UNIT-III

Institutional Framework for

International Business
 INSTITUTIONAL FRAMEWORK

FOR

INTERNATIONAL BUSINESS

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 Learning Objectives

• To understand the significance of institutional

framework in international business
• To discuss the international economic institutions
under the UN system
• To outline the international organizations in trade
promotion
• To examine the institutional framework to facilitate
international business
 Significance of Institutional Framework in
International Business
• It helps in assessing the country’s economic
environment.
• Providing multilateral guarantees for trade
and investment.
• Compiling and disseminating information,
keeping surveillance of international
monetary systems.
• Providing technical assistance and funding
development projects.
 International Economic Institutions

A large number of organizations were set up under the

aegis of the UN to facilitate international trade and

investment so as to provide multilateral institutional

framework for international economic growth.

 The major international under the UN
System
1. World Bank Group: It consists of five closely
associated institutions
• The International Bank for Reconstruction and Development
(IBRD)
• International Development Association (IDA)
• International Finance Corporation (IFC)
• The Multilateral Investment Guarantee Agency (MIGA)
• The International Centre for Settlement of Investment
Disputes (ICSID)
 World Bank
The World Bank is a vital source of financial and
technical assistance to developing countries around the
world made up of two unique development institutions
owned by 185 countries.

• The International Bank for Reconstruction and

Development (IBRD)

• The International Development Association (IDA).

 Copyright @ Oxford University
Press International Business R. 8
M. Joshi
The International Bank for Reconstruction
and Development (IBRD)
The IBRD is the oldest of the World Bank Group institutions established in
1944, initially to help Europe recover from the devastation of World War II.
•Subsequently it shifted its attention to developing countries that aims to
reduce poverty in middle-income and creditworthy poorer countries by
promoting sustainable development through loans, guarantees, risk
management products, and (non-lending) analytic and advisory services.
• It helps clients gain access to capital and financial risk management tools in
larger voumes, on better terms, and in a more sustainable manner.
International Development Association (IDA)

Established in 1960, the International Development

Association (IDA) provides interest-free credits and
grants to the poorest developing countries in order to
boost their economic growth and improve people’s
living conditions.
• It also helps to reduce inequalities both across and
within countries by allowing more people to participate
in the economy.
UN’s Millennium Development Goals
• Eradicate extreme poverty and hunger
• Achieve universal primary education
• Promote gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat HIV / AIDS, malaria, and other disease
• Ensure environmental sustainability
• Develop a global partnership for development
 International Finance Corporation (IFC)

The private sector arm of the World Bank Group, the

IFC, founded in 1956, to promote sustainable private
sector investment in developing countries, helping
reduce poverty and improving people’s lives.
• It is owned by its 179 countries with an authorized
capital of US$2.45 billion.
 International Finance Corporation
(IFC)
• Financial products and services to client
companies include:
• Long term loans in major currencies, at fixed
or variable rates.
• Equity investments.
• Guarantees and standby financing.
 The Multilateral Investment Guarantee
Agency (MIGA)

Established in 1988, the MIGA provides non-

commercial guarantees (insurance) for foreign direct
investment in developing countries. It addresses
concerns about investment environments and
perceptions of risk, which often inhibit investment, by
providing political risk insurance.
•The MIGA’s guarantees offer investors protection
against non-commercial risks, such as expropriation,
currency inconvertibility, breach of contract, war, and
civil disturbances. It presently has 172 members.
 The International Centre for Settlement
of Investment Disputes (ICSID)
Founded in 1966, the ICSID was designed to facilitate the settlement of
investment disputes between foreign investors and host states. It encourages
foreign investment by providing neutral international facilities for conciliation
and arbitration of investment disputes, thereby helping foster an atmosphere of
mutual confidence between states and foreign investors. Many international
agreements concerning investment refer to the ICSID’s arbitration facilities.
• The ICSID also conducts research and carries on publishing activities in the
areas of arbitration law and foreign investment law.
 2.International Monetary Fund (IMF)

The IMF also known as the ‘Fund’, was conceived at a

UN Conference convened in Bretton Woods, New
Hampshire, US in July 1944 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.
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 The main responsibilities of the IMF
include
• Promoting international monetary cooperation.
• Facilitating the expansion and balanced growth
of international trade.
• Promoting exchange stability.
• Making its resources available, under adequate
safeguards to members experiencing balance of
payments difficulties.
 3. The United Nations Conference on
Trade and Development (UNCTAD)
In the early 1960s, growing concerns about the place of
developing countries in international trade led many of these
countries to call for the convening of a full-fledged conference
specifically devoted to tackling these problems and identifying
appropriate international actions. The first United Nations
Conference on Trade and Development (UNCTAD) was held in
Geneva in 1964.
UNCTAD has continued to play a critical role in emphasizing the

development dimension of issues in the fields of international

trade and investment and related areas. In particular, UNCTAD

has been addressing the imbalances of globalization and the need

to overcome the supply constraints of developing countries, so as

to ensure development gains and poverty reduction

The basic functions of UNCTAD.
 UNCTAD-XII

The last UNCTAD XII held in Accra in Ghana during

20-25 April, 2008, based on the theme of ‘addressing
the opportunities and challenges of globalization for
development’.
Generalized System of Preferences (GSP)
It is a non-contractual instrument by which industrialized
(developed) countries unilaterally, and on the basis of non-
reciprocity, extend tariff concessions to developing countries.

The GSP was formally accepted in 1968 by UN members at the

second UNCTAD conference in New Delhi.

The GSP offers developing countries tariff reductions, and in

some cases, duty-free concessions for their manufactured exports
and certain agricultural exports as well.
 Common Fund for Commodities

A Common Fund for Commodities (CFC) was

established in 1989 with the objectives:

• To serve as a key instrument in attaining the agreed

objectives for the Integrated Programme for
commodities adopted by the UNCTAD.

• To facilitate the conclusion and functioning of ICAs

(International Commodity Agreements), particularly
concerning commodities of special interest to
developing countries.
 Global System of Trade Preference
(GSTP) among Developing Countries

Established in 1988, GSTP serves as a framework for

the exchange of trade preferences between developing

countries in order to promote intra-developing-country

trade.
4. World Intellectual Property Organization
(WIPO)
Established in 1967 is a specialized agency of the UN
with a mandate from its member states to promote the
worldwide protection of IP through cooperation among
states and in collaboration with other international
organizations.
It is dedicated to developing a balanced and accessible
international intellectual property (IP) system, which
rewards creativity, stimulates innovation, and
contributes to economic development while
safeguarding public interest.
 5.United Nations Industrial Development
Organization (UNIDO)

UNIDO, set up in 1966 a specialized agency of the UN to

promote industrialization in developing countries and in
countries with economies in transition. UNIDO helps these
countries in their fight against marginalization in today’s
globalized world. It mobilizes knowledge, skills, information,
and technology to promote a productive employment, a
competitive economy, and a sound environment.
 6. Asian Development Bank (ADB)
The Asian Development Bank is a multilateral financial
institution aims to improve the welfare of people in Asia and the
Pacific, particularly the 1.9 billion who live on less than US $2
per day. It is owned by 67 member countries, 48 from the
region, and 19 from other parts of the globe.

The ADB has an important role to play in making the region free
of poverty, as Asia and the Pacific region are home to two thirds
of the world’s poor.
 7. United Nations Economic and Social
Commission for Asia and the Pacific (UN-
ESCAP)
Established in 1947, headquarters at Bangkok ESCAP
is the most comprehensive of the UN’s five regional
commissions aimed at developing the Asia-Pacific
region. It fosters cooperation between its 53 members
and nine associate members.
II. Organizations for International Trade Promotion

Almost all countries have set-up international trade promotion

organizations. Such organization usually carries out one or more
of the following activities:
• Identifying trade and investment needs of local firms
• Keeping a watch on international business environment
affecting country’s trade
• Gathering, compiling and disseminating information
• Spotting opportunities for international trade and
investment
• Matchmaking between buyers and sellers
• Organizing trade missions, trade delegations, buyer-
seller meets, etc.
• Facilitating participation and organizing trade
exhibitions
• Networking with foreign trade promoting organizations
• Carrying out generic market promotion and marketing
services
 1. International Trade Centre
• The International Trade Centre (ITC) is a multilateral agency
which has a joint mandate with the World Trade Organization
(WTO) and the United Nations (UN) through the
United Nations Conference on Trade and Development
(UNCTAD).
• Through its work, the ITC contributes directly to 10 of the
Sustainable Development Goals. These include SDG 1 (no
poverty), Goal 2 (zero hunger), Goal 4 (Quality Education),
Goal 5 (Gender Equality), Goal 8 (Decent Work and Economic
Growth), Goal 9 (Industry, innovation and infrastructure),
Goal 10 (Reduced Inequalities), Goal 12 (Responsible
Production and Consumption), Goal 16 (Peace, Justice and
strong institutions), and Goal 17 (Partnerships for the Goals).
 2. Import Promotion Organizations

Many countries are substantially dependent on imports due to limited

availability of their resources or imports heavily due to heavy trade surpluses.

These countries have set up institutional frameworks to promote imports so as

to develop competitive supplier base for its importing firms. Such import

promotion organizations also facilitate the foreign exporting firms to explore

marketing opportunities and identify importers. Major export promotion

organizations include: CBI, JETRO, SIPPO, DIPO etc.

 III. Institutional Framework for
International Trade in India
• Department of Commerce
– Economic Division: It is engaged in export planning, formulation of export
strategies.
– Trade Policy Division: it is responsible for India’s relationship with regional
trading agreements such as NAFTA, SAFTA, EU.
– Foreign Trade Territorial Division: It deals with state trading and barter trade,
organisation of trade fairs and exhibitions.
– Export Product Division: it looks after problems connected with production,
generation of surplus and development of products for exports.
– Export Industries Division: it is responsible for development and regulation of
rubber, tobacco and cardamom and for handling export promotion.
– Export Services Division : deals with the problems of export assistance such as
export credit, market development assistance.
• Department of Commerce

– Subordinate offices

• Directorate General of Foreign Trade (DGFT)

• Directorate General of Commercial Intelligence and

Statistics (DGCI&S)

• Directorate General of Anti-Dumping and Allied Duties

(DGAD)
 Advisory Bodies
– Board of Trade: It was set up under the chairmanship of the
union minister of commerce and industry in May 1989. To
commence studies for promoting trade and to advise the govt on
policy measures for preparation and implementation of both
short and long term plans for increasing exports.
– Export Promotion Board: It works under the chairmanship of
the cabinet Secretary to provide policy and infrastructural
support. The coordinated approach of the Export Promotion
board provides the required impetus to the export sector and
resolves inter-ministerial in promoting exports.
 Commodity Organizations
Export Promotion Council
• Engineering
• Project
• Pharmaceuticals
• Basic chemicals, pharmaceuticals, and cosmetics
• Chemicals and allied products
• Leather
• Sports goods
• Gems and jewellery
• Shellac
• Cashew
• Plastic
• Apparel
• EOUs and SEZs
• Carpet
• Cotton textiles
• Handicrafts
• Handloom
• Indian silk
• Synthetic and Rayon textile
• Wool and woollens
• Powerloom
 Commodity Board
• Tea Board
• Coffee Board
• Coir Board
• Central Silk Board
• All-India Handlooms and Handicraft Board
• Rubber Board
• Cardamom Board
• Tobacco Board
• Spices Board
 Autonomous Bodies

– Agriculture and Processed Food Products Export

Development Authority (APEDA)

– Marine Products Export Development Authority

(MPEDA)
 Service Institutions
• Indian Institute of Foreign Trade (IIFT)
• Export Inspection Council (EIC)
• Indian Council of Arbitration (ICA)
• India Trade Promotion Organization (ITPO)
• India Trade Promotion Organization (ITPO)
• National Centre for Trade Information (NCTI)
• Export Credit Guarantee Corporation (ECGC)
• Export-Import bank of India (EXIM Bank)
• Indian Institute of Packaging (IIP)
• Federation of Indian Export Organizations (FIEO)
 Government Participation in Foreign Trade

For supplementing the efforts of the private sector in the

field of foreign trade, the Government of India has set
up a number of trading corporations:
• State Trading Corporation (STC)

• Minerals and Metals Trading Corporation (MMTC)

• Spices Trading Corporation Limited (STCL)

• Metal Scrap Trading Corporation (MSTC)

These corporations have provided the essential base for

developing and strengthening efforts relating to specific

commodities and products and diversifying the

country's foreign trade.

 States' Involvement in Promoting Exports

The central and state governments have enacted a number of

measures to promote exports such as Inter-State Trade

Council, States’ Cell in Ministry of Commerce and state

government departments / organizations.

 Inter-State Trade Council

Set up in order to ensure a continuous dialogue between

the state governments and Union Territories. It advises

the governments on measures for providing a healthy

environment for international trade with a view to boost

India’s exports.
 States’ Cell in Ministry of Commerce

As an attempt to involve states in export promotion, the

Union Government has created a State’s Cell under the

Ministry of Commerce.
 Institutional Infrastructure for Export Promotion by
State Governments

The State Level Export Promotion Committee (SLEPC) headed by the Chief

Secretary is the apex body at state level promoting exports. It scrutinizes and

approves projects and overseas implementation of union government’s scheme

on Assistance to States for Development of Export Infrastructure and other

activities (ASIDE). Besides most states also promote exports either through

their industries department or a separate establishment.