© 2013 Cengage Learning. All rights reserved. CHAPTER 8 GLOBAL2  PENG © iStockphoto.com/Baris Onal

© 2013 Cengage Learning. All rights reserved. CHAPTER 8 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Make the case for global economic integration. 2.Explain the evolution of the GATT and the WTO, including current challenges. 3.Make the case for regional economic integration. 4.List the accomplishments, benefits, and costs of the European Union.

© 2013 Cengage Learning. All rights reserved. CHAPTER 8 LEARNING OBJECTIVES After studying this chapter, you should be able to: 5. Identify the five organizations that promote regional trade in the Americas and describe their benefits and costs. 6. Identify the three organizations that promote regional trade in the Asia Pacific and describe their benefits and costs. 7. Articulate how regional trade should influence your thinking about global business.

© 2013 Cengage Learning. All rights reserved. LO1: THE CASE FOR GLOBAL ECONOMIC INTEGRATION Global economic integration - efforts to reduce trade and investment barriers around the globe

© 2013 Cengage Learning. All rights reserved. LO2: THE EVOLUTION OF THE GATT AND WTO GATT (General Agreement on Tariffs and Trade; )  Reduced level of tariffs through multilateral negotiations.  Three areas of concern:  No protection for services or intellectual property  Loopholes needed reform – Multifiber Arrangement (MFA)  Global recessions led goverments to invoke non-tariff barriers (NTBs)

© 2013 Cengage Learning. All rights reserved. LO2: THE EVOLUTION OF THE GATT AND WTO WTO (World Trade Organization; 1995-present)  Transformed GATT from provisional treaty to full- fledged international organization.  New features:  Agreement governing trade of services (GATS)  Agreement governing intellectual property rights (TRIPS)  Trade dispute settlement mechanisms  Trade policy reviews

© 2013 Cengage Learning. All rights reserved. LO2: WTO – THE DOHA ROUND ( )  Agenda:  Reduce agricultural subsidies in developed countries.  Slash tariffs, especially in areas where developing countries might benefit.  Free up trade in services.  Strengthen intellectual property protection.

© 2013 Cengage Learning. All rights reserved. LO3: THE CASE FOR REGIONAL ECONOMIC INTEGRATION Regional economic integration – efforts to reduce trade and investment barriers within one region. PROS Promotes peace; Disputes handled constructively; Consistent rules; Raises incomes and stimulates economic growth

© 2013 Cengage Learning. All rights reserved. LO3: THE CASE AGAINST REGIONAL ECONOMIC INTEGRATION Regional economic integration – efforts to reduce trade and investment barriers within one region. CONS Discrimination against firms outside of region; Some loss of sovereignty

© 2013 Cengage Learning. All rights reserved. LO3: TYPES OF REGIONAL ECONOMIC INTEGRATION

© 2013 Cengage Learning. All rights reserved. LO4: EVOLUTION OF THE EUROPEAN UNION  Political origins – effort to stop cycle of hatred and violence.  First step – European Coal and Steel Community (1951).  1957 – Treaty of Rome launches European Economic Community (EEC).  1993 – Treaty of Maastricht, establishing European Union, goes into effect.  2009 – Lisbon Treaty, amended Maastricht Treaty to include appointment of long-term President of European Council and a High Representative of Union of Foreign Affairs.

© 2013 Cengage Learning. All rights reserved. LO4: ACCOMPLISHMENTS OF THE EUROPEAN UNION  EU and predecessors delivered more than 50 years of peace.  Has 27 member countries, 500 million citizens, $15 trillion GDP.  Introduction of common currency.  Built a single market.

© 2013 Cengage Learning. All rights reserved. LO4: BENEFITS AND COSTS OF THE EUROPEAN UNION

© 2013 Cengage Learning. All rights reserved.  Should it be economic and political union, or purely economic?  Cost of enlargement  Membership of Turkey  EU à la carte? © iStockphoto.com/Zoran Kolundzija LO4: CHALLENGES FOR THE EU

© 2013 Cengage Learning. All rights reserved. LO5: FIVE ORGANIZATIONS IN THE AMERICAS NAFTA (North American Free Trade Agreement; 1994)  Benefits:  In first decade, trade between US and Canada grew twice as fast as before NAFTA.  US exports to Mexico tripled, to $161 billion.  Mexican exports to US tripled, and GDP per capital rose 24%.  Costs:  Real wages in Mexico have stagnated.  Many firms shifting multinational work to China.

Andean Community (1969) and Mercosur (1991)  Not very effective, since most of members’ trade is outside of the region. © 2013 Cengage Learning. All rights reserved. LO5: FIVE ORGANIZATIONS IN THE AMERICAS

Union of South American Nations (USAN; 2008)  Modeled after EU.  Functioning union similar to EU may be possible by © 2013 Cengage Learning. All rights reserved. LO5: FIVE ORGANIZATIONS IN THE AMERICAS

United States-Dominican Republic- Central America Free Trade Agreement (CAFTA; 2005)  Five Central American countries represent second largest US export market in Latin America.  CAFTA is tenth largest US export market. © 2013 Cengage Learning. All rights reserved. LO5: FIVE ORGANIZATIONS IN THE AMERICAS

Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER; 1983)  Removed tariffs and NTBs.  Allowed citizens of one country to work and live in the other country. © 2013 Cengage Learning. All rights reserved. LO6: THREE ORGANIZATIONS IN ASIA

Association of Southeast Asian Nations (ASEAN; 1967)  Established Asian Free Trade Area (AFTA).  Main trade partners are outside of the region.  Launched ASEAN-China Free Trade Agreement (ACFTA) in © 2013 Cengage Learning. All rights reserved. LO6: THREE ORGANIZATIONS IN ASIA

© 2013 Cengage Learning. All rights reserved. LO6: THREE ORGANIZATIONS IN ASIA Asia-Pacific Economic Cooperation (APEC; 1989)  Includes members of ASEAN, CER, and NAFTA, as well as Japan, Chile, Peru, and Russia.  Members in four continents; home to 2.6 billion people; 46% of world trade.

© 2013 Cengage Learning. All rights reserved. LO7: THE INFLUENCE OF REGIONAL TRADE ON GLOBAL BUSINESS

© 2013 Cengage Learning. All rights reserved. DEBATE: REGIONAL INTEGRATION: BUILDING BLOCK OR STUMBLING BLOCK? Prevents global integration because it provides preferential treatment for members and discrimination for non-members. Considered the next best thing in the absence of global economic integration. May present blocks for global integration.