International Business:
The Challenges of
Globalization
Ph.D. Đào Duy Tùng
Topic 6
International economic
cooporation among nations
Topic review
– The important of GATT and WTO to international business.
– Different forms of economic integration among cooporating countries.
– Major trading blocs in today’s world economy.
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Global Trading System
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Global Trading System
General Agreement on Tariffs and Trade (GATT)
• A treaty designed to promote free trade by reducing both tariff
and non-tariff barriers to international trade.
• Signed on October 30, 1947, by 23 countries in Geneva (to
take effect on January 1, 1948)
• It consists of 8 rounds – rounds of trade negotiations.
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Global Trading System
General Agreement on Tariffs and Trade (GATT)
Objective of GATT
• Reduction of barriers to international trade;
• To raise the standard of living;
• To ensure full employment and a large and steadily growing
volume of real income and effective demand;
• To develop the full use of the resource of the world;
• To expand production and international trade.
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General Agreement on Tariffs and Trade (GATT)
Impact of trade barriers
• Under the umbrella of GATT, eight rounds of negotiations among member states (now
numbering 146) have worked to lower barriers to the free flow of goods and services.
• Extended GATT to cover services as well as manufactured goods; provided enhanced
protection for patents, trademarks, and copyrights; and established the World Trade
Organization (WTO) to police the international trading system.
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General Agreement on Tariffs and Trade (GATT)
Impact of trade barriers
• In the late 2001, the WTO launched a new round of talks [Doha,Qatar] aimed at further
liberalizing the global trade and investment framework.
• The agenda included cutting tariffs on industrial goods, services,and agricultural
products; phasing out subsidies to agricultural producers; reducing barriers to cross
border investments; and limiting the antidumping laws.
• The rich nations spend around $300 billion a year in subsidies to support their farm
sectors. The worlds poorer nations have the most to gain from any reductions in
agricultural tariffs and subsidies.
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General Agreement on Tariffs and Trade (GATT)
The purpose and benefit of GATT
Purpose
• A substantial reduction of tariffs and other trade barriers and the elimination of
preferences, on a reciprocal and mutually advantageous basis.
Benefits
• It had reduced the trade burdens lied on the countries which involved in international
trade, so that promoted the trade liberalization and boosted the economics of
contracting parties.
• It has reduced the economic gap between industrial countries and developing countries.
• To help countries to make more imports and exports by reducing the tariff.
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Instruments of trade policy
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Instruments of trade policy
Tariffs
• A tax levied on imports that effectively raises the cost of imported products relative to
domestic products.
– Specific tariffs: levied as a fixed charge for each unit of a good imported.
– Ad valorem tariffs: levied as a proportion of the value of the imported good.
• Export tariffs have two objectives:
– Raise revenue for the government;
– Reduce exports from a sector;
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Instruments of trade policy
Subsidies
• A subsidy refer a government payment to a domestic producer, takes many forms
including cash grants, low-interest loans, tax breaks, and government equity
participation in domestic firms.
• Subsidies help domestic producers:
– Complete against low-cost foreign imports.
– Gain export markets.
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Instruments of trade policy
Import quotas
• Import quota refers to a direct restriction on the quantity of some goods that may be
imported into a country.
– For example, the US has quota on cheese imports.
• Tariffs rate quota refers to a hybrid of a quota and a tariff where a lower tariff is
applied to imports within the quota than those over the quota.
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Instruments of trade policy
Anti-dumping duties
– Dumping refers to selling goods in a foreign market below their cost of production
or selling goods in a foreign market below their “fair” market value.
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Class activity
Free trade vs Protectionism
Why protectionism is
bad for developing
countries?
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Global Trading System
World Trade Organization (WTO)
• The international organization that regulates trade among nations.
• In 1995, the GATT was transformed into the WTO.
• Main objectives:
– The WTO reiterates the objectives of GATT
▪ Help the free flow of trade
▪ Help negotiate further opening of markets
▪ Settle trade disputes among its members
– Raising standard of living and income.
– Introduce sustainable development.
– Taking positive steps to ensure that developing countries.
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Global Trading System
World Trade Organization (WTO)
Functions of WTO
• Administering and Implementing the multilateral and plurilateral trade
agreements.
• Acting as a forum for multilateral trade negotiations.
• Seeking to resolve trade disputes.
• Overseeing national trade policies.
• Cooperating with other international institutions.
• Acting as a watchdog of international trade.
• Technical assistance and training for developing countries.
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Global Trading System
World Trade Organization (WTO)
Key Subjects in WTO
• Agriculture
• Health & safety measures
• Helping least developed and food importing countries
• Textile and Clothing
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Global Trading System
The purpose and benefit of WTO
Purpose
• The WTO creates and embodies the legal ground rules for global trade
among members. In this way, WTO can supervise its members’ behavior
while trading among nations, and also prevent misunderstanding nations.
• Settling trade disputes.
• To create economic peace and stability in the world.
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Global Trading System
The purpose and benefit of WTO
Benefits
• The WTO promotes the establishment of world trade liberalization and
economic globalization. These agreements improved all of WTO
members’ market access.
• The WTO created a system that helps the trade process to go on
smoothly and providing countries a constructive and fair outlet for dealing
with disputes between countries over trade issues.
• The WTO system lower trade barriers through negotiation and brought up
the principle of non-discrimination.
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Global Trading System
Several benefits toward the world
• The WTO promotes the establishment of world trade liberalization and
economic globalization.
– WTO members experienced an average of 40% decline in tariff rate.
– The agriculture, textile trade, security measures, anti-dumping and
countervailing, investment, trade in services.
• The WTO system actually creating peace among countries, and fair outlet
for dealing with disputes between countries over trade issues.
• The possibility to decrease in cost of living.
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Global Trading System
Several benefits for developing countries
• The greatest benefits throughout the international trade.
• Intellectual property rules.
– The Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) helps in promote technology transfer and foreign
direct investment.
• The preferential treatment.
– Generalized System of Preferences (GSP).
– Most favored nation (MFN).
• The flexibility
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QUIZZES
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The role of the World Trade Organization (WTO) is to succeed
GATT, encourage trade disputes, and ________.
A. Lower barriers to trade
B. Assess the world nations for comparative advantages
C. Provide consultation for slicing up the value chain.
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Regional Economic Integration & cooporating countries
Figure 1: Levels of Regional
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Regional Economic Integration & cooporating countries
Regional Economic Integration
• To agreements between countries in a geographic region to reduce tariff and
non-tariff barriers to the free flow of goods, services, and factors of production
between each other
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Regional Economic Integration & cooporating countries
Regional Economic Integration
• Free trade area
– Remove all barriers to the trade of goods and services among member
countries, but members determine their own trade policies for nonmembers.
– The European Free Trade Association (between Norway, Iceland,
Liechtenstein, and Switzerland), and the North American Free Trade
Agreement (between the U.S., Canada, and Mexico) are both free trade
areas.
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Regional Economic Integration & cooporating countries
Regional Economic Integration
• Customs union
– Remove trade barriers between member countries and adopts a common
external trade policy.
– The Andean Pact (between Bolivia, Columbia, Ecuador and Peru) is an
example of a customs union.
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Regional Economic Integration & cooporating countries
Regional Economic Integration
• Common market
– Trade barriers are removed, as are any restrictions on the movement of
labor and capital between member countries, i.e, Eastern and Southern
Africa (COMESA).
• Economic union
– To remove barriers to trade and adopt common economic policies, i.e, the
European Union (EU).
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Figure 2: Levels of Economic Integration
Regional Economic Integration & cooporating countries
Figure 3: The World's Main Regional Trading Blocs
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Regional Economic Integration & cooporating countries
Figure 3: The World's Main Regional Trading Blocs
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ASEAN 4.0: What are the key opportunities and challenges of
the Fourth Industrial Revolution for Vietnam in AEC?
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QUIZZES
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The main difference between a free trade area and a customs
union is that the members of a customs union ________.
A. agree to the free movement of all factors of production
B. harmonize their tax, monetary, and fiscal policies and create a common
currency
C. agree to treat trade with all nonmember nations in a similar manner, by
having a common external tariff.
D. accept a common stance on economic and political policies regarding
nonmember nations
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A benefit of regional economic integration is that it always
expands employment opportunities in all nations.
A. TRUE
B. FALSE
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Which of the following is an important goal of regional
economic integration?
A. to increase the selling prices of products
B. to raise the living standards of people
C. to limit the choice of products available to customers
D. to establish a socialist government
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All barriers to the free flow of goods and services between
member countries are removed, and a common policy toward
nonmembers is established in a
A. Free trade area
B. Customs union
C. Common market
D. Economic union
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NAFTA is an example of a(n)
A. Free trade area
B. Customs union
C. Common market
D. Economic union
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Regional Economic Integration & cooporating countries
Benefits of regional integration
• Trade Creation
– Consumers and industrial buyers in member nations are faced with a wider selection of
goods and services not previously available;
– Buyers can acquire goods and services at lower cost after removal of trade barriers.
• Political Cooperation
– Reduce the potential for military conflict between member nations.
• Employment Opportunities
– Enabling people to move from one country to another to find work or, simply, to earn a
higher wage.
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Regional Economic Integration & cooporating countries
Drawbacks of regional integration
• Trade Diversion
– Economic integration can unintentionally reward a less efficient producer within the trading
bloc
• Shifts in Employment
– Industries requiring mostly unskilled labor, tend to respond to the formation of a trading
bloc by shifting production to a low-wage nation within the bloc.
• Loss of National Sovereignty
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When higher cost suppliers within the free trade area replace
lower cost external suppliers
A. The bloc as a whole benefits
B. There is trade creation
C. There is trade diversion
D. External suppliers benefit
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