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INTERNATIONAL TRADE AGREEMENTS

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ECONOMIC INTEGRATION

THE POLITICAL AND ECONOMIC AGREEMENTS OF COUNTRIES THAT GIVE PREFERENCE TO MEMBER COUNTRIES TO THE AGREEMENT.

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THREE WAYS
Global

Integration - through the World Trade Organization Integration two countries decide to cooperate closer together, usually in the form of tariff reductions Regional Integration group of

Bilateral

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THE WORLD TRADE ORGANIZATION (WTO)

The

major multilateral forum through governments can come to agreements and can settle disputes regarding trade. GATT (General Agreements on Tariffs and Trade) predecessor of the WTO.

The

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GATT: WTO Predecessor

Established

in 1947

Composed

of 23 Countries under the United Nations. the time it was replaced by the WTO in 1995 there were 125 member nations

By

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GATT: WTO Predecessor

The

MOST-FAVORED-NATION (MFN)CLAUSE
Member nation must open its market Any sort of discrimination was

equally to every other member nation prohibited.

(a.k.a.) TRADE WITHOUT

DISCRIMINATION

was 4/7/12

Agreement to reduce tariff (tariff cut

automatic regardless of whether

GATT: WTO Predecessor

PROBLEM

AREAS:

Some governments devised a way to

protect their local trades.

Negotiate bilateral trade deals Government subsidies granted to local companies.

World trade grew more complex

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Trading services not covered by GATT rules Trading services grew more important

GATT: WTO Predecessor

PROBLEM

AREAS:

Objections of member countries taking

shelter under the MFN became free riders to the benefits of the GATT. compliance with agreements

GATT could no longer enforce URUGUAY ROUND final GATT session

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which made trade agreements more tedious, thus, accomplished less of what it envisioned.

The WTO
Adopted

some of the principles on free trade under the GATT but expanded its mission to include the ff:
trade in services, investment, intellectual property, sanitary measures plant health

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The WTO
Has

nearly 150 members that collectively account for more than 97% of world trade. Conference highest level decision-making body in the WTO

MAJOR DECISION-MAKING UNITS

Ministerial

Council (usually of ambassadors and the director of a 4/7/12

General

The WTO (units)

Council Council Council

for Trade in Goods for Trade in Services

for Trade-Related Intellectual Property Rights (TRIPS)

Specialized committees, working groups

and working parties deal with individual agreements areas include: environment,

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Normal Trade Relations

Same

as the MFN in the GATT

GENERAL RULE: WTO restricts this

privilege to official members in order to eliminate earlier objections to free-rider countries.

EXCEPTIONS:
Developing countries manufactured products have been given preferential treatment over those from industrial countries. Concessions granted to members within a regional trading alliance have not been extended to countries outside the alliance.

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Settlement of Disputes
Countries

may bring charges of unfair trade practices to WTO Panel, accused country may appeal. limit on stages of deliberations rulings are binding.

Time WTO

Penalties include:
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Compensation Countervailing sanctions (eg. Retaliatory tariffs)

Doha Round
Commenced

in Doha, Qatar in 2001

Disputes

resulted in the split between developed members (US, Japan and the EU) and developing nations (Brazil and India) over the large agricultural subsidies maintained by the richer nations

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BILATERAL AGREEMENTS
Preferential

Trade Agreements (PTAs) or Free Trade Agreements (FTAs) agreements are relatively easy for countries to meet their trade objectives because it is easier to resolve issues in a smaller setting as compared to WTO.

Bilateral

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REGIONAL ECONOMIC INTEGRATION

Regional

Trade Agreements (RTAs) a.k.a. spaghetti bowl integration confined to a region and involving more than two countries.

There is a mixture of countries from other areas.

REASONS WHY NEIGHBORING COUNTRIES ALLY WITH RTAs Distance short for trading Homogeneity in consumer tastes, history, 4/7/12 and interests

Two basic types of RTAs

Free

Trade Agreements (FTA)

PURPOSES:

Abolish all tariffs between member countries Each member country maintains its own external tariff against non-FTA countries.

Customs

Union

PURPOSES:
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Eliminate internal tariffs Member countries levy common external tariff on goods being imported from non-members

EFFECTS OF INTEGRATION
Social,

cultural, political and economic effects EFFECTS the shifting of resources from inefficient to efficient companies as trade barriers fall

STATIC

EFFECTS the overall growth in the market and the impact 4/7/12

DYNAMIC

STATIC EFFECTS Two Conditions

TRADE

CREATION production shifts to more efficient producers for reasons of comparative advantage. DIVERSION trade shifts to countries in the group at the expense of trade with countries not in the group.

TRADE

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The EUROPEAN UNION

Changed

from the European Economic Community to European Community to European Union most and successful regional trade group trade of goods, services, capital, people Common external tariff,

The

Free 4/7/12

The Eus Organizational Structure

Governing

Bodies:

European Commission European Council European Parliament European Court of Justice

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The Eus Organizational Structure

European Commission
The political leadership and direction Manages the annual budget of the EU,

administration of the EU and negotiates trade agreements.

THREE FUNCTIONS:
Initiator of proposals for legislation Guardian of Treaties Manager and executor of Union Policies and international trade policies

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The Eus Organizational Structure

European

Council

a.k.a. COUNCIL OF MINISTERS Composed of the heads of

state/government of each member country. representing the different ministers in each country conjunction with the parliament.

A collection of 25 different councils

Has the final say over legislation in

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The Eus Organizational Structure

European

Parliament

Composed of 624 members who are

elected every five years whose membership is based on country population.

THREE MAJOR RESPONSIBILITIES:

Legislative power Control over budget Supervision of executive decisions

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The Eus Organizational Structure

European

Court of Justice

Ensures consistent interpretation and

application of EU treaties

It serves as an appeals court for

individuals, firms and organizations fined by the Commission fro infringing treaty law.

It deals with economic matters JURISDICTION: cases on trade relations,

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trade regulations and export issues.

The Eus Organizational Structure

THE

EURO:

Common currency in Europe Administered by the European Central

Bank

Established on January 1, 1999 Resulted in new bank notes in 2002 Does not include the UK, Denmark,

Sweden and other 10 new entrants to the EU as of 2005

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The Eus Organizational Structure

Implications

of the EU Corporate

Strategy:
Companies need to:

determine where to produce products. Determine what their entry strategy will be. Balance the commonness of the EU with National difference.

Main

Challenges facing the EU

of new constitution

Transition of new entrants

4/7/12 Adoption

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

Effect:

Member Countries: Canada, the USA and Mexico January 1, 1994

Involves

free trade in goods, services, and investment A large trading bloc but includes

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NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

It

is a free trade agreement instead of a customs union or a common market, its cooperation goes beyond tariff reductions. Covered:
Market access Trade Rules Services

Areas

4/7/12Investment

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

IMPLICATIONS

IMPACT of NAFTA: trade and investment among the member countries has increased significantly. for CORPORATE STRATEGY:
NAFTA is viewed as one big regional

market allowing a company to rationalize production, products, financing and the like.

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The lack of protection has resulted in

REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS

Market (CARICOM) (CACM)

SIX MAJOR REGIONAL ECONOMIC GROUPS:

Caribbean Community and Common Central American Common Market Andean Community (CAN) Southern Common Market (MERCOSUR) Latin American Integration Association

(LAIA) 4/7/12

REGIONAL ECONOMIC INTEGRATION IN ASIA

Association

of South East Asian Nations (ASEAN)

Organized in 1967 Comprises: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam Member countries are protected in terms of tariff and non tariff barriers. Market and investment opportunities because of their large market size.

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REGIONAL ECONOMIC INTEGRATION IN ASIA

ASEAN

Free Trade Area

Officially formed in January 1, 1993. Goal is to cut on tariffs on all intrazonal

trade to a maximum of 5%.

Weaker ASEAN countries are allowed to

phase in their tariff reductions over a longer period.

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REGIONAL ECONOMIC INTEGRATION IN ASIA

Asia

Pacific Economic Cooperation (APEC)

Formed in November 1989 to promote

multi-lateral economic cooperation in trade and investment in the Pacific Rim. the Pacific Rim

Composed on 21 countries that border Free and open trade in the region by
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2010 for the industrial nations and by 2020 for the rest of the members.

REGIONAL ECONOMIC INTEGRATION IN AFRICA

COMMODITY

AGREEMENTS

Designed to stabilize the price and

supply of a good; it takes the form of a producers alliance or an international commodity control agreement.

TWO TYPES

1. PRODUCERS ALLIANCE
between producing and exporting countries, such OPEC 4/7/12
Exclusive membership agreements

REGIONAL ECONOMIC INTEGRATION IN AFRICA

2. INTERNATIONAL COMMODITY CONTROL AGREEMENTS
Agreements between producing and

consuming countries to control prices through buffer stocks or quotas without engaging in price stabilization mechanisms.

Provide services for member countries

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REGIONAL ECONOMIC INTEGRATION IN AFRICA

NOTE:

BUFFER STOCK SYSTEM: there is purchasing of a supply of commodities from the market and hold the same as security. SYSTEM: producing countries divide total output and sales to stabilize the price.
Most effective if a single country has a large

QUOTA

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ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

Is It

a producer cartel that relies on quotas to influence price. is a group of commodity-producing countries that have significant control over supply and that band together to control output and price.

COUNTRIES: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE 4/7/12 and Venezuela.

MEMBER

ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

Competition

from non-OPEC countries a have increased because revenues accruing to the competitors are higher. to roadblocks to production, BP, ExxonMobil, and Shell invested in areas like:
Caspian Basin Gulf of Mexico

Due

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