Political Relationships
Political Relationships
Political and Economic Blocs
A bloc is a group of nations united by treaty
or agreement for mutual support or joint action in a variety of areas. As a
result of the political schism after World War II between the communist and
noncommunist countries, only a very small percentage (about 5 percent) of
total world trade was conducted between the two blocs. Direct investment
between the groups was negligible because of restrictions by communist
countries on private ownership, particularly foreign ownership. Many of the
communist countries, however, are in the process of instituting market economies and are building affiliations to the noncommunist countries, especially in Western Europe. Consequently, many observers are optimistic that business between the two groups will increase substantially.
Since the 1950s several groups of countries have banded together and removed most trade restrictions among themselves. The most notable example is the European Community (EC), which is scheduled to remove all trade barriers among member countries by the end of 1992. Because of the greater ease of trade among members, a greater percentage of the members' total trade is being conducted within the group. Because of the growth generated within the EC, the members' portion of total world trade has grown. This growth rate, along with the access to larger markets within the community, has also been a major attraction to foreign investors. The EC's successes have influenced other countries to seek membership in trading blocs of their own, such as the proposed North American bloc including Canada, Mexico, and the United States.
Multinational Agreements
In recent years governments have signed a number of international accords and agreements affecting world business. These multinational agreements have resulted from the realization that coun-
and uniform rules
tries are increasingly interdependent and that a degree of consistency and uniformity is needed in order to assure a flow of goods and services internationally. Included among the many agreements are the International Monetary Fund (IMF), which has altered currency regulations; the International Civil Aviation Organization (ICAO), which sets air safety and international safety and procedural standards; and various international patent and trademark conventions, which delineate certain property rights for companies operating internationally. In addition to these multilateral activities, many countries have signed bilateral tax agreements that prevent international
firms from being taxed on the same earnings by both their home and foreign countries. Without these provisions against double taxation, few foreign investments would be economically feasible.
The General Agreement on Tariffs and Trade (GATT), in which most countries are participants, provides a forum for negotiating mutual reductions in trade restrictions. Through tariff conferences, restrictions have been reduced on most items in world trade, and countries have agreed on procedures to simplify the conduct of international trade. However, negotiations among GATT members broke down in late 1990, thus leading to uncertainty on the future role of this organization.
Another development has been the emergence of international agencies, such as the World Bank, the Asian Development Bank, and the Inter-American Development Bank, which give loans and assistance for government-guaranteed projects. In some cases these resources have been an alternative to governmental or private capital. In others the funds have been used to finance social programs and infrastructure development, such as housing and highways, for which alternative funds would not be forthcoming. In these latter cases the agency loans have undoubtedly stimulated trade and direct investment by enabling countries to buy necessary equipment from abroad and allowing them to build the infrastructure needed for the efficient conduct of business activities.
Political and Economic Blocs
A bloc is a group of nations united by treaty
or agreement for mutual support or joint action in a variety of areas. As a
result of the political schism after World War II between the communist and
noncommunist countries, only a very small percentage (about 5 percent) of
total world trade was conducted between the two blocs. Direct investment
between the groups was negligible because of restrictions by communist
countries on private ownership, particularly foreign ownership. Many of the
communist countries, however, are in the process of instituting market economies and are building affiliations to the noncommunist countries, especially in Western Europe. Consequently, many observers are optimistic that business between the two groups will increase substantially.
Since the 1950s several groups of countries have banded together and removed most trade restrictions among themselves. The most notable example is the European Community (EC), which is scheduled to remove all trade barriers among member countries by the end of 1992. Because of the greater ease of trade among members, a greater percentage of the members' total trade is being conducted within the group. Because of the growth generated within the EC, the members' portion of total world trade has grown. This growth rate, along with the access to larger markets within the community, has also been a major attraction to foreign investors. The EC's successes have influenced other countries to seek membership in trading blocs of their own, such as the proposed North American bloc including Canada, Mexico, and the United States.
Multinational Agreements
In recent years governments have signed a number of international accords and agreements affecting world business. These multinational agreements have resulted from the realization that coun-
and uniform rules
tries are increasingly interdependent and that a degree of consistency and uniformity is needed in order to assure a flow of goods and services internationally. Included among the many agreements are the International Monetary Fund (IMF), which has altered currency regulations; the International Civil Aviation Organization (ICAO), which sets air safety and international safety and procedural standards; and various international patent and trademark conventions, which delineate certain property rights for companies operating internationally. In addition to these multilateral activities, many countries have signed bilateral tax agreements that prevent international
firms from being taxed on the same earnings by both their home and foreign countries. Without these provisions against double taxation, few foreign investments would be economically feasible.
The General Agreement on Tariffs and Trade (GATT), in which most countries are participants, provides a forum for negotiating mutual reductions in trade restrictions. Through tariff conferences, restrictions have been reduced on most items in world trade, and countries have agreed on procedures to simplify the conduct of international trade. However, negotiations among GATT members broke down in late 1990, thus leading to uncertainty on the future role of this organization.
Another development has been the emergence of international agencies, such as the World Bank, the Asian Development Bank, and the Inter-American Development Bank, which give loans and assistance for government-guaranteed projects. In some cases these resources have been an alternative to governmental or private capital. In others the funds have been used to finance social programs and infrastructure development, such as housing and highways, for which alternative funds would not be forthcoming. In these latter cases the agency loans have undoubtedly stimulated trade and direct investment by enabling countries to buy necessary equipment from abroad and allowing them to build the infrastructure needed for the efficient conduct of business activities.
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