1. Ch 4 International Institutions from an International Business Perspective

2. 1. What is International Institution?
International Institutions are collective entities having corporate goals and cross-border operations.
From the point of view of membership and relations with government, international institutions may be broadly classified into three categories: inter-governmental organizations (IGOs), international non-governmental organizations (INGOs) and MNCs.

3. 2. Typology of International Institutions

4. 2. Typology of International Institutions
Examples: IGOs – UN, SAARC
INGOs – OXFAM, AI, ICRC
MNCs – Toyota, GE
IGOs, in turn, may be classified into :
Global Universal : UNO
Global Specialized : WB, IMF, WHO
RTAs : EU, NAFTA, SAARC, Mercosur

5. 3. Global Universal : The UN
The UN was founded in 1945 after World War II when 50 countries met in San Francisco to replace the League of Nations.
It has five organs : UNSC, ECOSOC, ICJ, UNGA and the Secretariat.
It has a total membership of about 190 states.

6. 3. The UN and International Business
Some of the ways in which the UN plays an important role for international business are:
UN agreements set technical standards & norms that function as the “soft infrastructure” for the global economy.
UN focuses on areas such as health, governance & political stability. The United Nations Educational, Scientific & Cultural Organization (UNESCO) promotes literacy for both adults & children.

7. 3. The UN and International Business
Different UN agencies address downsides of globalization, such as terrorism, crime, drugs, & arms traffic.
The UN Environment Program (UNEP) laid groundwork for the Climate Change Convention leading to the Kyoto Protocol to reduce greenhouse gases.
It has also introduced many initiatives to support sustainable business practices.

8. 3. The UN and International Business
Through the Global Compact, the UN addresses education & health issues that require global-level solutions in partnership with businesses.
Among other concerns of the UN for social justice & human & labor rights, UN Economic & Social Council is the most notable one.
UN’s efforts construct the cornerstones of an interdependent world through trust & shared values.

9. 3. The UN and International Business
The UN negotiates global rules to support international exchanges of goods, services, money and information.
Each of the 28 major organizations contributes to commercial order & openness.

10. 4. UN Affiliates and International Business
Here are some specific examples of relevance of UN affiliates for global business:
The rules that protect freely sailing ships are formalized in UN conferences. UNCLOS II
The International Civil Aviation Organization negotiates the web of agreements that allow commercial airlines to fly across borders & land in case of emergencies.

11. 4. UN Affiliates and International Business
The World Health Organization sets standards for pharmaceutical quality & standardizes the names of the drugs.
Protocols of the Universal Postal Union prevent losses & allow the mail to move across borders.
The International Telecommunication Union allots airwave frequencies.
The International Labor Organization promotes labor rights, work safety conditions, and training.

12. 4. UN Affiliates and International Business
The World Meteorological Organization collects and distributes data used in weather forecasting.
The UN Sales Convention & the UN Convention on the Carriage of Goods by Sea contribute to establishing rights & obligations for buyers & sellers in international transactions.
The UN Commission on International Trade Law & the UN’s International Labor Organization set conditions & protocols for international transactions & labor standards.

13. 5. Global Specialized: World Trade Organization (WTO)
The World Trade Organization (WTO) is currently the only global organization that intends to supervise and liberalize international trade.
It officially commenced on January 1, 1995 under the Marrakesh Agreement replacing the General Agreement on Tariffs and Trade (GATT).
WTO is a rules-based, member-driven organization, with decisions negotiated by the governments of its all 158 member nations.

14. 5. World Trade Organization
WTO agreements set forth the rules of the trade game that affect firms in their trade transactions, and simplify the trade environment.
The WTO conducts three types of activities:
It negotiates core agreements, signed & ratified by all of its members.
It establishes rules for trade.
It helps settle trade disputes.

15. 5.1 Development of the WTO: GATT
The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade.
It had an initial membership in 1947 of 23 nations.
The most favored nation (MFN) clause was the basic GATT principle stating that GATT member-nations would treat all members equally in trade matters.

16. 5.1 Development of the WTO: GATT
GATT was very successful in reducing tariffs, subsidies, quotas and non-tariff barriers.
GATT negotiations were conducted in eight extended conferences, called rounds, from the first, in 1947 through the last, the Uruguay Round, launched in 1986.
Trade growth exceeded production growth throughout the GATT years, as average tariffs among developed countries were reduced from 40% to 5%.

17. Development of the WTO: GATT5.1
International rules for trade in services & agriculture and for the protection of intellectual properties were written in the final round at Uruguay.
The Uruguay negotiators also phased out the multifiber arrangement that limited production & export of textiles from developing nations.

18. 5.1 Development of the WTO: GATT
GATT’s dispute mechanisms had many loopholes and the Uruguay Round GATT negotiations established the World Trade Organization.
Since 1st Jan, 1995 the WTO has been administering international trade agreements with a broader mandate than GATT had used.
WTO’s mandate includes a permanent process for revising trade rules, replacing the practice of periodic rounds of negotiation.

19. 5.2 WTO Principles
The five basic principles of global trade system, established in WTO negotiations, are:
Trade without discrimination – most-favored nation principle that requires all member-nations to be treated equally
Freer trade, gradually through negotiation – establishing “progressive liberalization” through gradual changes such as lowering trade barriers
Predictability, through binding and transparency – predictability helps businesses know the real costs while transparency helps to anticipate a stable future

20. 5.2 WTO Principles
Promoting fair competition – many WTO agreements support fair competition in agriculture, services, and intellectual property, discouraging subsidies and the dumping of products at prices below the manufacturing cost
Encouraging development and economic reform – three-quarters of WTO members are developing economies who are active in the WTO agendas; developed countries have started to allow duty-free and quota-free imports from the least developed countries

21. 5.3 The Doha Development Agenda & Developing Nations
The WTO membership has recognized that developing nations face constraints that limit their ability to benefit from the WTO trading system.
The WTO has initiated an aid program to provide assistance to these WTO members for infrastructure, technical support & productive capacity.
The Doha Development Agenda (2001 in Qatar) has seen discord on many issues connected to the trading needs of developing nations.

22. 5.3 The Doha Development Agenda & Developing Nations
In the talks held in 2003 at Cancun, Mexico, developing nations established themselves as a force in the talks, challenging the leadership of USA & EU.
For example African farmers asked to reduce the subsidies given to US and EU cotton farmers in the talks.
African farmers also asked for a compensation of $300 million for the losses they incurred due to unfair competition from US & EU subsidies.

23. 5.3 The Doha Development Agenda & Developing Nations
The WTO did not meet the April 2006 deadline for agreement on a framework for tariff & subsidy cuts in agriculture & for nonagricultural market access.
In spring 2006 Director-General Lamy suspended the negotiations and focused on informal negotiations, trying to achieve a breakthrough.
These efforts continue.

24. 5.4 WTO Challenges
There has been significant controversy in the public arena regarding the WTO. However, since 2005 Hong Kong talks, protests have somewhat died down.
Negotiation issues encountered by the Doha Development Agenda include agricultural subsidies of developed nations, intellectual property rights, manufacturing subsidy in developing countries, and trade in services.
Perspectives of developed and developing countries differ widely on these issue. Even intra-developing countries’ perspectives differ.
Then, there is the question of enforcement and compliance; and uneven benefits. Elaboration follows.

25. 5.4 WTO Challenges
Because of domestic political impact of subsidies, agricultural subsidies in wealthy countries have proven to be a difficult issue.
Since WTO is an informal institution, a concern is whether its members will abide by WTO decisions.
If a nation ignores a WTO ruling, the challenge is a serious one.

26. 5.4 WTO Challenges
Trade-related intellectual property rights (TRIPS) is a WTO agreement that grant patents for 20-year periods and copyrights for 50 years.
Violations of these rights are common in industries like music & software, especially in developing countries.
The Doha Development Agenda has agreed that intellectual property rights should not take precedence over public health.

27. 5.4 WTO Challenges
The uneven benefits of globalization are building a growing divide between rich & poor countries, as well as within countries.
According to the study, A Fair Globalization, 188 million people are unemployed worldwide, which is 6.2% of the global labor force.
Countries representing 14% of the world’s population account for half the world’s trade & foreign investment.

28. 5.4 WTO Challenges
Agricultural subsidies in developed countries also undermined the traditional livelihoods of women as small agricultural producers.
China & India, together accounting for one-third of the global population, were able to reduce the level of absolute poverty, through globalization.
The future growth of world trade and the economic health of developed nations depend on getting globalization right so that all participants benefit from trade.
Final question for students: how relevant is the WTO for the developing countries including LDCs?

29. 6. RTAs: Levels of Economic Integration
The four major forms of economic integration are:
The free trade area: tariffs abolished among members, but members keep their external tariffs; e.g. NAFTA, EFTA
The customs union: a free trade agreement plus a common external tariff; e.g. Southern African Customs Union, Mercosur

30. 6. Levels of Economic Integration
The common market: a customs union plus mobility of services, people & capital; e.g. Mercosur hopes to develop in this direction
Complete economic integration: integration on economic and political levels that involves a common currency; e.g. EU

31. 7. RTAs: Case Study of The European Union (EU)
The European Union (EU) is a supranational entity comprising 27 European member-states.
Originally it began as a customs union, then developed into a common market, and now has continued development, achieving substantial economic & political integration.
Its purpose is to integrate economies of its member-nations, creating a trading region where goods, services, people, & capital move freely.

32. 7. The European Union (EU)
The EU is a regional government that has regulatory power over social & environmental matters, including mergers & business operations, in Europe
Any European country may apply for EU membership if it respects certain principles followed by the EU members.

33. 7. The European Union (EU)
The European Monetary Union is a group that established use of the euro in the 15-country euro zone.
The euro is used in nine other countries & has come to rival the dollar as a reserve currency.

34. 7. Institutions of the EU
There are nine main institutions of the EU. Of them, the following are prominent:
The European Parliament
The Council of the European Union
The European Commission
The Court of Justice

35. 7. Institutions of the EU
These four bodies are the most critical ones and their roles are briefly described below:
The European Parliament:
This is the EU legislative body whose members are popularly elected from member-nations.
It is elected by popular vote throughout Europe every five years.
Currently it has 754 members, representing the second largest democratic electorate in the world.
The main function of the Parliament is to pass European laws.

36. 7. Institutions of the EU The Council of the European Union:
It is the EU’s primary policy-setting institution and the voice of the member-states.
Council ministers make important decisions on common foreign policy & security issues.
The presidency of the Council rotates among the member-nations, on six-month terms.
Sensitive issues require unanimous votes to pass, and most other issues require majority vote.
Council decisions are supranational & are set forth in regulations & directives.

37. 7. Institutions of the EU The European Commission:
This is the executive institution that represents the interests of Europe as a whole & runs the EU’s day-to-day operations.
It ensures implementation of the provisions of the Treaty of Rome and drafts laws, which are then presented to the European Parliament & the Council.
The Commission consists of 27 commissioners, one from each member-nation.
Commission members are nominated by their countries, appointed by the Commission president-elect, and then approved by a vote of the European Parliament.

38. 7. Institutions of the EU The European Court of Justice (ECJ):
It is the court that rules on issues related to EU policies.
Its authority on EU matters supersedes that of the member-nations’ national courts.
The influence of the ECJ is growing steadily as it decides an increasing number of cases.
Additionally, many decisions in the EU are now made by the EU Court of First Instance, located in the various member-nations, which has more limited jurisdiction than the ECJ.

39. 7.1 Where is EU in terms of Integration?
Best way to describe EU : economically almost integrated and politically partially integrated.
Still the level of political integration has given EU a unique status: it is a supranational body. In a supranational bodies, members at least partially surrender their sovereignty and many of its administrative, legislative and judicial jurisdictions supersede corresponding national jurisdictions.

40. 7.2 EU Achievements
The European Monetary Union is one of the most significant achievements of the EU.
The use of singe currency (euro) reduces the cost of doing business across the 15 EMU country borders.
EU directives have superseded 27 sets of national rules and the member-nations have scrapped more than 60 million customs and tax formalities at their shared borders.

41. 7.3 The EU’s impact
The EU has succeeded in becoming the largest trading economy, the world’s prime source of FDI outflows, & the source of approximately 31% of the world’s total output.
Because of the EU’s size & importance as a trading partner, many of EU regulations have an impact in the USA, Japan, China & elsewhere.

42. 7.3 The EU’s impact
EU standards tend to be advanced, especially in ecology & sustainability.
In fact, today the EU has built the economic force necessary to make many of the rules that influence world trade.
If foreign companies want access to the EU market, they must conduct business by the EU rules.

43. 7.3 The EU’s impact
The impact here is the export of EU standards & regulations as other countries & some US states willingly adopt EU regulations.
The success of EU has made the already well-established commercial relationship between USA & Europe even stronger.
The European Union & the United States are the world’s largest economies and they greatly influence world trade patterns.

44. 7.3 The EU’s impact
Their combined GDP accounts for approximately 57% of world GDP and 40% of world trade.
Although there are trade disputes, they affect only about 2% of the EU-U.S. trade.