Chapter 3 - The Global Trade Environment Flashcards
Explain the General Agreement of Tariffs and Trade (GATT)
Treaty among nations to promote trade among members established in 1947
* Handled trade disputes
* Lacked enforcement power; nicknamed the General Agreement to Talk and Talk
* Disputes lasted for years
* Replaced by World Trade Organization in 1995
Explain the WTO (World Trate Organisation)
Forum for trade‐related negotiations among 160 members
–Based in Geneva
–Serves as dispute mediator through DSB (Dispute Settlement Body)
–Has enforcement power and can impose sanctions
Explain Preferential Trade Agreements
- Many countries seek to lower barriers to trade within their regions
- PTAs give partners special treatment and may discriminate against others
- Over 300 PTAs have been notified to the WTO
Explain the Hierachy of PFT (Preferential Trade Agreements) (from top to bottom)
Top (1):
Economic Union - Abolish (abschaffen) Tariffs + CET (Common external tariffs) + Factor Movement + Economic and Political Harmonisation
(2):
Common Market - Abolish tariffs + CET + Factor Movement
(3):
Customs Union - Abolsih Tariffs + CET
(4):
FTA - Abolish tariff Barriers
Describe the free trade area
Two or more countries agree to abolish tariffs and other barriers to trade amongst themselves
Countries continue independent trade policies with countries outside agreement
Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another
Describe the North American NAFTA
- NAFTA established as a free trade area in 1994
- Canada, United States, Mexico
- All three nations pledge to promote economic growth through tariff reductions and expanded trade and investment
- No common external tariffs
- Restrictions on labor and other movements remain
Describe a customs union
- Evolution of Free Trade Area
- Includes the elimination of internal barriers to trade (as in FTA)
- AND establishes common external barriers (CETs) to trade
Examples: The EU and Turkey, the Andean Community, Mercosur, CARICOM, Central American Integration System (SICA)
Describe a common market
- Includes the elimination of internal barriers to trade (as in free trade area)
- AND establishes common external barriers to trade (as in customs union)
- AND allows for the free movement of factors of production, such as labor, capital, and information
Describe an economic union
- Includes the elimination of internal barriers to trade (as in free trade area)
- AND establishes common external barriers to trade (as in customs union)
- AND allows for the free movement of factors of production, such as labor, capital, and information (as in common market)
- AND coordinates and harmonizes economic and social policy within the union
Describe the full evolution of an economic union
– creation of unified central bank
– use of single currency
– common policies on issues such as agriculture, social policy, transport, competition, mergers, taxation
– requires extensive political unity
– would lead to a central government in time
Describe Latin Americas SICA
- El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica, and Panama
- Moving towards a common market
- Common External Tariff of 0 to 15% *Retains tariffs on goods also produced in importing country
Describe the DR-CAFTA
- SICA members El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica joined the Dominican Republic and the United States in a FTA
- 80% of US goods and 50% + of agricultural goods are duty free
- Paperwork is reduced
- Reduced risks mean more direct foreign investment
Describe the Andean Community
*Bolivia, Colombia, Ecuador, Peru
*45th anniversary in 2014
*Customs Union
*Abolished foreign exchange, financial and fiscal incentives, and export subsidies
*Established common external tariffs
Desribe the MERCOSUR (Common Market of the South)
- Argentina, Brazil, Paraguay, Uruguay, Venezuela
- Customs union, seeks to become common market
– Internal tariffs eliminated
– Established common external tariffs up to 20%
– In time, factors of production will move freely through member countries - Bolivia, Chile, Ecuador, Peru
– Associate members
– Participate in free trade area but not customs union
Describe the CARICOM
- Founded in 1973 by 15 members
- 17 million population
- Stagnant for 20 years
- Customs Union in 1991 with common external tariffs
- Rejected the idea of a economic union in 1998 as a single currency would not be especially beneficial.
Caribbean Basin Trade Partnership Act exempts textile and apparel exports to the U.S. market access from duties and tariffs. Caribbean Basin Initiative of 20 nations includes CARICOM.
