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CHAPTER 8: Cross National Cooperation and AgreementsEconomic Integration: political and monetary agreements among nations and world regions in which preference is given to member countries.Bilateral integration: two countries decide to cooperate more closely together, usually in the form of tariff reductions.Regional Integration: a group of countries located in the same geographic proximity decide to cooperate, as with EU.Global Integration: countries from all over the world decide to cooperate through the World Trade Organization.Triad- regions of the world; Europe, North America, and Asia.World Trade Organization: the successor to the General Agreement on Tariffs and Trade (GATT) and the major multi-lateral forum through which governments can come to agreements and settle disputes over trade. Actively cooperating with each other to remove trade barriers.GATT: Ancestor to the WTO- 1995 the WTO replaces GATT and 125 countries were already members.Fundamental principle of GATT was that each member nation must open its markets equally to every other member nation.“Trade without discrimination” was embodied in its most favored nation clause- once a country and its trading partners had agreed to reduce a tariff, that tariff cut was automatically extended to every other member country, regardless of whether the country was a signatory to the agreement.Market trends and organizational challenges made trade agreements harder to work out. Restoring an effective means for trade liberalization led officials to create WTO in 1995.What Does the WTO Do? Adopted principles from GATT but added in its mission to include trade in services, investment, intellectual property, sanitary measures, plant health, agriculture, textiles, and technical barriers to trade.Has 153 members who collectively account for more than 97% of world trade.Most Favored Nation: (MFN) implies that member countries should trade without discrimination, giving foreign products “national treatment.” Some exceptions to the privileged official members:1. Developing countries manufactured products have been given preferential treatment over those from industrial countries.2. Concession granted to members within a regional trading alliance, such as the EU, have not been extended to countries outside the alliance.3. Countries can raise barriers against member countries who they feel are trading unfairly.(made in times of war or international tension)Dispute Settlement: gathering growing attention is organizations dispute settlement mechanism, in which countries may bring charges of unfair trade practices to a WTO panel, accused countries may appeal.There are time limits on deliberationsIf country fails to comply with panels judgment, trading partners have the right to compensation.Boeing and Airbus in dispute about subsidies.Doha Round: gives developing countries a boost on the world scene. Doha, Qatar.Criticism: some feel its efforts are undermining global diversity and benefiting the rich at the expense of the poor.Include concerns about the ignorance of critical issues related to trade, labor and environmental conditions.Argue that the WTO does not do enough to protect against exploitive industrial development that threatens labor rights and the environment around the world.The Rise of Bilateral AgreementsPreferential trade agreements (signatory countries give preferential treatment to Free trade agreementsRegional Economic Integration:Regional Trade agreements: EU, European Free Trade Association, North American Free Trade Agreement, Southern Common Market, Association of Southeast Asia Nations, Asian Free Trade Area, Common Market of Eastern and Southern Africa.Free Trade Agreement: the goal of an FTA is to abolish all tariffs between member countries.Customs Union: member countries levy common external tariff on goods being imported from nonmembers in addition to eliminating internal tariffs. The EU removed internal tariffs when it established a common external tariff.Common Market (or Economic Integration Agreement): adding free mobility of factors of production to a customs union. If this is absent, a worker from a member country would have to apply for an immigration visa.-Regional Integration has social, cultural, political and economic effects.Static effects of integration: the shifting of resources from inefficient to efficient companies as trade barriers fall.Dynamic effects of integration: the overall growth in the market and the impact on a company caused by expanding production and by the companies ability to achieve greater economies of scale.Trade creation: production shifts to more efficient producers for reasons of comparative advantage.Trade diversion: trade shifts to countries in the group at the expense of trade with countries not in the group.Economies of scale: the average cost per unit falls as the number of units produced rises, occurs in regional integration because of the growth in the market size.Increased competition: produces greater efficiency with competition. Could result in investment shifting from les efficient to more efficient companies, or it could result in existing companies becoming more efficient.Major Regional Trading Groups : look at them by location and by type. Companies are interested in this for their markets, sources of raw materials, and production locations. The larger and richer the new market, the more likely it is to attract the attention of the major investor countries and companies.A) European Union (EU): largest and most comprehensive regional economic group. It began as a free trade agreement with the goal of becoming a customs union and to integrate in other ways.Most ambitious of all regional trade groups.Predecessors: those countries apart of EEC and those who later joined the EU combined to abolish internal tariffs to integrate European markets more closely and allow economic cooperation to help avoid further political conflictOrganizational Structure: encompasses several governing bodies (EC, Council of European Union, European Parliament, European Court Justice, European Central bank)Key Governing bodies: the European commission provides political leadership, drafts laws, and runs the various daily programs of the EU.The council of the EU is composed of the heads of state of each member country. The European court of Justice ensures consistent interpretation and application of EU treaties.Anti-trust Investigations: EU is very aggressive in enforcing

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PSU IB 303 - Chapter 8

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