International Business: Chapter 8
Effects of NAFTA
1. Trade among Canada, Mexico, and the United States has grown from $297 billion in 1993 to around $1.6 trillion. 2. Mexico's exports to the United States rose to about $230 billion, and U.S. exports to Mexico grew to more than $161 billion 3. Canada's exports to the United States more than doubled to approximately $277 billion, and U.S. exports to Canada grew to $248 billion. 4. Canada's exports to Mexico grew more than threefold to nearly $2.7 billion 5. The agreement's effect on employment and wages is not easy to determine. The U.S. Trade Representative Office and the AFLCIO group of unions debate NAFTA's effect on jobs.
European Union
1994; European Community e bloc changed its name Today the 27-member European Union has a population of about 500 million people and a GDP of around $15 trillion. Expansion in 2004 and 2007 from 15 to 27 members today. Candidates for membership are Croatia, Turkey, and the Former Yugoslav Republic of Macedonia New members must meet the Copenhagen Criteria.
Court of Auditors
Composed of 27 members (one from each member nation) appointed for six-year terms. Duty is to audit EU accounts and implement EU budget, improve EU financial management, and report t member nations' citizens on the use of public funds.
Asian Pacific Economic Cooperation (APEC)
Comprise more than 40 percent of world trade and a GDP of more than $19 trillion. Aims to strengthen the multilateral trading system and expand the global economy by simplifying and liberalizing trade and investment procedures. Hopes to have completely free trade and investment throughout the region by 2020.
How does a free trade bloc work?
Countries remove all barriers to trade among members, but each country determines its own barriers against nonmembers. Policies differ greatly against nonmember countries from one country to another. Countries in a free trade area also establish a process to resolve trade disputes among members.
political union
Economic and political integration whereby countries coordinate aspects of their economic and political systems. Members accept a common stance on economic and political policies regarding nonmember nations. Nations are allowed a degree of freedom in setting certain political and economic policies within their territories.
common market
Economic integration whereby countries remove all barriers to trade and to the movement of labor and capital among themselves and set a common trade policy against nonmembers.
customs union
Economic integration whereby countries remove all barriers to trade among themselves and set a common trade policy against nonmembers.
economic union
Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, set a common trade policy against nonmembers, and coordinate their economic policies. concede a certain amount of sovereignty to the supranational organization.
free trade area
Economic integration whereby countries seek to remove all barriers to trade among themselves but where each country determines its own barriers against nonmembers.
Central American Free Trade Agreement (CAFTA-DR)
Established in 2006 between the United State, and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. represent a U.S. export market larger than India, Indonesia, and Russia combined. And nearly 80 percent of exports from the Central American nations and the Dominican Republic already enter the United States tariff-free. Combined value of goods traded among the United states and the six CAFTA countries is around $32 billion.
What currency is used in the EU?
Euro
Structure of the EU
European Parliament Council of the EU European Commission court of Justice Court of Auditors
European monetary union
European Union plan that established its own central bank and currency. Opting out of the euro are Britain, Denmark, and Sweden. The euro eliminates exchange-rate risk for business deals among member nations using the euro. Transparency in prices harmonizes prices across markets.
Caribbean Community and Common Market (CARICOM)
Formed in 1973. Bahamas is a member of the Community but does not belong to the Common Market. Has combined GDJp ^f nearly $30 billion and a market of almost 6 million people. In 2000, CARICOM members called for the establishment of a single market, but the problem is that members trade more with nonmembers than with one another. .
Latin American Integration Association (ALADI)
Formed in 1980, called for preferential tariff agreements between pairs of members (reflecting their economic development levels).
African Union (AU)
Group of 53 nations joined forces in 2002 to create the African Union. Aims: (1) rid vestiges of colonialism and apartheid; (2) promote unity and solidarity; (3) coordinate and intensify cooperation for development; (4) safeguard members' sovereignty and territorial integrity; (5) promote international cooperation within the United Nations. But problems abound (e.g., ethnic violence in Darfur region of Sudan despite heavy AU involvement).
What countries belong in the ASEAN?
Indonesia,Malaysia,Philippines,Singapore and Thailand formed in 1967, Brunei joined in 1984, Vietnam in1995, Laos and Myanmar in 1997 and Cambodia in 1998
Central American Common Market (CACM)
Intended to create a common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Progress was constrained by civil wars and wars among members. Comprises a market of 33 million and combined GDP of $120 billion. Not yet a customs union, but officials say goal is integration. closer political ties, and a single currency—likely the dollar. El Salvador adopted the dollar as its official currency in 2000.
Free Trade Area of the Americas (FTAA)
Intends to create a trading bloc stretching from Alaska to Tierra del Fuego in South America. The FTAA would comprise 34 nations and 830 million consumers—with Cuba being the only Western Hemisphere nation excluded. Would remove tariffs and nontariff barriers among members, but continues to face opposition from labor organizations, environmentalists. and others against globalization.
Economic Community of West African States (ECOWAS)
Intends to form a customs union and an eventual common market and monetary union among its members. The ECOWAS nations comprise a large portion of the economic activity in sub-Saharan Africa. Problems for ECOWAS arise because of political instability, poor governance, weak national economies, poor infrastructure, and poor economic policies.
A country may receive membership in the European Union once it meets what is called the what?
K: A country can receive membership if it meets certain demands down by the EU called the Copenhagen Criteria.
Review and Know the different trade blocs in North America.
North American Free Trade Agreement (NAFTA) Central American Free Trade Area (CAFTA-DR) Andean Community (CAN) Latin American Integration Association (ALADI) Southern Common Market (MERCOSUR) Central America and the Caribbean Caribbean Community and Common Market (CARICOM) Central American Common Market (CACM)
Loss of national sovereignty
Political union requires nations to give up a high degree of sovereignty in foreign policy.
regional economic integration (regionalism)
Process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital.
What is Regionalism?
Process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products,people,or capital
Single European ACT (SEA)
Remove remaining barriers increase harmonization, and enhance competitiveness of EU companies. M&As swept Europe as large firms combined their understanding of European needs. capabilities, and cultures with economies of scale.
What are some of the positive effects of regional trade agreements?
Specialization and trade allow more choice, lower prices, and increased productivity. Regional trade agreements help nations accomplish these objectives and protect intellectual property rights, the environment, or even eventual political union.
Review the criteria laid out in the Maastricht Treaty about using the Euro.
The 1991 Maastricht Treaty (effective in 1993): (1) created single, common currency; (2) set monetary and fiscal targets for countries taking part in monetary union; and (3) proposed eventual political union—including a common foreign and defense policy and common citizenship.
European Commission
The executive body of the EU whose commissioners are appointed by each country—larger nations get two commissioners, smaller countries one. Drafts legislation, manages and implements policy, and monitors compliance with EU law.
Council of the EU
The legislative body of the EU. Council members change depending on the topic under discussion (e.g., for agriculture, the Council is comprised of agriculture ministers of each member). No proposed legislation becomes EU law unless the Council votes it into law. Some legislation today requires only a simple majority to win approval.
What is the name of the grouping of 53 nations across the continent of Africa:
A group of 53 nations on the African continent joined forces in 2002 to create the African Union.
Southern Common Market (MERCOSUR)
Argentina, Brazil, Paraguay, Uruguay, and Venezuela (Bolivia, Chile, Colombia, Ecuador, and Peru are associate members). Acts as customs union and liberalizing trade and investment—emerging as the most powerful trading bloc throughout Latin America; May incorporate all of South America into a South American Free Trade Agreement and link up with NAFTA.
The stated aims of which organization is not to build a trading bloc but instead to strengthen the multilateral trading system?
The organization for Asia Pacific Economic Cooperation (APEC) includes 21 nations. Its aim is not to build another trading bloc. Its purpose is to strengthen the multilateral trading system and expand the global economy by simplifying and liberalizing trade and investment procedures among member nations.
Canada, Mexico, and the United States belong to the regional trading bloc called what'?
The three nations belonging to the North American Free Trade Agreement (NAFTA) are Canada, Mexico, and the United States.
Closer Economic Relations (CER) Agreement
Australia and New Zealand created a free trade agreement in 1966 that slashed tariffs and quotas 80 percent by 1980. The agreement's success encouraged the pair to form the Closer Economic Relations (CER) Agreement in 1983 to advance free trade and further integrate their two economies. Each nation allows goods (and most services) to be sold within its borders that can be legally sold in the other country. Each nation also recognizes most professionals who are registered to practice their occupation in the other country.
Are ASEAN and BRICS the same thing? No
BRICS-Brazil,Russia, India, China, South Africa. In economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development. BRICS is a group of emerging economies consisting of Brazil, Russia, India, China, South Africa. (BRICS) Headquartered in Shanghai, China. It main objectives are to cooperate between the member nations for development, provide financial assistance, support various projects, infrastructure etc.
What country uses the Yuan and what country uses the Yen?
Yuan- China,Tibet, and Zimbabwe Yen- Japan
European Free Trade Association (EFTA)
focus on trade in industrial goods. Today members are Iceland, Liechtenstein, Norway, and Switzerland. 12.5 million people and a combined GDP of $707 billion. cooperates with EU I on the free movement of goods, persons. services, and capital. They also cooperate in other areas, including the environment, social policy, and education.
Andean Community (CAN)
includes Bolivia, Colombia, Ecuador, and Peru. comprises a market of around 97 million consumers and a combined GDP of about $220 billion. Objectives include tariff reduction, a common external tariff, and common policies in both transportation and certain industries
North American Free Trade Agreement (NAFTA)
seeks to eliminate most tariffs and nontariff trade barriers on most goods originating from North America. Calls for liberalized rules regarding government procurement practices, the granting of subsidies, and the imposition of countervailing duties. Other provisions deal with trade in services, intellectual property rights, and standards of health, safety, and the environment.
Maastricht Treaty
y (effective in 1993): (1) created single, common currency; (2) set monetary and fiscal targets for countries taking part in monetary union; and (3) proposed eventual political union—including a common foreign and .defense policy and common citizenship.
Four criteria to meet NAFTA rules of origin:
(1) goods wholly produced or obtained in the NAFTA region (2) goods containing non originating inputs but meeting origin rules (3) goods produced in the NAFTA region wholly from originating materials; (4) unassembled goods with sufficient North American regional value content.
Benefits to the United States:
(1) lower tariff and nontariff barriers; (2) ensures U.S. companies are not disadvantaged by Central American nations' trade agreements with other countries; (3) requires Central American nations and Dominican Republic to encourage competition and investment, protect intellectual property rights, and promote transparency and the rule of law; (4) supports U.S. national security interests by advancing regional integration, peace, and stability.
European Parliament
-Composed of 736 members elected by popular vote within each member nation every five years; consultative rather than a legislative body by debating and amending legislation proposed by the European Commission.
Know the differences between OPEC and APEC.
APEC- the organization for asian pacific economic cooperation, it was formed in 1989 and begun as an informal forum among 12 trading partners, it now has 21 members. The Organization of Petroleum Exporting Countries (OPEC) is a group consisting of 12 of the world's major oil-exporting nations. OPEC was founded in 1960 to coordinate the petroleum policies of its members, and to provide member states with technical and economic aid. ORIGINAL MEMBERS- Iran, Iraq, Kuwait, Saudi Arabia and Venezuela MEMBERS JOINING AFTER ORIGINAL-Qatar, Indonesia , Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon and Angola.
Court of Justice
Acts as the EU court of appeals and is composed of 27 members (one from each member nation). One type of case heard is when a member nation is accused of not meeting its treaty obligations. Justices are required to act in the interest of the EU as a whole, not in the interest of their own countries.
Shifts in employment
Because trading blocs reduce or eliminate barriers to trade, the producer of a particular good or service will be decided by relative productivity. Industries requiring unskilled labor shift production to low-wage nations within a trading bloc.
European Coal and Steel Community
Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands signed the Treaty of Paris in 1951, to remove barriers to trade in coal, iron, steel, and scrap metal.
Be able to define what a multinational corporation (MNC) is.
Business that has direct investments abroad in multiple countries
What countries belong to the regional trading bloc called CAFTA-DR?
CAFTA-DR was established in 2006 between the United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
Why did nations belonging to the European Free Trade Association not want to join the European Union?
Certain nations did not want to join the EU fearing destructive rivalries and a loss of national sovereignty.
trade diversion
Diversion of trade away from nations not belonging to a trading bloc and toward member nations. Can result in reduced trade with a more efficient nonmember nation in favor of trade with a less efficient member nation. Unless there is other internal competition, buyers will pay more due to inefficient production methods.
Review both the GCC and the AU.
GCC-several middle eastern nations formed the gulf cooperation council in 1980. Members are-Bahrain,Kuwait,Oman,Qatar,Saudi Arabia, and the United Arab Emirates. Purpose-was to cooperate with the EU and EFTA, but it has evolved to become as much a political entity as an economic one. African Union AU- A GROUP OF 53 NATIONS ON THE african continent joined forces in 2002. Formed after the Sirte Declaration was signed in 1999. iT IS BASED ON THE VISION OF A UNITED AND STRONG AFRICAN. And on the need to build a partnership among governments and all segments of civil society in order to strengthen cohesion among the peoples of Africa. Promote peace, security, and stability across africa and to accelerate economic and political integration while address problems compounded by globalization.
European Community
In 1967 the Community's scope was broadened to include additional industries, notably atomic energy,
trade creation
Increase in the level of trade between nations that results from regional economic integration. Gives consumers and industrial buyers a wider selection of goods and services not available beforehand. Buyers can acquire goods and services more cheaply following the lowering of trade barriers such as tariffs. Lower costs lead to higher demand for goods because people have more money after a purchase to buy other products.
What is the name of Latin America's most powerful regional trading bloc?
MERCOSUR is the most powerful trading bloc in all of Latin America. It acts as a customs union and boasts a market of more than 275 million consumers (nearly half of Latin America's total population) and a GDP of around $3.5 trillion.
What are the stated aims of the Association of Southeast Asian Nations (ASEAN)?
Main objectives of ASEAN are to: (1) promote economic, cultural, and social development in the region; (2) safeguard the region's economic and political stability; and (3) serve as a forum in which differences can be resolved fairly and peacefully.
Association of Southeast Asian Nations (ASEAN)
Market of 560 million consumers and a GDP of $1.1 trillion. Objectives: (1) promote economic, cultural, and social development; (2) safeguard economic and political stability; and (3) serve as a forum in which differences can be resolved fairly and peacefully. Adding Cambodia, Laos, and Myanmar, may help counter China's strength and resources of cheap labor and abundant raw materials.
Gulf Cooperation Council (GCC)
Members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Formed to cooperate with the increasingly powerful trading blocs in Europe. Main achievements: allowing citizens to travel freely among member nations, and allowing citizens to own land, businesses, and other property in fellow member nations without the need for local partners.
European Economic Community (EEC)
Members of the European Coal and Steel Community signed the Treaty of Rome in 1957, outlined a future common market.
What is the name of the official single currency of the European Union?
The Euro is the name of the official single currency of the European Union.
The Case for Regional Integration
Trade creation Greater consensus Political cooperation Employment opportunities Corporate savings
An increase in trade between nations as a result of regional economic integration is called what?
Trade creation is the increase in the level of trade among nations that results from regional economic integration. Trade diversion is the diversion of trade away from nations not belonging to a trading bloc and toward member nations.
The Case Against Regional Integration
Trade diversion Shifts in employment Loss of national sovereignty
Trade shifting away from nations not belonging to a trading bloc and member nations is called what?
Trade diversion is the diverting of trade away from nations not belonging to a trading bloc and toward member nations
