International Business Study Guide 2
Klingman, D.
CHAPTER 10
General Agreement on Tariffs and Trade (GATT) – agreement to reduce barriers on trade that took over
International Trade Organization’s mission
Most favored nation principle – requires that any preferential treatment granted to one country must be
extended to all countries
Generalized system of preferences – lowering tariffs to developing countries (refers to the reduced rates)
Uruguay Round agreement – cut tariffs on imported goods
World Trade Organization (WTO) – January 1, 1955; encourages nations to adopt nondiscriminatory and
predictable trade practices and reduce trade barriers through multi-lateral negotiations
Doha Round – set out to create more free trade in agricultural goods
Cairns Group – group of major agricultural exporters led by Argentina, Australia, Brazil, Canada, and
Thailand
National treatment – a country treats foreign firms the same way it treats domestic firms
“In Practice” blurb – GATT and successor WTO have promoted freer trade in goods and services post
WWII
Free trade area – encourages trade among its members by eliminating trade barriers among them, NAFTA
between Canada, Mexico, and U.S.
Trade deflection – members of free trade are vulnerable to nonmembers rerouting their exports to the
member nation with the lowest external trade barriers
Rules of origin – details the conditions under which a good is classified as a member good or a nonmember
good
Customs union – combines the elimination of internal trade barriers among its members with the adoption of
common external trade policies towards nonmembers
Common market – members eliminate internal trade barriers among themselves and adopt a common
external trade policy towards nonmembers, but eliminates barriers that inhibit the movements of factors of
production (labor, capital, technology) – members can move to another member country to work
Economic union – represent full integration of the economies of two of countries
Political union – complete political and economic integration of two or more countries (making them one
country)
“In Practice” blurb – Five forms of regional economic integrations: free trade area, customs union,
common market, economic union, and political union
Benelux nations – Belgium, the Netherlands, and Luxembourg; alongside France, West Germany, and Italy
Treaty of Rome – called for European Economic Community and development of a common market
among the six member states
European Council – consists of the heads of government or of state of each member of the member states
Council of the European Union – composed of 28 representatives and selected directly by their home
government
European Commission – 28 people, one from each member state, 5 year term; propose legislation,
implements provisions to treaties, protects EU’s interests in political debates, powers in customs unions
European Parliament – 748 elected in national elections and dependent on country’s population
European Court of Justice – 28 judges, makes sure EU members follow regulations and policies
Co-decision procedure – used for settling most issues, including education, environmental protection, health,
consumer policy, and free movement of workers
Harmonization – EU encourages member nations to voluntarily adopt common EU-wide regulations affecting
trade
Mutual recognition – if one member state determines that is product is appropriate for sale, then all EU
member are also obliged to do so under the Treaty of Rome
Treaty on European Union – agreement to create: 1) common foreign and defense policies, 2) cooperate on
police, judicial, and public safety matters, 3) create economic and monetary union
Cohesion fund – a means of funneling economic development aid to countries whose per capita GDP is less
than 90% of the EU on average
Economic and Monetary Union (EMU) – create a single currency (euro)
Convergence criteria – met by EU members wanting to adopt the euro
European Central Bank – responsible for controlling eurozone’s money supply, interest rates, and inflation
Stability and Growth Pact – Eurozone participants agreed to limit their annual government deficits to no more
than 3% than their GDPs
North American Free Trade Agreement (NAFTA) – Canada, Mexico, United States; increased integration of
North American economies
Screwdriver plant – a factory in which little transformation of a product is undertaken
Caribbean Basin Initiative (CBI) – facilitate economic development of Central America and Caribbean Sea
Australia – New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) – eliminated trade
barriers between these two countries
Association of southeast Asian Nations (ASEAN) – regional political and economic cooperation
Asia-Pacific Economic cooperation (APEC) – 21 countries on both sides of the Pacific Ocean
Southern African Development Community/Economic and Monetary Community of Central
Africa/Economic Community of West African States – haven’t had major impact on regional trade due to
lack of political stability