V. TRADE PROTECTION AND
AGREEMENTS
► LEARNING OBJECTIVE 5
Describe different types of trade protections and
trade agreements. (Text pages 79-85)
A. The political atmosphere between nations
is often the greatest barrier to global trade.
1. TRADE PROTECTIONISM is the use
of government regulations to limit the
import of goods and services.
a. Advocates believe that trade
protectionism allows domestic
producers to survive and grow,
producing more jobs.
b. Countries often use trade
protectionism measures to protect
their industries against dumping
and foreign competition.
c. Another barrier to international
trade is the overall political
atmosphere between nations.
2. Governments sometimes charge a
TARIFF, a tax on imports, making
imported goods more expensive.
a. Protective tariffs are import taxes
designed to raise the price of
imported products so that
domestic products can be more
competitively priced.
b. Revenue tariffs are designed to
raise money for the government.
c. The HARMONIZED TARIFF
SCHEDULE is a publication of the
U.S. government that lists the
tariffs and quotas for every
imported good.
3. Quotas are more restrictive.
POWERPOINT 3-6
Trade Protection and
Agreements (Refers to text
pages 79-80)
CRITICAL THINKING
EXERCISE 3-1
Trade Agreements
This Internet exercise
introduces students to the
most important international
trade agreements. (See
complete exercise on page
3.Error! Bookmark not
defined. of this manual.)
LECTURE LINK 3-1
The Great Trade
Protection Debate
This lecture link focuses on
the consequences of the 1930
Smoot-Hawley Act.
(See complete lecture link on
page 3.Error! Bookmark
not defined. of this manual.)
a.
An IMPORT QUOTA limits the
number of products in certain
categories that a nation can
import.
b. An EMBARGO is a complete ban
on the goods to or from a country.
(example: the U.S. embargo
against trade with Cuba)
4. Global trade is also limited by
NONTARIFF BARRIERS, restrictive
standards that detail exactly how a
product must be sold in a country.
a. For example, Demark requires
that butter be sold in cubes, not
tubs.
b. Japanese companies forge semipermanent ties, called keiretsu,
with suppliers, customers, and
distributors.
c. Today Japan is a more open
market.
B. The General Agreement and Tariffs and
Trade and the WTO
1. In 1948, leaders from 23 countries
formed the General Agreement on
Tariffs and Trade (GATT).
2. The GENERAL AGREEMENT ON
TARIFFS AND TRADE (GATT) is an
agreement signed by many countries
to reduce the restrictions on trade with
one another; it is overseen by the
WTO.
3. The 1986 Uruguay Round of GATT
Talks was convened to deal with the
renegotiation of trade agreements.
a. After eight years, 124 nations
agreed to a new GATT
POWERPOINT 3-7
Trade Protection and
Agreements (Refers to text
agreement.
b. The U.S. House of
Representatives and Senate
approved the pact in 1994.
4. The new GATT agreement:
a. lowers tariffs on average by 38%
worldwide; and
b. extends GATT rules to new areas
such as agriculture, services, and
the protection of copyrights and
patents.
5. Created on January 1, 1995, the
WORLD TRADE ORGANIZATION
(WTO) is the organization that
mediates trade disputes between
countries and also sets policies in
place to encourage trade.
6. The WTO replaced the General
Agreement of Tariffs and Trade.
7. WTO acts as an independent entity
that oversees key cross-border issues
and global business practices.
8. The formation of the WTO did not
totally eliminate the internal national
laws that impede trade expansion.
a. The 2001 “WTO Round”
addressed many unresolved
issues.
b. In 2001 China became a member.
C. Common Markets
1. A COMMON MARKET (also called a
trading bloc) is a regional group of
countries that have a common external
tariff, no internal tariffs, and the
coordination of laws to facilitate
exchange among member countries.
pages 80-84)
2.
3.
4.
The EUROPEAN UNION (EU) is an
agreement among European member
countries to eventually reduce all
barriers to trade and become unified
both economically and politically.
a. When combined, the 25 European
Union nations are the world’s
second largest economy.
b. The objective for creating the EU
was to make Europe an even
stronger competitor in global
commerce.
The path to unification has been slow
and difficult, yet significant progress
has been made.
a. On January 1, 1999, the EU
officially launched its joint
currency.
b. In January 2002, the separate
currencies of the EU nations were
transformed into a single
monetary unit: the euro.
c. The adoption of the euro
eliminated currency conversion
problems and saved billions of
dollars.
d. It is hoped that the EU’s unified
currency will bring more economic
clout, more buying power, and
greater economic stability.
e. The euro’s value has been
increasing compared to the dollar.
Another common market is Mercosur,
a group that includes Brazil, Argentina,
Paraguay, Uruguay, Chile, and Bolivia.
a. Initially, there were ambitious
economic goals including a single
LECTURE LINK 3-2
Europe Is Shrinking
According to the United
Nations, Europe’s population
will shrink by more than 90
million people in the next 50
years. (See complete lecture
link on page 3.Error!
Bookmark not defined. of
this manual.)
TEXT FIGURE 3.4
Steps to Economic
Integration of the
European Union (Box in
text on pages 82-83)
currency.
b. However, the Mercosur trading
bloc has not achieved its goals.
D. Organization of the Petroleum
Exporting Countries (OPEC)
1. OPEC is an organization, consisting of
12 oil-producing countries, to work
collectively for oil interests.
2. The mission of the organization,
started in 1960, is to:
a. coordinate petroleum policies;
b. seek ways to stabilize prices in oil
markets; and
c. provide a fair return on capital for
petroleum investors.
E. The NORTH AMERICAN FREE TRADE
AGREEMENT (NAFTA) is an agreement
signed by the United States, Mexico, and
Canada to reduce or eliminate tariffs on
goods and to encourage trade between the
countries.
1. NAFTA is not an economic union, as
the EU is.
2. The objectives of NAFTA were to:
a. eliminate trade barriers;
b. promote conditions of fair
competition;
c. increase investment opportunities;
d. provide protection of intellectual
property rights; and
e. establish a framework for further
regional trade cooperation.
3. NAFTA opponents believe the
agreement caused loss of U.S. jobs
and capital.
POWERPOINT 3-8
Trade Protection and
Agreements (Refers to text
pages 85-86)
POWERPOINT 3-9
Trade Protection and
Agreements (Refers to text
pages 85-86)
4.
5.
6.
7.
Proponents predicted a vast new
market for exports that would create
jobs and opportunities in the long term.
In 1994, Congress approved NAFTA,
and President Clinton signed it into
law.
The combination of the United States,
Canada, and Mexico created a market
of over 417 million people with a gross
domestic product of over $11 trillion.
NAFTA has experienced both success
and difficulties.
a. U.S. exports to NAFTA partners
have increased about 85% since
the agreement was signed.
b. Mexican trade has increased by
225%.
c. However, the U.S. has lost almost
1 million jobs since signing
NAFTA.
d. Inequities still exist between
Mexico and the U.S. in income
and working conditions.
SELF CHECK QUESTIONS (Text page 85)
1.
Why do countries engage in protectionist policies? Do
you agree with using these policies in global business?
Why or why not?
2.
What are the advantages and disadvantages of
countries’ agreeing to be part of a common market?
3.
Do you think NAFTA should consider using a common
currency?