Professional Documents
Culture Documents
Chapter 1
1. Two major roles of law in the business world
a. Dispute Resolution- Gives people/businesses a forum to settle their differences
b. Regulatory Role- directs and standardizes activities that would otherwise be considered purely
private interactions of individuals (involves government intervention)
2. Law:
a. Very broad concept, abstract term
b. Means different things to different people
c. Collection of rules and regulations that determines how the government will treat its citizens, as
well as how, in turn, its citizens will treat the government; and, how those citizens will treat each
other
d. Sets the parameter of acceptable and unacceptable behavior both between citizens and between
citizens and the government
e. No set definition of law; enforcement leads to stability and predictability
3. Sources of Law:
a. Constitutional Law:
i. Constitution is the supreme law of the land; all laws need to be found constitutional to
exist and be enforced
ii. Derived from The US Constitution-most important source
b. Statutory Law (Legislative):
i. Congress has the power to pass laws (statutes) that constrain business behavior
ii. Bill must be approved in its final form by a majority of both Houses of Congress and the
President must either sign the bill or have his veto overridden by 2/3 vote of both Houses
iii. State legislatures (& municipal ruling bodies or other governmental entities can also pass
statutory laws*)
c. Executive
i. Executive Order- law by the President to control the policies of the Executive Branch
1. Affirmative Action/dont ask dont tell- punishment in military for sexual
orientation
2. President controls executive-branch agencies and bureaus
a. (Oversees spending and appoints leaders)
b. Executive Order 11246- Johnson, affirmative action to make sure that
their employment practices are not discriminatory
3. Appoints Federal Judge*
a. Normally nominates someone with similar political ideology (but once
confirmed, doesnt need to follow)
4. Congress appropriates funds for the governmental uses, its the president who
mostly through administrative agencies that actually spends the funds
d. Judiciary(Courts)
i. Two Basic Functions:
1. Interprets the law
2. Determines the fact IF no jury
ii. Common Law (Judge-made Law):
1. Stare Decisis Doctrine- Follow previously decided case unless there is a good,
legal reason to change; sets precedent (can change precedent, but rarely)
2. Leads to predictability and uniformity
iii. Interpretation of Constitutions, Statutes and Review of Agency Decisions:
1. Courts Interpret Statutes:
a. Federal Judges Constitutional Judges, serve for life
b. Statutes are typically written in general terms, giving the courts
freedom to judicial interpretation- flexibility to respond to unforeseen
circumstances and to adapt to changing conditions over time
c. Legislative Intent- Legislative body expects the courts to attempt
interpreting statutes and constitutions according to the intent of the
legislative body; look to the legislative histories of statutes for guidance
in interpreting statutes accordingly (judicially passive)
i. BUT, judges do not have to follow legislative intent, can
change the legislative intent- judicial activism
d. Reviews and interprets AGENCY decisions
iv. Judicial Review- the power of the courts to declare an act of Congress/President
unconstitutional
1. Constitution does NOT give the courts the power to interpret the Constitution,
the Supreme Court assumed the power of judicial review in Marbury v Madison
2. Traditionally, strong presumption by the court that a statute in constitutional
3. Can be overruled by a constitutional amendment
e. Administrative Law:
i. Law created by regulatory agencies
ii. State Law- each state has its own constitution, state legislatures are free to pass statutory
laws as long as they dont violate the Constitution, vast majority of litigation
iii. Police Powers- power of the state to place restraints on the personal freedom and property
rights of persons for the protection of the public safety, health, and morals, or the
promotion of the public convenience and general prosperity
1. 10th amendment
iv. Each state has its own Constitution, Legislature and Courts&can create administrative laws
v. Business Regulation- [power to regulate business to protect the public health and safety
and to promote for public welfare can be:
1. Federal
2. State (not supposed to interfere with the interstate commerce)
3. Municipal (part of state government)
4. Classification of Law
a. Federal Law:
i. Includes all laws developed under the authority of the Constitution by Congress, the
President, and Federal regulatory agencies
ii. Most important provision concerning the federal government regulation of business if the
Commerce Law (Interstate Commerce Law)
iii. The US constitution is based on the principle of federalism
b. State Law:
i. Municipal ordinances, state legislators, state regulatory agencies (sometimes county gvts)
ii. Getting more uniform (due to codification- making common law into statutory law)
1. Uniform Commercial Code
c. Civil Law:
i. Designed to compensate individuals for wrongs suffered (Reimbursement)
ii. Comes from common and statutory law
iii. Evidence: Preponderance of the evidence (more likely than not)
iv. Usually involve business
d. Criminal Law
i. Designed to protect society from activities that upset social order by preventing crime
1. Punish criminals
ii. Statutory Law
iii. Intent is not to provide remedies for victims of crime
iv. Beyond a reasonable doubt
e. Substantive Law
i. Defines rights and duties
ii. Meat or heart of the law
iii. Establishes procedural law
f. Procedural Law
i. Defines the procedural means to enforce rights established by substantive law
ii. How to of the law
g. Equitable Law
i. Equity- developed in England, purpose was to was to avoid unjust results occurring from
strictly following the rules of common law
ii. Legal remedies- money
Chapter 14
1. Pollution: Something that is not where its supposed to be
a. Court enforces the property rights accompanying the ownership of land through a system of tort law
b. Govt uses influence to seek voluntary compliance with emission standards by businesses
c. Congress passes broad legislations that mandate reduction of pollution
2. Tort Law- two theories
a. Trespass to land- any unauthorized physical intrusion/entry upon the land of another( no actual injury
to the land is needed and can only recover damages from past invasions)
b. Nuisance- unreasonable interference with ones peaceful enjoyment or use of land(sight, odor, sounds,
smoke,, vibrations, height of building)
c. Boomer v Atlantic Cement Company- Permanent injunctions again polluters are difficult to obtain; no
available tech that can eliminate nuisance/trespass= plant would have to shut down; economic cost
cannot be ignored
d. Permanent Damages- one-time compensation for all future harm caused by nuisance
e. Permanent Injunctions- public nuisance, only public officials can bring the suit
3. Voluntary Compliance
a. Superfund- waste dumps leaked into groundwater tables, clean up these dumpsites, funded by
taxpayers.
b. Toxic Release Inventory- provides info to the public (from self-reporting of emissions by firms)
c. Use media and citizen groups to pressure polluters
4. Legislation
a. Command-and-Control
i. Congress place emission limits on the amount of certain wastes that may be disposed
1. Advantage: All producers are treated equally Disadvantage: Dif to enforce
ii. Tax certain emissions: allow firms to decide whether to cut emissions or pay tax (hard to set)
b. Tradable Permits System
i. Can be bought and sold (auctioned) determining optimal amount is a problem
5. Competition can drive pollution cheaper
a. (Hard to reach an agreement w Congress and what do you do with the waste?
6. History of Environment Movement
a. Boston- water system 1652
b. Henry David Thoreau Walden, of life in the woods
c. John Muir- Mountains of California
d. Roosevelt- Conservation President, yellowstone first national park
e. Antiquities Act- proclaims national monuments
f. Civilian Conversation Corp (CCC)- New Deal Era, helped make public aware of conservation
g. Tennessee Valley Authority (TVA)- helped control flooding, provided electricity, recreation
h. Post WWII
i. Ecology- migration to suburbs; valuing real beauty and the environment
ii. Literary world was involved
iii. Nixon created EPA by executive order
iv. Congress passed NEPA- required federal agencies to submit Environmental Impact Statements
(EIS) and instructed Nixon to create a council on Environmental Quality
i. EPA
i. Congress passes laws
ii. Issue complaint, hold hearing in front of ALJ, appealed to the admin of EPA and then the
federal court system
iii. Carol Browner (EPA Admin in 1990s) put detailed records of environmental inspection to
inform citizens as to how and where to place pressure for environment reform
iv. Texas Commission on Environmental Quality (TCEQ) Texas equivalent to EPA
7. Clean Air Act
a. Air pollution between states and regulates air from both mobile sources and statutory sources
b. National Ambient Air Quality Standards (NAAQS)- air quality standards (primary-humans and
secondary-vegetation, climate, visibility, property)
c. State enforces, if not the govt can enforce
i. State enforces by preparing a State Implementation Plan (SIP)- states plan to implement the EPA
standards
1. Divides state into Air Quality Control Regions (AQCRs) and monitors them
a. If they do NOT meet the standards- non attainment areas
b. If they DO meet the standards- attainment areas
d. Mobile Sources of Pollution
i. Automobiles- primary mobile source of pollution
ii. EPA regulates the production of automobiles to ensure compliance with its emission standards
and regulate fuel and fuel additives and service stations
e. Stationary Sources of Air Pollution
i. Requires states to identify the major stationary sources of air pollution & develop plans to
reduce their levels of pollution
ii. Require to install pollution control devices (2)
1. Reasonable Available Control Technology (RACT)- Existing
2. Best Available Control Technology (BACT)- New
3. Factors to consider: cost of equipment/size of polluting company
iii. Over 180 toxic air pollutants- utilize maximum achievable control technology(MACT)
1. Without regard to economic/technological feasibility
8. Clean Water Act
i. River and Harbor Act- first water pollution act
1. Established a permit system
ii. Federal Water Pollution Control Act(1948)
1. Passed by congress, regulate water pollution, updated to the :
a. Clean Water Act of 1972 (amended in 1977 & 1987)
i. Permit system was replaced by the National Pollutant Discharge
Elimination System (NPDES) 1972
1. Still requires a permit but its set by EPA
2. Expanded navigable waterways (intrastate lakes, streams,
coastal, freshwater wetlands)
iii. EPA establishes water quality standards that determine what bodies of water are safe to use for:
1. Public Drinking Water
2. Recreation
3. Propagation of Fish and Wildlife
4. Agricultural and Industrial Use
5. States are responsible for enforcement but if fail to do so, EPA can enforce
iv. Areas of concern:
1. Point Sources:
a. Point from which water pollution comes
b. PS required to install pollution control equipment based on standards(2)
i. Best Practical Control Technology(BPCT)- existing
1. Cost, severity of the pollution, time are considered
ii. Best Available Control Technology (BACT)- new
1. Regardless of cost
c. All dischargers of water pollutants are required to keep records, maintain
monitoring equipment, and keep samples of water pollutant discharges
(subject to EPA review)
2. Thermal Pollution
a. CWA specifically forbids thermal pollution
b. Decreases the oxygen content of the water and can harm fish,birds,animals
c. Major source: Electricity-generating plants/Hydro-electric power plants
3. Wetlands
a. Protects wetlands- areas that are saturated by water where plant/animal life
have adapted.
b. Owner is forbidden from filling, dredging, or draining the wetland until they
received a permit from the Army Corps of Engineers
4. Oceans
a. Marine Sanctuaries
i. Marine Protection Research and Sanctuaries Act of 1972 (Ocean
Dumping Act)
1. Protects oceans from water pollution
2. Established marine sanctuaries at sea
3. Requires a permit to dump in the oceans
4. Usually violated by cruise ship lines
5. Civil penalty $50,000 (if violated intentionally you can go
to prison) or injunction to stop action
ii. Oil Spills (Oil Pollution Act OPA)
1. Clean oil spills within 12 miles of the US shore/ on the
continental shelf/recover costs from those responsible for
the spill (due to Exxon Valdez in Alaska)
2. Strict Requirements:
a. Certificate from Coast Guard to enter US waters
b. Insurance and training of crew
c. All ocean going tankers must be double hulled
d. Pay fee (goes to a clean-up fund)
e. Establish an oil cleanup plan
3. Administered by US Coast Guard
4. Penalties: $1,000 per barrel of spill oil/$25,000 per day
5. Drinking Water
a. Safe Drinking Water Act of 1974
i. Authorizes EPA to establish national drinking water standards
ii. Forbids the dumping of wastes into wells for drinking purposes
iii. Must use the best available tech (BACT) that is economically and
technologically feasible
iv. Concerns:
1. Underground sources of pollutants
2. Landfills
3. Pesticides
v. Amended in 1996 to give the EPA greater flexibility in establishing
regulatory standards governing drinking water and requires each
supplier to send its customers a statement describing the source of
water, level of contaminants, possible health issues
vi. States are responsibly but EPA can enforce if state doesnt
b. Toxic Substances
i. Federal Insecticide, Fungicide and Rodenticide Act (FIFRA)
1. Amended by Food Quality Protection act in 1996 (pesticides)
2. Administered by EPA
3. Pesticides must be registered with the EPA before they can be sold
a. Epa can deny, certify, limit or suspend the registration
4. Penalties vary:
a. Registrants and Producers, 1 year or fine of $50,000
b. Commercial Dealers, 1 year and fine of $25,000
c. Private users, 30 days and fine of up to $1,000
ii. Toxic Substances Control Act of 1976
1. New Chemicals
2. Manu need to test products and send info to EPA before the product can be sold
3. EPA can require special labeling
c. Hazardous Solid Wastes
i. Resource Conservation and Recovery Act of 1976 (RCRA)
1. Disposal of new hazardous wastes
2. Hazardous Wastes- solid wastes that might cause or significantly contribute to an
increase in the mortality or serious illness or hazardous is handled improperly
(constantly expanding)
3. State has primary responsibility but EPA can enforce
4. Cradle to Grave regulation by EPA
5. Penalties (civil and criminal)
a. $50,000/per/violation, 2 years in prison (both & doubled)
6. Regulated the underground storage facilities of hazardous wastes
7. CERCLA (Superfund)
a. Comprehensive Environmental Response, Compensation, and Liability Act
b. Regulates the cleanup of disposal sites where hazardous wastes were
previously existing
c. Administered by the EPA
d. Epa finds the sites, rate them by severity, then begin cleanups
e. Tort law- imposes strict liability, all who can be a potentially responsible
party (Retroactive- unconstitutional?)
f. Texas Equivalent: Texas Solid Waste Disposal Act (Health/Safety Code)
i. Responsible Party- any operator/owner of a solid waste facility
d. Nuclear Waste
i. Regulates nuclear powered fuel plants/byproducts
ii. Administered/handled by Nuclear Regulatory Commission (NRC) and EPA from construction,
during operation and disposal of wastes
1. NRC was created by the Emergency Reorganization Act of 1977 and licenses he
construction/opening of commercial nuclear power plants and continually monitors
and operation of those nuclear power plants
iii. Types of Nuclear Wastes:
1. LLW- lower-level waste (radioactively contaminated objects)
2. WIR- waste-incidental to reprocessing (spent nuclear fuel)
3. HLW- high-level waste (nuclear reactor fuel)
4. Uranium Mill tailing- residues remaining after the processing of natural ore to
extract uranium and thorium
iv. Nuclear Waste Policy Act of 1982- federal government is responsible for providing a permanent
site for the disposal of HLW and WIR
v. Low-Level Radioactive Waste Policy Amendments- states responsibility to dispose of LLW within
their borders- Regulated by the NRC
vi. Uranium Mill Tailing Radiation Control Act- stabilize/control uranium mill tailing and prevent
radon (NRC has regulatory environment)
vii. Biggest Concern- disposal of nuclear wastes
e. Noise Pollution
i. EPA to establish noise emission standards that are max noise levels below which no harmful
effect occur from the interference with speech/ other activities
ii. Best Available Technology and economically within reason
iii. $50,000 per day/ 2 years of imprisonment (civil penalties)
iv. National Institute for Occupational Safety and Health
f. Endangered Species Act
i. One of the most powerful and most hated
ii. Can prevent land use WITHOUT compensation for taking the land- NO 5th amendment
iii. Protects endangered and threatened species of animals (species likely to become extinct
throughout all of a large portion of their range and threatened as likely to become endangered
in the foreseeable future)
iv. EPA and Commerce Department designate the critical, protected habitats
v. Real estate developed by the government is prohibited (private owners- SHA)
g. Private Protection of the Environment
i. Right of Action- individuals can personally enforce the laws or petition the EPA
ii. Tort theories- Use tort law- nuisance law (pollution can be a form of nuisance whether it is
physical or intangible)
iii. Interest Groups- Sierra Club & Green Peace
1. Intro
a. GDP dominated by- US, Europe, Japan (China)- changes and varies from time to time (after
WW2)
i. Developed countries are a major source of highly skilled workers, innovative technology,
and new capital
ii. Most important market for the goods produced by developing countries
2. Emerging Markets
a. BRIC Nations- developing nations that are starting to become world leaders(emerging):
i. Brazil- natural resources & dominant economy of south America
ii. Russia- oil
iii. India- 2nd most populous country/ largest democracy
1. Reduce trade/investment barriers & lessened regulatory burdens on private
sectors >>> Multinational companies & #2 computer software producer
iv. China- communist country, can nationalize everything- low-cost labor/free market
society/manufacturing
3. Four Tigers (Export Promotion Growth Strategy)
a. Four entities(Tigers) used Export Promotion Growth; lots of workers and materials
i. Hong Kong
ii. Taiwan
iii. Singapore
iv. South Korea (biggest success)
b. Export Promotion Growth Strategy- relying on exports as its source of growth
i. More money made, higher waged paid, more taxes, better infrastructure (NIEs)
c. Copied them: Malaysia, Thailand, Indonesia, Philippines
d. Also called: Newly Industrialized Countries (NICs) / Newly Industrialized Economies (NIEs)
4. Africa (unstable government, disease, dark continent, but maybe some good resources)
5. South (Latin) America (Import Substitution Growth Strategy)
a. Buy local, dont involve international trade/Panama
b. Through tourism (Brazil Computers)
c. Import Substitution Growth Strategy- stimulate the development of domestic manufacturing by
raising barriers to imported goods
i. Thus, local manufacturing industries will have the opportunity to develop and grow
ii. Only works for short-term benefits
1. Domestic markets are too small
2. Production costs are too high (high prices)
3. Hurts the countrys economy
d. Late 1980s began to open up their economies, was a hot market, but then slowly burned out
6. Foreign Exchange Market
a. Currency:
i. Specify when youre going to make it payable and in what currency when youre trading
internationally
ii. International business required exchange those currencies w others
iii. International Monetary System- provides the framework for the exchange of one currency
into another and allows firms to do this at a low cost and with little risk
iv. At the center of the foreign exchange market are dozens of large international banks,
trading between these banks establishes the whole-sale price of foreign exchange
v. Foreign exchange market is dominated by traders located in London, New York, Tokyo
vi. Blending of two types of exchange rate systems:
1. Flexible exchange rate- the value (price) of a currency fluctuates according to the
supply/demand for that currency in the foreign exchange market
a. Best determined by the marketplace (but they fluctuate a lot)
2. Fixed Exchange Rate System- government promises that it will hold the value of
its currency fixed relative to some major currency (dollar or euro)
7. Forms of International Business
a. Most important forms are trade and foreign/international investment
b. Trade*
i. Importing/Exporting
1. Vital to the prosperity and profitability of citizens, nations, and firms
2. Exporting generates economic activity/ employment in the home country
3. Importing generates competition/stimulates local manufacturers/improves
quality and price/ lower the cost of production
ii. Benefit both sides/spur competition
c. International Investments*
i. When a resident of one country supplies capital to a resident in another country (does the
investor expect to actively manage the organization or not?)
ii. FPI- Foreign portfolio investment- less than 10% of business of a foreign corporation
iii. FDI- foreign direct investment- built/operate plant and sell in that country (more than
10%)
1. Actively manage
2. Primary destinations for the US are in developed countries
iv. Some countries can be both the primary sources(providers)/destinations(recipients)
v. MNCs (Multinational Corporation)
1. A firm with extensive international business involvement (usually
owning/managing value-adding activities in several countries)
2. Engage in extensive FDI as a means of exploiting some competitive advantage
that they may possess (superior tech, well-known brand-name, etc.)
vi. A strong market presence in each of the worlds market places is critical to its survival and
prosperity (Caterpillar and Komatsu)
d. Licensing sell license to make , NBA/NFL gear (pay for it like in the US)
i. One firm may permit a firm in a foreign country to use its intellectual property (intangible
assets like trademarks, brand names, copyrights, etc.)
e. Franchising (pay for it like in the US- like the licensing) H&R Block
i. Permit a firm to utilize its operating systems/ brand names, trademarks
f. Management Contracts operate the business that you built (hotels)
i. Provide management services/operating facilities
g. Contract Manufacturing hire a foreign firm to make your goods for you, clothing/shoes (Nike)
h. International Joint Ventures one company from one country joint w another company from
another country for a specific purpose, NOT A MERGER
i. Combining the strengths of one company w another in international business
ii. Cadillac Adelante
iii. General Mills and Nestle created Cereal Partners Worldwide to market general mills cereals
in Europe
i. Firms can use a combination of the forms of international business activities
8. Growth of International Business Activities (After WW2)
a. Attracted to the international market due to the large size and rapid growth
b. Most important firms of international commerce- Trade and FDI
c. Reasons for Growth
i. Competition (keep up with rivals)
ii. Expand size of customer base
iii. Acquisition of resources (work 24/7)
iv. Technological/Government trade policy changes (innovations in data processing)
d. Law of One Price- the price of a good in the long run must equal the same in all markets (minus the
cost of shipping)
9. Trade- voluntary exchange of goods, to benefit both sides (both parties must be better off w the trade)
10. Law of Comparative Advantage you make what youre good at
a. Trade promotes the efficient allocation of resources and enhances the productivity of the nation
through specialization
b. Comparative Advantage-a country should focus on producing/exporting goods[trade
freely]/services that theyre more productive in than other countries (and vice versa)
c. By doing so, countries are able to produce more of everything and citizens have more to consume
than they would if trade were limited by trade barriers (specialization by trading)
11. Free Trade v Fair Trade Argument
a. Free Trade- no (minimal) government interference with international trade
b. Fair Trade- government plays as referee because other countries dont play fair
i. Direct subsidies, tax, cut-rate financing programs, govt-govt negotiations
12. Trade Barriers
a. Tariffs
i. Import tariff- tax on goods you import into the country
ii. Export tariff- tax on goods that are being exported from the country
iii. Transit Tariff- pay to go through the country
iv. Ad Valorem tariff- calculated on the basis of the goods value
v. Specific tariff- per unit basis (sugar)
vi. Compound tariff- combine if you want to- combination of value and unit
vii. Purpose: source of revenue and trade barrier
b. Quotas
i. Numerical limit on the amount of a good that can be imported into the country (limit on
what you can bring in)
1. Absolute Quota-specific quantity
a. The most binding is one that imposes an absolute ban of the item
2. Tariff-Rate Quota- 1st quota= lower tariff & 2nd quota= higher tariff
a. Sugar*- maintain the price of US-made sugar above the world price
c. Non- Quantitative none-tariff barriers (NQTNBs)
i. Sneaky, try to protect domestic business but controversial
ii. Not quotas or tariffs, difficult to change
iii. Embedded in legal/bureaucratic procedures
1. Product and Testing Standards- can be used as a trade barrier (Japan snow)
2. Public Procurement govt puts rules that give their own companies better
chances, brazil computers (at higher price) ex. Brazil 12% bidding preference
3. Local Purchase Requirement- use MY raw materials/workforce (in the country)-
French television show (final product must have a % of local content)
4. Access to Distribution System- ship the goods over there and keep them in the
port, scared of their reaction. (Blocking access to existing distribution systems)
a. Japan auto-dealers refusing to handle American cars to not jeopardize
their relationships w the Japanese auto industry)
5. Regulatory Procedures- can be sided against another country
a. Imposing a higher excise tax on foreign alcoholic beverages than domestic
alcoholic beverages
6. Investment Controls- ban/limit FDI
a. Airlines limit 25% of foreign investment in domestic airlines
7. Public Choice Analysis- Domestic companies that go out of business. Nations of
the world are very good at developing policies to promote domestic home
industriesdomestic companies demands it on behalf of themselves and he
public is either unaware/apatheticdont get a policy of what is best for the
country but a policy of that is best for powerful companies
a. Policies that promote the interests of their home industries inevitable
make the domestic economy/general public worse off
b. Jones Act- bars foreign ships from transporting cargos from one US port
to another,
c. Definition: Special interest groups are more willing work for the passage
of laws that favor them than is the general public willing to work for the
defeat of such laws
d. The development of a nations trade policy is usually the result of the
interplay of domestic political forces/special interest groups
Chapter 16 International Cooperation to Promote Global Prosperity
Beggar thy neighbor- Germany built down their neighbors so they could go up (Post WW1)
Devalued their currencies/ raised their tariffs/high unemployment (only worked in the short-run)
Prolonged and deepened the Great Depression
Aftermath of WW2:
1. Bretton Woods Agreement: (Late 1944) Allies nations met in Bretton Woods, NH to avoid the
problems created after WW1
a. Created:
i. International Bank for Reconstruction and Development (IBRD)- World Bank
1. Set up w funds to rebuild ALL of Europe
2. Rebuilt Europe
3. Marshall Plan- US sponsored aid program to restore the economies of US
allied, non-communist governments of Western Europe
4. Today: promote loans to 3rd world countries, long-term loans w little
interest rates
ii. International Monetary Fund (IMF)
1. Stop devaluation of currency (beg-thy-neighbor)
2. Oversaw the functioning of the new international monetary system (dollar-
based fixed exchange rate system)
3. Tied to the US dollar
4. Ended in 1871, now its an economic crisis fund,
b. Governing World Trade
i. GATT (General Agreement on Tariffs and Trade) - reduce trade barriers, nations
could negotiate the reduction of trade barriers (not quotas/ NQNTBs)
1. 1947, try to reduce trade barriers:
a. Had to agree to treat other GATT members alike (MFN):
i. (MFN- Most Favored Nation status)
ii. Critical to the GATTs success
1. Exceptions to the MFN Rule
a. Members of regional trading blocs
(EU/NAFTA) could grant preferences
to their members w/o giving those
preferences to all GATT members
b. Members of GATT could grant
preferential treatment to less developed
countries (LDCs) to aid in their
development efforts
c. Political reasons (US)
b. Reduce trade barriers
i. Trade could be based on comparative advantage
c. Promote multilateral trade negotiations
2. Major factor - reducing import tariffs but NOT quotas or NQNTBs
ii. GATT turned into the WTO (World Trade Organization)
1. More enforcement powers and broader
2. Try to work on one thing at a time, still try to reduce trade barriers
a. HOW:
i. GATS- reduce trade barriers in the service industries
ii. TRIM(-WTO)- set of rules on international investments
iii. TRIP-Protect international intellectual property rights
iv. DOHA Round- agriculture (GATT never interfered with
agriculture stuff) subsidies and tariffs, liberalizing trade in
services, improving access of pharmaceutical products to
LDCs
v. (China is a member, and still active)
2. Regional Trading Block- way to get around GATT
a. Countries enter into these to promote economic prosperity and better lives for citizens
b. Agree to treat non-member nations differently than member nations who get the trading block
benefits
c. Trading Blocks represent a middle position on a spectrum ranging from a perfectly open world
economy to a perfectly closed world economy
i. Free Trade Area- agree to lower the trade barriers among themselves
1. Free to deal with non-member nations as they choose
ii. Custom Union- free trade area PLUS members adopt common trade policy w/
nonmember nations
iii. Common Market started as a customs union PLUS an agreement that member
nations will drop all barriers that hinder the free movement of labor, capital and other
factors of production among
1. Goals:
a. Use factors of productions (capital/labor) in most productive
manner>>increased productivity>raising standard of living
iv. Economic Union- Common Market PLUS an intertwining of their economic
integration by implementing similar economic policies
1. Makes the decisions for all the members nations
2. Mixing Macro/Microeconomic policies
3. Member nations give up a significate amount of their national sovereignty
d. Advantages of a Regional Trading Bloc
i. Expands trade among members
ii. May increase FDI
iii. Creates trade among member nations
iv. May increase International competitiveness of domestic firms
v. Longer production runs, gives domestic company bigger market, easier access to
newer technology, lower cost loans and larger pool of skilled workers
vi. The difference between trade creation( stimulate trade among members) and trade
diversion (decrease trade between members and nonmembers) tells whether or not a
regional economic integration arrangement is beneficial to the world
3. Major Regional Trading Blocs
a. The European Union
i. Accounts for 25% of the worlds GDP , all are democracies and have adopted free-
market-oriented economic policies (one of the worlds largest market)
ii. 28 democratic nations, purpose is to promote peace and prosperity thru cooperation
iii. Norway and Switzerland are NOT members of the EU
iv. Creation:
1. Began as a Common Market- European Economic Community (ECC)
a. Treaty of Rome created the ECC and a common market
i. Six Nations (Italy, France, West Germany, Belgium,
Luxembourg and Netherlands)
2. Treaty of Maastricht (Treaty on European Union) created the EU
a. Established common defense and foreign policies to strengthen
Europe (not successful)
b. Created the Cohesion Fund
c. Economic and Monetary Union (EMU), the common currency, the
Euro- MOST IMPORTANT PART OF THE TREATY OF
MAASTRICHT
i. US & Sweden chose not to use the Euro
ii. Not all nations use the Euro (17)
v. Governing the EU
1. Members are sovereign nations that have surrendered some of their
economic powers to the EU (Government of Governments / Supranational
Government)
2. Four Primary Institutions:
a. European Council of Ministers (European Council) most
powerful, ultimate decision-making power
b. Commission of the European Union sole power to propose
legislation
c. European Parliament weakest
d. European Court of Justice implement US laws and regulations
b. North American Free Trade Area (NAFTA)
i. Worlds 2nd largest trading bloc
ii. A free trade area between USA, Canada, and Mexico
iii. Goal: promote economic prosperity (agreed to eliminate tariffs eventually)
1. FDI Restrictions:
a. Screwdriver Plant- adding something small (like a screw) to a good
and claiming that it is made in that country, but only a % is
i. Rules of Origin- determines whether a good is qualified to
be categorized as US-made
b. Mexico- Energy Industry
c. Canada- Cultural Industries (broadcasting, book/magazine
publishing, filmed entertainment)
d. US- Broadcasting and Air Transportation Industries
2. NAFTAs Impact :
a. Good for US and Canada but HUGE for Mexico :
i. Employment in exporting sector doubled
ii. However, manufacturing future depends on China
iii. MNCs were moving to China but,
iv. Some are now moving back to Mexico
b. Other countries (Chile) want to join, but refuse to expand to South
America.
4. Mercosur
a. Movement AWAY from import substitution growth theory in an area
b. Mercosur Accord -
i. Custom Union [same as the Andean pact] AND free trade area
ii. 4 founding nations (Argentina, Brazil, Paraguay/Uruguay)
5. The Andean Pact
a. Bolivia, Columbia, Ecuador, Peru and Venezuela
b. Customs Union [same as Mercosur] 2nd major trading bloc
c. In Response to the signing of the Mercosur agreement the Andean Pact rejuvenated their
agreement (nations of AP became associate members of Mercosur and vice versa)
d. Common Regulation on
i. Capital movement
ii. Agriculture
iii. Immigration
iv. Common External Tariff
e. COMBINED THE TWO REGIONAL TRADING BLOCS
i. Customs Union
6. ASEAN ( Association of Southeast Asian Nations) and APEC
a. Asia is home to two important trading blocs
i. Association of Southeast Asian Nations (ASEAN): promote economic and political
cooperation in that region.
1. Thailand, Singapore, Philippines, Malaysia, Indonesia, Brunei (later joined:
Laos, Myanmar, Cambodia, Vietnam)
2. Established a free-trade area (to create economic/political cooperation in
Southeast Asia)
3. Eliminate tariffs
4. Overshadowed by APEC
ii. Asian-Pacific Economic Cooperation (APEC)
1. 21 member nations- most touch the Pacific Ocean
a. Most Members of ASEAN
b. Four Tigers
c. NAFTA Nations
d. Japan, Russia, China, Australia, New Zealand
2. 40% of worlds trade
3. Still relatively new and developing (lower trade and investment barriers)
1. Convergence Criteria
2. Euroland/ Euro / EuroZone
a. Euroland/EuroZone- area where euro is being used
b. Euro- significantly reduces the currency conversion costs
3. European Central Bank
a. In Frankfort, Germany, is now in control of the EuroZones money supply, interest rates, and
inflation
4. Fast-Track Authority
5. Generalized System of Preferences
a. Exception to the MFN Principle- Members of GATT could grant preferential treatment to less
developed countries
i. US- generalized system of preferences reduces tariffs imposed on imports from LDCs
6. Harmonization
a. Utilized by the European Union, negotiate with one another to voluntarily adopt common
(harmonized) regulations and standards
7. Marshall Plan
a. Brettonwoods Agreement- The US also helped allied, non-communist countries
8. Mutual Recognition
a. European Union- common market- if one member states recognizes a product as an appropriate for
sale, then all other EU members are mutually bound to do the same (some exceptions)
9. Rules of Origin
a. NAFTA; rules determine if a good is truly North American made
10. Screwdriver plants
a. Where a foreign, nonmember makes something in its home country, slip it to member nation pre-
assembled, making it within the trade block (NAFTA)
11. Single European Act
a. Amended the Treaty of Rome, called for completion of the internal market
b. Took 35 years, but most were implemented- making the EC(u) a common market
12. Trade Creation
13. Trade Diversion