TRADING BLOCKS AND

INTERNATIONAL INSTITUTIONS
Five levels of regional integration
among nations
 Five levels of regional integration
among nations
• A free-trade area is then economic integration and which countries seek
to remove all barriers to trade between themselves, but each country
determines its own barriers against nonmembers
• a customs union is an economic integration and which countries remove
all barriers to trade between themselves but erect against nonmembers
against nonmembers
• a common market is an economic integration and which countries remove
all barriers to trade and the movement of labor and capital between
themselves but erect trade policy against nonmembers, trade policy
against nonmembers
• an economic union is a economic integration in which countries remove
barriers to trade and the movement of labor and capital, erect a common
trade policy against nonmembers, and coordinate their economic policies
• a political union is an economic and political integration in which countries
coordinate aspects of their economic and political systems
Leading Economic Blocks
India’s Free Trade Agreements

FIND OUT OVER INTERNET

 Arguments Surrounding
Economic Integration
• Trade Creation and Trade Diversion
– Trade creation – Increased exports by new members
to other members resulting from membership
– Trade diversion – Decreased exports to members of
the economic union by nonmember nations often
resulting in the advantage shifting away from the
lower-cost producer to the higher cost producer
• Reduced Import Prices – Results from importers’
efforts to remain competitive despite tariffs imposed

6 Czinkota: International Business, 8e

 Arguments Surrounding
Economic Integration
 Increased Competition and Economies of Scale
The larger market created also means more competing firms which
can result in greater efficiency and lower consumer prices
Internal and external economies of scale – Lower production costs
from greater production or free mobility of factors of production
 Higher Factor Productivity
Movement of labor and capital from areas of low productivity to
areas of high productivity
Poorer countries may lose badly needed investment capital or labor
to a more profitable richer country
More developed countries may lose companies who move to areas
where operating costs are lower
 Regionalism versus Nationalism – The greatest impediment to
economic integration

7 Czinkota: International Business, 8e

 Regional Groupings - Europe

 European Integration
Economic Integration in Europe following World War II
Organization for European Economic Cooperation (OEEC) 1948
European Economic Community (EEC) in 1957
European Free Trade Association in 1960 (EFTA)
European Economic Area and European Union (EU) in 1994
 Organization of the EU
Executive Body - European Commission
Legislative Body - The Council of Ministers
Judicial Body - The Court of Justice
Advisory Body - The European Parliament
EU difficulties:
Inability to agree on a common immigration policy
Inability to integrate a common agricultural policy (CAP)
8 Czinkota: International Business, 8e
 Regional Groupings – North
America
 North American Free Trade agreement (NAFTA)
Went into effect in 1989 between Canada and the U.S.
Included Mexico in 1994
Proponents - Access to low-cost Mexican labor and job
creation in Mexico
Opponents
Job loss to Mexico and lower environmental standards
Segments of the U.S. economy will be harmed as wages decline
Trade among Canada, Mexico, and the U.S. has increased
dramatically since NAFTA took effect
The output of goods in maquiladoras, Mexican border
factories, have shifted from low-end to higher-end goods
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 Regional Groupings – Latin
America
 Integration in Latin America
Three objectives of Mercado Comun Del Sur
(MERCOSUR), 1981:
Establish a free trade zone
Create a common external tariff system
Free movement of capital, labor, and services
Andean Common Market (ANCOM) founded in 1969
Central American Common Market (CACM) was formed in
1960
Central America – Dominican Republic – U.S. Free Trade
Agreement (CAFTA-DR), 2005
Caribbean Common Market (CARICOM) formed in 1968

Czinkota: International Business, 8e

 Regional Groupings – Asia
• Integration in Asia
– Market forces are compelling Asia to move toward
formal integration
– Association of Southeast Asian Nations (ASEAN) was
very informal
– ASEAN Free Trade Area (AFTA) formed in 1991 reduced
tariffs and set goal for customs union by 2010
– East Asia Economic Group (EAEG) has been proposed
– Asia Pacific Economic Cooperation (APEC) has set goals
of liberalizing trade
– South Asian Association for Regional Cooperation
(SAARC) on Indian subcontinent in 1985

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 Economic Cooperation Framework
Agreement

Taiwan and China signed the proposed Economic

Cooperation Framework Agreement (ECFA) on
June 29, 2010. The proposal called for cuts on
hundreds of Taiwanese exports to China over the
next two years. The 539 categories of Taiwanese
exports are worth $13.8 billion, while Taiwan in
turn will reduce tariffs for 267 categories of
Chinese exports, worth $2.9 billion.

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 Regional Groupings –
Africa and Mid-East
• Integration in Africa and the Middle East
– Economic Community of West African States (ECOWAS),
1975
• Objective is to form a customs union and common market
– Other less successful entities in Africa
• Common Market for Eastern and Southern Africa (COMESA)
• Economic Community of Central African States (ECCAS)
• Southern African Customs Union
• Southern African Development Community (SADC)
– Arab Maghreb Union (Algeria, Libya, Mauritania,
Morocco, Tunisia)
– Gulf Cooperation Council (GCC) (1980) – Goal was to
achieve a common currency by 2013
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 Cartels and Commodity Price
Agreements
 Cartels
 An association of producers of a particular good formed to suppress market
forces
 Example: Organization of Petroleum Exporting Countries (OPEC)
Tactics include:
Dividing Up Agreeing to
Price Fixing Sales Restrict
Territories Production

 International commodity price agreements

Buyers and sellers agree to manage the price of a certain
commodity
If the price moves outside a certain range a manager will enter the
market and buy or sell to bring the price back down

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 Emerging Markets

An emerging market is a country

making an effort to change and
improve its economy with the goal of
raising its performance to that of the
world’s more advanced nations

15 Czinkota: International Business, 8e

 Evolution of the Global
Monetary System
 Production Platform to Marketplace
 Key to Growth – Rapid transformation from an agrarian
China society to an export-driven platform for global
manufacturing

 Growth in Services
 In 1991 India initiated a series of economic measures
India that promoted sustained economic growth and
participation in the global economy

 Implementation of economic liberalization policies and

the avoidance of inflation problems have spurred
economic growth
Brazil  In 2008, showed great resiliency in the midst of the
global recession

16 Czinkota: International Business, 8e

Agriculture Boom for Brazil, China, India?

According to the 2010 Agricultural Outlook Report, it is expected that

the rising economies of Brazil, China, and India will see strong growth
in their agricultural sectors in the next decade as output remains
stagnant among big importers in Western Europe.

Brazil is predicted to experience the fastest growth in agriculture, an

expansion of more than 40 percent through 2019 compared to the
2007-2009 base period. China and India were expected to see growth
of 26 percent and 21 percent.

Over the decade ending in 2019, global production of crops will

increase by more than 13 percent.

Czinkota: International Business, 8e

 Barriers to Business
• Infrastructure Problems
– Poor roads, outdated facilities, lack of refrigeration, and
inefficient distribution make it difficult to bring products
to the marketplace
– The state of infrastructure development varies among
the major emerging markets:
• China continues in unparalleled construction and
modernization of cities, highways, ports, and airports
• India requires significant future infrastructure investment in
order to continue to compete globally
• Brazil started the second phase of the country’s Growth
Acceleration Project in 2007, with improvements expected by
2011
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 Transition Economies
 Former-Soviet nations emerge from central planning to
market orientation
 In many countries, privatization is ongoing
Some segments of the population have a desire for a
return of “the good old days”
Russia has yet to diversify its economy and remains highly
dependent on the fuel and mineral sectors
 Demand conditions in transition economies:
Buyers’ preferences are often vague and undefined
Market research is still new in many areas
Evolving distribution and pricing structures
Limited information on demand and channel supply
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 The Developing Markets
 Research – Learn about the needs, aspirations, and habits of
targeted populations
 Creative Buying Power
Credit is essential for consumers in developing countries
Microfinance – Financial services to low-income clients
 Tailored Local Solutions – Companies combine advanced
technology with local insights
 Improving access can lead to a thriving business due to
economic and physical location of poor communities
 Shaping Aspirations
Developing markets can be ideal settings for commercial and
technological innovations
Presents a great growth opportunity for companies
20 Czinkota: International Business, 8e
FOCUS ON TECHNOLOGY:
CONNECTS THE WORLD
Cisco employs strategies that have resulted in
phenomenal growth in developing areas such
as Saudi Arabia, Turkey, and Poland:
• Win the government, business will follow
• Sell more than technology
• Charity pays
• Hire well-connected locals
• Create jobs
• Create and adopt products to local needs

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Economic Integration and the
International Manager
 Create a vision of the outcome of change
Effects of Change  Consider degree of change readiness
 Be prepared for growing competition

 Fill in gaps in goods and market portfolios

 Those in weak positions may need to form alliances with
Strategic Planning stronger players

 Centralized authority to execute regional programs

 Staffing with personnel who understand the market
Reorganization  Increased coordination and consultation with locals

 Seek ways to influence the regulatory environment

 Provide lawmakers with industry information
 Lobbying on multiple levels
Lobbying
International Institutions
International Monetary Fund (IMF)
• An international organisation initiated in 1944 at the Bretton Woods
Conference and formally established by 29 countries in 1945.
• Goal was to reconstruct the formal payment system across the world post
WW-II.
• Countries fund a pool of money through a quota system and countries
having an imbalance of payments can borrow money from this pool.
• Present Membership: 189 (2019)
• HQ: Washington DC
• Aims are to work fostering global monetary cooperation, secure financial
stability, facilitate international trade, promote high employment and
sustainable economic growth and reduce poverty around the world.
• Corpus: >US$500 Billion
• Managing Director: Kristalina Georgieva (from Bulgaria) – 1st October 2019
GDSS & SDSS Participants
International Monetary Fund (IMF)
SDRs & Voting Rights
Estd. 1944, HQ: Washington DC, MD&CEO: Sri
Mulyani Indrawati
Comprises of the following 5 organisations:
1. The International Bank for Reconstruction &
Development (IBRD) – lends to governments of
middle-income and low-income creditworthy
countries
2. International Development Association (IDA) –
provides interest free loans – called credits or grants
to the poorest countries
The IBRD and IDA together are called the World Bank
3. The International Finance Corporation (IFC) – largest global
development institution focused exclusively on the private
sector. Helps countries achieve sustainable growth by
financing investment, mobilizing capital in international
financial markets, and providing advisory services to
businesses and govts.
4. The Multilateral Investment Guarantee Agency (MIGA) –
Created in 1988 to promote FDI into developing countries
to support economic growth, reduce poverty and improve
people’s lives. It fulfils this mandate by offering political
risk insurance (guarantees) to investors and lenders.
5. The International Centre for settlement of Investment
Disputes (ICSID) – provides international facilities for
conciliation and arbitration of investment disputes.
Location: Geneva, Switzerland
Established: 1st January, 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 160 countries (as on 26th June, 2014)
Budget: 197 million Swiss Francs for 2013
Secretariat Staff: 640
Head: Roberto Azevedo (Director-General)

Functions:
•Administering WTO Trade Agreements
•Forum for Trade Negotiations
•Handling Trade Disputes
•Monitoring National Trade Policies
•Technical Assistance and Training for Developing Countries
•Cooperation with other international Organisations
Two major areas of discussions
• GATT
• GATS
International Trade and Market Access
Data
http://www.wto.org/