1. Theories and Institutions: Trade
and Investment
• Cross-National Cooperation and
Agreements
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by DrRajesh Patel,Director, NRV

2. Chapter Objectives
• To identify the major characteristics and challenges of the World
Trade Organization
• To discuss the pros and cons of global, bilateral, and regional
integration
• To describe the static and dynamic impact of trade agreements on
trade and investment flows
• To define different forms of regional economic integration
• To compare and contrast different regional trading groups, including
but not exclusively the European Union (EU), the North American
Free Trade Agreement (NAFTA), the Southern Common Market
(MERCOSUR), and the Association of South East Asian Nations
(ASEAN)
• To describe other forms of global cooperation, such as the United
Nations and the Organization of Petroleum Exporting Countries
(OPEC)
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
8-2

3. GATT
• The General Agreement on Tariffs and
Trade (GATT), begun in 1947, created a
continuing means for countries to
negotiate the reduction and elimination of
trade barriers and to agree on simplified
mechanisms for the conduct of
international trade
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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4. WTO
• The World Trade Organization (WTO)
replaced GATT in 1995 as a continuing
means of trade negotiations that aspires to
foster the principle of trade without
discrimination and to provide a better
means of mediating trade disputes and of
enforcing agreements
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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5. Regional Economic Integration
• Efforts at regional economic integration
began to emerge after World War II as
countries saw benefits of cooperation and
larger market sizes
• The major types of economic integration
are:
 the free trade area
 the customs union
 the common market
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
8-5

6. The Effects of Integration
• Once protection is eliminated among
member countries, trade creation allows
MNEs to specialize and trade based on
comparative advantage
• Trade diversion occurs when the supply of
products shifts from countries that are not
members of an economic bloc to those
that are
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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7. European Union
• Regional, as opposed to global, economic integration
occurs because of the greater ease of promoting
cooperation on a smaller scale
• The European Union (EU) is an effective common
market that has abolished most restrictions on factor
mobility and is harmonizing national political, economic,
and social policies
• The EU is comprised of 27 countries, including 12
countries from mostly Central and Eastern Europe that
joined since 2004
• The EU has abolished trade barriers on:
 intrazonal trade
 instituted a common external tariff
 created a common currency, the euro
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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8. Implications of the EU for
corporate strategy
• Companies need to determine where to
produce products.
• Companies need to determine what their
entry strategy will be.
• Companies need to balance the
commonness of the EU with national
differences.
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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9. The North American Free Trade
Agreement (NAFTA)
• The North American Free Trade
Agreement (NAFTA) is designed to
eliminate tariff barriers and liberalize
investment opportunities and trade in
services
• Key provisions in NAFTA are labor and
environmental agreements
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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10. Regional economic integration in the
Americas
• Caribbean Community (CARICOM)
• Central American Common Market (CACM)
• Central American Free Trade Agreement
(CAFTA-DR)
• Andean Community (CAN)
• The Southern Common Market (MERCOSUR)
• The proposed South American Community of
Nations.
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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11. Regional economic integration in
Asia & Africa
• Association of Southeast Asian Nations
(ASEAN)
• Asia Pacific Economic Cooperation
(APEC)
• The African Union
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
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12. Forms of International Cooperation
• The United Nations is comprised of
representatives of most of the countries in
the world and international trade and
development in a number of significant
ways
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
8-12

13. Commodity Agreements
• Many developing countries rely on
commodity exports to supply the hard
currency they need for economic
development
• Instability in commodity prices has
resulted in fluctuations in export earnings
• OPEC is an effective commodity
agreement in terms of attempting to
stabilize supply and price
07/05/12 04:14 AM by DrRajesh Patel,Director, NRV MBA,email:1966patel@gmail
8-13