International Trade Agreements and Organizations

Globalizations Strategies used by International Businesses Today Global Strategy, the business see the world as one big similar market. Business operations tend to be centralized ex Levi Jeans Multidomestic Strategy, the business tries to customize products/services and marketing to the local culture. Business operations and decisions are decentralized. Ex McDonald’s Transnational Strategy, a combination of Global and Multidomestic. Production are manufactured at the least expensive source, while human resource and marketing are achieved at the local level. Ex CocaCola

The Pros and Cons of Globalization Outsourcing Lower Prices Improved human rights Increased productivity Innovation Better jobs Increased capital flow Cons Lost Canadian jobs Anxiety of job security Loss of Canadian productivity Exploitation of cheap labor Increased pollution Unhealthy/unsafe products Spread of diseases Increase in income gap Influence of multinational corporations (MNCs) on governments

The Outcome Although, there are some glitches along the way to globalization such as Anti globalization movements Fundamentalists governments in some countries Economic downturns which gives rise to isolationist and protectionist attitudes However, since WWII the prevailing attitude has been an embracing, by most countries and governments, towards globalization. As such, there has been a significant increase in international and regional trade agreements and organizations.

Trade Agreements Bretton Woods Conference July 1944, just a couple of weeks after the Normandy invasion, the Western Allies' leading politicians got together at a resort in northern New Hampshire to set forth their notions of how to reorganize the world economy. For the first time in human history almost universal institutions - the International Monetary Fund (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT) - were established to solve global economic problems. By setting up a system of rules, institutions, and procedures to regulate the international monetary system. The common view at the Conference was that the depression of the 1930s and the rise of fascism could be traced to the collapse of international trade and isolationist economic policies. The results of the Conference are the global system we know today featuring the free movement of capital and goods with the US dollar as the international currency. The Conference rejected proposals by the British economist, John Maynard Keynes that would have established a world reserve currency administered by a single central bank. The United States did not believe that this system would serve its interests. It set the foundation for a variety of other international trade organizations

Canada’s Trade Agreements A trade agreement is an enforceable treaty between two or more countries that addresses the movement of goods and services Canada’s Trade Agreements Country Agreement Name United States, Mexico North American Free Trade Agreement (NAFTA) Iceland, Liechtenstein, Norway, Switzerland European Free Trade Association (EFTA) Chile Canada- Chile Free Trade Agreement Israel Canada- Israel Free Trade Agreement Costa Rica Canada- Costa Rica Free Trade Agreement Jordan Canada- Jordan Free Trade Agreement Colombia Canada- Colombia Free Trade Agreement Peru Canada- Peru Free Trade Agreement www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/index.aspx?view=d

North American Free Trade Agreement (NAFTA) January 1994, Canada, US, and Mexico Worlds largest free trade area at the time. An agreement to eliminate tariffs and barriers, and promote fair competition among the NAFTA countries Protection of property rights, including patents, copyrights, trademarks, and technical designs

NAFTA Advantages and Disadvantages Freer flow of goods and services - Trade has tripled since its inception Access to better raw materials, talent, capital, and technology Improvements in productivity resulting in lower consumer prices Increase in employment

NAFTA Advantages and Disadvantages Loss of manufacturing jobs to Mexico – lower labor costs As manufacturing increases in Mexico, higher pollution Inefficient farmers - Mexico, can no longer compete Continued concern of Americanization of Canadian culture Canadian companies being bought and controlled by Americans

The European Union (EU) Is an economic and political union of 27 European member states. More being negotiated A common market which includes agreements for Free trade of goods and services Free movement of capital and labor The imposition of common set of trade restrictions on non-members Common currency (Euro) for most state members and establishment of the European Central Bank

EU Advantages and Disadvantages Easy movement of labor Eliminating the risk of exchange rate fluctuation among members using the Euro Price transparency – consumer can compare prices Elimination of transaction costs Easy billing process Increased markets Economic, political, social stability

EU Advantages and Disadvantages Initial costs – must convert everything to new currency ex accounting software, vending machines, signs, etc Lack of national control over their economy – you can not devalue currency or adjust interest rates alone. Ex. look at what is happening in Greece, Ireland, and Portugal. Loss of tradition - nostalgia ex. a currency is part of a country’s culture and history

Canada’s Trade Organizations A trade organization are groups established to help with the free flow of goods and services. They may be global, regional, or national in their scope. Trade Organization in which Canada Participates Organization Purpose World trade Organization (WTO) Sets trading rules and settles disputes Asia-Pacific Economic Co-operation (APEC) Promotes trade in the Pacific Rim countries Group of Eight (G8) Discuss macroeconomic issues such as trade, economic growth, and poverty Group of Twenty (G20) Discuss financial stability and the growth of developing countries Organization for Economic Development and Co-operation (OECD) Promote democracy and market economies The World Bank Provide monetary support for developing countries International Monetary Fund Tracks and analyzes economic trends

World Trade Organization (WTO) Promotes trade liberalization and ease of trade restrictions throughout the world 153 member states Foster economic prosperity and social development among the countries of the world. The three main purposes are Forum for trade negotiations Set the rules for trade Settle disputes http://www.wto.org/index.htm

The World Bank 186 member countries Composed of two separate institutions, International Bank for Reconstruction and Development (IBRD) and the International Development Association Provided monetary (loans and grants) and technical support (development assistance) for developing countries

International Monetary Fund (IMF) The purpose of the IMF is to promote financial stability, prevent and solve economic crisis, encourage growth, and assuage poverty. It accomplishes this by Encouraging countries to adopt responsible economic policies Lending money to emerging and developing countries Providing technical training in areas such as banking regulations and exchange rate policies

Canada’s Place in International Organizations Canadians high standard of living is contingent on trade Being the US neighbors does have its disadvantages, however, it does provide us with a more significant international role than we would otherwise have had. We are a small but internationally respected country. Canada will have to continue to work hard to ensure that we maintain our presence, voice, and image in the international arena.