International Trade Alliances

One of the most visible changes in the international business environment in recent years has been the development of regional trading alliances in international trade agreements. These developments are significantly shaping global trade.

GATT and the World Trade Organization:

Most favored nation: A term describing a GATT clause that calls for member countries to grant other member countries the most favorable treatment they accord any country concerning imports and exports.

The General Agreement on Tariffs and Trade (GATT) signed by 23 nations in 1947, started as asset of rules to ensure nondiscrimination clear procedures the negotiation of disputes an the participation of lesser developed countries in international trade, GATT and its successor the World Trade Organization (WHO) primarily use tariff concessions as a tool to increase trade. Member countries agree to limit the level of tariffs they will impose from other members. The most favored nation clause calls for each member country to grant to every other member country the most favorable treatment it accords to any country with respect to imports and exports.

GATT sponsored eight rounds of international trade negotiations aimed at reducing trade restrictions. The 1986 to 1994 Uruguay Round (the first to be named for a developing country) involved 125 countries and cut more tariffs than ever before. The Round’s multilateral trade agreements which takes effect from January 1, 1995 was the most comprehensive pact since the original 1947 agreement. It boldly moved the world closer to global free trade by calling for the establishment of the WTO. The WTO represents the maturation of GATT into a permanent global institution that can monitor international trade and has legal authority to arbitrate disputes or some 400 trade issues. As of June 2004, 147 countries were members of the WTO.

The goal of the WTO is to guide – and sometimes urge – the nations of the world towards free trade and open markets. The WTO encompasses the GATT and all its agreements as well as various other agreements related to trade in services and intellectual property issues in world trade. As a permanent membership organization the WTO is bringing greater trade liberalization in goods, information technological developments, and services stronger enforcement of rules and regulations and greater power to resolve disputes. However, the power of the WTO is partly responsible for a growing backlash against global trade. An increasing number of individuals and public interest groups, are protesting that global trade locks poor people into poverty and harms wages, jobs and the environment.

European Union:

Formed in 1957 to improve economic and social conditions among its members, the European Economic Community now called the European Union (EU) has grown to the 25 nation alliance illustrated in Exhibit. The biggest expansion acme in 2004 when the EU welcomed ten new members from Southern and eastern Europe, Cyprus, the Czech Republic, Estonia, Hungary, Latvia , Lithuania Malta , Poland, Slovakia and Slovenia. In addition Bulgaria, Romania and Turkey have opened membership’s negotiations. A treaty signed in early 2003 formalized new rules and policies to ensure that the EU can continue to function efficiently with 25 or more members.

In the early 1980s Europeans initiated steps to create a powerful single market system called Europe ‘ 92. The initiative called for the creation of open markets for Europe’s millions of consumers, allowing people, goods, and services to move freely Europe’ 92 consisted of 282 directives proposing dramatic reform and deregulation in such areas as banking, insurance, health, safety standards, airlines telecommunications auto sales, social policy and monetary union, Common policies for member countries have continued to evolve in the light of changing social and economic circumstances, the EU now deals with issues such as citizens’ rights, job creation and how to make globalization work for everyone . In addition, the need to protect the natural environment is a consideration in all EU policies.

Excerpts from Richard L Daft