MODULE

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MODULE G ALS FLEX Course Material
 To distinguish Comparative INTERNATIONAL BUSINESS
international management and
multiple factors which impact AND TRADE
functional and regional
management decisions and
ORGANIZATION
practices through the cross-
section of global business Global and Regional Economic Cooperation and
To analyze the role of GATT and Integration
NAFTA in International Trade.
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 International Trade Barriers

• Trade barriers cause

• a limited choice of products and, therefore, would
• force customers to pay higher prices and accept inferior quality.
• detrimental and decrease overall economic efficiency
• Trade barriers generally favor rich countries because these countries tend to
set international trade policies and standards.
• Governments impose barriers to protect local industry or to “punish” a trading
partner.
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 International Trade Barriers

Trade barriers may be:

Tariffs Non-tariff Natural

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 International Trade Barriers

Man-made trade barriers are:

Tariffs Non-tariff
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 Tariff

• A system of government-imposed duties levied on imported or exported

goods; a list of such duties, or the duties themselves.

• A tariff is a tax imposed by a nation on imported goods. It may be a charge per

unit, such as per barrel of oil or per new car; it may be a percentage of the
value of the goods, such as 5 percent of a $500,000 shipment of shoes; or it
may be a combination.
• Protective tariffs make imported products less attractive to buyers than
domestic products.
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 International Trade Barriers

Non-tariff trade barriers come in several forms

Voluntary
Import/Export
Import quotas Subsidies Export
licenses
Restraints

Local content Currency Trade

Embargo
requirements devaluation restriction
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 Non Tariff Barriers

Voluntary Export Restraints (VERs)

• A restriction set by a government on the quantity of goods that can be exported out of a
country during a specified period of time.

Local content requirements (LCRs)

• Policy measures that typically require a certain percentage of intermediate goods used in
the production processes to be sourced from domestic manufacturers.

Embargo
• A total ban on imports or exports of a product.
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 Non Tariff Barriers

• Import Export Licenses

• Identifies what products are shipped or delivered between international
locations.
Import Quota
• Limits on the quantity of a certain good that can be imported to protect
certain industries
Export subsidy
• Can be used to give an advantage to a domestic producer over a foreign
producer.
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 Can be either physical or
cultural

Distance
Natural barriers
Language

Culture
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 What Is Regional Economic
Integration?
Regional economic integration has
enabled countries to
Regional Economic a. focus on issues that are relevant
Integration to their stage of development
b. encourage trade between
neighbors.
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 Regional Economic Integration

Four main types of regional economic integration.

1. Free trade area.

• The most basic form of economic cooperation.
• Member countries remove all barriers to trade between themselves but are
free to independently determine trade policies with nonmember nations.
• An example is the North American Free Trade Agreement (NAFTA).
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 Regional Economic Integration

Four main types of regional economic integration.

2. Customs Union.
• This type provides for economic cooperation as in a free-trade zone.
• Barriers to trade are removed between member countries.
• The primary difference from the free trade area is that members agree to treat
trade with nonmember countries in a similar manner.
• Example: The Gulf Cooperation Council (GCC)Cooperation Council for the Arab
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States of the Gulf

 Regional Economic Integration

• Four main types of regional economic integration.

3. Common market.
• This type allows for the creation of economically integrated markets between
member countries. Trade barriers are removed, as are any restrictions on the
movement of labor and capital between member countries.
• Like customs unions, there is a common trade policy for trade with
nonmember nations.
• Advantage: Workers no longer need a visa or work permit to work in another
member country of a common market.
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• Example:Common Market for Eastern and Southern Africa (COMESA).

 Regional Economic Integration

Four main types of regional economic integration.

4. Economic union.
• Created when countries enter into an economic agreement to remove barriers
to trade and adopt common economic policies.
• Example: European Union (EU).
• Trade bloc is basically a free-trade zone, or near-free-trade zone, formed by
one or more tax, tariff, and trade agreements between two or more countries.
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 Regional Agreements

• Pros
A. Trade creation.
• Create more opportunities for countries to trade with one another by removing the
barriers to trade and investment.
B. Employment opportunities.
• By removing restrictions on labor movement, economic integration can help
expand job opportunities.
c. Consensus and cooperation.
• Member nations may find it easier to agree with smaller numbers of countries.
Regional understanding and similarities may also facilitate closer political cooperation.
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 Regional Agreements

• Cons
• A.Trade diversion.
• Member countries may trade more with each other than with nonmember
nations.
B.Employment shifts and reductions.
• Countries may move production to cheaper labor markets in member
countries.
C. Loss of national sovereignty.
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 • North America: NAFTA

• The North American Free Trade Agreement (NAFTA) came

into being during a period when free trade and trading blocs
were popular and positively perceived.

Major Areas of • 1988-US and Canada signed the Canada–United States Free
Trade Agreement.

Regional • Shortly after it was approved and implemented, the United

States started to negotiate a similar agreement with Mexico.
Economic • Goal - to encourage trade between Canada, the United
States, and Mexico.
Integration and • Reduce tariffs and trade barriers to create a free-trade
zone where companies can benefit from the transfer of
Cooperation goods.
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 NAFTA

Member countries can establish their own trading rules for nonmember
countries. NAFTA’s rules ensure that a foreign exporter won’t just ship to the
NAFTA country with the lowest tariff for nonmember countries.
Requires that at least 50 percent of the net cost of most products must come
from or be incurred in the NAFTA region.
.
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 • Canadian and US consumers have benefited from the lower-cost
Mexican agricultural products. Similarly, Canadian and US companies
have sought to enter the expanding Mexican domestic market. Many
Canadian and US companies have chosen to locate their
manufacturing or production facilities in Mexico rather than Asia,
which was geographically far from their North American bases.
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 • The General Agreement on Tariffs and Trade (GATT) is a series
of rules governing trade that were first created in 1947 by
twenty-three countries.
• By the time it was replaced with the WTO, there were 125
member nations. GATT has been credited with substantially
expanding global trade, primarily through the reduction of
tariffs.

GATT • The basic underlying principle of GATT was that trade should
be free and equal.
• GATT’s initial focus was on tariffs, which are taxes placed on
imports or exports.
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 • The Dominican Republic–Central America–United States
Free Trade Agreement (CAFTA-DR) then called the
Central America Free Trade Agreement, or (CAFTA)
• A free trade agreement signed in 2005.
• Originally, the agreement was between the US and the
Central American countries of Costa Rica, El Salvador,

CAFTA-DR Guatemala, Honduras, and Nicaragua.

• A year before the official signing, the Dominican
Republic joined the negotiations, and the agreement
was renamed CAFTA-DR
• 80 percent of goods exported from the United States
into the region are no longer subject to tariffs.
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 • The European Union (EU) is the most integrated form of
economic cooperation.
• EU originally began in 1950 to end the frequent wars
between neighboring countries in the Europe.
European • The six founding nations were France, West Germany, Italy,
and the Benelux countries (Belgium, Luxembourg, and the

Union (EU) Netherlands), all of which signed a treaty to run their coal
and steel industries under a common management. The
focus was on the development of the coal and steel
industries for peaceful purposes.
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 • The biggest advantage : Monetary union.
• Sixteen member countries use the Euro. become the
Challenges world’s second-largest reserve currency behind the US
dollar.

and • EU doesn’t consist of the same countries as the continent

of Europe

Opportunities
• There are more EU member countries than there are
countries using the euro. Euro markets, or euro countries,
are the countries using the euro.

(EU) EU members formed a single market with more than 500

million people(7% of the world’s population). This single
market permits the free flow of goods, service, capital, and
people within the EU.
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 • The Association of Southeast Asian Nations (ASEAN)
was created in 1967 by five founding-member
countries:
• Malaysia, Thailand, Indonesia, Singapore, and the
Philippines. Since inception, Myanmar (Burma),
Vietnam, Cambodia, Laos, and Brunei have joined the
association. (Sanjyot P. Dunung, Doing Business in Asia:

ASEAN The Complete Guide, 2nd ed. (San Francisco: Jossey-

Bass, 1998).

• Primary focus is on economic, social, cultural, and

technical cooperation as well as promoting regional
peace and stability
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 • The Asia–Pacific Economic Cooperation (APEC) founded in 1989
by 12 countries as an informal forum.
• It now has twenty-one member economies on both sides of the
Pacific Ocean.
• The only regional trading group that uses the term member
economies, rather than countries, in deference to China. Taiwan
was allowed to join the forum, but only under the name Chinese
Taipei. (Sanjyot P. Dunung, Doing Business in Asia: The Complete
Guide, 2nd ed. (San Francisco: Jossey-Bass, 1998).

APEC • Geographic grouping includes the United States, Canada, Mexico,

Chile, Peru, Russia, Papua New Guinea, New Zealand, and
Australia with their Asia Pacific Rim counterparts.“About APEC:
History,”
• Focused primarily on economic growth and cooperation, the
regional group has met with success in liberalizing and
promoting free trade as well as facilitating business, economic,
and technical cooperation between member economies.
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 Trade Agreements and Efforts Impact Business

• Consistent criteria for investment and trade

• Reduced barriers to entry.

• “rules” for their industry change

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 After World War II destroyed nations,
The United resources, and the balance of peace,
• A shift in thinking toward trade-
Nations (UN) increasing trade for the benefit of
all.
and Peace: • Nations were eager for a new model
that would not only focus on
Impact on promoting and expanding free trade
but would also contribute to world
Global Trade peace by creating international
economic, political, and social
cooperative agreements and
institutions to support them.
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 • International agreements and
institutions have succeeded—at a
The United minimum—in creating an ongoing
forum for dialogue on trade and
Nations (UN) related issues.

and Peace: • Reduce the barriers to trade

• Expand global and regional cooperation
Impact on have functioned as flatteners in an
increasingly flat world.
Global Trade • The United Nations became a key
global institution and impact free and
fair global trade.
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 UN as a Business Partner

• While certain industries (e.g., defense companies) benefit from conflict, in

general global firms prosper best in peaceful times.
• The primary impact for businesses is in the areas of staffing, operations,
regulations, and currency convertibility and financial management.
• The six main bodies of the UN are the (1) Secretariat, (2) Security Council, (3)
General Assembly, (4) Economic and Social Council, (5) International Court of
Justice, and (6) UN Trusteeship Council. The Secretary-General leads the UN.
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 The International Monetary System

• The gold standard provided a stable means for countries to exchange their currencies and
facilitate trade.
• The Bretton Woods system established a new monetary system based on the US dollar.
• The Bretton Woods system lasted until 1971 and provided the longest formal mechanism for an
exchange-rate system and forums for countries to cooperate on coordinating policy and
navigating temporary economic crises.
• No new formal system has replaced Bretton Woods, some of its key elements have endured,
including a modified managed float of foreign exchange, the International Monetary Fund (IMF),
and the World Bank.
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• Thank You!
 References
• http://www.nytimes.com
• http: lumenlearning.com
• https://opentextbc.ca
• http://internationalecon.com/
• www.study.com
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