©2004 Prentice Hall10-1 Chapter 10: International Cooperation Among Nations International Business, 4 th Edition Griffin & Pustay

©2004 Prentice Hall10-2 Chapter Objectives  Explain the importance of the GATT and the WTO to international business  Contrast the different forms of economic integration among cooperating countries  Analyze the opportunities for international businesses created by completion of the EU’s internal market  Describe the other major trading blocs in today’s world economy

©2004 Prentice Hall10-3 The GATT’s Beginning  General Agreement on Tariffs and Trade  Developed as part of the Havana, Cuba conference in 1947  Provided forum for trade ministers to discuss barriers to international trade

©2004 Prentice Hall10-4 The Role of the GATT  Goal: to promote a free and competitive international trading environment benefiting efficient producers  Accomplished by sponsoring multilateral negotiations to reduce tariffs, quotas, and other nontariff barriers

©2004 Prentice Hall10-5 Table 10.1 GATT Negotiating Rounds RoundDates# of ParticipantsAverage Tariff Cut (%) Geneva Annecy194913NA Torquay Geneva195626NA Dillon NA Kennedy Tokyo Uruguay

©2004 Prentice Hall10-6 Figure 10.1a The History of GATT’s Effect on World Trade in Goods

©2004 Prentice Hall10-7 Figure 10.1b The History of GATT’s Effect on World Trade in Goods

©2004 Prentice Hall10-8 Most Favored Nation (MFN) Principle  Sought to ensure that international trade was conducted on a nondiscriminatory basis  Requires that any preferential treatment granted to one country must be extended to all countries –If the US cut the tariff on imports of British trucks to 20%, it also had to reduce tariffs on imported trucks from all other members to 20%

©2004 Prentice Hall10-9 Exceptions to the MFN Principle  Members permitted to lower tariffs to developing countries without lowering them for more developed countries –Generalized system of preferences in U.S. Tariff Code  Regional arrangements promote economic integration (e.g., EU and NAFTA)

©2004 Prentice Hall10-10 World Trade Organization (WTO)  Headquartered in Geneva, Switzerland  Began January 1, 1995  Included 146 members and 30 observer countries as of June 2003

©2004 Prentice Hall10-11 Goals of the WTO  Promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies  Reduce remaining trade barriers through multilateral negotiations  Establish impartial procedures for resolving trade disputes among members

©2004 Prentice Hall10-12 Differences between WTO and GATT  GATT focused on promoting trade in goods; WTO’s mandate includes –trade in goods –trade in services –international intellectual property protection –trade-related investment  WTO’s enforcement powers are stronger

©2004 Prentice Hall10-13 Figure 10.2 The WTO’s Principles of the Trading System

©2004 Prentice Hall10-14 WTO Challenges  The Cairns Group  Multifibre Agreement  General Agreement on Trade in Services (GATS)  Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)  Trade-Related Investment Measures Agreement (TRIMS)

©2004 Prentice Hall10-15 Enforcement of WTO Decisions  Country failing to live up to the agreement may have a complaint filed against it  WTO panel evaluates complaint  If found in violation, the country may be asked to eliminate the trade barrier  If country refuses, WTO will allow complaining country to impose comparable trade barriers on the offending country

©2004 Prentice Hall10-16 The WTO’s success in lowering trade barriers has attracted protests. Many believe the WTO ignores the impact of its policies on human rights, the environment, and the wages and job security of workers

©2004 Prentice Hall10-17 Forms of Economic Integration  Free Trade Area  Customs Union  Common Market  Economic Union

©2004 Prentice Hall10-18 Figure 10.3 Forms of Economic Integration

©2004 Prentice Hall10-19 European Union (EU)  Most important regional trading bloc  15 member countries  377 million population  Total GDP $7.9 trillion  10 additional members in 2004

©2004 Prentice Hall10-20 Table 10.2 The European Union, 2001 Data PopulationGDPPer Capita Income Belgium France Luxembourg Germany Italy Netherlands Denmark Ireland United Kingdom Greece Portugal Spain Austria Finland Sweden

©2004 Prentice Hall10-21 Creation of EU  Motivated by desires of war-weary Europeans to promote peace and prosperity through economic and political cooperation  Treaty of Rome, 1957 –France –West Germany –Italy –Benelux Nations (Belgium, the Netherlands, and Luxembourg)

©2004 Prentice Hall10-22 Map 10.1 The European Union

©2004 Prentice Hall10-23 Table 10.3 EU Candidate Countries CountryPopulationGDPPer Capita GDP Czech Republic Cyprus Estonia Hungary Latvia Lithuania Malta Poland Slovak Republic Slovenia

©2004 Prentice Hall10-24 Governing Organizations of the EU  The Council of the European Union  The European Commission  The European Parliament  The European Court of Justice

©2004 Prentice Hall10-25 A weekly meeting at the European Commission. The commission administers the EU’s bureaucracy

©2004 Prentice Hall10-26 Figure 10.4 The Co-Decision Procedure

©2004 Prentice Hall10-27 Three Pillars of the Maastricht Treaty  A new agreement to create common foreign and defense policies among members  A new agreement to cooperate on police, judicial, and public safety matters  The old familiar European Community, with new provisions to create an economic and monetary union among member states

©2004 Prentice Hall10-28 Components of the Treat for Europe (Treat of Amsterdam)  A strong commitment to attack the EU’s chronic high levels of unemployment  A plan to strengthen the role of the European Parliament by expanding the number of areas that require use of the co- decision procedure  Establishment of a two-track system

©2004 Prentice Hall10-29 Treaty of Nice  Effective Februar2003  To reduce the risk of political gridlock as the number of members increase, –reduced number of areas where unanimity is required for Council approval –adjusted number of votes assigned to each Council member

©2004 Prentice Hall10-30 Table 10.4 Major Regional Trade Associations AcronymFull Name AFTAASEAN Free Trade Area ANCOMAndean Pact APECAsia-Pacific Economic Cooperation CACMCentral American Common Market CARICOMCaribbean Community and Common Market CEMACMonetary and Economic Community of Central Africa CERAustralia-New Zealand Closer Economic Trade Relations Agreement ECOWASEconomic Community of West African States EUEuropean Union EFTAEuropean Free Trade Association GCCGulf Cooperation Council MERCOSURSouthern Cone Customs Union NAFTANorth American Free Trade Agreement SADCSouth African Development Community

©2004 Prentice Hall10-31 Map 10.2 Free Trade Agreements in Central and South America and the Caribbean

©2004 Prentice Hall10-32 Trade among Andean Pact members has been hindered by rough terrain of the Andes Mountains

©2004 Prentice Hall10-33 Map 10.3 The ASEAN Members

©2004 Prentice Hall10-34 Map 10.4 Asia-Pacific Economic Cooperation Initiative (APEC)

©2004 Prentice Hall10-35 Map 10.5 Free Trade Agreements in Africa