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Multilateralism and Trade Blocks

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Multilateralism and Trade Blocks
Hello everyone, I welcome you again to the class of International Business. So, in thelast lecture we had started with regional economic integration right; so which also iscalled as trade blocks or regional economic agreements. So, the whole idea behind suchagreements are you know integration is that; few countries member nations would cometogether and they would you know try to reduce or remove the tariff and non tariffbarriers to an extent that trade becomes very smooth and the flow becomes much fasterright.So, when we talked about it we also realize that is not always necessarily an advantagebecause sometimes if there is a trade diversion right. And in during because of thediversion if suppose somebody is you know taking buying products from a membercountry just because it is a member country. And then the cost you know becomes higherthan what it would have been had you purchased from another supplier or seller whichcould have been a much low cost producer.In such a condition a case of trade diversion may also come into play which might not bevery good, but yes if it is a case of a trade creation and trade is getting created;obviously, economies of scale come into play then that is the advantage which regionaleconomic integrations gives it right.(Refer Slide Time: 01:53)So, today we continue from there and we talked about this regionalism. So, what it saysis; the first regional initiatives began in the 50’s and 60’s, but they did not grow wellright except in Western Europe with the establishment of the European Community someanalyst call this as the old regionalism.Now, in 80’s a new bout of regional integration began and which has been continuingfrom there. So, we learnt about for example, the free trade area, the customs union, thenthe common market, the economic union right and then the finally, the most idealisticwhich is the political union.So, the European Union which is a part of the economic union where everything the taxthe everything comes is unified right; can be classified as a result of regionalism. Theidea that lies behind is increased regional identity is that as a region becomes moreeconomically integrated it will necessarily become politically integrated as well. Obviousthat is that is very much possible, but then getting a purely politically political union is astill to me an utopian thought very idealistic thought.But yes with more of trade political you know convergence will also happen ideaspolitical ideas will tend to converge otherwise business cannot happen. So, you cannotexpect a business to happen between nations for example, like Cuba and America, Indiaand Pakistan, for that Iraq and Iran because the point is the political differences are sohigh; that trade can happen cannot happen and if trade happens the political differenceshave to come down ok.(Refer Slide Time: 03:29)Multilateralism is represented by the efforts on worldwide liberalization of internationalrelations. So, we have already studied you know topics like; GATT, WTO where anumber of large number of countries come into play. So, in international businessmultilateralism refers to an alliance of multiple countries pursuing a common goal. Forexample, let us say when we started with the general agreement on tariff and trade.So, the GATT was first was the one which started for the purpose to make trade moresmoother right and more easy. And later on it was then developed into the WTO cameinto place; then it developed into broader fields of trade in service. The GATT basicallywas if you remember it was only for the goods rightSo, then services came investment agricultural products public procurement andintellectually intellectual property rights because more sophisticated successor that camein and took over of these problems was the WTO. So, WTO came in latter on which wasnothing, but a growth or a evolution of the GATT into the WTO right.(Refer Slide Time: 04:40)Multilateralism is when at least three government’s right participate in a particular issueto try to or try to solve a problem. This is an example of cooperation among worldgovernments and used in contrast with unilateralism. One example of this can be seen inattempts to prevent nuclear proliferation right.So, when countries at have understood that nuclear war is not going to help anybody. So,they are trying to reduce this nuclear growth right or the spread of nuclear weapons sothey are trying to reduce it. The non nuclear the nuclear non proliferation treaty is atreaty signed by nearly 200 countries and states that it is meant to encourage states fromfurther developing and using nuclear weapons.So, what it says is; countries who are member countries will not invest more you knowof their resources on developing nuclear weapons right. On the one hand the treaty hasbeen effective overall given the number of states that follow it is 200 so and it is anexample of a successful multilateralism right.So, there is a has to be purpose to which this is a common goal which everybody wantsto achieve. For example, poverty reduction is a common goal right for countries.(Refer Slide Time: 05:56)Now, what is the difference between these two; regionalism and multilateralism calls forliberalization of trade both right. Both are the outcomes of realization that free trade isthe best or the first best policy both have the common you know objective is this. But thedifference is that one creates a liberalized trade regime at the regional level and the otheraims to create at the global level.So, the regional integration talks about regional level or a small geographical area andthe other is more at a global level where whole all the number of different all thedifferent countries largely almost all come into play.(Refer Slide Time: 06:37)Now, one of the important agreements we have you know heard about is the NorthAmerican Free Trade Agreement NAFTA a shortly called as which was implemented inorder to promote trade between the U.S, Canada and Mexico and it came into effect in1994.So, what has happened the U.S. and the Canada signed the Canada U.S. free tradeagreement effective in 1989; which eliminated all the tariffs on bilateral trade. So, itstarted like a bilateral trade between Canada and U.S. In 91 after almost 2 years Mexicojoined as a part of the free trade agreement.Then the formal negotiation happened in 1991 which included that included Canada thatincluded Mexico in fact. First there was already Canada and USA and then Mexico camein. So, the resulting North American Free Trade Agreement came in 1994 ok.(Refer Slide Time: 07:31)So, this is how it looked. So, Canada, U.S. form trade agreement, Free Trade Agreement,Mexico approaches U.S. to form a free trade agreement between February 1991 andNAFTA becomes effective all the three come together in 1994 right.(Refer Slide Time: 07:48)Why NAFTA; the question is what is the gain? So, U.S. Canada trade is the largestbilateral trade in the world ok. United States is Mexico’s and Canada’s largest tradingpartner.Now, even though NAFTA is a free trade agreement instead of a custom union or acommon market. So, you have understood that the first is free trade area, then you had acustoms union, then common market, and then economic right union, and then politicalunion.So, NAFTA even though NAFTA it says is a free trade agreement right instead of acustom union right so it is not a custom union. So, the conditions which are required fora custom union it is not applicable here. It is corporation extends far beyond reduction intariff and non tariff barriers including provision of services investment and intellectualproperty.So, NAFTA is has grown up more than a you know free trade area, but it is still not acustoms Union or a common market. NAFTA calls for the elimination of tariff and nontariff barriers, the harmonization of trade rules, the liberalization of restrictions onservice and foreign investment, enforcement of the IPR intellectual property right, and adispute settlement process.(Refer Slide Time: 09:03)Recently the U.S and Canada agreed to deal to a deal to replace NAFTA now. Now veryrecently this has happened in 2018 so which will now be called the U.S.M.C.A theUnited States Mexico Canada Agreement ok.On January 29, 20 that is just recent right president Donald Trump signed the UnitedStates Mexico Canada agreement. And Canada has yet to pass it in it is parliamentarybody as of January 20 and Mexico was the first country to ratify the agreement in 2019.So, now, their thinking of making it something like this United States, Mexico andCanada agreement instead of the NAFTA.(Refer Slide Time: 09:42)Now, what does the NAFTA do these are the functions of the NAFTA you can see. So, itgrants the things that NAFTA does. NAFTA grants the most favored nation status to allthe cosigners right it eliminates tariff on import and export between the three countries.All NAFTA countries must respect the patents, copyrights and trademarks. Thenaccording to NAFTA exporters must get certificates of origin to waive tariffs. So, theseare some of the functions of the NAFTA.(Refer Slide Time: 10:11)NAFTA’s governance structure is minimal and cantered to on two institutions; the freetrade commission and the secretariat. So, what is this free trade commission? Is aprincipal body of the NAFTA and oversees NAFTA’s performance and evolution.It is responsible for dispute settlement right, it is and is composed of the U.S. traderepresentative, the Canadian minister for international trade and the Mexican secretaryfor commerce and industrial development. So, this operates by consensus right.Next is another important integration is the European Union. So, how did they evolve theEuropean Union is the product of two political factors; what are the two political factors?The first thing that happened was the devastation of the Western Europe during the 1stand the 2nd world war and the desire for a lasting peace. Now the countries wanted tohave a piece right so that they could grow.The European nations desire to hold their own on the worlds political and economicstage. So, this Union this European nations they wanted to do well in terms of the globalin the global economy right. In addition many Europeans were aware of the potentialeconomic benefits of closer economic integration. So, they realized if they are close theycould do much better right instead of getting into such barriers tariff and non tariffbarriers.Now, in the forerunner of the European Union the European Coal and Steel Communitywas formed in 1951 by Belgium, France, West Germany, Italy, Luxembourg, and theNetherlands right these five nations. The objective was to remove barriers to intergroupgroup, shipments of coal, iron, steel, and scrap metal. So, this was the first thing thathappened and this is how the European Union started.Now, after that the signing of the treaty of Rome happened in 1957. So, this was 51 this57 the European Community was established. So, the first time the EuropeanCommunity came into existence was in 57 and in 1999 the name again was rechristenedthe European the when the European Community became the European Union followingthe ratification of the Maastricht treaty.(Refer Slide Time: 13:08)So, the new community which came in was; it is objectives were elimination ofinternational internal trade barriers and creation of a common external tariff andrequiring member states to abolish obstacles to the free movement of factors ofproduction which happens in any common market right.To facilitate the free movement of goods services and the factors of production the treatyprovided for necessary harmonization to the member states law. The treaty committedthe European Commission to establish common policies in agriculture and transportationalso.(Refer Slide Time: 13:43)Now, this is how it looks like; so when new member joined the EU the founding treatieswere amended. So, 73 Great Britain, Ireland and Denmark joined, 81 Greece joined, 86Spain and Portugal joined, 95 Austria, Finland and Sweden joined.May 2004 10 countries Cyprus, Estonia, Hungary, Latvia, Malta, Poland, Slovenia,Slovakia, Czech Republic joined the EU. And then in 2007 Bulgaria and Romaniajoined, Croatia joined in 2013 bringing the total number of member countries to states to27 right.(Refer Slide Time: 14:22)So, the goals of the European Union were to promote peace it is values and the wellbeing of it is a citizen offer freedom security and justice across the borders. Sustainabledevelopment based on balanced economic growth and price stability and a competitivemarket with full employment and social progress and environmental protection.It combat social exclusion and discrimination; so the whole European Union they wantedto create a kind of a situation or a condition where the member countries can takemaximize the benefits and there would be no discrimination right at all.Promote scientific and technological progress enhance economic social and territorialcohesion and solidarity among the EU countries right. So, this was some of the goals ofthe European Union and they had a common currency which is the euro right.(Refer Slide Time: 15:15)So, we know that the euro is the next most popular currency after the dollar right. In1987 the single European Act came up; so this was born of a frustration among themembers that the community was not living up to it is promise. So, in early 80’s theEuropean Community had fallen short of it is objectives to remove barriers; so they hadnot done it well right.So, most of the barriers were still not removed and free flow of trade was not happening.So, in order to do that right under the chairmanship of Jacques Delor the commissionproposed that all impediments all barriers to the formation of a single market beeliminated by December 31 1992 ok.(Refer Slide Time: 15:58)The member countries of the European Union these are the list of the member countries.So, you can see 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14; so 26, 27 countries. Britain hasrecently moved out in January 2020 right.(Refer Slide Time: 16:16)Now, what is the political structure of the European Union? So, the economic policies ofthe European Union are formulated and implemented by a complex political structure.So, we have seen if you remember the diagram so in terms of integration economicunions they have a high integration, but in terms of complexity they are very complexright. So, the four main institutions in this structure are the European Commission, thecouncil of the European Union, the parliament and the court of justice.(Refer Slide Time: 16:40)So, what is this European Commission? So, the role played by this commission is togeneral it promotes the general interest of the EU by proposing and enforcing legislationas well as by implementing policies and the budget of the European Union. Every thereis one member from each EU country in here right. So, the establishment year is 58 andlocation is Brussels right.The European Commission is the EU’s politically independent executive arm right. It isresponsible for drawing up proposals for new European legislation and implements thedecision for the European Parliament and the council of the EU. So, these are some ofthe job of the European Commission.(Refer Slide Time: 17:29)It proposes new laws, manages the policies and allocates funding, enforces EU law,together with the court of justice, ensure that EU law is properly applied in the membercountries right. And represents the European Union internationally, and negotiatesinternational agreements for the European Union. So, these are some of the job of thiscommission.(Refer Slide Time: 17:49)So, there are 27 members one from each country as we have seen right. And the collegeof commissioners is composed of the president of the commission 8 vice presidents and3 executive vice presidents. The high representative of the union, for foreign affairs andsecurity policy and 18 commissioners each responsible for a portfolio; so this is how isthe composition looks like.(Refer Slide Time: 18:11)Now, it does the strategic planning; so the president defines the policy direction for thecommission which enables the commissioners together to decide strategic objectivesright on a annual policy.Collective decision making decisions are taken based on collective responsibility. So, theall the member countries they have to take a collective decision as a team to the globalcommunity. All commissioners are equal in the decision making process and equallyaccountable they do not have a any individual decision making powers right ok.(Refer Slide Time: 18:44)Now, let us take one case this is a very interesting case the Intel antitrust case. Now in2009 the European Commission adopted a decision finding that Intel infringed article 82of the European Commission treaty by abusing it is dominant position on the centralprocessing unit CPU market.The decision imposed a fine of 1.06 billion and obliged Intel to cease the identifiedillegal practices to the extent that they are ongoing, and not to engage in the same orequivalent practices in the future right. Now, what are the decision? The decision sets outhow Intel broke European Union antitrust law by engaging in two types of practices thatthey went into; what was that?.The first Intel gave wholly or partially hidden rebates to computer manufacturers. So,who are these for example, Dell, HP, NEC, Lenovo on condition that they bought all oralmost all their x86 CPU’s from Intel right. Intel made direct payments to the Europe’slargest PC retailer Media Saturn holding on condition that it stocked only computers withIntel 86. So, you see what they have done right; how Intel has tried to create a monopolyright.(Refer Slide Time: 20:10)And the second thing what Intel did was; Intel made direct payments to the computermanufacturers; HP, Acer, Lenovo, to stop or delay the launch of specific productscontaining a competitors CPU’s. So, if the somebody using a competitors CPU so itwould make payments to stop it from doing it and to limit the sales channel available tothese products; now this is a very dangerous thing right.Intel’s anticompetitive behavior diminished the competitor’s ability to compete on themerits of their CPU. So, obviously so two things Intel did so it in fact, in one way theyhave completely tried to destroy the competition right. So, this resulted in a reduction ofconsumer choice and in lower incentives to the innovative lower to innovate. So, thatmeans, the companies saw there was no point in innovating and putting in so much ofmoney into RND.The decision sets out how Intel sought to conceal or hide it is practices and howcomputer manufacturers and Intel itself recognized as the growing threat represented bythe products of Intel’s main competitor AMD. So, AMD which was the major competitorhow Intel tried to you know destroy the competition. So, understanding this you knowIntel here was finally; heavily penalized right.(Refer Slide Time: 21:29)Now, what is the council of the European Union? The council of the European Uniondefines the political direction and priorities of the European Union. So, who are themember’s; Heads of state or the government of the European Union countries, Europeancouncil president, and the common president right. So, it was established in 1974informally, then 92 in a formal status 2009 it became a EU institution right.(Refer Slide Time: 21:55)What does the council do? The council decides on the EUs overall direction and politicalpriorities right. So, it deals with complex or sensitive issues that cannot be resolved atlower levels of the intergovernmental cooperation. That means if two there are there issome problem some issue between two governments so it tries to resolve such issues. Itsets the EU’s common foreign and security policy taking into account EU strategicinterests and defence implications.So, the now you can understand that the European Union is becoming more or less likeone market right it has become more much more than one market because now it has onecurrency also and it is political you know the interests of all these member countries 27member countries now have to be tackled simultaneously right. Nominates and appointscandidates to certain high profile roles such as the ECB and the commission; right theboard and the commission.(Refer Slide Time: 22:52)So, who are the members? The heads of state or government of all EU countries, thecouncil president, and the commission president. It is convened and chaired by it ispresident who is elected by the European Council itself for a once renewable two-and-ahalf-year term right.(Refer Slide Time: 23:13)So, it meets 4 times a year, but the president can convene additional meetings. And itgenerally decides issues by consensus, but by unanimity or qualified majority in somecases right.(Refer Slide Time: 23:26)The next one is the European Parliament the third body directly elected EU body withlegislative, supervisory, and budgetary responsibilities; they have all got all thesepowers. There are 700 members and established in 1952 as a Common Assembly right ofthe Coal and Steel Community we have seen earlier. And it is located in Strasbourg,Brussels and Luxembourg ok. It is the EUs law making body which is directly elected bythe EU every 5 years.(Refer Slide Time: 24:00)So, what does this parliament do? It passes the EU laws so legislative responsibilitybudgetary responsibility. So, together with the council of the EU based on EuropeanCommission proposals it passes the EU laws, decides on international agreements, anddecides on enlargements right.Reviewing the commission’s work program and asking it to propose legislation. Andfinally, it establishes the European Union’s budget together with the council. Approvingthe long term budget the multiannual financial framework.(Refer Slide Time: 24:34)The supervisory role here democratic scrutiny of all the institutions will happen rightthey do it. And they elect the common president and approve the commission as a body.Granting discharge that is approving the way EU budgets have been spent.So, the supervisory role basically we can all see this is a supervisory role. So, one was tocreate a law the other was to create the budget and see it and use it and the third one is tojust to monitor. So, this is the monetary part right.(Refer Slide Time: 25:05)What is the composition? It has no country the number of MEP’s for each country isroughly proportionate to it is population is based on the population of the size of thecountry. No country can have fewer than 6 or more than 96 MEP’s and the total cannotexceed 705 because 704 and the one president is there.The presidents represents the parliament to other EU institutions and the outside worldand gives a final go ahead to the EU budget. So, this is a very complex structure;obviously, it is a and complexity the European Union is on very high right.(Refer Slide Time: 25:42)Now, what does the parliament do? It prepares the committees to prepare legislation; sowe have seen. Plenary sessions to pass legislations right.(Refer Slide Time: 25:51)And finally, after all these there is a the fourth important institution in the EuropeanUnion is the court of justice. So, what is this court of justice? There is one judge fromeach EU country plus 11 advocates general right. Two the general court has 2 judgesfrom each EU country established in 1952 in Luxembourg right.(Refer Slide Time: 26:16)The court of justice of the European Union interprets EU law to make sure that is appliedin the same way in all the EU countries right among all the member 27 member countiesand settle the legal disputes; between national governments and economic EuropeanUnion institutions.In certain circumstances it can be used by individuals companies or organizations to takeaction against an EU institution also right. If they feel it has infringed their right supposeany EU body has infringed their rights so they can file a case against it.The composition is divided into two courts; court of justice, general court as we haveseen. So, this deals with the requests for preliminary rulings from national courts, certainactions of annulment and appeals. And the general court it is rules on actions forannulment brought by individuals companies and in some cases EU governments’ right.So, this deals with mainly with the competition law state, aid, trade, agriculture, andtrademarks. After all these after you know we have understood that the you know therole of the EU how the different four bodies are functioning.Now, comes the most important the currency. So, EU was has it is own European Unionhas own currency which is called the euro right.(Refer Slide Time: 27:32)So, this is the official currency of 19 out of the 27 EU countries today. That means, youcan understand what kind of an integration it is, how large an integration.So, this is these countries are collectively called as the euro zone. And who are themember countries which use this among this 19; Austria, Belgium, Finland, France,Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Cyprus,Estonia, Latvia, Lithuania, Malta, Slovakia, and Slovenia.In 1922 EC members signed the Maastricht treaty which we had seen earlier whichcommitted them to adopt a common currency by 1999. The Central Bank and theEuropean Commission in charge of maintaining it is value and stability and forestablishing the criteria required for EU countries to enter the European Union area theeuro area right.The an economic and monetary union EMU was a recurring ambition for the EuropeanUnion right from the late 60’s because they wanted a very high level of integration right.So, the EMU involves coordinating economic and fiscal policies of the membercountries; a common monetary policies, a common currency, which is the euro.What are the advantage? Why we all know that right. It is very simple that it makes iteasier for companies to conduct cross border trade and the economy becomes morestable, consumers have more choice and opportunities right.So, today we will wind up here. So, we have understood that we continued from; theregionalism to the multi literalism, and then we talked about the NAFTA, what are thedifferent members, and then the euro you know European Union, how the EuropeanUnion structure is made up of and then finally, we come to the euro which is a commoncurrency which is you know adopted by the 19 countries out of the 27 countries right.And recently we have come to know that Britain has come out of this zone. And today itis not a member of the euro anymore and but it has been given 11 months to come out ofthis for this transition period.And, so; we will continue from here in the next lecture. And we will talk more about theeconomic effects of this integrations and how it has affected the global economy at large.So, that; is for today.Thank you very much.