Definitions – IB – Midterm
Chapter 4 – International Cooperation Among Nations
International Trade Organization: body created in Havana, Cuba in 1947 to promote international trade
– never came into being because of controversy over how extensive its powers should be. Planned
mission was to take over the GATT.
General Agreement on Tariffs and Trade (GATT): an agreement to reduce barriers to international
trade. Provided a forum for trade ministers to discus policies and problems of common concern.
Replaced by the World Trade Organization in 1995.
GOAL: to promote a free and competitive international trading environment benefitting efficient
producers. Supported by many MNCs.
- High tarrifs = major impediment to world trade, GATT first focussed on reducing the general
level of tarrif protection.
- Negotiating ‘rounds’
Most favoured nation principle: Established by the GATT to ensure that internarnatiional trade was
conducted on a non-discriminatory basis. Requires that any preferential treatment granted to one
country must be granted to all.
EG: cutting tariffs on British trucks by USA, must cut tariffs for all countries importing trucks.
1. Poor countries allowed lower tariffs over developed countries.
Generalized system of preferences: in the USA, reduced rates offered to developing
2. Comprehensive trade agreements EG Nafta, EU. b/c these promote economic integration.
Uruguay round: 1995, cut nontarrif barriers aka abolishing quotas, agreed to make the WTO – broader
WTO: Jan 1, 1995. Members are required to open their markets to international trade and to follow the
1. Promote trade by encouraging nations to adopt non-discriminatory, predictable trade policies.
2. Reduce remaining trade barriers through multilateral negations.
a. Doha Round of 2001:
3. Esdtablish impartial procedures for resolving trade disputes among members. 2 Differences between WTO and GATT
1. GATT was just trade of goods, WTO’s mandate is much larger.
2. WTO has more enforcement powers.
1. Dealing with sectors of the economy that seeminlg yrecceive government protection in every
country. EG Agriculture and textiles.
Cairns Groups: a group of major agricultural exporters – pressures WTO members to ensure that
the Doha round significantly reduces barriers to agricultural trade.
Multifibre agreement: trade in textiles has been governed since 1974 – created a complex array
of quotas and tariffs.
2. Reducing barriers to trade in services
National treatment: a country treats foreign firms the same way it treats domestic firms.
Trade-related investment measures agreement (TRIMS)
Huge relationships exists between FDI and trade, therefore FDI in developing countries is key to
promoting economic growth.
TRIMS agreement – Uruguay round – start towards eliminating national regulations on FDI that may
distort or restrict trade.
1. Trade-balancing rules: countries may not require foreigin investors to limit their imports of
inputs to an amount equal to their exports of local production.
2. Foreign-exchange access: countries may not restrict foreign investors’ access to foreign
3. Domestic sales requirements: countries may not require the investor to sell a percentage of a
factory’s output in the local market.
Regional Economic Integration
- Economic Integration
o 1. What are the forms of economic integration and what are the differences between
o Customs union, political union,e tc etc
o 2. What are the structures of the EU and how do they relate to one another?
Regional alliances – promote liberalization of international trade that present international businesses
with lots of opportunities. Forms of Economic Integration – 5 forms
Free Trade Area
- Encourages trade among its members by eliminating trade barriers among theme. (EG NAFTA)
- Each member is free to establish its own trade policies against non-members.
o Trade deflection: non-members reroute their exports to the membernation with the
lowest external trade barriers.
- Combines the elimination of internal trade barriers among its members with the adoption of
common external trade policies toward non-members.
- Avoids trade deflection problem
- EG: Mercosur Accord between Argentina, Brazil, |Paraguay and Uruguay to promote trade
- Eliminate internal trade barriers among themselves and adopt a common external trade policy
- THEN elimate factors that inhibit the movement of factors of production (labor, capital,
technology) – among its members.
- EG EU