© 2013 Cengage Learning. All rights reserved. CHAPTER 8 GLOBAL2  PENG © iStockphoto.com/Baris Onal

© 2013 Cengage Learning. All rights reserved. CHAPTER 8 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Make the case for global economic integration. 2.Explain the evolution of the GATT and the WTO, including current challenges. 3.Make the case for regional economic integration. 4.List the accomplishments, benefits, and costs of the European Union.

© 2013 Cengage Learning. All rights reserved. CHAPTER 8 LEARNING OBJECTIVES After studying this chapter, you should be able to: 5. Identify the five organizations that promote regional trade in the Americas and describe their benefits and costs. 6. Identify the three organizations that promote regional trade in the Asia Pacific and describe their benefits and costs. 7. Articulate how regional trade should influence your thinking about global business.

© 2013 Cengage Learning. All rights reserved. LO1: THE CASE FOR GLOBAL ECONOMIC INTEGRATION Global economic integration - efforts to reduce trade and investment barriers around the globe

© 2013 Cengage Learning. All rights reserved. LO2: THE EVOLUTION OF THE GATT AND WTO GATT (General Agreement on Tariffs and Trade; )  Reduced level of tariffs through multilateral negotiations. (TRADE ONLY!!)  Three areas of concern:  No protection for services or intellectual property  Loopholes needed reform  Global recessions led goverments to invoke non-tariff barriers (NTBs)

© 2013 Cengage Learning. All rights reserved. THE EVOLUTION OF THE GATT AND WTO WTO (World Trade Organization; 1995-present)  Transformed GATT from provisional treaty to full- fledged international organization.  New features:  Agreement governing trade of services (GATS)  Agreement governing intellectual property rights (TRIPS)  Trade dispute settlement mechanisms  Trade policy reviews

© 2013 Cengage Learning. All rights reserved. TRADE DISPUTE SETTLEMENT  WTO does not have enforcement capability  WTO simply recommends that losing countries change their laws or practices and authorizes the winning countries to use tariff retaliation to compel the offending countries to comply with the WTO rulings.

© 2013 Cengage Learning. All rights reserved. WTO – THE DOHA ROUND ( )  Officially, The Doha Development Agenda  A round of WTO negotiations to reduce agricultural subsidies, slash tariffs, and strengthen intellectual property protection that started in Doha, Qatar, in 2001  Suspended in 2006 due to disagreements

© 2013 Cengage Learning. All rights reserved. WTO – THE DOHA ROUND  Agenda:  Reduce agricultural subsidies in developed countries.  Slash tariffs, especially in areas where developing countries might benefit.  Free up trade in services.  Strengthen intellectual property protection.

© 2013 Cengage Learning. All rights reserved. LO3: THE CASE FOR REGIONAL ECONOMIC INTEGRATION Regional economic integration – efforts to reduce trade and investment barriers within one region. PROS Promotes peace; Disputes handled constructively; Consistent rules; Raises incomes and stimulates economic growth

© 2013 Cengage Learning. All rights reserved. THE CASE AGAINST REGIONAL ECONOMIC INTEGRATION Regional economic integration – efforts to reduce trade and investment barriers within one region. CONS Discrimination against firms outside of region; Some loss of sovereignty

© 2013 Cengage Learning. All rights reserved. TYPES OF REGIONAL ECONOMIC INTEGRATION

© 2013 Cengage Learning. All rights reserved. TYPES OF REGIONAL INTEGRATION  Free trade area (FTA) – group of countries that remove trade barriers among themselves  Customs union – one step beyond an FTA; imposes common external policies on nonparticipating countries  Common market – customs union, plus additionally permits the free movement of goods and people

© 2013 Cengage Learning. All rights reserved. REGIONAL INTEGRATION  Economic union – Having all the features of a common market, members also coordinate and harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity.  Monetary union – a group of countries that use a common currency  Political union – integration of political and economic affairs of a region.

© 2013 Cengage Learning. All rights reserved. LO4: EVOLUTION OF THE EUROPEAN UNION  Political origins – effort to stop cycle of hatred and violence.  First step – European Coal and Steel Community (1951).  1957 – Treaty of Rome launches European Economic Community (EEC).  1993 – Treaty of Maastricht, establishing European Union, goes into effect.  2009 – Lisbon Treaty, amended Maastricht Treaty to include appointment of long-term President of European Council and a High Representative of Union of Foreign Affairs.

© 2013 Cengage Learning. All rights reserved. THE EU TODAY  Schengen – passport-free travel zone within the EU  Euro – currency currently used in 16 EU countries  Euro Zone – 16 EU countries that currently use the euro as the official currency

© 2013 Cengage Learning. All rights reserved. ACCOMPLISHMENTS OF THE EUROPEAN UNION  EU and predecessors delivered more than 50 years of peace.  Has 27 member countries, 500 million citizens, $15 trillion GDP.  Introduction of common currency.  Built a single market.

© 2013 Cengage Learning. All rights reserved. BENEFITS AND COSTS OF THE EUROPEAN UNION

© 2013 Cengage Learning. All rights reserved.  Should it be economic and political union, or purely economic?  Cost of enlargement  Membership of Turkey  EU à la carte? © iStockphoto.com/Zoran Kolundzija CHALLENGES FOR THE EU

© 2013 Cengage Learning. All rights reserved. LO5: NAFTA NAFTA (North American Free Trade Agreement; 1994)  Benefits:  In first decade, trade between US and Canada grew twice as fast as before NAFTA.  US exports to Mexico tripled, to $161 billion.  Mexican exports to US tripled, and GDP per capital rose 24%.  Costs:  Real wages in Mexico have stagnated.  Many firms shifting multinational work to China.

© 2013 Cengage Learning. All rights reserved. OTHER ORGANIZATIONS IN THE AMERICAS & ASIA  Andean Community (1969) and Mercosur (1991)  Union of South American Nations (USAN; 2008)  United States-Dominican Republic-Central America Free Trade Agreement (CAFTA; 2005)  Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER; 1983)  Association of Southeast Asian Nations (ASEAN; 1967)  Asia-Pacific Economic Cooperation (APEC; 1989) ** NOT ON EXAM!! **

© 2013 Cengage Learning. All rights reserved. LO7: THE INFLUENCE OF REGIONAL TRADE ON GLOBAL BUSINESS