intern

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siness, 5

th edition

international cooperationamong nations

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Chapter Objectives

• Explain the importance of the GATT and the WTO to international business

• Contrast the different forms of economic integration among cooperating countries

• Analyze the opportunities for international businesses created by completion of the EU’s internal market

• Describe the other major trading blocs in today’s world economy

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General Agreement on Tariffs and Trade

• Developed as part of the Havana, Cuba, conference in 1947

• Provided forum for trade ministers to discuss barriers to international trade

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The Role of the GATT

The GATT’s goal was to promote a free and competitive international

trading environment benefiting efficient producers by sponsoring multilateral negotiations to reduce tariffs, quotas, and other nontariff

barriers

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Table 10.1 GATT Negotiating Rounds

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Most Favored Nation (MFN) Principle

The most favored nation principle requires that any preferential treatment

granted to one country must be extended to all countries.

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Exceptions to the MFN Principle

• Members permitted to lower tariffs to developing countries without lowering them for more developed countries

• Regional arrangements promote economic integration (e.g., EU and NAFTA)

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Goals of the World Trade Organization (WTO)

• Promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies

• Reduce remaining trade barriers through multilateral negotiations

• Establish impartial procedures for resolving trade disputes among members

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Differences between WTO and GATT

• GATT focused on promoting trade in goods; WTO’s mandate includes

– trade in goods

– trade in services

– international intellectual property protection

– trade-related investment

• WTO’s enforcement powers are stronger

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Figure 10.1 The WTO’s Principles of the

Trading System

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WTO Challenges

• The Cairns Group

• Multifibre Agreement

• General Agreement on Trade in Services (GATS)

• Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

• Trade-Related Investment Measures Agreement (TRIMS)

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Enforcement of WTO Decisions

• Country failing to live up to the agreement may have a complaint filed against it

• WTO panel evaluates complaint

• If found in violation, the country may be asked to eliminate the trade barrier

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Rice producers would likely benefit if trade barriers

were eliminated in this market.

The world market for rice is distorted by high tariffs, ranging from 20-43 percent.

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Forms of Economic Integration

Free Trade Area

Common Market

Economic Union

Customs Union

Political Union

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Figure 10.2 Forms of Economic Integration

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European Union (EU)

• Most important regional trading bloc

• 25 member countries

• 455.3 million population

• Combined GDP of $12.7 trillion

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Map 10.1 The European Union

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Governing Organizations of the EU

• The Council of the European Union

• The European Commission

• The European Parliament

• The European Court of Justice

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The first meeting of the European Commission after the enlargement of the

EU to 25 members.

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Figure 10.3 The Co-Decision Procedure

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Three Pillars of the Maastricht Treaty

• A new agreement to create common foreign and defense policies among members

• A new agreement to cooperate on police, judicial, and public safety matters

• The old familiar European Community, with new provisions to create an economic and monetary union among member states

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Components of the Treaty for Europe (Treaty of Amsterdam)

• A strong commitment to attack the EU’s chronic high levels of unemployment

• A plan to strengthen the role of the European Parliament by expanding the number of areas that require use of the co-decision procedure

• Establishment of a two-track system

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Treaty of Nice

• Sought to reduce the risk of political gridlock as the number of members increase

– reduced number of areas where unanimity is required for Council approval

– adjusted number of votes assigned to each Council member

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Major Regional Trade Associations

• AFTA

• ANCOM

• APEC

• CACM

• CARICOM

• CEMAC

• CER

• ECOWAS

• EU

• EFTA

• GCC

• MERCOSUR

• NAFTA

• SADC

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Map 10.2 Free Trade Agreements in Central and South America

and the Caribbean

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Map 10.3 The ASEAN Members

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Map 10.4 Asia-Pacific Economic Cooperation Initiative (APEC)

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Map 10.5 Free Trade Agreements in Africa