1. International Business Lecture No,40 By Dr.Shahzad Ansar

2. The Euro Benefits: –Savings from using only one currency. –Easy to compare prices, resulting in lower prices. –Forces companies to be more efficient and cut costs. –Creates liquid pan-Europe capital market. –Increases range of investments for individuals and institutions. Treaty of Maastricht: –11 of 15 member states. –Jan. 1, 1999 - Exchange rates locked in. –Jan. 1, 2002 - Euro notes and coins issued. –National currencies taken out of circulation.

3. Costs of the Euro Countries lose monetary policy control. –European Central Bank controls policy for the “Euro zone”. EU is not an”optimal currency area”. –Country economies are different Countries lose monetary policy control. –European Central Bank controls policy for the “Euro zone”. EU is not an”optimal currency area”. –Country economies are different

4. Costs of the Euro Early experience has seen a slump (approximately 20% through 2001) against the dollar. –Too early to judge whether the Euro is not a success. Early experience has seen a slump (approximately 20% through 2001) against the dollar. –Too early to judge whether the Euro is not a success.

5. EU Issues Enlargement. Fortress Europe? –Create European barriers to trade from the outside? –EU promises to support GATT and the WTO. –No guarantees, however. Enlargement. Fortress Europe? –Create European barriers to trade from the outside? –EU promises to support GATT and the WTO. –No guarantees, however.

6. NAFTA Apply national environmental standards Protect intellectual property Abolish tariffs Two commissions to enforce treaty Jan. 1, 1994 Remove cross-border flow of services Remove FDI restrictions

7. NAFTA: For/Against Enlarged and productive regional base. –Labor-intensive industries move to Mexico. –Mexico gets investment and employment. –Increased Mexican income to buy US/Canada goods. –Demand for goods increases jobs. –Consumers get lower prices. Enlarged and productive regional base. –Labor-intensive industries move to Mexico. –Mexico gets investment and employment. –Increased Mexican income to buy US/Canada goods. –Demand for goods increases jobs. –Consumers get lower prices.

8. NAFTA: Against Loss of jobs to Mexico. Mexican firms have to compete against efficient US/Canada firms. –Mexican firms become more efficient. Environmental degradation. Loss of national sovereignty. Loss of jobs to Mexico. Mexican firms have to compete against efficient US/Canada firms. –Mexican firms become more efficient. Environmental degradation. Loss of national sovereignty.

9. ANCOM: Andean Pact Bolivia, Colombia, Ecuador, Peru, Venezuela Cartagana Agreement, 1969. One of oldest still in existence. Nearly failed. Rejuvenated in 1990 in the Galápagos Declaration. –Changed from FTA to customs union in 1992. Still has many political and economic problems. Bolivia, Colombia, Ecuador, Peru, Venezuela Cartagana Agreement, 1969. One of oldest still in existence. Nearly failed. Rejuvenated in 1990 in the Galápagos Declaration. –Changed from FTA to customs union in 1992. Still has many political and economic problems.

10. MERCOSUR 1988: Argentina, Brazil. 1990: Paraguay, Uruguay 1995: Agreed to move toward a full customs union. Trade quadrupled between 1990-1998. Has significant trade diversion issues. –Yeats Report. Economic problems, first in Brazil (1999), then in Argentina (2001) has put plans for the customs union on hold. 1988: Argentina, Brazil. 1990: Paraguay, Uruguay 1995: Agreed to move toward a full customs union. Trade quadrupled between 1990-1998. Has significant trade diversion issues. –Yeats Report. Economic problems, first in Brazil (1999), then in Argentina (2001) has put plans for the customs union on hold.

11. Other Hemisphere Associations Central American Common Market –1960s: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua. –Collapsed in 1969. CARICOM –1973: English-speaking Caribbean countries. –1991: Failed for third time to establish common external tariff. Free Trade Area of the Americas –1998: 34 heads of state met in Santiago, Chile and inaugurated talks to create a FTAA by 2005. Central American Common Market –1960s: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua. –Collapsed in 1969. CARICOM –1973: English-speaking Caribbean countries. –1991: Failed for third time to establish common external tariff. Free Trade Area of the Americas –1998: 34 heads of state met in Santiago, Chile and inaugurated talks to create a FTAA by 2005.

12. Asia Pacific Economic Cooperation Founded in 1990 to ‘promote open trade and practical economic cooperation’. –‘Promote a sense of community.’ –18 members. –50% of world’s GNP. –40% of global trade. Brookings Institution: APEC “is in danger of shrinking into irrelevance as a serious forum.” Founded in 1990 to ‘promote open trade and practical economic cooperation’. –‘Promote a sense of community.’ –18 members. –50% of world’s GNP. –40% of global trade. Brookings Institution: APEC “is in danger of shrinking into irrelevance as a serious forum.”

13. Regional Trade Blocs in Africa 9 trade blocs on the continent. –Many countries are members of more than one group. Progress has been slow. –Political turmoil. –Deep suspicion of free trade. Less developed, less diversified economies need “protection”. 9 trade blocs on the continent. –Many countries are members of more than one group. Progress has been slow. –Political turmoil. –Deep suspicion of free trade. Less developed, less diversified economies need “protection”.

14. Impact on Business Positive: –Protected markets, now open. –Lower costs doing business in single market. Positive: –Protected markets, now open. –Lower costs doing business in single market. Negative: –Differences in culture and competitive practices make realizing economies of scale difficult. Negative: –Differences in culture and competitive practices make realizing economies of scale difficult.