84 terms

International Business 4

Free Trade
national government should exert minimal influence on the exporting and importing decisions of private firms and individuals
Fair Trade
aka managed trade the national government should actively intervene to ensure that domestic firms; exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries
national defense argument
a country must be self-sufficient in critical raw materials, machinery, and technology, or else be vulnerable to foreign threats
infant industry argument
a country's new industry must be given time to mature in order to compete with more mature foreign competition, and thus must be given temporary protection
strategic trade theory
new models that justify government trade intervention, by assuming that the market can only support a few firms worldwide, because of high development costs or a strong experience curve, and that national governments will be better off if trade policies that improve the competitiveness of domestic firms are adopted
export promotion strategy
country encourages firms to compete in foreign markets by harnessing some advantage the country possesses, such as low labor costs
import substitution strategy
encourages growth of domestic manufacturing industries by erecting high barriers to imported goods
industrial policy
a government identifies key domestic industries critical to the country's future economic growth and then formulates programs that promote their competitiveness. Ideal situation is when firms get large market shares in important growth markets globally
public choice
branch of economics that analyzes public decision making, the special interest will often dominate the general interest on any given issue for a simple reason: special interest groups care more than general public does
tax placed on a good that is traded internationally. imposed for 2 reasons: raise revenue for the national government or trade barrier
export tariff
levied as goods leave the country
transit tariff
levied as goods pass through one country bound for another
import tax
most important, levied as a good enters the country for resale
ad valorem tariff
assessed as a percentage of the market value of the imported good
specific tariff
assessed as a specific dollar amount per unit of wight or other standard measure
compound tariff
has both an ad valorem and specific component
harmonized tariff schedule
(HTS) detailed classification scheme for imported for imported goods
nontariff barrier
(NTB) any kind of government regulation, policy, or procedure other than a tariff that has the effect of impeding international trade
a numerical limit on the quantity of a good that may be imported into a country during some time period. Usually used to protect politically powerful industries
tariff rate quota
(TRQ) imposes a low tariff rate on a limited amount of imports of a specific good; above that threshold, a TRQ imposes a prohibitively high tariff rate on the good
voluntary export restraint
(VER) a promise by a country to limit its exports of a good to another country to a pre-specified amount or percentage of the effected market; usually done to resolve/avoid trade conflicts with an otherwise friendly trade partner
absolute ban on the exporting/importing of goods to a particular destination
public sector procurement
policy that mandates that public sector expenditures must go to domestic companies
local purchase requirements
policy that mandates firms to purchase foods or services from local suppliers
regulatory controls
health and safety inspections, environmental laws, licensing requirements
currency controls
double exchange rates for currency: exporters get a good deal, importers get a raw deal
investment controls
governmental mandates that prevent foreign ownership of key industries (airlines, media) usually for defense purposes
governmental payments to firms in order to lower their costs of doing business
Foreign Trade Zone
a geographic area where imported of exported goods receive preferential tariff treatment
a factory located in an FTZ in Mexico, usually situated near the US border
Export-Import Bank of the United States
(Eximbank) provides financing for US exports through direct loans and loan guarantees
Countervailing Duty
(CVD) ad valorem tariff on an imported good that is imposed by the importing country to counter the impact of foreign subsidies
occur when a firm sells its goods in a foreign market at a price below what it charges in its home market
escape clauses
aka safegaurd clauses, allow countries to erect temporary measures to protect themselves from sudden surges in imported goods, allowing domestic economies to adjust
General Agreement on Tariffs and Trade
(GATT) fought to reduce barriers to international trade, signed at the Havana conference. Replaced by WTO
most favored nation principle
(MFN) which requires that any preferential treatment granted to one country must be extended to all countries
general system of preferences
(GSP) ability to lower tariffs to developing countries without lowering them for more developed countries
Uruguay Round
agreement establishes WTO, cut tariffs on imported goods as well as focusing on NTB's (abolishing quotas)
World Trade Organization
(WTO): promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies

reduce remaining trade barriers through multilateral negotiations

Establish impartial procedures for resolving trade disputes amoung members
national treatment
when a country treats foreign firms the same way it treats domestic firms
trade balancing rules
countries may not require foreign investors to limit their imports of inputs to an amount equal to their exports of local production
foreign exchange access
countries may not restrict foreign investors access to foreign exchange
domestic sales requirements
countries may not require the investor to sell a percentage of a factory's output in the local market
free trade area
encourages trade among its members by eliminating trade barriers (tariffs, quotas, and other NTBs) among the member countries
trade deflection
a scenario where nonmembers of a free trade area reroute their exports to the member nation with the lowest external trade barriers
rules of origin
detail the conditions under which a good is classified as a member good or a nonmember good
customs union
eliminates internal trade barriers among its members while also adopting common external trade policies toward nonmembers
common market
eliminates trade barriers, adopts a common external trade policy toward nonmembers, eliminates barriers that inhibit the movement of factors of production (land, labor, and capital) among its members
economic union
full integration of the economies of two or more countries. eliminates internal trade barriers, adopts common external trade policies, abolishes restrictions on the mobility of factors of production among members, also requires its members to coordinate their economic policies (monetary & fiscal policy, taxation, and social welfare programs) in order to blend economies into a single entity
political union
the process of two countries becoming one country
Benelux Nations
Belgium, Netherlands, Luxembourg
Treaty of Rome
establishes the European Economic Community calls for development of a common market among the six member states
Treaty of Maastricht
turns EEC into EU
European Council
consists of the heads of government or of state of each of the member states, the President of the European Council, and the President of the European Commission
Council of the European Union
composed of 27 representatives each selected directly by an responsible to his or her home government. which representative a country sends to a meeting depends on the agenda. This is the most powerful decision making body in the EU. some decisions (entry of new members, taxation, foreign and security policy initiatives, and amending EU treaties) require unanimous approval. others that are less crucial, only require a qualified majority (weighted voting system)
European Commission
27 people, one from each member state, selected for 5 year terms. loyalty of members is to EU as whole, not home country. Administrative branch, and manages budget
European Parliament
736 representatives elected in national elections to serve five year terms. seats allocated roughly by population
European Court of Justice
27 judges, 6 year terms. selected jointly by the governments of the member states. interpret EU law and ensure that members follow EU regs and policy
Co-Decision Procedure
Introduced by the 1992 Treaty of Maastricht puts the Parliament on an equal footing with the Council when legislating on a whole series of important issues including the free movement of workers, the internal market, education, research, the environment, trans-European networks, health, culture, consumer protection, etc. The European Parliament has the power to throw out proposed legislation in these fields if an absolute majority of members of Parliament vote against the Council's 'common position'. The Treaty has made provision for a conciliation procedure.
region wide regulations to govern trade within an economic union
mutual recognition
if one member state determines that a product is appropriate for sale, then all of the members are also obliged to do so under the provision of the Treaty of Rome
Treaty on European Union
Maastricht Treaty
Cohesion Fund
a means of funneling economic development aid to countries whose per capita GDP is less than 90% EU average
Economic and Monetary Union
major task is to create a single currency (euro) to replace national currencies
Convergence Criteria
1. Inflation no more than 1.5 points above the average rate of the three members with lower inflation
2. Long term interest rates no more than 2 % above avr. rate of three lowest members
3.Budget deficit 3% of GDP or less
4. Government debt 60% of GDP or less
5. Currency within EMS trading banks for two years

All 5 must be met in order to adopt the euro
European Central Bank
responsible for controlling the eurozone's money supply, interest rates, and inflation
Stability and Growth Pact
eurozone participants have agreed to limit their annual government deficits to no more than 3% of their GDPs, severely curtailing ability to use fiscal policy to promote economic growth
Treaty of Amsterdam
It builds on the achievements of the treaty of Maastricht. It amended and renumbered the EU and EC Treaties. Consolidated versions of the EU and EC Treaties are attached to it. It lays down plans to reform EU institutions, to give Europe a stronger voice in the world, and to concentrate more resources on employment and the rights of citizens.
Treaty of Nice
2003. reformed the institutional structure of the European Union to withstand eastward expansion. The Treaty provided for an increase after enlargement of the number of seats in the European Parliament to 732, which exceeded the cap established by the Treaty of Amsterdam. the Treaty providing that once the number of Member States reached 27, the number of Commissioners appointed in the subsequent Commission would be reduced by the Council to below 27, but without actually specifying the target of that reduction. Opponents of the Treaty claimed that it was a "technocratic" rather than "democratic" treaty, which would further diminish the sovereignty of national and regional parliaments, and would further concentrate power into a centralized and unaccountable bureaucracy. They also claimed that five applicant countries could have joined the EU without changing the EU's rules.
Treaty of Lisbon
(2009) Designed to make the E.U. more democratic, efficient, and transparent, and thereby able to tackle global challenges such as climate change, security, and sustainable development.
European Free Trade Association
Iceland, Liechtenstein, Norway, and Switzerland
European Economic Area
An agreement, entered into force on 1 January 1994, which links Iceland, Norway and Liechtenstein to the European Union Internal Market.
screwdriver plant
factory where very little transformation of a product is undertaken
North American Free Trade Agreement (NAFTA) is a pact that unites Canada, Mexico, and the United States in one of the world's largest free-trade zones. It builds on a free-trade agreement between the United States and Canada that became effective in 1989
Caribbean Basin Initiative
President Reagan's program that was created over concern over communist expansion to Latin America. It was a plan of economic and technical assistance in order to help in improve conditions of the 28 nations within and/or on the border of the Caribbean. It warned that the US must act in order to defend freedom so that no more "Cubas" may be created.
Mercosur Accord
Argentina, Brazil, Paraguay, and Uruguay customs union. Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela are associate members
Andean Community
Bolivia, Columbus, Ecuador, Peru, Venezuela
Customs union
Abolished foreign exchange, financial and fiscal incentives, and export subsidies
Established common external tariffs.
most effective economic union in the world
The Association for the Southeast Asian Nations formed in 1967 to promote the prosperity and political stability of its member nations. Currently Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam are members. Other countries in the region participate as "observer" members.
1. ASEAN Free Trade Area- multilateral agreement on trade, including agricultural trade, between Association of South-east Asian Nations
2. - relax trade barriers amongst member countries in order to achieve direct trade benefits.
- created to promote regional integration
- didnt change direction of trade: unwilling to provide ASEAN secretaries with resources to carry out tasks/ reluctant to integrate
a group of 21 Asia-Pacific nations including Australia that have an informal agreement to achieve free trade among its members by 2010 for developed economies and by 2020 for developing economies
Southern African Development Community, founded in 1980, 9 origional members, south africa is newest member, seeks to co-ordinate transport services and industrial development
Economic and Monetary Community of Central Africa, comprising five members of the Franc zone Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea,Chad
the Economic Community of West African States, formed in 1975 to improve trade within Western Africa and with countries outside the region.