INTERNATIONAL BUSINESS ADMINISTRATION

International Cooperation Among Nations

Dr. George Y. Maalouf

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OUTLINE:

1. The General Agreements on Tariffs and Trade and the World Trade

Organization

2. Regional Economic Integration

3. The European Union

4. Other Regional Trading Blocs 2

1) The General Agreements on Tariffs and Trade and the

World Trade Organization

The collapse of international economy occurred during the

Great Depression between World Wars I and II.

By raising tariff and quota barriers, each nation believed that it

could help its industries and citizens.

In 1947, representatives of leading trading nations have met in

Havana, Cuba and created the ITO (International Trade

Organization).

Its mission was to promote international trade.

GATT WTO

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1.1. GATT

Its mission was taken over by the General Agreement on Tariffs and trade (GATT), which was

developed as part of the Havana conference.

The goal of GATT was to promote a free and competitive trading environment that benefits

efficient producers.

To help international businesses compete in world markets regardless of their nationality, the

GATT sought to ensure that international trade was conducted on a nondiscriminatory basis.

This was accomplished through using the most favored nation (MFN) principle, which mentions

that the most favored nation principle requires that any preferential treatment granted to one

country must be extended to all countries. 4

1.2. WTO

The World Trade Organization (WTO) was founded in 1995, and is comprised of 153 member

countries and 30 observer countries.

The WTO has three primary goals:

1. To promote trade flows by encouraging nations to adopt non-discriminatory

and predictable trade policies.

2. To reduce remaining trade barriers through multilateral negotiations.

3. To establish impartial procedures for resolving trade disputes among members.

The WTO is also focusing on reducing barriers to trade in services. One approach currently in

use is the principle of national treatment, in which a country treats foreign firms the same as it

treats domestic firms.

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2) Regional Economic Integration

Regional alliances to promote liberalization and international trade are an important feature of

the post-World war II international landscape.

FORMS OF ECONOMIC INTEGRATION:

Countries are seeking to integrate their economies to open

new markets for their businesses and lower prices for their

consumers.

There are five types of regional economic integration between countries:

Common

Market

Economic

Union

Political

Union

Free Trade

Area

Customs

Union

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2.1. Free Trade Area A free trade area eliminates all barriers to trade among member countries, but allows each

country to establish its own external trade barriers.

A problem with free trade areas is the potential for trade deflection whereby nonmember

countries try to avoid trade barriers by initially exporting their products to a member country

with low trade barriers, then re-exporting the products to a member country with high trade

barriers.

2.2. Customs Union A customs union combines the elimination of barriers to internal trade among member

countries with the adoption of common external trade policies toward nonmembers.

A current example of a customs union is the Mercosur Accord, an agreement among Argentina,

Brazil, Paraguay, and Uruguay.

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2.3. Common Market A common market combines the elements of a customs union with a policy that allows for

the mobility of factors of production.

The European Union is an example of a common market.

2.4. Economic Union An economic union eliminates trade barriers between member countries, establishes a

common external trade policy, follows a policy of factor mobility, and coordinates

economic policies of member countries.

An example of an economic union is the Belgium-Luxembourg Economic Union. In addition,

the European Union is currently moving toward economic union status.

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2.5. Political Union A political union combines the elements of an economic union with the added feature of

complete political integration.

The United States, transformed from 13 separate colonies into one, is an example of a political

union.

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3) The European Union The European Union (EU) is the most important trading bloc

in the world today.

27 countries currently “belong” to the EU, making it the

world’s richest market, with a total GDP of $14.4 trillion.

The EU is governed by four organizations:

The European

Commission

The European

Parliament

The European

Court of Justice

The Council of

the Economic

Union

Made up of 27 members,

each of whom is

responsible to his or her

home government, is the

EU’s main decision-

making body.

Is composed of 27

individuals whose

loyalty is to the EU

rather than their home

countries

Made of 785 elected

representatives, is the weakest

of the governing bodies. It

originally acted in a

consultative manner in EU

policy making, but has

expanded its role under the

Maastricht Treaty.

It interprets the meaning

of EU law and ensures

that EU regulations and

policies are followed by

member states.

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4) Other Regional Trading Blocs The success of the EU in enriching its members has spawned

the development of new trading blocs.

Today nearly every continent has one regional trading group.

Other regional trading blocs are:

The North American

Free Trade Agreement

(NAFTA)

Caribbean

Basin

Initiative

(CBI)

The Central

America-Dominican

Republic Free Trade

Agreement (CAFTA-

DR)

The North American Free Trade Agreement (NAFTA)

was implemented in 1994 to reduce barriers to trade

and investment among Canada, Mexico, and the United

States.

The agreement was built upon a trade agreement that

had been signed between the U.S. and Canada six years

earlier and upon the extensive amount of trade that

already existed among the three countries.

The agreement will be phased in over a 15-year period.

Facilitate the economic development

of the nations of Central America

and the Caribbean Sea was initiated

by the U.S. in 1983.

The CBI overlaps two regional free

trade areas, the Central American

Common Market (CACM) and the

Caribbean Community and Common

Market (CARICOM).

Has signed by the U.S.,

Costa Rica, El Salvador,

Guatemala, Honduras,

and Nicaragua in 2004. 11

Additional regional trading blocs are:

The Australia-New Zealand Agreement. The Association of South East Asian Nations (ASEAN) The Asian Free Trade Area (AFTA) The Asia-Pacific Economic Cooperation (APEC) The South African Development Coordination Conference (SADCC) The Economic Community of West African States

4) Other Regional Trading Blocs (Cont.) The Mercosur Accord

Agreement among Argentina,

Brazil, Paraguay, and Uruguay to

cut internal tariffs and establish

common external tariffs.

The agreement is expected to

revitalize the stagnating

economies of Brazil and Argentina

by stimulating new flows of FDI.

The Andean Community

Was established in 1969 to

promote free trade among

Bolivia, Chile, Colombia,

Ecuador, and Peru.

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International Business 6th Edition, Griffin & Pustay.

References

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THANK YOU!

Dr. George Y. Maalouf 14