REPORT

ON

BILATERAL & COMMODITY

AGREEMENT

PREPARED BY:

Srusti Bhavsar(11305)

Bhargav Gajjar(11316)

Jaimini Yagnik (11348)

Hareen Chhabra(11352)
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Bilateral trade: The exchange of goods between two countries. Bilateral trade agreements give
preference to certain countries in commercial relationships, facilitating trade and investment
between the home country and the foreign country by reducing or eliminating tariffs, import
quotas, export restraints and other trade barriers. Bilateral trade agreements can also help
minimize trade deficits.

Commodity trade: Commodities trading is a sophisticated form of investing. It is similar to

stock trading but instead of buying and selling shares of companies, an investor buys and sells
commodities. Like stocks, commodities are traded on exchanges where buyers and sellers can
work together to either get the products they need or to make a profit from the fluctuating prices.
(for e.g Sugar, Coco, Coffee)

GATS (General Agreement on Trade in Services)

• The General Agreement on Trade in Services (GATS) is a treaty of the World Trade
Organization (WTO) that entered into force in January 1995 as a result of the Uruguay
Round negotiations. The treaty was created to extend the multilateral trading system
to service sector, in the same way the General Agreement on Tariffs and Trade (GATT)
provides such a system for merchandise trade.

• All members of the WTO are signatories to the GATS. The basic WTO principle of most
favored nation (MFN) applies to GATS as well. However, upon accession, Members may
introduce temporary exemptions to this rule.

• Principles and Obligations:

The general principles and obligations of GATS are very similar to those for trade in goods.
Examples include MFN treatment National treatment, as well as transparency obligations and
commitments, like the tariff schedules under GATT, are an integral part of the agreement.

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 • Scope:

The scope of the GATS agreements very broad and it covers all measures affecting
internationally traded services. It is important in practical terms for negotiators to define what
is meant by the term “trade in services”.

• Under GATS, ”trade” includes all the different ways of providing an international
services.

• GATS defined four methods of providing an international services-it calls them MODES
OF DELIVERY, these all are defined in the table:

Modes Criteria Examples

Mode 1:cross Services supplied from one International telephone calls

border country to another

Mode To make use of a service of one Tourism, movement of patients

2:consumption country in another member
abroad country

Mode To set up subsidiaries or Banks operating in foreign

3:Commercial branches to provide services in countries, investment in foreign
presence another country countries’ firm

Mode 4:Presence of Individuals traveling from their Fashion models, CA, Doctors
natural persons country to supply services in
another country

Key rules associated with GATS

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 • MFN treatment:

If you favour one, you favour them all. The MFN treatment means treating trading
partners equally.

• National treatment:

An equal treatment or national treatment for foreigners and nationals.

• Transparency:

The government must setup enquiry points within their bureaucracy.

• Regulations:

The government should regulate the services reasonably, objectively and impartially.

Intellectual Property: Protection and Enforcement of Rights

• Importance of ideas:

Ideas and knowledge are an increasingly important part of trade. Most of the value of
new medicines and other high technology products lies in the amount of invention, innovation,
research, design and testing involved. Films, music recordings, books, computer software and
on-line services are bought and sold because of the information and creativity they contain, not
usually because of the plastic, metal or paper used to make them. Many products that used to be
traded as low-technology goods or commodities now contain a higher proportion of invention
and design in their value — for example brand named clothing or new varieties of plants. As
usual greater importance is given to ideas, inventions, innovations, R & D.

• Values is in the Idea:

Creators have right to draw advantage from their inventions, designs and other creations.
These rights are known as “intellectual property rights”. These inventions can be patented; and
brand names and product logos can be registered as “trademarks”. They take a number of forms.
For example books, paintings and films come under copyright; inventions can be patented; brand
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names and product logos can be registered as trademarks; and so on. Governments and
parliaments have given creators these rights as an incentive to produce ideas that will benefit
society as a whole.

• Different Levels of Protection:

In the past, the extent of protection and enforcement of these rights varied widely around
the world. But as intellectual property became more important in trade, this difference became a
source of tension in economic relations. New internationally agreed trade rules for intellectual
property rights were seen as a way to introduce more order and predictability, and for disputes to
be settled more systematically.

Entry of TRIPS Agreement

The WTO’s TRIPS Agreement is an attempt to narrow the gaps in the way these rights are
protected around the world, and to bring them under common international rules. It establishes
minimum levels of protection that each government has to give to the intellectual property of
fellow WTO members. In doing so, it strikes a balance between the long term benefits and
possible short term costs to society. Society benefits in the long term when intellectual property
protection encourages creation and invention, especially when the period of protection expires
and the creations and inventions enter the public domain. Governments are allowed to reduce
any short term costs through various exceptions, for example to tackle public health problems.
And, when there are trade disputes over intellectual property rights, the WTO’s dispute
settlement system is now available.

• The TRIPS Agreement was construed as an attempt to narrow the gaps in the way
intellectual property rights are protected around the world, and to bring them under
common international rules. This agreements covers five areas as follows:

1. How basic principles of the trading system and other international, intellectual property
agreements should be applied,

2. How to give adequate protection to intellectual property rights,

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 3. How countries should enforce those rights,

4. How to settle disputes on intellectual property among members of the WTO,

5. Special transitional agreements during the period when the new system is being
introduced.

Basic principles of intellectual property agreement

As in GATT and GATS, the starting point of the intellectual property agreements is its
basic principles and as in the other two agreements non-discrimination features prominently:
national treatment & MFN treatment.

• Protecting intellectual property: The TRIPS Agreement ensures that adequate standards
of protection exist in all member countries. In addition, TRIPS Agreements adds a
significant number of new or higher standards.

• Enforcement: Intellectual property laws should be enforced properly. According to the

agreement, the government has to ensure that these rights can be enforced under their
national laws, and that the penalties for infringement are tough enough to deter further
violation. The procedures must be fair and equitable, and not unnecessarily complicated
or costly.

Liberalizing trade in Goods

1. Industrial goods: Tariffs

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 WTO negotiations produce general rules that apply to all members and specific
commitments made by the individual member government. The specific commitments are listed
in “schedules of concessions”.

2. Tariffs and developed countries:

With the implementations of the Uruguay Round results, the tariffs on industrial products
imported by the developed countries were reduced by 40 % on an average, from 6.3 to 3.8%, and
this tariff reductions are now fully implemented. The proportion of industrial products which
enter the markets of developed countries and face zero MFN duties more than doubled from 20
per cent to 44 per cent of the industrial imports. The share of industrial imports facing duties of
15 per cent or more decreased from 7 per cent before the Uruguay round to 5 per cent after the
full implementation. Tariff picks, that is, high tariffs on individual items, continue to be of
concern mainly in textiles, clothing, leather, rubber, footwear, and travelled goods.

3. Tariffs and developing countries:

As far as the developing countries are concerned, the tariff levels and the continuing
process of negotiated reductions varies considerably. For an ex.

India have reduced its average tariff on industrial goods from 71% to 32%

Korea has reduced its average tariff from 18% to 8%.

4. Binding of tariffs:

Market access schedules are not simply announcement of reduced tariff rates but they are
also commitments of not to increase tariffs above the listed bound rates. For DEVELOPED
COUNTRIES, the bound rates are generally the rates which are actually charged and for
DEVELOPING COUNTRIES, the bound rates are somewhat higher than the actual rates.

Countries can break the commitment of not to raise a tariff above the bound rate but only
in the situation of difficulty. To do so they have to negotiate with the country most affected.

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What is the Multi Fiber Arrangement?

Since 1974, world trade in textiles and apparel has been governed by the Multi Fibre
Arrangement (MFA) which provided the basis on which industrialized countries restricted
imports from developing countries. Every year quotas-the quantities of specified items which can
be traded between trading partners-have been negotiated on a country by country basis. The MFA
does not apply to trade between rich industrialized countries themselves.

Why was the MFA introduced?

The MFA was designed to be a short-term measure primarily to give industrialized countries time
to adjust to competition from imports from developing countries. Producers from the
industrialized world have been protected against competition from producers in the developing
countries.

How has the MFA impacted developing countries?

Although negotiations to determine yearly quota for a developing country have favored the
industrialized countries, apparel factories have located in countries to take advantage of the
quota. This is one of the reasons apparel and textile supplier factories have located in certain
countries (along with low wage costs, supply of materials, infrastructure for transport and
marketing and nearness to market) For example, Bangladesh has benefited from MFA because of
its sizable quotas. The apparel and textile sector has expanded and it has become a major supplier
to both the US market and European markets.

The MFA has not prevented a massive shift in production of textiles and apparel to developing
countries. Asia has become the world's foremost exporter. However the shift would likely have
been greater without the restrictions of MFA. It is estimated that some developing countries have
lost billions of dollars of foreign exchange due to the imposition of MFA trade restrictions.

What is the Agreement on Textiles and Clothing (ATC)?

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During the Uruguay Round negotiations related to the World Trade Organization, an agreement
was reached to phase out the MFA through the implementation of the Agreement on Textiles and
Clothing (ATC). The ATC is an attempt to put an end to the constant extensions of the MFA by
agreeing to a phase out plan after which the textiles an apparel sectors will no longer be subject
to quotas. The ATC set a timetable for phasing out the MFA in four stages beginning in January
1995, with full phase out in January 2005. There are two aspects of the process: 1) the integration
of products into the world trading system and 2) the progressive raising of quotas. The ATC has
been viewed as operating in the interests of developing countries, since it is supposed to increase
their access to the previously protected markets of industrialized countries.

Impact of Multi Fiber Arrangement:

The Overseas Development Institute has estimated that developing countries stand to gain
around $40 to $50 billion from the abolition of restrictions on textile and apparel imports.
However, there is strong criticism of the manner in which the ATC is being interpreted. The US
and European countries are seen as deliberately holding back on the process in order to protect
their own industries.

It is difficult to predict what the effects of the MFA phase-out will be once completed. But it is
clear that the removal of quotas will mean changes in the location of the textile and apparel
industry factories. Some observers predict that by 2005-2006 major textile and clothing buyers
will reduce by half the number of countries they source from and by another third by 2010. A
recent survey by the US Commerce Department, based on talks with firms that currently source
from 40 to 50 countries, reveals that these companies are likely to consolidate sourcing in 12 to
15 countries.

The MFA has had the effect of guaranteeing a Northern market to a wide range of poor countries.
Without the MFA there will be a more open market and the overall result is likely to be a
concentration of the industry in a smaller number of low cost locations. The biggest changes are
expected in the distribution of production in Asia.

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Bangladesh is expected to lose. It developed a apparel industry as a direct result of the MFA and
other trade agreements. Once quotas are removed, Bangladesh is expected to suffer from its lack
of textile industry and poorly developed infrastructure. Thailand, Sri Lanka and the Philippines
may also lose since all three depend on imported fabric and on marketing/buying groups over
which they have little control. Some predict that they will be unable to compete with even lower
cost producers like Vietnam.

China is expected to be a big winner with supplier factories relocating from other countries to
China. China has a large low cost labor force, its own textile industry and the financial and
marketing expertise of firms from Hong Kong. China has already emerged as a dominant
supplier in spite of high quota restrictions. According to Women's Wear Daily, "China accounted
for 96 percent of the textile and apparel import growth [to the US market] during July, with
Vietnam posting the second-largest growth of 22.4 percent…"

WTO AGREEMENT ON AGRICULTURE:

The WTO’s Agriculture Agreement was negotiated in the 1986–94 Uruguay Round and is a
significant first step towards fairer competition and a less distorted sector. WTO member
governments agreed to improve market access and reduce trade-distorting subsidies in
agriculture. In general, these commitments were phased in over a six years from 1995 (10 years
for developing countries). The agriculture committee oversees the agreement’s implementation.

Meanwhile, members also agreed to continue the reform. Further talks, which are separate from
the committee’s regular work, began in 2000. They were included in the broader negotiating
agenda set at the 2001 Ministerial Conference in Doha, Qatar.

After over 7 years of negotiations the Uruguay Round multilateral trade negotiations were
concluded on December 15, 1993 and were formally ratified in April 1994 at Marrakesh,
Morocco. The WTO Agreement on Agriculture was one of the many agreements which were
negotiated during the Uruguay Round.

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The implementation of the Agreement on Agriculture started with effect from January 1, 1995.
As per the provisions of the Agreement, the developed countries would complete their reduction
commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing
countries would be completed within 10 years, i.e., by the year 2004. The least developed
countries are not required to make any reductions.

The products, which are included within the purview of this agreement, are what are normally
considered as part of agriculture except that it excludes fishery and forestry products as well as
rubber, jute, sisal, abaca and coir.

The WTO Agreement on Agriculture contains provisions in 3 broad areas of agriculture and trade
policy: market access, domestic support and export subsidies.

Market Access

This includes tariffication, tariff reduction and access opportunities. Tariffication means that all
non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary
licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and
converted into an equivalent tariff. Ordinary tariffs including those resulting from their
tariffication are to be reduced by an average of 36% with minimum rate of reduction of 15% for
each tariff item over a 6 year period. Developing countries are required to reduce tariffs by 24%
in 10 years. Developing countries as were maintaining Quantitative Restrictions due to balance
of payment problems, were allowed to offer ceiling bindings instead of tariffication.

Special safeguard provision allows the imposition of additional duties when there are either
import surges above a particular level or particularly low import prices as compared to 1986-88
levels.

It has also been stipulated that minimum access equal to 3% of domestic consumption in 1986-
88 will have to be established for the year 1995 rising to 5% at end of the implementation period.

Domestic support

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For domestic support policies, subject to reduction commitments, the total support given in
1986-88,measured by the total Aggregate Measurement of Support (AMS) should be reduced by
20% in developed countries (13.3% in developing countries). Reduction commitments refer to
total levels of support and not to individual commodities. Policies which amount to domestic
support both under the product specific and non-product specific categories at less than 5% of
the value of production for developed countries and less than 10% for developing countries are
also excluded from any reduction commitments. Polices which have no or at most minimal trade
distorting effects on production are excluded from any reduction commitments (Green Box-
Annex 2 of the Agreement on Agriculture - http://www.wto.org). The list of exempted green box
policies includes such policies which provide services or benefits to agriculture or the rural
community, public stock holding for food security purposes, domestic food aid and certain de-
coupled payments to producers including direct payments to production limiting programmes,
provided certain conditions are met.

Special and Differential Treatment provisions are also available for developing country
members. These include purchases for and sales from food security stocks at administered prices
provided that the subsidy to producers is included in calculation of AMS. Developing countries
are permitted untargeted subsidized food distribution to meet requirements of the urban and rural
poor. Also excluded for developing countries are investment subsidies that are generally
available to agriculture and agricultural input subsidies generally available to low income and
resource poor farmers in these countries.

Export Subsidies

The Agreement contains provisions regarding member's commitment to reduce Export Subsidies.
Developed countries are required to reduce their export subsidy expenditure by 36% and volume
by 21% in 6 years, in equal installment (from 1986-1990 levels). For developing countries the
percentage cuts are 24% and 14% respectively in equal annual installment over 10 years. The
Agreement also specifies that for products not subject to export subsidy reduction commitments,
no such subsidies can be granted in the future.

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TRADE REMEDIES:

Under the WTO Agreements, members have the right to apply trade remedies in the form
of anti-dumping, countervailing or safeguard measures subject to specific rules.

The rules, under certain conditions, permit members to take trade remedy measures when
it is established that foreign producers are resorting to unfair practices by charging low
prices in the importing markets. Such low prices may be the result of: dumping by
foreign firms, permitting countries to levy anti-dumping duties; or, subsidization by
governments allowing the importing countries to levy countervailing duties to offset the
element of subsidy in the price.

Furthermore, safeguard actions may be taken when the domestic industry faces problems
due to its inability to meet increased import competition following the reduction of tariffs
or removal of other restrictions.

In the Doha Ministerial Conference, Ministers agreed to launch negotiations aimed at

clarifying and improving disciplines under the Agreements on Implementation of Article
VI of the GATT 1994 (Anti-Dumping) and on Subsidies and Countervailing Measures,
while preserving the basic concepts, principles and effectiveness of these Agreements
and their instruments and objectives, and taking into account the needs of developing and
least-developed participants.

In the context of these negotiations, participants shall also aim to clarify and improve WTO
disciplines on fisheries subsidies, taking into account the importance of this sector to developing
countries.

Anti dumping actions:

If a company exports a product at a price lower than the price it normally charges on its own
home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ,

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but many governments take action against dumping in order to defend their domestic industries.
The WTO agreement does not pass judgment. Its focus is on how governments can or cannot
react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-
Dumping Agreement”. (This focus only on the reaction to dumping contrasts with the approach
of the Subsidies and Countervailing Measures Agreement.)

The legal definitions are more precise, but broadly speaking the WTO agreement allows
governments to act against dumping where there is genuine (“material”) injury to the competing
domestic industry. In order to do that the government has to be able to show that dumping is
taking place, calculate the extent of dumping (how much lower the export price is compared to
the exporter’s home market price), and show that the dumping is causing injury or threatening to
do so.

GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping
Agreement clarifies and expands Article 6, and the two operate together. They allow countries to
act in a way that would normally break the GATT principles of binding a tariff and not
discriminating between trading partners.

There are many different ways of calculating whether a particular product is being dumped
heavily or only lightly. The agreement narrows down the range of possible options. It provides
three methods to calculate a product’s “normal value”. The main one is based on the price in the
exporter’s domestic market. When this cannot be used, two alternatives are available — the price
charged by the exporter in another country, or a calculation based on the combination of the
exporter’s production costs, other expenses and normal profit margins. And the agreement also
specifies how a fair comparison can be made between the export price and what would be a
normal price.

Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only
be applied if the dumping is hurting the industry in the importing country.

Anti-dumping investigations are to end immediately in cases where the authorities determine that
the margin of dumping is insignificantly small (defined as less than 2% of the export price of the
product). Other conditions are also set. For example, the investigations also have to end if the

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volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of
total imports of that product — although investigations can proceed if several countries, each
supplying less than 3% of the imports, together account for 7% or more of total imports).

The agreement says member countries must inform the Committee on Anti-Dumping Practices
about all preliminary and final anti-dumping actions, promptly and in detail. They must also
report on all investigations twice a year. When differences arise, members are encouraged to
consult each other. They can also use the WTO’s dispute settlement procedure.

Subsidies and countervailing measures:

The WTO Agreement on Subsidies and Countervailing Measures disciplines the use of
subsidies, and it regulates the actions countries can take to counter the effects of subsidies.
Under the agreement, a country can use the WTO’s dispute-settlement procedure to seek the
withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its
own investigation and ultimately charge extra duty (“countervailing duty”) on subsidized
imports that are found to be hurting domestic producers.

In the agreement, Part I provides that the SCM Agreement applies only to subsidies that are
specifically provided to an enterprise or industry or group of enterprises or industries, and
defines both the term “subsidy” and the concept of “specificity.” Parts II and III divide all
specific subsidies into one of two categories: prohibited and actionable and establish certain
rules and procedures with respect to each category. Part V establishes the substantive and
procedural requirements that must be fulfilled before a Member may apply a countervailing
measure against subsidized imports. Parts VI and VII establish the institutional structure and
notification/surveillance modalities for implementation of the SCM Agreement. Part VIII
contains special and differential treatment rules for various categories of developing country
Members. Part IX contains transition rules for developed country and former centrally-
planned economy Members. Parts X and XI contain dispute settlement and final provisions.

Safe guarding producers:

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The Agreement on Safeguards (“SG Agreement”) sets forth the rules for application of safeguard
measures pursuant to Article XIX of GATT 1994. Safeguard measures are defined as
“emergency” actions with respect to increased imports of particular products, where such
imports have caused or threaten to cause serious injury to the importing Member's domestic
industry. Such measures, which in broad terms take the form of suspension of concessions or
obligations, can consist of quantitative import restrictions or of duty increases to higher than
bound rates.

The SG Agreement was negotiated in large part because GATT Contracting Parties increasingly
had been applying a variety of so-called “grey area” measures (bilateral voluntary export
restraints, orderly marketing agreements, and similar measures) to limit imports of certain
products. These measures were not imposed pursuant to Article XIX, and thus were not subject
to multilateral discipline through the GATT, and the legality of such measures under the GATT
was doubtful. The Agreement now clearly prohibits such measures, and has specific provisions
for eliminating those that were in place at the time the WTO Agreement entered into force.

In its own words, the SG Agreement, which explicitly applies equally to all Members, aims to:
(1) Clarify and reinforce GATT disciplines, particularly those of Article XIX;

(2) Re-establish multilateral control over safeguards and eliminate measures that escape such
control; and

(3) Encourage structural adjustment on the part of industries adversely affected by increased
imports, thereby enhancing competition in international markets.

India has bilateral trade agreements with the following countries and regional blocs:

1. SAFTA (Bangladesh, Bhutan, the Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan)
2. ASEAN (ASEAN- India Free Trade Area)

3. European Union

4. Sri Lanka

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 5. Singapore

6. Thailand (separate from FTA agreement with ASEAN)

7. Malaysia (separate from FTA agreement with ASEAN)

8. Japan

9. European Free Trade Association (EFTA) (negotiation ongoing)

10. Canada (negotiation ongoing)

11. South Korea (India – Korea CEPA)

Commodity Agreements:
The International trade in some commodities is influenced by International Commodity
Agreements which are inter- governmental agreements concerning the production of, and trade
in, certain primary products with a view to stabilizing their prices.

Basic objective is to stimulating a dynamic and steady growth and ensuring reasonable
predictability in the real export earnings of the developing countries so as to provide them with a
expanding resources for their economic and social development.

Commodity agreements may take any of the four forms, namely,

1) Quota

2) Buffer Stock

3) Bilateral contract

4) Multilateral contract

5) Cartels

1) Quota:

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Quota Agreements were formed to prevent the fall in prices of commodities by regulating their
supply. Under these agreements export quotas were determined and allocated to participating
countries according to mutually agreed formula and accordingly export and productions are
restricted. Examples are Coffee Agreements, Sugar producers.

Demerit: Misallocation of resources, freezing of market, keeping supply below optimum level

Merit: Avoids accumulation of stock, no financing required, provides the necessary short run
flexibility of supply if combined with buffer pool.

2) Buffer Stock Agreements:

It was introduced to stabilize commodity prices by maintaining the demand supply balance.
Buffer stock agreements stabilize the price by increasing the market supply by the sale of the
commodity when price tend to rise and by absorbing excess supply to prevent a fall in the price.
Price range of commodity is generally set by an international agency where buy at minimum and
sell at maximum plan is utilized. Examples are tin, Cocoa and Sugar.

Demerit: it can be affected only for those products which can be stored at a relatively low cost
w/o the danger of deterioration. Further, larger financial resources and stocks of the commodity
are required to lunch the programme successfully.

3) Bilateral / Multilateral Contracts:

Bilateral contract to purchase and sell certain quantities of commodities at agreed prices may be
entered into between a major importer and exporter of the commodity. In such agreements, an
upper price and a lower price are specified. If the market price, throughout the period of the
agreement, remains within these specified limits, the agreement becomes inoperative. But if the
market price rises above the upper limit specified, the exporting country is obliged to sell to the
importing country at the upper price fixed by the agreements. If the market price falls below the
lower limit specified, the importer is obliged to purchase the contracted quantity at the specified
lower price. Multilateral agreements are improved version of bilateral agreements where more
countries are involved in such agreements as suppliers as well as importers. Example is

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International wheat agreements, where at fixed maximum price exporting countries guaranteed to
supply stipulated amount of wheat and at fixed minimum rate importing countries guaranteed to
purchase fixed amount of wheat.

Merits: It preserves free market as an allocator of the resources and an indicator of trends,
provided that not all supplies are covered by it. Technical problems of contract are quite
manageable although difficulties grow as the agreement is drawn tighter to make it more
effective.

Demerits: It requires domestic control of some sort and buffer stock to implement it. And it is
quite apt to put the participating governments into commodities’` business

The experiences of the post war market stabilization schemes indicate that a combination of
different control techniques is likely to be more effective than reliance on a single technique
alone.

4) Cartels

A cartel is a formal, explicit agreement among competing firms. It is a formal organization of

producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually
occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to
entry, most notably startup costs, are high) and the products being traded are usually commodities.
Cartel members may agree on such matters as price fixing, total industry output, market shares,
allocation of customers, allocation of territories, bid rigging, establishment of common sales
agencies, and the division of profits or combination of these. The aim of such collusion (also called
the cartel agreement) is to increase individual members' profits by reducing competition.

International cartels are agreements between producers located in different countries or between
governments of different countries to restrict competition. Although the main aim of a cartel,
normally, is to control prices, this is often accompanied by output and investment quotas for
making the price control effective. Thus, the existence of international cartels hamper free trade
in concerned products.

Cartels are common in the market structure known as oligopoly which is characterized by a
relatively small number of firms. The firms under oligopoly tacitly collude to keep out potential
competitors and to reduce the degree of competition between themselves. Although these firms

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do not formally agree on these policies, they carry them out implicitly because it is in their
mutual interest to do so.

While domestic cartels are often prohibited or controlled by the respective governments,
international cartels are often sponsored or sanctioned by the governments of the countries
concerned. Example: Organization of Petroleum Exporting Countries (OPEC) and International
Air Transport Association (IATA), a cartel of major airlines established to set up their air fares
and restrict competition.

Cartels should be distinguished from International Commodity Agreements. The cartel is

basically a unilateral decision by producers to co-operate while a commodity agreement, in
principle, includes consumers in the negotiations, although in practice consumers (as opposed to
consuming governments) have little direct say in their operation.

The International Cocoa Agreement

 In 2003, an agreement was made between the seven main cocoa exporting countries,
Cameroon, Ivory Coast, Gabon, Ghana, Malaysia, Nigeria and Togo, and the main
importing countries including the EU members, Russia, and Switzerland.
 The main purpose of this agreement was to promote the consumption and production of
cocoa on a global basis as well as stabilize cocoa prices, which had been falling steadily.
The agreement was planned to continue until 2010.

OPEC (0rganisation of petroleum exporting countries)

 OPEC was formed in Baghdad in 1960 to coordinate and unify the policies of petroleum
exporting nations
 The main objective of OPEC is to ensure the “stabilization of oil prices in international
markets” and securing a steady income to oil producing nations

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 In order to achieve these objectives, the OPEC nations meet at least bi-annually to decide
whether to raise or lower their collective oil production in order to maintain “stable”
prices

 The main factors in their formulating of petroleum policy are the forecasts for economic
growth rates and petroleum demand and supply

 The 11 OPEC member countries produce about 40% of the world’s crude oil, and
therefore have a strong influence on the oil market

 At the end of 2001, OPEC had reserves of nearly 850 billion barrels of crude oil,
representing nearly 80% of the world total of over 1 trillion barrels

List of International Commodity Agreements

 International Grain Agreement

 Association of National Rubber Producing Countries

 International Coffee Agreement

 International Cotton Advisory Committee

 International Cocoa Agreement

 International Jute Council

 OPEC(Organization of petroleum exporting countries)

 International Sugar Agreement

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Importance of Bilateral and Commodity Agreements for Managers

Bilateral agreements help in determining the profitable areas of investment for the managers. The
managers of organizations, can help the manager in choosing the countries with which its
business is most profitable. Bilateral agreements with a country facilitates the manager in
reducing his cost of production and achieve economies of scale. The home country and the
country with which bilateral agreement is in place, has lesser or no restrictions with respect to
trade barriers such as import restrictions, export tariffs. Also the commodities which maximizes
the return of the manager can be clearly identified with bilateral agreements in place with a
country.

The removal of trade barriers between the nations provides greater opportunities to the managers
to expand their business across the border. They are able to explore cheaper raw materials,
intermediate goods and technologies outside their country which decreases their cost of
production and provides them the economies of scale. The intra industry trade reduces the burden
of going through the whole process of production. The managers are able to easily find the
market to sell their commodities. The trade related interactions enables the managers to develop
new ideas and methods of production. This not only strengthens the economic bonds but also the
political bonds between the nations, which further stimulates the trade.

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