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International Business
Part Three
Theories and Institutions: Trade
and Investment
Chapter Eight
Cross-National Cooperation and
Agreements
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Chapter Objectives
To identify the major characteristics and challenges of the World
Trade Organization
To discuss the pros and cons of global, bilateral, and regional
integration
To describe the static and dynamic impact of trade agreements on
trade and investment flows
To define different forms of regional economic integration
To compare and contrast different regional trading groups, including
but not exclusively the European Union (EU), the North American
Free Trade Agreement (NAFTA), the Southern Common Market
(MERCOSUR), and the Association of South East Asian Nations
(ASEAN)
To describe other forms of global cooperation, such as the United
Nations and the Organization of Petroleum Exporting Countries
(OPEC)
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GATT
The General Agreement on Tariffs and
Trade (GATT), begun in 1947, created a
continuing means for countries to
negotiate the reduction and elimination of
trade barriers and to agree on simplified
mechanisms for the conduct of
international trade
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WTO
The World Trade Organization (WTO)
replaced GATT in 1995 as a continuing
means of trade negotiations that aspires to
foster the principle of trade without
discrimination and to provide a better
means of mediating trade disputes and of
enforcing agreements
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Regional Economic Integration
Efforts at regional economic integration
began to emerge after World War II as
countries saw benefits of cooperation and
larger market sizes
The major types of economic integration
are:
the free trade area
the customs union
the common market
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The Effects of Integration
Once protection is eliminated among
member countries, trade creation allows
MNEs to specialize and trade based on
comparative advantage
Trade diversion occurs when the supply of
products shifts from countries that are not
members of an economic bloc to those
that are
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European Union
Regional, as opposed to global, economic integration
occurs because of the greater ease of promoting
cooperation on a smaller scale
The European Union (EU) is an effective common
market that has abolished most restrictions on factor
mobility and is harmonizing national political, economic,
and social policies
The EU is comprised of 27 countries, including 12
countries from mostly Central and Eastern Europe that
joined since 2004
The EU has abolished trade barriers on:
intrazonal trade
instituted a common external tariff
created a common currency, the euro
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Implications of the EU for
corporate strategy
Companies need to determine where to
produce products.
Companies need to determine what their
entry strategy will be.
Companies need to balance the
commonness of the EU with national
differences.
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The North American Free Trade
Agreement (NAFTA)
The North American Free Trade
Agreement (NAFTA) is designed to
eliminate tariff barriers and liberalize
investment opportunities and trade in
services
Key provisions in NAFTA are labor and
environmental agreements
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Regional economic integration in the
Americas
Caribbean Community (CARICOM)
Central American Common Market (CACM)
Central American Free Trade Agreement
(CAFTA-DR)
Andean Community (CAN)
The Southern Common Market (MERCOSUR)
The proposed South American Community of
Nations.
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Regional economic integration in
Asia & Africa
Association of Southeast Asian Nations
(ASEAN)
Asia Pacific Economic Cooperation
(APEC)
The African Union
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Forms of International Cooperation
The United Nations is comprised of
representatives of most of the countries in
the world and international trade and
development in a number of significant
ways
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Commodity Agreements
Many developing countries rely on
commodity exports to supply the hard
currency they need for economic
development
Instability in commodity prices has
resulted in fluctuations in export earnings
OPEC is an effective commodity
agreement in terms of attempting to
stabilize supply and price