Chapter 3: Exploring Global Business

Membership in the WTO obliges:

160 member nations to observe GATT rules

TPP formed by:

Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States

European Bank for Reconstruction and Development

Established in 1991 to encourage reconstruction and development in the Eastern and Central European countries

Objective of the The European Union (EU)

Freely conducted commerce among member nations and others that might later join

Reasons Against Trade Restrictions

Higher prices for consumers Restriction of consumers' choices Misallocation of international resources Loss of jobs

The Kennedy Round (1964-1967)

In 1962, the United States Congress passed the Trade Expansion Act. This law gave President John F. Kennedy the authority to negotiate reciprocal trade agreements that could reduce U.S. tariffs by as much as 50 percent.

The implementation of NAFTA was:

January 1, 1994

Famous principle of GATT

Most-favored-nation status (MFN) meant that each GATT member nation was to be treated equally by all contracting nations.

Licensing

a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation.

multinational enterprise

a firm that operates on a worldwide scale without ties to any specific nation or region.

totally owned facility

a firm's own production and marketing facilities in one or more foreign nations.

trade deficit

a negative balance of trade.

joint venture

a partnership formed to achieve a specific goal or to operate for a specific period of time

strategic alliance

a partnership formed to create competitive advantage on a worldwide basis.

Export-Import Bank of the United States

an independent agency of the U.S. government whose function is to assist in financing the exports of American firms.

International Monetary Fund (IMF)

an international bank with 188 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits.

Countertrade

an international barter transaction.

General Agreement on Tariffs and Trade (GATT)

an international organization of 160 nations dedicated to reducing or eliminating tariffs and other barriers to world trade.

multilateral development bank (MDB)

an internationally supported bank that provides loans and grants to developing countries to help them grow.

economic community

an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies.

NEI export services and programs of these agencies can help American firms to:

compete in foreign markets and create new jobs in the United States.

The Tokyo Round (1973-1979)

completed in 1979. The participants negotiated tariff cuts of 30 to 35 percent removed or eased nontariff barriers like import quotas, unrealistic quality standards for imports, and unnecessary red tape in customs procedures.

The North American Free Trade Agreement (NAFTA)

core goals of expanding trade and investment between the United States, Canada, and Mexico

The Inter-American Development Bank

created in 1959 by 19 Latin American countries and the United States makes loans and provides technical advice and assistance to countries

Asian Development Bank (ADB)

created in 1966 and headquartered in the Philippines, promotes economic and social progress in Asian and Pacific regions.

Central American Free Trade Agreement (CAFTA)

created in 2003 by the United States and four Central American countries—El Salvador, Guatemala, Honduras, and Nicaragua third-largest U.S. export market in Latin America, behind only Mexico and Brazil

bill of lading

document issued by a transport carrier to an exporter to prove that merchandise has been shipped.

Association of Southeast Asian Nations

established in 1967 to promote political, economic, and social cooperation among its seven member countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, and Vietnam.

the Common Market of the Southern Cone (MERCOSUR)

established in 1991 under the Treaty of Asuncion to unite Argentina, Brazil, Paraguay, and Uruguay as a free-trade alliance

The Commonwealth of Independent States

established in December 1991 by the newly independent states as an association of 11 republics of the former Soviet Union.

Trans-Pacific Partnership (TPP)

established to boost economies of the member countries, lower barriers to trade and investment, increase exports, and create more jobs.

National Export Initiative (NEI)

federal agencies assist U.S. firms in developing export-promotion programs

Two forms of Direct investment

firm builds or purchases manufacturing and other facilities in the foreign country the purchase of an existing firm in a foreign country under an arrangement that allows it to operate independently of the parent company

The European Union (EU)

formed in 1957 by six countries—France, the Federal Republic of Germany, Italy, Belgium, the Netherlands, and Luxembourg.

The Organization of Petroleum Exporting Countries

founded in 1960 in response to reductions in the prices that oil companies were willing to pay for crude oil. organization conceived as a collective bargaining unit to provide oil-producing nations with some control over oil prices.

African Development Bank (AFDB)

goal is to foster the economic and social development of its African members through loans, research, technical assistance, and the development of trade programs

proponents of NAFTA maintain:

has contributed to significant increases in trade and investment has benefited companies in all three countries has resulted in increased sales, new partnerships, and new opportunities has created high-paying export-related jobs, and better prices and selection in consumer goods

Critics maintain that NAFTA:

has not achieved its goals has resulted in job losses hurts workers by eroding labor standards and lowering wages undermines national sovereignty and independence does nothing to help the environment, and hurts the agricultural sector

balance of payments includes:

investments, money spent by foreign tourists, payments by foreign governments, aid to foreign governments, and all other receipts and payments

letter of credit

issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary.

draft

issued by the exporter's bank, ordering the importer's bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer's bank.

The Uruguay Round provisions:

lowered tariffs by greater than one-third reformed trade in agricultural goods, wrote new rules of trade for intellectual property and services, strengthened the dispute-settlement process

The Uruguay Round (1986-1993)

most ambitious and comprehensive global commercial agreement in history extended trade liberalization and widened the GATT treaty to include textiles, agricultural products, business services, and intellectual-property rights.

World Trade Organization (WTO)

powerful successor to GATT that incorporates trade in goods, services, and ideas. established by GATT to oversee the provisions of the Uruguay Round and resolve any resulting trade disputes.

Created in 1945 and headquartered in Washington, DC, the IMF'S main goals are to:

promote international monetary cooperation facilitate the expansion and balanced growth of international trade promote exchange rate stability assist in establishing a multilateral system of payments, and make resources available to members experiencing balance-of-payment difficulties.

trading company

provides a link between buyers and sellers in different countries.

direct investment

provides complete control over operations, but it carries a greater risk than the joint venture

Importing

purchasing raw materials or products in other nations and bringing them into one's own country.

Exporting

selling and shipping raw materials or products to other nations.

The euro

single currency of the European Monetary Union nations.

MDB loans and grants help developing countries to:

supply safe drinking water build schools and train teachers increase agricultural productivity expand citizens' access to markets, jobs, and housing improve health care and access to water and sanitation manage forests and other natural resources build and maintain roads, railways, and ports, and reduce air pollution and protect the environment.

NAFTA was built on:

the Canadian Free Trade Agreement, signed by the United States and Canada in 1989, and on the substantial trade and investment reforms undertaken by Mexico since the mid-1980s

From 1947 to 1994, Three of the most fruitful GATT sponsored rounds of negotiations to reduce trade restrictions were:

the Kennedy Round the Tokyo Round the Uruguay Round

balance of payments

the total flow of money into a country minus the total flow of money out of that country over some period of time.

balance of trade

the total value of a nation's exports minus the total value of its imports over some period of time.