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Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Trade Institutions and Trade Policy
Chapter 2
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
The Historical Dimension
• Ancient traders.• Rome and the Pax Romana.• European feudalism in the middle ages.• Protectionism in the 1930’s and Smoot-Hawley Act.• The emergence of global division (1945).
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Overview of International Business History
• Pax Romana– The “roman peace” ensured that merchants
were able to travel safely and rapidly on roads built, protected, and maintained by the roman legions.
• European feudalism– By delivering a portion of their “earnings” to
a protector, medieval farmers were shielded from the depredations of outsiders. While local economies were largely closed, east-west export /import trade thrived.
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Overview of International Business History (Continued)
• Protectionism in the 1930’s and the Smoot-Hawley Act:– The act raised import duties to reduce the
volume of imports into the united states.– The intent increased domestic employment.
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Overview of International Business History (Continued)
• The post-war east and west ideological split– The soviet union and the eastern bloc
• Council for mutual economic assistance (CMEA or COMECON).
– 53 western countries• The international trade organization (ITO) - 1948.
• Pax Americana– “American peace” driven by the belief that
international trade was a key to worldwide prosperity.
Global Division (1945)
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Transnational Institutions and World Trade
• General agreement on tariffs and trade (GATT)• World trade organization (WTO)• International monetary fund (IMF)• World bank• Regional institutions
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
WTO HomepageTrade Topics
The creation of the WTO has greatly broadened the scope of international trade agreements.
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Transnational Institutions and World Trade (Continued)
• GATT focused on reducing prevailing high tariffs• Most-favored nation (MFN) clause
– “Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports.”
• World trade organization (WTO) in 1995– General agreement on trade in services (GATS).– Trade-related aspects of intellectual property rights
(TRIPS).– Trade-related investment measures (TRIMS).
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
International Monetary Fund (IMF)
• Developed out of the Bretton Woods agreement in 1944.
• Offers gold and constituent currencies available to members for currency stabilization.
• It was the goal originally to provide for fixed exchange rates between countries.
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
World Bank
• The international bank for reconstruction and development– Formed in 1944, it provides economic assistance
for the reconstruction of war-torn and, more recently, loans to developing countries.
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Regional Institutions
• European Coal and Steel Community• Customs Unions• European Union (EU)• North American Free Trade Agreement (NAFTA)• Mercosur - Latin America• Gulf Cooperation Council (GCC)
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
The Effects of Trade
Czinkota 3.CLP
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Policy Responses to Trade Problems
• Voluntary import restrictions• Tariffs• Non-tariff barriers
Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.
Export Promotion Efforts Reasons
• National need to earn foreign currency.• Encouragement of domestic employment.• Increase in domestic economic activity