MGMT 2100 Chapter Notes - Chapter 8: Maastricht Treaty, Doha Development Round, General Agreement On Tariffs And Trade
Global Business: the buying and selling of goods and services by people from different
countries
The Impact of Global Business
Multinational Corporations: a corporation that owns businesses in two or more countries
Direct Foreign Investment: a method of investment in which a company builds a new business
or buys an existing business in a foreign country
● Foreign companies invest more than $2.5 trillion a year in the United States
● United Kingdom has the most direct foreign investment in the United States
● U.S. company's have made their largest foreign investment in the Netherlands, United
Kingdom, Luxembourg, Canada and Bermuda (in order from highest to lowest)
Trade Barriers
Trade Barriers: government-imposed regulations that increase cost and restrict the number of
imported goods
● Make it harder for people to buy foreign goods, to increase the likelihood of buying
domestic products, in hopes that such purchases will increase the number of domestic
business and workers
● 2 types:
○ Tariff
■ A direct tax on imported goods
■ Increase the cost of imported goods relative to that of domestic goods
○ Nontariff
■ Nontax methods of increasing the cost or reducing the volume of
imported goods
■ Quotas
● A limit on the number or volume of imported products
● The importing country imposes these
■ Voluntary export restraints
● Voluntarily imposed limits on the number or volume of products
exported to a particular country
● The exporting country imposes these
● Are illegal and should not be used to restrict imports
■ Government import standards
● A standard ostensibly established to protect the health and safety
of citizens but, in reality, is often used to restrict imports
● Ex. banning the importing of meat because of a food additive in it
■ Government subsidies
● Government loans, grants, and tax deferments given to domestic
companies to protect them from foreign competition
■ Customs valuation/classification
● A classification assigned to imported products by government
officials that affects the size of the tariff and the imposition of
import quotas
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● Over 9,000 categories to be classified under
● Assign classification, then base the tariff (tax) on what category
the good is in
Protectionism: a government’s use of trade barriers to shield domestic companies and their
workers from foreign competition
● The use of trade barriers
Trade Agreements (Reducing Trade Barriers)
Free Trade Agreements
● Increase choices, competition, and purchasing power, thus decreasing what people pay
for goods
General Agreement on Tariffs and Trade (GATT): a worldwide trade agreement that reduced
and eliminated tariffs, limited government subsidies, and established protections for intellectual
property
● Regulate trade among 124 countries
● Made it easier and cheaper for consumers to buy foreign products by:
○ Tariffs were cut 40% on average worldwide by 2005
○ Tariffs were eliminated 10 specific industries
■ Beer, alcohol, construction equipment farm machinery, furniture, medical
equipment, paper, pharmaceuticals, steel, and toys
○ Stricter limits were put on government subsidies
○ Established protections for intellectual property
■ Ex. trademarks, patents, and copyright
○ Trade disputes between countries now are fully settled by arbitration panels from
the WTO
World Trade Organization (WTO): the successor to GATT, the only international organization
dealing with the global rules of trade between nations; its main function is to ensure that trade
flows as smoothly, predictably, and freely as possible
● Currently negotiating the Doha Round
○ Seeks to advance trade opportunities for developing countries in areas ranging
from agriculture to services to intellectual property rights
● Administers trade agreements
● Provides a forum for trade negotiations
● Handles trade disputes
○ In the past countries could veto the rulings
● Monitors national trade policies
● Offers technical assistance and training for developing countries
Regional Trading Zones: areas in which tariff and nontariff barriers on trade between countries
are reduced or eliminated
● The largest and most important trading zones are
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○ Europe (the Maastricht Treaty): a regional trade agreement between most
European countries
■ The purpose was to transform their different economies and currencies
into one common economic market, called the European Union (EU), with
one common currency (the euro)
○ North America (the North American Free Trade Agreement [NAFTA]): a
regional trade agreement between the United States, Canada, and Mexico
■ Liberalized trade between countries so that businesses can plan for one
market
■ Eliminated most product tariffs and prevented the 3 countries from
increasing existing tariffs or introducing new ones
○ Central America (Dominican Republic-Central America Free Trade
Agreement [CAFTA-DR]): a regional trade agreement between Costa Rica, the
Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the
United States
■ August 2005
○ South America (Union of South American Nations [USAN]): a regional trade
agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia,
Colombia, Ecuador, Perú, Guyana, Suriname, and Chile
■ Aims to create a unified South America by
● permitting free movement between nations
● creating a common infrastructure that includes an interoceanic
highway
● Establishing the region as a single market by eliminating all tariffs
by 2019
■ One of the largest trading zones in the world
○ Asia (the Association of Southeast Asia Nation [ASEAN] and Asia-Pacific
Economic Cooperation [APEC])
■ Top 2 largest regional trading zones in Asia
America can buy much more with their incomes than those in other countries can
● The high level of competition between foreign and domestic companies that creates
choices helps keep prices low in the United States
○ The lack of choice and the low level of competition keep prices higher in other
countries that have not been as open to foreign companies and products
Consistency or Adaptation
Global Consistency: when a multinational company has offices, manufacturing plants, and
distribution facilities in different countries and runs them all using the same rules, guidelines,
policies, and procedures
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Document Summary
Global business: the buying and selling of goods and services by people from different countries. Multinational corporations: a corporation that owns businesses in two or more countries. Direct foreign investment: a method of investment in which a company builds a new business or buys an existing business in a foreign country. Foreign companies invest more than . 5 trillion a year in the united states. United kingdom has the most direct foreign investment in the united states. U. s. company"s have made their largest foreign investment in the netherlands, united. Kingdom, luxembourg, canada and bermuda (in order from highest to lowest) Trade barriers: government-imposed regulations that increase cost and restrict the number of imported goods. Make it harder for people to buy foreign goods, to increase the likelihood of buying domestic products, in hopes that such purchases will increase the number of domestic business and workers. Increase the cost of imported goods relative to that of domestic goods.
