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Chapter 10 (2) - Chapter 10 International Business...

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Chapter 10: International Business International cooperative agreements form a major part of the economic environment in which IB operate. To be successful, IB people must be knowledgeable about these agreements and use them to create business opportunities for their firms and counteract competitors’ actions. The general agreements on tariffs and trade and the world trade organization The collapse of the economy during the great depression or between wwi and wwii has been blamed partly on countries’ imposing prohibitive tariffs. Quotas, and other protectionist measures on imported goods. By raising tariff and quota barriers, each nation believed that it could help its own industries and citizens, even though in doing so it might harm the citizens and industries of other countries. To ensure international peace, representatives of the leading trading nations met in Havana, Cuba, in 1947 to create the international trade organization (ITO), its mission was to promote international trade. Controversy arose, instead the ITO’s planned mission was taken over by the General Agreement on tariffs and trade (GATT). The signatories to the GATT fought to reduce barriers to international trade. It provided a forum for trade ministers to discuss policies and problems of common concern. In 1995, it was replaced by the world trade organization. The role of the general agreement on tariffs and trade The GATT’s goal was to promote a free and competitive international trading environment benefiting efficient producers, an objective supported by many MNCs. It accomplished this by sponsoring multilateral negotiations to reduce tariffs, quotas, and other nontariff barriers. The GATT negotiations have led to dramatic growth in the world trade since the end of WWII. To help IBs compete in world markets regardless of their nationality, the GATT sought to ensure that international trade was conducted on non-discriminatory basis. Accomplished through the Most Favoured Nation (MNF) Principle: requires that any preferential treatment granted to one country must be extended to all countries 2 exceptions were made to the MNF: 1) assist poorer countries in their economic development efforts, permitted members to lower tariffs to developing countries without lowering them for more developed countries. Under the USA code offering reduced rates to developing countries is known as the generalized system of preferences. 2) the second exemption is for comprehensive trade agreements that promote economic integration, such as the EU and NAFTA The GATT permitted countries to protect their domestic industries on a non-discriminatory basis, although under GATT rules countries were supposedly restricted to the use of tariffs only. However, there were loopholes in these rules, so many countries adopted quotas and other nontariff barriers yet remained in compliance with the GATT.
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