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International Business

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International Business Chapter Eight Cross-national Cooperation and Agreements Chapter Objectives To profile the World Trade Organization To discuss the pros and cons ... – PowerPoint PPT presentation

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Title: International Business


1
International Business
  • Chapter Eight
  • Cross-national Cooperation and Agreements

2
Chapter Objectives
  • To profile the World Trade Organization
  • To discuss the pros and cons of global,
    bilateral, and regional integration
  • To describe the static and dynamic effects and
    the trade creation and diversion effects of
    bilateral and regional economic integration
  • To define different forms of regional economic
    integration
  • To present different regional trading groups,
    such as the European Union (EU), the North
    American Free Trade Agreement (NAFTA), and
    Asia-Pacific Economic Cooperation (APEC)
  • To describe the rationale for and success of
    commodity agreements

3
Economic Integration
  • Economic integration an agreement between
    or amongst nations within an economic bloc to
    reduce and ultimately remove tariff and
    nontariff barriers to the free flow of products,
    capital, and labor across the bloc
  • Approaches to economic integration include
  • global integration via the World Trade
    Organization
  • bilateral integration between two countries
  • regional integration via an economic bloc
  • Neighboring countries tend to ally with one
    another because of their proximity,
    their somewhat similar tastes, the relative ease
    of establishing channels of
    distribution, and a willingness to
    cooperate with one another for the greater
    benefit of all parties.

4
The General Agreement on Tariffs and Trade (GATT)
  • General Agreement on Tariffs and Trade (GATT)
    established by twenty-three signator nations in
    1947 as a multilateral agreement whose objective
    is to liberalize world trade
  • Most-favored nation clause (MFN) the
    fundamental principle of trade without
    discrimination, i.e., each member nation must
    open its markets equally to every other member
    nation
  • Eight major rounds of negotiations from 1947 to
    1994 led to a wide variety of multilateral
    reductions in both tariff and nontariff barriers.
  • The World Trade Organization was created in
    1995 for the purpose of institutionalizing the
    GATT.

5
The World Trade Organization (WTO)
  • World Trade Organization (WTO) a permanent body
    founded in 1995 to (i) facilitate the development
    of a free and open international trading
    system according to the GATT and (ii) adjudicate
    trade disputes between or amongst member nations
  • normal trade relations replacing the
    most-favored-nation clause, the principle
    prohibits any sort of trade discrimination
  • Exceptions
  • preferential treatment for products of emerging
    economies
  • concessions granted to members of economic blocs
  • dispute resolution a clearly defined
    mechanism for the settlement of
    disputes continued

6
The WTO Decision-making Units
  • Ministerial Conference
  • General Council
  • Goods Council
  • Services Council
  • Council on Trade-related Aspects of Intellectual
    Property (TRIPS)
  • Countries may bring charges of unfair trade
    practices to a WTO panel accused countries
    may appeal WTO rulings are binding.
    If an offending country fails to comply with a
    judgment, the rights to compensation and
    countervailing sanctions will follow.

7
GATT/WTO Milestones
  • 1947 Havana, Cuba 23 countries negotiated
    major reductions in trade barriers that are
    codified as the General Agreement on Tariffs and
    Trade
  • 1947 Geneva, Switz. 23 members held first
    official meeting of the founding nations
  • 1949 Annecy, France 13 members negotiated
    tariff concessions
  • 1951 Torquay, UK 38 members negotiated tariff
    reductions and concessions
  • 1956 Geneva, Switz. 26 members negotiated
    tariff reductions and concessions
  • 1960-61 Dillon Round (Geneva, Switz) 26
    members negotiated tariff reductions and
    concessions
  • continued

8
  • 1964-67 Kennedy Round (Geneva, Switz) 62
    members reviewed new trade rules and passed an
    anti-dumping agreement
  • 1973-79 Tokyo Round 102 members reduced
    customs duties and nontariff barriers
  • 1986-94 Uruguay Round 123 members expanded
    negotiations to include trade rules, services,
    intellectual property, dispute resolution,
    textiles, and agriculture World Trade
    Organization was created
  • 1995 World Trade Organization was formally
    institutionalized
  • 2001 Doha Development Agenda 148 members
    continue to meet to resolve contentious issues
    between developed and developing nations

9
Types of Regional Trade Agreements
  • Agreements that primarily address barriers to
    trade
  • free trade areas economic blocs in which all
    barriers to trade, i.e., tariff and nontariff
    barriers, are abolished amongst member nations,
    but each member determines its own external trade
    barriers beyond the bloc
  • customs unions economic blocs in which all
    barriers to trade, i.e., tariff and nontariff
    barriers, are abolished amongst member nations,
    and common external barriers are levied against
    non-member countries
  • A more extensive type of regional trade agreement
  • common market an economic bloc which also
    permits the free flow of capital and labor
  • continued

10
The Effects of Economic Integration
  • static effects the shifting of resources from
    inefficient to efficient firms as trade barriers
    fall
  • -trade creation production shifts from less
    efficient domestic producers to more
    efficient regional producers
  • -trade diversion trade shifts from more
    efficient external sources to less efficient
    suppliers within the bloc following the
    imposition of common external barriers
  • dynamic effects the gains from overall market
    growth, the expansion of production, the
    realization of greater economies of scale and
    scope, and the increasingly competitive nature of
    the market

11
The European Union (EU)
  • The European Union (EU)
  • represents the most advanced regional trade and
    investment bloc in the world today
  • evolved from the European Coal and Steel
    Community to the European Economic Com-munity
    (EEC) to the European Community (EC) to the
    European Union (EU)
  • has grown from six members in 1951 to
    twenty-five member nations in 2004
  • has been moving toward a single market since
    the passage of the Single European Act of 1987

12
The EUs Organizational Structure
  • European Council designed to lead the EU
    proposes legislation, monitors compliance
  • European Commission functions as the EUs
    draftsman and servant
    sets priorities, gives direction, and
    resolves issues
  • European Parliament the EUs sounding board

    considers legislation, controls the EU budget,
    and supervises decisions
  • European Court of Justice the supreme appeals
    court for EU law
    ensures consistent
    interpretation and application of EU treaties
  • These governance bodies set the parameters under
    which MNEs must operate within
    the EU.

13
European Union Milestones
  • 1951 Belgium, France, West Germany, Italy,
    Luxembourg, and the Netherlands signed the Treaty
    of Paris to establish the European Steel and Coal
    Community.
  • 1957 The Six signed the Treaty of Rome to
    establish the European Economic Community (EEC).
  • 1960 The Stockholm Convention established the
    European Free Trade Association (EFTA).
  • 1962 The Common Agricultural Policy (CAP) was
    adopted.
  • 1966 The EEC became the European Community
    (EC) agreement was reached on a value-added tax
    (VAT).
  • 1967 All remaining internal tariffs were
    abolished, and common external barriers were
    imposed.
  • continued

14
  • 1972 The currency snake was established.
  • 1979 The European Monetary System came into
    effect the first European Parliament was elected
    by universal suffrage.
  • 1990 The first phase of European Monetary Union
    came into effect Germany was unified.
  • 1993 The Single European Market came into
    force.
  • 1999 The single European currency EURO came
    into effect.
  • 2002 EURO coins and notes entered circulation
    all IS member states ratified the Kyoto Protocol.
  • Source http//europe.eu.int/abc/history.

15
Map 8.1 European Trade and Economic Integration
  •  

16
The Single European Act of 1987
  • Common Trade and Foreign Policy The initial
    focus of the EU was primarily upon economic
    integration. In 1993, however, the EU began to
    formalize common objectives on armed conflicts,
    human rights, and other international foreign
    policy issues.
  • The Euro. The Treaty of Maastricht of 1992
    sought to foster both political and monetary
    union within the EU. Members that adopted the
    euro on January 1, 1999, were Austria, Belgium,
    Germany, Finland, France, Ireland, Italy,
    Luxembourg, the Netherlands, Portugal, and Spain
    Greece followed on January 1, 2001.
  • Now one of the most widely traded currencies in
    the world, the euro has
  • -contributed to price transparency for customers
  • -eased pricing decisions and transaction
    reconciliations for firms

17
Challenges Facing the EU
  • the transition of economically disparate entrants
    into the EU
  • the unanimous adoption of a new constitution
  • the resolution of the Common Agricultural Policy
    (CAP) with internal constituencies on the one
    hand and non-members nations on the other
  • the harmonization of fiscal, monetary, and
    commercial policies
  • The Common Agricultural Policy (CAP) represents
    a set of rules and mechanisms designed to
  • - regulate the production, trade, and
    processing of agricultural products in the EU
  • - provide farmers with a reasonable
    standard of living and consumers with
    safe, quality food at fair prices

18
2003 Comparative Statistics by Trade Group
  • BLOC POP. IN MIL. GNI PER
    CAPITA GNI
  • (US BIL.) (US)
  • __________________________________________________
    __________________________________________________
    __________________________________________
  • EU-15 379.7 10,116 26,641
  • EU-25 2004 ADMITS 454.0 10,544 23,224
  • NAFTA 424.9 12,340 29,042
  • Canada 31.6 757 23,930
  • Mexico 102.3 637 6,230
  • USA 291.0 10,946 37,610
  • MERCOSUR 224.0 638 2,848
  • Source 2005 World Bank Development Report.

19
The North American Free Trade Agreement (NAFTA)
  • was preceded by the Canada-U.S. Free Trade
    Agreement of 1989
  • incorporates Canada, Mexico, and the United
    States into a regional trade bloc
  • became effective on January 1, 1994
  • addresses free trade in good and services and
    investment rules
  • claims a total GNI that is greater than that of
    the 25-member EU
  • phases in over a period of 15 years

20
NAFTA specifies
  • market access via the elimination
    of tariff and nontariff barriers
  • the harmonization of trade rules
  • the liberalization of restrictions on services
    and foreign investment
  • the enforcement of intellectual property rights
  • a dispute settlement process
  • regional labor laws and standards
  • strengthened environmental standards

21
Regional Economic Integration in
North America
22
Regional Economic Integration in the
Americas Central America
  • The two major blocs in Central America are
  • Caribbean Community and Common Market
    (CARICOM)
  • Costa Rica, El Salvador, Guatemala, Nicaragua
  • Central American Common Market
    (CACM) Comprised of 14 member nations
  • The post-WWII strategy of using import
    substitution to resolve balance-of-payments
    problems was doomed in many Latin American
    nations because of the small size of many of
    their national markets. Economic cooperation is
    needed to enlarge potential market size.

23
Map 8.2 Economic Integration in Central America
and the Caribbean
24
Regional Economic Integration in the
Americas South America
  • The two major blocs in South America are
  • Southern Common Market (MERCOSUR)
  • Comprised of Brazil, Argentina, Paraguay, and
    Uruguay,
  • MERCOSUR generates 80 percent of South
    Americas GNI and has signed free
    trade agreements with Bolivia and Chile.
  • Andean Community (CAN)
  • Bolivia, Columbia, Ecuador, Peru, Venezuela
  • The 12-member Latin American Integration
    Association (LAIA) encompasses the countries of
    MERCOSUR and the Andean Community plus Mexico and
    Cuba.
  • Regional integration in Latin America has not
    been particularly successful because many
    countries rely more on the U.S. for trade
    than on members of their own groups.

25
Map 8.3 Latin American Economic Integration
26
Regional Economic Integration in Asia ASEAN
  • The Association of Southeast Asian Nations
    (ASEAN)
  • was first organized in 1967
  • is now comprised of Brunei, Cambodia,
    Indonesia, Laos, Malaysia, Myanmar, the
    Philippines, Singapore, Thailand, and Vietnam
  • formed the ASEAN Free Trade Area (AFTA) on
    January 1, 1993, for the purpose of cutting
    tariffs on inter-regional trade to a maximum of
    5 by 2008
  • ASEAN holds great promise for market and
    investment opportunities because of its large
    market size.

27
Regional Economic Integration in Asia APEC
  • Asia Pacific Economic Cooperation (APEC)
  • was founded in 1989 to promote multilateral
    economic cooperation in trade and investment
    amongst 21 countries bordering the Pacific Rim
    on either the east or the west
  • is committed to achieving free and open trade in
    the region by 2010 for the industrial nations and
    by 2020 for the remaining member countries
  • includes more than half of the worlds population
    and approximately 60 percent of the worlds GNI
  • APECs progress is hampered by the number of
    members, the geographic distances between
    nations, and its lack of a binding treaty.

28
Map 8.4 The Association of Southeast Asian
Nations
29
Regional Economic Integration in Africa
  • Regional trade groups in Africa that are
    registered with the WTO include
  • Southern Africa Development Community (SADC)
  • Common Market for Eastern and Southern Africa
    (COMESA)
  • Economic and Monetary Community of Central Africa
  • West African Economic and Monetary Union (WAEMU)
  • With the notable exception of South Africa,
    markets are small, and many nations rely more on
    trade links with former colonial powers than
    with each other.

30
Map 8.5 Regional Economic Integration in Africa
31
Commodity Agreements
  • commodity agreement a form of economic
    cooperation designed to stabilize the price and
    supply of primary commodities through the use of
    buffer stocks and/or quota systems
  • producers alliances exclusive membership
    agreements between or amongst producing countries
    (a cartel)
  • - Organization of Oil Exporting Countries
    (OPEC) a producer cartel whose members
    include Algeria, Indonesia, Iran, Iraq, Kuwait,
    Libya, Nigeria, Qatar, Saudi Arabia, the United
    Arab Emirates, and Venezuela
  • international commodity control agreements
    (ICCAs) agreements between or amongst producing
    and consuming countries
  • - International Cocoa Organization (ICO)
  • - International Sugar Organization (ISO)

32
Implications/Conclusions
  • The effects of regional economic integration can
    be economic, cultural, and/or political in
    nature.
  • Regional (as opposed to global) economic
    integration occurs because of the greater ease of
    promoting cooperation on a smaller scale.
  • Member states must determine the degree of
    national sovereignty they are willing to
    surrender in order to capture the benefits
    of economic integration.
  • continued

33
  • A common market goes further than free trade
    areas and customs unions by permitting the free
    flow of capital and labor and possibly
    harmonizing commercial, monetary, and fiscal
    policies and establishing a common currency plus
    a supranational political structure dedicated to
    dealing with common economic issues.
  • Commodity agreements exist to help developing
    countries stabilize prices, supplies, and hence
    their export earnings.
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