Chapter 8 International Business

What are some regional agreements in South America? Are they effective?

• Andean and Mercosur not effective, -Major trade partners outside agreement (US) • Will join to form Union of S.A. Nations (USAN) • Objective to be like EU. ????

What is the agreement for Southeast Asia?

• Association of Southeast Asian Nations • Formed 1967 • AFTA in 1992 • Limited by membership • Expanded to include China in 2002, ASEAN-China

What are some of the criticisms of trade and economic integration?

• Benefits - World Trade Organization estimates cutting trade barriers by a third adds $600 billion to world GDP • Another Canada - US: 12 million jobs owing to trade - China - 18 million employed by foreign invested firms • Criticisms - Benefits not evenly shared - Environmental impact

What is the agreement in Central America? Why is it more successful than the South American agreements?

• Central American Free Trade Agreement • Includes major trade partner, U.S. • More effective, large US export market • 10th largest US export market

What are the different types of regional integration and what does each include?

(1) Free Trade Area: Removal of Intragroup tariffs (2) Customs Union: Common external tariff (3) Common Market: Free movement of goods, people, and capital.

How did the EU start?

- 1993 - Treaty of Maastricht, establishing European Union, goes into effect • Launched toward the Euro - Monetary Union in 1999 (12 of 15 countries, initially) • Euro not used in UK, Denmark, or Sweden - Built a single market • Companies compete in multiple countries on equal terms - Ex: airlines, trucking companies, etc.

What are the economic benefits of global economic integration?

- Disputes handled constructively • Economic disputes - Rules give clarity and reduce discrimination - Increased incomes and economic growth

How does it improve on GATT?

- Includes GATT plus: • General Agreement on Trade in Services (GATS) • Trade-Related Aspects of Intellectual Property Rights • Dispute settlement mechanisms • Trade policy reviews - peer review of policies

What are some of the problems with the General Agreement on Tariffs and Trade agreement?

- Problems • Merchandise, not services or IP • Loopholes • Didn't address non-tariff bariers

What are the political benefits of global economic integration?

- Promotes peace by promoting trade and investment - Increased confidence in a multilateral trading system

Implications for Action

-Think regional, downplay global. -Understand the rules of the game and their transitions at both global and regional levels.

Was the General Agreement on Tariffs and Trade agreement effective?

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Trade-Related Aspects of Intellectual Property Rights (TRIPS)

A WTO agreement governing intellectual property rights.

General Agreement on Trade in Services (GATS)

A WTO agreement governing the international trade of services.

Mercosur

A customs union in South America that was launched in 1991.

Andean Community

A customs union that was launched in 1969.

North American Free Trade Agreement (NAFTA)

A free trade agreement among Canada, Mexico, and the US.

Free Trade Area

A group of countries that remove trade barriers among themselves.

Monetary Union

A group of countries that use a common currency.

General Agreement on Tariffs and Trade (GATT)

A multilateral agreement governing the international trade of goods (merchandise) - did not cover what to do about exporting services.

Schengen

A passport-free travel zone within the EU.

Non-Discrimination

A principle that a country cannot make distinctions in trade among its trading partners.

Free Trade Area of the Americas (FTAA)

A proposed free trade area for the entire Western Hemisphere

Union of South American Nations (USAN/UNASUR)

A regional integration mechanism integrating two existing customs unions (Andean Community and Mercosur) in South America.

Doha Round

A round of WTO negotiations to reduce agricultural subsidies, slash tariffs, and strengthen intellectual property protection that started in Doha Qatar in 2001. Known as the "Doha Development Agenda" it was suspended in 2006 due to disagreements.

What are the benefits and costs of the Euro?

Benefits: -Reduces conversion costs -Facilitates price comparison -Imposes monetary discipline -Boosted trade in EU by 10% Costs: -Loss of monetary policy at country level -Limits fiscal flexibility (deficits < 3% GDP) -Greece, Italy, Ireland, Spain Portugal,... -Cyprus

What are the benefits of regional economic integration? Downsides?

• Economic benefits Regional Integration - Disputes handled constructively - Rules give clarity and reduce discrimination - Higher incomes and Larger market (than no integration) • Political disadvantages (vs. global) - Encourages discrimination against firms outside agreement - Politically more difficult • Give up some sovereignty • More political liability

Regional Economic Integration

Efforts to reduce trade and investment barriers within one region.

Global Economic Integration

Efforts to reduce trades and investment barriers around the globe.

Ecoomic Union

Having al the features of a common market, members also coordinate a harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity.

What is the problem with the resolution of these disputes?

• Enforcement still lacking - Ruling is recommendation - No way of truly enforcing • Change policies • Carry on and face retaliatory tariffs - Most countries change policies

Customs Union

One step beyond a free trade area (FTA), a customs union imposes common external policies on non-participating countries

Euro Zone

The 16 EU countries that currently use the euro as the official currency.

Euro

The currency currently used in 16 EU countries.

Multilateral Trading System

The global system that governs international trade among countries - otherwise known as the GATT/WTO system.

Political Union

The integration of political and economic affairs of a region.

Asia-Pacific Economic Cooperation (APEC)

The official title for regional integration involves 21 member economies around the Pacific.

European Union (EU)

The official title of European economic integration since 1993.

World Trade Organization (WTO)

The official title of multinational trading system and the organization underpinning this system since 1995

Association of Southeast Asian Nations (ASEAN)

The organization underpinning regional economic integration in Southeast Asia.

What is the General Agreement on Tariffs and Trade?

• GeneralAgreementonTariffsandTrade-1948- multilateral agreement governing the international trade of goods (merchandise goods) - Multilateral - many countries (bilateral, 2 countries) - Agreement to reduce tariffs • Avg. developed country tariffs dropped from 40% in 1948 - 3%in05 - Not an organization

What is the WTO and what is its purpose?

• Grew out of GATT in 1995 - True organization headquartered in Geneva Switzerland - Includes GATT plus: • General Agreement on Trade in Services (GATS) • Trade-Related Aspects of Intellectual Property Rights • Dispute settlement mechanisms • Trade policy reviews - peer review of policies

Takeaways from this chapter

• Lots of agreements out there - Haven't even considered bilateral agreements • Agreements must include trading partners to be of real benefit • If regional agreements are too large or too diverse may not be effective, hard to reach consensus

After the breakdown of the Doha negotiations, global economic integration has slowed. What has replaced it?

• Regional agreements - More detailed - Often deal with property rights - Especially intellectual property - Stricter human rights requirements and checks

Why is Asia-Pacific Economic Cooperation group not very successful?

Too big, diverse, and thus ineffective.

Common Market

Combining everything a customs union has, a common market additionaly permits the free movement of goods ad people.

The EU is what type of agreement now?

Common Market

What is the Euro and roughly how many countries in the EU use it?

Currency used in the European Union. -17 countries use it now.

What challenges does the EU face now?

• Southern EU countries are different from northern - Southern countries have inflated/devalued their way out of debt crises in the past - Can no longer do that when all using the same currency, need bailouts and guarantees from north • Economic and political union or just economic? - Or maybe customs union... • Cost of enlargement - Poor countries entering will use resources of wealthier - Membership of Turkey? - EU á la carte?

Why did the Doha round of trade negotiations break down?

• Subsidies -EU refused to reduce farm subsidies - Japan refused to reduce rice subsidies • Rice farmers very powerful politically - US wouldn't cut farm subsidies either (increased) • Intellectual property - Developing countries refused to tighten protection • India - pharmaceuticals • No reduction in subsidies, no IPR protection • July 2006 in Geneva Doha round closed - Lots of finger pointing

How is a trade dispute handled since the WTO was formed?

• Time limited reviews • Panel of three neutral countries • Enforcement still lacking - Ruling is recommendation - No way of truly enforcing • Change policies • Carry on and face retaliatory tariffs - Most countries change policies