Exporting and Trading info

Summary of regional economic integration ■ Regional economic integration emerged strongly after World War II as coun- tries began to realize the benefits of cooperation and larger market sizes. The major types of economic integration are the free trade area, customs union, common market, economic union, and complete economic integration. ■ In its most limited sense, economic integration allows countries to trade goods without tariff discrimination (i.e., free trade area). In a more complex arrangement, all factors of production are allowed to move across borders, and some degree of social, political, and economic harmonization is undertaken (i.e., complete economic integration). ■ The static effects of economic integration improve the efficiency of resource allocation and affect both production and consumption. The dynamic effects involve internal and external economies that arise because of changes in growth of market sizes. ■ Regional, as opposed to global, integration takes p...

Case: A north American free trade area On September 26, 1990, after months of informal and often secret discussions, President Bush requested authority from the U.S. Congress to open trade talks with Mexico that were to begin formally in 1991 and to culminate in a U.S.Mexico Free Trade Agreement. However, both the Canadians (who already have a free trade agreement with the United States) and the Americans were questioning the wisdom of such a move. The new market would be large, as illustrated in Map 11.4, with much of its economic strength coming from the United States. In fact, the population and GNP of the free trade area would exceed that of the European Community and help offset some of Japan's strength in Asia. It is interesting to note that the population in the United States is 69 percent of the total, whereas Germany, the largest country in the EC, is only 19 percent of the total population of the EC. The rows of the table on page 426 represent the export of that c...

The Environment An issue that has captured the attention of the world in recent years is the environment. Pollution of the air, land, and sea clearly poses a threat to the future of the planet, and governments, corporations, and citizens are concerned about where we are and where we are heading. The opening of Central and Eastern Europe has unmasked terrible environmental damage from centrally planned economies that operated with no real thought as to the future of the environment. The growth in Mexican industries along the U.S. border has brought with it increased air, land, and water pollution. A key irritant between the U.S. and Canada is the problem of acid rain that results from air pollution in the United States. The oil spill of the Exxon Valdez in Alaska highlighted the potential problems of transporting oil in supertankers. The total disregard of Iraq's Sadaam Hussein for the environment was demonstrated by the detonation of oil wells and the mass spilling of oil into ...

The Organization for Economic Cooperation and Development Like the UN, the Organization for Economic Cooperation and Development  (OECD), as illustrated in the map on page M-10, is a multilateral form of cooperation, made up primarily of industrial countries. The OECD was organized in 1961 to assist member governments in formulating policies aimed at promoting economic and social welfare and to stimulate and harmonize members' assistance to developing countries.44 It is comprised of 24 countries and has over 200 different committees that deal with economic issues. Three committees—the Trade Committee, the Executive Committee Special Session, and the Development Assistance Committee—deal with specific trade issues. The Trade Committee provides a forum for considering long-range trade policies of member nations and for discussing current problems as well. The Executive Committee Special Session deals with the coordination of national economic policies. This discussion has taken ...

OTHER MULTILATERAL INSTITUTIONS! So far, we have discussed only a few examples of regional cooperation to provide an idea of types of cooperation and their successes and failures. It is obvious that when countries join together, they can accomplish a great deal. However, it is also obvious that nationalism and national interests play a great role in the success or failure of any form of political or economic cooperation. In fact, nationalism usually gets in the way of successful cooperation. The best sources of information for regional groups are the Yearbook of International Organizations and the Europa World Year Book. The following are examples of three organizations that are involved in forms of cooperation that encompass more than just economic objectives. The United Nations Of the numerous bilateral and multilateral organizations, treaties, and agreements in existence, the United Nations (UN) is one of the most visible and extensive. Its major purposes are: (1) to maintai...

The Organization of Petroleum Exporting Countries In 1972 the director of the U.S. State Department's Office of Fuels & Energy boldly predicted that the average price of Middle East crude oil, then $2.25 per barrel, might rise to $5.00 or even higher by 1980. As an aside, the director mentioned that these figures would translate into higher gasoline prices, heating bills, and industrial cost.57 This was a monumental understatement. The Organization of Petroleum Exporting Countries (OPEC), as illustrated in the map on page M-10, comprises the Middle East Arab countries of Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, Iraq, Libya, and Algeria; the Islamic Republic of Iran; Indonesia; Nigeria; Gabon; Venezuela; and Ecuador. OPEC's effectiveness in controlling prices and production was first illustrated by the political and economic events of 1973 and 1974, when the price of crude oil increased from $3.64 per barrel to $11.65 per barrel within one year. OPEC was a...

The Multifibre Arrangement The Arrangement Regarding International Trade in Textiles, more commonly known as the Multifibre Arrangement (MFA), originated in 1974 and has been renewed several times since then. The MFA is an agreement among the governments of over 40 countries establishing rules concerning trade in textiles and garments made of cotton, wool, and synthetic fibres. The MFA establishes rules, sanctioned by the General Agreement on Tariffs and Trade (GATT), by which quotas can be levied against producer countries. The specific arrangements are established on a bilateral basis between producer and consumer nations. The MFA initially was signed to assist the textile industries in developed countries that were facing significant foreign competition. These industries, which tend to be labor intensive, also have formed a strong political bloc in industrial countries and are exerting significant governmental influence. The MFA was directed to help the textile industries gain ...

COMMODITY AGREEMENTS Another form of economic cooperation involves commodity agreements. Whereas the first part of the chapter focused on how countries cooperate to reduce barriers to trade, this part focuses on how countries cooperate to stabilize the price and supply of a particular commodity. Most of the developing countries traditionally have relied on the export of one or two commodities to supply the hard currencies needed for economic development. Unhappily, many short-run factors have caused price instability, leading to fluctuations in export earnings. The most important factors are: 1. natural forces such as floods, droughts, and weather; 2. relatively price-insensitive demand; 3. relatively price-insensitive supply (in the short run); and 4. business cycles in advanced industrial countries that can cause sudden changes in quantities demanded. World commodity prices have fluctuated dramatically in recent years. Nonfuel primary commodity prices fell significantly betwe...

AFRICAN COOPERATION Although only one form of African integration is listed in Table 11.2, several forms exist, and they are not necessarily mutually exclusive. The Ivory Coast, for example, is a member of several different organizations in Africa related to political and/or economic development. The major African groups as shown in the map on page M-10 are the West African Economic Community (Benin, Burkina Faso, Ivory Coast, Mali, Mauritania, Niger, and Senegal); the Entente Council (Burkina Faso, Benin, Ivory Coast, Niger, and Togo); the Economic Community of West African States (ECOWAS) (countries listed in Table 11.2); the Organisation of African Unity (nearly every country in Africa); and the Southern African Development Co-ordination Conference (Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe). In addition to these specific groups, there is also an African Development Bank. Clearly, there is considerable overlap among the groups. Most...

ASIAN INTEGRATION EFFORTS It has been argued that the 1990s is the decade of the Triad Strategy.27 Because the combined GNPs of Japan, the United States (or the United States and Canada, given that they are now involved in a free trade agreement), and the European Community are so vast, companies need to develop a Triad Strategy that includes trade and investment with all three areas. The liberalization of Eastern Europe probably will cause the economic power of the EC to expand considerably in the decade to come, and the realization of the "Enterprise of the Americas" could expand the trade and investment bases of the Americas considerably. What about regional economic integration in the Pacific Rim? The Pacific Economic Cooperation Conference (PECC) is a forum for the discussion of common problems of the Pacific Rim countries, although it is not a regional economic bloc that is formally increasing the free flow of goods and services. The member countries are Australia, B...

EASTERN EUROPEAN INTEGRATION The Council for Mutual Economic Assistance (CMEA, or COMECON) was formed in 1949 to assist in the economic development of the member nations. The current members as listed in Table 11.2 and illustrated in Map 11.3 include Mongolia, Cuba, and the Socialist Republic of Vietnam, which were admitted in 1962, 1972, and 1978, respectively. Albania, an original member of COMECON, ended its affiliation in 1961, and East Germany is now a part of Germany. Because of the rapid political and economic transformation taking place in Central and Eastern Europe, COMECON could disappear at any time. When COMECON was organized, it was interested in integrating economic activities and planning economic specialization within the region. Even though COMECON's share of total world exports was estimated at only 8 percent of the world's total in the mid-1980s, the intrazonal trade of 60 percent was the highest of any of the regional forms of integration. Table 11.2 sh...

LATIN AMERICAN COOPERATION Economic integration in Latin America has taken some interesting twists over the years. As Map 11.2 shows, two of the original groups, LAFTA and C ARIFTA, have changed names and focus. In spite of the evolution, the initial    reason for integration remains. The post-World War II strategy of import sub-   stitution to resolve balance-of-payments problems was doomed because of  Latin America's small national markets. Therefore the feeling was that some form of economic cooperation was needed to enlarge the potential market size so that national firms could achieve economies of scale and be more competitive worldwide. A study by the Inter-American Development Bank (IDB) identified three types of integration in Latin America: a free trade area, a common market, and a partial economic preferences model.21 The free trade model is best illustrated by LAFTA and CARIFTA. LAFTA was formed in 1960 during the time when the EEC was being organize...

The Impact of Europe 1992—Internal and External There are several major internal concerns about Europe 1992. The first is the spread of bureaucracy, centralization, overregulation, and socialism on the part of the free market side of the EC members, especially Britain. As former U.K. Prime Minister Margaret Thatcher said, "We haven't worked all these years to free Britain from the paralysis of socialism only to see it creep through the back door of central control and bureaucracy from Brussels."18 A second problem is the acceptance of key changes, such as the harmonization of the VAT. Although consumers in high-tax countries might welcome the lowering of the average VAT, consumers in low-tax countries will not appreciate the increase of the average VAT. A third problem is the potential effect on unemployment. Although most experts believe that Europe 1992 will bring faster economic growth and the creation of jobs, local unions are not convinced. In northern Europe, i...

As noted in Table 11.2, the EC is a formidable economic bloc with 320 million people and the largest combined GNP in the world outside of the U.S.Canada Free Trade Agreement. However, the early part of the 1980s was a difficult time for the EC. "From 1970 to 1975, gross domestic product in EC countries averaged 2.7 percent growth per year, dropping to approximately 1.4 percent annually by the 1980-1985 period. In the meantime, the United States had recorded 2.2 percent and 2.5 percent rates, respectively. In Japan, growth in the same periods averaged an impressive 7.6 percent and 3.8 percent."10 It was evident that the elimination of tariffs was not the only solution  to achieving a free flow of goods. A variety of nontariff barriers was keeping  ^ Ec from bei     a true common market.  Three examples illustrate how ditficult it was to do business in a uni-  fled" Europe. The first involves jam. The Dutch like to spread jam on bread for breakfast, so c...

The EC Organizational Structure Complexity usually breeds bureaucracy. The simpler forms of integration, such as a free trade area and customs union, usually can be managed by a coordinating committee larger than it needs to be but adequate for the job. The more complex forms of integration, however, such as the EC, have developed a very extensive bureaucracy to protect the goals and rules of the group of countries. The key to the EC's success is the balance between common and national interests monitored and refereed through four major institutions: the Commission, the Council of Ministers, the Parliament, and the Court of Justice. The Commission, headquartered in Brussels, Belgium, is comprised of a president, six vice presidents, and ten other members whose allegiance is to the EC rather than to an individual government, although the members are appointed by the various governments. The Commission is the EC watchdog: It is supposed to draw up policies, implement them when a...

Initial EEC Efforts The European Coal and Steel Community was created in 1951 to pool the coal and steel production of the six original members of the European Economic Community. The EEC and the European Atomic Energy Community were established in 1957, with the major task of the EEC to establish a common market. Since 1967, the three communities have been supervised by the same Commission, and they became increasingly known as the European Community (EC). The EEC was initially interested in three broad categories of activity: the free movement of goods through the elimination of tariff barriers; the free movement of persons, services, and capital; and the establishment of a common transport policy. As noted in Table 11.1, the first reduction in internal tariffs took place in 1959, and by 1968, all internal tariffs had been replaced. In 1962 the Common Agricultural Policy (CAP) was established, an important element of EEC economic policy. The initial objectives of the CAP were t...

THE EUROPEAN COMMUNITY European Evolution to Integration World War II left a wake of economic as well as human destruction throughout Europe. To facilitate the utilization of aid provided by the Marshall Plan, a U.S. plan to provide aid to Europe after World War II, the sixteen-nation Organization for European Economic Cooperation (OEEC), was established in 1948 with the encouragement of the United States. Its purposes were to improve currency stability, combine economic strength, and improve trade relations. However, because the OEEC did not appear strong enough to provide the necessary economic growth, further cooperation was initiated. According to one major school of thought championed by the French, a common market should be developed, which would: (1) result in the elimination of all restrictions to the free flow of goods, capital, and persons; (2) allow for the harmonization of economic policies; and (3) create a common external tariff. The result was the creation of the E...

REGIONAL ECONOMIC INTEGRATION!        During the 1950s and 1960s regional economic integration gained significant momentum. Economic integration can be defined as a process and ... a state of affairs. Regarded as a process, it encompasses measures designed to abolish discrimination between economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies.2 Since discrimination negatively affects economic activity between the countries in question, integration can be seen as valuable. When we consider some of the major examples of economic integration, such as the European Community (EC), the European Free Trade Association (EFTA), the U.S.-Canada Free Trade Agreement, and the Latin American Integration Association (LAIA), the concept of geo-  graphic proximity stands out. The major reasons that neighboring countries       ten...

When the European Economic Community (EEC) was first organized in 1957, U.S. multinational enterprises (MNEs) had to change their method of servicing European markets. The large size of the U.S. market had allowed these firms to achieve economies of scale so that they could export to European countries. After the EEC was established and tariff barriers were erected to protect domestic industries, foreign firms were forced to invest in EEC countries or lose their markets. U.S. MNEs were accustomed to large-scale organizations and had the financial and managerial resources to handle the expansion. One such example is the Ford Motor Company. Ford first began operating in Europe through its British subsidiary in 1913 and its German subsidiary in 1926. During the next several decades, however, Ford's European operations were separate operating subsidiaries reporting to Ford but not coordinating their policies in any meaningful way. This occurred for two reasons: Individual countries h...