Transcript Lecture 6 - cda college

INTERNATIONAL
COOPERATION AMONG NATIONS
CHAPTER 6:
INTERNATIONAL COOPERATION AMONG NATIONS
LEARNING OBJECTIVES
• To explain the importance of GATT to international businesses
and the role of WTO
• To contrast the different forms of economic intergration among
cooperating countries
• To analyze the opportunities created by completion of the EU´s
internal market
• To describe other major trading blocs
• To understand the impact of economic integration on firms
General Agreement on Tariffs and Trade
A multilateral treaty designed to minimize trade barriers
• Went into effect in 1948 in Havana, Cuba
• Nations meet every few years and new treaties are signed. Last major
round was in Uruguay, 1994. 125 countries signed the treaty. Today
we have more 132 country members
• The goal is to promote a free and competitive trading environment. A
reduction of tariffs, from over 40% in 1948 to 3% in 1995 was
observed, with dramatic increase in world trade.
• It seeks to ensure that international trade is conducted on a
nondiscriminatory basis. This is mainly achieved through the Most
Favored Nation principle.
• In 1995, GATT was replaced by WTO for monitoring the
implementation of GATT agreements.
A note on Most Favoured Nation Principle
If preferential treatment is seen by one country to another then
it should be extended to all countries
Two exceptions to the above principle:
1.
2.
When a country reduces tariffs for a poor developing country.
When a country reduces or eliminates tariffs for a country that
belongs to the same economic integration.
Question:
How about the case where an MNC goes to a poor developing
country favored by this exception? (Loophole)
The Uruguay Round
(Punta del Este)
• Further reduced tariffs from 4,7 to 3%
Focused more on reducing nontariff barriers to trade:
• Agricultural area: Agreement to reduce price supports and
export subsidies by 20 to 40%
• Services trading: Discussions were complex due to the variety of
services (telecommunications, insurance, movies..) Negotiations
continue…
• Intellectual Property Rights: Fight piracy with severe penalties.
Eliminate it in the next 20 years.
Forms of
Economic
Integration
Political Union
Economic + Political
USA
integration under one
government
Economic Union
All previous, plus unity of monetary
EU
and fiscal policy taxation & social
welfare
Common Market
All previous, plus freedom of movement for EU in 1990
factors of production among members
Custom Union
Elimination of tariffs plus the establishment of common
external tariff structure toward nonmembers
Free Trade Area
Elimination of tariffs and NTBs among countries (NAFTA, EFTA) in bloc.
Each member is free to have its own (different) trade policies with
nonmembers, though. Trade deflection is observed.
The European Union
• The most important (richest market) bloc in the world
• Origins go back to 1952 with the European Coal and Steel Community
• Established in 1957 (6 countries) under the Treaty of Rome
(Community)
• In 1986 the White Paper was signed for accelerated progress on ending
all trade barriers and restrictions
• In 1993 the Treaty of Maastricht (Denmark) came into force for Europe´s
economic and political integration. The name changed to European
Union
• Estimated that all members will have a common currency (Euro) by
2002.
• Negotiations are taking place for acceptance of additional members
Criteria upon which participation in Economic
and Monetary Union is determined
• Inflation : (over a year) must not be more than 1,5% above the
three best-performing countries
• Interest rates: (one year) must not be above 2% of the best
three member states
• Member States budget deficits: should not exceed 3% of GDP,
unless they are exceptional
• Public debt: should not exceed 60% of GDP or should be
approaching the reference value at a satisfactory speed
Institutions Governing the EU
Council of Ministers (Union)
European Commission (Brussels)
• Foreign ministers represent their country • Drafts legislation for proposal to the
• Presidency rotates every 6 months
Council
• Votes are according to the population of • Oversees the implementation of policies
members
• Members voting (chosen by
• The most powerful body
governments on 5-year term (Eurocrafts)
European Parliament (meets in
Strasbourg –staff is in Luxembourg
• The watchdog on EU expenditures
• 625 members elected on 5-year terms in
national elections
• Weakest body
Court of Justice
• Consists of 16 judges on –year terms
• Judges cases and makes sure the law is
followed
North American Free Trade Agreement
NAFTA
•
Implemented in 1994 to eliminate barriers to trade between
Canada, Mexico and the United States
•
The first group to include developed and less developed countries
•
Specific rules and regulations were laid down to avoid invasion of
nonmember countries due to trade deflection
Impact of Economic Integration on Firms
Do trading blocs benefit or hurt the MNCs
and the worlds?
•
Within the bloc we observe trade creation: Production moves from
high to low-cost producers. This benefits the final consumer and
enables efficient producers to compete abroad
•
From a global perspective we observe trade diversion: Production
moves from external (nonmembers) low cost producers to high cost
(members) producers.