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CROSS-NATIONAL

COOPERATION & AGREEMENTS

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INTRODUCTION Trade blocs are a significant influence on the

strategies of MNEs because they define the sizeof regional markets and the rules by which

companies must operate.

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Economic integration represents anagreement between or among nations within ageographic region, i.e., an economic bloc, to

reduce and ultimately remove within the bloctariff and nontariff barriers to the free flow ofproducts, capital, and labor.

Approaches to economic integration include

global integration, bilateral integrationand regional integration.

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Regional economic integration - efforts toreduce trade and investment barriers within one region

Global economic integration - efforts to reducetrade and investment barriers around the globe

bilateral integration - between two countries

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GLOBAL ECONOMIC

INTEGR

ATION Current frameworks of regional and global

economic integration date back to the end ofWorld War II.

The world community, mindful of themercantilist trade wars during the 1930s,which worsened the Great Depression andeventually led to World War II, initiated two

developments.

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The Gatt was created in 1948.

In Eurpoe regional integration started in 1951.

Both developments proved so successful thatthey have now expanded considerably.

One became the WTO and the other is EU.

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General Agreement on Tariffs and Trade

(GATT)

Bretton Woods Conference introduced the idea for anorganization to regulate trade as part of a larger plan foreconomic recovery after World War II.

GATT's main objective was reduction of barriers tointernational trade through reduction of tariff barriers,quantitative restrictions and subsidies on trade through aseries of agreements.

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The fundamental principle of trade withoutdiscrimination was embedded in the most-favored-nation (MFN) clause, i.e., the

principle that each member nation must openits markets equally to every other membernation.

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GATT was a treaty, not an organization

The functions of the GATT were taken over bythe World Trade Organization (WTO) which was

established during the final round of negotiationsin the early 1990s.

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World Trade Organization

(WTO) Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Roundnegotiations (1986-94)Membership: 153 countries on23 July 2008

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Ministerial Conferences The topmost decision-making body of

the WTO is the Ministerial

Conference, which usually meetsevery two years. It brings together allmembers of the WTO, all of which arecountries or customs unions. The

Ministerial Conference can takedecisions on all matters under any ofthe multilateral trade agreements.

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Functions Administering WTO trade agreements

Forum for trade negotiations

Handling trade disputes Monitoring national trade policies Technical assistance and training fordeveloping countries

Cooperation with other internationalorganizations

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World Trade Organization (WTO) is the only globalinternational organization dealing with the rules of tradebetween nations

At its heart are the WTO agreements, negotiated andsigned by the bulk of the worlds trading nations and ratifiedin their parliaments.

The goal is to help producers of goods and services,exporters, and importers conduct their business.

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WTO expanded its mission to include trade inservices, investment, intellectual property,sanitary measures, plant health, agriculture,

textiles, and technical barriers to trade. Major decision-making units include: the

Ministerial Conference, the General Council, theGoods Council, the Services Council, and theCouncil on Trade-Related Aspects ofIntellectual Property (TRIPS).

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The WTO has 6 main areas which are discussedbelow:

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1. GATT was a provisional legal agreement

whereas WTO is an organization with permanent

agreements.

2.WTO has members while GATT had onlycontracting parties.

3.GATT dealt only with trade in goods while

WTO covers services and intellectual property

rights as well.

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4.The real critical distinction between GATT and

WTO is creation of a binding dispute settlement

system. Under GATT contracting parties could

bring cases before international body but therewas no effective enforcement mechanism. But in

WTO an effective enforcement mechanism

exists.

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Trade Dispute SettlementOne of the main obj for establishing the WTO was tostrengthen the trade dispute settlement mechanisms.

GATT mechanisms experienced long delays, blocking by

accused countries, and inadequate enforcement

WTO addresses all three problems:

sets time limits for a panel, consisting of three neutralcountries, to reach a judgment.

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removes the power of accused countries to blockunfavorable decisions.

WTO recommends that losing countries change theirlaws or practices and authorizes winning countries touse tariff retaliation to compel offending countriescompliance with WTO rulings.

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The Doha Round The Doha Round began in Doha, Qatar in 2001

to address disputes between developed anddeveloping nations. Issues surrounding

agricultural subsidies have been particularlydifficult.

The Doha Round was the only round of tradenegotiations sponsored by the WTO.

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In 1999, a WTO meeting in Seattle intended tostart a new round of trade talks wasdevastated and derailed.

After this, WTO members went ahead to launcha new round of negotiations in Doha in Nov2001.

It was significant for two reasons.

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Doha Development Agenda

launched in the aftermath of the 9/11 attacks

strong resolve to make free trade work around the globe todefeat the terrorist agenda to divide and terrorize the world

first round in the history of GATT/WTO to specifically aim atpromoting economic development in developing countries

Goal: make globalization more inclusive and help the worldspoor

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The agenda included:

a. Reduce agricultural subsidies in developedcountries.

b. Slash tariffs, especially in industries thatdeveloping countries might benefit.

c. Free up trade in services.

d. Strengthen intellectual property protection.

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In the Doha round not all meetings were heldin Doha.

Subsequent meetings took place in

Cancun(2003), Hong Kong(2005) andGeneva(2006).

Officially Doha was suspended, but notterminated or dead.

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Pros & Cons For Regional Economic

Integration

It enjoys similar benefits of global economicintegration.

In addition, it enhances the collective political

weight of a region. Economically, it may bring additional benefits

such as a larger market, simpler standards,reduced costs etc.

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Some of its drawbacks are:

a. Discriminates against firms outside a region.

b. Loss of sovereignty.

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RegionalRegionalEconomicEconomic

IntegrationIntegration

Free Trade AreaFree Trade Area

Customs UnionCustoms Union

Common MarketCommon Market

Economic UnionEconomic Union

Political UnionPolitical Union

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free trade area (FTA)group of countries that remove trade barriersamong themselves

Free trade agreements usually begin modestlyby eliminating tariffs on goods that alreadyhave low tariffs, and there is usually animplementation period during which all tariffsare eliminated on all products.

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At the same time tariffs are being eliminated,the members of the FTA

might explore other forms of cooperation, such

as the reduction of nontariff barriers or trade inservices and investment, but the focus isclearly on tariffs. In addition, each membercountry maintains its own external tariffagainst non-FTA countries.

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customs union

In addition to eliminating internal tariffs,member countries levy a common external

tariff on goods being imported fromnonmembers.

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common market -

it also allows free mobility of production factorssuch as labor and capital. This means that

labor, for example, is free to work in anycountry in the common market withoutrestriction. In the absence of the commonmarket arrange-ment, workers would have toapply to immigration for a visa, and that mightbe difficult to come by.

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economic union - members coordinate andharmonize economic policies (in areas such asmonetary, fiscal, and taxation) to blend theireconomies into a single economic entity.

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Political union:

The integration of political and economic affairsof a region.

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European Union

European Union (EU) - set up in the aftermath ofWWII to bring peace, stability and prosperity toEurope

Restrictions between member countries on trade andfree competition have gradually been eliminated, withthe result that standards of living have increased.

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Structure of

the European Union

EuropeanEuropean

ParliamentParliament

EuropeanEuropean

CommissionCommission

CouncilCouncil

of Ministersof Ministers

EuropeanEuropean

CouncilCouncil

CourtCourt

of Justiceof Justice

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The European Union (EU) is an economicunion of 27 member states which are locatedprimarily in Europe.[7] The EU traces its origins

from the European Coal and Steel Community(ECSC) and the European EconomicCommunity (EEC) formed by six countries inthe 1950s.

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After World War II, moves towards Europeanintegration were seen by many. One suchattempt to unite Europeans was the European

Coal and Steel Community which was declaredto be "a first step in the federation of Europe.

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Robert Schuman proposing the Coal andSteel Community on 9 May 1950.

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The founding members of the Community wereBelgium, France, Italy, Luxembourg, theNetherlands, and West Germany.

In 1957, the six countries signed the Treatiesof Rome, which extended the earliercooperation within the European Coal and SteelCommunity (ECSC) and created the EuropeanEconomic Community, (EEC) establishing acustoms union.The treaty came into force in1958

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The Rome Treaty was signed in 1957 and cameinto force in 1958. It created two additionalEuropean Communities, most notably the

European Economic Community.

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The European Union was formally establishedwhen the Maastricht Treaty came into force on1 November 1993,[8] and in 1995 Austria,

Sweden, and Finland joined the newlyestablished EU.

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SingleSingleEuropean Act (1991)European Act (1991)

SingleSingleEuropean Act (1991)European Act (1991)

EuropeanEuropean

Coal and SteelCoal and SteelCommunity (1951Community (1951))

EuropeanEuropean

Coal and SteelCoal and SteelCommunity (1951Community (1951))

MaastrichtMaastrichtTreaty (1993)Treaty (1993)

Integration in EuropeIntegration in EuropeIntegration in EuropeIntegration in Europe

EuropeanEuropean

EconomicEconomicCommunity (1957)Community (1957)

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THE EU TODAY

The EU today is an economic union.

Since 1992, passport and customs control within12 member countries of the EU has break up andcheckpoints at border crossings are no longerprevailing.

The area thus became known as the Schengenpassport free travel zone.

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As an economic union, the EUs proudest

accomplishment is the introduction of a

common currency, the euro, in 12 of the

EU 15 countries known as the euro zone.

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The euro was introduced in 2 phases.

First it became available in 1999 as virtual

money. Second in 2002, the euro was introduced

as banknotes and coins.

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FUNCTIONING OF THE EU

Common agricultural policy (CAP)

Common fisheries policy

European monetary union

Common transport policy

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THE EUS CHALLENGES

In 2007, the EU celebrated its 50th anniversary.

Politically EU has delivered more than half acentury of peace and prosperity.

But significant challenges lie ahead especiallyin terms of

1. Internal divisions

2. Enlargement concerns

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North American Free TradeAgreement (NAFTA)

free trade agreement between Canada,Mexico, and the United States

tariffs on half of the exports and imports

among members removed immediately

remaining tariffs phased out by 2010

Maquiladora factories blossomed underNAFTA, with jobs peaking at 1.3 million in2000.

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North American Free TradeAgreement (NAFTA) first decade

trade between Canada and the United Statesgrew twice as fast as it did before NAFTAUS exports to Mexico grew threefold, from $52billion to $161 billion

US FDI in Mexico averaged $12 billion a year,three times what India took inMexicos US-bound exports grew threefold, andits GDP rose to become 9th in the world, up from15th in 1992

Mexicos GDP per capita rose 24% during 19932003 to over $4,000, several times Chinas

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As NAFTA approaches its 15th anniversary in2009, not all is rosy.

Despite the impressive gains, many Mexicans

feel betrayed by NAFTA. Because of Chinese competition, Mexican real

wages have stagnated.

China has now replaced Mexico as the 2nd

largest exporter to the US.

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Andean Community, Mercosur,CAFTA

Customs unions in South America:

Andean Community (1969) covers western side ofSouth America

Mercosur (1981) covers eastern side of SouthAmerica

Their largest trading partner, the United States,

lies outside the region

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There is much mutual suspicion and rivalrybetween both organizations as well as withineach of them.

Mercosur is relatively more protectionist andsuspicious of the US.

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Emboldened by NAFTA in 1998 all LatinAmerican countries launched negotiations withCanada and the US for a possible Free Trade

Area of the Americans (FTAA). However by Nov 2005, Argentina, Brazil,

Paraguay, Uruguay and Venezuela changedtheir mind and opposed FTAA.

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CAFTA

United States-Dominican Republic-Central America Free Trade

Agreement (CAFTA) 2005

In absence ofFTAA, one recent accomplishmentis the United States-Dominican Republic-CentralAmerica Free Trade Agreement (CAFTA) 2005.

five Central American countries: Guatemala,

Honduras, El Salvador, Nicaragua, and CostaRica plus the Dominican Republic

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Australia-New Zealand Closer Economic

Relations Trade Agreement (CER)

The CER, launched in 1983, turned thehistorical rivalry between Australia and NewZealand into a partnership.

removed tariffs and NTBs.

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both countries agreed not to chargeexporters from the other country for

dumping

citizens from both countries can alsofreely work and reside in the other country

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Association of Southeast AsianNations (ASEAN)

A group of 6 ciuntries Singapore, Brunei.Malaysia, Phillipines, Thailand andIndonesia agreed in Jan 1992to establish a

Common Effective Preferntial Tariffs (CEPT)

ASEANs main trading partners, theUnited States, the European Union,

Japan, and China, are outside the region

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Their strength lies in well educated and skilledhuman resources.

Further the Asean member countries are rich in

oil, mineral resources, agricultural goods andmodern industrial products.

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In 2002, ASEAN and China signed an ASEAN-China Free Trade Agreement (ACFTA) to belaunched by the early 2010s

Similar FTAs are being negotiated with Japanand South Korea

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The ASEAN countries formed the Asean FreeTrade Area (AFTA) in Sep 1994.

India would like to associate itself with ASEAN

in order to develop trade relations and gain thebenefits from AFTA.

India became a sectoral dialogue partner ofASEAN in 1992.

The sectors were trade, investment, tourismand science & technology.

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Asia-Pacific Economic Cooperation(APEC)

largest regional integration grouping bygeographic area and by GDP

21 member economies span four

continents

home to 2.6 billion people

contribute 46% of world trade ($7 trillion)

command 57% of world GDP ($21 trillion)

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REGIONAL ECONOMIC INTEGRATIONIN AFRICA

relatively little trade within Africa(amounting to less than 10% of thecontinents total trade)

protectionism often prevails frustration with a current regional deal

often leads to a new deal, usually with adifferent set of countries

virtually impossible to understand thevarious African regional deals

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Some of the other regional integration formedare:

EFTA (European Free Trade Association)

LAIA (Latin American Integration Association) SAARC (South Asian Association for Regional

Co-operation)

ESCAP (The Economic and Social Commission

for Asia and the Pacific)

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Building Blocks or Stumbling Blocks

In the absence of global economic integration,regional economic integration is oftenregarded as the next best thing to facilitate

free tradeat least within a region.However, another school of thought arguesthat regional integration has become astumbling block for global integration.

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Does the WTO Really Matter?

Frustration associated with the collapse of theDoha Round and other WTO initiatives hinges on acrucial assumption that the WTO actually matters.

However, this assumption itself is now subject todebate.

Academic research has failed to find any

compelling evidence that the WTO (and the GATT)has a significantly positive effect on trade.

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TARIFF RATES

y Tariffs, which are taxes on imports of commodities into a

country or region, are among the oldest forms of

government intervention in economic activity. They are

implemented for two clear economic purposes.

1. First, they provide revenue for the government.

2. Second, they improve economic returns to firms and

suppliers of resources to domestic industry that face

competition from foreign imports.

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y Tariffs are widely used to protect domestic producers

incomes from foreign competition. This protection comes at

an economic cost to domestic consumers who pay higher

prices for import competing goods, and to the economy as a

whole through the inefficient allocation of resources to theimport competing domestic industry.

y Only in the most recent Uruguay Round of negotiations were

trade and tariff restrictions in agriculture addressed.

NON TARIFF BARRIERS TO TRADE

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NON-TARIFF BARRIERS TO TRADE

(NTBS)

y Non-tariff barriers to trade (NTBs) are trade barriers

that restrict importsbut are not in the usual form of a tariff.

y Their use has risen sharply after the WTO rules led to a very

significant reduction in tariff use.

y Some non-tariff trade barriers are expressly permitted in

very limited circumstances, when they are deemed necessary

to protect health, safety, or sanitation, or to protect

depletable natural resources.

y Here are some example of the popular NTBs. quotas,

licencing, standard, foreign exchange restrictions.