Ch2

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Ch2

  1. 1. THE INTERNATIONAL TRADING ENVIRONMENT Session 2
  2. 2. GLOBAL TRADE FLOWS
  3. 3. PERCENTAGE OF THE TOTAL OF WORLD EXPORTS IN MERCHANDISE (2007) Country Germany United States China Japan France Netherlands Britain Italy Canada Belgium Percentage % 9.3 8.7 7.3 3.4 4.4 3.9 3.7 3.5 3.4 3.9 Source: WTO.org
  4. 4. % Changes On Previous Year: CONSUMER PRICES AND REAL GDP/GNP 2007 Country Argentina Australia Belgium Brazil Canada China Czech Rep France Germany Hong Kong India Italy Japan Malaysia % inflation rate 9.8 2.8 1.8 3.7 2.0 2.1 3.3 1.4 1.4 2.5 6.1 1.9 0.4 3.4 % growth rate 6.3 2.9 2.1 3.3 2.4 10.4 4.8 2.0 1.6 5.0 9.2 1.2 1.9 5.2 Source: The Economist (2007) Country Mexico Netherlands Poland Russia Singapore South Africa South Korea Spain Taiwan Thailand Turkey UK USA Venezuela EU % inflation rate 3.8 1.7 2.5 9.2 1.0 5.6 2.3 2.7 1.5 3.6 8.6 2.2 2.2 17.0 2.0 % growth rate 3.2 2.3 4.7 6.5 5.0 4.2 4.2 3.0 3.9 4.3 4.0 2.4 2.2 5.5 2.0
  5. 5. Trade Balance in Merchandise Trade 2007 Source: World Bank: World Development Indicators (2007) US $ Billion Argentina Australia Brazil China Germany Hong Kong Japan Mexico Malaysia +12.4 -9.4 +46.1 +177.5 +203.0 -17.9 +79.6 -5.8 +28.6 Netherlands Poland Russia Spain Taiwan Turkey UK USA EU +39.4 -4.1 +140.8 -112.8 +21.3 -53.2 -152.2 -837.2 -15.7
  6. 6. COMPARATIVE ADVANTAGE <ul><li>Achieving Comparative Advantage </li></ul><ul><ul><li>sustained period of investment </li></ul></ul><ul><ul><li>lower labour cost </li></ul></ul><ul><ul><li>proximity to raw materials </li></ul></ul><ul><ul><li>subsidies to help native industries </li></ul></ul><ul><ul><li>building expertise in certain key areas </li></ul></ul><ul><li>Building National Advantage (Porter, 1990) </li></ul><ul><ul><li>factor conditions </li></ul></ul><ul><ul><li>demand conditions </li></ul></ul><ul><ul><li>related and supporting industries </li></ul></ul><ul><ul><li>firm strategy, structure and rivalry </li></ul></ul>Source: Porter (1990) The Competitive Advantage of Nations
  7. 7. Market Entry Barriers
  8. 8. WORLD TRADING INSTITUTIONS <ul><li>Initiatives from the Bretton Woods Agreement, 1944 </li></ul><ul><ul><li>World Bank (IBRD) </li></ul></ul><ul><ul><ul><li>Currently 150 member countries </li></ul></ul></ul><ul><ul><ul><li>Provides financial and technical help for the development of poorer countries </li></ul></ul></ul><ul><ul><li>International Monetary Fund (IMF) </li></ul></ul><ul><ul><ul><li>Provides short-term international liquidity to countries with Balance of Payments difficulties </li></ul></ul></ul><ul><ul><li>World Trade Organisation (WTO) </li></ul></ul><ul><ul><ul><li>Evolved from GATT (treaty) </li></ul></ul></ul>
  9. 9. WORLD TRADE ORGANISATION <ul><li>The WTO promotes trade by: </li></ul><ul><ul><li>Working to reduce tariffs </li></ul></ul><ul><ul><li>Prohibiting import/export bans and quotas </li></ul></ul><ul><ul><li>Eliminating trade discrimination </li></ul></ul><ul><ul><li>Eliminating non tariff barriers </li></ul></ul>
  10. 10. Trade liberalization ‘rounds’ Latest two <ul><li>The Doha Round </li></ul><ul><ul><li>Commenced 2001 </li></ul></ul><ul><ul><li>Called the ‘development round’ </li></ul></ul><ul><ul><ul><li>+75% of WTO members are developing countries </li></ul></ul></ul><ul><ul><ul><li>LDC's face greater barriers than DC's </li></ul></ul></ul><ul><ul><ul><li>Key problem areas - textiles & agriculture </li></ul></ul></ul><ul><ul><ul><ul><li>Accounting for 70% of LDC exports </li></ul></ul></ul></ul><ul><ul><li>Ave.tariff on textiles are <20% against <3% on industrialised goods </li></ul></ul><ul><ul><li>In EU & US agricultural subsidies = $1 billion per day </li></ul></ul><ul><ul><ul><li>6x annual amount spent by them on aid </li></ul></ul></ul><ul><li>The Uruguay Round </li></ul><ul><ul><li>107 participants </li></ul></ul><ul><ul><li>Most complex ever attempted </li></ul></ul><ul><ul><ul><li>15 sectors </li></ul></ul></ul><ul><ul><ul><li>US$1 trillion of trade </li></ul></ul></ul>
  11. 11. MAIN TYPES OF TRADE ASSOCIATIONS Type Economic co-operation Bi-lateral or multi-lateral trade treaty Sectoral free trade agreement Trade preference agreement Free trade area (or agreement) Customs union Common market Economic union Political Common external tariff No No No No No Yes Yes Yes Yes Free movement of capital and people No No No No No Possibly Yes Yes Yes Example Canada - EC framework agreement, APEC The Peru, Chile accord The multi-fibre agreement South African Development Cone (SADC) ASEAN NAFTA Mercosur Economic Community of West African States European Single Market European Monetary Union Would resemble federal states (e.g. US, Canada, Germany)
  12. 12. REGIONAL TRADING AREAS OF THE WORLD
  13. 13. MAJOR CHANGES IN THE SINGLE EUROPEAN MARKET <ul><li>Removal of tariff barriers </li></ul><ul><li>Removal of technical barriers </li></ul><ul><li>Public procurement </li></ul><ul><li>Free movement of labour and workers’ rights </li></ul><ul><li>Opening up of professions </li></ul><ul><li>Financial services </li></ul><ul><li>Transport, haulage and coastal carriage </li></ul><ul><li>Company law </li></ul><ul><li>Fiscal barriers </li></ul><ul><li>The environment </li></ul>
  14. 14. European Monetary Union STRATEGIC IMPLICATIONS <ul><li>Price and wage transparency </li></ul><ul><li>Consumers can shop for ‘best deals’ </li></ul><ul><li>Exploitation of regional price differences </li></ul><ul><li>Pressure on margins </li></ul>
  15. 15. TRADE AREAS <ul><li>NAFTA: free trade area </li></ul><ul><ul><li>US, Canada, Mexico </li></ul></ul><ul><ul><li>World’s richest single market </li></ul></ul><ul><li>Mercosur: customs union </li></ul><ul><ul><li>Brazil, Paraguay, Uruguay and Argentina </li></ul></ul><ul><li>APEC: forum of 21 countries bordering the Pacific </li></ul><ul><li>ASEAN: free trade area (to complete ‘AFTA’ by 2015?) </li></ul><ul><ul><li>Thailand, Indonesia, Singapore, Brunei, Malaysia & Philippines, Vietnam, Myanmar, Cambodia and Laos </li></ul></ul>

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