Cooperation Among Nations Section Two Cooperation Among Nations International Business by Ball, McCulloch, Frantz, Geringer, and Minor

4 The Dynamics of International Institutions International Business This chapter covers: The influence of international institutions The structure of the United Nations The importance of the WTO The European Union and NAFTA OECD OPEC Economic Integration Regional Trade Agreements The Dynamics of International Institutions International Business by Ball, McCulloch, Frantz, Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Objectives Understand the influence of international organizations Discuss the structure and activities of the United Nations Understand the World Trade Organization Understand the European Union, NAFTA and other regional trade agreements Know about the Organization for Economic Cooperation and Development Describe the major purpose and effectiveness of OPEC Outline the four major levels of economic integration agreements 4-2

The United Nations (UN) The UN is possibly the best-known worldwide organization Established at the end of WWII Mission peacekeeping Created many international entities around the world Highly decentralized 4-3

United Nations Bodies UN work carried out through five main bodies The General Assembly The Security Council The Economic and Social Council The International Court of Justice The Secretariat 4-4

The General Assembly All UN member-nations are members of the General Assembly Each nation has one vote regardless of its size, wealth, or power General assembly decisions have no legally binding force for governments or citizens UN charter was signed in San Francisco, California in 1945 Today there are 191 members 4-5

U.N. Security Council Composed of 15 members 5 permanent and 10 chosen members The 5 permanent members include the People’s Republic of China, France, Russia, the United Kingdom, and the United States. Each permanent member has the power to veto any measure. Insert Figure UN SC in session 4-6

Economic and Social Council Concerned with economic problems including trade, transport, industrialization, economic development, and social issues Makes recommendations on how to improve education and health conditions Promotes respect for and observation of human rights and freedoms of people everywhere 4-7

International Court of Justice Also called the “World Court” Only nations may be parties to litigation before the “World Court” The International Court of Justice has 15 judges who must come from 15 different countries Judges serve nine-year terms

Secretariat Carries out day-to-day administrative functions Headquartered in New York City Services the other principle UN organs Administers the UN’s programs and policies Current Secretary-General Kofi A. Anna Received Nobel Peace Prize December 2001 4-9

History of Global International Trade GATT 1947-1995 Established in 1947, negotiations are conducted in “rounds” 1947 to 1986, eight “rounds” have taken place Uruguay Round highly successful January 1, 1995, the WTO replaced GATT World Trade Organization Designed to deal with rules of trade between nations Currently 147 members Headquarters Geneva, Switzerland Challenges World Trade Agreements Protests and demonstrations Relies on goodwill 4-10

Organization for Economic Cooperation and Development OECD Rich man’s club 30 wealthiest nations Publishes extensive research on international business and economic subjects Members work to coordinate domestic and international policies 4-11

Organization of Petroleum Exporting Countries (OPEC) Eleven member nations Most members are in the Middle East Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates Three members are in Africa Algeria, Libya, and Nigeria Two members are elsewhere in the world Indonesia and Venezuela Non-OPEC oil producing countries Mexico, Norway, Russia and the United Kingdom 4-12

Economic and Political Integration Free Trade Area Tariffs are abolished among members-countries Each member-country maintains its own external tariffs on imports from nonmember countries Customs Union A Free Trade Area where member-countries add a common external tariff Common Market A Customs Union plus the abolition of restrictions on the mobility of capital and labor among member-countries Complete Economic Integration Involves a high degree of political integration as member-countries surrender important elements of their sovereignty 4-13

European Union Background Europe in shambles after WWII Marshall Plan implemented by OEEC 1948 Benelux and Western European Union formed 1970’s UK, Ireland and Denmark joined EU 1991 Maastricht Treaty 4-14

European Union A supernatural entity, meaning that it is a regional government In order to join the EU, member-nations give a certain amount of their sovereignty to the EU “Fortress Europe” Currently 25 members Ten new members in 2004 The largest import and export market in the world 4-15

Institutions of the EU European Commission Guardian of the Treaty Brussels, Belgium Council of Ministers Policy-setting institution Representative from each country Parliament of the EU Elected by popular vote every 5 years Strasbourg, France 732 members European Court of Justice Decides Treaty of Rome cases 4-16

EU Problems Cannot agree on system of power Presence and expense of fraud Financial scandal at Eurostat 2003 Low voter turnout Disagreement on constitution EU regulations impact US because of size 4-17

The European Monetary Union (EMU) Twelve EU nations currently participate in the EMU The 12 participating member-nations make up an area often called the “euro zone” The three countries that do not participate are Denmark, Sweden, and the United Kingdom The EMU created a new currency, the euro, which became the official currency of the euro zone countries on January 1, 1999 4-18

Sources of FDI in the US by Region

North American Free Trade Agreement Established on January 1, 1994 Created a free trade area among Canada, Mexico, and the United States Purpose is to eliminate trade barriers among the three countries, creating a free trade area Import duties have been eliminated or reduced among the three countries 4-20

Other Regional Groupings Association of Southeast Asian Nations (ASEAN) Created in 1967 Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam European Free Trade Association (EFTA) Created in 1960 Most now members of EU 4-21 African Trade Agreements Economic Community of West African States Common Market for Eastern and Southern Africa Southern African Development Community The African Union Central American Free Trade Agreement

Other Regional Agreements Organization of American States An organization of 35 countries formed in 1948 in the Western Hemisphere, dedicated to promoting cooperation in the region Asia-Pacific Economic Cooperation Established in 1989 in response to the growing response of the economies of Pacific Rim countries Mercosur Created in 1991, this economic FTA consists of Argentina, Brazil, Paraguay, and Uruguay 4-22

Principle Offices of U.N.

U.N. President H.E. Mr. Julian Robert Hunte, President of the fifty-eighth session of the United Nations General Assembly, is Minister for External Affairs, International Trade and Civil Aviation of Saint Lucia, a Senator and Member of Parliament, a Justice of the Peace and a business executive

WTO Facts Functions: Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986-94) Membership: 147 countries (on 23 April 2004) Budget: 162 million Swiss francs for 2004 Secretariat staff: 600 Head: Supachai Panitchpakdi (director-general Functions: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations 

Regional Trade Agreements The vast majority of WTO members are party to one or more regional trade agreements. The surge in RTAs has continued unabated since the early 1990s. Some 250 RTAs have been notified to the GATT/WTO up to December 2002, of which 130 were notified after January 1995. Over 170 RTAs are currently in force; an additional 70 are estimated to be operational although not yet notified. By the end of 2005, if RTAs reportedly planned or already under negotiation are concluded, the total number of RTAs in force might well approach 300.

Top 10 States for EU Foreign Direct Investment 2001 USD billion Texas 67.3 California 57.0 Michigan 38.8 New York 36.5 Illinois 26.4 Pennsylvania 24.5 New Jersey 20.7 Ohio 18.7 Louisiana 18.5 Indiana 18.4

Top 10 States Exporting to European Union, 2002 Total value, USD billion % 2001-02 California 18.58 -18.5 New York 9.5 -12.9 Texas 9.46 -11.6 Washington 7.89 -9.3 Massachusetts 6.47 -8.9 Illinois 6.02 -8.8 New Jersey 5.08 -13.9 Ohio 4.65 -10.6 Michigan 4.27 -0.7 Pennsylvania 3.71 -19.3 Source: U.S. Census Bureau, Foreign Trade Division/ MISER 2002. Figures are for 2002.

Office of NAFTA and Inter-American Affairs Our Mission One of the primary objectives of the Office of NAFTA and Inter-American Affairs (ONIA) is to increase access to foreign markets for U.S. exports, through the elimination of tariff and non- tariff barriers to trade. Our approach is three-fold: heavily contribute to the coordination and development of U.S. trade policy in the Western Hemisphere for the Department of Commerce. advise the U.S. business community, policy-makers, and Congress concerning market access to Canada and Mexico under NAFTA, by providing accurate and timely information. assist U.S. companies experiencing problems gaining access to Canadian and Mexican markets.

OECD Member Countries Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States

OPEC