CROSS-NATIONAL
COOPERATION &
AGREEMENTS
INTRODUCTION
Trade blocs are a significant influence on the
strategies of MNEs because they define the size
of regional markets and the rules by which
companies must operate.
Economic integration represents an
agreement between or among nations within a
geographic region, i.e., an economic bloc, to
reduce and ultimately remove within the bloc
tariff and nontariff barriers to the free flow of
products, capital, and labor.
Approaches to economic integration include
global integration, bilateral integration
and regional integration.
Regional economic integration - efforts to
reduce trade and investment barriers within one region
Global economic integration - efforts to reduce
trade and investment barriers around the globe
bilateral integration - between two countries
GLOBAL ECONOMIC
INTEGRATION
Current frameworks of regional and global
economic integration date back to the end of
World War II.
The world community, mindful of the
mercantilist trade wars during the 1930s,
which worsened the Great Depression and
eventually led to World War II, initiated two
developments.
The Gatt was created in 1948.
In Eurpoe regional integration started in 1951.
Both developments proved so successful that
they have now expanded considerably.
One became the WTO and the other is EU.
General Agreement on Tariffs and Trade
(GATT)
Bretton Woods Conference introduced the idea for an
organization to regulate trade as part of a larger plan for
economic recovery after World War II.
GATT's main objective was reduction of barriers to
international trade through reduction of tariff barriers,
quantitative restrictions and subsidies on trade through a
series of agreements.
The fundamental principle of “trade without
discrimination” was embedded in the most-
favored-nation (MFN) clause, i.e., the
principle that each member nation must open
its markets equally to every other member
nation.
GATT was a treaty, not an organization
The functions of the GATT were taken over by
the World Trade Organization (WTO) which was
established during the final round of negotiations
in the early 1990s.
World Trade Organization
(WTO)
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round
negotiations (1986-94)
Membership: 153 countries on
23 July 2008
Ministerial Conferences
The topmost decision-making body of
the WTO is the Ministerial
Conference, which usually meets
every two years. It brings together all
members of the WTO, all of which are
countries or customs unions. The
Ministerial Conference can take
decisions on all matters under any of
the multilateral trade agreements.
Functions
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for
developing countries
• Cooperation with other international
organizations
World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations
At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified
in their parliaments.
The goal is to help producers of goods and services,
exporters, and importers conduct their business.
WTO expanded its mission to include trade in
services, 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, the
Goods Council, the Services Council, and the
Council on Trade-Related Aspects of
Intellectual Property (TRIPS).
The WTO has 6 main areas which are discussed
below:
1. GATT was a provisional legal agreement
whereas WTO is an organization with permanent
agreements.
2.WTO has members while GATT had only
contracting parties.
3.GATT dealt only with trade in goods while
WTO covers services and intellectual property
rights as well.
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 there
was no effective enforcement mechanism. But in
WTO an effective enforcement mechanism
exists.
Trade Dispute Settlement
One of the main obj for establishing the WTO was to
strengthen 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 neutral
countries, to reach a judgment.
removes the power of accused countries to block
unfavorable decisions.
WTO recommends that losing countries change their
laws or practices and authorizes winning countries to
use tariff retaliation to compel offending countries’
compliance with WTO rulings.
The Doha Round
The Doha Round began in Doha, Qatar in 2001
to address disputes between developed and
developing nations. Issues surrounding
agricultural subsidies have been particularly
difficult.
The Doha Round was the only round of trade
negotiations sponsored by the WTO.
In 1999, a WTO meeting in Seattle intended to
start a new round of trade talks was
devastated and derailed.
After this, WTO members went ahead to launch
a new round of negotiations in Doha in Nov
2001.
It was significant for two reasons.
Doha Development Agenda
launched in the aftermath of the 9/11 attacks
strong resolve to make free trade work around the globe to
defeat the terrorist agenda to divide and terrorize the world
first round in the history of GATT/WTO to specifically aim at
promoting economic development in developing countries
Goal: make globalization more inclusive and help the world’s
poor
The agenda included:
a. Reduce agricultural subsidies in developed
countries.
b. Slash tariffs, especially in industries that
developing countries might benefit.
c. Free up trade in services.
d. Strengthen intellectual property protection.
In the Doha round not all meetings were held
in Doha.
Subsequent meetings took place in
Cancun(2003), Hong Kong(2005) and
Geneva(2006).
Officially Doha was suspended, but not
terminated or dead.
Pros & Cons For Regional Economic
Integration
It enjoys similar benefits of global economic
integration.
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.
Some of its drawbacks are:
a. Discriminates against firms outside a region.
b. Loss of sovereignty.
Free Trade Area
Customs Union
Regional Common Market
Economic Economic Union
Integration
Political Union
free trade area (FTA)
group of countries that remove trade barriers
among themselves
Free trade agreements usually begin modestly
by eliminating tariffs on goods that already have
low tariffs, and there is usually an implementation
period during which all tariffs are eliminated on all
products.
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 in
services and investment, but the focus is
clearly on tariffs. In addition, each member
country maintains its own external tariff
against non-FTA countries.
customs union
In addition to eliminating internal tariffs,
member countries levy a common external
tariff on goods being imported from
nonmembers.
common market -
it also allows free mobility of production factors
such as labor and capital. This means that
labor, for example, is free to work in any
country in the common market without
restriction. In the absence of the common
market arrange-ment, workers would have to
apply to immigration for a visa, and that might
be difficult to come by.
economic union - members coordinate and
harmonize economic policies (in areas such as
monetary, fiscal, and taxation) to blend their
economies into a single economic entity.
Political union:
The integration of political and economic affairs
of a region.
European Union
European Union (EU) - set up in the aftermath of
WWII to bring peace, stability and prosperity to
Europe
Restrictions between member countries on trade and
free competition have gradually been eliminated, with
the result that standards of living have increased.
Structure of
the European Union
European European
Council Commission
Court
of Justice
Council European
of Ministers Parliament
The European Union (EU) is an economic
union of 27 member states which are located
primarily in Europe.[7] The EU traces its origins
from the European Coal and Steel Community
(ECSC) and the
European Economic Community (EEC) formed
by six countries in the 1950s.
After World War II, moves towards European
integration were seen by many. One such
attempt to unite Europeans was the
European Coal and Steel Community which was
declared to be "a first step in the federation of
Europe.
Robert Schuman proposing the
Coal and Steel Community on 9 May 1950.
The founding members of the Community were
Belgium, France, Italy, Luxembourg, the
Netherlands, and West Germany.
In 1957, the six countries signed the Treaties
of Rome, which extended the earlier
cooperation within the European Coal and Steel
Community (ECSC) and created the European
Economic Community, (EEC) establishing a
customs union.The treaty came into force in
1958
The Rome Treaty was signed in 1957 and came
into force in 1958. It created two additional
European Communities, most notably the
European Economic Community.
The European Union was formally established
when the Maastricht Treaty came into force on
1 November 1993,[8] and in 1995 Austria,
Sweden, and Finland joined the newly
established EU.
Integration
Integration in
in Europe
Europe
European
European European
Coal
Coal and
and Steel
Steel Economic
Community (1951)) Community (1957)
Community (1951
Single
Single Maastricht
European
European Act
Act (1991)
(1991) Treaty (1993)
THE EU TODAY
• The EU today is an economic union.
• Since 1992, passport and customs control within
12 member countries of the EU has break up and
checkpoints at border crossings are no longer
prevailing.
• The area thus became known as the Schengen
passport free travel zone.
• As an economic union, the EU’s proudest
accomplishment is the introduction of a
common currency, the euro, in 12 of the
EU 15 countries known as the euro zone.
• 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.
FUNCTIONING OF THE EU
Common agricultural policy (CAP)
Common fisheries policy
European monetary union
Common transport policy
THE EU’S CHALLENGES
In 2007, the EU celebrated its 50th anniversary.
Politically EU has delivered more than half a
century of peace and prosperity.
But significant challenges lie ahead especially
in terms of
1. Internal divisions
2. Enlargement concerns
North American Free Trade
Agreement (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 under
NAFTA, with jobs peaking at 1.3 million in
2000.
North American Free Trade
Agreement (NAFTA) – first decade
trade between Canada and the United States
grew twice as fast as it did before NAFTA
US exports to Mexico grew threefold, from $52
billion to $161 billion
US FDI in Mexico averaged $12 billion a year,
three times what India took in
Mexico’s US-bound exports grew threefold, and
its GDP rose to become 9th in the world, up from
15th in 1992
Mexico’s GDP per capita rose 24% during 1993–
2003 to over $4,000, several times China’s
As NAFTA approaches its 15th anniversary in
2009, 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.
Andean Community, Mercosur,
CAFTA
Customs unions in South America:
Andean Community (1969) – covers western side of
South America
Mercosur (1981) – covers eastern side of South
America
Their largest trading partner, the United States,
lies outside the region
There is much mutual suspicion and rivalry
between both organizations as well as within
each of them.
Mercosur is relatively more protectionist and
suspicious of the US.
Emboldened by NAFTA in 1998 all Latin
American countries launched negotiations with
Canada and the US for a possible Free Trade
Area of the Americans (FTAA).
However by Nov 2005, Argentina, Brazil,
Paraguay, Uruguay and Venezuela changed
their mind and opposed FTAA.
CAFTA
United States-Dominican Republic-
Central America Free Trade
Agreement (CAFTA) 2005
In absence of FTAA, one recent accomplishment
is the United States-Dominican Republic-Central
America Free Trade Agreement (CAFTA) 2005.
five Central American countries: Guatemala,
Honduras, El Salvador, Nicaragua, and Costa
Rica plus the Dominican Republic
Australia-New Zealand Closer Economic
Relations Trade Agreement (CER)
The CER, launched in 1983, turned the
historical rivalry between Australia and New
Zealand into a partnership.
removed tariffs and NTBs.
both countries agreed not to charge
exporters from the other country for
“dumping”
citizens from both countries can also
freely work and reside in the other country
Association of Southeast Asian
Nations (ASEAN)
A group of 6 ciuntries Singapore, Brunei.
Malaysia, Phillipines, Thailand and
Indonesia agreed in Jan 1992to establish a
Common Effective Preferntial Tariffs (CEPT)
ASEAN’s main trading partners, the
United States, the European Union,
Japan, and China, are outside the region
Their strength lies in well educated and skilled
human resources.
Further the Asean member countries are rich in
oil, mineral resources, agricultural goods and
modern industrial products.
In 2002, ASEAN and China signed an ASEAN-
China Free Trade Agreement (ACFTA) to be
launched by the early 2010s
Similar FTAs are being negotiated with Japan
and South Korea
The ASEAN countries formed the Asean Free
Trade Area (AFTA) in Sep 1994.
India would like to associate itself with ASEAN
in order to develop trade relations and gain the
benefits from AFTA.
India became a sectoral dialogue partner of
ASEAN in 1992.
The sectors were trade, investment, tourism
and science & technology.
Asia-Pacific Economic Cooperation
(APEC)
largest regional integration grouping by
geographic 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)
REGIONAL ECONOMIC INTEGRATION
IN AFRICA
relatively little trade within Africa
(amounting to less than 10% of the
continent’s total trade)
protectionism often prevails
frustration with a current regional deal
often leads to a new deal, usually with a
different set of countries
virtually impossible to understand the
various African regional deals
Some of the other regional integration formed
are:
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)
Building Blocks or Stumbling Blocks
In the absence of global economic integration,
regional economic integration is often
regarded as the next best thing to facilitate
free trade—at least within a region.
However, another school of thought argues
that regional integration has become a
stumbling block for global integration.
Does the WTO Really Matter?
Frustration associated with the collapse of the
Doha Round and other WTO initiatives hinges on a
crucial assumption that the WTO actually matters.
However, this assumption itself is now subject to
debate.
Academic research has failed to find any
compelling evidence that the WTO (and the GATT)
has a significantly positive effect on trade.
TARIFF RATES
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.
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 the import competing
domestic industry.
Only in the most recent Uruguay Round of
negotiations were trade and tariff restrictions in
agriculture addressed.
NON-TARIFF BARRIERS TO
TRADE (NTBS)
Non-tariff barriers to trade (NTBs) are trade barriers
that restrict imports but are not in the usual form of a
tariff.
Their use has risen sharply after the WTO rules led to a
very significant reduction in tariff use.
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.
Here are some example of the “popular” NTBs. quotas,
licencing, standard, foreign exchange restrictions.
