GOING

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GOING INTERNATIONAL
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WHAT CAN FIRMS DO THAT WANT TO GO INTERNATIONAL?
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Firms Have Four reasons for entering
international markets Six strategies or
methods they can use Two types of international
risks
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Four reasons for entering international
markets Increased market size Increased return
on investment Increased economies of scale and
learning effects Location advantages
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Six Strategies or Methods to Develop
International Business Se habla
Español Exporting Licensing Strategic
alliances Joint venture Green field new wholly
owned subsidiary Note that the text only presents
five of these strategies
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Two Significant Risks Economic Host country
economy in combination with world economy often
resulting in host country currency
devaluation Political War, terrorism,
expropriation
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WHAT CAN COUNTRIES DO THAT WANT TO GO
INTERNATIONAL?
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Countries can

• Join other countries and negotiate a Trade Treaty
  like the GATT/WTO or NAFTA.
• Join in a Customs Union where they agree to share
  the same tariff schedules.
• Join in a Economic and Political Union like the
  European Union (EU) where countries in the union
  give up some sovereignty and share many citizen
  rights.

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What are the Benefits of Trade Agreements like
the GATT/WTO and NAFTA ?
Lower prices for consumers as a result of
lowering tariffs and other trade barriers. Trade
treaties increase competition. A Trade treaty is
a good deal only if you are a capable competitor.
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What is a trade agreement like the GATT/WTO or
NAFTA ?

• In a trade treaty
• Normally no sovereignty is lost.
• Therefore in a trade dispute countries seldom
  have recourse to the courts in either country.
• It is not an Economic Union like the European
  Union (EU) where countries in the union give up
  some sovereignty to enjoy the benefits of the
  union.

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GATT/WTO is a Agreement

• Which establishes a balance of rights and
  obligations among its member countries
• The members are called contracting parties

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Trade Without DiscriminationArticle III
National Treatment

• National Treatment means treat me like you treat
  your own national businesses.
• When goods enter a GATT/WTO country from another
  GATT/WTO country
• There may be a tariff (import tax) but after
  entry
• The importing country cannot subject the imported
  products to discriminatory treatment
• Or special taxes, requirements or regulations

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Protection Via Tariffs

• Tariffs are not contrary to GATT/WTO and may be
  subject to negotiations
• Stability and Predictability of Tariffs
• Many tariffs are bound and become part of
  GATT/WTO schedules (Art. II)
• They may not be raised above the bound level
• But negotiation of tariff commitments is possible
  (Art. XXVIII)

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Regional Trading Arrangements

• Custom unions and free-trade areas are
  permissible
• When established, trade conditions for other
  GATT/WTO countries should be no more restrictive
  than previously
• (Art. XXIV)
• The NAFTA was developed within the context of
  the free-trade areas provision of the GATT/WTO.

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General Exceptions to GATT/WTO Commitments

• Health and safety Protection of national
  treasures Products in short supply etc. (Art.
  XX)
• National security (Art. XXI)

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Special Treatment for Developing Countries like
Mexico and China

• PART IV (1965)
• Improved access for products of interest to
  less-developed countries
• No expectations of full reciprocity
• ENABLING CLAUSE (1979)
• Permits differential and more favorable treatment
  (for example G.S.P.) for developing countries

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Technical Assistance to Developing Countries

• Trade policy seminars and missions
• Provision of data and trade information
• Enhancement of effective participation in
  GATT/WTO and in the Uruguay Round
• Activities in co-operation with other
  organizations
• Training Program
• Trade policy courses to assist developing
  countries to develop effective trade policies

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The Work of GATT/WTO

• Oversight and implementation of the General
  Agreement and other agreements (e.g. the Tokyo
  Round codes)
• Negotiation of new trade agreements (e.g. the
  Uruguay Round)
• Negotiation of new accessions
• Resolution of trade disputes
• Activities related to trade interests of
  developing countries
• Surveillance - including reviews of national
  trade policies (TPRM) since 1989
• Trade and environment

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Accession to GATT/WTO (Art. XXXIII)

• Notification by applicant
• GATT/WTO Council establishes working party
• Memorandum on commercial policy
• Questions and answers on memorandum
• Working partys report and negotiation of draft
  protocol
• Parallel negotiations of tariff schedule
• Report and draft protocol to Council, then to
  Contracting Parties for vote
• Two-thirds majority of Contracting parties needed
• Protocol becomes operative 30 days after
  signature
• Some countries can succeed to contracting party
  status
• more quickly (Art. XXVI)

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GATT/WTO Dispute Settlement Procedures
On any GATT matter - bilateral or
plurilateral (XXII1) CONSULTATION -
multilateral with CPs (XXII2) On
impairment of GATT/WTO benefits -
bilateral (XXIII1) or
objectives
CONCILIATION Good offices of DG or his nominee
Working party
investigation (open to all CPs)
orADJUDICATION Panel investigation
(independent experts) Recommendation
or ruling by the Contracting Parties
(XXIII2)
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GATT/WTO Dispute Settlement Procedure

• Request to council for Article XXIII2 panel
• Council decision to establish panel
• Terms of reference and composition
• Written submissions
• Panel sessions with disputants and third parties
• Panel prepares report with conclusions and
  recommendations
• Report sent to Contracting Parties
• Adoption of report by Council
• Implementation of recommendations

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TRADE DISPUTES

• The way to think about trade disputes
• You have two children that rent an apartment from
  a landlord in another country.
• The children cant live anywhere else and the
  landlord cant rent to anyone else.
• When there is a dispute they just have to work it
  out.

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RESULTS OF THE GATT/WTO
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GATT/WTO Tariff Reduction for Industrial Products
1962-1998
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1950-2001 Volume of World Exports of
Manufacturers, Minerals, and Agriculture
Index 1950100
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Percent of Value of World Exports of
Manufactures, Agriculture, and Minerals
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Trade Without DiscriminationArticle 1 Most
Favored Nation

• All members are to be
• Treated on an equal basis and
• Share the benefits of lower trade barriers

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SUMMARY FIRMS AND COUNTRIES GOING
INTERNATIONAL
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Firms Have Four reasons for entering
international markets Six strategies or
methods they can use Two types of international
risks
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Countries can

• Join other countries and negotiate a Trade Treaty
  like the GATT/WTO or NAFTA.
• Join in a Customs Union where they agree to share
  the same tariff schedules.
• Join in a Economic and Political Union like the
  European Union (EU) where countries in the union
  give up some sovereignty and share many citizen
  rights.

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THE GATT/WTO

• Has rounds which are negotiations to determine a
  new set of tariffs
• In these rounds works to reduce tariffs and all
  trade barriers
• Requires national treatment between thee
  countries to the agreement
• Normally does not require the loss of sovereignty
• Provides a dispute procedure that does not permit
  the use of the courts of the countries in the
  dispute.

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THE GATT/WTO LIKE ALL TRADE TREATIES INCREASES
COMPETITION THE GATT/WTO and NAFTA BENEFIT THE
BEST COMPETITORS
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GOING INTERNATIONAL