INTERNATIONAL MARKETING 6e
International Trade Institutions and
U.S,Trade Policy
Chapter 2
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-2
The Historical Dimension
Ancient Traders
Rome and the Pax Romana
European Feudalism in the Middle Ages
Protectionism in the 1930’s
and Hawley-Smoot Act
The Emergence of
Global Division (1945)
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-3
A Brief History of International Business
Pax Romana
The,Roman Peace” ensured that
merchants were able to travel safely
and rapidly on roads built,protected,
and maintained by the Roman legions.
European Feudalism
By delivering a portion of their
“earnings” to a protector,medieval
farmers were shielded from the
depredations of outsiders,
While local economies were
largely closed,East-West
export /import trade thrived.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-4
A Brief History … continued
Protectionism in the 1930’s
and the Smoot-Hawley Act
The Act raised import duties to
reduce the volume of imports
into the United States,with
the intent of fostering
increased domestic
employment,World trade
collapsed as other nations
countered with raised duties
and tariffs of their own.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-5
The Emergence of Global Division (1945)
The post-war East and West ideological split
The Soviet Union and the Eastern Bloc
– Council for Mutual Economic Assistance (CMEA or
COMECON)
53 Western countries
– The International Trade Organization (ITO) - 1948
Pax Americana
The,American Peace” ensuring
safety in the Western world
from 1945 to 1990 helped
world trade grow dramatically.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-6
Transnational Institutions and World Trade
General Agreement on Tariffs and Trade
(GATT)
World Trade Organization (WTO)
International Monetary Fund (IMF)
World Bank
Regional Institutions
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-7
General Agreement on Tariffs and Trade
GATT focused on reducing prevailing high
tariffs.
-Was a able to reduce tariff from 26 to 5% (US)
-Flow trade via bilateral trade agreement,
voluntary trade restraints undermined GATT
-GATT didn’t cover services
-The Uruguay Round
Most-Favored Nation (MFN) clause
,… each member country of the GATT must grant
every member country the most favorable
treatment it accords to any other country with
respect to imports and exports”
Copyright? 2001 by Harcourt,Inc,All rights reserved.
World Trade Organization (WTO) 1995-
General Agreement on Trade in Services (GATS)
Trade-related aspects of intellectual property rights (TRIPS)
Trade-related investment measures (TRIMS)
-Problems around WTO
– Environmentalist’s concern
– Labor union’s fear
– Developed nations’ concern
– Countries may lose their sovereignty
-Positive expectations
– More expansion for MNC and Global
– Violators of trade agreement,trade secrets and copy rights can be punished
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-9
The International Monetary Fund (IMF)
Developed out of the Bretton Woods
Agreement in 1944.
Offers gold and constituent currencies
available to members for currency
stabilization.
Special Drawing Rights (SDR)
an index of currencies available
to each member in the IMF
Copyright? 2001 by Harcourt,Inc,All rights reserved.
International Monetary Fund (IMF) – 1944
Regulates the international monetary system
Helps member countries during currency
fluctuations
Helps countries to move from soft to hard
currencies
Helps countries to fight against black market for
hard currencies
Helps countries during their privatization and
restructuring of their economies.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-11
World Bank
The International Bank for Reconstruction
and Development
Formed in 1944,it provides economic assistance
for the reconstruction of war-torn and,more
recently,loans to developing countries.
It’s original objective was to help in building and reconstruction of
countries damaged by the war.
-It helps countries to develop their infrastructure
-it helps countries to settle their debt problems
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-12
Regional Institutions
European Coal and Steel Community
Customs Unions
European Union (EU)
North American Free Trade Agreement
(NAFTA)
Mercosur - Latin America
Gulf Cooperation Council (GCC)
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Council for Mutual Economic Assistance
(CMEA):
The Soviet Union and the Eastern Bloc
USSR
East European Satellites
China,Cuba,Vietnam,Laos,Cambodia
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-14
A Diagnosis of the U.S,Trade Position
The impact of trade and investment on the
U.S,has been a continuous trade deficit
A steady erosion of U.S,share of world exports
Imports have exceeded U.S,exports since 1975
Missed opportunities for the benefits of
exporting
Economies of scale
Market and business risk diversification
Strengthening of competitive capabilities
Foreign direct investment in the U.S.
1 in 9 manufacturing employees now works for a
foreign affiliate (10% or more foreign ownership).
Copyright? 2001 by Harcourt,Inc,All rights reserved.
The Current U.S,Trade Position
Merchandise Exports as % of GNP
– ‘81 7.7%
– ‘83 5.9%
– ‘85 5.3%
– ‘87 5.4%
– ‘89 7.0%
– ‘91 7.4%
– ‘93 7.2%
– ‘95 8.1%
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-16
P e r c e n t a g e o f W o r ld T o t a l
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
U,S,G e r m a n y J a p a n F r a n c e U,K,I t a l y C a n a d a
C o u n tr y
Exp or ts
I m p or ts
Merchandise Exports and Imports (1999)
Source,International Monetary Fund,International
Financial Statistics,Washington D,C.,December 1999.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-17
U.S,Direct Investments Abroad,1998
C a n a d a
1 0,6 %
O t h e r
3 2,8 %
P a n a m a
2,7 %
A u s t r a l i a
3,4 %
S w i t z e r l a n d
3,9 %
B r a z i l
3,9 %
J a p a n
3,9 %
F r a n c e
4,0 %
B e r m u d a
4,2 %
N e t h e r l a n d s
8,1 %
G e r m a n y
4,4 %
U n i t e d K i n g d o m
1 8,2 %
Host-Country
Shares
Source:Survey of Current Business,Bureau of
Economic Analysis,U.S,Department of Commerce,
Washington D.C,July and August 1999,pp,50 and 52
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-18
Foreign Direct Investments in the U.S.,1998
U n i t e d K i n g d o m
1 8,6 %
S w i t z e r l a n d
6,7 %F r a n c e
7,7 %
C a n a d a
9,2 %
G e r m a n y
1 1,7 %
N e t h e r l a n d s
1 1,9 %
J a p a n
1 6,3 %
O t h e r
1 7,8 %
Source:Survey of Current Business,Bureau of
Economic Analysis,U.S,Department of Commerce,
Washington D.C,July and August 1999,pp,50 and 52
Parent-Country
Shares
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-19
Policy Responses to Trade Problems
Barriers to imports
,Voluntary” restraints
Tariffs and non-tariff barriers
Export promotion reasons
Need to earn foreign currency
Encourage employment and economic activity
Export promotion efforts
Department of Commerce information services
Trade Promotion Coordination Committee
Increased financing support and lower taxes
Export Trading Company Act of 1982
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Restrictions of Exports
National Security
Foreign Policy
Short Supply Products
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-21
A Strategic Outlook
Locus of control of trade policy
The power to set trade policy has increasingly
shifted from the federal administration to a variety
of federal and state regulatory agencies.
Bilateral approach to trade policy
Negotiations are carried out between two nations.
Multilateral approach to trade policy
Negotiations are carried out among several nations.
Sectoral negotiations
Negotiations are focused on a specific market or
product sector (e.g.,steel,lumber,cars).
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Case 2.3,World Bank Perspective on Child Labor
There are many arguments for and against child labor,
Opponents of child labor argue that under age
children are exploited extremely,while others look at
child labor as survival of a family and competitiveness
of a nation that has nothing but its own young people,
Given that the well being of children as well as
economic survival are important aspects of the global
economy,how would you reconcile the two conflicting
situations if one seeks to see WTO being a successful
organization,
International Trade Institutions and
U.S,Trade Policy
Chapter 2
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-2
The Historical Dimension
Ancient Traders
Rome and the Pax Romana
European Feudalism in the Middle Ages
Protectionism in the 1930’s
and Hawley-Smoot Act
The Emergence of
Global Division (1945)
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-3
A Brief History of International Business
Pax Romana
The,Roman Peace” ensured that
merchants were able to travel safely
and rapidly on roads built,protected,
and maintained by the Roman legions.
European Feudalism
By delivering a portion of their
“earnings” to a protector,medieval
farmers were shielded from the
depredations of outsiders,
While local economies were
largely closed,East-West
export /import trade thrived.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-4
A Brief History … continued
Protectionism in the 1930’s
and the Smoot-Hawley Act
The Act raised import duties to
reduce the volume of imports
into the United States,with
the intent of fostering
increased domestic
employment,World trade
collapsed as other nations
countered with raised duties
and tariffs of their own.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-5
The Emergence of Global Division (1945)
The post-war East and West ideological split
The Soviet Union and the Eastern Bloc
– Council for Mutual Economic Assistance (CMEA or
COMECON)
53 Western countries
– The International Trade Organization (ITO) - 1948
Pax Americana
The,American Peace” ensuring
safety in the Western world
from 1945 to 1990 helped
world trade grow dramatically.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-6
Transnational Institutions and World Trade
General Agreement on Tariffs and Trade
(GATT)
World Trade Organization (WTO)
International Monetary Fund (IMF)
World Bank
Regional Institutions
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-7
General Agreement on Tariffs and Trade
GATT focused on reducing prevailing high
tariffs.
-Was a able to reduce tariff from 26 to 5% (US)
-Flow trade via bilateral trade agreement,
voluntary trade restraints undermined GATT
-GATT didn’t cover services
-The Uruguay Round
Most-Favored Nation (MFN) clause
,… each member country of the GATT must grant
every member country the most favorable
treatment it accords to any other country with
respect to imports and exports”
Copyright? 2001 by Harcourt,Inc,All rights reserved.
World Trade Organization (WTO) 1995-
General Agreement on Trade in Services (GATS)
Trade-related aspects of intellectual property rights (TRIPS)
Trade-related investment measures (TRIMS)
-Problems around WTO
– Environmentalist’s concern
– Labor union’s fear
– Developed nations’ concern
– Countries may lose their sovereignty
-Positive expectations
– More expansion for MNC and Global
– Violators of trade agreement,trade secrets and copy rights can be punished
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-9
The International Monetary Fund (IMF)
Developed out of the Bretton Woods
Agreement in 1944.
Offers gold and constituent currencies
available to members for currency
stabilization.
Special Drawing Rights (SDR)
an index of currencies available
to each member in the IMF
Copyright? 2001 by Harcourt,Inc,All rights reserved.
International Monetary Fund (IMF) – 1944
Regulates the international monetary system
Helps member countries during currency
fluctuations
Helps countries to move from soft to hard
currencies
Helps countries to fight against black market for
hard currencies
Helps countries during their privatization and
restructuring of their economies.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-11
World Bank
The International Bank for Reconstruction
and Development
Formed in 1944,it provides economic assistance
for the reconstruction of war-torn and,more
recently,loans to developing countries.
It’s original objective was to help in building and reconstruction of
countries damaged by the war.
-It helps countries to develop their infrastructure
-it helps countries to settle their debt problems
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-12
Regional Institutions
European Coal and Steel Community
Customs Unions
European Union (EU)
North American Free Trade Agreement
(NAFTA)
Mercosur - Latin America
Gulf Cooperation Council (GCC)
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Council for Mutual Economic Assistance
(CMEA):
The Soviet Union and the Eastern Bloc
USSR
East European Satellites
China,Cuba,Vietnam,Laos,Cambodia
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-14
A Diagnosis of the U.S,Trade Position
The impact of trade and investment on the
U.S,has been a continuous trade deficit
A steady erosion of U.S,share of world exports
Imports have exceeded U.S,exports since 1975
Missed opportunities for the benefits of
exporting
Economies of scale
Market and business risk diversification
Strengthening of competitive capabilities
Foreign direct investment in the U.S.
1 in 9 manufacturing employees now works for a
foreign affiliate (10% or more foreign ownership).
Copyright? 2001 by Harcourt,Inc,All rights reserved.
The Current U.S,Trade Position
Merchandise Exports as % of GNP
– ‘81 7.7%
– ‘83 5.9%
– ‘85 5.3%
– ‘87 5.4%
– ‘89 7.0%
– ‘91 7.4%
– ‘93 7.2%
– ‘95 8.1%
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-16
P e r c e n t a g e o f W o r ld T o t a l
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
U,S,G e r m a n y J a p a n F r a n c e U,K,I t a l y C a n a d a
C o u n tr y
Exp or ts
I m p or ts
Merchandise Exports and Imports (1999)
Source,International Monetary Fund,International
Financial Statistics,Washington D,C.,December 1999.
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-17
U.S,Direct Investments Abroad,1998
C a n a d a
1 0,6 %
O t h e r
3 2,8 %
P a n a m a
2,7 %
A u s t r a l i a
3,4 %
S w i t z e r l a n d
3,9 %
B r a z i l
3,9 %
J a p a n
3,9 %
F r a n c e
4,0 %
B e r m u d a
4,2 %
N e t h e r l a n d s
8,1 %
G e r m a n y
4,4 %
U n i t e d K i n g d o m
1 8,2 %
Host-Country
Shares
Source:Survey of Current Business,Bureau of
Economic Analysis,U.S,Department of Commerce,
Washington D.C,July and August 1999,pp,50 and 52
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-18
Foreign Direct Investments in the U.S.,1998
U n i t e d K i n g d o m
1 8,6 %
S w i t z e r l a n d
6,7 %F r a n c e
7,7 %
C a n a d a
9,2 %
G e r m a n y
1 1,7 %
N e t h e r l a n d s
1 1,9 %
J a p a n
1 6,3 %
O t h e r
1 7,8 %
Source:Survey of Current Business,Bureau of
Economic Analysis,U.S,Department of Commerce,
Washington D.C,July and August 1999,pp,50 and 52
Parent-Country
Shares
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-19
Policy Responses to Trade Problems
Barriers to imports
,Voluntary” restraints
Tariffs and non-tariff barriers
Export promotion reasons
Need to earn foreign currency
Encourage employment and economic activity
Export promotion efforts
Department of Commerce information services
Trade Promotion Coordination Committee
Increased financing support and lower taxes
Export Trading Company Act of 1982
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Restrictions of Exports
National Security
Foreign Policy
Short Supply Products
Copyright? 2001 by Harcourt,Inc,All rights reserved,2-21
A Strategic Outlook
Locus of control of trade policy
The power to set trade policy has increasingly
shifted from the federal administration to a variety
of federal and state regulatory agencies.
Bilateral approach to trade policy
Negotiations are carried out between two nations.
Multilateral approach to trade policy
Negotiations are carried out among several nations.
Sectoral negotiations
Negotiations are focused on a specific market or
product sector (e.g.,steel,lumber,cars).
Copyright? 2001 by Harcourt,Inc,All rights reserved.
Case 2.3,World Bank Perspective on Child Labor
There are many arguments for and against child labor,
Opponents of child labor argue that under age
children are exploited extremely,while others look at
child labor as survival of a family and competitiveness
of a nation that has nothing but its own young people,
Given that the well being of children as well as
economic survival are important aspects of the global
economy,how would you reconcile the two conflicting
situations if one seeks to see WTO being a successful
organization,
