Business case study: Free trade and foreign direct investment

chapter_8_lecture.ppt

Home >Business & Finance homework help >Management homework help >Business case study: Free trade and foreign direct investment

Chpt 8 Slide number *

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Global Business Today
3rd Canadian Edition
Charles W. Hill - Thomas McKaig

Chpt 8 Slide number *

Regional
Economic
Integration
Chapter 8

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Regional Economic Integration

Definition:

Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Example:

NAFTA (North American Free Trade Agreement)

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

BRIC Countries

BRIC (also sometimes called the golden BRIC or The Big Four) refers to

Brazil

Russia

India

China

They are the
four largest economies
outside of the OECD

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

BRIC Countries

Unlike the countries that make up the G7, there are large differences between BRIC countries.
Two are democracies,
while two have
authoritarian regimes.

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Levels of Economic Integration

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

The Case for Regional Integration

Economic Case for Integration

Regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries

Political Case for Integration

Linking neighbouring economies and making them increasingly dependent on each other creates incentives for political cooperation between neighbouring states.

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Impediments to Integration

Despite the strong economic and political arguments for integration, it has never been easy to achieve or sustain for two main reasons.

First, although economic integration benefits the majority, it has its costs.

While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose.

Moving to a free trade regime involves some painful adjustments.

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Impediments to Integration

A second impediment to integration arises from concerns over national sovereignty.

For example, Mexico’s concerns about maintaining control of its oil interests resulted in an agreement with Canada and the United States to exempt the Mexican oil industry from any liberalization of foreign investment regulations achieved under NAFTA.

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

The Case Against Regional Integration

In recent years, some economists have expressed concern that the benefits of regional integration have been oversold, while the costs have often been ignored

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

The benefits of regional integration are determined by the extent of trade creation, as opposed to trade diversion

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.
Trade diversion occurs when lower-cost external suppliers are replaced by higher cost suppliers within the free trade area.

Chpt 8 Slide number *

European Economic Integration

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Political Structure of the
European Union

The five main institutions in this structure are:

The European Council

The Council of Ministers

The European Commission

The European Parliament

The Court of Justice

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

European Union – who are the members?

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

The European Union was initially composed of 15 member states representing 374 million people (year of entry in brackets):

Belgium (1950),

Germany (1950),

France (1950),

Italy (1950),

Luxembourg (1950),

the Netherlands (1950),

Denmark (1973),

Ireland (1973),

United Kingdom (1973),

Greece (1981),

Spain (1986),

Portugal (1986),

Austria (1995),

Finland (1995),

and Sweden (1995).

Chpt 8 Slide number *

European Union – who are the members?

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

The ten nations that joined on May 1, 2004, were the Greek sector of Cyprus,

the Czech Republic,

Estonia,

Hungary,

Latvia,

Lithuania,

Malta,

Poland,

Slovakia,

And Slovenia.

Chpt 8 Slide number *

European Union – the 2004 members

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

European Union – the 2007 members

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

European Union – who are the members?

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Croatia and Turkey both began negotiations with the EU in 2005 and the European Commission has made it

know that Croatia’s date for accession could be as early as 2011.

However, Turkey has had a longer path to follow and its accession might be as late 2025.

Although Macedonia was made an official EU candidate in 2005, no date has been set to begin membership talks

Chpt 8 Slide number *

The Euro (€)

By January 1, 1999, the European Union adopted the Euro as a common currency in the Union.

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Benefits	Costs
Individuals and businesses will realize significant savings from having only one currency A common currency makes it easy to compare prices across Europe European producers will be forced to look for ways to reduce their production costs to maintain profits Supports the development of the pan-European capital market	National authorities have lost control over monetary policy The Maastricht Treaty called for establishment of an independent European Central Bank ECB has the responsibility to set interest rates and determine monetary policies for the euro zone

Chpt 8 Slide number *

Canada and the European Union

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

http://www.international.gc.ca/commerce/visit-visite/eu-canada-ue-6.aspx?lang=eng

From the website of the Dept. of Foreign Affairs re: Canada-EU relations

Chpt 8 Slide number *

Regional Integration in the Americas

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

NAFTA

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Click on the screen capture to go direct to the website on the
Dept. of Foreign Affairs re: NAFTA

Chpt 8 Slide number *

NAFTA

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

The Case FOR NAFTA

Proponents argue that NAFTA should be viewed as an opportunity to create an enlarged and more efficient productive base for the entire region.

One likely effect of NAFTA will be that many U.S. and Canadian firms will move some production to Mexico to take advantage of lower labour costs

(average hourly labour costs in Mexico are about one-tenth those found in Canada and the United States).

Chpt 8 Slide number *

NAFTA

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

The Case AGAINST NAFTA

Those who opposed NAFTA claimed that ratification would be followed by a mass exodus of jobs from the United States and Canada into Mexico as employers sought to profit from Mexico’s lower wages and less strict environmental and labour laws.

The period since NAFTA took effect has had little impact the on trends already in place.

Chpt 8 Slide number *

Mercosur

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Originated in 1988 as a free trade pact between Brazil and Argentina

The pact was expanded in March 1990 to

include Paraguay and Uruguay.

The four countries

of MERCOSUR have a combined population of 200 million.

Chpt 8 Slide number *

Caricom

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

A customs union was to have been created in 1991 between the English-speaking Caribbean countries under the auspices of the Caribbean Community. Referred to as CARICOM, it was established in 1973. However, it has repeatedly failed to progress toward economic integration.

In early 2006, six CARICOM members established the Caribbean Single Market and Economy (CSME). Modelled on the EU’s single market, the goal of CSME is to lower trade barriers

Chpt 8 Slide number *

Asia Pacific Economic Cooperation

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

Chpt 8 Slide number *

Asia Pacific Economic Cooperation

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

http://www.apec.org/

Chpt 8 Slide number *

ASEAN Association of South East Asian Nations

ASEAN members are countries that do NOT include the big economies of
China
Japan
South Korea

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto

http://www.aseansec.org/

Chpt 8 Slide number *

Regional Trade Blocs in Africa

PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto