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GLOBAL BUSINESS ENVIRONMENT (IB 2ND SEM) CH- 1 INTRODUCTION Definition : International business consists of transactions that are

devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations. NATURE & DIMENSIONS OF INTERNATIONAL BUSINESS: Globalisation in its true sense is a way of corporate life necessitated, facilitated & nourished by the transnationalisation of the world economy & developed by corporate strategies. Globalization is an attitude of mind it is a mind set which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment. International marketing or international investment does not amount to globalisation unless it is the result of such a global orientation. Globalisation encompasses the following: Doing or planning to expand, business globally. Giving up the distinction between the domestic market & foreign market & developing a global outlook of the business. Locating the production & other physical facilities on a consideration of the global business dynamics, irrespective of national consideration. Basing product development & production planning on the global market consideration. Global sourcing of factors of production, i.e raw material, components, machinery, technology finance ets. Are obtained from the best source anywhere in the world. Global orientation of organisational structure & management culture. Companies which have adopted a global outlook stop thinking themselves as national marketers who venture abroad & start thinking of themselves as global marketers. The top management & staff are involved in the planning of worldwide manufacturing facilities, marketing policies, financial flows& logistical systems. The global operating units report directly to the chief executive or executive commoittee, not to the head of an international division. Executives are trained in world wide operation not only in domestic & international. Management is recruited from many sounteries, components & supplies are purchased where they can be obtained at the least cost. A truly global corporation views the entire world as a single market- it does not differentiate between domestic market & foreign markets. In other wprds there is

nothing like a home market & a foreign market- there is only one market, the global market. TYPES OF INTERNATIONAL BUSINESS: TRADING MANUFACTURING & MARKETING SOURCING & MARKETING GLOBAL SOURCING FOR PRODUCTION SERVICES INVESTMENTS -) TRADING: Import & export of goods & services have been growing very fast. In counteries like japan there are international trading houses which transact enormous number of business. The export houses , the trading houses, star trading houses & suoer star trading housesof India are merchan exporters they buy & resell goods. They are comarativelty small in size compared to the giant trading houses of Japan. -) MANUFACTURING & MARKETING: The manufacturer exporters are those who export goods manufactured by them. Many MNCs & other firms small & large do manufacturing & marketing. -) SOURCING & MARKETING: There are many MNCs & other firms which outsource the products which they market at home &/ or abroad. -) GLOBAL SOURCING FOR PRODUCTION: There are many firms which source globally their raw materials, intermediaries etc, required for their manufacturing. -) SERVICES: Services is an enormous & fast growing sector of international business. There is a large variety of services renedered internationally. The board segments include tourism & transportation , IT, banking, Insurance , Consultancy etc. -) INVESTMENTS: Internationla protfolio investment has been growing fast, as a result of globalisation, FDIs are associated with establishment of manufacturing facilities abroad.

The various factor or reasons that forces an organization to go Global: International business may be important to a firm for various reasons. The factors which motivate or provoke firms to go international may be broadly divided into two groups, the pull factors & the push factors. The pull factors most of which are proactive reasons are those forces of attraction which pull the business to the foreign markets. In other words companies are motivated to internationalize because of the attractiveness of the foreign markets. Such attractiveness include , broadly the relative profitability & growth prospects. The push factors refer to the compulsions of the domestic market , like situations of the market, which prompt companies to internationalize. Most of the push factors are reactive reasons. Important reasons for going international are described below: PROFIT ADVANTAGE: International business may help to improve the bottom line of the firm. Even when international business is less profitable than the domestic, it could increase the total profit. There are many companies which make major share of their profits from the foreign markets. Further in certain cases international business can help increase the profitability of the domestic business./ GROWTH OPPURTUNITIES: An important reason for going international is to take advantage of the oppuirtunities in other counteries. MNCs are getting increasingly interest in a number of developing counteries as the income & population are rapidly rising in these counteries. Foreign markets both developed country & developing country provide enormous growth opportunities for the developin country firm too. DOMESTIC MARKET CONSTRAINTS: Domestic demand constraints drive many companies to expanding the market beyond the national market. The market for a number of products lend to saturate or decline in the advance countries. This often happens when the market potential has been almost fully tapped. When the domestic market is declining as in the case with several products in the developed countries foreign markets may provide growth opportunities. Another type of domestic market constraints arises from the scale economies. The technological advances have incresed the size of the

optimum scale of operation substantially in many industries making it necessary to have foreign market, in addition to the domestic market, to take the advanatage of scale economy. COMPETITION: Competition may become a driving force behind internationalisation . A protected market does not normally motivate companies to seek business outside the home market. The economic liberalisation ushered in India since 1991, which has increased competition from foreign firms as well as from those within the country, have however changed the scene. Many companies also take an offensive internation competetive strategy by way of counter competition. GOVERNMENT POLICY & REGULATION: Government policies which limit the scope of business in the home country may also provoke companies to move to other countries. With the recent change in the government of Indias economic policy the situation have however has changed. Many Indian companies are enetering international market or expanding their international operation because of positive reasons. MONOLPOLY POWER: In some cases international business is a corollary of the monopoly power which a firm enjoys .Internationlly manopoly power may arise from such factors as monopolisation of certaijn resources, patent rights, technological advantages, product differentiation etc. SPIN OFF BENEFITS: International business have certain spin off benefits too. International business may help the company to improve its domestic business. International business helps to improve the image of the company. STRATEGIC VISION: The sysytematic & growing internationalisation of many companies is essentially a part of their business policy or startegic management. The stimulus for intermnationalisation comes from the urge to grow, the need to become more competitive, the need to diversify & gain strategic advantages of internatiuonalisation. Before going global what are the factors an organization should focus on?

FDI (FOREIGN DIRECT INVESTMENT) History (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. Figure below shows net inflows of foreign direct investment. The largest flows of foreign investment occur between the industrialized countries (North America, Western Europe and Japan). But flows to non-industrialized countries are increasing sharply. Types A foreign direct investor may be classified in any sector of the economy and could be any one of the following: an individual; a group of related individuals; an incorporated or unincorporated entity; a public company or private company; a group of related enterprises; a government body; an estate (law), trust or other societal organisation; or any combination of the above. Methods The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods: by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise Foreign direct investment incentives may take the following forms: low corporate tax and income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ - Export Processing Zones Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation subsidies job training & employment subsidies

infrastructure subsidies R&D support derogation from regulations (usually for very large projects) GLOBALISATION: Globalization (or globalisation) describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.[1] However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.[2] The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. Globalization has various aspects which affect the world in several different ways such as: Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955 China's trade with Africa rose sevenfold during 2000-07 alone. Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment. As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the Financial crisis of 20072010. Economic - realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectedness of these markets, however, meant that an economic collapse in one area could impact other areas. With globalization, companies can produce goods and services in the lowest cost location. This may cause jobs to be moved to locations that have the lowest wages, least worker protection and lowest health benefits. For Industrial activities this may cause production to move to areas with the least pollution regulations or worker safety regulations. Health Policy - On the global scale, health becomes a commodity. In developing nations under the demands of Structural Adjustment Programs, health systems are fragmented and privatized. Global health policy makers have shifted during the

1990s from United Nations players to financial institutions. The result of this power transition is an increase in privatization in the health sector. This privatization fragments health policy by crowding it with many players with many private interests. These fragmented policy players emphasize partnerships and specific interventions to combat specific problems (as opposed to comprehensive health strategies). Influenced by global trade and global economy, health policy is directed by technological advances and innovative medical trade. Global priorities, in this situation, are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy. Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization.Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet. Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition. Ecological - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution and impact on precious fresh water resources (Hoekstra and Chapagain 2008). On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to

increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture".Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture. BUSINESS ENVIRONMENT: Generally speaking an environment includes the air we breathe, the water we drink, the available business, social and educational infrastructure in the locality , state and country etc. In the context of business the environment refers to the sum of internal and external forces operating on an organization. The managers must perforce recognize the elements, severity and impact of these forces on the organization. They must identify, evaluate and react to the forces triggered by the external environment. More often than not, these forces are beyond the control of an organization and its managers. Accordingly, the factors of the environment will need to be considered as inputs in the planning and forecasting models developed by an organization. It is quite possible that some large organizations themselves constitute a greater part of the business environment e.g. Public Sector Oil Companies in India. An organization operates within the larger framework of the external environment that shapes opportunities and poses threats to the organization. The external environment is a set of complex, rapidly changing and significant interacting institutions and forces that affect the organization's ability to serve its customers. External forces are not controlled by an organization, but they may be influenced or affected by that organization. It is necessary for organizations to understand the environmental conditions because they interact with strategy decisions. The external environment has a major impact on the determination of marketing decisions. Successful organizations scan their external environment so that they can respond profitably to unmet needs and trends in the targeted markets. The Organization as a System Internally, an organization can be viewed as a resource conversion machine that takes inputs (labor, money, materials and equipment) from the external environment (i.e., the world outside the boundaries of the organization), converts them into useful products, goods, and services, and makes them available to customers as outputs. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. The successful organization will identify, appraise, and respond to the various opportunities and threats in its environment.

External Macro environment The external macro environment consists of all the outside institutions and forces that have an actual or potential interest or impact on the organization's ability to achieve its objectives: competitive, economic, technological, political, legal, demographic, cultural, and ecosystem. Though noncontrollable, these forces require a response in order to keep positive actions with the targeted markets. An organization with an environmental management perspective takes aggressive actions to affect the forces in its marketing environment rather than simply watching and reacting to it. 1. Economic Environment The economic environment consists of factors that affect consumer purchasing power and spending patterns. Economic factors include business cycles, inflation, unemployment, interest rates, and income. Changes in major economic variables have a significant impact on the marketplace. For example, income affects consumer spending which affects sales for organizations. According to Engel's Laws, as income rises, the percentage of income spent on food decreases, while the percentage spent on housing remains constant. 2. Technological Environment The technological environment refers to new technologies, which create new product and market opportunities. Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need to be aware of new technologies in order to turn these advances into opportunities and a competitive edge. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they develop, price, distribute, and promote their products. 3. Political and Legal Environment Organizations must operate within a framework of governmental regulation and legislation. Government relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries. The political environment includes governmental and special interest groups that influence and limit various organizations and individuals in a given society. Organizations hire lobbyists to influence legislation and run advocacy ads that state their point of view on public issues. Special interest groups have grown in number and power over the last three decades, putting more constraints on marketers. The public expects organizations to be ethical and responsible. An example of response by marketers to special interests is green marketing, the use of recyclable or biodegradable packing materials as part of marketing strategy.

The major purposes of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unbridled business behavior. The legal environment becomes more complicated as organizations expand globally and face governmental structures quite different from those within the United States. 4. Demographic Environment Demographics tell marketers who current and potential customers are; where they are; and how many are likely to buy what the marketer is selling. Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. Changes in the demographic environment can result in significant opportunities and threats presenting themselves to the organization. Major trends for marketers in the demographic environment include worldwide explosive population growth; a changing age, ethnic and educational mix; new types of households; and geographical shifts in population. 5. Social / Cultural Environment Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for marketers to understand and appreciate the cultural values of the environment in which they operate. The cultural environment is made up of forces that affect society's basic values, perceptions, preferences, and behaviors. U.S. values and beliefs include equality, achievement, youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism, mastery over the environment, patriotism, individualism, religious and moral orientation, progress, materialism, social interaction, conformity, courage, and acceptance of responsibility. Changes in social/cultural environment affect customer behavior, which affects sales of products. Trends in the cultural environment include individuals changing their views of themselves, others, and the world around them and movement toward self-fulfillment, immediate gratification, and secularism. 6. Ecosystem Environment The ecosystem refers to natural systems and its resources that are needed as inputs by marketers or that are affected by marketing activities. Green marketing or environmental concern about the physical environment has intensified in recent years. To avoid shortages in raw materials, organizations can use renewable resources (such as forests) and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil and coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by voluntarily engaging in pollution prevention activities and natural resource. External Microenvironment The external microenvironment consists of forces that are part of an organization's marketing process but are external to the organization. These micro environmental forces include the organization's market, its producer-suppliers, and its marketing

intermediaries. While these are external, the organization is capable of exerting more influence over these than forces in the macro environment. 1. The Market Organizations closely monitor their customer markets in order to adjust to changing tastes and preferences. A market is people or organizations with wants to satisfy, money to spend, and the willingness to spend it. Each target market has distinct needs, which need to be monitored. It is imperative for an organization to know their customers, how to reach them and when customers' needs change in order to adjust its marketing efforts accordingly. The market is the focal point for all marketing decisions in an organization. 2. Suppliers Suppliers are organizations and individuals that provide the resources needed to produce goods and services. They are critical to an organization's marketing success and an important link in its value delivery system. 3. Marketing Intermediaries Like suppliers, marketing intermediaries are an important part of the system used to deliver value to customers. Marketing intermediaries are independent organizations that aid in the flow of products from the marketing organization to its markets. The intermediaries between an organization and its markets constitute a channel of distribution. These include middlemen (wholesalers and retailers who buy and resell merchandise). Physical distribution firms help the organization to stock and move products from their points of origin to their destinations. Warehouses store and protect the goods before they move to the next destination. Marketing service agencies help the organization target and promote its products and include marketing research firms, advertising agencies, and media firms. Financial intermediaries help finance transactions and insure against risks and include banks, credit unions, and insurance companies. Importance of understanding the environment: The managers job cannot be accomplished in a vacuum within the organization. There are a number of factors both internal as well as external which jointly affect managerial decision-making. It is therefore very important for the manager to understand and evaluate the impact of the business environment due to the following reasons : a)Businesses may be doomed to be non starters due to restrictive business environment which may take the form of rigid government laws ( no polluting industry can ever be located in around 50 Km radius of the Taj) , state of competition ( Car manufacturing capacity presently in the country is far in excess of demand) etc.

b)The present and future viability of an enterprise is impacted by the environment For eg no TV manufacturer can be expected to survive by making only B&W television sets when consumer preference has clearly shifted to colour television sets. c)The cost of capital and the cost of borrowing - two key financial drivers of any enterprise are impacted by the external environment . For eg the ability of a business to fund its expansion plan by raising money from the stock markets depends on the prevalent public mood towards investment in stock markets. d)The availability of all key inputs like skilled labour , trained managers , raw materials , electricity , transportation , fuel etc are a factor of the business environment. e)Increasing public awareness of the negative aspects of certain industries like hand woven carpets ( use of child labour ) , pesticides (damage to environment in the form of chemical residues in groundwater), plastic bags (choking of sewer lines) have resulted in the slow decline of some industries. f)Finally , the environment offers the opportunities for growth and profits . For eg when the insurance and aviation industry was thrown open to the private sector , the new entrant could easily build on the expectations of the public. The different levels of Business environment: It is quite possible that some large organizations themselves constitute a greater part of the business environment e.g. Public Sector Oil Companies in India. An organization operates within the larger framework of the external environment that shapes opportunities and poses threats to the organization. The external environment is a set of complex, rapidly changing and significant interacting institutions and forces that affect the organization's ability to serve its customers. External forces are not controlled by an organization, but they may be influenced or affected by that organization. It is necessary for organizations to understand the environmental conditions because they interact with strategy decisions. The external environment has a major impact on the determination of marketing decisions. Successful organizations scan their external environment so that they can respond profitably to unmet needs and trends in the targeted markets. The Organization as a System Internally, an organization can be viewed as a resource conversion machine that

takes inputs (labor, money, materials and equipment) from the external environment (i.e., the world outside the boundaries of the organization), converts them into useful products, goods, and services, and makes them available to customers as outputs. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. The successful organization will identify, appraise, and respond to the various opportunities and threats in its environment. LEVELS OF BUSINESS ENVIRONMENT: Business

Internal Environment Value Mission & Structure Micro Human Macro External Macro environment The external macro environment consists of all the outside institutions and forces that have an actual or potential interest or impact on the organization's ability to achieve its objectives: competitive, economic, technological, political, legal, demographic, cultural, and ecosystem. Though noncontrollable, these forces require a response in order to keep positive actions with the targeted markets. An organization with an environmental management perspective takes aggressive actions to affect the forces in its marketing environment rather than simply watching and reacting to it. 1. Economic Environment The economic environment consists of factors that affect consumer purchasing power and spending patterns. Economic factors include business cycles, inflation, unemployment, interest rates, and income. Changes in major economic variables have a significant impact on the marketplace. For example, income affects consumer spending which affects sales for organizations. According to Engel's Laws, as income rises, the percentage of income spent on food decreases, while the percentage spent on housing remains constant. 2. Technological Environment The technological environment refers to new technologies, which create new product and market opportunities. Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need to be aware of new technologies in order to turn these advances into opportunities and a External

competitive edge. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they develop, price, distribute, and promote their products. 3. Political and Legal Environment Organizations must operate within a framework of governmental regulation and legislation. Government relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries. The political environment includes governmental and special interest groups that influence and limit various organizations and individuals in a given society. Organizations hire lobbyists to influence legislation and run advocacy ads that state their point of view on public issues. Special interest groups have grown in number and power over the last three decades, putting more constraints on marketers. The public expects organizations to be ethical and responsible. An example of response by marketers to special interests is green marketing, the use of recyclable or biodegradable packing materials as part of marketing strategy. The major purposes of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unbridled business behavior. The legal environment becomes more complicated as organizations expand globally and face governmental structures quite different from those within the United States. 4. Demographic Environment Demographics tell marketers who current and potential customers are; where they are; and how many are likely to buy what the marketer is selling. Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. Changes in the demographic environment can result in significant opportunities and threats presenting themselves to the organization. Major trends for marketers in the demographic environment include worldwide explosive population growth; a changing age, ethnic and educational mix; new types of households; and geographical shifts in population. 5. Social / Cultural Environment Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for marketers to understand and appreciate the cultural values of the environment in which they operate. The cultural environment is made up of forces that affect society's basic values, perceptions, preferences, and behaviors. U.S. values and beliefs include equality, achievement, youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism, mastery over the environment, patriotism, individualism, religious and moral orientation, progress,

materialism, social interaction, conformity, courage, and acceptance of responsibility. Changes in social/cultural environment affect customer behavior, which affects sales of products. Trends in the cultural environment include individuals changing their views of themselves, others, and the world around them and movement toward self-fulfillment, immediate gratification, and secularism. 6. Ecosystem Environment The ecosystem refers to natural systems and its resources that are needed as inputs by marketers or that are affected by marketing activities. Green marketing or environmental concern about the physical environment has intensified in recent years. To avoid shortages in raw materials, organizations can use renewable resources (such as forests) and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil and coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by voluntarily engaging in pollution prevention activities and natural resource. External Microenvironment The external microenvironment consists of forces that are part of an organization's marketing process but are external to the organization. These micro environmental forces include the organization's market, its producer-suppliers, and its marketing intermediaries. While these are external, the organization is capable of exerting more influence over these than forces in the macro environment. 1. The Market Organizations closely monitor their customer markets in order to adjust to changing tastes and preferences. A market is people or organizations with wants to satisfy, money to spend, and the willingness to spend it. Each target market has distinct needs, which need to be monitored. It is imperative for an organization to know their customers, how to reach them and when customers' needs change in order to adjust its marketing efforts accordingly. The market is the focal point for all marketing decisions in an organization. 2. Suppliers Suppliers are organizations and individuals that provide the resources needed to produce goods and services. They are critical to an organization's marketing success and an important link in its value delivery system. 3. Marketing Intermediaries Like suppliers, marketing intermediaries are an important part of the system used to deliver value to customers. Marketing intermediaries are independent organizations that aid in the flow of products from the marketing organization to its markets. The intermediaries between an organization and its markets constitute a channel of distribution. These include middlemen (wholesalers and retailers who buy and resell merchandise). Physical distribution firms help the organization to

stock and move products from their points of origin to their destinations. Warehouses store and protect the goods before they move to the next destination. Marketing service agencies help the organization target and promote its products and include marketing research firms, advertising agencies, and media firms. Financial intermediaries help finance transactions and insure against risks and include banks, credit unions, and insurance companies. Various strategic decisions where environmental analysis is required: All businesses and organisations operate in a changing world and are subject to forces which are more powerful than they are, and which are beyond their control. No business can survive without continued interaction with the external environment, just as a ship at sea is subject to powerful natural forces of which it needs to be aware and deal with, organisations are influenced by forces in their external business environment. Any business strategy needs to take account of all these forces so that opportunities and threats can be identified and the organisation can navigate its way to success by matching its internal strengths to external opportunities. (A SWOT Analysis can help here.) As an aid to identifying all these external forces, a couple of acronyms come in handy. Internally, an organization can be viewed as a resource conversion machine that takes inputs (labor, money, materials and equipment) from the external environment (i.e., the world outside the boundaries of the organization), converts them into useful products, goods, and services, and makes them available to customers as outputs. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. The successful organization will identify, appraise, and respond to the various opportunities and threats in its environment. International business involves a series of strategic decisions . Environmental analysis is a critical input required for making these decisions . An outline of these strategic decisions are given below with a view to highlight the points. INTERNATIONAL BUSINESS DECISIONS: The first decision a company has to make, of course is whether to take up inyternational business or not. This decision is based on a serious consideration of a number of important factors such as the present & the & future overseas opportunities , present & future domestic market opportunities , the resources of the company , company objectives etc. thus an anlysis of both the internal & external environment is essential for making the critical international business decisions.

MARKET SELECTION DECISION: Once it is decided to go international the next step is the selection of the most appropriate ketmarket. for this purpose a thorough analysis of the potentials of the various overseas markets & their respective marketing environment is essential. Company resources & objectives may not permit a company to do business in all the overseas market. Further , some markets are not potentially good, & it may be suicidal to waste a company resources in such markets. Therefore proper analysis should be done for selectong a potential market. ENTRY & OPERATING DECISIONS: There are number of foreign market entry strategies such as licensing, franchising , exporting, countertrade, establishing abroad assembly facilities, manufacturing facilities,- wholly owned or joint venture, contract manufacturing etc. A right decision regarding the entry strategy cant be made without an environmental analysis. MARKETING MIX DECISIONS: The foreign market is characterised by by a number of uncontrollable variables. The marketing mix consists of internal factors which are controllable . The success of international m,arketing , threfore depends to a large extent on the appropriateness of the marketing mix. The elements of the marketing mix product, promotion, price, & physical distribution should be suitably designed so that it should fit the foreign market. INTERNATIONAL ORGANISATION DECISIONS: A company doing international business has also to decide about its organisational structure for effectively conducting the business, so that the exporting function may be properly performed. This decision should necessarily be based on a careful consideration of such factors as the expected volume of the business , the nature of the overseas market, the nature of the product, the size, & resources of the company, & the length of its experience. The nature of the structure of the organisation will depend upon a number of factors like its international orientation, nature of business, size of business, future plans etc. In such, strategic decisions as whether a company should enter a given foreign market or not, what market entry strategy should it employ, what strategy should it adopt in respect of product, promotion, pricing & distribution etc. are based on two sets of factors viz the company related

factors & the foreign market related factors. The decision as to whether to go international or not is based , in addition to the above two on yet another set of factor viz the domestic marketing environment.

CH 2 SOCIAL & CULTURAL ENVIRONMENT DESCRIPTIVE QUESTIONS: CULTURE Our basic system of values incorporates knowledge, beliefs, art, morals, laws, customs and other habits acquired by members of a society. It is made up of three interrelated elements: Physical environment Social environment structures Training environment natural geography political, educational, family, class formal and informal socialization

Elements of culture: Norms Shared values or rules These outline acceptable behavior of that culture Includes legal norms - laws Values Shared social ideals which are a reflection of social norms Society and socialization: By interacting within a society we learn from them. Primary tool for socialization is our family. It is also learnt from, school, peer groups, media etc. Cultural diversity subcultures: A subculture is a group within the wider community that has a unique set of characteristics, motivations and patterns of behavior. This includes: Different ethnic groups and communities The youth market Baby boomers and the ageing market There are numerous marketing opportunities appealing to different subcultures within the wider community. Social class and social stratification- 1. Social class system: It is a hierarchical division of a society into relatively distinct and homogeneous groups with respect to attitudes, values and lifestyles.

Social stratification: The division of a society into different social tiers is known as classes. Cultural Dimensions According to Geert Hofstede, there is no such thing as a universal management method or management theory, valid across the whole world. Even the word 'management' has different origins and meanings in countries throughout the world. Management is not a phenomenon that can be isolated from other processes taking place in society. It interacts with what happens in the family, at school, in politics, and government. It is obviously also related to religion and to beliefs about science.
The five Cultural Dimensions of Hofstede

The cultural dimensions model of Geert Hofstede is a framework that describes five sorts (dimensions) of differences / value perspectives between national cultures: Power distance. The degree of inequality among people which the population of a country considers as normal. Individualism versus collectivism. The extent to which people feel they are supposed to take care for, or to be cared for by themselves, their families or organizations they belong to. Masculinity versus femininity. The extent to which a culture is conducive to dominance, assertiveness and acquisition of things. Versus a culture which is more conducive to people, feelings and the quality of life. Uncertainty avoidance. The degree to which people in a country prefer structured over unstructured situations. The elements of culture The major elements of culture are material culture, language, aesthetics, education, religion, attitudes and values and social organisation. Material culture Material culture refers to tools, artifacts and technology. Before marketing in a foreign culture it is important to assess the material culture like transportation, power, communications and so on. Input-output tables may be useful in assessing this. All aspects of marketing are affected by material culture like sources of power for products, media availability and distribution. For example, refrigerated transport does not exist in many African countries. Material culture introductions into a country may bring about cultural changes which may or may not be desirable. Language

Language reflects the nature and values of society. There may be many subcultural languages like dialects which may have to be accounted for. Some countries have two or three languages. In Zimbabwe there are three languages English, Shona and Ndebele with numerous dialects. In Nigeria, some linguistic groups have engaged in hostile activities. Language can cause communication problems - especially in the use of media or written material. It is best to learn the language or engage someone who understands it well. Aesthetics Aesthetics refer to the ideas in a culture concerning beauty and good taste as expressed in the arts -music, art, drama and dancing and the particular appreciation of colour and form. African music is different in form to Western music. Aesthetic differences affect design, colours, packaging, brand names and media messages. For example, unless explained, the brand name FAVCO would mean nothing to Western importers, in Zimbabwe most people would instantly recognise FAVCO as the brand of horticultural produce. Education Education refers to the transmission of skills, ideas and attitudes as well as training in particular disciplines. Education can transmit cultural ideas or be used for change, for example the local university can build up an economy's performance. The UN agency UNESCO gathers data on education information. For example it shows in Ethiopia only 12% of the viable age group enrol at secondary school, but the figure is 97% in the USA. Education levels, or lack of it, affect marketers in a number of ways: advertising programmes and labelling girls and women excluded from formal education (literacy rates) conducting market research complex products with instructions relations with distributors and, support sources - finance, advancing agencies etc. Religion Religion provides the best insight into a society's behaviour and helps answer the question why p Religion can affect marketing in a number of ways: religious holidays - Ramadan cannot get access to consumers as shops are closed. consumption patterns - fish for Catholics on Friday economic role of women - Islam caste systems - difficulty in getting to different costs for segmentation/niche

marketing joint and extended families - Hinduism and organizational structures; institution of the church - Iran and its effect on advertising, "Western" images market segments - Malaysia - Malay, Chinese and Indian cultures making market segmentation sensitivity is needed to be alert to religious differences Attitudes and values Values often have a religious foundation, and attitudes relate to economic activities. It is essential to ascertain attitudes towards marketing activities which lead to wealth or material gain, for example, in Buddhist society these may not be relevant.Also "change" may not be needed, or even wanted, and it may be better to relate products to traditional values rather than just new ones. Many African societies are risk averse, therefore, entrepreneurialism may not always be relevant. Attitudes are always precursors of human behaviour and so it is essential that research is done carefully on these. Social organisation Refers to the way people relate to each other, for example, extended families, units, kinship. In some countries kinship may be a tribe and so segmentation may have to be based on this. Other forms of groups may be religious or political, age, caste and so on. All these groups may affect the marketer in his planning. There are other aspects of culture, but the above covers the main ingredients. In one form or another these have to be taken account of when marketing internationally. ESSENCE OF CULTURE: Many people think about culture is a s though it is something a country, region or firm has something that you can see, hear, touch, smell, or taste. Consequently people who take this view often point to ceremonies, clothing, historical landmarks, art & food as example of countrys culture. Clearly these differ substantially from one country to other.All cultures emerge as a group of people face & then respond to the challenges of life. Consequently culture is learned through experience & is not inherited. To the extent people believe certain responses to be successful enough to teach them & the underlying values & assumptions to others , they become shared among the members of the group. Because circumstances change over the time, responses once considered successful can change as a consequence. Culture is also adaptive. Finally the key factor that allows culture to be transferred from one generation to another or shared within a family, community, region or country is the human capacity for symbolic representation & communication. The creation & interpretation of symbols , primarily through words & pictures , allow stories, speeches discussions, novella , poems, art & soon to be effective means of learning , teaching, sharing, & adapting & multiple dimensions of culture.

Culture can be thought of having three levels. The tangible aspect of culture, things you can hear, smell, taste or touch- are artifacts or manifestations of underlying values & assumptions of that a group of people share. The structure of these element is like that of an iceberg. Artifacts are what we can see , but what can you see is only a small fraction of fraction what is there & what you cannot s see the value & assumptions are what can sink your ship if you mistakenly run into them. In essence culture is mental road map with traffic signs & signals. The road map tells you what the important & valued goals are , & what highways or lowways can get you there. The traffic rules tell you who has the right of way when to stop, how to signal a left turn, when U turns are allowed or prohibited and so on. Imagine being put in the middle of the heart of a Tokyo freeway with no map , no road signs, & no idea of the rules concerning speed, changing lanes, following distances or even which side of the road to drive on. Suddenly , trueworthy social & interpersonal roadmaps & traffic rules of the past are now useless or in the worst case, deadly. However just in the case of the violation of traffic rules, not all the rules of culture have equal punishments or rewards attached to them. A helpful way of thinking about this is to conceptualise the rules along the two dimensions- the extent to which they are widely shared among group members & the extent to which they are deeply held- illustrated in Fig. DEEP (Held) Narrowly Shared Widely Shared, deeply Held Deeply Held Violations in this cell usually result in this cell Violations in the cell usually result in usually result in the formal & significant informal but sometimes significant punishments. punishments. Narrowly shared, shallowly held Widely Shared, Shallowly Held Violations in this cell usually do not Violations in this cell usually result in minor result in uniform reactions but instead punishments or sometimes second chances. are more idiosyncratic.

NARROW

WIDE

SHALLOW (Shared) Those assumptions values or rules of the culture that are widely shared & deeply held are generally those that are accompanied by substantial rewards or punishments, depending upon whether they are violated or honored. For example one widely shared & strongly held rule in the US is that you do not talk to yourself constantly or loudly. When others see a person doing they become nervous & concerned even if the person poses no physical threat to anyone- after all it isnt normal.

What about the case in which the rule is one that is deeply held but not widely shared? In this case the rewards & punishments are often informal. Eg in the US burping after a meal is considered by some to be a serious violation of proper behavior but not by all. Consequently you are unlikely to be put in jail for burping. However you might be cut out of a particular social circle. In certain other countries a very effective way to offend a host is by not burping after a meal. In case of widely shared but not deeply held rules, violations of the rules often carry with them uniform but rather mild punishments. In many cases, infrequent violations of these rules may carry no punishments at all. Eg for interrupting someone who is talking to you is a generally accepted rule of conduct in US. However, if one occasionally interrupts , it is unlikely that this behavior will be accompanied by any punishment. IMPACT OF CULTURE ON MANAGERIAL BEHAVIOUR: Culture not only has an impact on a managers ability to adjust to living & working in a foreign country, but it can also affect managerial behavior & create counterproductive clashes when managers from different cultural backgrounds must interact. Three vital areas of managerial behavior affected by culture are general communication, negotiations & decision making. In the era of globalization there exist two striking mega-trends: increasing multiculturalism and the growth of temporary work arrangements. New information technology and developments in transportation, legislation, and governing arrangements have created a new type of global connectedness between people, companies and nations. Domestic work groups are increasingly sent overseas for assignments, and significant proportion of companies work force are currently employed outside their home countries. At the same time previously stable and permanent organizational arrangements have become temporary and disposable (March 1999). Projects, as forms of organizing, are becoming an inherent feature of modern life. We are heading towards something that can be called a projectified society (Lundin and Sderholm 1998). The project groups are more and more often composed of people representing various nationalities and cultural backgrounds (Chevrier 2003). Thus, management of diversity has become one of the most common and demanding challenges in contemporary organizations and global projects. Scholars diverge strongly on the issue of universality versus culture specificity of the project work and management. Those who propose for a culturespecific perspective argue that projects are embedded in their social context. This affects the outcomes of the projects as well as processes leading to them. On the other hand, those who propose for a universal perspective argue that similarities rather than differences exist between projects and their management. Technological

imperatives, common industrial logic or general management principles harmonize project work and management. This study explores further these arguments in global projects. We define global projects as projects that are organizationally complex with participants from multiple cultures; and that have complex institutional issues and concerns stemming from encounters of different goals, values, cultural norms, work practices, technology, and institutions. Examples of these are major infrastructural projects such as dams, water supply facilities, transportation infrastructure, power plants, telecommunication networks, oil and gas pipelines and sewage/waste/hazardous waste facilities, to name just few. These kind of projects face the same coordination and integration challenges as projects built in, and composing of participants coming from one single country and culture.

However, in addition, global projects must successfully confront and address the challenges posed by conflicting cultural norms and values, unfamiliar institutional conditions, and language-related misunderstandings between people. This study explores the ways in which Finnish management culture meets that of the Polish and the various ways these encounters affect the progress and outcomes of a global infrastructural project. We concentrate on cultural dynamics between the Finns and the Poles in a recent power plant project executed in Poland. It demonstrates among others how it is possible to smooth down the clashes even between two remote cultures. We begin with a discussion on universality and culture-specificity in managerial behavior and leadership. In order to specify the impact of dynamics between Finnish and Polish management cultures on outcomes of a global project, we have gathered data on the outcomes, critical events and the process of the project studied. We also provide a view of the culture and value-base of the main participant countries in the project. After that we outline the course of events and some of the critical incidents in the project under scrutiny, and identify the cultural tensions or collaborations involved. This serves as a starting point for specifying the ways in which encounters between Finnish and Polish management cultures and processes tend to affect the actual outcomes of the project. COMMUNICATION: Culture can affect communication styles in a variety of ways, but two aspects of communication have been found to differ rather dramatically by culture. The first is the extent to which the context affects what is said or how it is said. Cultures that are considered high context tend to change what is said & how it is said significantly depending on the context.

For example:Japan is considered a high context culture & has three distinct levels of language that one utilizes depending on ones status relative to the other person. The second dimension of the communication that can vary by culture is the extent to which communication is explicit or implicit. In explicit language cultures, managers, are taught that to communicate effectively you should say what you mean, & mean what you say. Vague directives & & instructions are seen as a sign of poor communication abilities. The image in explicit cultures is that the burden of effective communication is on the speaker. In contrast in implicit language cultures the the assumptions is that the speaker & the listener both share the burden of effective communication. Implicit communication also helps to avoid unpleasant & direct confrontations & disagreements. For global managers trying to determine what is better, low context or high context explicit or implicit communication is not the relevant issues. However realizing that these two keys of dimension of communication can vary significantly by culture is critical because it allows managers to anticipate potential problems to be proactive in making adjustments if they choose. NEGOTIATION: research on international negotiations has identified important similarities & differences across cultures. One of the most important similarities is that generally negotiations seem to have 5 distinct stages. The first stage involves the planning that takes place prior to face to face negotiations. It is in this stage that individuals & teams conduct background research, gather information, plan their strategy & make initial decisions about what they hope to achieve & are willing to give during the course of the negotiations. The second stage is commonly referred to as no task time the time at the beginning of the negotiations devoted to introductions & getting acquainted . The third stage involves exchanging information in an effort to provide background establish common facts, & set the context of the negotiations. The fourth stage focuses on attempts to influence the other party to accept your desired set of exchanges. The final stage is reached if a mutually acceptable exchange is agreed upon. DECISION MAKING: Culture can also have a significant impact on by whom & how decisions are made. Research has identified at least three fundamental aspects of decision making that differ significantly by culture. One of the first dimensions is who makes the decisions. Collectivist oriented cultures such as Japan are well known for efforts to make decisions by consensus. In fact, executives from more individualistic oriented cultures such as Australia & the US often complain about how long decisions in Japan take because of the involvement of so many people in the decisions.

In addition to who make decisions, how decisions are made also varies by culture, one of the key factors that influence decisions is the role of information in the decision making process. In the US & Sweden managers emphasize rationally & utilize qualitative information over quantitative data in making decisions. The example further illustrate the type of information that managers pay attention to & utilize in decision making can vary. And these variations may in fact be a function of more fundamental assumptions about the nature of truth. Culture also seems to play a significant role in the extent to which managers are comfortable in making decisions in uncertain environments. For example managers from the US, Germany seem to have the highest tolerance, while managers from Italy, Iberia & Japan seem to have lower tolerance for making decisions in circumstances of uncertainty. These differences in tolerance can have a variety of implications. The working culture of Middle East countries. Doing Business in the Middle East| Middle Eastern Social and Business Culture- A Middle Eastern Culture Overview Countries Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, Yemen Population approx. 200,000,000 o Languages Various dialects of Arabic and Persian, English is also widely spoken as well as French in Lebanon. Approximately 30 other languages are also spoken Overview Situated between Asia, Africa and Europe, the Middle East is a cultural and ethnic mosaic of linguistic and racial diversity. A large number of ancient civilizations, stretching back at least 3,000 years, have passed through the region. As people crossed the Middle East through trade and invasion routes, they brought with them a plethora of traditions, cultures and religion which still exist today. The countries of the Middle East each have their own unique identity and culture, but share many

fundamental beliefs and traditions. Understanding not only the shared cultural values and attitudes but each countrys unique business and social culture is imperative for any organization wishing to do business in the region. Middle Eastern Culture - Key Concepts and Values Religion The Middle East is the geographic origin of three of the worlds major religions Islam, Judaism and Christianity. The majority of the people in the Middle East practise Islam,but Judaism and Christianity, although minor in comparison to Islam, are also practisedmainly in Israel and Lebanon respectively. Many people in the Middle East adhere to Islamic principles and practise traditional rituals on a daily basis. Contrary to the separation of Church and State in many Western countries, Islam is a way of life and governs politics,moral values and various aspects of behaviour such as how one should dress. Islam impactson the daily lives of people in the Middle East differently depending on what country theyare in. It is a good idea to learn more about what Islamic practices are adhered to beforegoing and to remember its influence when working alongside your Middle Eastern businesscolleagues. Indirect Communication Communication in the Middle East tends to be relatively indirect and relies heavily on nonverbal cues and figurative forms of speech, whereinformation is notexplicitly stated. Respecting an individuals honour and saving face are key drivers in theindirect communication style that is prevalent throughout the Middle East. Directly refusinga proposal, for example, may be interpreted as impoliteness. Therefore, when conductingbusiness discussions with your Middle Eastern colleagues you should avoid responding witha direct no, and be prepared to interpret seemingly indefinite comments and gestures. It is also impolite to directly criticise a Middle Eastern counterpart as it brings shame to the persons honour. Hospitality Many people in the Middle East take great pride in showing hospitality.Hospitality is a deeply rooted tradition that is closely linked to honour and reputation. Opendisplays of generosity and welcoming behaviour are essential qualities for measuring apersons good reputation and character. When offered such hospitality, whether in a businessor social setting, it is important to accept it to maintain the individuals sense of honour. Personal Relationships-

Personal relationships are highly valued in Middle Eastern cultures. People take a sincere interest in others and spend a lot of time getting to know each other.People in the Middle East tend to mix their business and personal life and therefore usepersonal relationships to further business interests. In Middle Eastern culture, refusingrequests made by other friends is often considered rude. An emphasis is placed onnetworking so it is essential to develop relationships personally and professionally beforedoing business with counterparts in the Middle East. Rules and regulations can be bent whiledoing business in the Middle East if one has contacts in the right places. Doing Business in the Middle East The modern idea of the Middle East was first established after World War I, when theOttoman Empire was partitioned into separate nations. Israel was later established as anation in 1948 by the United Nations. The Middle Easts recent history has been characterisedby civil unrest and violence among ethnic and religious groups. Although much of the regionis still struggling with political turmoil and conflict among differing ideologies, progressive steps marked by peace treaties and international assistance have helped to stabilise parts ofthe Middle East.Although each nations economy differs from the next, much of the regions wealth comesfrom its vast oil reserves and natural resources. Banking and tourism follow closely behind asmajor contributors to the regions GDP. Today, much of the Middle East is thriving withimmense opportunities for foreign investment and continued economic growth. For thosewishing to take advantage of the opportunities in this lucrative market, it isessential to have a deeper understanding of the age-old traditions and underlying influences that have soheavily shaped Middle Eastern culture. The Middle East Business Part 1 Working in the Middle East (Pre-departure) Working practices in the Middle East: The working week in the Middle East tends to begin on Sunday and end on Thursday, though in some countries it begins on Saturday and ends on Wednesday. Friday is the Muslim holy day and considered part of the weekend. In Israel, the Sabbath is on Saturdays and many businesses will be closed. People in the Middle East have a more flexible attitude towards time and do not always start or finish at the scheduled time. Punctuality will be expected of foreigners, however, even though your Middle Eastern counterparts may not be as The Middle East is predominantly Muslim and for this reason time must be allocated during the working day for prayer. This may interrupt the daily business

schedule so you should consider this when making business appointments. Structure and hierarchy in Middle Eastern companies Middle Eastern business culture tends to be hierarchical. Leaders separate themselves from the group and power is distributed from the top. The most senior person in the company usually makes the final decisions. Those in a more subordinate position represent the business during meetings but do not usually have the authority to make decisions. Middle Eastern society tends to be very status conscious. It is important to addresscolleagues and superiors with the appropriate title. Generally people are addressed with their title followed by their first name. Common titles in Arab culture are Sheikh which means wise man or scholar; Sayyid which is a descendant of the Prophet Muhammad; and Hajji which is man who has made the pilgrimage to Mecca. Working relationships in the Middle East Establishing close personal contacts is essential for all business dealings in the Middle East. Middle Eastern people prefer to get to know a person before entering into business with them and committing themselves to business decisions. People in the Middle East place great emphasis on respect and dignity. Younger colleagues, in particular, must address their business counterparts with the appropriate title and act in a respectful manner at all times. The idea of women working in the Middle East is not as common a concept as in the West. In most Arab societies, men and women do not intermingle as Muslim culture tends to be very conservative in its views towards women. This is rapidly changing in some countries, so you may increasingly see women working in countries such as the UAE, Qatar and Oman. There are significantly more women working in Israel than in other Middle Eastern countries. The Middle East Business Part 2 - Doing Business in the Middle East Business practices in the Middle East Initial greetings among Arab counterparts usually begin with a handshake and the customary greeting As-salam alaikum, (peace be upon you) to which the reply is Wa alaikum as-salam, (and upon you be peace). As business partnerships turn into friendships it is not uncommon for handshakes to be accompanied by a hug or kiss of the cheek. In Arab society, you should wait for the woman to extend her hand first. In Israeli society, a firm handshake is expected. The exchanging of business cards is practised in much of the Middle East. If you are given a business card, it is customary to accept it using your right hand, study it carefully and place it somewhere respectful, for example, on the table in front of

you or in a card holder. In Arab countries, it is polite to have one side written in English with the reverse side in Arabic. In Israel, business cards are usually engraved rather than printed. Generally speaking, business meetings in the Middle East are somewhat unstructured and open to variation. Middle Eastern people take a more relaxed approach to start times, topics for discussion and length of meetings. In addition, it is not uncommon for others to walk in and out of the meeting or for your Middle Eastern associates to take phone calls during business discussions. Business dress in the Middle East is modest. For businesswomen it is wise and even necessary in some countries to dress conservatively from head to toe in order to be accepted by business counterparts. While dress varies among countries, many women in the Middle East wear head scarves or veils, but it is not usually required of foreign women. In Israel, business casual dress is acceptable most of thetime. Middle Eastern Business Etiquette (Dos and Donts): _ DO be aware that Middle Eastern people tend to use a closer physical proximity when communicating than Westerners. Though you may not be comfortable with this close distance, it can be perceived as impolite if you back up. _ DO show respect towards your Middle Eastern business associates by taking a sensitive approach to appropriate behaviour and cultural gestures. Using the left hand to pass something, drinking alcohol or eating pork while in the presence of your Middle Eastern colleagues should be avoided. _ DO dress suitably and in a conservative manner. This is especially important for businesswomen, who must wear modest clothing that covers the arms and legs in particular. A headscarf is also advisable. _ DONT criticise your Middle Eastern counterparts in front of other business colleagues, as this may cause a loss of face and harm the individuals sense of honour. _ DONT schedule business meetings during the holy month of Ramadan if at all possible as business activity tends to be reduced. Ramadan is a major Islamic tradition that includes fasting for an entire month. Although foreigners are not required to fast, it is considered impolite to eat or drink in front of others during this time. _ DONT give the thumbs up sign while in the Middle East as this is considered tobe an offensive gesture. _ DONT inquire too much about a male colleagues wife or female relatives. To a traditional Arab male, this is not considered a topic for public conversation but rather a private matter and as such could be taken offensively. It is polite to inquire

about family as long as they are not female. France Culture, Custom & Etiquettes Location: Western Europe, bordering Andorra 56.6 km, Belgium 620 km, Germany 451 km, Italy 488 km, Luxembourg 73 km, Monaco 4.4 km, Spain 623 km, Switzerland 573 km Capital: Paris Climate: generally cool winters and mild summers, but mild winters and hot summers along the Mediterranean; occasional strong, cold, dry, north-to-northwesterly wind known as mistral Population: 60,424,213 (July 2004 est.) Ethnic Make-up: Celtic and Latin with Teutonic, Slavic, North African, Indochinese, Basque minorities Religions: Roman Catholic 83%-88%, Protestant 2%, Jewish 1%, Muslim 5%-10%, unaffiliated 4% Government: republic Languages in France French, the official language, is the first language of 88% of the population. Most of those who speak minority languages also speak French, as the minority languages are given no legal recognition. 3% of the population speak German dialects, predominantly in the eastern provinces of Alsace-Lorraine and Moselle. Flemish is spoken by around 90,000 people in the northeast, which is 0.2% of the French population. Around 1m people near the Italian border, roughly 1.7% of the population, speaks Italian. Basque is spoken by 0.1% and mainly along the French-Spanish border. Catalan dialects are spoken in the French Pyrenees by around 260,000 people or 0.4% of the French population. The Celtic language, Breton, is spoken by 1.2% and mainly in the north west of France. These three languages have no official status within France. In the South of France, over 7m speak Occitan dialects, representing 12% of the population of France, but these dialects have no official status. Nor too does Corsu, the dialect of the island of Corsica that is closely related to Tuscan and is spoken by 0.3%. Arabic, the third largest minority language, is spoken by around 1.7% of the population throughout the country. Other immigrant languages from the former French colonies include Kabyle and Antillean Creole. Why not learn some useful French phrases French Society & Culture Cuisine . Food is one of the great passions of the French people. . French cooking is highly refined and involves careful preparation, attention to detail, and the use of fresh ingredients. . It varies by region and is heavily influenced by what is grown locally. French Family Values

. The family is the social adhesive of the country and each member has certain duties and responsibilities. . The extended family provides both emotional and financial support. . Despite their reputation as romantics, the French have a practical approach towards marriage. . Families have few children, but parents take their role as guardians and providers very seriously. Relationships - Public vs. Private . The French are private people and have different rules of behaviour for people within their social circle and those who are not. . Although the French are generally polite in all dealings, it is only with their close friends and family that they are free to be themselves. . Friendship brings with it a set of roles and responsibilities, including being available should you be needed. Friendship involves frequent, if not daily, contact. Etiquette & Customs in France Meeting Etiquette . The handshake is a common form of greeting. . Friends may greet each other by lightly kissing on the cheeks, once on the left cheek and once on the right cheek. . First names are reserved for family and close friends. Wait until invited before using someone's first name. . You are expected to say 'bonjour' or 'bonsoir' (good morning and good evening) with the honorific title Monsieur or Madame when entering a shop and 'au revoir' (good-bye) when leaving. . If you live in an apartment building, it is polite to greet your neighbours with the same appellation. Gift Giving Etiquette . Flowers should be given in odd numbers but not 13, which is considered unlucky. . Some older French retain oldstyle prohibitions against receiving certain flowers: White lilies or chrysanthemums as they are used at funerals; red carnations as they symbolize bad will; any white flowers as they are used at weddings. . Prohibitions about flowers are not generally followed by the young. When in doubt, it is always best to err on the side of conservatism. . If you give wine, make sure it is of the highest quality you can afford. The French appreciate their

wines. . Gifts are usually opened when received. Dining Etiquette If you are invited to a French house for dinner: . Arrive on time. Under no circumstances should you arrive more than 10 minutes later than invited without telephoning to explain you have been detained. . The further south you go in the country, the more flexible time is. . If invited to a large dinner party, especially in Paris, sends flowers the morning of the occasion so that they may be displayed that evening. . Dress well. The French are fashion conscious and their version of casual is not as relaxed as in many western countries. Table manners: . Table manners are Continental -- the fork is held in the left hand and the knife in the right while eating. . If there is a seating plan, you may be directed to a particular seat. . Do not begin eating until the hostess says 'bon appetit'. . If you have not finished eating, cross your knife and fork on your plate with the fork over the knife. . Do not rest your elbows on the table, although your hands should be visible and not in your lap. . Finish everything on your plate. . Do not cut salad with a knife and fork. Fold the lettuce on to your fork. . Peel and slice fruit before eating it. . Leave your wineglass nearly full if you do not want more. Business Etiquette and Protocol in France Relationships & Communication French business behaviour emphasizes courtesy and a degree of formality. . Mutual trust and respect is required to get things done. . Trust is earned through proper behaviour. . Creating a wide network of close personal business alliances is very important. . If you do not speak French, an apology for not knowing their language may aid in developing a relationship. . It is always a good idea to learn a few key phrases, since it demonstrates an interest in a long-term relationship. . The way a French person communicates is often predicated by their social status, education level, and which part of the country they were raised. . In business, the French often appear extremely direct because they are not afraid of asking probing questions. . Written communication is formal. Secretaries often schedule meetings and may be used to relay information from your French business colleagues. Business Meetings Etiquette

. Appointments are necessary and should be made at least 2 weeks in advance. . Appointments may be made in writing or by telephone and, depending upon the level of the person you are meeting, are often handled by the secretary. . Do not try to schedule meetings during July or August, as this is a common vacation period. . If you expect to be delayed, telephone immediately and offer an explanation. . Meetings are to discuss issues, not to make decisions. . Avoid exaggerated claims, as the French do not appreciate hyperbole. Business Negotiation . French business emphasizes courtesy and a fair degree of formality. . Wait to be told where to sit. . Maintain direct eye contact while speaking. . Business is conducted slowly. You will have to be patient and not appear ruffled by the strict adherence to protocol. . Avoid confrontational behaviour or high-pressure tactics. It can be counterproductive. . The French will carefully analyze every detail of a proposal, regardless of how minute. . Business is hierarchical. Decisions are generally made at the top of the company. . The French are often impressed with good debating skills that demonstrate an intellectual grasp of the situation and all the ramifications. . Never attempt to be overly friendly. The French generally compartmentalize their business and personal lives. . Discussions may be heated and intense. . High-pressure sales tactics should be avoided. The French are more receptive to a low-key, logical presentation that explains the advantages of a proposal in full. . When an agreement is reached, the French may insist it be formalized in an extremely comprehensive, precisely worded contract. Dress Etiquette . Business dress is understated and stylish. . Men should wear dark-coloured, conservative business suits for the initial meeting. How you dress later is largely dependent upon the personality of the company with which you are conducting business. . Women should wear either business suits or elegant dresses in soft colours. . The French like the finer things in life, so wear good quality accessories. Business Cards . Business cards are exchanged after the initial introductions without formal ritual. . Have the other side of your business card translated into French. Although not a business necessity, it demonstrates an attention to detail that will be appreciated. . Include any advanced academic degrees on your business card. . French business cards are often a bit larger than in many other countries.

Ch-5, Law of Environment:

Environmental protection: Environmental protection is a practice of protecting the environment, on individual, organizational or governmental level, for the benefit of the natural environment and (or) humans. Due to the pressures of population and our technology the biophysical environment is being degraded, sometimes permanently. This has been recognized and governments began placing restraints on activities that caused environmental degradation. Since the 1960s activism by the environmental movement has created awareness of the various environmental issues. There is not a full agreement on the extent of the environmental impact of human activity and protection measures are occasionally criticized. Academic institutions now offer courses such as environmental studies, environmental management and environmental engineering that study the history and methods of environmental protection. Protection of the environment is needed from various human activities. Waste, pollution, loss of biodiversity, introduction of invasive species, release of genetically modified organisms and toxics are some of the issues relating to environmental protection. Many Constitutions acknowledge the fundamental right to environmental protection and many international treaties acknowledge the right to live in a healthy environment.[2] But complete environmental protection seems impossible at this current global position. Also, many countries have organizations and agencies devoted to environmental protection. There are International environmental protection organizations, as the United Nations Environment Programme. European Union Environmental protection has become an important task for the institutions of the European Community after the Maastricht Treaty for the European Union ratification by all Member States. The EU is already very active in the field of environmental policy with important directives like those on environmental impact assessment and on the access to environmental information for citizens in the Member States. New Zealand At a national level the Ministry for the Environment is responsible for environmental policy and the Department of Conservation addresses conservation issues. At a regional level the regional councils administer the legislation and address regional environmental issues. United States Since 1970, the United States Environmental Protection Agency (EPA) has been working to protect the environment and human health.[3] All U.S. states have their own state departments of environmental protection.[4] The EPA has drafted "Seven Priorities for EPAs Future", which are:

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"Taking Action on Climate Change" "Improving Air Quality" "Assuring the Safety of Chemicals" "Cleaning Up Our Communities" "Protecting Americas Waters" "Expanding the Conversation on Environmentalism and Working for Environmental Justice" "Building Strong State and Tribal Partnerships"

Environmental law is a complex and interlocking body of treaties, conventions, statutes, regulations, and common law that, very broadly, operate to regulate the interaction of humanity and the rest of the biophysical or natural environment, toward the purpose of reducing the impacts of human activity, both on the natural environment and on humanity itself. The topic may be divided into two major subjects: (1) pollution control and remediation,(2) resource conservation and management. Laws dealing with pollution are often media-limited - i.e., pertain only to a single environmental medium, such as air, water (whether surface water, groundwater or oceans), soil, etc. - and control both emissions of pollutants into the medium, as well as liability for exceeding permitted emissions and responsibility for cleanup. Laws regarding resource conservation and management generally focus on a single resource - e.g., natural resources such as forests, mineral deposits or animal species, or more intangible resources such as especially scenic areas or sites of high archeological value - and provide guidelines for and limitations on the conservation, disturbance and use of those resources. These areas are not mutually exclusive - for example, laws governing water pollution in lakes and rivers may also conserve the recreational value of such water bodies. Furthermore, many laws that are not exclusively "environmental" nonetheless include significant environmental components and integrate environmental policy decisions. Municipal, state and national laws regarding development, land use and infrastructure are examples. Environmental law draws from and is influenced by principles of environmentalism, including ecology, conservation, stewardship, responsibility and sustainability. Pollution control laws generally are intended (often with varying degrees of emphasis) to protect and preserve both the natural environment and human health. Resource conservation and management laws generally balance (again, often with varying degrees of emphasis) the benefits of preservation and economic exploitation of resources. From an economic perspective environmental laws may be understood as concerned with the prevention of present and future externalities, and preservation of common resources from individual exhaustion. The limitations and expenses that such laws may impose on commerce, and the

often unquantifiable (non-monetized) benefit of environmental protection, have generated and continue to generate significant controversy. Given the broad scope of environmental law, no fully definitive list of environmental laws is possible. The following discussion and resources give an indication of the breadth of law that falls within the "environmental" metric.

International Pollution does not respect political boundaries, making international law an important aspect of environmental law. A plethora of legally binding international agreements now encompass a wide variety of issue-areas, from terrestrial, marine and atmospheric pollution through to wildlife and biodiversity protection. While the bodies that proposed, argued, agreed upon and ultimately adopted existing international agreements vary according to each agreement, certain conferences - including 1972's United Nations Conference on the Human Environment, 1983's World Commission on Environment and Development, 1992's United Nations Conference on Environment and Development and 2002's World Summit on Sustainable Development have been particularly important. Organizing principles International environmental law's development has included the statement and adoption of a number of important guiding principles. As with all international law, international environmental law implicates questions of sovereignty, comity and even perhaps the Golden Rule. Other guiding principles include the polluter pays principle, the precautionary principle, the principle of sustainable development, environmental procedural rights, common but differentiated responsibilities, intragenerational and intergenerational equity, the "common concern of humankind", and the common heritage. Sources-Treaties, protocols, conventions, etc. International environmental agreements are generally multilateral (or sometimes bilateral) treaties (a.k.a. convention, agreement, protocol, etc.). The majority of such conventions deal directly with specific environmental issues. There are also some general treaties with one or two clauses referring to environmental issues but these are rarer.[citationneeded] There are about 1000 environmental law treaties in existence today; no other area of law has generated such a large body of conventions on a specific topic. Protocols are subsidiary agreements built from a primary treaty. They exist in many areas of international law but are especially useful in the environmental field, where they may be used to regularly incorporate recent scientific knowledge. They also permit countries to reach agreement on a framework that would be contentious if every detail were to be agreed upon in advance. The most widely known protocol in international environmental law is the Kyoto Protocol.

Customary international law Customary international law is an important source of international environmental law. These are the norms and rules that countries follow as a matter of custom and they are so prevalent that they bind all states in the world. When a principle becomes customary law is not clear cut and many arguments are put forward by states not wishing to be bound. Examples of customary international law relevant to the environment include the duty to warn other states promptly about icons of an environmental nature and environmental damages to which another state or states may be exposed, and Principle 21 of the Stockholm Declaration ('good neighbourliness' or sic utere). Judicial decisions International environmental law also includes the opinions of international courts and tribunals. While there are few and they have limited authority, the decisions carry much weight with legal commentators and are quite influential on the development of international environmental law. The courts include: the International Court of Justice (ICJ); the international Tribunal for the Law of the Sea (ITLOS); the European Court of Justice; European Court of Human Rights[1] and other regional treaty tribunals. Arguably the World Trade Organisation's Dispute Settlement Board (DSB) is getting a say on environmental law also. Important cases have included:
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the Trail Smelter Arbitration, 33 AJIL (1939) the various nuclear weapons testing cases such as between New Zealand and France before the International Court of Justice; Gabcikovo-Nagyramos Dam Case, ICJ Rep (1997)

Administration and enforcement Main article: United Nations Environment Programme United States Laws from every stratum of the laws of the United States pertain to environmental issues. The United States Congress has passed a number of landmark environmental regulatory regimes, but many other federal laws are equally important, if less comprehensive. Concurrently, the legislatures of the fifty states have passed innumerable comparable sets of laws.[2] These state and federal systems are foliated with layer upon layer of administrative regulation. Meanwhile, the U.S. judicial system reviews not only the legislative enactments, but also the administrative decisions of the many agencies dealing with environmental issues. Where the statutes and regulations end, the common law begins. Sources Federal statutes Main article: List of United States Federal Environmental Statutes See also: Environmental policy of the United States

Federal regulation Consistent with the federal statutes that they administer, U.S. federal agencies promulgate regulations in the Code of Federal Regulations that fill out the broad programs enacted by Congress. Primary among these is Title 40 of the Code of Federal Regulations, containing the regulations of the Environmental Protection Agency. Other import CFR sections include Title 10 (energy), Title 18 (Conservation of Power and Water Resources), Title 21 (Food and Drugs), Title 33 (Navigable Waters), Title 36 (Parks, Forests and Public Property), Title 43 (Public Lands: Interior) and Title 50 (Wildlife and Fisheries). Judicial decisions The federal and state judiciaries have played an important role in the development of environmental law in the United States, in many cases resolving significant controversy regarding the application of federal environmental laws in favor of environmental interests. The decisions of the Supreme Court in cases such as Calvert Cliffs Coordinating Committee v. U.S. Atomic Energy Commission (broadly reading the procedural requirements of the National Environmental Policy Act), Tennessee Valley Authority v. Hill (broadly reading the Endangered Species Act), and, much more recently, Massachusetts v. EPA (requiring EPA to reconsider regulation of greenhouse gases under the Clean Air Act) have had policy impacts far beyond the facts of the particular case. See also: List of environmental lawsuits Common law The common law of tort is an important tool for the resolution of environmental disputes that fall beyond the confines of regulated activity. Prior to the modern proliferation of environmental regulation, the doctrines of nuisance, trespass, negligence, and strict liability apportioned harm and assigned liability for activities that today would be considered pollution and likely governed by regulatory regimes.[4] These doctrines remain relevant, and most recently have been used by plaintiffs seeking to impose liability for the consequences of global climate change.[5] The common law also continues to play a leading role in American water law, in the doctrines of riparian rights and prior appropriation. Administration In the United States, responsibilities for the administration of environmental laws are divided between numerous federal and state agencies with varying, overlapping and sometimes conflicting missions. The U.S. Environmental Protection Agency (EPA) is the most well-known federal agency, with jurisdiction over many of the country's national air, water and waste and hazardous substance programs. Other federal agencies, such as the U.S. Fish and Wildlife Service and National Park Service pursue primarily conservation missions, while still others, such as the United States Forest Service and the Bureau of Land Management, tend to focus more on beneficial use of natural resources. Federal agencies operate within the limits of federal jurisdiction. For example, EPA's jurisdiction under the Clean Water Act is limited to "waters of the United States". Furthermore in many cases federal laws allow for more stringent regulation by states, and of transfer of certain federally

mandated responsibilities from federal to state control. U.S. state governments, therefore, administering state law adopted under state police powers or federal law by delegation, uniformly include environmental agencies.[9] The extent to which state environmental laws are based on or depart from federal law varies from jurisdiction to jurisdiction. Thus, while a permit to fill non-federal wetlands might require a permit from a single state agency, larger and more complex endeavors - for example, the construction of a coal-fired power plant might require approvals from numerous federal and state agencies. See also: List of environmental organizations#Government organizations Enforcement In the United States, violations of environmental laws are generally civil offenses, resulting in monetary penalties and, perhaps, civil sanctions such as injunction. Many environmental laws do, however, provide for criminal penalties for egregious violations. Often, environmental agencies include separate enforcement offices, with duties including monitoring permitted activities, performing compliance inspections, issuing citations and prosecuting (civilly or criminally, depending on the violation) wrongdoing. EPA's Office of Enforcement and Compliance Assurance is one such agency. Others, such as the United States Park Police, carry out more traditional law enforcement activities. Adjudicatory proceedings for environmental violations are often handled by the agencies themselves under the strictures of administrative law. In some cases, appeals are also handled internally (for example, EPA's Environmental Appeals Board). Generally, final agency determinations may subsequently be appealed to the appropriate court. Controversy Necessity The necessity of directly regulating a particular activity due to the activity's environmental consequences is often a subject of debate. These debates may be scientific - for example, scientific uncertainty undergirds the ongoing debate over greenhouse gas regulation, and is a major factor in the debate over whether to ban pesticides.[10] Cost It is very common for regulated industry to argue against environmental regulation on the basis of cost. Indeed, in the U.S. estimates of the environmental regulation's total costs reach 2% of GDP,[11] and any new regulation will arguably contribute in some way to that burden. Difficulties arise, however, in performing cost-benefit analysis. The value of a healthy ecosystem is not easily quantified, nor the value of clean air, species diversity, etc. Furthermore environmental issues may gain an ethical or moral dimension that would discount cost. Effectiveness Environmental interests will often criticize environmental regulation as inadequately protective of the environment. Furthermore, strong environmental laws do not guarantee strong enforcement.

Education and training Environmental law courses are offered as elective courses in the second and third years of JD study at many American law schools. Curricula vary: an introductory course might focus on the "big five" federal statutes - NEPA, CAA, CWA, CERCLA and RCRA (or FIFRA) - and may be offered in conjunction with a natural resources law course. Smaller seminars mights be offered on more focused topics. Some U.S. law schools also offer an LLM or JSD specialization in environmental law. Additionally, several law schools host legal clinics that focus on environmental law, providing students with an opportunity to learn about environmental law in the context of real world disputes involving actual clients. U.S. News & World Report has consistently ranked Vermont Law School, Lewis & Clark Law School, and Pace University School of Law as the top three Environmental Law programs in the United States, with Lewis & Clark and Vermont frequently trading the top spot. Many law schools host student-published law journals. The environmental law reviews at Harvard, Stanford, Columbia, NYU and Lewis & Clark Law School are regularly the most-cited such publications. The IUCN Academy of Environmental Law[15] is a network of some 60 law schools worldwide that specialise in the research and teaching of environmental law. International environmental lawyers often receive specialized training in the form of an LL.M. degree after having a first law degree often in another country from where they got their first law degree. ECOLEX is a worldwide Gateway to Biodiversity-Related Law Biodiversity-related legal resources (a web-based information service made by UNEP, FAO and UICN). The term environmental management: Environmental management The development of strategies to allocate and conserve resources, with the ultimate goal of regulating theimpact of human activities on the surrounding environment. Environment here usually means the naturalsurroundings, both living and inanimate, of human lives and activities. However, it can also mean theartificial landscape of cities, or occasionally even the conceptual field of the noosphere, the realm ofcommunicating human minds. Approaches Environmental management is a mixture of science, policy, and socioeconomic applications. It focuses on thesolution of the practical problems that humans encounter in cohabitation with nature, exploitation ofresources, and production of waste. In a purely anthropocentric sense, the central problem is how to permittechnology to evolve continuously while limiting the degree to which this process alters natural ecosystems.

Environmental management is thus intimately intertwined with questions regarding limiting economic growth,ensuring an equitable distribution of consumable goods, and conserving resources for future generations.Environmental management is a response to the increasing seriousness of the human impact on naturalecosystems. With a smaller global population base and a less pervasive use of technology, the environmentmight be able to recuperate on its own from human misuse, but it is now widely recognized that in manycases positive intervention is necessary if the environment is to recover.There is, however, considerable disagreement about the course that such intervention should take, which hascreated a plurality of approaches to managing the environment. Deep ecology was born in the 1960s withthe rise of movements that renounced technological development and decried the political basis of power andautocracy. However, shallow ecologists sought a compromise with those who argued that the solution tothe world's environmental problems can come only through the generation of more technology.Environmental managers therefore fall within a broad spectrum that extends from conservationists totechnocrats, from those who would limit human interference in nature to those who would increase it in orderto guide natural processes along benign paths. Hence both conservationists and developers are represented.It is hoped that they will come together over the need to make economic development sustainable, without it being undermined by long-term damage to resources and habitats. This is the intention of the United NationsConvention on Environment and Development (the process that began at the Earth Summit in Rio de Janeiroin 1992), though underfunding and lack of commitment at the national level have severely limited the extentto which it has changed the global course of environmental management. Participant Participants in the process of environmental management fall into seven main groups: (1) governmental organizations at the local, regional, national, and international levels, including world bodies such as theUnited Nations Environment Programme and the U.N. Conference on Environment and Development; (2)research institutions, such as universities, academies, and national laboratories; (3) bodies charged with the enforcement of regulations, such as the U.S. Environmental Protection Agency; (4) businesses of all sizes and multinational corporations; (5) international financial institutions, such as the World Bank and International Monetary Fund; (6) environmental nongovernmental organizations, such as the World Wildlife

Fund for Nature; and (7) representatives of the users of the environment, including tribes, fishermen, and As we have seen, there is an implicit assumption that for-profit businesses exist primarily to make a profit before all else. However, given that a business benefits from society (e.g. from its provision of skilled employees and customers) the question arises as to how much businesses should take account of wider social issues in their policies and decisions. All organisations have environmental impacts, with heavy industry producing the most visible emissions, including some that are regulated under environmental legislation. However, other organisations, such as offices and retail outlets also have an impact on the environment. They all use resources dispose of waste and produce greenhouse gases from the energy used in lighting, heating and transport. In practice, the social responsiveness of an organisation depends upon its various stakeholder influences and the personalities and convictions of its management, much as it might do for an individual. Some individuals take great care to buy goods with minimal packaging, to recycle all their glass, paper, etc. and to avoid animal products which have been produced through alleged cruelty to the animal. Others adopt an altogether more indifferent or cavalier approach to wider environmental and ethical issues, not giving a moments thought to such matters.

The themes of environmental management & also writhe the improvements required in environmental management. As we have seen, there is an implicit assumption that for-profit businesses exist primarily to make a profit before all else. However, given that a business benefits from society (e.g. from its provision of skilled employees and customers) the question arises as to how much businesses should take account of wider social issues in their policies and decisions. All organisations have environmental impacts, with heavy industry producing the most visible emissions, including some that are regulated under environmental legislation. However, other organisations, such as offices and retail outlets also have an impact on the environment. They all use resources dispose of waste and produce greenhouse gases from the energy used in lighting, heating and transport. In practice, the social responsiveness of an organisation depends upon its various stakeholder influences and the personalities and convictions

of its management, much as it might do for an individual. Some individuals take great care to buy goods with minimal packaging, to recycle all their glass, paper, etc. and to avoid animal products which have been produced through alleged cruelty to the animal. Others adopt an altogether more indifferent or cavalier approach to wider environmental and ethical issues, not giving a moments thought to such matters. Improvements The need to improve management of the environment has given rise to several new techniques. There isenvironmental impact analysis, which was first formulated in California and is codified in the U.S. NationalEnvironmental Policy Act (NEPA). Through the environmental impact statement, it prescribes theinvestigatory and remedial measures that must be taken in order to mitigate the adverse effects of newdevelopment. In this sense it is intended to act in favor of both prudent conservation and participatorydemocracy. Another technique is environmental auditing, which uses the model of the financial audit to examine theprocesses and outcomes of environmental impacts. It requires value judgments, which are usually set bypublic preference, ideology, and policy, to define what are regarded as acceptable outcomes. Audits usetechniques such as life-cycle analysis and environmental burden analysis to assess the impact of, for example, manufacturing processes that consume resources and create waste.The atmosphere, surface and subsurface waters, growing plants, minerals, and so on, are sometimesconsidered to be beneficial resources. The process of exploitation often involves risks to the user, and if theseare magnified the resource may turn into a hazardfor example, when excesses of water generatedestructive floods. Similarly, pollution has been defined as a resource in thewrong place at the wrong time.Thus the process of environmental management can be considered one of limiting resource usage to its morebenign forms, thus reducing risks and hazards, and using human ingenuity to transform pollutants intorecycled resources. This involves some thorny problems. For example, no human activity is completely devoid of risk, and few environmental pathologies have ever been eliminated. Moreover, even full-scalerecycling is not without costs; for example, the energy required to reclaim waste materials will usually begenerated at the expense of at least some pollution. In this sense, one of the most salutary lessons of recent decades has been that the so-called benign generators of electrical powerthe renewable sources based onwinds, tides, solar radiation, or wavesinvolve potentially large costs in terms of how they modifylandscapes. This has limited their attractiveness in relation to nonrenewable sources, and has demonstrated the need to broaden the analyses that feed into decision-making about the environment so that hidden andunexpected costs are given their full weight. Thus,

as the field has evolved, it has become correspondinglymore sophisticated in its treatment of the variables that are considered when formulating policy. New challenges All of the main environmental problems of the late twentieth and early twenty-first centuries fall under theenvironmental management field. Most problems are controversial. Tropical deforestation, ozone depletion,and global warming have fueled debate over strategies for the management of the global environment. Transboundary pollution and the international exploitation of resources (for example, the appropriation ofraw materials in one country and the patenting of their genetic derivatives in another) have underlined theneed for bilateral, and often multilateral, agreements about sharing responsibilities. Radiation emissions, toxic waste issues, and hazardous material spills have emphasized the need for secure and standardizedmethods of treating pollutants. The production of organic chemicals, for example, grew by more than twoorders of magnitude during the second half of the twentieth century, and there was a corresponding growth in the number of catastrophic pollution episodes.Environmental management has risen to meet many of these challenges. The field has expanded from apurely governmental preserve to one that encompasses the private sector as well. Indeed, the manufactureof pollution control equipment and the institutional management of environmental hazards have turned intogrowth areas. Yet the successes must be seen against a backdrop of deepening environmental crisis.Relentless population pressure, the unfettered nature of international capital, and the exposure of a record ofsignificant environmental mismanagement in eastern Europe are examples of remaining problems. Environmental management systems , EMS Model with its element. Environmental management system (EMS) refers to the management of an organization's environmental programs in a comprehensive, systematic, planned and documented manner. It includes the organisational structure, planning and resources for developing, implementing and maintaining policy for environmental protection. An Environmental Management System (EMS):
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Serves as a tool to improve environmental performance Provides a systematic way of managing an organizations environmental affairs

Is the aspect of the organizations overall management structure that addresses immediate and long-term impacts of its products, services and processes on the environment Gives order and consistency for organizations to address environmental concerns through the allocation of resources, assignment of responsibility and ongoing evaluation of practices, procedures and processes Focuses on continual improvement of the system

An EMS follows a Plan-Do-Check-Act Cycle, or PDCA. The diagram shows the process of first developing an environmental policy, planning the EMS, and then implementing it. The process also includes checking the system and acting on it. The model is continuous because an EMS is a process of continual improvement in which an organization is constantly reviewing and revising the system. This is a model that can be used by a wide range of organizations from manufacturing facilities to service industries to government agencies. What are some key elements of an EMS?
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Policy Statement - a statement of the organizations commitment to the environment Identification of Significant Environmental Impacts - environmental attributes of products, activities and services and their effects on the environment Development of Objectives and Targets - environmental goals for the organization Implementation - plans to meet objectives and targets Training - instruction to ensure employees are aware and capable of fulfilling their environmental responsibilities Management Review

Can existing environmental management activities be integrated into the EMS? Yes. An EMS is flexible and does not require organizations to necessarily retool their existing activities. An EMS establishes a management framework by which an organizations impacts on the environment can be systematically identified and reduced. For example, many organizations, including counties and municipalities, have active and effective pollution prevention activities underway. These could be incorporated into the overall EMS. What common mistakes do organisations make? Typically organisations develop effective environmental management systems that help assist continuous improvement of their environmental performance. However, there are some key issues that need to be addressed as their effectiveness varies greatly from one organsiation to another. They are: management needs to be fully committed; plan the ems and make the system user-friendly; don't over complicate the aspects register; clearly identify the environmental compliance requirements as

the evaluation will be easier to demonstrate; provide adequate financial, physical and human resources; set measurable objectives and targets that facilitate continuous improvement; and, work on the philosphy of continuous improvement (Burden, 2010).\ Can EMS be used to assist with maintaining compliance? Yes. As an example, the Massachusetts DEP has opted to assist with the use of EMS in compliance cases. The EPA also produces a Guidance on the Use of EMS in Enforcement. What are ISO, ISO 14000, and ISO 14001? ISO stands for the International Organization for Standardization, located in Geneva, Switzerland. ISO is a non-governmental organization established in 1947. The organization mainly functions to develop voluntary technical standards that aim at making the development, manufacture and supply of goods and services more efficient, safe and clean. ISO 14000 refers to a family of voluntary standards and guidance documents to help organizations address environmental issues. Included in the family are standards for Environmental Management Systems, environmental and EMS auditing, environmental labeling, performance evaluation and life-cycle assessment. In September 1996, the International Organization for Standardization published the first edition of ISO 14001, the Environmental Management Systems standard. This is an international voluntary standard describing specific requirements for an EMS. ISO 14001 is a specification standard to which an organization may receive certification or registration. ISO 14001 is considered the foundation document of the entire series. A second edition of ISO 14001 was published in 2004, updating the standard. Questions may arise when implementing an EMS following the ISO 14001 standard. The U.S. body that provides input into the standard's development is the U.S. TAG (Technical Advisory Group) to TC 207 (Technical Committee). This same body has established a formal process to respond to questions that may arise regarding clarification of the ISO 14001 ("the standard"). Responses will reflect the interpretation of the Standard as intended during the drafting of the Standard and may be found in the "Clarification of Intent of ISO 14001." How are these standards developed? All the ISO standards are developed through a voluntary, consensus-based approach. ISO has different member countries across the globe. Each member country develops its position on the standards and these positions are then negotiated with other member countries. Draft versions of the standards are sent out for formal written comment and each country casts its official vote on the drafts at the appropriate stage of the process. Within each country, various types of organizations can and do participate in the process. These organizations include industry, government (federal and state), and other interested parties, like various non-government organizations. For example, EPA and states participated in the development of the ISO 14001 standard and are now evaluating its usefulness through a variety of pilot projects. What are the 17 requirements of the ISO 14001:2004 standard?

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Environmental Policy - develop a statement of the organizations commitment to the environment Environmental Aspects and Impacts - identify environmental attributes of products, activities and services and their effects on the environment Legal and Other Requirements - identify and ensure access to relevant laws and regulations Objectives and Targets and Environmental Management Program - set environmental goals for the organization and plan actions to achieve objectives and targets Structure and Responsibility - establish roles and responsibilities within the organization Training, Awareness and Competence - ensure that employees are aware and capable of their environmental responsibilities Communication - develop processes for internal and external communication on environmental management issues EMS Documentation - maintain information about the EMS and related documents Document Control - ensure effective management of procedures and other documents Operational Control - identify, plan and manage the organizations operations and activities in line with the policy, objectives and targets, and significant aspects Emergency Preparedness and Response - develop procedures for preventing and responding to potential emergencies Monitoring and Measuring - monitor key activities and track performance including periodic compliance evaluation Evaluation of Compliance - develop procedure to periodically evaluate compliance with legal and other requirements Nonconformance and Corrective and Preventive Action - identify and correct problems and prevent recurrences Records - keep adequate records of EMS performance EMS Audit - periodically verify that the EMS is effective and achieving objectives and targets Management Review - review the EMS

Legislation and standards The Environmental Liability Directive [ELD] 2004/35/EC is one of the most important instruments that your business will need to comply with and must be included in you EMS. It came into force across Europe during 2009 and for example it became law on the 1st March 2009 converting the various national Pollution Prevention Guidelines (PPGs) such as the UK PPG11, PPG18 and

PPG21 into requirements where failure to comply can result in fines and more significantly reformation / reinstatement costs which can run into many millions of Euro or Dollars. Within this Directive is a requirement to mitigate the effects of events such as spills and firewater, the latter is the runoff from fires. The Directive makes it clear that it is the site owners responsibility to contain spills and firewater on site using some form of containment apparatus such as sealing the drains. More information on the ELD can be obtained from the UK Environment Agency website Within the European Union (EU) legislation was introduced to encourage businesses to voluntarily adopt ISO 14000. Regulation (EC) No 761/2001 of the European Parliament and of the Council of 19 March 2001, allowed voluntary participation by organisations in a Community eco-management and audit scheme Eco-Management and Audit Scheme (EMAS). The implementation of a robust EMS, which may incorporate ISO 14001, should lead to improve environmental performance, including better and more consistent legal compliance. The ISO 14000 standards reflect different aspects of environmental management. The following list outlines the broad coverage of each:
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Environmental Management Systems: o 14001-2004, 14002, 14004 Environmental Auditing: o 14011 Environmental Labeling: o 14020, 14021, 14022, 14023, 14024, 14025 Life Cycle Assessment: o 14040, 14041, 14042, 14043

Financial
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Cost savings through the reduction of waste and more efficient use of natural resources (electricity, water, gas and fuels.) Avoiding fines and penalties from not meeting environmental legislation by identifying environmental risks and addressing weaknesses. Reduction in insurance costs by demonstrating better risk management...

Operational and Internal


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Improved overall performance and efficiency. Able to monitor and reflect (audit) your businesss and see which areas need intervention

Ch- 4 The establishment of WTO & also describe the organization structure of WTO. ESTABLISHMENT OF WTO: Governments of member countries of GATT concluded the Uruguay round negotiations on 15th December , 1994. The Ministers expressed their political support to the outcome of the meeting by signing the final act in Marrakesh, Morocco on 15th April 1994. According to the Marrakesh declaration, the results of

Uruguay round would, strengthen the world, economy & lead to more trade, investment, employment & income growth through the world. In order to implement the final act of Uruguay round agreement of GATT the world trade Organisation (WTO) was established on January1, 1995. ORGANISATION STRUCTURE OF THE WTO: The organization structure of the WTO is designed based on four hierarchical levels. The hierarchies from the top to bottom are as follows: Ministerial Conference General conference Councils Committees & management bodies.

Ministerial Conference: Ministerial Conference is the highest hierarchial level in the organisational structure. All the member counteries of WTO are the representatives of the ministerial conference. Ministerial conference has the authority to make decisions on all matters relating to multilateral trade agreements. The ministerial conference meets at least once in two years. Thus the ministerial conference is the poilicy & strategy making body. It ets the policies & strategies implemented & executed by the next level I,e General Council. General Council: General council is the executive body of the WTO. General council reports its decisions & activities to the ministerial conference. All the members of WTO are also the representatives in the General Council. The general council has pother forms like Dispute Settlement body & Trade policy Review Body. - Dispute settlement body supervises dispute settlement procedures. This body is assisted by the dispute settlement panels & appellate body. - Trade policy review body reviews trade policies of individual WTO members regularly. COUNCILS: The third level in the hierarchy is councils. There are three councils, viz

- Councils for the Trade in Goods - Councils for Trade in services - Councils for Trade related Aspects of Intellectual property rights. COMMITTEE & MANAGERIAL BODIES: The general council delegates powers, responsibilities & authorities to these bodies. These committees & bodies include: Committees various councils specified earlier, constitute committees for administering the arrangement. Miniterial conference constituted three committees: - Committee on Trade & Development: This committee is concerned with the issues concerning to developing counteries & particularly with least developed counteries. - Committee on Balance of payments: Some WTO member counteries resort to trade restrictive measures with a view to cope with their balance of payments problems. Consulations among such counteries are arranged by the committee on balance of payments. - Committee on Budget, finance & Administration: this committee deals with the issues relating to the budget, finance & administration of WTO. Managerial Bodies: Plurilateral agreements of the WTO have their management bodies, these management bodies report to the General Council. Some of the plurilateral agreements having management bodies include: civil air craft, government procurement, dairy products, bovine meat etc. Organization Structure of WTO:

Ministerial Conference General Conference

Dispute Body

settlement

Director General

Trade Policy Review Body Committees

Councils

Councils for Trade in Goods

Council For Trade in Services

Council for Trade in related Aspects of Intellectual Rights

Committee On Trade & Development

Committee on Balance of payment rfestriction

Secretarial of the WTO

committee on Budget, Finance Administration

The difference between GATT & WTO & the functions of WTO GATT is only a legal agreement & it is not an institution. But WTO is a permanent institution. This difference indicates that , GATT is provisional & ad hoc in its approach whereas WTO has commitments on permanent basis. GATT WTO It is a set of rules & multilateral It is a permanent institution agreement. It was designed with an attempt to establish international Trade organization It was applied on a provisional basis Its rules are applicable to trade in merchandise goods. GATT was originally a multilateral instrument but plurilateral agreements were added at a lateral stage. Its dispute settlement system was not faster & automatic. It is a permanent institutions.

It is established to serve its own purpose. Its activities are full & permanent. Its rules are applicable to trade in merchandise & trade in services & trade in related aspects of intellectual property. Its agreements are almost multilateral.

Its dispute settlement system was fast & automatic. The world trade organization is not simple extensions of GATT on the contrary it completely replaces its predecessor & has a very different character; among the principal differences are the following. The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an international trade organization in the 194os. The WTO is a permanent institution with its own sectarian. The GATT was applied on a provisional basis even if, after more, than forty years, governments choose to treat it as a permanent commitment. The WTO commitments are full & permanent. The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services & trade related aspects of intellectual property. While GATT was a multilateral instrument, by the 1980s many new agreements had been added of plurilateral, & therefore selective, nature. The agreements which constitute WTO are almost all multilateral & thus involve commitments for the entire membership. The WTO dispute settlement system is faster , more automatic & thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured.
FUNCTIONS OF WTO:

The world trade organization is expected to play its role in the following areas: - WTO administers the 28 agreements contained in the final act & a number of plurilateral agreements procurement through various councils & committees. - WTO oversees the implementation of the significant tariff cut & also reduction of non tariff measures agreed to in the trade negotiations. - WTO examines regularly the trade regimes of individual member countries. Thus it acts as a watchdog of international trade.

- WTO provides for disputes settlement court in order to adjudicate the the trade disputes which could not be solved through bilateral talks between member countries. - WTO acts as a management consultant for world trade. The economists of the WTO observe the pulse of the global economy & provide studies on the main trade issues. - Technical co-operation & training division is established in the WTOs secretariat in order to help the developing countries in the implementation of Uruguay round results. - Member countries can use the WTO as forum for continuous negotiation of exchange of trade barriers in the entire world. - WTO co-operates with other international institutions like IMF, IBRD World Bank & ILO involved in global economic policy making. - WTO oversees the national trade policies of member governments. DUMPING: WTO & Anti Dumping Measures: Dumping means selling the product at below the on-going market price & or at the price below the cost of production. Haberler defines dumping as , the sale of goods abroad at a price which is lower than the selling price of the same goods at the same time in the same circumstances at home, taking account of difference in transport costs. TYPES OF DUMPING: Dumping is of three types - Intermittent dumping - Persistent dumping - Predatory dumping Intermittent Dumping: when the production of a product is more than the demand in the home country, the stocks piled up even after sales. In such a case the producer sells the remaining stock in foreign counteries at low price without reducing the price in domestic counteries. Persistent Dumping: The monopolist sells the remaining production in foreign counteries at a low price continuously. This type of dumping is called persistent dumping.

Predatory dumping: The monopolist sells the product in foreign market at a low price initially with a view to drive away the competitors & increase the price after the competitor leave the market. This type of dumping is called predatory dumping. OBJECTIVES OF DUMPING: - To enter the Foreign Market: the monopolist adopts the dumping strategy to enter a foreign market by eliminating the competitors in the market. - To sell surplus production: the producers dump the products in the foreign counteries in order to sell their surplus production. - To develop trade relations: the manufacturers sell their output in foreign counteries at low price in order to develop trade relations with the foreign counteries. EFFECTS OF DUMPING: Dumping affects both the importing & exporting counteries, however the affects are more on importing counteries. EFFECTS ON IMPORTING COUNTRY: - The industry of the importing country experiences the decline in sales & profits. For example China dumped its steel in India & consequently Indian Steel Industry faced the problems of decline in sales & the deflationary conditions. - If the dumping is for longer period, it affects the survival of the industry & also changes the industrial structure in the foreign country. If the dumping company increases the price at the later stage the importing country would be at loss both in terms of high cost of imports & change in the structure of the domestic industry. - Dumping changes the preferences of the consumers of the domestic country. But, if the dumping is stopped after some time, the country is forced to import at high prices. - Dumping increases the deficit of the balance of the payments of the importing country. - The importing country can be nefit from dumping by imposing anti dumping tariffs as Indian Government imposed tariffs on cooking oil dumped by USA & Malaysia.

Effects on Exporting Company: - The consumers of the exporting country pay higher price when the consumers of foreign country enjoy the product at lower price. - The exporting country finds market for the excess production. - The exporting country earns foreign exchange & it contributes for the surplus balance of the balance of payment of payments position. Anti dumping Measures: - Tariff Duty: the importing country imposes high rates of import tariffs on dumping,so that the price of dumping goods would be either equal to or more than that of domestic goods. - Import Quota: the importing country in addition to tariff duty, restricts the volume of imports. The measure reduces the dumping. - Import Embargo: the importing country bans the import of a particular goods or all the goods from the dumping country. this is a retaliatory measure against dumping. - Voluntary export restraint: the exporting counteries realizing the negative effect of dumping , voluntary come for bilateral agreements to avoid dumping. The Government imposes penalties & such other measures on the imports, if they cause injury to the domestic industry. These penalties duties & tariffs imposed to reduce / arrest the dumping are called anti dumping measures. GATT allowed its members counteries to apply anti dumping measures. The GATT members in the Tokyo round discussed in detail, the rules & measures to be imposed. The anti dumping measures may be in the form of duties, undertaking on pricing by exporters etc. these measures were revised in Uruguay Round.

EEC- European Economic Community: Originall the European Coal & Steel Community (ECSC) was formed with the then West Germany, France, Italy, Belgium, Netherlands & Lxembourg in 1952. The aim of the ECSC was to eliminate import duties & quotas on coal, iron ore, steel & scrap regarding the international trade among the member countries. The successful functionaing of ECSC stimulated the member countries to extend this facility to all commodities by the Treaty of Rome in 1957. This Traety gave birth to European Economic Community.

The EEC is also known as European Common Market. Originallysix countries viz, France, Federal Republic of Germany , Italy, Belgium, Netherlands & Luxembourg formed into the European Eonomic Community (EEC) by the Treaty of Rome 1957. It came into being on 1st January 1973 as United Kingdom, Ireland & Denmark joined the community. Greece joined the EEC in 1981 & Portugal & Spain joined in 1984. Austria, Finland & Sweden joined the community on January 1 , 1986. Now the EEC has 15 memebers. The requirements for joining the EEC as members are 1) the country must be European Country & 2) it must be a democratic country. OBJECTIVES: EEC consists of thr organizations: the European Coal & Steel Community (ECSC), the European Economic Community (EEC) & the European Atomic Energy Community (Euratom). ECSC finctions for 50 yrs & the EEC & Euratom functions for unlimited time duration. ACTIVITIES : - Elimination of custom duties, quantitative restrictions with regards to exports & imports of goods among the member countries. - Establishment/ Formulation of common customs tariff & common commercial policy with rtegards to non- member countries. - Abolition of all obstacles for movement of persons, services & capital among member countries. - Formulation of common policy in the area of agriculture & transport. - Establishment of a system which would ensure competition among member countries. - Application of programmes to control the disequilibrium in the balance of payments of member countries. - Approximation of legislation of the member governments to the extent required for the proper functioning of the common market. - Establishment of the European Investment Bank for mobilization of the fresh resources & to contribute to the economic development of the community. - Development of association with the foreign countries to promote jointly the economic & social development of the EEC. ORGANISATION OF EEC: European Council is the main administrative body of the EEC. Each member country is represented by a minister in this council. Each member country holds

the presidency of the council for six- monthly period by rotation. A committee of permanent representatives acts as a secretariat of the council. This committee is also called , Corper. The Corper makes all important decisions. The Corper is the link between the EEC & member of Governments. European Council (Secretariat: committee of permanent Representatives)

Court of Committee

European Commision

Advisory Justice Econimic & Social

Agriculture Monetary Social Security Coal & Steel Industry Competition Court Of Auditors Eurpoean Parliament Policy EEC Budget Consultation Monitoring Expenditure Approvals European Council: European Council acts as the executive agent of the EEC in: - Making routine decisions - Formulating rules of conduct. - Preparing new legislation. - Enabling members to carry out the provisions of the Treaty. EUROPEAN COMMISSION: The European commission assists the council. This is the executive body of the EEC. The member of this commission are appointed for a period of 4 yrs which can be renewed. One or more EEC policies are ensured to each commissioner. Each commissioner is assisted by a chief of cabinet of his country. These assistants take decisions on behalf of their commissioners. COURT OF JUSTICE: There is a ciurt of justice to adjudicate disputes relating to agriculture, social security for migrants among the member countries & competition policy. The court also adjudicates disputes between the member countries brought by the commission against the council or commission reported by a person or a company. COURT OF AUDITORS: Court of auditors was appointed as a part of the EEC by amending the Trteaty of Rome. The activities of the court of auditors include: - Auditing the EEC budget. - Monitoring the EECs Expenditure - Laying down improved procedures for collection of duties & levis.

EUROPEAN PARLIAMENT: The European parliament commission should consult the Parliament before a final decision is taken . The parliament acts through the Parliamentary Committee. The activities of the European Parliamnet include: - Provide consultation & information to the Commission. - Approve or reject the draft budget prepared by the Commission. - Dismiss the Commission, if necessary. ADVISORY COMMITTEE: There are several advisory committees to advice the European commission. These committees include: - Economic & social Committee: This committee represents the ativities like employers, employee union, farmers, retail traders, liberal professions & public. European commissions appoints the members on this committee. - Monetary Committee: - The committee examines the monetary problems, problems of the balance of payments & suggests measures to overcome them. - Consultative Committee on Coal & Steel Industry: - This committee studies the problems of coal & steel industries & offers the suggestions. FUNCTIONING: COMMON AGRICULTURE POLICY (CAP) Under the common agriculture policy, there is a Green Rate for each country & the support price is converted into the national price at the green rate. Farmers are free to produce as much as they can. - Agriculture products are free to move from one memebre country to other member countries. - Imports are allowed only when the demand for a product is more than its supply. Variable import levy is used to offset any price advantage to the importers. - If the community supply is more than the demand, subsidies in July 1992 with a view to make its agriculture more competitive globally. - EEC has achieved self sufficiency in agriculture.

- Some of the farmers of the member countries have become unemployed & the EEC could not motivate them to seek alternative employment. - The reforms enabled the rich farmers to become richer, but the poor farmers incurred loss. - Since the support prices are set at higher levels, consumers are deprived of the benefit of lower prices. - The policy led to the surplus production of certain products like Milk Lakes, Wine Lakes & butter & Beef Mountains. COMMON FISHERIES POLICY: EEC member countries agreed for a common fisheries policy in October 1970. This policy came into force in Feb-1971. - Market for fresh frozen & preserved fish. - Common Market standards & facilities for trading among members. - Equal access to fishing areas to all the nationals of EEC countries. EUROPEAN MONETARY UNION: - Exchange Rate Mechanism: Exchange Rate Mechanism helps the member countries to regulate inflation & interest rate. The member countries work to prevent wide shifts in the value of their currencies. - European Currency Unit: European Currency Unit is the means for Settlements between the central banks of the member countries. The European Currency unit is the weighed basket of all the currencies of member countries. - European Monetary Co-operation Fund : Acts as the clearing house of the central banks of the member countries. - Factor Mobility: One of the objective of EEC s to allow free movement of persons, services & capital among the member countries. The formal restrictions on the movement of labour were abolished by July 1968. Now the workers & their family members can move freely from one member country to the other without any permit. - Regional Development Policy: The objective of the regional development policy of the EEC is to promote balanced development of the member countries by reducing regional disparities & by developing rapidly the backwards regions. To achieve the

objectives the EEC provides financial assistance for the development of the Backward regions of the member countries. - European Investment Bank: The bank was established in 1958 by EEC. It provides loans & guarantees the loans raised by the member countries for the development of backward regions. It grants loan for modernization, conversion & development projects which are beyond the financial abilities of the member Governments. - European Social Fund: some of the workers lost jobs due to the EEC policies. Such workers are assisted to get employment by the European social fund. The financial assistance is meant for vocational training, job creation, income maintenance & anti poverty programmes. COMMON TRANSPORT POLICY: - Removal of obstacles for having a common transport policy with a view to have common market place. - Integration of transport facilities of the entire community. - Organization & control of the transport system within the community. The EEC could not achieve these objectives completely due to the issues involved in infrastructure, pricing, entry controls for the transportation of the goods by rail & road. 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. OVERVIEW: What IMF DOES: With its near-global membership of 187 countries, the IMF is uniquely placed to help member governments take advantage of the opportunitiesand manage the challengesposed by globalization and economic development more generally. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties. The IMF 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.

Marked by massive movements of capital and abrupt shifts in comparative advantage, globalization affects countries' policy choices in many areas, including labor, trade, and tax policies. Helping a country benefit from globalization while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how interconnected countries have become in todays world economy. Key IMF activities The IMF supports its membership by providing
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policy advice to governments and central banks based on analysis of economic trends and cross-country experiences; research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets; loans to help countries overcome economic difficulties; concessional loans to help fight poverty in developing countries; and technical assistance and training to help countries improve the management of their economies.

Original aims The IMF was founded more than 60 years ago toward the end of World War II (see History). The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed. Since then the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways the IMF's main purposeto provide the global public good of financial stabilityis the same today as it was when the organization was established. More specifically, the IMF continues to
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provide a forum for cooperation on international monetary problems facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction; promote exchange rate stability and an open system of international payments; and lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.

The IMF's way of operating has changed over the years and has undergone rapid change since the beginning of the 1990s as it has sought to adapt to the changing needs of its expanding membership in an globalized world economy. Most recently, the IMF's Managing Director, Dominique Strauss-Kahn, has launched an ambitious reform agenda, aimed at making sure the IMF continues to deliver the economic analysis and multilateral consultation that is at the core of its missionensuring the stability of the global monetary system. An adapting IMF

With cross-border financial flows increasing sharply in recent decades, the interdependence of countries has deepened (see slideshow on capital inflows). The turbulence in advanced economy credit markets in 2007-08 has demonstrated that domestic and international financial stability cannot be taken for granted, even in the world's wealthiest countries. The spike in food and fuel prices, which has hit import-dependent poor and middle-income countries particularly hard, is another aspect of the globalized economy we all are part of. In response, the IMF has rethought its operations in several ways:
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Enhancing IMF lending facilities. The IMF has upgraded its lending facilities to enable it to better serve its members. It has created a new Short-Term Liquidity Facility designed to help emerging market countries with a track record of sound policies address fallout from the current financial crisis. To make its financial support more flexible and tailored to the diversity of low-income countries, it has established a new Poverty Reduction and Growth Trust, which has three new lending windows. As part of a wideranging reform of its lending practices, the IMF has also redefined the way it engages with countries on issues related to structural reform of the economy. (See Lending). Strengthening the monitoring of global, regional, and country economies. The IMF has taken several steps to improve economic and financial surveillance, which is its framework for providing advice to member countries on macroeconomic policies (see Our Work). It is emphasizing research into the links between the financial sector and the real economy and the sharing of cross-country experiences. It has published new guidance on how to analyze and advise on exchange rates, and is paying more attention to the impact of the world's most important economies on other countries' economies. And it is improving its ability to warn member countries of risks and vulnerabilities in their economies. Helping resolve global economic imbalances. The IMF's analysis of global economic developments, contained in its World Economic Outlook, provide finance ministers and central bank governors with a common framework for discussing the global economy. The IMF now also has the ability to call for multilateral consultations to discuss specific problems facing the global economy with a select group of countriesan innovative way of facilitating collective action among key players in the global economy. The first such consultation took place in 2006. It sought to reduce global payments imbalances and involved China, the euro area, Japan, Saudi Arabia, and the United States (see Tackling Current Challenges). Analyzing capital market developments. The IMF is devoting more resources to the analysis of global financial markets and their linkages with macroeconomic policy. Twice a year, it publishes the Global Financial Stability Report, which provides up-to-date analysis of developments in global financial markets. IMF staff also work with member countries to help them identify potential risks to financial stability, including through the Financial Sector Assessment Program (described in more detail below). The IMF also offers training to country officials on how to manage their financial systems, monetary and exchange regimes, and capital markets. The IMF is currently facilitating the drafting of voluntary guidelines for Sovereign Wealth Funds and works closely with the Financial Stability Board to promote international financial stability.

Assessing financial sector vulnerabilities. Resilient, well-regulated financial systems are essential for macroeconomic stability in a world of ever-growing capital flows. The IMF and the World Bank jointly run the Financial Sector Assessment Program, aimed at alerting countries to vulnerabilities and risks in their financial sectors. IMF and World Bank staff also advise on how to strengthen oversight and supervision of banks and other financial institutions. Working to cut poverty. At present, more than a billion people are living on less than $1 a day, and more than three-quarters of a billion people are malnourished. The IMF's role in low-income countries is changing as these countries grow and mature. But its central goal remains the same: to help promote economic stability and growth, laying the ground work for deep and lasting poverty reduction. Its current main priority is to help low- and middle-income countries cope with the adverse effects of the global economic crisis. To that effect, it is stepping up lending to low-income countries to combat the impact of the global recession. Improving IMF governance. In May 2008, the IMF's membership approved a two-year package of reforms to improve representation of members at the Fund. For the IMF to be fully effective in its role, it must be perceived as representing all countries in a fair manner. With that in mind, governance reform is being accelerated to ensure a decisionmaking structure that reflects current global realities. The IMF is also becoming leaner and more efficient. It is trimming expenditures and reorganizing the way it earns revenue to pay for its operations (See Governance). Greater accountability and transparency. The IMF publishes almost all of its annual economic health checks of member countries, updates about its lending programs, and a wealth of other information on its website. The IMF's performance is assessed on a regular basis by an Independent Evaluation Office.

How IMF Does it? The IMF's main goal is to ensure the stability of the international monetary and financial system. It helps resolve crises, and works with its member countries to promote growth and alleviate poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical assistance and training, and lending. These functions are underpinned by the IMF's research and statistics. Surveillance The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. It also seeks to assess the impact of the policies of individual countries on other economies. This process of monitoring and discussing countries economic and financial policies is known as bilateral surveillance. On a regular basisusually once each yearthe IMF conducts in depth appraisals of each member country's economic situation. It discusses with the country's authorities the policies that are most conducive to a stable and prosperous economy. Consistent with the decision on bilateral surveillance adopted in June 2007, the main focus of the

discussions is whether there are risks to the economys domestic and external stability that would argue for adjustments in economic or financial policies. Member countries may agree to publish the IMF's assessment of their economies, with the vast majority of countries opting to do so. The IMF also has the option to bring together, on an as-needed basis, groups of systemically relevant economies to address issues of broad importance to the global economy. These meetings are called multilateral consultations. A consultation on how to reduce global imbalances took place in 2006-07. The IMF's work on individual countries informs its work on regional economies and the global economy. These views, along with timely analysis of important economic and financial issues, are published twice a year in the World Economic Outlook, various Regional Economic Outlook reports, and the Global Financial Stability Report. The IMF works with the World Bank to promote resilient financial systems around the world through the joint Financial Sector Assessment Program (FSAP). Supported by experts from a range of national agencies and standard-setting bodies, IMF and World Bank staff assess the stability of a countrys financial system by identifying its strengths and vulnerabilities, determine how key sources of risks are being managed, ascertain the sector's developmental needs, and help prioritize policy responses. For more information on how the IMF monitors economies, go to Surveillance in the Our Work section. Technical assistance and training IMF offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including fiscal policy, monetary and exchange rate policies, banking and financial system supervision and regulation, and statistics. The IMF provides technical assistance and training mainly in four areas:
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Monetary and financial policies (monetary policy instruments, banking system supervision and restructuring, foreign management and operations, clearing settlement systems for payments, and structural development of central banks) Fiscal policy and management (tax and customs policies and administration, budget formulation, expenditure management, design of social safety nets, and management of domestic and foreign debt) Compilation, management, dissemination, and improvement of statistical data Economic and financial legislation.

For more on technical assistance, go to Technical Assistance in the Our Work section or read an Issues Brief on the subject.

Lending In the event that member countries experience difficulties financing their balance of payments, the IMF is also a fund that can be tapped to facilitate recovery. A policy program supported by financing is designed by the national authorities in close cooperation with the IMF. Continued financial support is conditional on the effective implementation of this program. The IMF also provides low-income countries with loans at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). For more on different types of IMF lending, go to Lending in the Our Work section. Research and data Supporting all three of these activities is the IMF's economic and financial research and statistics. In recent years, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors. These are part of the IMF's continuing efforts to strengthen the international financial system and improve its ability to prevent and resolve crises. MEMBERSHIP:
The IMF currently has a near-global membership of 187 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. In June 2009, the former Yugoslav republic of Kosovo joined the IMF, becoming the institution's 186th member. Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in the world economy. The IMF's membership agreed in May 2008 on a rebalancing of its quota system to reflect the changing global economic realities, especially the increased weight of major emerging markets in the global economy. For more on the quota and voice reform, please go to the section on Country Representation in the Governance section). A member's quota delineates basic aspects of its financial and organizational relationship with the IMF, including: Subscriptions. A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar, the euro, the yen, or pound sterling), while the rest is paid in the member's own currency. Voting power. The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States has 371,743 votes (16.77 percent of the total), and Palau has 281 votes (0.01 percent of the total). The newly agreed quota and voice reform will result in a significant shift in the representation of dynamic economies, many of which are emerging market countries, through a quota increase for 54 member countries. A tripling of the number of basic votes is also envisaged as a means to give poorer countries a greater say in running the institution. Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. Under Stand-By and Extended Arrangements, which are types of loans, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances. SDR allocations. Allocations of SDRs, the IMF's unit of account, is used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota. The most recent general allocation of SDRs took place in 2009.

COLLABORATION of IMF WITH OTHERS:


The IMF collaborates with the World Bank, the regional development banks, the World Trade Organization (WTO), UN agencies, and other international bodies. While all of these organizations are involved in global economic issues, each has its own unique areas of responsibility and specialization. The IMF also interacts with think tanks, civil society, and the media on a daily basis. Working with the World Bank The IMF and the World Bank are different, but complement each other's work. Whereas the IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank is concerned mainly with longer-term development and poverty reduction. Its loans finance infrastructure projects, the reform of particular sectors of the economy, and broader structural reforms. Countries must join the IMF to be eligible for World Bank membership. Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with the Bank in the area of poverty reduction and helping countries draw up poverty reduction strategies. Other areas of collaboration include assessments of member countries' financial sectors, development of standards and codes, and improvement of the quality, availability, and coverage of data on external debt. An external review committee on World Bank and IMF collaboration was formed in March 2006 to assess the working relationship between the two sister agencies, known collectively as the Bretton Woods institutions. In its February 2007 report, the six-member Malan committee offered recommendations for closer collaboration between the two institutions. This led to the institutions adoption of a Joint Management Action Plan, under which, IMF and World Bank country teams discuss their country-level work programs, the division of labor, and the work needed from each institution in the coming year. Also the Bank and Fund have improved their information sharing at the country level, including technical assistance reports. Cooperating with other international organizations

The IMF is a member of the Switzerland-based Financial Stability Board, which brings together government officials responsible for financial stability in the major international financial centers, international regulatory and supervisory bodies, committees of central bank experts, and international financial institutions. It also works with standard-setting bodies such as the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. The IMF collaborates with the World Trade Organization (WTO) both formally and informally. The IMF has observer status at WTO meetings and IMF staff contributes to the work of the WTO Working Group on Trade, Debt, and Finance. And the IMF is involved in the WTO-led Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries, whose other members are the International Trade Commission, UNCTAD, UNDP, and the World Bank. The IMF has a Special Representative to the United Nations, located at the UN Headquarters in New York. The Special Representative facilitates the liaison between the IMF and the UN system. The general arrangements for collaboration and consultations between the IMF and the UN include areas of mutual interest, such as cooperation between the statistical services of the two organizations, and reciprocal attendance and participation at events. Engaging with think tanks, civil society, and the media The IMF also engages on a regular basis with the academic community, civil society organizations (CSOs), and the media. IMF staff at all levels frequently meets with members of the academic community to exchange ideas and receive new input. The IMF also has an active outreach program involving CSOs. IMF management and senior staff communicate with the media on a daily basis. Additionally, a biweekly press briefing is held at the IMF headquarters, during which a spokesperson takes live questions from journalists.

EFTA

The European Free Trade Association


The European Free Trade Association (EFTA) is an intergovernmental organisation set up for the promotion of free trade and economic integration to the benefit of its four Member States. OBJECTIVES: To eliminate almost all types of tariffs among member countries. To abolish the trade restrictions regarding imports & exports of goods among member countries. To enhance economic development, employment, incomes & living standards of the people of the member countries. To enable free trade in western Europe.

The Association is responsible for the management of:


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The EFTA Convention, which forms the legal basis of the organization and governs free trade relations between the EFTA States; EFTAs worldwide network of free trade and partnership agreements; The European Economic Area (EEA) Agreement, which enables three of the four EFTA Member States (Iceland, Liechtenstein and Norway) to participate in the EUs Internal Market.

The European Free Trade Association (EFTA) was founded in 1960 on the premise of free trade as a means of achieving growth and prosperity amongst its Member States as well as promoting closer economic co-operation between the Western European countries. Furthermore, the EFTA countries wished to contribute to the expansion of trade in the world at large.

Based on these overall goals, EFTA today maintains the management of the EFTA Convention (intra-EFTA trade), the EEA Agreement (EFTA-EU relations), and the EFTA Free Trade Agreements (third country relations). The EFTA Convention and the EFTA free trade agreements are managed from the Geneva office, the EEA Agreement from the Brussels office.

EFTA was founded by the Stockholm Convention in 1960. The immediate aim of the association was to provide a framework for the liberalization of trade in goods amongst its Member States. At the same time EFTA was established as an economic counterbalance to the more politically driven EEC. Relations with the EEC, later the EC and the EU, have been at the core of EFTA activities from the beginning. In the 1970s the EFTA States concluded free trade agreements with the EC; in 1994 the EEA Agreement entered into force. Since the beginning of the 1990s EFTA has actively pursued trade relations with third countries in and beyond Europe. The first partners were the central and eastern Europe countries, followed by the countries in the Mediterranean area. In recent years the EFTA network of free trade agreements has reached across the Atlantic as well as into Asia. EFTA was founded by the following seven countries: Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the UK. Finland joined in 1961, Iceland in 1970, and Liechtenstein in 1991. In 1973, the UK and Denmark left EFTA to join the EC. They were followed by Portugal in 1986, and by Austria, Finland and Sweden in 1995. Today the EFTA members are Iceland, Liechtenstein, Norway and Switzerland.

The EFTA States


Information about the EFTA Member States: Iceland, Liechtenstein, Norway and Switzerland. Norway and Switzerland were among the founding member states of EFTA in 1960. Iceland joined EFTA in 1970, followed by Liechtenstein in 1991. Norway, Iceland (from 1994) and Liechtenstein (from 1995) are also parties to the European Economic Area Agreement (EEA) with the European Union, while Switzerland has signed a set of bilateral agreements with the EU*. Although the four EFTA countries are small, they are world leaders in several sectors vital to the global economy. The two EFTA Alpine countries Liechtenstein and Switzerland are internationally renowned financial centers and hosts to major companies and multinationals. The two EFTA Nordic countries, Iceland and Norway, stand out in fish production, the metal industry and maritime transport.

Structure of the EFTA Council


The EFTA Council is the highest governing body of EFTA. Member States usually meet once a month, at Ambassadorial level (Heads of Permanent Delegations to EFTA) in Geneva. In these meetings, the Delegations consult each other, negotiate and decide on policy issues regarding EFTA. Each Member State is represented and has one vote, though decisions are usually reached through consensus. The Council also meets twice a year at Ministerial level, usually in June and December. The Council discusses substantive matters, especially relating to the development of EFTA relations with third-countries and the management of the free trade agreements, and keeps under general review relations with the EU third-country policy and administration. It has a broad mandate to consider possible policies to promote the overall objectives of the Association and to facilitate the development of links with other states, unions of states or international organisations. The Council also manages relations between the EFTA States under the EFTA Convention. Questions relating to the EEA are dealt with by the Standing Committee in Brussels.

The Committee Structure under the Council Under the Council, a substructure of Committees has evolved to deal with special issues (see figure). The Committee on Third Country Relations oversees the functioning and development of free trade and co-operation agreements with third countries. The Committee on Customs and Origin Matters oversees the co-operation in the customs field, particularly in relation to the free trade agreements. The Committee on Technical Barriers to Trade advises the Council on standardization policy, conformity assessment policy, relations with other European quality infrastructure organisations and international aspects of the technical regulatory work. On matters related to the EFTA budget the Budget Committee assists the Council. The EFTA Board of Auditors acts as the supreme auditing authority for the EFTA Secretariat, the EFTA Surveillance Authority and the EFTA Court. In addition, it also functions as a contact point with the European Court of Auditors regarding the control and auditing of EEA EFTA contributions to the Community budget. The Consultative Committee provides a forum for representatives of industry and labour in the EFTA States to exchange views among themselves and with the Council, while the Parliamentary Committee provides a forum in which MPs of the EFTA States can discuss issues of concern among

themselves and, twice yearly, with EFTA Ministers. The management and development of the Free Trade Agreements and Declarations on Cooperation are carried out through Joint Committees with each of EFTAs third country partners. Additionally, several Committees in specialised fields are set up under the EFTA Convention.

Managing the EFTA Secretariat


Here you can find information about the day-to-day management of the Secretariat, our organizational chart and the annual budget. The day-to-day running of the Secretariat is headed by the Secretary-General, who is assisted by two Deputy Secretaries-General, one located in Geneva and the other in Brussels. The three posts are shared between the Member States. The division of the Secretariat reflects the division of EFTAs activities. The Secretariat employs approximately 100 staff members, of whom one third are based in Geneva and two thirds in Brussels and Luxembourg. All Secretariat staff members are employed on three year contracts, renewable once. While working at the Secretariat, staff members are servants of the Association and therefore not responsible to their national governments. The Headquarters in Geneva deal with the management and negotiation of free trade agreements with non-EU countries, and provide support to the EFTA Council. In Brussels, the Secretariat provides support for the management of the EEA Agreement and assists the Member States in the preparation of new legislation for integration into the EEA Agreement. The Secretariat also assists the Member States in the elaboration of input to EU decision-making. The two duty stations work closely together to implement the Vaduz Conventions stipulations on the intra-EFTA free trade area. The EFTA Statistical Office in Luxembourg contributes to the development of a broad and integrated European Statistical System.

Advisory Bodies
EFTA Consultative Committee The Consultative Committee of the European Free Trade Association (EFTA) is a forum for trade unions and employers organizations in the four member countries, Iceland, Liechtenstein, Norway and Switzerland. Through its co-operation with social partners in the European Union, the Committee also serves as a link between social partners in EFTA and in the EU. EFTA Parliamentary Committee The EFTA Parliamentary Committee is a forum for parliamentarians in the four member countries, Iceland, Liechtenstein, Norway, and Switzerland. The work of the Committee provides EFTA with a valuable link to political life in each member country, and through its co-operation with parliamentarians in the European Union, the Committee also serves as a link between political life in the EU and in EFTA.

EFTA history at a glance


1960 The European Free Trade Association (EFTA) is founded by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK. 1961 Finland becomes an associate member of EFTA. 1966 Full free trade achieved among the EFTA States in industrial products. 1970 Iceland becomes a member of EFTA. 1972 Denmark and the UK leave EFTA to join the European Economic Community (EEC). The remaining EFTA States sign bilateral Free Trade Agreements (FTAs) with the EEC. 1977 Elimination of tariffs on industrial goods in trade between the EEC and the EFTA States. 1979 Free Trade Agreement signed with Spain.

1984 Luxembourg Declaration on broader cooperation between the EEC and EFTA. 1985 Portugal leaves EFTA to become a member of the EEC. 1986 Finland becomes a full member of EFTA. 1989 Start of negotiations on a European Economic Space, later to become the European Economic Area. Agreement on free trade in fish between the EFTA States. 1991 Liechtenstein becomes a member of EFTA. Free Trade Agreement signed with Turkey. 1992 The Agreement on a European Economic Area (EEA) is signed in Oporto, Portugal. Free Trade Agreements signed with the former Czechoslovakia, Israel, Poland and Romania. Declaration on Cooperation signed with Albania. Switzerland rejects participation in the EEA by referendum. 1993 Free Trade Agreement signed with Bulgaria and Hungary. Protocol on the succession of the Czech Republic and the Slovak Republic to the EFTA-Czechoslovakia Agreement signed. 1994 The Agreement on the European Economic Area enters into force. The EEA Financial Mechanism is established for the period 1994-1998 (ECU 500 million for grant support and interest rebates in support of 1 500 million of loans). 1995 Austria, Finland and Sweden leave EFTA to join the European Union. Liechtenstein becomes a full participant in the EEA Agreement. Free Trade Agreements signed with Estonia, Latvia, Lithuania and Slovenia. Declarations on Cooperation signed with Egypt, Morocco and Tunisia. 1996 Declarations on Cooperation signed with Macedonia and with the Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority. 1997 Free Trade Agreement signed with Morocco. Declarations on Cooperation signed with Jordan and Lebanon. 1998 Interim Agreement signed with the PLO, on behalf of the Palestinian Authority. Formal negotiations on an FTA started with Canada, Cyprus, Egypt and Jordan.

1999 Free Trade Agreements with the Palestinian Authority and with Morocco enter into force. 2000 Free Trade Agreements signed with Macedonia and Mexico. Declarations on Cooperation signed with Croatia, Ukraine, the Gulf Cooperation Council (GCC), the Southern Common Market (MERCOSUR), Serbia and Montenegro. A new EEA Financial Instrument is established for the period 1999-2003 (EUR 119.6 million for grant support). 2001 Updated EFTA Convention signed at the EFTA Ministerial meeting in Vaduz, Liechtenstein on 21 June. Free Trade Agreements signed with Croatia and Jordan. 2002 Updated EFTA Convention (Vaduz Convention) entered into force on 1 June. A Free Trade Agreement signed with Singapore and a Declaration on Cooperation signed with Algeria. Application for EEA membership by ten countries acceding to the EU. 2003 Launch of EEA enlargement negotiations on 9 January. Agreement on enlargement of the EEA signed on 11 November. A new EEA Financial Mechanism as well as a bilateral Norwegian Financial Mechanism is established in support of social and economic cohesion for the period 2004-2009 (amounting together to EUR 1 167 million). Free Trade Agreement signed with Chile. 2004 The European Economic Area increases it membership to include 28 countries as ten countries join the European Union on 1 May. Free Trade Agreements signed with Lebanon and Tunisia. 2005 FTA signed with the Republic of Korea. Two Mutual Recognition Agreements (MRAs) signed with the USA. Negotiations with the Southern African Customs Union (SACU) finalised. Formal launch of free trade negotiations with Thailand. 2006 Start of negotiations with Bulgaria and Romania on accession to the EEA. FTA signed with the SACU. Negotiations on an FTA with Egypt finalised. Formal launch of free trade negotiations with the GCC. FTA with the Republic of Korea enters into force. Launch of Joint Study Group with India. 2007 Agreement on EEA enlargement of Bulgaria and Romania signed. Negotiations on an FTA with Canada finalised. Start of negotiations on an FTA with Colombia, Peru and Algeria. Declaration on Cooperation signed with Mongolia. FTA with Egypt enters into force. Launch of Joint Study Group with Russia.

2008 FTAs with Canada and Colombia signed. Start of negotiations on an FTA with India. FTA with SACU enters into force. Joint Study Group report with Russia finalised. 2009 Launch of free trade negotiations with Albania, Serbia and Ukraine. FTA with Canada enters into force. FTAs signed with the GCC, Albania and Serbia. Declaration on Cooperation signed with Mauritius. EFTA celebrates the 15th anniversary of the EEA Agreement. Agreement on new financial mechanisms for the 2009-14 period (EUR 1 789 million over five years in total). Iceland applied for membership of the European Union. 2010 Launch of negotiations on a Free Trade Agreement with Hong Kong China. Launch of Joint Study Group with Vietnam. Declarations on Cooperation signed with Malaysia and Panama. FTAs signed with Peru and Ukraine. EFTA celebrates its 50th anniversary. The EEA EFTA Forum of Elected Representatives of Local and Regional Authorities was established. Iceland started accession negotiations with the EU.

LAFTA :

Latin American Free Trade Association


The Latin American Free Trade Association, LAFTA, (later transformed into the Latin American Integration Association or Asociacin Latinoamericana de Integracin) was created in 1960 in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay. The signatories hoped to create a common market in Latin America and offered tariff rebates among member nations. In 1980, LAFTA reorganized into the Latin American Integration Association (ALADI) which now has 12 members: Argentine Republic, Republic of Bolivia, Federative Republic of Brazil, Republic of Chile, Republic of Colombia, Republic of

Cuba, Republic of Ecuador, United Mexican States, Republic of Paraguay, Republic of Peru, Eastern Republic of Uruguay and Bolivarian Republic of Venezuela. The Latin American Free Trade Association was one which came into effect on January 2, 1962. When the trade association commenced it had seven members and its main goal was to eliminate all duties and restrictions on the majority of their trade within a twelve year period.[1] By the late 1960s the area of LAFTA had a population of 220 million and produced about $90 billion of goods and services annually. By the same time it had an average per capita gross national product of $440. By 1970, LAFTA expanded to include four more Latin American nations which were Bolivia, Colombia, Ecuador, and Venezuela. It now consisted of eleven nations. In 1980, LAFTA reorganized into the Latin American Integration Association (Asociacin Latinoamericana de Integracin, ALADI) The membership of ALADI had remained unchanged until Cuba joined in 1999. The goal of the LAFTA is the creation of a free trade zone in Latin America. It should foster mutual regional trade among the member states, as well as with the U.S. and the European Union. To achieve these goals, several institutions are foreseen:
y y y

the council of foreign ministers a conference of all participating countries a permanent council

The LAFTA agreement has important limitations: it only refers to goods, not to services, and it does not include a coordination of policies. Compared e.g. to the European Union the political and economic integration is very limited. LAFTA brought many new positive changes to Latin America. With LAFTA in place existing productive capacity could be used more fully to supply regional needs, industries could reduce costs as a result of potential economies through expanded output and regional specialization, and attraction to new investment occurred as a result of the regional market area. Although LAFTA has brought many constructive results, it has also brought problems to individual nations as well as to Latin America as a whole. Some of the problems which the individual countries face are the way they are grouped together by their economic strengths according to LAFTA. The grouping was originally Argentina, Brazil, and Argentina in one group, Colombia, Chile, Peru, Uruguay, and Venezuela in the second group, and the last group which included Bolivia, Ecuador, and Paraguay. There is a problem in these classifications because these countries are very different economically as well as in other aspects which the classification does not take into account. Problems which Latin America faced as a whole had to deal with many of the nations in the continent being underdeveloped. The Free Trade Agreement was seen as a way of the countries

having greater economic interactions amongst each other and thus improving the economic state of the poorer nations. LAIA is now the largest Latin-American group of integration. It covers more than 20 million sq kilometres and more than 493 million people. It is responsible for regulations on foreign trade which includes regulations on technical measures, sanitary regulations, environment protection measures, quality control measures, automatic licensing measures, price control measures, monopolistic measures, as well as other measures. These regulations are put into place in order for trade to be even handed amongst members of LAIA OBJECTIVES: Objectives of LAIA are: to eliminate restrictions on trade among the member countries & to reduce the customs & tariffs & eliminate them gradually.

ORGANISATION STRUCTURE: LAIA is managed by a council of ministers. Foreign ministers of member countries present the council. The council of ministers is assisted by a conference of contracting parties which makes discussions on issues requiring a joint resolution of the members & permanent executive committee. Executive committee implements the treaty. The executive committee is assisted by a secretariat. Council Of Ministers (foreign Ministers of Member Countries)

Conference of contracting Parties (makes Decisions on joint Issues) Executive committee (Supervises the implementation of the Treaty)

Secretariat (Performs Technical & Administrative Functions) Operations: Members prepare a list of goods on which they consider duty reductions. Member countries once in three years for complete exemptions of tariffs & decide the list of products eligible for

complete exemptions of tariffs. In , fact they include all the products whixh are related in the region in the list. More favorable terms are granted for the less developed countries of the region. Critical Appraisal: The performance of the LAIA is only modest. The reasons for modest performance include: - delay & negative approach of the members in preparing common list. - High cost of transportation. - Contentment of the members with the sheltered markets. - Forces of nationalism.

Ch- 3 World Financial Environment International Monetary system & the systems of International Monetary System.
The monetary and economic disorders of the past fifty years.. Are a reaction to a world monetary system that has no historical precedent. We have been sailing on uncharted waters and it has been tacking time to learn the safest routes. MITTON FRIEDMAM Winner of Noble Prize in Economics

In order to make international transition feasible, a system for determination of the amount and the method of payment of the underlying financial flow is needed. Since the domestic currencies of the parties involved will be different, the flow will take place in some mutually acceptable currencies. The thus parties involved into there domestic currencies. Definition: The set of rules, regulations, institution, procedure, practices and mechanism which determines the rate at which this conversion takes place and the movement in the exchange rate over a period is called the international monetary system. This system forms the backbone of all cross border transaction because it makes the settlement of international transaction possible. EXCHANGE RATE MECHANISM The exchange rate can be defined as the value of the currency in terms of another. Exchange rate may be fixed, floating or with limited flexibility. Different system have different methods of correcting the disequilibrium between international payment and receipts. There are mainly two systems A) Fixed Exchange Rate System B) Floating FIXED EXCHANGE RATE SYSTEM As the name suggests, under a fixed exchange rate system the value of a currency in terms of another is fixed. These rates are determined by government or the central banks of the respective countries. There are generally some provisions for correction of these fixed rates in case of fundamental distribution. The particular variations of the fixed rate system are a. Currency Board System b. c. Target Zone Arrangement Monetary Union CURRENCY BOARD SYSTEM Under a currency board system ,a country fixes the rate of domestic currency in terms of a foreign currency, and its exchange rate in terms of other currencies depend on the exchange rates between the other currencies and the currency to which the domestic

currency is pegged. Due to the pegging, the monetary policies and economic variables of the country of the reference currency are reflected in the domestic economy. If the fundamentals of the domestic economy shows a wide disparity from that of reference country, there is pressure on the currency, thus forcing the authorities to either change or altogether abandon the peg. To prevent such an event, the monetary policies are kept in line with that of the reference country by the central monetary authority called CURRENCY BOARD. The biggest advantage of a currency board system is that it offers stable exchange rates, which act as incentive for international trade and investment. Among the drawbacks, the foremost is the loss of control over interest rates. A good example of a currency board is that of HONG KONG . In addition to the currency being pegged to the US $,a currency board ensures that reserves to the extent of at least 100% of the domestic currency are maintained. TARGET ZONE ARRANGEMENT A group of countries sometime get together , and agree to maintain the exchange rates between their currencies within certain band around fixed central exchange rates. This system is called a target zone arrangement. Convergence of economic policies of the participating countries is a prerequisite for the substance of this system. An example of this system is a European Monetary Union MONETARY UNION It is the next logical step of target zone arrangement. Under this system a group of countries agree to use a common currency, instead of their individual currencies. This eliminates the variability of exchange rates and the attendant inefficiency completely. The economic variables of the member countries have to be quite proximity for the system to be viable. An independent common central banks is set up which has the sole authority to issue currency and to determine the monetary policies of the group as a whole. The member countries lose the power to use economic variables like interest rates to adjust their economies to the phase of economics cycle being experienced by them. As a result, the region as a whole experience the same inflation rate. That is the most extreme form of management of exchange rates.

FLOATING EXCHANGE RATE SYSTEM Under this system, the exchange rates between currencies are variable. These rates are determined by the demand and supply for the currencies in the international market. These in turn depend upon the flow of money between the countries which may either result due to international trade in goods or services or due to purely financial flows.

Hence in case of deficit or surplus in balance of payment, the exchange rates get automatically adjusted and this leads to a correction in the balance. Floating exchange rates can be of two types: Free float and Managed float. FREE FLOAT The exchange rate is said to be freely floating when its movements are totally determined by the market. There is no intervention at all either by the government or by the central bank. The current and expected future demand and supply of currencies change on a day to-day, and even a moment-to-moment basis; as the market receives, analyzes and reacts to economic, politically and social news. This, in turn, changes the equilibrium in the currency market and the exchange rate is determined accordingly. As the reactions to event do not follow a set pattern, the resultant movement in the exchange rate turn out to be quite random. Hence a lot of volatility is observed in the market following, a free float system. This system is also known as the clean float MANAGED FLOAT The volatiliy of exchange rates associated with a clean float increases the economic uncertainty faced by players in the international markets. A sudden appreciation of the domestic currency would make the domestic goods more expensive in the international markets. This may result in making the domestic product uncompetitive, and hence reduce exports. If the industry is fully depend on exports, it may even get wiped out. A sudden depreciation may lead to increased price of imported goods, there by increasing the inflation rate in the economy. These uncertainties increases the risk associated with international trade and investments, and thus reduces the overall efficiency of the world economy system. In order to reduce these inefficiencies, central banks generally intervene in the currency market to smoothen the fluctuations. Such a system is referred as a managed float or a dirty float.

The history of Monetary Systems:


HISTORY OF MONETARY SYSTEMS 1 2 3 4 5 THE GOLD STANDARD THE GOLD EXCHANGE STANDARD BRETTON WOODS SYSTEM POST BRETTON WOODS SYSTEM THE EUROPEAN MONETARY SYSTEM

THE GOLD STANDARD

The gold standard was followed in its classical form from 1870 to 1914. The essential feature of this system was that government gave an unconditional guarantee to convert there paper money into gold, at a pre fixed rate at any point of time, on demand. The continued commitment of the government to the guarantee, and the readiness of the people to believe it were the reason the system could sustain for such a long time. The exchange rate between two currencies was determined on the basis of the rates at which the respective currencies could be converted into gold, i.e. the price of gold in the two countries. For example, if in the US the price of one ounce of gold is fixed at 400$ and in the UK it is 200, then the exchange rate between $ and would be $2/ . The exchange rate would stay at equilibrium level because of arbitratge possibility involved. Let us assume that the prevailing exchange rate was $2.5/ . So a person wanting to convert $ into would have to pay $2,5 for every pound. He could instead, buy ounce of gold in the US for $ 400, transport it to UK, and sell it for 200. Thereby, he would be able to get pounds at the exchange rate of $2/. Here we assume that there are no transaction cost involved in buying and selling of gold and no transpiration costs for shifting it from one country to another. In reality however, there is a cost involved in all these activities. Thus, the exchange rate would be able to fluctuate between bonds on the either side of the equilibrium exchange rate, the bands being determined by the size of these costs. The end point of the range fixed by these bands is referred to as the gold point. There was an inbuilt mechanism in the gold standard which helped correct any imbalances in trade that any two countries would face. Countries continued to be on the gold standard for a long time due to its inherent advantages Price stability in the participating countries. The price of the gold generally moved in line with the price of other goods and services, facing the same inflation rate. Gold being a commodity money its cost of production also moved in line with the general inflation rate. This caused the cost of production and the purchasing power of gold to tend towards equality in the long run. The government needed to acquire additional gold before it could issue more money. As the cost of acquiring gold was equal to the value of the additional money that it could issue, the government had no incentive to finance its deficits by digging additional gold and printing more money. This enforced physically disciplined on the government and protected the economy from inflation resulting from excess government spending. This ensured price stability in participating country Exchange rate movement is quite predictable. After that point, a member country could change the original par value up to 5% on either side without referring the matter to IMF. A bigger change could be brought about only when there is fundamental disequilibrium in its BOP All the member countries were required to subscribe to IMF capital. The subscription was to be in the form of gold (one fourth of the subscription) and its own currency(the balance).Each country quota in IMF capital was to be decided in accordance with its position in world economy.

THE FAILURE Though, under this system, the member countries had the option of pegging their currencies to either gold or to the dollar, the only reserves asset mentioned in the agreement established the system was gold. However, as the gold stocks did not increase substantially in the years following agreement, this provision acted as an impediment to the growth of international trade. Increase in such trade required a simultaneous increase in the official reserves held by various countries, in order to facilitate the payment for these trades. To get around this problem, countries started holding dollar reserves. They generally held the reserves in the form of interest bearing securities issued by the US government. This was encouraged by US because of the seigniorage gains involved. While the cost of printing money was almost nil, the benefits were immense as the US could pay for its increased imports just by printing additional money, without suffering a reduction in its reserves. Seigniorage gain refers to this benefit accruing from the ability to finance unlimited imports. Since other government were ready to hold dollar reserves and not converted them into gold, the US started following a system of fractional reserves. The total number of dollars issued by the federal reserves was far in excess of the value of gold held by it. As it would not have been possible for the FED to convert all the $ into gold, the system ran on the confidence of other countries on its ability to do so, and their non insistence for an immediate conversion. This created a paradox after a YELE University professor, Robert Triffin, who first spoke out in 1960. According to him it was necessary for the US to run BOP deficit in order to supply the world with the additional $ reserves needed for increased international trade. Yet, as its deficit increased and the volume of $ reserves held by other countries grew without a simultaneous increase in US gold reserves, its ability to honor its commitment (of converting $ into gold) would decreases. Such a situation would result in decreased confidence in the system, and since the system was running on the member countries confidence. It would result in the system breaking down. POST BRETTON SYSTEM (The current system) As the BRETTON Woods SYSTEM was abandoned, most countries shifted to floating exchange rates. This fact was finally recognized by the IMF and the articles were amended in the agreement. Under the new article, countries were given much more flexibility in choosing the exchange rate system they wanted to follow and in managing the resultant exchange rates. They could either float or peg their currencies. The peg could be with a currency, with a basket of currencies or with SDR. The only restriction put was that the pegging should not be done with gold. This was done to reduce the role of gold and to make SDR more popular as a reserve asset. Also ,the member were no longer required to deposit a part of their quota in gold, and the IMF sold off its existing gold reserves. In order to make SDR more attractive as a reserve asset , they were made interest bearing.

The member countries were also left free to decide upon the degree of intervention required in the forex market and could hence make it compatible with their economic policies. IMF was given increased responsibility for supervising the monetary system. As a part of increased responsibility, IMF was required to identify those countries which were causing such changes in the exchange rates through their domestic economic policies, which proved disruptive to international trade and investment. It could then suggestive alternative economic policies to these countries. IMF was also responsible for identifying any country which was trying to defend an exchange rate which was inconsistent with the underlying economic fundamentals. This was to be done by a constant monitoring of the reserves position of various countries.

THE EUROPEAN MONETARY UNION In 1957, the treaty of Rome was signed by Belgium, France, Germany, Italy, Luxembourge and the Netherlands to from the European Economy Community (EEC), where by they agreed to make Europe a common market. While they agreed to lift restrictions on movement of all factors of production and to harmonize domestic policies (economics, social and other policies which were likely to have an effect on the said integration), the ultimate aim was economic integration.

In accordance with the Maastricht Treaty, the member countries were required to fulfill the following criteria 1. Fiscal deficit should be within 3% of GDP 2. 3. 4.
5.

Public debt should not exceeds 60 % of GDP The inflation rate should not be more than 1.5% higher than that of three countries having the lowest inflation. The currency should have stayed within the ERM band for a minimum period of two years without any realignment The central banks should be autonomous.

LARGE COMMERCIAL BANKS The commercial banks deal in the market both for executing their clients orders and on there own account. They act as a market maker in the forex markets, i.e. they stand to buy and sell various currencies at specific price at all points of time. The commercial banks

give on demand a quote for a particular currency against other currencies i.e., the rate at which they are ready to buy or sell the former against the latter. At these rates they stand ready to take any side of the transaction that the customer choose. In the forex markets there are numerous market makers, and all of them would be giving different quotes for the same pair of currencies simultaneously, at any point of time. It would be giving different quotes for the same pair of currencies simultaneously, at any point of time. It would be very difficult for player to keep track of all the quotes available in the market, and hence choose the one which is considered the most favourable. As a result no of trades may be taking place simultaneously at different exchange rates. The market making activity of commercial banks along with speculation makes markets extremely liquid, especially for the major currencies of the world. FOREX BROKER The foreign exchange brokers do not actually buy or sell any currency. They do the work of bringing buyers and sellers together. Though they deal in most of the major currencies, generally they specialize in a pair of currencies and hold exhaustive information about it. Other players in the market, specially the commercial banks, approach the broker for information about the quotes of other commercial banks. The broker serves two important purpose 1) Instead of hunting around in the market for quotes, one can approach broker and find out these prices. 2) Broker helps the prospective buyer or seller to keep their identity secret till the deal is struck. This prevents the quote being affected by the inquirer position i.e. whether he needs to buy or sell. LARGE CORPORATION Which small corporation generally approach the commercial banks for their needs, larger corporation sometime operate in the market on their own. They generally deal in the market to satisfy their needs arising out of their normal business operations. Yet some big multinationals companies also operate in the market to bet on the movement of exchange rates, in an attempt to make profit out of their expertise in dealing in the market. CENTRAL BANKS

CURRENCY BOARD SYSTEM

Under a currency board system ,a country fixes the rate of domestic currency in terms of a foreign currency, and its exchange rate in terms of other currencies depend on the exchange rates between the other currencies and the currency to which the domestic currency is pegged. Due to the pegging, the monetary policies and economic variables of the country of the reference currency are reflected in the domestic economy. If the fundamentals of the domestic economy shows a wide disparity from that of reference country, there is pressure on the currency, thus forcing the authorities to either change or altogether abandon the peg. To prevent such an event, the monetary policies are kept in line with that of the reference country by the central monetary authority called CURRENCY BOARD. The biggest advantage of a currency board system is that it offers stable exchange rates, which act as incentive for international trade and investment. Among the drawbacks, the foremost is the loss of control over interest rates. A good example of a currency board is that of HONG KONG . In addition to the currency being pegged to the US $,a currency board ensures that reserves to the extent of at least 100% of the domestic currency are maintained. TARGET ZONE ARRANGEMENT A group of countries sometime get together , and agree to maintain the exchange rates between their currencies within certain band around fixed central exchange rates. This system is called a target zone arrangement. Convergence of economic policies of the participating countries is a prerequisite for the substance of this system. An example of this system is a European Monetary Union MONETARY UNION It is the next logical step of target zone arrangement. Under this system a group of countries agree to use a common currency, instead of their individual currencies. This eliminates the variability of exchange rates and the attendant inefficiency completely. The economic variables of the member countries have to be quite proximity for the system to be viable. An independent common central banks is set up which has the sole authority to issue currency and to determine the monetary policies of the group as a whole. The member countries lose the power to use economic variables like interest rates to adjust their economies to the phase of economics cycle being experienced by them. As a result, the region as a whole experience the same inflation rate. That is the most extreme form of management of exchange rates.

FLOATING EXCHANGE RATE SYSTEM

Under this system, the exchange rates between currencies are variable. These rates are determined by the demand and supply for the currencies in the international market. These in turn depend upon the flow of money between the countries which may either result due to international trade in goods or services or due to purely financial flows. Hence in case of deficit or surplus in balance of payment, the exchange rates get automatically adjusted and this leads to a correction in the balance. Floating exchange rates can be of two types: Free float and Managed float. FREE FLOAT The exchange rate is said to be freely floating when its movements are totally determined by the market. There is no intervention at all either by the government or by the central bank. The current and expected future demand and supply of currencies change on a day to-day, and even a moment-to-moment basis; as the market receives, analyzes and reacts to economic, politically and social news. This, in turn, changes the equilibrium in the currency market and the exchange rate is determined accordingly. As the reactions to event do not follow a set pattern, the resultant movement in the exchange rate turn out to be quite random. Hence a lot of volatility is observed in the market following, a free float system. This system is also known as the clean float MANAGED FLOAT The volatiliy of exchange rates associated with a clean float increases the economic uncertainty faced by players in the international markets. A sudden appreciation of the domestic currency would make the domestic goods more expensive in the international markets. This may result in making the domestic product uncompetitive, and hence reduce exports. If the industry is fully depend on exports, it may even get wiped out. A sudden depreciation may lead to increased price of imported goods, there by increasing the inflation rate in the economy. These uncertainties increases the risk associated with international trade and investments, and thus reduces the overall efficiency of the world economy system. In order to reduce these inefficiencies, central banks generally intervene in the currency market to smoothen the fluctuations. Such a system is referred as a managed float or a dirty float.

THE GOLD STANDARD The gold standard was followed in its classical form from 1870 to 1914. The essential feature of this system was that government gave an unconditional guarantee to convert there paper money into gold, at a pre fixed rate at any point of time, on demand. The

continued commitment of the government to the guarantee, and the readiness of the people to believe it were the reason the system could sustain for such a long time. The exchange rate between two currencies was determined on the basis of the rates at which the respective currencies could be converted into gold, i.e. the price of gold in the two countries. For example, if in the US the price of one ounce of gold is fixed at 400$ and in the UK it is 200, then the exchange rate between $ and would be $2/ . The exchange rate would stay at equilibrium level because of arbitratge possibility involved. Let us assume that the prevailing exchange rate was $2.5/ . So a person wanting to convert $ into would have to pay $2,5 for every pound. He could instead, buy ounce of gold in the US for $ 400, transport it to UK, and sell it for 200. Thereby, he would be able to get pounds at the exchange rate of $2/. Here we assume that there are no transaction cost involved in buying and selling of gold and no transpiration costs for shifting it from one country to another. In reality however, there is a cost involved in all these activities. Thus, the exchange rate would be able to fluctuate between bonds on the either side of the equilibrium exchange rate, the bands being determined by the size of these costs. The end point of the range fixed by these bands is referred to as the gold point. There was an inbuilt mechanism in the gold standard which helped correct any imbalances in trade that any two countries would face. Countries continued to be on the gold standard for a long time due to its inherent advantages Price stability in the participating countries. The price of the gold generally moved in line with the price of other goods and services, facing the same inflation rate. Gold being a commodity money its cost of production also moved in line with the general inflation rate. This caused the cost of production and the purchasing power of gold to tend towards equality in the long run. The government needed to acquire additional gold before it could issue more money. As the cost of acquiring gold was equal to the value of the additional money that it could issue, the government had no incentive to finance its deficits by digging additional gold and printing more money. This enforced physically disciplined on the government and protected the economy from inflation resulting from excess government spending. This ensured price stability in participating country Exchange rate movement is quite predictable. After that point, a member country could change the original par value up to 5% on either side without referring the matter to IMF. A bigger change could be brought about only when there is fundamental disequilibrium in its BOP All the member countries were required to subscribe to IMF capital. The subscription was to be in the form of gold (one fourth of the subscription) and its own currency(the balance).Each country quota in IMF capital was to be decided in accordance with its position in world economy.

THE FAILURE

Though, under this system, the member countries had the option of pegging their currencies to either gold or to the dollar, the only reserves asset mentioned in the agreement established the system was gold. However, as the gold stocks did not increase substantially in the years following agreement, this provision acted as an impediment to the growth of international trade. Increase in such trade required a simultaneous increase in the official reserves held by various countries, in order to facilitate the payment for these trades. To get around this problem, countries started holding dollar reserves. They generally held the reserves in the form of interest bearing securities issued by the US government. This was encouraged by US because of the seigniorage gains involved. While the cost of printing money was almost nil, the benefits were immense as the US could pay for its increased imports just by printing additional money, without suffering a reduction in its reserves. Seigniorage gain refers to this benefit accruing from the ability to finance unlimited imports. Since other government were ready to hold dollar reserves and not converted them into gold, the US started following a system of fractional reserves. The total number of dollars issued by the federal reserves was far in excess of the value of gold held by it. As it would not have been possible for the FED to convert all the $ into gold, the system ran on the confidence of other countries on its ability to do so, and their non insistence for an immediate conversion. This created a paradox after a YELE University professor, Robert Triffin, who first spoke out in 1960. According to him it was necessary for the US to run BOP deficit in order to supply the world with the additional $ reserves needed for increased international trade. Yet, as its deficit increased and the volume of $ reserves held by other countries grew without a simultaneous increase in US gold reserves, its ability to honor its commitment (of converting $ into gold) would decreases. Such a situation would result in decreased confidence in the system, and since the system was running on the member countries confidence. It would result in the system breaking down. POST BRETTON SYSTEM (The current system) As the BRETTON Woods SYSTEM was abandoned, most countries shifted to floating exchange rates. This fact was finally recognized by the IMF and the articles were amended in the agreement. Under the new article, countries were given much more flexibility in choosing the exchange rate system they wanted to follow and in managing the resultant exchange rates. They could either float or peg their currencies. The peg could be with a currency, with a basket of currencies or with SDR. The only restriction put was that the pegging should not be done with gold. This was done to reduce the role of gold and to make SDR more popular as a reserve asset. Also ,the member were no longer required to deposit a part of their quota in gold, and the IMF sold off its existing gold reserves. In order to make SDR more attractive as a reserve asset , they were made interest bearing. The member countries were also left free to decide upon the degree of intervention required in the forex market and could hence make it compatible with their economic policies. IMF was given increased responsibility for supervising the monetary system. As a part of increased responsibility, IMF was required to identify those countries which were causing

such changes in the exchange rates through their domestic economic policies, which proved disruptive to international trade and investment. It could then suggestive alternative economic policies to these countries. IMF was also responsible for identifying any country which was trying to defend an exchange rate which was inconsistent with the underlying economic fundamentals. This was to be done by a constant monitoring of the reserves position of various countries. THE EUROPEAN MONETARY UNION In 1957, the treaty of Rome was signed by Belgium, France, Germany, Italy, Luxembourge and the Netherlands to from the European Economy Community (EEC), where by they agreed to make Europe a common market. While they agreed to lift restrictions on movement of all factors of production and to harmonize domestic policies (economics, social and other policies which were likely to have an effect on the said integration), the ultimate aim was economic integration.

In accordance with the Maastricht Treaty, the member countries were required to fulfill the following criteria 6. Fiscal deficit should be within 3% of GDP 7. 8. 9. 10. Public debt should not exceeds 60 % of GDP The inflation rate should not be more than 1.5% higher than that of three countries having the lowest inflation. The currency should have stayed within the ERM band for a minimum period of two years without any realignment The central banks should be autonomous.