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International Business
Part Three
Theories and Institutions: Trade
and Investment
CHAPTER EIGHT
CROSS-NATIONAL COOPERATION
AND AGREEMENTS
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Chapter Objectives 2

 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)
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GATT 3

 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
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WTO 4

 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
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Regional Economic Integration 5

 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
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The Effects of Integration 6

 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
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European Union 7

 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
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Implications of the EU for 8
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.
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The North American Free Trade 9
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
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Regional economic integration in the 10
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.
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Regional economic integration in 11
Asia & Africa
 Association of Southeast Asian Nations (ASEAN)
 Asia Pacific Economic Cooperation (APEC)
 The African Union
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Forms of International Cooperation 12

 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
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Commodity Agreements 13

 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