Unit 2 international business 6th semester bbm notes pdf

INTERNATIONAL BUSINESSBBM – 6th Semester

University of Mysore

SYLLABUS - UNIT 2:

Regional Trade Blocs – EU – European Union, ASEAN – Associationof South East Asian Nations, OPEC – Organization of PetroleumExporting Countries, OECD – The Organization of Economic Co-operation and Development, SAARC – South Asian Association forRegional Cooperation and NAFTA – North American Free TradeAgreement. Impact of the Trade Blocs in Globalization.

International Business – Unit 2

Regional Trade Bloc:

A trade bloc is a type of inter governmental

agreement, often part of a regional inter

governmental organization, where regional

„Barrier to trade‟, (Tariff and Non-Tariff) are

reduced or eliminated among the participating

state.


Features of Regional Trade Blocs: (Objectives)

a. A inter-governmental agreement,

b. Tariffs are reduced or eliminated as per

agreement,

c. Enhance trade between the countries,

d. Raise the standard of living,

e. Building cultural, economical, educational

development, and so on…


Types of Trade Bloc: (Classification of Trade Blocs)

The types of Trade Blocks are as follows:

a. Preferential Trade Agreement: (Agreement, only onspecific or identified goods)

b. Free Trade Area: (Agreement where all goods andservices are freely traded)

c. Customs Union: (Agreement, on eliminating or reducing,but also a common policy for non-members)

d. Common Market: (Agreement on Trade, Labor, Capitaland Services too)

e. Economic Community: (Agreement, Common policy onEconomic Matters)


Advantages of Free Trade Blocs:

a. Foreign Direct Investments, (Larger Markets/ Scale of production due to FDI),

b. Economies of Scale: (Increase in scale of production),

c. Competition: (More competition, leads for better product at Cheaper Prices),

d. Trade Effects: (Lowering the tariff or Eliminating the duties creates more demand),

e. Market Efficiency: (Market grows larger with better service to consumers)

f. Trade started within the Group and not towards non-members,

g. Regional imports and reasonable growth,

h. Bargaining power got weakened,

i. Marked Prices reduced, due to reduction in Marketing costs,

j. Increased prosperity among the member countries,

k. More opportunities for the FDI,


Disadvantages of Free Trade Blocs:

a. Regionalism Vs Multi Nationalism, (Smalllocal firms incurs losses, as unable to compete)

b. Loss of sovereignty: (Trade blocs interferes intointernal issues too, the country‟s power iseffected),

c. Concessions: (Bilateral relationships make thecountry to give compulsory concessions)

d. Interdependence: (When one economy falls, iteffects all the members too)


Examples of Trade Blocs: There are several

Trade Blocs (Some in syllabus, others are

mentioned below)

• African Union (AU), Union of South

American Nations (USAN), Caribbean

Community (CC), Pacific Island Forum

(PIF), Arab League (AL), Central American

Integration System (CAIS), and so on


EU - EUROPEAN UNION: (Formation of

European Union: „Treaty of Rome‟ dated Jan

1, 1958)

History of European Union (EU)

The European Union formation basically had

two important treaties, they are:


EUROPEAN UNION – EU

1st Treaty: (Treaty of Rome – 01.01.1958) In 1957, Belgium,France, Luxemburg, The Netherland and West Germany signed the„Treaty of Rome‟, which created the EEC – European EconomicCommunity, and established a „CUSTOMS UNION‟. They alsosigned another treaty creating the EURATOM – European AtomicEnergy Community, for co-operation in developing NUCLEARENERGY. And both the treaty came into effect in 1958.

2nd Treaty: (Treaty of Maastricht – 01.11.1993): The EuropeanUnion was formally established with the architect of Helmut Kohland Francois Mitterrand.


EUROPEAN UNION – EU

Further on 01.12.2009, the Lisbon Treaty enteredinto force and reformed many aspects of theEuropean Union (EU).

In 2012, European Union (EU), received the„NOBLE PEACE PRIZE‟ for having „Contributedto the advancement of Peace and reconciliation‟(Reconciliation means, making Enemy orQuarrelling countries to become friends again),democracy and human rights in Europe.


DETAILS ON EUROPEAN UNION

a. European Union is a Political Economic Union of 28 Nations(Member Countries) which are primarily in Europe.

b. The EU covers 7.3% of the world population,

c. EU has developed a single market through a standardized systemof laws that apply in all the member countries.

d. EU Policies aim to ensure the free movement of People, Goods,Services and Capital,

e. The Monetary Union established in 1999, and came into force in2002, comprising of 19 member countries to ensure EURO as aLEGAL TENDER.

f. Member countries include, Austria, Denmark, France, Germany,Italy, Poland, Portugal, Sweden, United Kingdom and so on.

g. The largest cities in the European Union are London and Paris.


Three Pillars of European Union (EU):

a. Justice and Home Affairs (JHA),

b. Police and Judiciary Co-operation in

Criminal matters (PJCC),

c. Common Foreign and Security Policy

(CFSP).


Present information on European Union (EU):

a. On Jan 1, 2015, the population of EU is about 508.2Million people,

b. The language used is „English (51%) and French(14%),

c. There are 24 official languages,

d. The ‘European Day of Languages’ is held annuallyon September 24th.

e. The EU is a secular body, having no formalconnection with any religion. (Catholic is 48%,Protestant is 12%, Orthodox is 8% and Muslims is 2%of the population.


ASEAN – Association of South East Asian Nations

(Established on August 8, 1967, Charter on December 16, 2008)

Brief information on ASEAN:

a. Established : August 8, 1967,

b. Motto of ASEAN : “One Vision, OneIdentity, One Community”,

c. Anthem of ASEAN : “The Asian Way”,

d. Official Languages : Tamil, Burmese, Chinese,Malay, Thai and so on…

e. Member Countries : Singapore, Malaysia, Vietnam,Burma (2008), Myanmar, Brunei and Philippines.


History of ASEAN (Association of South East AsianNations):

This was formed on Aug 8, 1967, with the ASEANDeclaration (Commonly known as BANGKOKDeclaration) was signed by 5 foreign ministerscomprising of Indonesia, Malaysia, Singapore,Philippines and Thailand.

The Charter (Charter means a formal documentdescribing the aims, principles, rights and so on of thegroup) was signed \on December 16, 2008 at Indonesiacapital, JAKATA, with a aim of moving on the lines ofEuropean Union.


ASEAN (Association of South East Asian Nations) Purpose/ Aims:

a. The Charter was signed on 16.12.2008 aimed to moving closer tothe EU Style, This Charter turned „ASEAN‟ into a legal entity andaimed to create a single „FREE TRADE AREA‟, for the region of500 Million people.

b. To accelerating Economic Growth, Social Progress and CulturalDevelopment in the region,

c. To promote regional peace, and to promote collaborations andmutual assistance to each other in the form of Training andResearch Facility,

d. To promote South Asian Studies, maintain close and beneficialcooperation with international organizations with similar aims andpurposes.


ASEAN Plus Three and ASEAN Plus Three Countries:

a. ASEAN Plus Three, is created to improve ties

with the „Republic of China‟, Japan and South

Korea.

b. East Asia Summit (EAS) followed the ASEAN

Plus Three, and increased larger including 5

countries they are India, Australia, US, New

Zealand and Russia, called as ASEAN Plus

Three Countries.


ASEAN’s Three Pillars

a. APSC – ASEAN Political Security

Community,

b. AEC – ASEAN Economic Community,

c. ASCC – ASEAN Socio-Cultural Community.


Latest Updates on ASEAN:

• ASEAN members have lowered their tariffs andare targeting to have „ZERO IMPORT DUTIES‟by 2016.

• AEC (ASEAN Economic Community), has„Economic Integration‟ to establish a commonmarket by 2015.

• ASEAN Countries creating the region fullintegrated into a Global Economy, IncreaseCompetition, Single Market, Make it equitable(Equal treatment or reasonable treatment to all).


OPEC – Organization of Petroleum Exporting Countries

(Established on September 10-14, 1960)

History of OPEC – Organization of Petroleum Exporting Countries:

a. Venezuela and Iran were the 1st countries to initiate to establish OPEC, byinviting Iran, Saudi Arabia and Kuwait in 1949.

b. The OPEC – Organization of Petroleum Exporting Countries, is a Permanent,inter governmental Organization, was created at „BAGHDAD conference‟ onSeptember 10-14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

c. Later other members joined like Qatar (1960), Indonesia (became a member in1962 and quit Jan 2009-Dec 2015), Libya (1962), UAE United Arab Emirates(1967), Algeria (1971), Ecuador (became member in 1973 and suspended itsmembership in 1992 and rejoined in 2007), Angola and Gabon (1975-1994) andso on.

d. The OPEC had their first Head Quarters at Geneva, for five years (1960-1965)and then moved to Vienna (Austria) on September 1965.




Objective of OPEC:

a. To coordinate and unify petroleum policies among membercountries,

b. To secure fair and stable price for petroleum producers,

c. To ensure an efficient, economic and regular supply ofPetroleum to consuming countries.

d. To have fair regular returns on capital to those involving inthe industry.

e. OECD is known as “Statistical Agency” as it publishes acomparable statistics on a wider number of subjects.




Main Members of OPEC (2016):

Algeria, Angola, Ecuador, Indonesia, Iran, Iraq,Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE andVenezuela.

Main Oil Reserve Nations in the Globe:

Two Third of the OPEC‟s Oil production and Reservesare in 6 Middle East Countries that surround the OilRich Persian Gulf.




Latest Slow down in Oil Prices:

a. During 2014-15, OPEC Members consistently exceeded theirproduction ceiling.

b. China‟s Economy experienced a slowdown of economic growth.

c. At the same time, US oil production just DOUBLED from 2008level, due to improved technology which reduced their imports onoil at a path towards „Energy Independence‟.

d. This collapsed the oil strategy on controlling oil prices, due toexcess inventories, which is still continuing in 2016.

e. In Vienna, on November 27, 2014, Saudi Arabia Minister „Ali AlNaimi appealed to poorer OPEC Nations to cut production tosupport prices, but it hasn‟t been in practice.


OECD – Organization of Economic Co-operation and Development

(Established on September 30, 1961)

History of OECD:

a. The OEEC (Organization of European Economic Cooperation)was established in 1948, to run the US Financed Marshal Plan forreconstruction ravaged by War (2nd World War). US Joined theOEEC members by signing the New OECD convention inDecember 12, 1960.

b. The OECD was officially born on September 30, 1961.

c. OECD is an international organization helping Governments totackle their Economic, Social and Governance Challenges ofGlobalization.

d. OECD has its Secretariat at Paris, France.

e. Japan joined OECD in 1964.




Objectives of OECD:

a. To contribute the highest sustainable economic growth andemployment and raising the standard of living in membercountries,

b. To maintain the financial Stability and to contribute to thedevelopment of world economy.

c. To contribute to sound economic expansion in members as well asto the non-member countries in the process of development,

d. To contribute to the expansion of World Trade in Multi Lateral,Non-Discriminatory basis in accordance to the internationalobligations.




Education Performance Examined:

PISA (Performance of International Student

Assessment) was published by OECD (The

Organization of Economic Co-operation and

Development), which allows „Education

Performance‟ to be examined on a common measure

across countries.




Taxation:

OECD (The Organization of Economic Co-

operation and Development) publishes and

updates a „Model Tax Convention‟ that serves

as a template negotiations regarding Tax

Coordination and Cooperation.


OECD – Organization of Economic Co-operation and

Development


Publications from OECD:

a. OECD publishes „OECD Economic Outlook’ twice a year,

b. OECD’s Fact Book is published yearly,

c. OECD publishes Monthly “Main Economic Indicators’

d. OECD is known as “Statistical Agency” as it publishes a

comparable statistics on a wider number of subjects.


SAARC – South Asian Association for Regional Cooperation

(Formed in Dhaka on December 8, 1985)

History of SAARC:

• The SAARC (South Asian Association for

Regional Cooperation) members comprise of

India, Bangladesh, Maldives, Nepal, Pakistan,

Srilanka and Bhutan was formed in Dhaka, on

Dec 8, 1985.




General Provisions:

a. Decisions at all levels in SAARC are taken ona Unanimous ( Unanimous means when thegroup agree all vote for the same) Basis,

b. Bilateral (Discussion between 2 countries) andContentious (issues which are disagreeable) areexcluded from its deliberations.




Agenda of SAARC:

a. SAARC provides a platform for the people of South Asia to worktogether in a SPIRIT OF FRIENDSHIP, TRUST andUNDERSTANDING.

b. SAARC aims at through Joint Action in the agreed areas ofcooperation,

c. SAARC agenda is Cooperation in the area of trade and commerce,

d. SAARC aims to eradicate poverty, and Human Development,

e. SAARC aims to bring tangible (Visible) benefits to the people ofSouth Asia, on strengthening cooperation established among themember countries.




Objectives of SAARC (South Asian Association for Regional Cooperation):

a. To promote the welfare of South Asian people,

b. To improve the standard of living of South Asian people,

c. To improve the Economic, Social and Cultural development in the region,

d. To understand and appreciate one another‟s problems,

e. To extend co-operation with the developing countries,

f. To promote and strengthen the self reliance among the South AsianMember Countries,

g. To promote, collaborate and mutually assist the member countries,

h. To cooperate with international and regional organizations with similaraim and purpose.




Principles of SAARC:

a. Principle of Equality,

b. Principle of Territorial integrity (Honest and firm on Moral

Principles),

c. Principle of Political Independence,

d. Principle of Non-Interference in the internal affairs of other

states and

e. Principle of Mutual Benefit,


NAFTA – North American Free Trade Agreement

(Formed on Jan 1, 1994)

a. NAFTA (North American Free Trade Agreement) is an agreementbetween 3 north American Countries namely America, Mexico andCanada,

b. NAFTA was formed on Jan 1, 1994.

c. NAFTA Agreement removed barriers in Trade and Investmentsamong the 3 countries,

d. NAFTA made more than half the value of Agricultural Tradebecame Duty-Free.

e. Before NAFTA under the Canada Free Agreement Trade (CFAT)tariff reduction was there between the United States and Canada,

f. NAFTA Agreement has favored Mexico in Trade of AgriculturalProducts to the US (America)


NAFTA – North American Free Trade Agreement

(Formed on Jan 1, 1994)

a. NAFTA eliminated most all trade barriers and investmentsamong United States, Canada and Mexico.

b. Under NAFTA all non-tariff measures affecting agriculturaltrade between US and Mexico was eliminated between USand Mexico on Jan 1, 1994,

c. These barriers included Mexico‟s import licensing system(Which had been the largest single barrier to US AgriculturalSales) were converted to either Tariff-Rate Quota or OrdinaryTariffs.


Impact of the Trade Blocs in Globalization:

(Write the points pertaining to Advantages of

Regional Trade Blocs)

International Business Environment

Please revert with your valuable suggestions, and most

important is also complaints therefore the same can be

delivered even better,:

SANJEEV KUMAR SINGH

+91 91640 76660

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