite period of time" and called on the institution to "strengthen anti-corruption efforts".

Criticism of the World Bank often takes the form of protesting as seen in recent events such as the World Bank Oslo 2002 Protests , the October Rebellion , and the Battle of Seattle . Such demonstrations have occurred all over the world, even amongst the Brazilian Kayapo people .

Another source of criticism has been the tradition of having an American head the bank, implemented because the United States provides the majority of World Bank funding. "When economists from the World Bank visit poor countries to dispense cash and advice," observed The Economist, as Jim Yong Kim said in 2012, "they routinely tell governments to reject cronyism and fill each important job with the best candidate available. It is good advice. The World Bank should take it." Jim Yong Kim is the most recently appointed president of the World Bank.

2.12.1 Structural adjustment

The effect of structural adjustment policies on poor countries has been one of the most significant criticisms of the World Bank. The 1979 energy crisis plunged many countries into economic crisis. The World Bank responded with structural adjustment loans which distributed aid to struggling countries while enforcing policy changes in order to reduce inflation and fiscal imbalance. Some of these policies included encouraging production , investment and labour-intensive

LIV manufacturing, changing real exchange rates and altering the distribution of government resources. Structural adjustment policies were most effective in countries with an institutional framework that allowed these policies to be implemented easily. For some countries, particularly in Sub-Saharan Africa , economic growth regressed and inflation worsened. The alleviation of poverty was not a goal of structural adjustment loans, and the circumstances of the poor often worsened, due to a reduction in social spending and an increase in the price of food, as subsidies were lifted.

By the late 1980s, international organizations began to admit that structural adjustment policies were worsening life for the world's poor. The World Bank changed structural adjustment loans, allowing for social spending to be maintained and encouraging a slower change to policies such as transfer of subsidies and price rises. In 1999, the World Bank and the IMF introduced the Poverty Reduction Strategy Paper approach to replace structural adjustment loans. The Poverty Reduction Strategy Paper approach has been interpreted as an extension of structural adjustment policies as it continues to reinforce and legitimize global inequities. Neither approach has addressed the inherent flaws within the global economy that contribute to economic and social inequities within developing countries. By reinforcing the relationship between lending and client states, many believe that the World Bank has usurped indebted countries' power to determine their own economic policy.

2.12.2 Fairness of assistance conditions

Some critics, most prominently the author Naomi Klein , are of the opinion that the World Bank Group's loans and aid have unfair conditions attached to them that reflect the interests, financial power and political doctrines (notably the Washington Consensus ) of the Bank and, by extension, the countries that are most influential within it. Amongst other

LV allegations, Klein says the Group's credibility was damaged "when it forced school fees on students in Ghana in exchange for a loan when it demanded that Tanzania privatize its water system when it made telecom privatization a condition of aid for Hurricane Mitch; when it demanded labour "flexibility" in Sri Lanka in the aftermath of the Asian tsunami; when it pushed for eliminating food subsidies in post-invasion Iraq."

2.12.3 Sovereign immunity

The World Bank requires sovereign immunity from countries it deals with. Sovereign immunity waives a holder from all legal liability for their actions. It is proposed that this immunity from responsibility is a "shield which [The World Bank] wants to resort to, for escaping accountability and security by the people." As the United States has veto power, it can prevent the World Bank from taking action against its interests.

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CHAPTER 3

World Trade Organization

World Trade Organization

World Trade Organization (English) Organisation mondiale du commerce (French) Organization Mundial del Comercio (Spanish)

Members Members, dually represented by the EU Observers Non-members

Formation 1 January 1995 Headquarters Centre William Rappard, Geneva, Switzerland Membership 159 member states Official languages English, French, Spanish Director-General Pascal Lamy

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Budget 196 million Swiss francs (approx. 209 million US$) in 2011. Staff 640 Website wto.org

The World Trade Organization ( WTO ) is an organization that intends to supervise and liberalize international trade . The organization officially commenced on 1 January 1995 under the Marrakech Agreement , replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries, it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

The organization is attempting to complete negotiations on the Doha Development Round , which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain, the work programmers lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sector (requested by developed countries ) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries ) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round. As a result of this impasse, there have been an increasing number of bilateral free trade agreements signed. As of July 2012, there are various negotiation groups in the WTO system for the

LVIII current agricultural trade negotiation which is in the condition of stalemate.

WTO's current Director-General is Pascal Lamy , who leads a staff of over 600 people in Geneva, Switzerland.

3.1 History of World Trade Organization

The economists Harry White (left) and John Maynard Keynes at the Bretton Woods Conference. Both had been strong advocates of a liberal international trade environment and recommended the establishment of three institutions: the IMF (for fiscal and monetary issues), the World Bank (for financial and structural issues), and the ITO (for international economic cooperation).

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund . A comparable international institution for

LIX trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect.

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

3.1.1 GATT rounds of negotiations

The GATT was the only multilateral instrument governing international trade from 1946 until the WTO was established on 1 January 1995. Despite attempts in the mid- 1950s and 1960s to create some form of institutional mechanism for international trade, the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis.

A. From Geneva to Tokyo

Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds concentrated on further reducing tariffs . Then, the Kennedy Round in the mid-sixties brought about 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 of tariffs, and to improve the system, adopting a series of agreements on non-tariff barriers , which in some cases interpreted existing GATT rules, and in others broke entirely new ground. Because these plurilateral agreements were not accepted by the full GATT membership, they were often informally called "codes". Several of these codes were

LX amended in the Uruguay Round, and turned into multilateral commitments accepted by all WTO members. Only four remained plurilateral (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, leaving only two.

B. Uruguay Round

During the Doha Round , the US government blamed Brazil and India for being inflexible and the EU for impeding agricultural imports. The then-President of Brazil , Luiz Ignacio Lula da Silva (above right), responded to the criticisms by arguing that progress would only be achieved if the richest countries (especially the US and countries in the EU) made deeper cuts in their agricultural subsidies and further open their markets for agricultural goods.

It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles, all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed 15 April 1994, during the ministerial meeting at Marrakesh , Morocco, and hence is known as the Marrakesh Agreement .

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

The Agreement Establishing the WTO Goods and investment – the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures (TRIMS) Services the General Agreement on Trade in Services Intellectual property the Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPS) Dispute settlement (DSU) Reviews of governments' trade policies (TPRM)

In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3) , the Uruguay Round has been successful in increasing binding commitments by both developed and developing countries, as may be seen in the percentages of tariffs bound before and after the 1986–1994 talks.

3.1.2 Ministerial conferences

The highest decision-making body of the WTO is the Ministerial Conference , which usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade

LXII agreements. The inaugural ministerial conference was held in Singapore in 1996. Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference, which led to them being collectively referred to as the " Singapore issues ". The second ministerial conference was held in Geneva in Switzerland. The third conference in Seattle, Washington ended in failure, with massive demonstrations and police and National Guard crowd control efforts drawing worldwide attention. The fourth ministerial conference was held in Doha in the Persian Gulf nation of Qatar . The Doha Development Round was launched at the conference. The conference also approved the joining of China, which became the 143rd member to join. The fifth ministerial conference was held in Cancun , Mexico , aiming at forging agreement on the Doha round. An alliance of 22 southern states, the G20 developing nations (led by India, China, Brazil, ASEAN led by the Philippines ), resisted demands from the North for agreements on the so-called " Singapore issues " and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.

The sixth WTO ministerial conference was held in Hong Kong from 13–18 December 2005. It was considered vital if the four-year-old Doha Development Round negotiations were to move forward sufficiently to conclude the round in 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries, following the Everything but Arms initiative of the European Union but with up to 3% of tariff lines exempted. Other major issues were left for further negotiation to be completed by the end of 2010. The WTO General Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session in Geneva from 30 November-3 December 2009 .

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A statement by chairman Amb. Mario Matus acknowledged that the prime purpose was to remedy a breach of protocol 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 on transparency and open discussion rather than on small group processes and informal negotiating structures". The general theme for discussion was "The WTO, the Multilateral Trading System and the Current Global Economic Environment".

3.1.3 Doha Round (The Doha Agenda)

The Doha Development Round started in 2001 and continues today. The WTO launched the current round of negotiations, the Doha Development Round, at the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries.

The negotiations have been highly contentious. Disagreements still continue over several key areas including agriculture subsidies, which emerged as critical in July 2006. According to a European Union statement, "The 2008

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Ministerial meeting broke down over a disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports." The position of the European Commission is that "The successful conclusion of the Doha negotiations would confirm the central role of multilateral liberalization and rule- making. It would confirm the WTO as a powerful shield against protectionist backsliding." An impasse remains and As of June 2012, agreement has not been reached, despite intense negotiations at several ministerial conferences and at other sessions.

3.4 Organizational structure

The General Council has the following subsidiary bodies which oversee committees in different areas:

A. 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 Monitoring Body 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. 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 WTO's work with other international organizations in the field.

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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.

B. Trade Negotiations Committee

The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. The chair is WTO's director-general. As of June 2012 the committee was tasked with the Doha Development Round .

The Service Council has three subsidiary bodies: financial services, domestic regulations, GATS rules and specific commitments. The General council has several different committees, working groups, and working parties. There are committees on the following, Trade and Environment, Trade and Development (Subcommittee on Least-Developed Countries ), Regional Trade Agreements , Balance of Payments Restrictions, and Budget, Finance and Administration. There are working parties on the following, Accession. There are working groups on the following, Trade, debt and finance, and Trade and technology transfer.

3.5 Decision-making

The WTO describes itself as "a rules-based, member- driven organization all decisions are made by the member governments, and the rules are the outcome of negotiations among members". The WTO Agreement foresees votes where consensus cannot be reached, but the practice of consensus dominates the process of decision-making.

Richard Harold Steinberg 2002 argues that although the WTO's consensus governance model provides law-based initial

LXVI bargaining, trading rounds close through power-based bargaining favouring Europe and the U.S. and may not lead to Pareto improvement .

3.6 Dispute settlement

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

The operation of the WTO dispute settlement process involves the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts and several specialized institutions. Bodies involved in the dispute settlement process, World Trade Organization.

3.7 Accession and membership

The process of becoming a WTO member is unique to each applicant country, and the terms of accession are dependent upon the country's stage of economic development and current trade regime. The process takes about five years, on average, but it can last more if the country is less than fully committed to the process or if political issues interfere. The shortest accession negotiation was that of the Kyrgyz Republic , while the longest was that of Russia, which, having first applied to join GATT in 1993 was approved for membership in December 2011 and became a WTO member on 22 August 2012. The second longest was that of Vanuatu, whose Working Party on the Accession of Vanuatu was established on 11 July

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1995. After a final meeting of the Working Party in October 2001, Vanuatu requested more time to consider its accession terms. In 2008, it indicated its interest to resume and conclude its WTO accession. The Working Party on the Accession of Vanuatu was reconvened informally on 4 April 2011 to discuss Vanuatu's future WTO membership. The re-convened Working Party completed its mandate on 2 May 2011. The General Council formally approved the Accession Package of Vanuatu on 26 October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th member. An offer of accession is only given once consensus is reached among interested parties.

3.7.1 Accession process

WTO accession progress :

Members (including dual-representation with the European Union)

Draft Working Party Report or Factual Summary adopted

Goods and/or Services offers submitted

Memorandum on Foreign Trade Regime (FTR) submitted

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Observer, negotiations to start later or no Memorandum on FTR submitted

Frozen procedures or no negotiations in the last 3 years

No official interaction with the WTO

A country wishing to accede to the WTO submits an application to the General Council, and has to describe all aspects of its trade and economic policies that have a bearing on WTO agreements. The application is submitted to the WTO in a memorandum which is examined by a working party open to all interested WTO Members.

After all necessary background information has been acquired, the working party focuses on issues of discrepancy between the WTO rules and the applicant's international and domestic trade policies and laws. The working party determines the terms and conditions of entry into the WTO for the applicant nation, and may consider transitional periods to allow countries some leeway in complying with the WTO rules.

The final phase of accession involves bilateral negotiations between the applicant nation and other working party members regarding the concessions and commitments on tariff levels and market access for goods and services. The new member's commitments are to apply equally to all WTO members under normal non-discrimination rules, even though they are negotiated bilaterally.

When the bilateral talks conclude, the working party sends to the general council or ministerial conference an accession package, which includes a summary of all the working party meetings, the Protocol of Accession (a draft membership treaty), and lists ("schedules") of the member-to- be's commitments. Once the general council or ministerial

LXIX conference approves of the terms of accession, the applicant's parliament must ratify the Protocol of Accession before it can become a member.

3.7.2 Members and observers

The WTO has 159 members and 25 observer governments. In addition to states, the European Union is a member. WTO members do not have to be full sovereign nation-members. Instead, they must be a customs territory with full autonomy in the conduct of their external commercial relations. Thus Hong Kong has been a member since 1995 (as "Hong Kong, China" since 1997) predating the People's Republic of China, which joined in 2001 after 15 years of negotiations. The Republic of China (Taiwan) acceded to the WTO in 2002 as "Separate Customs Territory of Taiwan , Penghu , Kinmen and Matsu " ( Chinese Taipei ) despite its disputed status . The WTO Secretariat omits the official titles (such as Counselor, First Secretary, Second Secretary and Third Secretary) of the members of Chinese Taipei's Permanent Mission to the WTO, except for the titles of the Permanent Representative and the Deputy Permanent Representative.

Iran is the biggest economy outside the WTO. With the exception of the Holy See , observers must start accession negotiations within five years of becoming observers. A number of international intergovernmental organizations have also been granted observer status to WTO bodies. 14 states and two territories so far have no official interaction with the WTO.

3.8 Agreements

The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important

LXX agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies . The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector , in the same way as the General Agreement on Tariffs and Trade (GATT) provided such a system for merchandise trade. The agreement entered into force in January 1995. The Agreement on Trade- Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.

The Agreement on the Application of Sanitary and Phytosanitary Measures also known as the SPS Agreement was negotiated during the Uruguay Round of GATT, and entered into force with the establishment of the WTO at the beginning of 1995. Under the SPS agreement, the WTO sets constraints on members' policies relating to food safety (bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade , and entered into force with the establishment of the WTO at the end of 1994. The object ensures that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade". The Agreement on Customs Valuation , formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow. Chiefly, it adopts the "transaction value" approach.

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3.9 The Deputy Directors-General

The four Deputy Directors-General are: Alejandro Jara , Valentine Sendanyoye Rugwabiza , Harsha Vardhana Singh and Rufus H. Yerxa . Their appointment took effect on 1 October 2005. In May 2009, the Director-General informed the General Council of his intention to retain the same four DDGs for his second four-year mandate, starting on 1 September 2009.

3.10 WTO Director-General selection process

The procedures for the appointment of the WTO Director-General are described in document WT/L/509. The term of office of the current Director-General, Mr Pascal Lamy, ends on 31 August 2013. In line with WTO procedures, WTO members officially nominated candidates for the post of Director-General from 1 to 31 December 2012. The elected Director-General is Roberto Azevedo .

3.11 Directors-General

The Directors-General of the WTO have been:

o Roberto Azevêdo , 2013– o Pascal Lamy , 2005–2013 o Supachai Panitchpakdi , 2002–2005 o Mike Moore , 1999–2002 o Renato Ruggiero , 1995–1999 o Peter Sutherland , 1995

The Directors-General of the precursor organization, GATT , were:

o Peter Sutherland, 1993–1995 o Arthur Dunkel , 1980–1993

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o Olivier Long , 1968–1980 o Eric Wyndham White , 1948–1968

3.12 Functions of World Trade Organization

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

o It oversees the implementation, administration and operation of the covered agreements. o It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. Another priority of the WTO is the assistance of developing , least- developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.

The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the organization. Finally, the WTO cooperates closely with the two other components of the Bretton Woods system, the IMF and the World Bank.

3.13 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. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

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1. Non-discrimination .

It has two major components: the most favoured nation (MFN) rule, and the 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. "Grant someone a special favour and you have to do the same for all other WTO members." National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after 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).

2. Reciprocity .

It reflects both a desire to limit the scope of free-riding that may arise because of the 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.

3. Binding and enforceable commitments .

The tariff commitments made by WTO members in a multilateral 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

LXXIV compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.

4. Transparency .

The WTO members are required to publish their trade regulations, to maintain institutions 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). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports.

5. Safety valves .

In specific circumstances, governments are able to restrict trade . The WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

There are three types of provision in this direction:

Articles allowing for the use of trade measures to attain non-economic objectives. Articles aimed at ensuring "fair competition". Members must not use environmental protection measures as a means of disguising protectionist policies. Provisions permitting intervention in trade for economic reasons.

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Exceptions to the MFN principle also allow for preferential treatment of developing countries , regional free trade areas and customs unions .

CHAPTER 4 LXXVI International Finance Corporation

International Finance Corporation

IFC logo Formation 1956 Type Development finance institution Legal status Treaty Purpose/focus Private sector development, Poverty reduction Headquarters Washington, D.C. Membership 184 countries Executive Vice Jin-Yong Cai President & CEO Parent organization World Bank Group Website ifc.org

The International Finance Corporation ( IFC ) is an international financial institution which offers investment , advisory, and asset management services to encourage private

LXXVII sector development in developing countries . The IFC is a member of the World Bank Group and is headquartered in Washington, D.C. , United States . It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects which reduce poverty and promote development. The IFC's stated aim is to create opportunities for people to escape poverty and achieve better living standards by mobilizing financial resources for private enterprise, promoting accessible and competitive markets, supporting businesses and other private sector entities, and creating jobs and delivering necessary services to those who are poverty- stricken or otherwise vulnerable. Since 2009, the IFC has focused on a set of development goals which its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve health and education , increase access to financing for microfinance and business clients, advance infrastructure , help small businesses grow revenues, and invest in climate health.

The IFC is owned and governed by its member countries, but has its own executive leadership and staff which conduct its normal business operations. It is a corporation whose shareholders are member governments which provide paid-in capital and which have the right to vote on its matters. Originally more financially integrated with the World Bank Group, the IFC was established separately and eventually became authorized to operate as a financially autonomous entity and make independent investment decisions. It offers an array of debt and equity financing services and helps companies face their risk exposures, while refraining from participating in a management capacity. The corporation also offers advice to companies on making decisions, evaluating their impact on the environment and society, and being responsible. It advises governments on building infrastructure and partnerships to further support private sector development.

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The corporation is assessed by an independent evaluator each year. In 2011, its evaluation report recognized that its investments performed well and reduced poverty, but recommended that the corporation define poverty and expected outcomes more explicitly to better-understand its effectiveness and approach poverty reduction more strategically. The corporation's total investments in 2011 amounted to $18.66 billion. It committed $820 million to advisory services for 642 projects in 2011, and held $24.5 billion worth of liquid assets. The IFC is in good financial standing and received the highest ratings from two independent credit rating agencies in 2010 and 2011.

4.1History of International Finance Corporation

IFC headquarters building, designed by architect Michael Graves

The World Bank and International Monetary Fund were designed by delegates at the Bretton Woods conference in 1944 and the World Bank, then consisting of only the International Bank for Reconstruction and Development , became operational in 1946. Robert L. Garner joined the World Bank in 1947 as a senior executive and expressed his view that private business could play an important role in international development. In 1950, Garner and his colleagues proposed establishing a new

LXXIX institution for the purpose of making private investments in the developing countries served by the Bank. The U.S. government encouraged the idea of an international corporation working in tandem with the World Bank to invest in private enterprises without accepting guarantees from governments, without managing those enterprises, and by collaborating with third party investors. When describing the IFC in 1955, World Bank President Eugene R. Black said that the IFC would only invest in private firms, rather than make loans to governments, and it would not manage the projects in which it invests. In 1956 the International Finance Corporation became operational under the leadership of Garner. It initially had 12 staff members and $100 million ($844.9 million in 2012 dollars) in capital. The corporation made its inaugural investment in 1957 by making a $2 million ($16.4 million in 2012 dollars) loan to a Brazil- based affiliate of Siemens & Halske (now Siemens AG ).

In 1965, the corporation channeled $600,000 ($4.4 million in 2012 dollars) in capital from Deutsche Bank and other investors to Champion Cellulose, marking the launch of the IFC's Syndicated Loan Program. In the early 1970s, the IFC set up its own Capital Markets Department to bolster the stock markets , banks, and other financial intermediaries in developing nations and also offered its first advisory services to Indonesia. Afterward, the corporation formalized its advisory services. In the years that followed up until 1977, the IFC decentralized its operations by establishing field offices in its member states. As of 2008, only half of its staff operates from its Washington, D.C. headquarters.

In 1984, the IFC became financially autonomous and was authorized to issue its own bond instruments across international capital markets, thereby ending its reliance on World Bank financial support. The corporation's shareholders approved a capital increase of $1.2 billion ($2.7 billion in 2012 dollars) in order to expand its work in private development. The IFC increasingly invested in private energy from 1966 to 1994, financing 34 projects in the electric power sector worth

LXXX approximately $7.4 billion USD ($11.5 billion in 2012 dollars). It financed 88 infrastructure projects across 26 member states at a total cost of $15 billion USD ($23.2 billion in 2012 dollars). It had invested in one energy project in 1966 and another in 1981, but in the six years between 1988 and 1994 it invested in a bulk of 32 energy projects.

The IFC adopted its Environmental and Social Standards in 1998 with the intent of prioritizing sustainability in its investment activities. In 2001, the corporation began attempting to implement such concerns into its investments. Critics have questioned the sustainability of some projects funded by the corporation. The IFC approved a $90 million loan in 2007 for the upgrading of a slaughterhouse facility in the Amazon region owned by Brazil's biggest beef producer Bertin , despite opposition from local NGOs , the Sierra Club , and the advisement against by the Bank's Independent Evaluation Group . Six months later in June 2008, the IFC and World Bank ultimately backed out of the investment project and expressed dissatisfaction regarding Bertin's ability to meet its sustainability standards. In 2009, an internal audit by the Office of the Compliance Advisor Ombudsman determined that the IFC ignored its Environmental and Social Standards by approving $200 million worth of loan guarantees to fund the production of palm oil in Indonesia, a country faced with significant environmental risks to its rainforests. In 2010, the Office of the Compliance Advisor Ombudsman channeled a complaint by a collection of NGOs filed against the IFC for its equity and loan investments in an aluminum smelting operation in Mozambique which the NGOs allege could expose local inhabitants to harmful emissions .

The IFC is evaluated annually by the Bank's Independent Evaluation Group. In 2011, the group published an evaluation report titled "Assessing the IFC's Poverty Focus and Results" in which it noted that although the IFC's projects that emphasized inclusive growth patterns performed well and that poverty reduction was an implicit outcome, the IFC

LXXXI neglected to articulate and detail the impacts on poverty of the projects which target economic growth specifically. This circumstance made it difficult for the evaluation group to identify specific opportunities for the poor. The group ultimately recommended that the IFC adopt a more strategic approach to poverty reduction by better defining poverty reduction impacts and poverty itself, and that the IFC establish a framework for greater outside consultation on its understanding, measurement, and reporting on poverty reduction efforts.

♦ Response to the 2008 financial crisis

The IFC performed a critical function by helping developing countries deal with the aftermath of the 2008 financial crisis . It provided a $16.2 billion line of credit to small and medium businesses (34% more than in 2007) and authorized a $200 million selective capital increase, of which $130 million accounted for new shares which grew the representation of developing countries by 6.07% to a total share of 39.48%.

4.2 Governance

The IFC is governed by its Board of Governors which meets annually and consists of one governor per member country (most often the country's finance minister or treasury secretary). Each member typically appoints one governor and also one alternate. Although corporate authority rests with the Board of Governors, the governors delegate most of their corporate powers and their authority over daily matters such as lending and business operations to the Board of Directors. The IFC's Board of Directors consists of 25 executive directors which meet regularly and work at the IFC's headquarters, and is chaired by the President of the World Bank Group . The executive directors collectively represent all 184 member countries. When the IFC's Board of Directors votes on matters

LXXXII brought before it, each executive director's vote is weighted according to the total share capital of the member countries represented by that director. The IFC's Executive Vice President and CEO oversee its overall direction and daily operations. As of October 2012, Jin-Yong Cai serves as the Executive Vice President and CEO of the IFC. President of the World Bank Group Jim Yong Kim appointed Jin-Yong Cai to serve as the new Executive Vice President and CEO of the IFC. CAI is a Chinese citizen who formerly served as a managing director for Goldman Sachs and has over 20 years of financial sector experience.

Although the IFC coordinates its activities in many areas with the other World Bank Group institutions, it generally operates independently as it is a separate entity with legal and financial autonomy, established by its own Articles of Agreement. The corporation operates with a staff of over 3,400 employees, of which half are stationed in field offices across its member nations.

4.3 Membership

International Finance Corporation member states

The IFC is owned by its 184 member governments which pay in capital, vote on matters of policy, and approve all of its investing activities. Each member country is a shareholder of the IFC, and the percentage of each member's ownership share is determined by the amount of capital it pays

LXXXIII into the IFC. As of 2011, the United States is the IFC's single largest shareholder with a share of 24%. Japan holds a share of 6%, while each of Germany, France, and the United Kingdom hold 5%. [1] The IFC's share capital amounted to approximately $2.4 billion as of 30 June 2011, of which 51% is controlled by the seven largest member governments of the OECD . Membership in the IFC is available only to countries who are members of the World Bank, particularly the International Bank for Reconstruction and Development.

4.4 Services

4.4.1 Investment services

The IFC's investment services consist of loans , equity, trade finance , syndicated loans , structured and securitized finance, client risk management services, treasury services , and liquidity management. In its fiscal year 2010, the IFC invested $12.7 billion in 528 projects across 103 countries. Of that total investment commitment, approximately 39% ($4.9 billion) was invested into 255 projects across 58 member nations of the World Bank's International Development Association (IDA).

The IFC makes loans to businesses and private projects generally with maturities of seven to twelve years. It determines a suitable repayment schedule and grace period for each loan individually to meet borrowers' currency and cash flow requirements. The IFC may provide longer-term loans or extend grace periods if a project is deemed to warrant it. Leasing companies and financial intermediaries may also receive loans from the IFC. Though loans have traditionally been denominated in hard currencies , the IFC has endeavored to structure loan products in local currencies. Its disbursement portfolio included loans denominated in 25 local currencies in 2010, and 45 local currencies in 2011, funded largely through swap markets. Local financial markets development is one of IFC’s strategic focus areas. In line with its AAA rating, it has

LXXXIV strict concentration, liquidity, asset-liability and other policies. The IFC committed to approximately $5.7 billion in new loans in 2010, and $5 billion in 2011.

Through its Global Trade Finance Program, the IFC guarantees trade payment obligations of more than 200 approved banks in over 80 countries to mitigate risk for international transactions. The Global Trade Finance Program provides guarantees to cover payment risks for emerging market banks regarding promissory notes, bills of exchange, letters of credit, bid and performance bonds, supplier credit for capital goods imports, and advance payments. The IFC issued $3.46 billion in more than 2,800 guarantees in 2010, of which over 51% targeted IDA member nations. In its fiscal year 2011, the IFC issued $4.6 billion in more than 3,100 guarantees. In 2009, the IFC launched a separate program for crisis response, known as its Global Trade Liquidity Program, which provides liquidity for international trade among developing countries. Since its establishment in 2009, the Global Trade Liquidity Program assisted with over $15 billion in trade in 2011.

The IFC operates a Syndicated Loan Program in an effort to mobilize capital for development goals. The program was created in 1957 and as of 2011 has channeled approximately $38 billion from over 550 financial institutions toward development projects in over 100 different emerging markets . The IFC syndicated a total of $4.7 billion in loans in 2011, twice that of its $2 billion worth of syndications in 2010. Due to banks retrenching from lending across borders in emerging markets, in 2009 the IFC started to syndicate parallel loans to the international financial institutions and other participants.

To service clients without ready access to low-cost financing, the IFC relies on structured or securitized financial products such as partial credit guarantees, portfolio risk transfers, and Islamic finance . The IFC committed $797 million in the form of structured and securitized financing in

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2010. For companies that face difficulty in obtaining financing due to a perception of high credit risk , the IFC securitizes assets with predictable cash flows, such as mortgages , credit cards , loans, corporate debt instruments, and revenue streams, in an effort to enhance those companies' credit.

Financial derivative products are made available to the IFC's clients strictly for hedging interest rate risk , exchange rate risk , and commodity risk exposure . It serves as an intermediary between emerging market businesses and international derivatives market makers to increase access to risk management instruments.

The IFC fulfills a treasury role by borrowing international capital to fund lending activities. It is usually one of the first institutions to issue bonds or to do swaps in emerging markets denominated in those markets' local currencies. The IFC's new international borrowings amounted to $8.8 billion in 2010 and $9.8 billion in 2011. The IFC Treasury actively engages in liquidity management in an effort to maximize returns and assure that funding for its investments is readily available while managing risks to the IFC.

4.4.2 Advisory services

In addition to its investment activities the IFC provides a range of advisory services to support corporate decision- making regarding business, environment, social impact, and sustainability. The IFC's corporate advice targets governance, managerial capacity, scalability, and corporate responsibility. It prioritizes the encouragement of reforms that improve the trade friendliness and ease of doing business in an effort to advise countries on fostering a suitable investment climate. It also offers advice to governments on infrastructure development and public-private partnerships. The IFC attempts to guide businesses toward more sustainable practices particularly with

LXXXVI regards to having good governance, supporting women in business, and proactively combating climate change.

4.4.3 Asset Management Company

The IFC established IFC Asset Management Company LLC (IFC AMC) in 2009 as a wholly owned subsidiary to manage all capital funds to be invested in emerging markets. The AMC manages capital mobilized by the IFC as well as by third parties such as sovereign or pension funds, and other development financing organizations. Despite being owned by the IFC, the AMC has investment decision autonomy and is charged with a fiduciary responsibility to the four individual funds under its management. It also aims to mobilize additional capital for IFC investments as it can make certain types of investments which the IFC cannot. As of 2011, the AMC managed the IFC Capitalization Fund (Equity) Fund, L.P, the IFC Capitalization (Subordinated Debt) Fund, L.P, the IFC African, Latin American, and Caribbean Fund, L.P, and the Africa Capitalization Fund, Ltd. The IFC Capitalization (Equity) Fund holds $1.3 billion in equity, while the IFC Capitalization (Subordinated Debt) Fund is valued at $1.7 billion. The IFC African, Latin American, and Caribbean Fund (referred to as the IFC ALAC Fund) were created in 2010 and is worth $1 billion. As of March 2012, the ALAC Fund has invested a total of $349.1 million into twelve businesses. The Africa Capitalization Fund was set up in 2011 to invest in commercial banks in both Northern and Sub-Saharan Africa and its commitments totaled $181.8 million in March 2012. As of 2012, Gavin E.R. Wilson serves as CEO of the AMC.

4.5 Financial performance

The IFC prepares consolidated financial statements in accordance with United States GAAP which are audited by KPMG . It reported income before grants to IDA members of $2.18 billion in fiscal year 2011, up from $1.95 billion in fiscal

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2010 and $299 million in fiscal 2009. The increase in income before grants is ascribed to higher earnings from the IFC's investments and also from higher service fees. The IFC reported a partial offset from lower liquid asset trading income, higher administrative costs, and higher advisory service expenses. The IFC made $600 million in grants to IDA countries in fiscal 2011, up from $200 million in fiscal 2010 and $450 million in fiscal 2009. The IFC reported a net income of $1.58 billion in fiscal year 2011. In previous years, the IFC had reported a net loss of $151 million in fiscal 2009 and $1.75 billion in fiscal 2010. The IFC's total capital amounted to $20.3 billion in 2011, of which $2.4 billion was paid-in capital from member countries, $16.4 billion was retained earnings, and $1.5 billion was accumulated other comprehensive income . The IFC held $68.49 billion in total assets in 2011.

The IFC's return on average assets (GAAP basis) decreased from 3.1% in 2010 to 2.4% in 2011. Its return on average capital (GAAP basis) decreased from 10.1% in 2010 to 8.2% in 2011. The IFC's cash and liquid investments accounted for 83% of its estimated net cash requirements for fiscal years 2012 through 2014. Its external funding liquidity level grew from 190% in 2010 to 266% in 2011. It has a 2.6:1 debt-to- equity ratio and holds 6.6% in reserves against losses on loans to its disbursement portfolio. The IFC's deployable strategic capital decreased from 14% in 2010 to 10% in 2011 as a share of its total resources available, which grew from $16.8 billion in 2010 to $17.9 billion in 2011.

In 2011, the IFC reported total funding commitments (consisting of loans, equity, guarantees, and client risk management) of $12.18 billion, slightly lower than its $12.66 billion in commitments in 2010. Its core mobilization, which consists of participation and parallel loans, structured finance, its Asset Management Company funds, and other initiatives, grew from $5.38 billion in 2010 to $6.47 billion in 2011. The IFC's total investment program was reported at a value of $18.66 billion for fiscal year 2011. Its advisory services

LXXXVIII portfolio included 642 projects valued at $820 million in 2011, compared to 736 projects at $859 million in 2010. The IFC held $24.5 billion in liquid assets in 2011, up from $21 billion in 2010.

The IFC received credit ratings of AAA from Standard & Poor's in December 2012 and AAA from Moody's Investors Service in November 2012. S&P rated the IFC as having a strong financial standing with adequate capital and liquidity, cautious management policies, a high level of geographic diversification, and anticipated treatment as a preferred creditor given its membership in the World Bank Group. It noted that the IFC faces a weakness relative to other multilateral institutions of having higher risks due to its mandated emphasis on private sector investing and its income heavily affected by equity markets.

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CHAPTER 5

International Institution

A. American depositary receipt

Financial markets

Public market, Exchange, Securities

Bond market

Bond valuation, Corporate bond, Fixed income, Government bond, High-yield debt, Municipal bond

Stock market

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Common stock, Preferred stock, Registered share, Stock, Stock certificate, Stock exchange, Voting share

Derivatives market

Credit derivative, Futures exchange, Hybrid security, Securitization

Over-the-counter

Forwards, Options, Spot market, Swaps

Foreign exchange

Currency, Exchange rate

Other markets

Commodity market, Money market, Reinsurance market, Real estate market

Practical trading

Clearing house, Financial market participants, Financial regulation

Finance series

Banks and banking, Corporate finance, Personal finance, Public finance

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An American depositary receipt ( ADR ) is a negotiable security that represents securities of a non-US company that trades in the US financial markets. Securities of a foreign company that are represented by an ADR are called American depositary shares ( ADSs ).

Shares of many non-US companies trade on US stock exchanges through ADRs. ADRs are denominated and pay dividends in US dollars and may be traded like regular shares of stock. Over-the-counter ADRs may only trade in extended hours. The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges .

5.1 Depositary receipts

ADRs are one type of depositary receipt (DR), which is any negotiable security that represents securities of companies, which is foreign to the market on which the DR trades. DRs enable domestic investors to buy securities of foreign companies without the accompanying risks or inconveniences of cross-border and cross-currency transactions.

Each ADR is issued by a domestic custodian bank when the underlying shares are deposited in a foreign depositary bank , usually by a broker who has purchased the shares in the open market local to the foreign company. An ADR can represent a fraction of a share, a single share, or multiple shares of a foreign security. The holder of a DR has the right to obtain the underlying foreign security that the DR represents, but investors usually find it more convenient to own the DR. The price of a DR generally tracks the price of the foreign security in its home market, adjusted for the ratio of DRs to foreign company shares. In the case of companies domiciled in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government. Depositary banks have various responsibilities to

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DR holders and to the issuing foreign company the DR represents.

5.2 ADR programs (facilities)

When a company establishes an ADR program, it must decide what exactly it wants out of the program, and how much time, effort, and other resources they are willing to commit. For this reason, there are different types of programs, or facilities, that a company can choose.

5.2.1 Unsponsored ADRs

Unsponsored shares trade on the over-the-counter (OTC) market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored ADRs are often issued by more than one depositary bank. Each depositary services only the ADRs it has issued.

As a result of an SEC rule change effective October 2008, hundreds of new ADRs have been issued, both sponsored and unsponsored. The majority of these were unsponsored Level I ADRs and now approximately half of all ADR programs in existence are unsponsored.

5.2.2 Sponsored Level I ADRs ("OTC" facility)

Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent .

A majority of American depositary receipt programs currently trading are issued through a Level 1 program. This is

XCIII the most convenient way for a foreign company to have its equity traded in the United States.

Level 1 share can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission (SEC). The company is not required to issue quarterly or annual reports in compliance with U.S. GAAP. However, the company must have a security listed on one or more stock exchange in a foreign jurisdiction and must publish in English on its website its annual report in the form required by the laws of the country of incorporation, organization or domicile.

Companies with shares trading under a Level 1 program may decide to upgrade their program to a Level 2 or Level 3 program for better exposure in the United States markets.

5.2. 3 Sponsored Level II ADRs ("Listing" facility)

Level 2 depositary receipt programs are more complicated for a foreign company. When a foreign company wants to set up a Level 2 program, it must file a registration statement with the U.S. SEC and is under SEC regulation. In addition, the company is required to file a Form 20-F annually. Form 20-F is the basic equivalent of an annual report ( Form 10-K) for a U.S. company. In their filings, the company is required to follow U.S. GAAP standards or IFRS as published by the IASB.

The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ , and the American Stock Exchange (AMEX).

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While listed on these exchanges, the company must meet the exchange’s listing requirements . If it fails to do so, it may be delisted and forced to downgrade its ADR program.

5.2.4 Sponsored Level III ADRs ("offering" facility)

A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. companies.

Setting up a Level 3 program means that the foreign company is not only taking steps to permit shares from its home market to be deposited into an ADR program and traded in the U.S. it is actually issuing shares to raise capital. In accordance with this offering, the company is required to file a Form F-1, which is the format for an Offering Prospectus for the shares. They also must file a Form 20-F annually and must adhere to U.S. GAAP standards or IFRS as published by the IASB. In addition, any material information given to shareholders in the home market must be filed with the SEC through Form 6K .

Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital. Overall, foreign companies with a Level 3 program set up are the easiest on which to find information. Examples include the British telecommunications company Vodafone (VOD), the Brazilian oil company Petro bras (PBR), and the Chinese technology company China Information Technology, Inc. (CNIT).

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5.2.5 Restricted Programs

Foreign companies that want their stock to be limited to being traded by only certain individuals may set up a restricted program. There are two SEC rules that allow this type of issuance of shares in the U.S.: Rule 144-A and Regulation S. ADR programs operating under one of these 2 rules make up approximately 30% of all issued ADRs.

A. Privately placed (SEC Rule 144A) ADRs

Some foreign companies will set up an ADR program under SEC Rule 144A . This provision makes the issuance of shares a private placement . Shares of companies registered under Rule 144-An are restricted stock and may only be issued to or traded by Qualified Institutional Buyers (QIBs).

US public shareholders are generally not permitted to invest in these ADR programs, and most are held exclusively through the Depository Trust & Clearing Corporation , so there is often very little information on these companies.

CHARACTERS:

1. It is a secured security.

2. Fixed rat of interest is paid.

3. Can be convertd into multiple shares.

B. Offshore (SEC Regulation S) ADRs

The other way to restrict the trading of depositary shares to US public investors is to issue them under the terms of SEC Regulation S . This regulation means that the shares are not, and will not be registered with any United States securities regulation authority.

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Regulation S shares cannot be held or traded by any “U.S. person” as defined by SEC Regulation S rules. The shares are registered and issued to offshore, non-US residents.

Regulation S ADRs can be merged into a Level 1 program after the restriction period has expired, and the foreign issuer elects to do this.

5.3 Sourcing ADRs

One can either source new ADRs by depositing the corresponding domestic shares of the company with the depositary bank that administers the ADR program or, instead, one can obtain existing ADRs in the secondary market. The latter can be achieved either by purchasing the ADRs on a US stock exchange or via purchasing the underlying domestic shares of the company on their primary exchange and then swapping them for ADRs; these swaps are called crossbook swaps and on many occasions account for the bulk of ADR secondary trading. This is especially true in the case of trading in ADRs of UK companies where creation of new ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government; sourcing existing ADRs in the secondary market (either via crossbook swaps or on exchange) instead is not subject to SDRT.

5.4 ADR termination

Most ADR programs are subject to possible termination. Termination of the ADR agreement will result in cancellation of all the depositary receipts, and a subsequent delisting from all exchanges where they trade. The termination can be at the discretion of the foreign issuer or the depositary bank, but is typically at the request of the issuer. There may be a number of reasons why ADRs terminate, but in most cases the foreign issuer is undergoing some type of reorganization or merger .

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Owners of ADRs are typically notified in writing at least thirty days prior to a termination. Once notified, an owner can surrender their ADRs and take delivery of the foreign securities represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the underlying foreign shares, there is no guarantee the shares will trade on any US exchange. The holder of the foreign shares would have to find a broker who has trading authority in the foreign market where those shares trade. If the owner continues to hold the ADR past the effective date of termination, the depositary bank will continue to hold the foreign deposited securities and collect dividends, but will cease distributions to ADR owners.

Usually up to one year after the effective date of the termination, the depositary bank will liquidate and allocate the proceeds to those respective clients. Many US brokerages can continue to hold foreign stock, but may lack the ability to trade it overseas.

B. Global depository receipt

A global depository receipt or global depositary receipt (GDR) is a certificate issued by a depository bank , which purchases shares of foreign companies and deposits it on the account . GDRs represent ownership of an underlying number of shares.

Global depository receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets .

Prices of global depositary receipt are often close to values of related shares, but they are traded and settled independently of the underlying share.

Several international banks issue GDRs, such as JPMorgan Chase , Citigroup , Deutsche Bank , The Bank of New

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York Mellon . GDRs are often listed in the Frankfurt Stock Exchange , Luxembourg Stock Exchange and in the London Stock Exchange , where they are traded on the International Order Book (IOB). Normally 1 GDR = 10 Shares, but not always. It is a negotiable instrument which is denominated in some freely convertible currency. It is a negotiable certificate denominated in US dollars which represents a non-US Company's publicly traded local equity.

Characteristics of GDRs:

1. It is an unsecured security

2. A fixed rate of interest is paid on it.

3. It may be converted into number of shares.

4. Interest and redemption price is public in foreign agency.

5. It is listed and traded in the share market.

Global Depository Receipt is not a very different financial instrument, from that of ADR. In fact if the Indian Company which has issued GDRs in the American market wishes to further extend it to other developed and advanced countries such as Europe, then they can sell these ADRs to the public of Europe and the same would be named as GDR.

C. Institutional investor

Institutional investors are organizations which pool large sums of money and invest those sums in securities , real property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets.

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Typical investors include banks, insurance companies , retirement or pension funds , hedge funds , investment advisors and mutual funds . Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment.

Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance . Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management .

♦ History of Institutional investors

Ancient Rome and medieval Islam

C

Inscription honoring Aristoxénos, son of Demophon, probably benefactor of the gymnasium in Athens, late third or second century BC., Munsee du Louvre.

Roman law ignored the concept of juristic person , yet at the time the practice of private evergetism (which dates to, at least, the 4th century BC in Greece) sometimes led to the creation of revenues-producing capital which may be interpreted as an early form of charitable institution. In some African colonies in particular, part of the city's entertainment was financed by the revenue generated by shops and baking- ovens originally offered by a wealthy benefactor. In the South of Gaul, aqueducts were sometimes financed in a similar fashion.

The legal principle of juristic person might have appeared with the rise of monasteries in the early centuries of Christianity . The concept then might have been adopted by the emerging Islamic law. The waqf (charitable institution) became a cornerstone of the financing of education, waterworks, welfare and even the construction of monuments. Alongside some Christian monasteries the waqfs created in the 10th century AD are amongst the longest standing charities in the world (see for instance the Imam Reza shrine ).

♦ Pre-industrial Europe

Following the spread of monasteries, almhouses and other hospitals, donating sometimes large sums of money to institutions became a common practice in medieval Western Europe. In the process, over the centuries those institutions acquired sizable estates and large fortunes in bullion. Following the collapse of the agrarian revenues, many of this institution moved away from rural real estate to concentrate on bonds emitted by the local sovereign (the shift dates back to the 15th century for Venice, and the 17th century for France and the Dutch Republic). The importance of lay and religious

CI institutional ownership in the pre-industrial European economy cannot be overstated, they commonly possessed 10 to 30% of a given region arable land.

In the 18th century, private investors pool their resources to pursue lottery tickets and tontine shares allowing them to spread risk and become some of the earliest speculative institutions known in the West.

♦ Before 1980

Following several waves of dissolution (mostly during the Reformation and the Revolutionary period) the weight of the traditional charities in the economy collapsed; by 1800, institutions solely owned 2% of the arable land in England and Wales. New types of institutions emerged (banks, insurance companies), yet despite some success stories, they failed to attract a large share of the public's savings and, for instance, by 1950, they owned only 7% of US equities and certainly even less in other countries.

Overview of Institutional investors

Financial market participants

• Collective investment schemes • Credit unions

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• Insurance companies • Investment banks • Pension funds • Prime brokers • Trusts

Finance series

• Financial market • Participants • Corporate finance • Personal finance • Public finance • Banks and banking • Financial regulation

Because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable. For example, in the United States, a private placement under Rule 506 of Regulation D may be made to an "accredited investor " without registering the offering of securities with the U.S. Securities and Exchange Commission . In essence institutional investor, an accredited investor is defined in the rule as:

a bank, insurance company, registered investment company (generally speaking, a mutual fund), business development company, or small business investment company;

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an employee benefit plan, within the meaning of the Employee Retirement Income Security Act , if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million a charitable organization, corporation, or partnership with assets exceeding $5 million a director, executive officer, or general partner of the company selling the securities a business in which all the equity owners are accredited investors a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year or a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

♦ Economic theory

By definition, institutional investors are opposed to individual actors on the financial markets. This specificity has major’s consequences in the eyes of economic theory.

♦ Institutional investors as financial intermediaries

Numerous institutional investors act as intermediaries between lenders and borrowers. As such, they have a critical importance in the functioning of the financial markets. Economies of scale imply that they increase returns on

CIV investments and diminish the cost of capital for entrepreneurs. Acting as savings pools, they also play a critical role in guaranteeing a sufficient diversification of the investors' portfolios. Their greater ability to monitor corporate behaviour as well to select investor’s profiles implies that they help diminish agency costs .

♦ Institutional-investor types

→ endowment fund → hedge fund → insurance companies → investment banking → investment trust → mutual fund → pension fund → sovereign wealth fund → unit trust and unit investment trust

♦ Globalization of financial markets

When considered from a strictly local standpoint, institutional investors are sometimes called foreign institutional investors (FIIs). This expression is mostly used in emerging markets such as Malaysia and India .

In countries like India, statutory agencies like the Securities and Exchange Board of India have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion.

♦ Regional

In various countries different types of institutional investors may be more important. In oil-exporting countries

CV sovereign wealth funds are very important, while in developed countries , pension funds may be more important.

CHAPTER 6

SAARC

South Asian Association for Regional Cooperation

South Asia Association for Regional Cooperation (SAARC)

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Member states Observer states Headquarters Kathmandu, Nepal Official languages English Demonym South Asian Membership 8 members 9 observers Leaders - Chairman Mohammed Waheed Hassan Manik - Secretary Ahmed Saleem General Establishment December 8, 1985 Area - Total 5,130,746 km 2 (7th a) 1,980,992 sq mi Population - 2009 estimate 1,600,000,000 (1st a)

- Density 304.9/km 2

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789.7/sq mi GDP (PPP) 2009 estimate - Total US$ 4,382,700 million (3rd a)

- Per capita US$ 2,779

Currency 8 currencies b Time zone (UTC+4½ to +6) Website www.saarc-sec.org a. If considered as a single entity. b. A unified currency has been proposed.

The South Asian Association for Regional Cooperation ( SAARC ) is an organisation of South Asian nations, which was established on 8 December 1985 when the government of Bangladesh , Bhutan , India , Maldives , Nepal , Pakistan , and Sri Lanka formally adopted its charter providing for the promotion of economic and social progress, cultural development within the South Asia region and also for friendship and cooperation with other developing countries. It is dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance. Its seven founding members are Sri Lanka , Bhutan , India , Maldives , Nepal , Pakistan , and Bangladesh . Afghanistan joined the organisation in 2007. Meetings of heads of state are usually scheduled annually meetings of foreign secretaries, twice annually. It is headquartered in Kathmandu , Nepal.

6.1 History of SAARC

The first concrete proposal for establishing a framework for regional cooperation in South Asia was made by the late president of Bangladesh, Ziaur Rahman , on May 2, 1980. Prior to this, the idea of regional cooperation in South Asia was discussed in at least three conferences the Asian Relations Conference in New Delhi in April 1947, the Baguio Conference in the Philippines in May 1950, and the Colombo Powers Conference in April 1954. In the late 1970s, SAARC

CVIII nations agreed upon the creation of a trade bloc consisting of South Asian countries. The idea of regional cooperation in South Asia was again mooted in May 1980. The foreign ministers of the seven countries met for the first time in Colombo in April 1981. The Committee of the Whole, which met in Colombo in August 1985, identified five broad areas for regional cooperation. New areas of cooperation were added in the following years.

6.2 SAARC Charter

Desirous of promoting peace, stability, amity and progress in the region through strict adherence to the principles of the UNITED NATIONS CHARTER and NON-ALIGNMENT, particularly respect for the principles of sovereign equality, territorial integrity, national independence, non-use of force and non- interference in the internal affairs of other States and peaceful settlement of all disputes. Conscious that in an increasingly interdependent world, the objectives of peace, freedom, social justice and economic prosperity is best achieved in the SOUTH ASIAN region by fostering mutual understanding, good neighborly relations and meaningful cooperation among the Member States which are bound by ties of history and culture. Aware of the common problems, interests and aspirations of the peoples of SOUTH ASIA and the need for joint action and enhanced cooperation within their respective political and economic systems and cultural traditions. Convinced that regional cooperation among the countries of SOUTH ASIA is mutually beneficial, desirable and necessary for promoting the welfare and improving the quality of life of the peoples of the region.

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Convinced further that economic, social and technical cooperation among the countries of SOUTH ASIA would contribute significantly to national and collective self-reliance. Recognizing that increased cooperation, contacts and exchanges among the countries of the region will contribute to the promotion of friendship and understanding among their peoples. Recalling the DECLARATION signed by their Foreign Ministers in NEW DELHI on August 2, 1983 and noting the progress achieved in regional cooperation. Reaffirming their determination to promote such cooperation within an institutional framework.

6.3 Objectives of SAARC

The objectives and the aims of the Association as defined in the Charter are:

To promote the welfare of the people of South Asia and to improve their quality of life. To accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential. To promote and strengthen selective self-reliance among the countries of South Asia. To contribute to mutual trust, understanding and appreciation of one another's problems. To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields. To strengthen cooperation with other developing countries. to strengthen cooperation among themselves in international forums on matters of common interest and

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To cooperate with international and regional organisations with similar aims and purposes. To maintain peace in the region.

6.4 Principles

The principles are as follows

• Respect for sovereignty, territorial integrity, political equality and independence of all members states • Non-interference in the internal matters is one of its objectives

→ Cooperation for mutual benefit → All decisions to be taken unanimously and need a quorum of all eight members → All bilateral issues to be kept aside and only multilateral(involving many countries) issues to be discussed without being prejudiced by bilateral issues

Afghanistan was added to the regional grouping on April 2007, with the addition of Afghanistan, the total number of member states were raised to eight (8). In April 2006, the United States of America and South Korea made formal requests to be granted observer status. The European Union has also indicated interest in being given observer status, and made a formal request for the same to the SAARC Council of Ministers meeting in July 2006. On 2 August 2006 the foreign ministers of the SAARC countries agreed in principle to grant observer status to the US, South Korea and the European Union. On 4 March 2008, Iran requested observer status.

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6.5 Secretariat

Secretariat of the South Asian Association for Regional Cooperation in Kathmandu , Nepal

The SAARC Secretariat was established in Kathmandu on 16 January 1987 and was inaugurated by Late King Birendra Bir Bikram Shah of Nepal .

It is headed by the Secretary General appointed by the Council of Ministers from Member Countries in an alphabetical order for a three-year term. He is assisted by the Professional and the General Service Staff, and also an appropriate number of functional units called Divisions assigned to Directors on deputation from Member States. The Secretariat coordinates and monitors implementation of activities, prepares for and services meetings, and serves as a channel of communication between the Association and its Member States as well as other regional organizations.

The Memorandum of Understanding on the establishment of the Secretariat which was signed by Foreign Ministers of member countries on 17 November 1986 at Bangalore, India contains various clauses concerning the role,

CXII structure and administration of the SAARC Secretariat as well as the powers of the Secretary-General.

In several recent meetings the heads of state or government of member states of SAARC have taken some important decisions and bold initiatives to strengthen the organisation and to widen and deepen regional co-operation.

6.5.1 Council of Ministers

→ Council of Ministers consisting of the Foreign Ministers of the Member States established with the following functions: → Formulation of the policies of the ASSOCIATION → Review of the progress of cooperation under the ASSOCIATION → Decision on new areas of cooperation → Establishment of additional mechanism under the ASSOCIATION as deemed necessary → Decision on other matters of general interest to the ASSOCIATION.

The Council of Ministers meets twice a year. Extraordinary session of the Council may be held by agreement among the Member States.

6.5.2 Regional Centres

The SAARC Secretariat is supported by following Regional Centres established in Member States to promote regional cooperation. These Centres are managed by Governing Boards comprising representatives from all the Member States, SAARC Secretary-General and the Ministry of Foreign/External Affairs of the Host Government. The Director of the Centre acts as Member Secretary to the Governing Board which reports to the Programming Committee.

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→ SAARC Agricultural Centre (SAC), Dhaka → SAARC Meteorological Research Centre (SMRC), Dhaka → SAARC Tuberculosis Centre (STC), Kathmandu → SAARC Documentation Centre (SDC), New Delhi → SAARC Human Resources Development Centre (SHRDC), Islamabad → SAARC Coastal Zone Management Centre (SCZMC), Maldives → SAARC Information Centre (SIC), Nepal → SAARC Energy Centre (SEC), Pakistan → SAARC Disaster Management Centre (SDMC), India → SAARC Development Fund (SDF), Bhutan → SAARC Forestry Centre (SFC), Bhutan → SAARC Cultural Centre (SCC), Sri Lanka

6.6 Apex and Recognized Bodies

SAARC has six Apex Bodies, namely, SAARC Chamber of Commerce & Industry (SCCI), SAARCLAW (South Asian Association for Regional Cooperation in Law), South Asian Federation of Accountants (SAFA), South Asia Foundation (SAF), South Asia Initiative to End Violence Against Children (SAIEVAC), Foundation of SAARC Writers and Literature (FOSWAL). Hemant Batra is the current incumbent Secretary General of SAARCLAW. SAARC also has about 17 recognized bodies.

6.7 Political issues

The dispute over Kashmir’s accession to India has been standing in the way of the lasting peace and prosperity of the Indian subcontinent. While awarding the European Union with the 2012 Nobel Peace Prize, the Norwegian Nobel Committee stated that ". Today war between Germany and France is unthinkable. These shows how, through well-aimed efforts and by building up mutual confidence, historical enemies can

CXIV become close partners." Southern Asia can become unified just as Europe has become unified as the European Union. Political dialogue is often conducted on the margins of SAARC meetings which have refrained from interfering in the internal matters of its member states. During the 12th and 13th SAARC summits, extreme emphasis was laid upon greater cooperation between the SAARC members to fight terrorism .

6.8 South Asian Free Trade Area

SAPTA was envisaged primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA) leading subsequently towards a Customs Union, Common Market and Economic Union. In 1995, the Sixteenth session of the Council of Ministers (New Delhi, 18–19 December 1995) agreed on the need to strive for the realization of SAFTA and to this end an Inter-Governmental Expert Group (IGEG) was set up in 1996 to identify the necessary steps for progressing to a free trade area. The Tenth SAARC Summit (Colombo, 29–31 July 1998) decided to set up a Committee of Experts (COE) to draft a comprehensive treaty framework for creating a free trade area within the region, taking into consideration the asymmetries in development within the region and bearing in mind the need to fix realistic and achievable targets. The SAFTA Agreement was signed on 6 January 2004 during Twelfth SAARC Summit held in Islamabad, Pakistan. The Agreement entered into force on 1 January 2006, and the Trade Liberalization Programmed commenced from 1 July 2006. Under this agreement, SAARC members will bring their duties down to 20 per cent by 2009. Following the Agreement coming into force the SAFTA Ministerial Council (SMC) has been established comprising the Commerce Ministers of the Member States.

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6.9 SAARC Visa Exemption Scheme

The SAARC Visa Exemption Scheme was launched in 1992. The leaders at the Fourth Summit (Islamabad, 29–31 December 1988), while realizing the importance of having people to people contacts, among the peoples of SAARC countries, decided that certain categories of dignitaries should be entitled to a Special Travel document, which would exempt them from visas within the region. As directed by the Summit, the Council of Ministers regularly kept under review the list of entitled categories. Currently the list included 24 categories of entitled persons, which include Dignitaries, Judges of higher courts, Parliamentarians, Senior Officials, Businessmen, Journalists, Sportsmen etc. The Visa Stickers are issued by the respective Member States to the entitled categories of that particular country. The validity of the Visa Sticker is generally for one year. The implementation is reviewed regularly by the Immigration Authorities of SAAR Member States.

6.10 SAARC Award

The Twelfth Summit (Islamabad, January 2004) approved the institution of the SAARC Award to honour and encourage outstanding individuals and organisations within the region. The main objectives of the SAARC Award are:

→ To encourage individuals and organisations based in South Asia to undertake programmers’ and activities complementing the efforts of SAARC → To encourage individuals and organisations in South Asia contributing to the improvement of the conditions of women and children → To honour outstanding contributions and achievements of individuals and organisations within the region in the fields of peace, development, poverty alleviation, environment protection and regional cooperation

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making the SAARC Award the most prestigious Award in the region; and → To honour any other outstanding contributions and achievements, not covered above, of individuals and organisations in the region.

The SAARC Award comprises a gold medal, a letter of citation and cash prize of US $ 25,000. Since institution of SAARC Award in 2004, it has been awarded only once and the Award was posthumously conferred upon Late President Ziaur Rahman of Bangladesh.

6.11 SAARC Youth Award

The SAARC Youth Award is awarded to outstanding individuals from the SAARC region. The award is notable due to the recognition it gives to the Award winner in the SAARC region. The award is based on specific themes which apply to each year. The award recognises and promotes the commitment and talent of the youth who give back to the world at large through various initiatives such as Inventions, Protection of the Environment and Disaster relief. The recipients who receive this award are ones who have dedicated their lives to their individual causes to improve situations in their own countries as well as paving a path for the SAARC region to follow. The Committee for the SAARC Youth Award selects the best candidate based on his/her merits and their decision is final.

Previous Winners:

1997: Outstanding Social Service in Community Welfare - Mr. Md. Sukur Salek (Bangladesh) 1998 : New Inventions and Shanu - Dr. Najmul Hasnain Shah (Pakistan) 2001: Creative Photography: South Asian Diversity - Mr. Mushfiqul Alam (Bangladesh)

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2002: Outstanding contribution to protect the Environment - Dr. Masil Khan (Pakistan) 2003: Invention in the Field of Traditional Medicine - Mr. Hassan Sher (Pakistan) 2004: Outstanding contribution to raising awareness for TB and/or HIV/AIDS - Mr. Ajij Prasad Poudyal (Nepal) 2006: Promotion of Tourism in South Asia - Mr. Syed Zafar Abbas Naqvi (Pakistan) 2008: Protecting the Environment in South Asia - Ms. Uswatta Liyanage Deepani Jayantha (Sri Lanka) 2009: Outstanding contribution to humanitarian works in the aftermath of Natural Disasters - Dr. Ravikant Singh (India) 2010: Outstanding contribution for the Protection of Environment and mitigation of Climate Change - Ms. Anoka Primrose Abeyrathne (Sri Lanka)

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6.12 Members of SAARC

A clickable Euler diagram showing the relationships between various multinational Asian organizations.

6.12.1 Current members

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan

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Sri Lanka

6.12.2 Observers

Australia China European Union Japan Iran Mauritius Myanmar South Korea United States

6.12.3 Potential future members

China has expressed interest in upgrading its status from an observer to a full member of SAARC. Supported by Pakistan, Bangladesh, Nepal, Maldives, Sri Lanka. Myanmar has expressed interest in upgrading its status from an observer to a full member of SAARC. Russia has expressed interest in becoming an observer of SAARC. Supported By India.

6.13 Secretaries-General of SAARC Abul Ahsan January 16, 1985 to 15 October 1989

Kishore Kant Bhargava October 17, 1989 to December 31, 1991

Ibrahim Hussain Zaki January 1, 1992 to December 31, 1993

Yadav Kant Silwal January 1, 1994 to December 31, 1995

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Naeem U. Hasan January 1, 1996 to December 31, 1998

Nihal Rodrigo January 1, 1999 to January 10, 2002

Q.A.M.A. Rahim January 11, 2002 to February 28, 2005

Lyonpo Chenkyab March 1, 2005 to February 29, 2008 Dorji

Sheel Kant Sharma March 1, 2008 to February 28, 2011

Fathimath Dhiyana March 1, 2011 to March 11, 2012 Saeed

Ahmed Saleem March 12, 2012 to present

6.14 SAARC summits No Date Country Host Host leader

1st 7–8 December Dhaka Ataur Rahman 1985 Bangladesh Khan

2nd 16–17 India Bangalore Rajiv Gandhi November 1986

3rd 2–4 November Nepal Kathmandu Marich Man 1987 Singh Shrestha

4th 29–31 Pakistan Islamabad Benazir December Bhutto 1988

5th 21–23 Male Maumoon November Maldives Abdul 1990 Gayoom

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6th 21 December Sri Colombo Ranasinghe 1991 Lanka Premadasa

7th 10–11 April Dhaka Khaleda Zia 1993 Bangladesh

8th 2–4 May 1995 India New Delhi P. V. Narasimha Rao

9th 12–14 May Male Maumoon 1997 Maldives Abdul Gayoom

10th 29–31 July Sri Colombo Chandrika 1998 Lanka Kumarathunga

11th 4–6 January Nepal Kathmandu Sher Bahadur 2002 Deuba

12th 2–6 January Pakistan Islamabad Zafarullah 2004 Khan Jamali

13th 12–13 Dhaka Khaleda Zia November Bangladesh 2005

14th 3–4 April India New Delhi Manmohan 2007 Singh

15th 1–3 August Sri Colombo Mahinda 2008 Lanka Rajapaksa

16th 28–29 April Bhutan Thimphu Jigme Thinley 2010

17th 10–11 Addu Mohammed November Maldives Waheed

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2011 Hassan Manik

18th 2013 Nepal Kathmandu Khil Raj Regmi

CHAPTER 7

ASEAN

Association of South East Asian Nations

Association of Southeast Asian Nations

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Flag Emblem Motto: "One Vision, One Identity, One Community" Anthem: The ASEAN Way

Menu 0:00

Headquarters Jakarta, Indonesia a Working language English Membership 10 states 2 observers Leaders - Secretary General Le Luon Minh

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- Summit Presidency Brunei

Establishment - Bangkok 8 August 1967 Declaration - Charter 16 December 2008

Area - Total 4,479,210.5 km 2 2,778,124.7 sq mi Population - 2011 estimate 602,658,000

- Density 135/km 2 216/sq mi GDP (PPP) 2011 estimate - Total US$ 3.574 trillion

- Per capita US$ 5,930

GDP (nominal) 2011 estimate - Total US$ 2.356 trillion

- Per capita US$ 3,909

HDI (2012) 0.663 b medium Currency 10 currencies Time zone ASEAN (UTC+9 to +6:30) Calling code 10 codes Internet TLD 10 TLDs Website

• www.asean.org a. Address: Jalan Sisingamangaraja No.70A, South

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Jakarta. b. Calculated using UNDP data from member states.

The Association of Southeast Asian Nations (ASEAN ) is a geo-political and economic organisation of ten countries located in Southeast Asia , which was formed on 8 August 1967 by Indonesia , Malaysia , the Philippines , Singapore and Thailand . Since then, membership has expanded to include Brunei , Burma (Myanmar) , Cambodia , Laos , and Vietnam . Its aims include accelerating economic growth , social progress , and cultural development among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully.

ASEAN covers a land area of 4.46 million km², which is 3% of the total land area of Earth, and has a population of approximately 600 million people, which is 8.8% of the world's population. The sea area of ASEAN is about three times larger than its land counterpart. In 2011, its combined nominal GDP had grown to more than US$ 2 trillion. If ASEAN were a single entity, it would rank as the eighth largest economy in the world.

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7.1 History of ASEAN

A clickable Euler diagram showing the relationships between various multinational Asian organizations.

ASEAN was preceded by an organisation called the Association of Southeast Asia , commonly called ASA , an alliance consisting of the Philippines, Malaysia and Thailand that was formed in 1961. The bloc itself, however, was established on 8 August 1967, when foreign ministers of five countries – Indonesia, Malaysia, the Philippines, Singapore, and Thailand – met at the Thai Department of Foreign Affairs building in Bangkok and signed the ASEAN Declaration, more commonly known as the Bangkok Declaration . The five foreign ministers – Adam Malik of Indonesia, Narciso Ramos of the Philippines, Abdul Razak of Malaysia, S. Rajaratnam of

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Singapore, and Thanat Khoman of Thailand – are considered the organisation's Founding Fathers.

The motivations for the birth of ASEAN were so that its members’ governing elite could concentrate on nation building , the common fear of communism, reduced faith in or mistrust of external powers in the 1960s, and a desire for economic development.

The bloc grew when Brunei Darussalam became the sixth member on 8 January 1984, barely a week after gaining independence on 1 January.

7.1.1 Continued expansion

On 28 July 1995, Vietnam became the seventh member. Laos and Myanmar (Burma) joined two years later on 23 July 1997. Cambodia was to have joined together with Laos and Burma, but was deferred due to the country's internal political struggle. The country later joined on 30 April 1999, following the stabilisation of its government.

During the 1990s, the bloc experienced an increase in both membership and drive for further integration. In 1990, Malaysia proposed the creation of an East Asia Economic Caucus comprising the then members of ASEAN as well as the People's Republic of China, Japan, and South Korea, with the intention of counterbalancing the growing influence of the United States in the Asia-Pacific Economic Cooperation (APEC) and in the Asian region as a whole. This proposal failed, however, because of heavy opposition from the United States and Japan. Despite this failure, member states continued to work for further integration and ASEAN plus Three was created in 1997.

In 1992, the Common Effective Preferential Tariff (CEPT) scheme was signed as a schedule for phasing tariffs

CXXVIII and as a goal to increase the region’s competitive advantage as a production base geared for the world market. This law would act as the framework for the ASEAN Free Trade Area . After the East Asian Financial Crisis of 1997, a revival of the Malaysian proposal was established in Chiang Mai , known as the Chiang Mai Initiative , which calls for better integration between the economies of ASEAN as well as the ASEAN Plus Three countries (China, Japan, and South Korea).

Aside from improving each member state's economies, the bloc also focused on peace and stability in the region. On 15 December 1995, the Southeast Asian Nuclear-Weapon-Free Zone Treaty was signed with the intention of turning Southeast Asia into a Nuclear-Weapon-Free Zone . The treaty took effect on 28 March 1997 after all but one of the member states has ratified it. It became fully effective on 21 June 2001, after the Philippines ratified it, effectively banning all nuclear weapons in the region.

7.1.2 East Timor and Papua New Guinea

East Timor submitted a letter of application to be the eleventh member of ASEAN at the summit in Jakarta in March 2011. Indonesia has shown a warm welcome to East Timor.

Papua New Guinea was accorded Observer status in 1976 and Special Observer status in 1981. Papua New Guinea is a Melanesian state. ASEAN embarked on a programmed of economic cooperation following the Bali Summit of 1976. This floundered in the mid-1980s and was only revived around 1991 due to a Thai proposal for a regional free trade area .

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7.1.3 Environment

Satellite image of the 2006 haze over Borneo .

At the turn of the 21st century, issues shifted to include a regional approach to the environment. The organisation started to discuss environmental agreements. These included the signing of the ASEAN Agreement on Tran boundary Haze Pollution in 2002 as an attempt to control haze pollution in Southeast Asia. Unfortunately, this was unsuccessful due to the outbreaks of the 2005 Malaysian haze and the 2006 Southeast Asian haze . Other environmental treaties introduced by the organisation include the Cebu Declaration on East Asian Energy Security , the ASEAN Wildlife Enforcement Network in 2005, and the Asia-Pacific Partnership on Clean Development and Climate , both of which are responses to the potential effects of climate change. Climate change is of current interest.

7.1.4 ASEAN plus Three

Leaders of each country, particularly Mahathir Mohamad of Malaysia, felt the need to further integrate the region. Beginning in 1997, the bloc began creating organisations within its framework with the intention of achieving this goal. ASEAN Plus Three was the first of these

CXXX and was created to improve existing ties with the People's Republic of China , Japan , and South Korea . This was followed by the even larger East Asia Summit , which included these countries as well as India, Australia, and New Zealand. This new grouping acted as a prerequisite for the planned East Asia Community , which was supposedly patterned after the now- defunct European Community .

In 2006, ASEAN was given observer status at the United Nations General Assembly . As a response, the organisation awarded the status of "dialogue partner" to the United Nations.

7.1.5 Free Trade

In 2007, ASEAN celebrated its 40th anniversary since its inception, and 30 years of diplomatic relations with the United States. On 26 August 2007, ASEAN stated that it aims to complete all its free trade agreements with China, Japan, South Korea, India, Australia and New Zealand by 2013, in line with the establishment of the ASEAN Economic Community by 2015. In November 2007 the ASEAN members signed the ASEAN Charter, a constitution governing relations among the ASEAN members and establishing ASEAN itself as an international legal entity. During the same year, the Cebu Declaration on East Asian Energy Security was signed in Cebu on 15 January 2007, by ASEAN and the other members of the EAS (Australia, People's Republic of China, India, Japan, New Zealand, South Korea), which promotes energy security by finding energy alternatives to conventional fuels .

On 27 February 2009 a Free Trade Agreement with the ASEAN regional block of 10 countries and New Zealand and its close partner Australia was signed, it is estimated that this FTA would boost aggregate GDP across the 12 countries by more than US$48 billion over the period 2000–2020. ASEAN members together with the group’s six major trading partners

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Australia, China, India, Japan, New Zealand and South Korea are slated to begin the first round of negotiations on 26-28 February 2013 in Bali, Indonesia, on establishment of the Regional Comprehensive Economic Partnership.

7.2 The ASEAN way

ASEAN members' flags in Jakarta .

Since the post-independence phases of Southeast Asian states, efforts were made to implement regional foreign policies, but with a unifying focus to refrain from interference in domestic affairs of member states.

There was a move to unify the region under what was called the ‘ASEAN Way’ based on the ideals of non- interference, informality, minimal institutionalization, consultation and consensus, non-use of force and non- confrontation. ASEAN members (especially Singapore) approved of the term ‘ASEAN Way’ to describe a regional method of multilateralism .

Thus the signing of the Treaty of Amity and Cooperation in Southeast Asia adopted fundamental principles:

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→→→ Mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations →→→ The right of every State to lead its national existence free from external interference, subversion or coercion →→→ Non-interference in internal affairs →→→ Settlement of differences or disputes in a peaceful manner →→→ Renunciation of the threat or use of force →→→ Effective regional cooperation

The ‘ASEAN way’ is said to contribute durability and longevity within the organisation, by promoting regional identity and enhancing a spirit of mutual confidence and cooperation. ASEAN agreements are negotiated in a close, interpersonal process. The process of consultations and consensus is designed to engender a democratic approach to decision making. These leaders are wary of any effort to legitimize efforts to undermine their nation or contain regional co-operation.

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7.3 Meetings

7.3.1 ASEAN Summits

A billboard in Jakarta welcoming ASEAN Summit 2011 delegates .

The organization holds meetings, known as the ASEAN Summit , where heads of government of each member meet to discuss and resolve regional issues, as well as to conduct other meetings with other countries outside of the bloc with the intention of promoting external relations.

The ASEAN Leaders' Formal Summit was first held in Bali, Indonesia in 1976. Its third meeting was held in Manila in 1987 and during this meeting, it was decided that the leaders would meet every five years. Consequently, the fourth meeting was held in Singapore in 1992 where the leaders again agreed

CXXXIV to meet more frequently, deciding to hold the summit every three years. In 2001, it was decided to meet annually to address urgent issues affecting the region. Member nations were assigned to be the summit host in alphabetical order except in the case of Burma which dropped its 2006 hosting rights in 2004 due to pressure from the United States and the European Union .

The formal summit meets for three days. The usual itinerary is as follows:

→→→ Leaders of member states would hold an internal organisation meeting. →→→ Leaders of member states would hold a conference together with foreign ministers of the ASEAN Regional Forum. →→→ A meeting, known as ASEAN Plus Three, is set for leaders of three Dialogue Partners (People's Republic of China, Japan, South Korea) →→→ A separate meeting, known as ASEAN-CER, is set for another set of leaders of two Dialogue Partners (Australia, New Zealand).

7.3.2 ASEAN Formal Summits

ASEAN Formal Summits

No Date Country Host Host leader

1st 23–24 Bali Soeharto February Indonesia 1976

2nd 4–5 August Kuala Hussein Onn Malaysia 1977 Lumpur

3rd 14–15 Manila Corazon

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December Philippines Aquino 1987

4th 27 29 Singapore Goh Chok January Singapore Tong 1992

5th 14 15 Bangkok Banharn December Thailand Silpa-archa 1995

6th 15 16 Hanoi Phan Van December Vietnam Kh i 1998

7th 56 Bandar Hassanal November Seri Bolkiah 2001 Brunei Begawan

8th 45 Phnom Hun Sen November Cambodia Penh 2002

9th 78 Bali Megawati Indonesia Soekarnoputri October 2003

10th 29 30 Vientiane Bounnhang November Vorachith 2004 Laos

11th 12 14 Kuala Abdullah Malaysia December Lumpur Ahmad 2005 Badawi

12th 11 14 Cebu Gloria Philippines 2 January Macapagal-

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2007 1 Arroyo

13th 18 22 Singapore Lee Hsien November Singapore Loong 2007

14th 3 27 February Cha Am , Abhisit – 1 March Thailand Hua Hin Vejjajiva 2009 Pattaya 10–11 April 2009

15th 23 October Cha Am, 2009 Thailand Hua Hin

16th 3 8–9 April Hanoi Nguyen Tan 2010 Vietnam Dung

17th 28–31 Hanoi October Vietnam 2010

18th 4 7–8 May Jakarta Susilo 2011 Indonesia Bambang Yudhoyono 19th 4 14–19 Bali November Indonesia 2011

20th 3–4 April Phnom Hun Sen 2012 Cambodia Penh

21st 17–20 Phnom November Cambodia Penh 2012

1 Postponed from 10 14 December 2006 due to Typhoon Utor .

2 hosted the summit because Burma backed out due to enormous

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3 This summit consisted of two parts. The first part was moved from 12 17 December 2008 due to the 2008 Thai political crisis . The second part was aborted on 11 April due to protesters entering the summit venue.

4 Indonesia hosted twice in a row by swapping years with Brunei, as it will play host to APEC (and the possibility of hosting the G20 summit which ultimately fell to Russia ) in 2013.

During the fifth Summit in Bangkok, the leaders decided to meet "informally" between each formal summit.

7.3.3 ASEAN Informal Summits

ASEAN Informal Summits

No Date Country Host Host leader

1st 30 November Jakarta Soeharto 1996 Indonesia

2nd 14 16 Kuala Mahathir Malaysia December Lumpur Mohamad 1997

3rd 27 28 Manila Joseph Philippines November Estrada 1999

4th 22 25 Singapore Goh Chok November Singapore Tong 2000

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7.3.4 East Asia Summit

Participants of the East Asia Summit.

ASEAN

ASEAN plus Three

ASEAN plus Six

Observer

The East Asia Summit (EAS) is a pan-Asian forum held annually by the leaders of 16 countries in East Asia and the region, with ASEAN in a leadership position. The summit has discussed issues including trade, energy and security and the summit has a role in regional community building .

The members of the summit are all 10 members of ASEAN plus China, Japan, South Korea, India, Australia and New Zealand. These nations represent nearly half of the world's population. In October 2010, Russia and the United States were formally invited to participate as full members, with presidents of both countries to attend the 2011 summit.

Meeting Country Location Date Note

First Kuala 14 Russia attended Malaysia EAS Lumpur December as a guest.

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2005

Second Cebu City 15 Rescheduled Philippines EAS January from 13 2007 December 2006.

Cebu Declaration on East Asian Energy Security Third Singapore 21 Singapore EAS Singapore November Declaration on 2007 Climate Change, Energy and the Environment [46]

Agreed to establish Economic Research Institute for ASEAN and East Asia Fourth Cha-am 25 The date and EAS Thailand and Hua October location of the Hin 2009 venue was rescheduled several times, and then a Summit scheduled for 12 April 2009 at Pattaya , Thailand was cancelled when protesters stormed the

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venue. The Summit has been rescheduled for October 2009 and transferred again from Phuket [47] to Cha- am and Hua Hin. [48]

Fifth Viet Hanoi 30 Officially invited EAS Nam October the US and 2010 [49] Russia to participate in future EAS as full-fledged members [45]

Sixth Bali 19 The United EAS Indonesia November States and Russia 2011 to join the Summit.

Seventh Phnom 2012 EAS Cambodia Penh

7.3.4 Commemorative summit

A commemorative summit is a summit hosted by a non- ASEAN country to mark a milestone anniversary of the establishment of relations between ASEAN and the host country. The host country invites the heads of government of ASEAN member countries to discuss future cooperation and partnership.

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Meeting Host Location Date Note

ASEAN–Japan Tokyo 11, 12 To celebrate Commemorative Japan December the 30th Summit 2003 anniversary of the establishment of relations between ASEAN and Japan. The summit was also notable as the first ASEAN summit held between ASEAN and a non- ASEAN country outside the region.

ASEAN–China Nanning 30, 31 To celebrate Commemorative People's October the 15th Summit Republic 2006 anniversary of China of the establishment of relations between ASEAN and China

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ASEAN– Jeju-do 1, 2 June To celebrate Republic of South 2009 the 20th Korea Korea anniversary Commemorative of the Summit establishment of relations between ASEAN and Republic of Korea

ASEAN–India New 20, 21 To celebrate Commemorative India Delhi December the 20th Summit 2012 anniversary of the establishment of relations between ASEAN and India.

7.3.5 Regional Forum

█ ASEAN full members. █ ASEAN observers. █ ASEAN candidate members. ██ ASEAN plus Three.

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███ East Asia Summit. ██████ ASEAN Regional Forum.

The ASEAN Regional Forum (ARF) is a formal, official, multilateral dialogue in Asia Pacific region. As of July 2007, it is consisted of 27 participants. ARF objectives are to foster dialogue and consultation, and promote confidence- building and preventive diplomacy in the region. The ARF met for the first time in 1994. The current participants in the ARF are as follows: all the ASEAN members, Australia, Bangladesh, Canada, the People's Republic of China, the European Union , India, Japan, North Korea, South Korea, Mongolia, New Zealand, Pakistan, Papua New Guinea, Russia, East Timor, United States and Sri Lanka. The Republic of China (also known as Taiwan ) has been excluded since the establishment of the ARF, and issues regarding the Taiwan Strait are neither discussed at the ARF meetings nor stated in the ARF Chairman's Statements.

7.3.6 Other meetings

Aside from the ones above, other regular meetings are also held. These include the annual ASEAN Ministerial Meeting as well as other smaller committees. Meetings mostly focus on specific topics, such as defense or the environment , and are attended by Ministers , instead of heads of government.

A. Another Three

The ASEAN plus Three is a meeting between ASEAN, China, Japan, and South Korea, and is primarily held during each ASEAN Summit. Until now China, Japan and South Korea have not yet formed Free Trade Area (FTA), the meeting about FTA among them will be held at end of 2012.

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B. Asia–Europe Meeting

The Asia–Europe Meeting (ASEM) is an informal dialogue process initiated in 1996 with the intention of strengthening cooperation between the countries of Europe and Asia, especially members of the European Union and ASEAN in particular. ASEAN, represented by its Secretariat, is one of the 45 ASEM partners. It also appoints a representative to sit on the governing board of Asia-Europe Foundation (ASEF), a socio-cultural organisation associated with the Meeting.

C. ASEAN–Russia Summit

The ASEAN–Russia Summit is an annual meeting between leaders of member states and the President of Russia .

D. ASEAN Foreign Ministers Meeting

The 44th annual meeting was held in Bali on 16 to 23 July 2011. Indonesia proposed a unified ASEAN travel visa to ease travel within the region for citizens of ASEAN member states. The 45th annual meeting was held in Phnom Penh, Cambodia. For the first time in the history of ASEAN there was no diplomatic statement issued by the bloc at the end of the meeting. This was due to tensions over China's claim of ownership over near the entirety of the South China Sea and the counterclaim to such ownership by neighboring states.

7.4 Economic community

ASEAN has emphasized regional cooperation in the “three pillars”, which are security, sociocultural integration, and economic integration. The regional grouping has made the most progress in economic integration by creating an ASEAN Economic Community (AEC) by 2015. The average economic growths of ASEAN's member nations during 1989–2009 was Singapore with 6.73 percent, Malaysia with 6.15 percent,

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Indonesia with 5.16 percent, Thailand with 5.02 percent, and the Philippines with 3.79 percent. This economic growth was greater than the average Asia-Pacific Economic Cooperation (APEC ) economic growth, which was 2.83 percent.

7.4.1 From CEPT to AEC

A Common Effective Preferential Tariff (CEPT) scheme to promote the free flow of goods within ASEAN leads to the ASEAN Free Trade Area (AFTA). The AFTA is an agreement by the member nations of ASEAN concerning local manufacturing in all ASEAN countries. The AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed, ASEAN had six members, namely, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Burma in 1997, and Cambodia in 1999. The latecomers have not fully met the AFTA's obligations, but they are officially considered part of the AFTA as they were required to sign the agreement upon entry into ASEAN, and were given longer time frames in which to meet AFTA's tariff reduction obligations.

The next step is ASEAN Economic Community (AEC) with main objectives is to create a:

→→→ single market and production base →→→ highly competitive economic region →→→ region of equitable economic development →→→ region fully integrated into the global economy

Since 2007, the ASEAN countries gradually lower their import duties among them and targeted will be zero for most of the import duties at 2015.

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Since 2011, AEC has agreed to strengthen the position and increase the competitive edges of small and medium enterprises (SME) in the ASEAN region.

7.4.2 Comprehensive Investment Area

The ASEAN Comprehensive Investment Area (ACIA) will encourage the free flow of investment within ASEAN. The main principles of the ACIA are as follows

→ All industries are to be opened up for investment, with exclusions to be phased out according to schedules → National treatment is granted immediately to ASEAN investors with few exclusions → Elimination of investment impediments → Streamlining of investment process and procedures → Enhancing transparency → Undertaking investment facilitation measures

Full realisation of the ACIA with the removal of temporary exclusion lists in manufacturing agriculture, fisheries, forestry and mining is scheduled by 2010 for most ASEAN members and by 2015 for the CLMV (Cambodia, Lao PDR, Burma, and Vietnam) countries.

7.4 3 Trade in Services

An ASEAN Framework Agreement on Trade in Services was adopted at the ASEAN Summit in Bangkok in December 1995. Under AFAS, ASEAN Member States enter into successive rounds of negotiations to liberalize trade in services with the aim of submitting increasingly higher levels of commitments. The negotiations result in commitments that are set forth in schedules of specific commitments annexed to the Framework Agreement. These schedules are often referred to as packages of services commitments. At present, ASEAN has concluded seven packages of commitments under AFAS.

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7.4.4 Single Aviation Market

The ASEAN Single Aviation Market (ASEAN-SAM), is the region's major aviation policy geared towards the development of a unified and single aviation market in Southeast Asia by 2015. The aviation policy was proposed by the ASEAN Air Transport Working Group, supported by the ASEAN Senior Transport Officials Meeting, and endorsed by the ASEAN Transport Ministers. The ASEAN-SAM is expected to fully liberalize air travel between member states in the ASEAN region, allowing ASEAN countries and airlines operating in the region to directly benefit from the growth in air travel around the world, and also freeing up tourism, trade, investment and services flows between member states. Since 1 December 2008, restrictions on the third and fourth freedoms of the air between capital cities of member states for air passenger’s services have been removed, while from 1 January 2009, full liberalization of air freight services in the region took effect. On 1 January 2011, full liberalization on fifth freedom traffic rights between all capital cities took effect.

7.4.5 Free-trade agreements with other countries

ASEAN has concluded free trade agreements with China (expecting bilateral trade of $500 billion by 2015), Korea, Japan, Australia, New Zealand, and India. ASEAN- India bilateral trade crossed the $ 70 billion target in 2012 (target was to reach the level only by 2015). The agreement with People's Republic of China created the ASEAN–China Free Trade Area (ACFTA), which went into full effect on 1 January 2010. In addition, ASEAN is currently negotiating a free trade agreement with the European Union . Republic of China (Taiwan) has also expressed interest in an agreement with ASEAN but needs to overcome diplomatic objections from China.

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7.4.6 ASEAN six majors

ASEAN six majors refer to the six largest economies in the area with economies many times larger than the remaining four ASEAN countries.

The ASEAN six majors are (GDP nominal 2011 based on IMF data. The figures in parentheses are GDP PPP.)

Indonesia : 895.854 billions (1,211 billions) Thailand : 376.989 billions (602.216 billions) Malaysia : 307.178 billions (447.980 billions) Singapore : 267.941 billions (314.906 billions) Philippines : 257.890 billions (416.678 billions) Vietnam : 137.681 billions (320.45 billions)

♦ Development gap

When Vietnam, Laos, Myanmar, and Cambodia joined ASEAN in the late 1990s, concerns were raised about a certain developmental divide regarding a gap in average per capita GDP between older and the newer members. In response, the Initiative for ASEAN Integration (IAI) was formed by ASEAN as a regional integration policy with the principle goal of bridging this developmental divide, which, in addition to disparities in per capita GDP , is manifested by disparities in dimensions of human development such as life expectancy and literacy rates . Other than the IAI, other programmers for the development of the Mekong Basin where all four newer ASEAN members are located that tend to focus on infrastructure development have been effectively enacted. In general, ASEAN does not have the financial resources to extend substantial grants or loans to the new members. Therefore, it usually leaves the financing of these infrastructure projects to international financial institutions and to developed countries . Nevertheless, it has mobilized funding from these institutions and countries and from the ASEAN-6 (Indonesia,

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Malaysia, Philippines, Brunei Darussalam, Singapore, and Thailand) themselves for areas where the development gap needs to be filled through the IAI programmed. Other programmers intended for the development of the ASEAN-4 take advantage of the geographical proximity of the CLMV countries and tend to focus on infrastructure development in areas like transport , tourism , and power transmission .

7.4.7 From CMI to AMRO

Due to Asian financial crisis of 1997 to 1998 and long and difficult negotiations with International Monetary Fund , ASEAN+3 agreed to set up a mainly bilateral currency swap scheme known as the 2000 Chiang Mai Initiative (CMI) to anticipate another financial crisis or currency turmoil in the future. In 2006 they agreed to make CMI with multilateralisation and called as CMIM. On 3 May 2009, they agreed to make a currency pool consist of contribution $38.4 billion each by China and Japan, $19.2 billion by South Korea and totally $24 billion by all of ASEAN members, so the total currency pool was $120 billion. A key component has also newly been added, with the establishment of a surveillance unit.

The ASEAN+3 Macroeconomic and Research Office (AMRO) started its operation in Singapore in May 2011. It performs a key regional surveillance function as part of the $120 billion of Chiang Mai Initiative Multilateralisation (CMIM) currency swap facility that was established by Finance Minister and Central Bank Governors of ASEAN countries plus China, Japan and South Korea in December 2009.

7.4.8 Foreign Direct Investment

In 2009, realized Foreign Direct Investment (FDI) was $37.9 billion and increase by two-fold in 2010 to $75.8 billion. 22 percent of FDI came from the European Union , followed by

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ASEAN countries themselves by 16 percent and then followed by Japan and US.

7.4.9 Intra-ASEAN travel

With free visa among ASEAN countries, a huge intra- ASEAN travel occurred and on the right track to establish an ASEAN Community in the years to come. In 2010, 47 percent or 34 million from 73 million tourists were intra-ASEAN travel.

7.4.10 Intra-ASEAN trade

Until end of 2010, Intra-Asean trade were still low which mainly of them were mostly exporting to countries outside the region, except Laos and Myanmar were ASEAN- oriented in foreign trade with 80 percent and 50 percent respectively of their exports went to other ASEAN countries.

7.5 Charter of ASEAN

The Secretariat of ASEAN at Jalan Sisingamangaraja No.70A, South Jakarta , Indonesia.

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On 15 December 2008, the members of ASEAN met in the Indonesian capital of Jakarta to launch a charter, signed in November 2007, with the aim of moving closer to "an EU-style community". The charter turns ASEAN into a legal entity and aims to create a single free-trade area for the region encompassing 500 million people. President of Indonesia Susilo Bambang Yudhoyono stated that "This is a momentous development when ASEAN is consolidating, integrating and transforming itself into a community. It is achieved while ASEAN seeks a more vigorous role in Asian and global affairs at a time when the international system is experiencing a seismic shift", he added, referring to climate change and economic upheaval, and concluded "Southeast Asia is no longer the bitterly divided, war-torn region it was in the 1960s and 1970s". The fundamental principles include:

a. Respect for the independence, sovereignty, equality, territorial integrity and national identity of all ASEAN Member States. b. Shared commitment and collective responsibility in enhancing regional peace, security and prosperity. c. Renunciation of aggression and of the threat or use of force or other actions in any manner inconsistent with international law . d. Reliance on peaceful settlement of disputes. e. Non-interference in the internal affairs of ASEAN Member States f. Respect for the right of every Member State to lead its national existence free from external interference, subversion and coercion. g. Enhanced consultations on matters seriously affecting the common interest of ASEAN. h. Adherence to the rule of law, good governance, the principles of democracy and constitutional government. i. Respect for fundamental freedoms , the promotion and protection of human rights, and the promotion of social justice .

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j. Upholding the United Nations Charter and international law, including international humanitarian law, subscribed to by ASEAN Member States. k. Abstention from participation in any policy or activity, including the use of its territory, pursued by an ASEAN Member State or non-ASEAN State or any non-State actor, which threatens the sovereignty, territorial integrity or political and economic stability of ASEAN Member States. l. Respect for the different cultures, languages and religions of the peoples of ASEAN, while emphasizing their common values in the spirit of unity in diversity. m. The centrality of ASEAN in external political, economic, social and cultural relations while remaining actively engaged, outward-looking, inclusive and non- discriminatory and n. Adherence to multilateral trade rules and ASEAN's rules-based regimes for effective implementation of economic commitments and progressive reduction towards elimination of all barriers to regional economic integration, in a market-driven economy.

However, the ongoing global financial crisis was stated as being a threat to the goals envisioned by the charter, and also set forth the idea of a proposed human rights body to be discussed at a future summit in February 2009. This proposition caused controversy, as the body would not have the power to impose sanctions or punish countries that violate citizens' rights and would therefore be limited in effectiveness. The body was established later in 2009 as the ASEAN Intergovernmental Commission on Human Rights (AICHR). In November 2012, the Commission adopted the ASEAN Human Rights Declaration .

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7.6 Cultural activities

The organization hosts cultural activities in an attempt to further integrate the region. These include sports and educational activities as well as writing awards. Examples of these include the ASEAN University Network , the ASEAN Centre for Biodiversity , the ASEAN Outstanding Scientist and Technologist Award , and the Singapore-sponsored ASEAN Scholarship .

7.7 ASEAN Media Cooperation

The ASEAN Media Cooperation (AMC) set digital television standards, policies and create in preparation for broadcasters to transition from analogue to digital broadcasting, better promote media collaboration and information exchange to enhance voice, understanding, and perspective between ASEAN peoples on the international stage.

The concept was stressed during the 11th AMRI Conference adopting the theme:”Media Connecting Peoples and Bridging Cultures towards One ASEAN Nation”. ASEAN Ministers believed that the new and traditional media are important mediums to connect ASEAN people and bridging the cultural gap.

Accessing information towards the goal of creating a One ASEAN nation requires participation among the nation members and its citizens. During the 18th ASEAN Summit in May 2011, the Chair stated the important role of a participatory approach among people and stakeholders of ASEAN towards a “people-oriented, people centered and rule-based ASEAN”.

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7.7.1 New media and social media

During the 11th ASEAN Ministers Responsible for Information meeting held in Kuala Lumpur, Malaysia, ASEAN leaders recognized the emergence of new and social media as an important tool for communications and interaction in ASEAN today. The Ministers agreed that efforts should be made to leverage on social media to promote ASEAN awareness towards achieving an ASEAN community by 2015. Initially, ASEAN will consolidate the ASEAN Culture and Information Portal and the ASEAN Media Portal to incorporate new media elements.

7.7.2 SEA Write Award

Logo of the SEA Write Award.

The S.E.A. Write Award is a literary award given to Southeast Asian poets and writers annually since 1979. The award is either given for a specific work or as recognition of an author's lifetime achievement. Works that are honored vary and have included poetry, short stories , novels, plays, folklore as well as scholarly and religious works. Ceremonies are held in Bangkok and are presipded by a member of the Thai royal family .

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7.7.3 ASAIHL

ASAIHL or the Association of Southeast Asian Institutions of Higher Learning is a non-governmental organisation founded in 1956 that strives to strengthen higher learning institutions, especially in teaching , research, and public service , with the intention of cultivating a sense of regional identity and interdependence.

7.7.4 Heritage Parks

ASEAN Heritage Parks is a list of nature parks launched 1984 and relaunched in 2004. It aims to protect the region's natural treasures. There are now 35 such protected areas, including the Tubbataha Reef Marine Park and the Kinabalu National Park .

♦ List of ASEAN Heritage Sites ASEAN Heritage Sites

Site Country Site Country

Alaungdaw Burma Ao Phang-nga Kathapa National Marine National Thailand Park Park

Apo Natural Park Imperial City, Philippines Hue Vietnam

Bukit Barisan Gunung Leuser Selatan National Indonesia National Park Indonesia Park

Gunung Mulu Ha Long Bay Malaysia National Park Vietnam

Hoi An Ancient Mounts Iglit-

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Town Vietnam Baco National Philippines Park

Indawgyi Lake Burma Inle Lake Burma Wildlife Sanctuary Wildlife Sanctuary

Kaeng Krachan Kerinci Seblat National Park Thailand National Park Indonesia

Khakaborazi Burma Khao Yai National Park National Park Thailand

Kinabalu National Komodo Malaysia Park National Park Indonesia

Imperial Citadel of Lampi Kyun Burma Thang Long Vietnam Wildlife Reserve

Lorentz National Meinmhala Burma Park Indonesia Kyun Wildlife Sanctuary

Mu Ko Surin -Mu Nam Ha Laos Ko Similan Marine Thailand Protected Area National Park

Phong Nha-Ke Preah Monivong Bang National Vietnam (Bokor) Cambodia Park National Park

Puerto Princesa Sungei Buloh Philippines Subterranean Wetland Singapore River National Reserve Park

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Taman Negara Tarutao Marine Malaysia National Park National Park Thailand

Tasek Merimbun Brunei Thung Yai- Wildlife Sanctuary Huay Kha Thailand Khaeng National Park

Tubbataha Reef Ujung Kulon Philippines Marine Park National Park Indonesia

Virachey National Keraton Park Cambodia Yogyakarta Indonesia

My Son Citadel of Ho Vietnam Dynasty Vietnam

Mount Malindang Philippines

7.8 Sports of ASEAN

7.8.1 Southeast Asian Games

The Southeast Asian Games , commonly known as the SEA Games, is a biennial multi-sport event involving participants from the current 11 countries of Southeast Asia. The games are under regulation of the Southeast Asian Games Federation with supervision by the International Olympic Committee (IOC) and the Olympic Council of Asia .

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7.8.2 ASEAN Para Games

Logo of the ASEAN Para Games .

The ASEAN Para Games is a biennial multi-sport event held after every Southeast Asian Games for athletes with physical disabilities. The games are participated by the 11 countries located in Southeast Asia. The Games, patterned after the Paralympics Games , are played by physically challenged athletes with mobility disabilities , visual disabilities ,

7.8.3 FESPIC Games / Asian Para Games

The FESPIC Games , also known as the Far East and South Pacific Games for the persons with disability, was the biggest multi-sports games in Asia and South Pacific region. The FESPIC Games were held nine times and bowed out, a success in December 2006 in the 9th FESPIC Games in Kuala Lumpur, Malaysia. The Games re-emerged as the 2010 Asian Para Games in Guangzhou , China. The 2010 Asian Para Games debuted shortly after the conclusion of the 16th Asian Games , using the same facilities and venue made disability- accessible . The inaugural Asian Para Games, the parallel event for athletes with physical disabilities, is a multi-sport event held every four years after every Asian Games .

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7.8.4 Football Championship

The ASEAN Football Championship is a biennial Football competition organized by the ASEAN Football Federation , accredited by FIFA and contested by the national teams of Southeast Asia nations. It was inaugurated in 1996 as Tiger Cup, but after Asia Pacific Breweries terminated the sponsorship deal, "Tiger" was renamed "ASEAN".

7.8.5 ASEAN 2030 FIFA World Cup bid

January 2011: As a result of ASEAN Foreign ministers at Lombok meeting, they agreed bid to host the FIFA World Cup in 2030 as a single entity.

May 2011: ASEAN will go ahead with its bid for the FIFA 2030 World Cup. It was a follow up to the agreement reached in January before.

7.9 ASEAN Defense Industry Collaboration

Indonesia, Malaysia, Singapore and Thailand have established defense industries. To cut cost and plan to be self- sufficient by 2030, Indonesia and Malaysia have agreed to promote the creation of the ASEAN Defense Industry Collaboration (ADIC). The United States military reportedly has said that ADIC could have additional benefits beyond cost savings for ASEAN members, including facilitating a set of standards, similar to NATO, that will improve interoperability among ASEAN and U.S. militaries and increase the effectiveness of regional response to threats to Asia-Pacific peace and stability.

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7.10 Criticism

Non-ASEAN countries have criticized ASEAN for being too soft in its approach to promoting human rights and democracy in the junta-led Burma. Despite global outrage at the military crack-down on peaceful protesters in Yangon, ASEAN has refused to suspend Burma as a member and also rejects proposals for economic sanctions. This has caused concern as the European Union, a potential trade partner, has refused to conduct free trade negotiations at a regional level for these political reasons. International observers view it as a " talk shop ", which implies that the organisation is "big on words but small on action". However, leaders such as the Philippines' Foreign Affairs Secretary, Alberto Romulo , said it "is a workshop not a talk shop". Others have also expressed similar sentiment.

Head of the International Institute of Strategic Studies – Asia, Tim Huxley cites the diverse political systems present in the grouping, including many young states, as a barrier to far- reaching cooperation outside the economic sphere. He also asserts that in the absence of an external threat to rally against with the end of the Cold War , ASEAN has begun to be less successful at restraining its members and resolving border disputes such as those between Burma and Thailand and Indonesia and Malaysia.

During the 12th ASEAN Summit in Cebu , several activist groups staged anti-globalization . According to these leftist activists, the agenda of economic integration would negatively affect industries in the Philippines and would cause thousands of Filipinos to lose their jobs.

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CHAPTER 8

NAFTA

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North American Free Trade Agreement

North American Free Trade Agreement

• Tratado de Libre Comercio de América del Norte (Spanish) • Accord de Libre-échange Nord- Américain (French)

Administration • Ottawa, Canada centers • Mexico City, Mexico • Washington, D.C., United States

Languages • English

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• Spanish • French

Membership • Canada • Mexico • United States

Establishment - Formation 1 January 1994 Area - Total 21,578,137 km 2 (1st) 8,331,362 sq mi - Water (%) 7.4 Population - 2010 estimate 462,151,038 (3rd) - Density 25.1/km 2 (195th) 54.3/sq mi GDP (PPP) 2010 (IMF) estimate - Total $1,617.989 billion (1st) - Per capita $39,625 (4th) GDP (nominal) 2010 (IMF) estimate - Total $17,271.000 billion - Per capita $37,769 (21st) HDI (2011) 0.868 very high Website www.nafta-sec-alena.org

The North American Free Trade Agreement (NAFTA ) is an agreement signed by Canada , Mexico , and the United States , creating a trilateral trade bloc in North America . The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

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8.1 Negotiation and U.S. ratification

Following diplomatic negotiations dating back to 1986 among the three nations, the leaders met in San Antonio , Texas, on December 17, 1992, to sign NAFTA. U.S. President George H. W. Bush , Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas , each responsible for spearheading and promoting the agreement, ceremonially signed it. The signed agreement then needed to be ratified by each nation's legislative or parliamentary branch.

Before the negotiations were finalized, Bill Clinton came into office in the U.S. and Kim Campbell in Canada, and before the agreement became law, Jean Chrétien had taken office in Canada.

The proposed Canada-U.S. trade agreement had been very controversial and divisive in Canada, and the 1988 Canadian election was fought almost exclusively on that issue. In that election, more Canadians voted for anti-free trade parties (the Liberals and the New Democrats ) but the split caused more seats in parliament to be won by the pro-free trade Progressive Conservatives (PCs). Mulroney and the PCs had a parliamentary majority and were easily able to pass the Canada-US FTA and NAFTA bills. However, he was replaced as Conservative leader and prime minister by Kim Campbell . Campbell led the PC party into the 1993 election where they were decimated by the Liberal Party under Jean Chrétien , who had campaigned on a promise to renegotiate or abrogate NAFTA however, Chrétien subsequently negotiated two supplemental agreements with the new US president. In the US, Bush, who had worked to "fast track" the signing prior to the end of his term, ran out of time and had to pass the required ratification and signing into law to incoming president Bill Clinton . Prior to sending it to the United States Senate , Clinton introduced clauses to protect American workers and allay the concerns of many House members. It also required US partners

CLXV to adhere to environmental practices and regulations similar to its own.

With much consideration and emotional discussion, the House of Representatives approved NAFTA on November 17, 1993, 234-200. The agreement's supporters included 132 Republicans and 102 Democrats. NAFTA passed the Senate 61-38. Senate supporters were 34 Republicans and 27 Democrats. Clinton signed it into law on December 8, 1993; it went into effect on January 1, 1994. Clinton, while signing the NAFTA bill, stated that "NAFTA means jobs. American jobs and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement."

8.2 Provisions

The goal of NAFTA was to eliminate barriers to trade and investment between the US, Canada and Mexico. The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all US-Mexico tariffs would be eliminated except for some U.S. agricultural exports to Mexico that were to be phased out within 15 years. Most U.S.-Canada trade was already duty free. NAFTA also seeks to eliminate non-tariff trade barriers and to protect the intellectual property right of the products.

In the area of intellectual property, the North American Free Trade Agreement Implementation Act made some changes to the Copyright law of the United States , foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright (within NAFTA) on certain motion pictures which had entered the public domain.

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8.3 Mechanisms

Chapter 52 provides a procedure for the interstate resolution of disputes over the application and interpretation of NAFTA. It was modeled after Chapter 69 of the Canada- United States Free Trade Agreement.

NAFTA's effects, both positive and negative, have been quantified by several economists, whose findings have been reported in publications such as the World Bank 's Lessons from NAFTA for Latin America and the Caribbean, NAFTA's Impact on North America, and NAFTA Revisited by the Institute for International Economics. Some argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower prices, especially food), even after accounting the 1994–95 economic crisis. Others argue that NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from US agribusiness , and negative impacts on US workers in manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA has contributed to the rising levels of inequality in both the US and Mexico. Some economists believe that NAFTA has not been enough (or worked fast enough) to produce an economic convergence, nor to substantially reduce poverty rates. Some have suggested that in order to fully benefit from the agreement, Mexico must invest more in education and promote innovation in infrastructure and agriculture .

8.3.1 Trade

The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural goods such as eggs, corn, and meats to be

CLXVII tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale.

♦ Trade balances

→ The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009. → The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010. → The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latest data available).

♦ Investment

The US foreign direct investment (FDI) in NAFTA Countries (stock) was $327.5 billion in 2009 (latest data available), up 8.8% from 2008.

The US direct investment in NAFTA countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and mining sectors.

The foreign direct investment , of Canada and Mexico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.

8.3.2 Industry of NAFTA

Maquiladoras (Mexican factories that take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. These are plants that moved to this region from the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector has increased 15.5% since

CLXVIII the implementation of NAFTA in 1994. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last five years while the share of exports from maquiladora-border states has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as Toluca , León and Puebla ; all three larger in population than Tijuana , Ciudad Juarez , and Reynosa .

8.3.3 Environment

Securing U.S. congressional approval for NAFTA would have been impossible without addressing public concerns about NAFTA’s environmental impact. The Clinton administration negotiated a side agreement on the environment with Canada and Mexico, the North American Agreement on Environmental Cooperation (NAAEC), which led to the creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement between a developing country and two developed countries, would have negative environmental impacts, the CEC was given a mandate to conduct ongoing ex post environmental assessment of NAFTA.

8.3.4 Agriculture

From the earliest negotiation, agriculture was (and still remains) a controversial topic within NAFTA, as it has been with almost all free trade agreements that have been signed within the WTO framework. Agriculture is the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The Canada–U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed).

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The overall effect of the Mexico–U.S. agricultural agreement is a matter of dispute. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways, which resulted in more difficult living conditions for the country's poor. Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period.

One of the most affected agricultural sectors is the meat industry. Mexico has gone from a small-key player in the pre- 1994 U.S. export market to the 2nd largest importer of U.S. agricultural products in 2004, and NAFTA may be credited as a major catalyst for this change. The allowance of free trade removed the hurdles that impeded business between the two countries. As a result, Mexican farmers have provided a growing meat market for the U.S., leading to an increase in sales and profits for the U.S. meat industry. This coincides with a noticeable increase in Mexican per capita GDP that has created large changes in meat consumption patterns, implying that Mexicans can now afford to buy more meat and thus per capita meat consumption has grown.

Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated. Zahniser & Coyle have also pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet through a program of subsidies expanded by former president Vicente Fox , production has remained stable since 2000.

The logical result of a lower commodity price is that more use of it is made downstream. Unfortunately, many of the same rural people who would have been likely to produce higher-margin value-added products in Mexico have instead

CLXX emigrated . The rise in corn prices due to increased ethanol demand may improve the situation of corn farmers in Mexico.

8.3.5 Mobility of persons

According to the Department of Homeland Security Yearbook of Immigration Statistics, during fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign professionals (64,633 Canadians and 9,247 Mexicans) were admitted into the United States for temporary employment under NAFTA (i.e., in the TN status ). Additionally, 17,321 of their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status. Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-1 admission is valid for three years, the number of non- immigrants in TN status present in the U.S. at the end of the fiscal year is approximately equal to the number of admissions during the year. (A discrepancy may be caused by some TN entrants leaving the country or changing status before their three-year admission period has expired, while other immigrants admitted earlier may change their status to TN or TD, or extend TN status granted earlier).

Canadian authorities estimated that, as of December 1, 2006, a total of 24,830 U.S. citizens and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include both entrants under the NAFTA agreement and those who have entered under other provisions of the Canadian immigration law. New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).

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8.4 Criticism and controversies

8.4.1 Canadian disputes

Garment workers assemble suits in a Toronto factory, 1901.

There is much concern in Canada over the provision that if something is sold even once as a commodity , the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.

In 1999, Sun Belt Water Inc. , a company out of Santa Barbara, California, filed an Arbitration Claim under Chapter 11 of the NAFTA claiming $105 million as a result of Canada's prohibition on the export of bulk water by marine tanker, a move that destroyed the Sun Belt business venture. The claim sent shock waves through Canadian governments that scrambled to update water legislation and remains unresolved.

Other fears come from the effects NAFTA has had on Canadian lawmaking. In 1996, the gasoline additive MMT was brought into Canada by an American company. At the time, the Canadian federal government banned the importation of the additive. The American company brought a claim under NAFTA Chapter 11 seeking US$201 million, from the Canadian government and the Canadian provinces under the

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Agreement on Internal Trade ("AIT"). The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company. Following a finding that the ban was a violation of the AIT, the Canadian federal government repealed the ban and settled with the American company for US$13 million. Studies by Health and Welfare Canada (now Health Canada) on the health effects of MMT in fuel found no significant health effects associated with exposure to these exhaust emissions. Other Canadian researchers and the U.S. Environmental Protection Agency disagree with Health Canada, and cite studies that include possible nerve damage. The dispute was settled for US$13 million.

The United States and Canada had been arguing for years over the United States' decision to impose a 27 percent duty on Canadian softwood lumber imports, until new Canadian Prime Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006. The settlement has not yet been ratified by either country, in part due to domestic opposition in Canada.

8.4.2 Change in income trust taxation

On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA, claiming thousands of U.S. investors lost a total of $5 billion dollars in the fall-out from the Conservative Government's decision the previous year to change the tax rate on income trusts in the energy sector. On April 29, 2009, a determination was made that this change in tax law was not expropriation.

8.4.3 Further criticism in Canada

A book written by Mel Hurtig published in 2002 called The Vanishing Country charged that since NAFTA's

CLXXIII ratification more than 10,000 Canadian companies had been taken over by foreigners, and that 98% of all foreign direct investments in Canada were for foreign takeovers.

The term "the Double Yu(c)k Alliance aka NAFTA from Yukon to Yucatán " was first used in 1994 by Miodrag Kojadinovi ć in his article "Friends and Neighbors: Dear Prime Minister of Canada, Kindly Join the EU Next Thursday".

8.4.4 U.S. deindustrialization

Studies done by Kate Bronfenbrenner at Cornell University showed the adverse effect of plants threatening to move to Mexico because of NAFTA.

An increase in domestic manufacturing output and a proportionally greater domestic investment in manufacturing does not necessarily mean an increase in domestic manufacturing jobs; this increase may simply reflect greater automation and higher productivity. Although the U.S. total civilian employment may have grown by almost 15 million in between 1993 and 2001, manufacturing jobs only increased by 476,000 in the same time period. Furthermore from 1994 to 2007, net manufacturing employment has declined by 3,654,000, and during this period several other free trade agreements have been concluded or expanded.

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8.4.5 Impact on Mexican farmers

In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion. These subsidies have led to charges of dumping , which jeopardizes Mexican farms and the country's food self-sufficiency.

Other studies reject NAFTA as the force responsible for depressing the incomes of poor corn farmers, citing the trend's existence more than a decade before NAFTA's existence, an increase in maize production after NAFTA went into effect in 1994, and the lack of a measurable impact on the price of Mexican corn due to subsidized corn coming into Mexico from the United States, though they agree that the abolition of U.S. agricultural subsidies would benefit Mexican farmers. [41] According to Graham Purchase in Anarchism and Environmental Survival, NAFTA could cause "the destruction of the elides (peasant cooperative village holdings) by corporate interests, and threatens to completely reverse the gains made by rural peoples in the Mexican Revolution." [42]

8.4.6 Zapatista Uprising in response to NAFTA in Chiapas.

The preparations for NAFTA included cancellation of Article 27 of Mexico's constitution, the cornerstone of Emiliano Zapata 's revolution of 1910–1919. Under the historic Article 27, Indian communal landholdings were protected from sale or privatization. However, this barrier to investment was incompatible with NAFTA. With the removal of Article 27, Indian farmers feared the loss of their remaining lands, and also feared cheap imports (substitutes) from the US. Thus, the Zapatistas labeled NAFTA as a "death sentence" to Indian communities all over Mexico. Then EZLN declared war on the Mexican state on January 1, 1994, the day NAFTA came into force.

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8.4.7 Impact of NAFTA on Canada

Like Mexico and the U.S., Canada received a modest positive economic benefit as measured by GDP. Many feared declines failed to materialize, and some industries, like the furniture industry was expected to suffer but grew instead. Canadian manufacturing employment held steady despite an international downward trend in developed countries. Ontario benefited greatly from the manufacturing opportunities of NAFTA. One of NAFTA's biggest economic effects on U.S.- Canada trade has been to boost bilateral agricultural flows.

In the year 2008 alone, Canada exports to the United States and Mexico was at CAN$381.3 Billion Dollars and imports from NAFTA was at CAN$245.1 Billion Dollars.

BIBLIOGRAPHY

1. Escobar, Arturo. (1980). Power and Visibility: Development and the Invention and Management of the Third World. Cultural Anthropology 3 (4): 428–443.

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