chapter four
International Institutions from an
International Business
Perspective
McGraw-Hill/Irwin
International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserv
Learning Objectives
Describe the influence the mainly political
international institutions have on international
businesses and their relevance to international
business
Identify the major organs of the United Nations,
their general purpose, and their significance to
international business
Discuss the World Trade Organization and its
predecessor, GATT
Appreciate the resources of the Organisation for
Economic Cooperation and Development
4-3
Learning Objectives
Describe the major purpose and effectiveness of
OPEC
Identify economic integration agreements and the
effectiveness of the major ones
Discuss the impact of the EU and its future
challenges
4-4
Figure 4.1 International Institutions by
purpose
4-5
International Political Institutions
• The United Nations
– International organization of 191 member-
nations dedicated to the promotion of peace
and global stability; has many functions
related to business
– General Assembly
• Deliberative body of the UN made up of
all member-nations, each with one vote
regardless of size, wealth, or power
4-6
International Political Institutions
– Security Council
• Main policy-setting body of the UN,
composed of 15 members including 5
permanent members
– Economic and Social Council (ECOSOC)
• UN body concerned with economic and
social issues such as trade, development,
education, and human rights
4-7
International Political Institutions
– International Court of Justice (ICJ)
• UN body that renders legal decisions
involving disputes between national
governments
– Secretariat
• The staff of the UN, headed by the
secretary-general
4-8
Cooperative Military and Security
Agreements
• North Atlantic Treaty Organization
(NATO)
– Security alliance of 26 North American and
European nations (Map 4.3)
• Collective Security Treaty Organization
(CSTO)
– Security alliance of six members of the
Commonwealth of Independent States
(former Union of Soviet Socialist Republics)
4-9
Cooperative Military and Security
Agreements
• Association of Southeast Asian Nations
(ASEAN)
– Ten-member body formed to promote peace
and cooperation in Southeast Asia
(Map 4.4)
4-10
Map 4.3 & 4.4
NATO Map
Map of ASEAN Members
4-11
International Economic Institutions
• World Trade Organization (WTO)
– A multinational body of 149 members that
deals with rules of trade between nations
– Outgrowth of General Agreement on Tariffs
and Trade (GATT), that functioned to
encourage trade liberalization from 1947 to
1995
4-12
International Economic Institutions
• Most favored nation (MFN) clause
– Agreement that GATT member-nations
would treat all members equally in trade
matters
• Uruguay Round
– The last extended conference of GATT
negotiations (table 4.1)
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Table 4.1 Gatt Rounds
4-14
International Economic Institutions
• WTO Principles
– Trade will be without discrimination
– Trade should be freer, with trade barriers
negotiated downward
– Trade should be predictable
– Trade should be more competitive
– Trade should be more beneficial for less
developed countries, encouraging
development and economic reform
4-15
International Economic Institutions
• WTO Challenges
– Trade-related intellectual property rights
(TRIPS)
• WTO agreement that protects copyrights,
trademarks, trade secrets, and other
intellectual property matters
4-16
Organisation For Economic
Cooperation and Development
• Organisation For Economic Cooperation
and Development (OECD)
– Group of developed countries dedicated to
promoting economic expansion in its
member-nations (Table 4.2)
4-17
Table 4.2 OECD Member Countries
4-18
Other Economic Institutions
• Organization of Petroleum Exporting
Countries
– Cartel of 11 petroleum exporting countries
(Table 4.3)
• The Group of Eight (G8)
– Group of government leaders from major
industrialized nations that meets regularly to
discuss issues of concern (Figure 4.5)
4-19
Table 4.3 World Petroleum Products
Consumption by Region, 1960-2004
4-20
Figure 4.5 The G8 Members
([Link])
4-21
[Link]
Economic Integration
• Free trade area (FTA)
– Area in which tariffs among members have been
eliminated, but members keep their external tariffs
• Customs Union
– Collaboration that adds common external tariffs to
an FTA
• Common Market
– Customs union that includes mobility of services,
people, and capital within the union
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North American Free Trade
Agreement (NAFTA)
• NAFTA
– Established January 1, 1994
– Agreement creating a free trade area
among Canada, Mexico, and the United
States
4-23
European Free Trade Agreement
(EFTA)
• EFTA
– Founded in 1960 by seven European
countries:
• Austria, Denmark, Norway, Portugal,
Sweden, Switzerland, Finland, Iceland,
Liechtenstein, and the United Kingdom
– Today, a 4-nation non-EU FTA in Europe:
Norway, Iceland, Liechtenstein, Switzerland
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African Trade Agreements
• African Trade Agreement (Figure 4.7) –
– Promote economic growth the continent
– Economic Community of West African
States (ECOWAS)
– Common Market for Eastern and Southern
Africa (COMESA)
– Southern African Development Community
(SADC)
4-25
Figure 4.7 African Trade Agreements
4-26
Mercosur (Mercosul)
• Mercosur (Mercosul)
– Created in 1991 by the Treaty of Asuncion
– Economic free trade area in South America
modeled on the EU (Figure 4.8)
4-27
Figure 4.8 Regional Trade Agreements in
Central America and South America
4-28
Other Regional Agreements
• Central American Free • ASIA-Pacific
Trade Agreement Economic
(CAFTA) Cooperation
– FTA among the United
– Serves as a regional
States and several
Central American vehicle for promoting
nations (Figure 4.8) open trade and
practical economic
• Andean Community
cooperation
(CAN)
– South American five-
nation trading bloc
4-29
The European Union (EU)
• European Union
– A body of 25 European countries dedicated
to economic and political integration
(Figure 4.9)
– Romania and Bulgaria join in 2007, to move
membership to 27
4-30
Figure 4.9 European Union: Member-
Nations and Candidate Nations
4-31