Chapter 8
Cross-National
Cooperation and
Agreements
7-1
Learning Objectives




Discuss the three major approaches to economic
integration
Identify the major characteristics and challenges
of the World Trade Organization
Discuss the pros and cons of global (the WTO),
bilateral, and regional integration
Identify how the different approaches to
economic integration can be a free trade
agreement, a customs union, or a common
market
Copyright © 2015 Pearson Education, Inc.
7-2
Learning Objectives
Describe the static and dynamic impact of
trade agreements on trade and investment
flows
 Compare and contrast different regional
trading groups
 Describe other forms of global cooperation
such as the United Nations and OPEC

Copyright © 2015 Pearson Education, Inc.
8-3
Introduction

Economic integration

the political and monetary agreements among
nations and world regions in which preference
is given to member countries
Bilateral integration
 Regional integration
 Global integration

Copyright © 2015 Pearson Education, Inc.
7-4
The World Trade Organization

World Trade Organization (WTO)

The major body for
 reciprocal trade negotiations
Reciprocal trade agreement, international commercial
treaty in which two or more nations grant equally
advantageous trade concessions to each other. It
usually refers to treaties dealing with tariffs. For
example, one nation may grant another a special
schedule of tariff concessions in return for equivalent
advantages. Originally reciprocity agreements involved
bilateral tariff reductions that were not to be extended
to third countries.
Copyright © 2015 Pearson Education, Inc.
7-5
The World Trade Organization

World Trade Organization (WTO)


The major body for
 reciprocal trade negotiations
 enforcement of trade agreements
General Agreement on Tariffs and
Trade (GATT)
Copyright © 2015 Pearson Education, Inc.
7-6
GATT: Predecessor to the WTO

GATT


Most favored nation (MFN) clause


formed in 1947 to abolish quotas and reduce
tariffs
trade without discrimination
Ran into problems:
Craftier complex methods of trade protection
 Trade in services grew exponentially


Succeeded by WTO in 1995
Copyright © 2015 Pearson Education, Inc.
7-7
What Does The WTO Do?

WTO



continues the MFN clause of GATT
provides a mechanism for dispute settlement
 Doha Round
 agricultural subsidies
Criticized for



failing to pay enough attention to labor and
environmental concerns
undermining global diversity
benefitting rich at the expense of the poor
Copyright © 2015 Pearson Education, Inc.
7-8
The Rise Of
Bilateral Agreements

Bilateral agreements


can be between two individual countries or can
involve one country dealing with a group of
other countries
Also known as

Preferential trade agreements (PTAs)
A preferential trade area (also preferential trade
agreement, PTA) is a trading bloc that gives preferential
access to certain products from the participating countries.
This is done by reducing tariffs but not by abolishing them
completely. A PTA can be established through a trade pact.

Free trade agreements (FTAs)
Copyright © 2015 Pearson Education, Inc.
7-9
The Rise Of
Bilateral Agreements

Also known as
Free trade agreements (FTAs)
A free-trade area is the region encompassing
a trade bloc whose member countries have
signed a free trade agreement (FTA).
Such agreements involve cooperation between
at least two countries to reduce trade barriers –
import quotas and tariffs – and to
increase trade of goods and services with each
other.

Copyright © 2015 Pearson Education, Inc.
7-10
Regional Economic Integration

Regional trade agreements


integration confined to a region and involving
more than two countries
Examples include





European Union (EU)
European Free Trade Area (EFTA)
North American Free Trade Area (NAFTA)
Association of Southeast Asian Nations
(ASEAN)
Common Market of Eastern and Southern
Africa (COMESA)
Copyright © 2015 Pearson Education, Inc.
7-11
Regional Economic Integration

Major types of economic integration



Free trade area
 no internal tariffs
Customs union
 no internal tariffs plus common external
tariffs
Common market
 customs union plus factor mobility
Copyright © 2015 Pearson Education, Inc.
7-12
The European Union

European Union (EU)





changed from the European Economic
Community to the European Community to the
European Union
the largest and most successful regional trade
group in the world
provides free trade of goods, capital, and
people
uses common external tariffs
has a common currency
Copyright © 2015 Pearson Education, Inc.
7-13
The European Union

Companies doing business in the EU need
to



determine where to produce products
determine what their entry strategy will be
balance the commonness of the EU with
national differences
Copyright © 2015 Pearson Education, Inc.
7-14