This document discusses foreign direct investment (FDI), multinational corporations, and international trade organizations. It provides definitions and organizational models for multinationals, including international and global models. It also outlines the merits and demerits of multinationals for host countries. Additionally, it discusses key international economic institutions like the IMF, World Bank, and WTO/GATT. It explains their roles in facilitating global trade and financing. Finally, it summarizes some major WTO agreements regarding intellectual property (TRIPS) and investment measures (TRIMS).

1. FDI, WTO and
Trading Blocks

2. MEANING OF
MULTINATIONAL’S

3. ORGANIZATIONAL MODELS
• MULTINATIONAL CORPORATIONS: A corporation that
has its facilities and other assets in at least one country
other than its home country. Such companies have
offices and/or factories in different countries and usually
have a centralized head office where they co-ordinate
global management. Very large multinationals have
budgets that exceed those of many small countries
• INTERNATIONAL ORGANIZATIONAL MODEL: The
headquarters transfers knowledge and expertise to
overseas environments that were less advanced in
technology or market development
• GLOBAL ORHANIZATIONAL MODEL: it is based on
centralization of assets, resources and responsibilities,
overseas operations are used to reach foreign markets
in order to build global scale, the local subsidiary
assemble and sell the products

4. Merits of MNC’s
• investment level increased
• up gradation in technology in the host country
• management techniques, professional
management
• increase in exports and decrease in imports
• integration of national economy

5. Demerits of MNC’s
• can retard the growth of employment in
the home country
• destroy competition and acquire
monopoly power
• can evade the national economy in terms
of activities which might not be in interest
of the particular countries

6. INTERNATIONAL INVESTMENTS
• TYPES OF INVESTMENTS:
1. FOREIGN DIRECT INVESTMENTS
• PORTFOLIO INVESTMENTS: The major
constituents of Portfolio investment (FII investment) in India are
fund flows and resource mobilization by Indian companies
through American Depository Receipts (ADRs) and Global
Depository Receipts (GDRs). These inflows are indicative of
robustness of Indian capital market and overall macroeconomic
conditions.

7. Q.2. What is the procedure for receiving Foreign Direct Investment in an Indian
company? Ans. An Indian company may receive Foreign Direct Investment under the
two routes as given under:
• i) Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government
or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI
Policy, issued by the Government of India from time to time.
• Ii) Government Route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs, Ministry of Finance. The Indian company having
received FDI either under the Automatic route or the Government route is required to
comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank.

8. AS PER RBI NORMS……
• Foreign investment is reckoned as FDI only if the investment is made in equity shares , fully
and mandatorily convertible preference shares and fully and mandatorily convertible
debentures with the pricing being decided upfront as a figure or based on the formula that is
decided upfront. Any foreign investment into an instrument issued by an Indian company
which:
• gives an option to the investor to convert or not to convert it into equity or
• does not involve upfront pricing of the instrument
• as a date would be reckoned as ECB and would have to comply with the ECB guidelines.
• The FDI policy provides that the price/ conversion formula of convertible capital instruments
should be determined upfront at the time of issue of the instruments. The price at the time of
conversion should not in any case be lower than the fair value worked out, at the time of
issuance of such instruments, in accordance with the extant FEMA regulations [the DCF
method of valuation for the unlisted companies and valuation in terms of SEBI (ICDR)
Regulations, for the listed companies

9. FDI’S NORMS 2009-10
• 100% Foreign investment will henceforth be permitted in
mining of titanium bearing minerals and up to 49 per cent in
credit information companies. However, for investment in credit
information companies, the permission of the Reserve Bank of
India (RBI) will be necessary.
• Revised FDI policy would now permit 100 per cent foreign
investment in maintenance, repair and overhauling (MRO)
facilities for aircraft as also aviation training units.
• The new FDI policy has also done away with the norms of 26
per cent compulsory equity divestment in fuel and gas trading
ventures.

10. Restricted Areas
Virtually all the sectors are opened for the foreign investors but there
are certain sectors in which foreign investors are not allowed to
participate. These are
• Arms and ammunition.
• Atomic Energy
• Railway Transport
• Coal and lignite
• Mining of iron, manganese, chrome, gypsum, sulphur, gold,
diamonds, copper, zinc

11. • Example of FPI: John Yamashita, a Japanese citizen, purchases one
hundred shares of stock in General Motors (GM). John now owns part of a
U.S. corporation, the shares of which are part of his personal investment
portfolio. John is eligible to receive dividend payments from GM, participate
in shareholder decisions, or sell the stock for a profit/loss. John’s share of
GM is very minor, and his chief concern is not the long-term profitability of
the company but the short-term value of his stock. He might therefore sell
his share quickly if the share price goes up or down significantly.
• Example of FDI: Hungry Dragon Toys, a Chinese company, is sitting on a
lot of cash. The company’s board of directors decides to take some of that
money and purchase Cooperative Chemical, a plastics company in New
Jersey. Hungry Dragon, a foreign investor, now owns a U.S. subsidiary
company. Unlike John Yamashita’s small investment in GM, Hungry
Dragon’s ownership of Cooperative Chemical is substantial and more likely
to be long term. Hungry Dragon is unlikely to sell if the U.S. economy faces
a temporary downturn.

12. CLASSIFICATION OF FDI IN
INDIA

13. Significance of Foreign Investment
Foreign capital and technology can play a very
important role in the socio-economic development of a
nation.
1. Helps economic growth by facilitating essential
imports.
2. Foreign Investment (FI) may also help increase a
country’s exports and reduce import.
3. FI also increases jobs and domestic labour may get
higher wages.
4. Consumer get cheaper goods.
5. FI may also bring in a lot of indirect gains.

14. Limitations and Dangers of Foreign
Capital
1. Mostly FI is in high profit areas and not in priority
areas.
2. Unfavourable effect on balance of payment.
3. Sometimes interfere with national politics.
4. Danger of creation of monopolies or oligopolistic
structures.

16. DIRECTIONAL TRENDS

17. Foreign Investment in India
• The flow of direct foreign investment to India has been
comparatively limited because of the type of industrial
development strategy and the very cautious foreign
investment policy followed by the nation.
• Direct foreign investment (private) in India was adversely
affected by the following factors.
1.The public sector was assigned a monopoly or dominant
position in the most important industries
and, therefore, the scope of private investment, both
domestic and foreign, was limited.
2.When the public sector enterprises needed foreign
technology or investment, there was a marked preference
for the foreign government sources.

18. 3. Government policy towards foreign capital was very
selective. Foreign investment was normally permitted
only in high technology industries in priority areas and in
export oriented industries.
4. Foreign equity participation was normally subject to a
ceiling or 40 per cent, although exceptions were allowed
on merit.
5. Payment of dividends abroad, repatriation of capital, etc.,
as well as inward remittances were subject to stringent
laws like the Foreign Exchange Regulation Act (FERA),
1973. These discouraged foreign investment.
6. Corporate taxation was high and tax laws and
procedures were complex.
7. These factors either limited the scope of or discouraged
the foreign investment in India.

21. International Economic Institutions
• Three global organizations play major role
in international economic relations:
– International Monetary Fund (IMF)
– World Bank (WB)
– World Trade Organization (WTO)
• WTO is successor to GATT (General
Agreement on Tariffs and Trade)

22. Bretton Woods Conference, 1944
• Bretton Woods, New Hampshire
• 44 nations participated, led by U.S., U.K.
• Established IMF, World Bank
• GATT started up soon thereafter

23. International Monetary Fund (IMF)
• Over 180 members
• Oversees exchange rate policies
• Monitors international payments
imbalances
• Provides temporary loans for balance-of-
payments financing

24. International Monetary Fund
• Main function: help countries overcome
international payments crisis
• Crisis occurs when country runs out of
foreign exchange reserves – a major
currency or gold that can be used to pay for
imports and international borrowings
• IMF conditionality – requirement for the
borrowing member to carry out economic
reforms in exchange for a loan

25. World Bank
• Founded as the International Bank for
Reconstruction and Development (IBRD)
• Over 180 members
• Main functions: provide loans to developing
countries for projects aimed at:
– poverty reduction
– improvement of health and education systems
– infrastructure for private sector development
(bridges, dams, etc.)

26. During great depression of 1930’s the
international trade was badly affected and
various countries imposed import restrictions
for safeguarding their economies.
It resulted in sharp decline in world trade.
1n 1945, USA put forward many proposals for
extending international trade and employment.
On October 30th, 1947; 23 countries at
Geneva signed an agreement related to tariffs
imposed on trade.
BACKGROUND

27. GATT/WTO
• WTO principles and agreements are a very important
component of the global business environment
significantly impacting domestic as well as global
business, includes around 150 signatory nations.
• The General Agreement on Tariffs and Trade (GATT),
the predecessor of WTO, was born in 1948 as result
of the international desire to liberalize trade.
• The GATT was transformed into a World Trade
Organization (WTO) with effect from January, 1995.
• India is one of the founder members of the IMF, World
Bank, GATT and the WTO.

28. • Raising standard of living.
• Ensuring full employment and a large and
steadily growing volume of real income and
effective demand.
• Developing full use of the resources of the
world.
• Expansion of production and international trade

29. Objectives
• Raising standard of
living.
• Ensuring full
employment and a large
and steadily growing
volume of real income
and effective demand.
• to strengthen & clarify
rules for agriculture trade
• Expansion of production
and international trade
• Developing full use of the
resources of the world.

30. Function
• GATT's main function is to promote fair trade
among member nations by reducing and
regulating trade tariffs and by providing a
common way to solve any sort of trade dispute.
More recently, the GATT has become
concerned with how global trade is impacting
the environment as well as intellectual property
rights.

31. NON DISCRIMINATION
• A contracting party’s trade policies must treat all
GATT members equally.
• No member country shall discriminate between the
members of GATT in the conduct of international
trade.
• tariff concessions, once made, cannot be rescinded
without compensating trade partners, and new
barriers cannot be erected in place of lowered tariffs.
• trade disputes to be settled by consultation.
• national treatment – imported goods treated same as
domestic goods
PRINCIPLES ADOPTED BY GATT

32. Uruguay Round, 1986-93
• Over 100 Nations Participated
• Very Contentious Because Issues Went Far
Beyond Tariff Reduction
– Nontariff Barriers, Intellectual Property Rights,
Services Trade, Agriculture Polices, Improving How
GATT Functions
• Created WTO as successor to GATT, beginning
in 1995

33. GATT WTO
GATT was ad hoc and provisional WTO and its agreements are permanent
GATT had contracting parties WTO has members
GATT system allowed existing domestic
legislation to continue even if it violated a
GATT agreement
WTO does not permit this
GATT system was less powerful, dispute
settlement system was slow and less
efficient, its ruling could easily blocked
WTO is more powerful than GATT,
dispute settlement mechanism is faster
and more efficient, very difficult to block
the rulings.
Following the UR agreement, GATT was converted
from a provisional agreement into a formal
international organization called World Trade
Organization (WTO), with effect from January 1, 1995
FROM GATT TO WTO

34. World Trade Organization (WTO)
• The World Trade Organization (WTO) deals with the global
rules of trade between nations. Its main function is to ensure
that trade flows as smoothly, predictably and freely as possible.
• WTO is an organization for liberalizing trade, a forum for
governments to negotiate trade agreements and a place for
them to settle trade disputes
• At the heart of the system — known as the multilateral trading
system — are the WTO’s agreements, negotiated and signed
by a large majority of the world’s trading nations, and ratified in
their parliaments.
• The WTO has larger membership than GATT, with the numbers
being 153. India is one of the founder members of GATT.

35. Functions of WTO:
WTO is based in Geneva, Switzerland. Its
functions are:
Administering the multilateral trade agreements
which together make up the WTO
Acting as a forum for multilateral trade
negotiations
Seeking to resolve trade disputes
WTO is not a ―Free trade‖ institution. It permits
tariffs and other forms of protection but only in
limited circumstances.

36. Principles of WTO
• Non discrimination
• Free Trade: Promote free trade between nations
through negotiations.
• Stability in the trading system: Member countries
are committed not to raise tariff and non tariffs
barriers arbitrarily.
• Promotion of Fair Competition: WTO provides
for transparent, fair and undistorted competition.
• It discourages unfair competitive practices such
as export subsidies and dumping.

37. TRIPS (Trade Related Intellectual Property
Rights Agreement)
• The agreement requires member countries to
provide patent protection to all products or
processes in all fields. The protection is granted
subject to the following three conditions:
– The product or process is a new one.
– It contains an inventive step.
– It is capable of industrial application for 20 years
from the grant of the patent

38. TRIPS (Trade Related Intellectual
Property Rights Agreement)
• TRIPS agreement covers the following seven
intellectual properties:
– Patents
– Copyright and other related Rights
– Geographical Indications
– Industrial Designs
– Trade marks
– Layout design of integrated circuits
– Undisclosed information including trade secrets

39. TRIMS (Trade Related Investment
Measures)
• TRIMS refers to certain conditions or restrictions
imposed by a government in respect of foreign
investment in the country.
• In the late 1980's, there was a significant increase
in foreign direct investment throughout the world.
• TRIMS are widely employed by developing
countries. The Agreement on TRIMs provides that
no contracting party shall apply any TRIM which is
inconsistent with the WTO articles