8-1 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall International Business Part Three Theories and Institutions: Trade and Investment Chapter Eight Cross-National Cooperation and Agreements

8-2 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives To identify the major characteristics and challenges of the World Trade Organization To discuss the pros and cons of global, bilateral, and regional integration To describe the static and dynamic impact of trade agreements on trade and investment flows To define different forms of regional economic integration To compare and contrast different regional trading groups, including but not exclusively the European Union (EU), the North American Free Trade Agreement (NAFTA), the Southern Common Market (MERCOSUR), and the Association of South East Asian Nations (ASEAN) To describe other forms of global cooperation, such as the United Nations and the Organization of Petroleum Exporting Countries (OPEC)

8-3 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall GATT The General Agreement on Tariffs and Trade (GATT), begun in 1947, created a continuing means for countries to negotiate the reduction and elimination of trade barriers and to agree on simplified mechanisms for the conduct of international trade

8-4 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall WTO The World Trade Organization (WTO) replaced GATT in 1995 as a continuing means of trade negotiations that aspires to foster the principle of trade without discrimination and to provide a better means of mediating trade disputes and of enforcing agreements

8-5 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Regional Economic Integration Efforts at regional economic integration began to emerge after World War II as countries saw benefits of cooperation and larger market sizes The major types of economic integration are:  the free trade area  the customs union  the common market

8-6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall The Effects of Integration Once protection is eliminated among member countries, trade creation allows MNEs to specialize and trade based on comparative advantage Trade diversion occurs when the supply of products shifts from countries that are not members of an economic bloc to those that are

8-7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall European Union Regional, as opposed to global, economic integration occurs because of the greater ease of promoting cooperation on a smaller scale The European Union (EU) is an effective common market that has abolished most restrictions on factor mobility and is harmonizing national political, economic, and social policies The EU is comprised of 27 countries, including 12 countries from mostly Central and Eastern Europe that joined since 2004 The EU has abolished trade barriers on:  intrazonal trade  instituted a common external tariff  created a common currency, the euro

8-8 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Implications of the EU for corporate strategy Companies need to determine where to produce products. Companies need to determine what their entry strategy will be. Companies need to balance the commonness of the EU with national differences.

8-9 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall The North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) is designed to eliminate tariff barriers and liberalize investment opportunities and trade in services Key provisions in NAFTA are labor and environmental agreements

8-10 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Regional economic integration in the Americas Caribbean Community (CARICOM) Central American Common Market (CACM) Central American Free Trade Agreement (CAFTA-DR) Andean Community (CAN) The Southern Common Market (MERCOSUR) The proposed South American Community of Nations.

8-11 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Regional economic integration in Asia & Africa Association of Southeast Asian Nations (ASEAN) Asia Pacific Economic Cooperation (APEC) The African Union

8-12 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Forms of International Cooperation The United Nations is comprised of representatives of most of the countries in the world and international trade and development in a number of significant ways

8-13 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Commodity Agreements Many developing countries rely on commodity exports to supply the hard currency they need for economic development Instability in commodity prices has resulted in fluctuations in export earnings OPEC is an effective commodity agreement in terms of attempting to stabilize supply and price