This lecture focuses on International Trade Organisations & Trading Zones

1. B416: The Evolution of Global
Economies
Lecture 6 : International Trade
Organisations & Trading Zones

2. 2
Learning Objectives
• To identify the major characteristics and challenges of
the World Trade Organization
• To discuss the pros and cons of global, bilateral, and
regional integration
• To describe the static and dynamic impact of trade
agreements on trade and investment flows
• To define different forms of regional economic
integration
• To compare and contrast different regional trading
groups
• To describe other forms of global cooperation such as
the United Nations and OPEC

3. 3
Types of Economic Integration
• 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

4. 4
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)
(Predecessor to the WTO)
• GATT - formed in 1947 to abolish quotas and
reduce tariffs
• Most favored nation (MFN) clause - trade
without discrimination
• Succeeded by WTO in 1995

5. 5
What Does The WTO Do?
WTO
– continues the MFN clause of GATT
– provides a mechanism for dispute settlement - Doha Round (agricultural
subsidies)
The international GATT agreement is based on 3 principles:
• Non-discrimination; as expressed in two sub-principles
– Most Favoured Nation (MFN) treatment
– National treatment of foreign products;
two main exceptions to the non-discrimination principle:
– Free trade areas and customs unions
– Developing countries
• Reciprocity (exception: developing countries)
• Prohibition on trade restriction other than tariffs (exception in case of balance-
of-payments problems)
Criticized for
– failing to pay enough attention to labor and environmental concerns
– undermining global diversity
– benefitting rich at the expense of the poor

6. Page 6
WTO/GATT negotiation rounds
0
20
40
60
80
100
0 20 40 60 80 100 120
number of participants
duration(months)
Annecy
Geneva
Dillon
Geneva II
Torquay
Kennedy
Tokyo
Uruguay
WTO/GATT talks increasingly long and complex
Duration of GATT
rounds and the
number of
countries
involved

7. Page 7
Organization for Economic Cooperation and Development (1961; previously OEEC,
1948, to implement Marshall Aid Plan) – forum for developed countries (trade policy
consultation & aid policy coordination); dark blue = initial members
OECD (location Paris) Member Countries
Source: Wikimedia Commons

8. 8
Bilateral Agreements & Regional Economic Integration
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)
– Free trade agreements (FTAs)
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)

9. 9
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
• Effects of regional integration
– Static effects
• trade creation
• trade diversion
– Dynamic effects
– Economies of scale

10. 10
The Effects Of Integration
Impact of Trade Agreements

11. 11
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
• European Commission - provides political leadership, drafts laws,
and runs the various daily programs of the EU
• Council of the EU - composed of the heads of state of each
member country
• European Parliament - has legislative power, control over the
budget, and is supervisor of executive decisions
• European Court of Justice - interprets and applies EU treaties

12. 12
The European Union
European Trade and Economic Integration

13. 13
The European Union
• Single European Act - designed to eliminate the remaining
nontariff barriers to trade in Europe
• Lisbon Treaty - strengthens the EU’s governance process and
improves the ability of the EU to make and implement
decisions
• Treaty of Maastricht - fostered political and monetary union
- the euro
• 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

14. 14
NAFTA
• The North American Free Trade Agreement (NAFTA)
– includes Canada, the U.S., and Mexico
– involves free trade in goods, services, and investments
– includes countries of different sizes and wealth
• Some U.S. trade and investment has been diverted to Mexico
• Free trade area
– rules of origin
• Regional content
– at least 50% of the net cost of most products must come from
the NAFTA region
• Additional provisions
– Workers rights
– The environment
– Dispute resolution mechanism

15. 15
Regional Economic Integration In The Americas
There are six major regional economic groups in
the Americas
– Caribbean Community (CARICOM)
– Central American Common Market (CACM)
– Central American Free Trade Agreement (CAFTA –
DR)
– Andean Community (CAN)
– Southern Common Market (MERCOSUR)
– Latin American Integration Association (LAIA)

16. 16
Regional Economic Integration In The Americas
Economic Integration in Central America and the Caribbean

17. 17
Regional Economic Integration In The Americas
Latin American Economic Integration

18. 18
Regional Economic Integration In Asia
• Regional integration in Asia includes
• the Association of Southeast Asian Nations
(ASEAN)
– ASEAN Free Trade Area
• the Asia Pacific Economic Cooperation (APEC)
– open regionalism

19. 19
Regional Economic Integration In Asia
The Association of Southeast Asian Nations

20. Page 20
ASEAN countries
ASEAN countries; population (million) and trade ($ billion), 2009
0 50 100 150 200 250
Brunei Dar.
Singapore
Lao PDR
Cambodia
Malaysia
Myanmar
Thailand
Viet Nam
Philippines
Indonesia
populaton
trade

21. 21
Regional Economic Integration In Africa
• Several efforts at economic integration exist
– Pan Arab Free Trade Area (PAFTA)
– Arab League
– Gulf Cooperation Council (GCC)
– African Union (AU)

22. 22
Regional Economic Integration In Africa

23. Page 23
COMESA countries
Comesa countries; population (million) and trade ($ billion), 2008
0 10 20 30 40 50 60 70 80 90
Seychelles
Comoros
Djibouti
Swaziland
Mauritius
Eritrea
Libya
Burundi
Rwanda
Zimbabwe
Zambia
Malawi
Madagascar
Uganda
Kenya
Sudan
Congo (D.R.)
Ethiopia
Egypt
trade
population

24. 24
Other Forms Of International Cooperation
• The United Nations (UN)
– established in 1945
– promotes peace and security
– UNCTAD
• helps developing countries participate in international trade
• Nongovernmental Organizations (NGOs)
– private, nonprofit institutions that are independent of the
government
• Commodities
– raw materials or primary products that enter into trade
• Many commodity agreements exist to
– discuss issues
– disseminate information
– improve product safety
• Organization Of The Petroleum Exporting Countries (OPEC)

25. Page 25
Size of regional trade blocks (2009)

26. 26
The Future: Regional Integration And The
WTO
• Regional integration could help the WTO
– Regionalism can lead to liberalization of issues not
covered by the WTO
– Regionalism is more flexible
– Regional deals lock in liberalization

27. Page 27
United Nations
• Formed 1945; Location – New York
• Almost all countries members (China replaced Taiwan, 1971)
• Deals with virtually all aspects of human life and organization
• Programs and funds (UNCTAD, UNDP, UNHCR, UNICEF..)
• Commissions (development, human rights, status of women..)
• Regional commissions (Africa, Europe, Caribbean ..)
• Specialized agencies (ILO, FAO, UNESCO, WHO, Worldbank, IMF..)
LDCs dissatisfied (1950s/60s; Singer-Prebisch); 1964 first UN Conference on Trade
and Development (UNCTAD)
• Terms of trade deterioration (limited empirical support)
• Tariff escalation (high on processed goods, low on materials)
• Against GATT non-discrimination (want favourable treatment)
• Most important now: multinationals & World Investment Report

28. And Now…Work Outside the Lecture
Preparation
For
Padagogic
Style
Preparation
Time Budget
Individual
Task
Group Task Output Week 6 Preparation Activity
Read Chapter 8 International Business - 14th
Edition by Daniels, Radebaugh &
Sullivan, (available via DawsonEra)
Seminar 6 30 Minutes Read above Material + Seminar material
Workshop 6 1 Hour
Online Collaboration Activities relating Group
Presentation in Week 6
2 HourLecture 6

29. End of presentation
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