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International Business

International Business. Chapter Eight Cross-national Cooperation and Agreements. Economic Integration. Economic integration: is an economic agreement amongst nations to form an economic bloc by removing tariff and nontariff barriers . It can have political implication.

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International Business

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  1. International Business Chapter Eight Cross-national Cooperation and Agreements

  2. Economic Integration • Economic integration:is an economic agreement amongst nations to form an economic bloc by removing tariff and nontariff barriers . It can have political implication. • Factors that favor economic integration are: cultural similarity, geographic proximity, and political will • Approaches to economic integration include: • global integrationvia the World Trade Organization • bilateral integrationbetween two countries via free trade agreements • regional integrationvia economic blocs

  3. World Trade Organization (WTO) • General Agreement on Tariffs and Trade (GATT) formed in 1947 was replaced by WTO in 1995. WTO aims at establishing a free and fair trade system in the world by reducing/removing tariff and nontariff barriers • It also settles trade disputes. WTO rulings are binding. If an offending country fails to comply with a judgment, the rights to compensation and countervailing sanctions will follow. • Most-favored nation clause (MFN): is the fundamental principle of “trade without discrimination.” • WTO Rounds- Kennedy Round (1960s), Tokyo Round (1970s), Uruguay Round (1980s) and Doha Round (2001-till date)

  4. Effects of Economic Integration Static effects:the shifting of resources from inefficient to efficient firms as trade barriers fall Trade creation:production shifts from less efficient domestic producers to more efficient regional producers Trade diversion:trade shifts from more efficient external sources to less efficient suppliers within the bloc following the imposition of common external barriers Dynamic effects:the gains from overall market growth, the expansion of production, the realization of greater economies of scale and scope, and the increasingly competitive nature of the market

  5. Types of Regional Economic Integration • Regional Cooperation: initial moves, preferential trade agreements • Free Trade Area: no internal tariff • Customs Union: no internal tariff and common external tariff • Common Market: no internal tariff, common external tariff and factor mobility • Economic Integration: no internal tariff, common external tariff, factor mobility, common fiscal and monetary policy, common currency, and political integration

  6. Regional Integration Groups • Americas • North American Free Trade Agreement (NAFTA) • Central American Free Trade Agreement (CAFTA) • Latin America • MERCOSUR • Latin American Integration Association (ALADI) • Central American Common Market (CACM) • Caribbean Community and Common Market (CARICOM) • ANDEAN Group

  7. Regional Integration Groups • Europe • European Union (EU) • European Free Trade Association (EFTA) • Asia • Association of Southeast Asian Nations (ASEAN) • Asia Pacific Economic Cooperation (APEC) • South Asian Association for Regional Cooperation (SAARC) • Economic Cooperation Organization (ECO) • Gulf Cooperation Council (GCC) • Africa • Southern African Development Community (SADC) • Common Market for Eastern and Southern Africa (COMESA) • Economic Community of West African States (ECOWAS)

  8. Structure of European Union • European Parliament (elected by the peoples of the Member States) • Council of the European Union (representing the governments of the Member States) • European Commission (driving force and executive body)  • Court of Justice (ensuring compliance with the law) • Court of Auditors (controlling sound and lawful management of the EU budget)

  9. North American Free Trade Agreement (NAFTA) • Established in 1994 by United States, Canada and Mexico, phases in over a period of 15 years • Claims a total GNI that is greater than that of the 25-member EU • NAFTA covers: • Market access (tariff and nontariff barriers) • Trade rules (subsidies and antidumping) • Services • Investment • Intellectual property • Dispute resolution • Good example of trade diversion

  10. MERCOSUR • Established in 1991 • Brazil • Argentina • Paraguay • Uruguay • Generates 80% of South America’s GNP • Signed free trade agreements with Bolivia and Chile • Negotiating with EU for free trade agreements

  11. Association of South East Asian Nations (ASEAN) • Organized in 1967 • Member countries are protected in terms of tariff and nontariff barriers • Holds tremendous potential market opportunities with 500 million consumers

  12. Other Forms of International Cooperation • United Nations: formed in 1945, General Assembly, Security Council, an umbrella of various UN organizations • NGOs: are increasingly becoming influential, Red Cross, Save the Children, WEF, • Producer Groups: OPEC, Coffee Growers, Tea, Copper

  13. How to Study Regional Groups (an approach)

  14. Chapter 8: Discussion Questions • Define economic integration and explain why nations pursue economic integration. • Explain the static and dynamic effects of regional economic integration. • Explain the five different types of regional economic integration with examples. • How can we can study regional groups? Specifically, explain the role of matrix we discussed in class.

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