Chapter 10:
International
Cooperation
Among
Nations
International Business, 4th Edition
Griffin & Pustay
10-1
General Agreements on Tariffs and Trade
(GATT)
• Developed as part of the Havana, Cuba
conference in 1947
• Provided forum for trade ministers to discuss
barriers to international trade
• Goal: to promote a free and competitive
international trading environment benefiting
efficient producers
• Accomplished by sponsoring multilateral
negotiations to reduce tariffs, quotas, and other
nontariff barriers
General Agreements on Tariffs and Trade
(GATT)
• To help international businesses compete in
world markets regardless of their nationality, the
GATT sought to ensure that international trade
was conducted on a nondiscriminatory basis.
This was accomplished through the use of the
most favored nation (MFN) principle.
• That means, any preferential treatment granted
to one country must be extended to all
countries.
GATT Negotiating Rounds
Round
Dates
# of Participants
Average Tariff
Cut (%)
Geneva
1947
23
35
Annecy
1949
13
NA
Torquay
1950-1951
38
25
Geneva
1956
26
NA
Dillon
1960-1962
45
NA
Kennedy
1964-1967
62
35
Tokyo
1973-1979
99
33
Uruguay
1986-1994
117
36
©2004 Prentice Hall
10-4
World Trade Organization (WTO)
• In January 1995, GATT was replaced by the
World Trade Organization (WTO), which adopted
the GATT’s mission.
• Its Headquarter is in Geneva, Switzerland
• As of September 2003, the WTO included 146
member and 30 observer countries.
• Members are required to open their markets to
international trade and to follow the WTO’s
rules.
World Trade Organization
• The WTO has three primary goals:
1. Promote trade flows by encouraging nations to
adopt nondiscriminatory, predictable trade
policies.
2. Reduce remaining trade barriers through
multilateral negotiations
3. Establish impartial procedures for resolving
trade disputes among members.
Differences between WTO and GATT
• GATT focused on promoting trade in goods;
WTO’s mandate includes
–
–
–
–
trade in goods
trade in services
international intellectual property protection
trade-related investment
• WTO’s enforcement powers are stronger
Enforcement of WTO Decisions
• Country failing to live up to the agreement may
have a complaint filed against it
• WTO panel evaluates complaint
• If found in violation, the country may be asked
to eliminate the trade barrier
• If country refuses, WTO will allow complaining
country to impose comparable trade barriers on
the offending country
Major Challenges of WTO
1. The General Agreement on Trade in
Services (GATS): One challenge facing the
WTO is reducing barriers to trade in services.
The Uruguay round developed a set of
principles under which such trade should be
conducted. For instance, government controls
on service trade should be administered in a
nondiscriminatory fashion.
Major Challenges of WTO
2. Agreement on Trade-related Aspects of
Intellectual Property Rights (TRIPS):
Entrepreneurs, artists, and inventors have been hurt by
inadequate enforcement by many countries of laws
prohibiting illegal usage, copying, or counterfeiting of
intellectual property. These problems are particularly
widespread in the music, filmed, entertainment, and
computer software industries.
• The Uruguay round agreement substantially
strengthened the protection granted to owners of
intellectual property rights and developed enforcement
and dispute settlement to punish violators.
Major Challenges of WTO
• However, because most such owners reside in
developed countries, and many violators live in
developing countries, this caused officials from
these countries to argue that the Uruguay
Round’s protection of intellectual property must
be relaxed in the case of life saving drugs
consumed in less developed countries.
Major Challenges of WTO
3. Trade Related Investment Measures
Agreement (TRIMS): The TRIMS agreement
in the Uruguay Round started eliminating
national regulations on FDI that may distort or
restrict trade. But the TRIMS agreement
affects:
• Trade-balancing rules: Countries may not
require foreign investors to limit their imports of
inputs to an amount equal to their exports of
local production.
Major Challenges of WTO
• Foreign –exchange access: Countries may
not restrict foreign investors’ access to foreign
exchange.
• Domestic sales requirement: Countries may
not require the investors to sell a percentage of
a factory’s output in the local market.
Forms or stages of Economic
Integration
Regional economic integration means, a form of
integration in which a group of countries located
in the same geographic area, decide to
cooperate.
• Free Trade Area
• Customs Union
• Common Market
• Economic Union
Forms of Economic Integration
Other Regional Trading Blocs
• The European Union (EU)
• The North American Free Trade Agreement
(NAFTA)
• Association of Southeast Asian Nations (ASEAN)