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International Business
Environments and Operations, 13/e
Global Edition
Part Three
Theories and Institutions: Tradeand Investment
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Chapter 8
Cross-
NationalCooperation
and
Agreements
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Chapter Objectives
To identify the major challenges of the World Trade Organization To discuss the pros and cons of global, bilateral, and regionalintegration
To describe the static and dynamic impact of trade agreementson 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), theNorth American Free Trade Agreement (NAFTA), the SouthernCommon Market (MERCOSUR), and the Association ofSoutheast Asian Nations (ASEAN)
To describe other forms of global cooperation such as the
United Nations and the Organization of the Petroleum ExportingCountries (OPEC)
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Economic Integration
Approaches to economic integration may be:
Bilateral integration-two countries cooperate
closely, usually in the form of tariff reductions.
Regional integration-a group of countries locatedin the same geographic proximity decide to
cooperate, i.e. the European Union.
Global integration-countries worldwide cooperatethrough the WTO.
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The World Trade Organization
GATT: Predecessor to the WTO
Most Favored Nation
Dispute Settlement
The Rise of Bilateral Agreements
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Regional Economic Integration
Regional trade agreementsintegration
confined to a region and involving more than two
countries.
Geographic proximity is an important reason foreconomic integration.
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Major Types of Economic Integration
Free trade areano internal tariffs.
Customs unionno internal tariffs plus
common external tariffs.
Common marketcustoms union plus factor
mobility.
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Effects of Integration
Static Effects
Dynamic Effects
Trade Creation
Trade Diversion
Economies of Scale
Increased Competition
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European Union
Predecessors
Organizational Structure
The Single European Act
Monetary Union
Expansion
Bilateral Agreements
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How to Do Business with the EU:
Implications for Corporate Strategy
Companies need to determine where toproduce 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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North American Free Trade Agreement
Includes Canada, the United States, and Mexico.
Went into effect on January 1, 1994.
Involves free trade in goods, services, and
investment.
Is a large trading bloc but includes countries of
different sizes and wealth.
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NAFTA Rational
U.S.-Canadian trade is the largest bilateral trade
in the world.
The United States is Mexicos and Canadas
largest trading partner.
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Rules of Origin and Regional Content
Rules of origin-goods and services must
originate in North America to get access
to lower tariffs.
Rules of Regional Content-50 % of the net costof most products must come from the NAFTA
region
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Impact of NAFTA
Wages, Investment, and Labor: An abundance
of cheap labor and lax environmental standards
has enticed U.S. companies to invest heavily in
Mexico A major challenge to NAFTA is illegal
immigration.
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How to Do Business with NAFTA:
Implications for Corporate Strategy
Predictions and Outcomes
Companies would look at NAFTA as one big
regional market
U.S. companies would run Canadian andMexican companies out of business once the
markets opened up
Mexico looked at as a consumer marketrather than a production location
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Regional Economic Integration in the
Americas
The Caribbean Community CARICOM
MERCOSUR
The Andean Community (CAN)
Latin American Integration Association (LAIA)
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Economic Integration in Central
America and the Caribbean
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Latin American Economic Integration
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Regional Economic Integration in Asia
Association of Southeast Asian Nations
(ASEAN)
Brunei Darussalam, Cambodia, China,
Indonesia, Laos, Malaysia, Myanmar, thePhilippines, Singapore, Thailand, and Vietnam
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Calls for Closer Cooperation
Asia Pacific Economic Cooperation (APEC)
Challenges to Solidity
Lack of binding treaties
Goal of Open Regionalism
Trade liberalization to non-APEC countries on
an unconditional, MFN, or reciprocal basis
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Regional Economic Integration in Africa
There are several African trade groups, but
they rely more on their former colonial
owners and other developed markets for trade
than they do on each other.
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Future: Will the WTO Overcome Bilateral
and Regional Integration Efforts?
Regional integration might actually help the
WTO achieve its objectives
NAFTA and the EU will continue to develop
stronger linkages and expand Regional integration in Africa will continue at a
slow pace due to the existing political and
economic problems there
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Other Forms of International Cooperation
The United Nations
Nongovernmental Organizations (NGOs)
Global Compact
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Commodity Agreements
Commodities-raw materials or primary products
that enter into trade, such as metals or
agricultural products.
Many commodity agreements now exist for thepurpose of:
Discussing issues
Disseminating information Improving product safety
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Organization of Petroleum Exporting
Countries (OPEC)
Price Controls and Politics
Output and Exports The Downside of High Prices
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All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.
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