International Business Unit 2

207 terms by tashanicole23

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free trade

a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country

tariffs, administrative policies, subsidies, VERs, antidumping policies, import quotas, local content requirements

Seven Main Instruments of Trade Policy (TASVAIL)

tariff

a tax levied on imports that effectively raises the cost of imported products relative to domestic products

specific tariffs

are levied as a fixed charge for each unit of a good imported

ad valorem tariffs

are levied as a proportion of the value of the imported good

subsidy

a government payment to a domestic producer

import quota

a direct restriction on the quantity of some good that may be imported into a country

tariff rate quotas

a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota

voluntary export restraints

quotas on trade imposed by the exporting country, typically at the request of the importing country's government

quota rent

the extra profit that producers made when supply is artificially limited by an import quota

local content requirement

demands that some specific fraction of a good be produced domestically, can be in physical terms or in value terms.

administrative trade policies

bureaucratic rules that are designed to make it difficult for imports to enter a country

dumping

selling goods in a foreign market below their cost of production or selling goods in a foreign market at below their fair market value

antidumping policies

designed to punish foreign firms that engage in dumping. goal is to protect domestic producers from unfair foreign competition

countervailing duties aka antidumping duties

U.S. firms that believe a foreign firm is dumping can file a complaint with the government and if the complaint has merit, these can be imposed

political arguments (why governments intervene in trade)

concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)

economic arguments (why governments intervene in trade)

concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)

protecting: JOBS, CONSUMERS from "dangerous products", HUMAN RIGHTS of individuals in exporting countries, IMPORTANT INDUSTRIES for NATIONAL SECURITY, ENVIRONMENT. RETALIATING to UNFAIR foreign competition, FURTHERING the GOALS of FOREIGN POLICY.

Political Arguments for Government Intervention [JC HI E Ru Fg]

protecting jobs and industries (political arguments for intervention)

the most common political reason for trade restrictions

important industries for national security (political arguments for intervention)

governments protect certain industries such as AEROSPACE or ADVANCED ELECTRONICS because they are important for this. this argument is LESS COMMON TODAY than in the past

retaliation (political arguments for intervention)

when governments take, or threaten to take, specific actions, other countries may remove trade barriers.

protecting consumers (political arguments for intervention)

protecting consumers from unsafe products is also an argument for restricting imports. often involves LIMITING OR BANNING the import of CERTAIN PRODUCTS

furthering foresight policy objectives (political arguments for intervention)

trade policy can be used to support these. PREFERENTIAL TRADE TERMS can be granted to countries that a government wants to BUILD STRONG RELATIONS WITH. roge states that do not abide by international laws or norms can be punished

Helms Burton Act and D'Amato Act

have been passed to PROTECT American companies from other countries that try to UNDERMINE UNILATERAL TRADE SANCTIONS (ban on trade)

protecting human rights (political arguments for intervention)

governments can use trade policy to improve the ______ ________ policies of trading partners. unless a large number of countries choose to take such action, however, it is unlikely to prove successful.

1) infant industry argument 2) strategic trade policy

Economic Arguments for Government Intervention in International Trade

infant industry argument (economic argument for government intervention)

suggests that an industry should be protected until it can develop an be viable and competitive internationally. this has been accepted as a justification for temporary trade restrictions under the WTO.

strategic trade policy (economic argument for government intervention)

suggests that in cases WHERE there may be important FIRST MOVER ADVANTAGES, GOVERNMENT CAN HELP firms from their countries attain these advantages. also suggests that governments can help firms OVERCOME BARRIERS to entry into industries where foreign firms have an initial advantage.

is

MOST new trade theorists believe government intervention in international trade is/isn't justified.

retaliation, domestic policies

Two situations where restrictions on trade may be inappropriate

Krugman

STRATEGIC TRADE POLICIES aimed at establishing domestic firms in a dominant position in a global industry are BEGGAR-THY-NEIGHBOR policies that BOOST NATIONAL INCOME AT THE EXPENSE of other countries

1995

Since ______ the framework known as GATT has been known as the WTO.

1846

Britain adopts free trade in ______.

Smoot-Hawley act (US)

1930 act aimed at employment protection in the U.S.

1947 Havana conference

conference led to GATT

CONSENSUS APPROACH, created FORUM (economic ministers), created PROCESS ("rounds of meetings- approximately 7), FOCUS on TARIFFS (vs non tariff barriers), FOCUS on MANUFACTURED ITEMS (vs services)

Notable Aspects of the GATT [CCCFF]

153

# of members in the GATT

EMPHASIS on TARIFFS (versus non-tariff barriers), EMPHASIS on MANUFACTURED PRODUCTS (vs. services), ECONOMIC STRAINS in global economy (1980-1993: U.S. and Japanese BOP/currency values), FUZZY WORDING/interpretation of barriers, INHERENT CONFLICTS, NO WAY TO ENFORCE compliance (no enforcement), SPOTTY COMPLIANCE

Downside of the GATT [EEE FINS]

JOBS (whose labor grows or decreases?), CAPITAL/EXCHANGE CONTROLS (who has "right" to profit?), LEGAL JURISDICTION (whose VALUES/LAWS apply?), TARIFF LEVELS (what is "fair" rate?) , OVERRIDING OBJECTIVES (better global economy or better domestic economy?), TECHNOLOGY (who has right to IP?)

Inherent Conflicts of the GATT [JCL TOT]

1) JAPAN'S ECONOMIC SUCCESS strained what had ten more equal trading patterns 2) U.S. TRADE DEFICITS caused significant problems in some industries and political problems for the government 3) many countries found that although GATT limited the use of tariffs, THERE WERE MANY OTHER FORMS OF INTERVENTION that had the same effect that DID NOT TECHNICALLY VIOLATE GATT

The world trading system came under strain during the 1980's and early 1990s because of 3 reasons

WTO CREATED, AGRICULTURAL POLICY Modified, SERVICES given PROMINENCE, TARIFFS CUT further, IP PROTECTED further, DISMANTLED MULTI-FIBER AGREEMENT

What the Uruguay Round of GATT Negotiations Did [WASTID]

ARBITRATES trade DISPUTES, IMPLEMENTS RESULTS of Rounds and other agreements and negotiations, MONITORS the TRADE POLICIES of its MEMBERS ("police"), ENFORCES GATT AGREEMENTS (enforces time limits and approves sanctions on violations aka permits tariffs by trade partners)

Role of the WTO [AIME]

153; 30

# of members in WTO; # of observers in WTO

ANTI-DUMPING POLICIES, PROTECTIONISM in AGRICULTURE, PROTECTING IP, A NEW ROUND of TALKS: DOHA, MARKET ACCESS for NONAGRICULTURAL goods and services

What the WTO is currently focusing on: [APPAM]

CUTTING TARIFFS on INDUSTRIAL GOODS and SERVICES, REDUCING BARRIERS to cross-border investment, PHASING OUT SUBSIDIES to agricultural producers, LIMITING the USE of ANTIDUMPING LAWS

DOHA is focusing on: [CRPL]

1) they RAISE THE COST of EXPORTING 2) QUOTAS limit EXPORTS 3) firms may have to LOCATE PRODUCTION ACTIVITIES within a country to MEET LOCAL CONTENT REGULATIONS 4) THE threat of FUTURE TRADE BARRIERS can INFLUENCE FIRM STRATEGY

Trade Barriers limit a firm's ability because:

foreign direct investment [[beg. of CH.7]]

occurs when a firm invests directly in new facilities to produce and/or market in a foreign country. one a firm undertakes this its becomes a multinational enterprise.

greenfield investment (form of FDI)

the establishment of a wholly new operation in a foreign country

acquisition/merging (form of FDI)

joining with an existing firm in the foreign country

flow (1/2 ways to look at FDI)

the AMOUNT of FDI undertaken over a given time

stock (1/2 ways to look at FDI)

the TOTAL ACCUMULATED VALUE of FOREIGN OWNED ASSETS at a given time

outflows of FDI

the flows of FDI out of a country

inflows of FDI

the flows of FDI into a country

have

The flow and stock of FDI in the world economy have/haven't increased over the last 20 years.

1) FIRMS still FEAR the THREAT OF PROTECTIONISM 2) GLOBALIZATION of the world economy is PROMPTING FIRMS TO UNDERTAKE FDI to ENSURE they have a significant PRESENCE in many regions of the world. 3) SHIFT toward DEMOCRATIC POLITICAL INSTITUTIONS and FREE MARKET ECONOMIES

3 Reasons why FDI has grown more rapidly than world trade and world output [FGS]:

A: They still DON'T ALLOW a lot of FDI. They make you do JOINT VENTURES in order to enter their country.

Why is Japan low in FDI?

China

South, East and Southeast Asia and particularly _____ are now seeing an increase of FDI inflows.

gross fixed capital formation

the TOTAL AMOUNT of CAPITAL INVESTED IN FACTORIES, STORES, OFFICE BUILDINGS, and the like. all else being equal, the greater this is, the more favorable its future prospects are likely to be.

U.S.

Since WW2, _________ has been the largest source country for FDI. (also, U.K., the Netherlands, France, Germany, Japan) All these also predominate in the world's largest multinationals.

U.S., but it is starting to change.

______ currently has the most FDI.

MERGERS AND ACQUISITIONS

Most cross border investment involves greenfield investments/mergers and acquisitions.

QUICKER to execute than greenfield investments, EASIER and LESS RISKY to ACQUIRE desired ASSETS than build them from ground up, BELIEVE they can INCREASE the EFFICIENCY OF AN ACQUIRED UNIT by TRANSFERRING: CAPITAL, TECHNOLOGY, MANAGEMENT SKILLS

Acquisitions are Attractive Because: [QEB]

licensing

granting a FOREIGN ENTITY the RIGHT to PRODUCE and SELL the firm's product in return for a ROYALTY FEE on every unit the foreign entity sells

exporting

PRODUCING GOODS AT HOME and then shipping them to the receiving country for sale

1) Limitations of Exporting 2) Limitations of Licensing 3) Advantages of Foreign Direct Investment

Theories of FDI

limitations of exporting (theory of FDI)

an EXPORTING strategy can be LIMITED by TRANSPORTATION COSTS and TRADE BARRIERS

1) may lead to firm GIVING AWAY TECH KNOWLEDGE to a potential FOREIGN COMPETITOR 2) LACK of CONTROL over : manufacturing, marketing and strategy 3) DIFFICULT if firm's COMPETITIVE ADVANTAGE is NOT AMENDABLE TO LICENSING

Limitations of Licensing (theory of FDI) 3 Major Drawbacks as suggested by INTERNALIZATION THEORY AKA MARKET IMPERFECTIONS

advantages of foreign direct investment (theory of FDI)

a firm will favor FDI OVER EXPORTING when TRANSPORTATION COSTS are HIGH or TRADE BARRIERS are high

1) it wants CONTROL over its TECH KNOW HOW 2) it wants CONTROL over OPERATIONS and BUSINESS STRATEGY 3) it's CAPABILITIES are NOT AMENDABLE to LICENSING

A Firm Will Favor FDI over Licensing When:

1) transportation costs are high or 2) trade barriers are high

A Firm Will Favor FDI over Exporting When:

1) strategic behavior (is similar) 2) the product life cycle (direct their investment activities towards certain locations at certain stages in the PLC)

2 Phenomena in The Pattern of FDI

oligopolistic industries

industries composed of a LIMITED NUMBER of LARGE FIRMS

strategic behavior [theory] (1/2 patterns of FDI)

Knickerbocker explored the RELATIONSHIP between FDI and RIVALRY in OLIGOPOLISTIC INDUSTRIES. FDI FLOWS are a REFLECTION of STRATEGIC RIVALRY between firms in the global marketplace. this theory can be extended to embrace the concept of MULTIPOINT COMPETITION.

multipoint competition

when two or more enterprises ENCOUNTER EACH OTHER in DIFFERENT REGIONAL MARKETS, NATIONAL markets or INDUSTRIES

the product life cycle [theory] (1/2 patterns of FDI)

Vernon- firms undertake FDI at PARTICULAR STAGES in the life cycle of a product they have PIONEERED. firms INVEST IN OTHER ADVANCED COUNTRIES when LOCAL DEMAND in those countries GROWS LARGE enough to support local production. firms THE SHIFT PRODUCTION to LOW COST developing countries when PRODUCT STANDARDIZATION and MARKET SATURATION give rise to PRICE COMPETITION and cost pressure.

eclectic paradigm [theory]

Dunning- in addition to the various factors discussed in PLC theory and strategic behavior theory, 2 ADDITIONAL FACTORS must be considered when explaining both the rational for and the direction of FDI: LOCATION SPECIFIC ADVANTAGES and EXTERNALITIES

location specific advantages

arises from using RESOURCE ENDOWMENTS or ASSETS that are TIED to a PARTICULAR LOCATION and that a firm finds VALUABLE to combine with its own unique assets

externalities

KNOWLEDGE SPILLOVERS that occur when companies in the SAME INDUSTRY locate in the same area

radical view

the MNE is an instrument of IMPERIALIST DOMINATION and a TOOL for EXPLOITING HOST COUNTRIES to the exclusive benefit of their capitalist-imperialist home countries

POOR ECONOMIC PERFORMANCE of the countries that adopted it, COLLAPSE of COMMUNISM in EASTERN EUROPE, STRONG ECONOMIC PERFORMANCE of developing countries that EMBRACE CAPITALISM

The Radical View has Been in Retreat Because of: [PCS]

free market view

INTERNATIONAL PRODUCTION should be DISTRIBUTED among countries ACCORDING to the THEORY OF COMPETITIVE ADVANTAGE. MNE increases the overall efficiency of the world economy.

pragmatic nationalist view

FDI has BOTH BENEFITS, such as inflows of capital, technology, skills and jobs AND COSTS, such as repatriation of profits to the home country and a negative balance of payments effect. FDI should ONLY be ALLOWED IF the BENEFITS OUTWEIGH THE COSTS.

BALANCE of PAYMENTS effect, RESOURCE TRANSFER effect, EMPLOYMENT effect, COMPETITION and ECONOMIC GROWTH effect

The 4 Main HOST COUNTRY Benefits of Inward FDI [BREC]

resource transfer effects (host country benefits)

FDI can bring CAPITAL, TECHNOLOGY and MANAGEMENT RESOURCES that would otherwise not be available

employment effects (host country benefits)

FDI can bring jobs that wold otherwise not be created there

balance-of-payments effects

FDI can help achieve a CURRENT ACCOUNT SURPLUS if the FDI is a SUBSTITUTE for IMPORTS OF GOODS and SERVICES. and if the MNE uses a FOREIGN SUBSIDIARY to EXPORT goods and services to OTHER COUNTRIES.

balance of payments account

a RECORD of a COUNTRY'S PAYMENTS to and RECEIPTS from other countries

current account

a RECORD of a COUNTRY'S EXPORT and IMPORT of goods and services. a current account SURPLUS is usually FAVORED over a deficit

effect on competition and economic growth (host country benefits)

FDI in the form of GREENFIELD investment: INCREASES the LEVEL OF COMPETITION in a market, DRIVES DOWN PRICES, IMPROVES THE WELFARE of consumers. Increased competition can lead to: increased productivity growth, product and process innovation, greater economic growth.

BALANCE of PAYMENTS effect, LOSS of NATIONAL SOVEREIGNTY and AUTONOMY, COMPETITION WITHIN HOST NATION adverse effect

3 Main HOST COUNTRY Costs of Inward FDI [BLC]

adverse effects on competition (host country cost)

the SUBSIDIARIES of foreign MNEs may have GREATER ECONOMIC POWER than indigenous competitors because they may be part of a larger international organization

adverse effects on the balance of payments (host country cost)

there are two possibilities of this: 1) with the initial capital inflows that come with FDI, must be the SUBSEQUENT OUTFLOW of CAPITAL as the foreign subsidiary repatriates earnings to its parent country 2) when a FOREIGN SUBSIDIARY IMPORTS a substantial number of its INPUTS from ABROAD, there is a debit on the current account of the host country's balance of payments

national sovereignty and autonomy (host country cost)

FDI can mean some loss of ECONOMIC INDEPENDENCE.

BALANCE of PAYMENTS: CAPITAL ACCOUNT: INWARD FLOW of foreign earnings, EMPLOYMENT EFFECTS, GAINS from LEARNING VALUABLE SKILLS from FOREIGN MARKETS

3 Main HOME COUNTRY Benefits to FDI [BEG]

BALANCE of PAYMENTS , EMPLOYMENT EFFECTS

HOME COUNTRY Costs to FDI [BE]

balance of payments (home country cost to FDI)

the MOST IMPORTANT CONCERNS for the HOME COUNTRY center around this.

employment effects of outward FDI (home country cost to FDI)

if the home country is suffering from unemployment, there may be concern about the export of jobs

offshore production

FDI undertaken to serve the home market

international trade theory

home country concerns about the negative economic effects of offshore production. FDI may actually STIMULATE ECONOMIC GROWTH by FREEING HOME COUNTRY RESOURCES to concentrate on activities where the home country has a COMPARATIVE ADVANTAGE. CONSUMERS may also benefit in the form of LOWER PRICES

RELAXED RESTRICTIONS on INBOUND FDI, ELIMINATED DOUBLE TAXATION of FOREIGN INCOME, GOVERNMENT-BACKED INSURANCE PROGRAMS to cover major ties of foreign investment risk

Home Country Policies to Encourage Outward FDI [REG]

MANIPULATE TAX RULES to make it MORE FAVORABLE for FIRMS to INVEST AT HOME, RESTRICT FIRMS from investing in CERTAIN NATIONS for political reasons

Home Country Policies to Restrict Outward FDI [MR]

INCENTIVES offered to FOREIGN FIRMS to invest in their country (motivated by desire to gain from resource transfer effect and employment effects)

Host Country Policies to Encourage Inward FDI [I]

PERFORMANCE REQUIREMENTS used to MAXIMIZE BENEFITS and MINIMIZE COSTS of FDI for HOST COUNTRY, OWNERSHIP RESTRAINTS used to EXCLUDE FOREIGN FIRMS from CERTAIN SECTORS on grounds of NATIONAL SECURITY/COMPETITION, OWNERSHIP RESTRAINTS and PERFORMANCE REQUIREMENTS used to restrict FDI.

Host Country Policies to Restrict Inward FDI [POO]

direction of FDI

The location-specific advantages argument associated with Dunning help explain the ________ of _____.

prefer FDI to licensing or exporting.

The internalization theory is needed to explain why firms ................ .

PROPRIETARY PROPERTY CANNOT be properly PROTECTED by a LICENSING AGREEMENT, TIGHT CONTROL needed over a FOREIGN ENTITY in order to MAXIMIZE its MARKET SHARE and EARNINGS in that country, SKILLS and CAPABILITIES are NOT AMENABLE to LICENSING

Licensing is Unattractive When: [PTS]

GOVERNMENT VALUES what the firm has to offer, FEW COMPARABLE ALTERNATIVES available, FIRM has LONG TIME to NEGOTIATE [[end of CH.7]]

A Firm's Bargaining Power with the Host Government is Highest When: [GFF]

when- to enter the market, where-which markets to enter, how-on what scale to enter the market [[beg of CH.12]]

A firm expanding internationally must decide 3 things:

POLITICALLY STABLE DEVELOPED and DEVELOPING nations with FREE MARKET SYSTEMS, LOW INFLATION and LOW private sector DEBT

The most favorable markets are:

POLITICALLY UNSTABLE DEVELOPING nations with MIXED/COMMAND ECONOMIES, or developing nations where SPECULATIVE FINANCIAL BUBBLES had led to EXCESS BORROWING

The less desirable markets are:

have not yet been widely available in the market ; satisfy and unmet need.

Successful firms usually offer products that ........ and that ..........

early entry

when an international business enters a foreign market BEFORE OTHER FOREIGN FIRMS

late entry

when a firm enters AFTER OTHER INTERNATIONAL BUSINESSES HAVE ALREADY ESTABLISHED themselves in the market

first mover advantages

ability to pre-empt rivals and capture demand by establishing a STRONG BRAND NAME, the ability to BUILD UP SALES VOLUME in that country and RIDE down the EXPERIENCE CURVE AHEAD of RIVALS and gain a cost advantage per later entrants, the ability to CREATE SWITCHING COSTS that TIE CUSTOMER INTO their products or services making it difficult for later entrants to win business.

first mover disadvantages

the disadvantages associated with entering a foreign market BEFORE other international businesses. these may result in PIONEERING COSTS

pioneering osts

costs that an early entrant has to bear that a later entrant can avoid

Exporting (indirect, direct), Joint Venture (licensing and franchising, management and contracts, manufacturing contracts, turn-key projects), FDI (ownership arrangements [also a form of JV], acquisition, greenfield)

Mode of Entry in order of least involvement to greater involvement.

LEAST COMPLEX, ENABLES INCREMENTAL GROWTH, EXPERIENCE CURVE and EOS

Advantages of Exporting [LEE]

POLITICAL/LEGAL BARRIERS, COSTS (transportation tariffs), LIMITS LOCAL KNOWLEDGE/CONTROL

Disadvantages of Exporting [PCL]

1) as FUNDAMENTAL ASPECT of a CENTRALIZED PRODUCTION STRATEGY 2) for INITIAL EXPLORATION of INTERNATIONAL MARKETS 3) as a REGIONAL STRATEGY for SMALL MARKETS

Exporting is appropriate for/when.... [FIR]

RAPID EXPANSION, LOW RISK, LOW COST

Advantages of Licensing [RLL]

POSSIBLE LOSS of IP, CREATE COMPETITION?, LIMITED LOCAL CONTROL, DIMINISHES GLOBAL COORDINATION

Disadvantages of Licensing [PCLD]

1) RAPID DIFFUSION of PRODUCT/BUSINESS MODEL 2) in NONSTRATEGIC LOCATIONS or with LIMITED DEMAND 3) LIMITED INVESTMENT FUNDS 4) with NON-ESSENTIAL PROCESSES or TECHNOLOGY (or where legal/practical protection is possible/strong) 5) in HIGH-RISK or HIGHLY SPECIFIC local business 6) when there are SIGNIFICANT TRADE BARRIERS

Licensing is appropriate for/when... [RN LN HS]

franchising

operates business under name of a _______. pays FEE, and RECEIVES SUPPLIES, TRAINING and TECHNICAL SUPPORT, includes BRAND NAME, OPERATING SYSTEM, ADVERTISING, REPUTATION, QUALITY CONTROL, etc.

CONSUMER GOODS/DISTRIBUTION/SERVICES

Franchising is appropriate for/when.....

management contracts

leverage industry knowledge; "RENT" MANAGEMENT SERVICES; few risks, obligations

contract manufacturing

LOW COST/high flexibility; LOW CONTROL over operations

turn-key projects

DESIGN, CONSTRUCT, EQUIP facility for LOCAL FIRM/GOVERNMENT; usually complex projects

1) BASIC OPERATIONAL or KNOWLEDGE component MISSING by BOTH PARTIES 2) REGULATORY TRADE BARRIERS 3) SIGNIFICANT INVESTMENT REQUIREMENTS (share costs of: manufacturing efficiency, development costs, shared distribution)

FDI: Ownership Joint-Venture is appropriate when: [BRS]

1) when CONTROL of BRAND/PRODUCTS/PROCESSES or TECHNOLOGY is KEY to COMPETITIVE ADVANTAGE 2) in STRATEGIC COUNTRIES/LARGE MARKETS 3) when there are SIGNIFICANT GOVERNMENT INCENTIVES

Wholly-Owned/Subsidiary is appropriate when: [CSS]

greenfield

start from scratch and have less baggage than acquisition; acclimate at own pace, customize to firm's needs

acquisition

acquire all the good and the bad and have less time to begin operations that greenfield; country expertise; integration challenges

TRANSPORT/TARIFF COSTS, INITIAL INVESTMENT REQUIRED, PROTECT COMPETITIVE ADVANTAGE/TECHNOLOGY,SPEED TO START UP, FINANCIAL RETURN POTENTIAL, ABILITY TO COORDINATE GLOBAL OPERATIONS, STRATEGIC LOCATION ADVANTAGES, TRADE/INVESTMENT BARRIERS, LOCAL CONTROL/RESPONSIVENESS, INCENTIVES, CREATE COMPETITOR, LEVEL OF EXPERTISE REQUIRED [[end of CH.12]]

Choice Issues [TIPS FAST LICL]

regional economic integration [[beg. of CH. 8]]

agreements between countries in a GEOGRAPHIC REGION to REDUCE tariff and non-tariff barriers to free flow of goods, services, and factors of production between each other. in theory, this benefits ALL MEMBERS. in the LAST TWO DECADES the number of these has been on the rise.

free trade area

all BARRIERS TO TRADE of GOODS AND SERVICES among member countries are removed, but members DETERMINE their OWN TRADE POLICIES with regard to NONMEMBERS. Ex: EUROPEAN FREE TRADE ASSOCIATION (Norway, Iceland, Liechtenstein, Switzerland) & NAFTA

customs union

ELIMINATES TRADE BARRIERS BETWEEN member countries and adopts a COMMON EXTERNAL TRADE POLICY. most countries that enter this, desire further integration in the future. Ex: Andean Pact (Bolivia, Colombia, Ecuador, Venezuela, Peru)

common market

NO BARRIERS TO TRADE between member countries, a COMMON EXTERNAL TRADE POLICY and the FREE MOVEMENT OF THE FACTORS OF PRODUCTION. can be difficult to achieve and requires significant harmony among members in fiscal, monetary and employment policies. Ex: MERCOSUR (Brazil, Argentina, Paraguay, Uruguay)

economic union

involves the FREE FLOW OF PRODUCTS AND FACTORS OF PRODUCTION between members, the adoption of a COMMON EXTERNAL TRADE POLICY, and in addition, a COMMON CURRENCY, HARMONIZATION of the member countries' TAX RATES, and COMMON MONETARY and FISCAL POLICY. sacrifice a significant amount of national sovereignty . Ex: European Union (EU)

political union

independent states are combined into a SINGLE UNION . requires that a CENTRAL POLITICAL APPARATUS coordinate ECONOMIC, SOCIAL AND FOREIGN POLICY for member states. Ex: U.S. / The EU is headed toward at least partial this.

Canada, Mexico, U.S.

members of NAFTA

BRAZIL, ARGENTINA, PARAGUAY, URUGUAY, BOLIVIA, ECUADOR, CHILE, COLOMBIA, PERU, VENEZUELA

members of MERCOSUR [BAPU BECC P V]

BELIZE, COSTA RICA, DOMINICAN REPUBLIC, EL SALVADO, NICARAGUA, PANAMA, GUATEMALA, HONDURAS

members of CACM (Central American Common Market) [BC DEN PG H]

BRUNEI, CAMBODIA, MALAYSIA, INDONESIA, LAOS, SINGAPORE, MAYANMAR, THAILAND, VIETNAM, PHILLIPINES

members of ASEAN (Association of Southeast Asian Nations) [BC MILS MTV P]

...

members of EU (European Union)

tariffs -> quotas -> mobility of capital and labor -> economic issues -> political issues

For economic integration, agreements regard (in order of progression):

trade creation

HIGH COST DOMESTIC PRODUCTION and LOW COST TRADE AGREEMENT PARTNER

trade diversion

LOW COST NON-AGREEMENT TRADE PARTNER and HIGH COST TRADE PARTNER

REGIONAL/BILATERAL AGREEMENTS (VERs) ,CONSENSUS, ANTIDUMPING, NEGOTIATION STALEMATE/ECONOMIC TENSIONS, NORTH/SOUTH TENSIONS AND DISPUTES (market access, agricultural policy, pharmaceutical industry, intellectual property) , TRANSPARENCY

Key Challenges for WTO [R CANNT]

HASN'T WORKED for DEVELOPING COUNTRIES--UNDERMINES INITIAL STAGES of DEVELOPMENT, UNDERMINES NATIONAL SOVEREIGNTY and thus, legitimate trade barriers, RICH COUNTRY CLUB

Major Criticism of the WTO [HUR]

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