1. Fundamentals of International Business

CHAPTER 5:
International Trade Agreements and Organizations
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

2. Fundamentals of International Business
Key Terms
trade agreement
North American Free Trade Agreement (NAFTA)
European Union (EU)
euro
trade organizations
World Trade Organization (WTO)
Asia-Pacific Economic Co-operation (APEC)
Group of Eight (G8)
Group of Twenty (G20)
Organization for Economic Co-operation and Development (OECD)
World Bank
International Monetary Fund (IMF)
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

3. Fundamentals of International Business
Chapter Objectives
By the time you finish this chapter, you should be able to:
Compare the characteristics of a multinational corporation participating in global business with those of a Canadian company focused on domestic business
Describe international agreements and organizations that have influenced global business activity
Describe Canada’s involvement in international trade organizations
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

4. Globalization and International Trade
Globalization, in an economic context, is the movement of goods, services, technology, investment, ideas, and people throughout the world.
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Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

5. Globalization and International Trade
Positive effects of
globalization
Outsourcing
Lower prices
Improved human rights
Increased productivity
Innovation
Better jobs
Increased capital flow
Negative effects of
globalization
Lost Canadian jobs
Fear of job loss
Loss of Canadian productivity
Exploitation of cheap labour
Increased pollution
Unhealthy products
Spread of disease
Increase in the income gap
Influence of multinational corporations on governments
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

6. Globalization and International Trade
Companies use three major types of
globalization strategies:
Global strategy
Multidomestic strategy
Transnational strategy
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

7. Globalization and International Trade
Global strategy
Regards the world as one big market—all people want the same product and will respond to marketing in a similar way
Product and marketing are uniform around the world
Takes advantage of economies of scale (proportionate savings gained by producing larger quantities)
Does not respond to individual cultures
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

8. Globalization and International Trade
Multidomestic strategy
Customizes products, services, and marketing for the local culture—local management is most capable of determining what is best for the local subsidiary
Effective when cultural differences are prominent
Less political and exchange-rate risk
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

9. Globalization and International Trade
Transnational strategy
Combines the best elements of the global and multidomestic strategies
Respects needs of local market, while maintaining efficiencies of a global strategy
Manufacturing takes place at least expensive source, human resources and marketing take place at the local level
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

10. Fundamentals of International Business
Trade Agreements
Trade agreement
An enforceable treaty between two or more countries that involves the movement of goods and services, elimination of trade barriers, establishment of terms of trade, and encouragement of foreign investment.
Agreements may be multilateral (involving three or more parties) or bilateral (involving two countries).
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

11. Fundamentals of International Business
Trade Agreements
The North American Free Trade Agreement (NAFTA)
Launched in January 1994 between Canada, the United States, and Mexico
Created world’s largest free trade area
Sets rules surrounding movement of goods, services, and investments across North America
Eliminates tariffs and other trade barriers, and promotes fair competition
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

12. Fundamentals of International Business
Trade Agreements
Advantages of NAFTA
Has helped create higher paying jobs in education, engineering, and banking sectors in Canada
Allows freer flow of goods and services across North America, providing better access to raw materials, talent, capital, and technology
Trade has tripled between the three members since NAFTA’s inception
Disadvantages of NAFTA
Manufacturing jobs have been lost to Mexico, where labour costs are lower
Without tariffs, many Mexican farmers could not compete and lost their livelihoods
Canadian companies sold to foreign investors
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

13. Fundamentals of International Business
Trade Agreements
Tax Treaties
A tax treaty is created to prevent double taxation and tax evasion for people who would pay taxes in Canada and another country. The treaty determines how much tax each country can collect.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

14. Fundamentals of International Business
Trade Agreements
The European Union (EU)
A trade agreement signed in 1993 that now encompasses twenty-seven countries in Europe and a population of almost half a billion people. It has its own flag, anthem, and currency, and common financial, security, and foreign policies.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
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15. Fundamentals of International Business
Trade Agreements
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

16. Fundamentals of International Business
Trade Agreements
The euro
The European currency unit adopted
by the European Union and used in
most EU countries.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

17. Fundamentals of International Business
Trade Agreements
Advantages of a common currency
Disadvantages of a common currency
Decreased risk of exchange-rate fluctuations
Initial costs of implementation
Price transparency
Lack of national control
Elimination of transaction costs
Loss of tradition
Increased markets
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

18. Fundamentals of International Business
Trade Organizations
Trade organizations
Groups established to help with the free flow of goods and services. They may be global in scope or national organizations created by individual governments to help domestic companies expand into international markets.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

19. Fundamentals of International Business
Trade Organizations
World Trade Organization (WTO)
An international organization established in 1995 (which now has over 150 member countries) that promotes trade liberalization throughout the world.
The main purposes of the WTO are:
To act as a forum for negotiations
To provide a set of rules that have been negotiated and signed by the governments of member countries
To offer a forum for dispute settlement
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

20. Fundamentals of International Business
Trade Organizations
Asia-Pacific Economic Co-operation (APEC)
A trade organization, created in 1989, that unites twenty-one of the countries surrounding the Pacific Ocean to co-operate on regional trade. Its goals are to foster open and free trade among its members, increase prosperity and economic growth, and develop the Asia-Pacific community.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

21. Fundamentals of International Business
Trade Organizations
APEC member countries
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

22. Fundamentals of International Business
Trade Organizations
The Group of Eight (G8)
A trade organization encompassing the major economies of the world, which meet to discuss macroeconomic issues such as economic growth, trade liberalization, and helping developing countries.
Member Countries:
France
United States
Canada
Great Britain
Italy
Germany
Japan
Russia
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

23. Fundamentals of International Business
Trade Organizations
The Group of Twenty (G20)
A trade organization established during the economic crisis of the 1990s to provide a discussion forum for the major economies of the world beyond the G8.
The G20 focuses on:
Economic and employment growth
Elimination of trade barriers
Reforming financial institutions and regulations
Restructuring global financial organizations
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

24. Fundamentals of International Business
Trade Organizations
Canada’s Place in the G8 and G20
Canada’s GDP and population are low compared to other G8 and G20 countries
Talk of replacing Canada in the G8, and placing it as a second-tier country in the G20
Would be detrimental to Canada, as its needs, concerns, and interests would not be given the same consideration as in the past
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Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

25. Fundamentals of International Business
Trade Organizations
Organization for Economic Co-operation and
Development (OECD)
A trade organization with thirty member countries, established in 1961 to promote the advancement of democracy and market economies.
OECD members have worked together to eliminate bribery, money laundering, and fraud, and to create a code of conduct for multinational companies.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

26. Fundamentals of International Business
Trade Organizations
The World Bank
An organization with 186 member countries that provides monetary and technical support for developing countries.
Provides loans and grants to assist with education, health, infrastructure, farming, environmental issues, resource management, and other economic concerns.
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

27. Fundamentals of International Business
Trade Organizations
International Monetary Fund (IMF)
An organization whose purpose is to promote financial stability, prevent and solve economic crises, encourage growth, and assuage poverty. It does 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
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

28. The Role of the UN in International Business
The UN has four main purposes:
To keep peace throughout the world
To develop friendly relations among nations
To work together to help poor people live better lives, to conquer hunger, disease, and illiteracy, and to encourage respect for each other’s rights and freedoms
To be a centre for helping nations to achieve these goals
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

29. The Role of the UN in International Business
UN is responsible for organizations that influence international business, including the International Labour Organization (ILO), the International Monetary Fund (IMF), and the World Bank
UN devotes resources to improving the standard of living, the unemployment rate, and economic conditions throughout the world
UN Economic and Financial Committee deals with issues such as international trade, globalization, and poverty elimination
Chapter 5:
INTERNATIONAL TRADE AGREEMENTS AND ORGANIZATIONS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.