CHAPTER 1

International Business
International business is defined as activities that buys and sells goods and services across two or more national boundaries, even if the management is located in a one country. It includes any type of business activity that crosses

national borders. International business is related only with those big enterprises which have operating units outside their own country. There are institutional arrangements that provide some managerial direction of economic activity taking place abroad. International business has become massive in scale and has come to exercise a major influence over political, economic and social development. Sometimes, foreign operations and comparative business are used as synonymous for international business. Foreign business refers to domestic operations within a foreign country. Comparative business focuses on similarities and differences among countries and business systems for better understanding and to develop a new perspective of home institutions and enrichments. Similarly, foreign business operations and comparative business do not have major point of interest and special problems when business activities cross the national boundaries. Economic development is an urgent need. Globalization which links countries closer than ever before with each other reinforces this need. International business can affect development by complementing domestic investment abd by undertaking trade and transfer of knowledge, skill and technology. Change in technology, demand and economic structure can make the exchange of services an increasingly important form of trade in the 21 st Century. Reductions in communication time and costs, and use of common

international standards for professional services have contributed to the large jump in service trade in the mid-nineties. GROWOING IMPORTANCE OF INTERNATIONAL BUSINESS International Business involves the broadest and most generalized study of the field of business, adopted to a fairly unique across the border environment. Many environmental variables such as legal system, foreign

exchange markets, cultural differences, and inflation are very important in the international business is really not like playing a whole new ball game but it is like playing in a different ball park , where the managers have to learn the factors unique to the playing field. The guiding principles of a firm engaged in international business activities should incorporate a global perspective. Incorporating an international outlook into the firms basic statement will help focus the attention of management on the opportunities outside the domestic economy. The following are the reasons for growing importance of international business: 1) Current trends are towards the increasing globalization and interdependence of firms, markets and countries. 2) Intense competition among countries, industries and firms on a global level is a recent development. 3) Largely due to exchange rate developments both exports and import dollar values have shifted from negative growth rates to a positive growth rates in 1998. 4) Global capital flows have become a major factor in shaping the world economy and international trade in the 1990s. There was an unprecedented rise in global foreign direct investment flows between 1992 and 1998 and also a surge in global bank lending.

5) Largely due to exchange rate developments both export and import dollar values have shifted from negative growth rates to a positive growth rates in 1998. 6) Differences in prices are the basic cause of trade and reflect international differences in costs. 7) The increased importance of social responsibility corresponds to the growing scope of activities undertaken by the enterprises in the globalizing world economy. 8) A major development is the expanding number, range, coordination and activism among parts of civil society. 9) The growing economic interdependence of the world community to which the liberalization of international investment and trade regimes has contributed significantly has great potential for enhancing the living standards of the people throughout the world 10) Advance in information, communication and transportation technologies as well as in managerial and organizational methods, facilitate the transnalisation of many small and medium firms. SCOPE OF INTERNATIONAL BUSINESS ACTIVITES Global corporations consider the whole of the world as their production place, as well as their market and move factors of production to wherever they can optimally be combined. They avail fully of the revolution that has brought about instant worldwide communication and instant transformation. Their ownership is transactional and management is also transnational. They have freely mobile managements, technology and capital. They are domestic in every place, foreign in none and a true corporate citizen of the world.

International firms operate in environments that are highly uncertain and where the rules of the game are often ambiguous, contradictory and subject to rapid change, as compared to the domestic environment. There must be constant reiteration as one move around the decision circle. The sourcing strategy obviously influences marketing strategy as well as reverse. The target market may enjoy certain preferential relationships with other markets. In as much as the number of options a firm faces is multiplied as it moves into international markets-decision-making becomes increasingly complex, the deeper the firm involves internationally. They are dealing with multiple currency, legal, marketing, economic, political and cultural system. Geographic and demographic factors also differ widely More and more firms are investing abroad through expansion of existing facilities or Greenfield projects. The fragmentation of production processes across international borders is an important new trend, particularly for developing economies. Declining communication costs and improved transportation systems permit just-in-time delivery and the co-ordination of production across borders. Developing economies can expedite their integration into the new production systems by liberalizing and improving their telecommunications and transportation sectors. Global trade rule have fostered global production networks and an associated rise in intra-firm trade, by progressively lowering trade-barriers and reducing the likelihood of unpredictable increase. Foreign capital has been playing a catalytic role in pushing policies in the right direction and contributing a number of resources to the development effort.

INTRODUCTION ECONOMIC INTEGRATION Some countries create business opportunities for themselves by integrating their economies in order to avoid unnecessary competition among the countries. Economic integration results in grouping up of smaller economic consequences of politically independent countries and political boundaries. Economic integration among the countries takes several forms. It covers different kinds of arrangement among countries by which two or more countries link their economies closer either in part or total. The different kinds of economic integration are Free Trade Area, Customs Union, Common Market and Economic Union. Economic Union is superior to common market. The countries maintain trade relations with other countries thought tariffs. They discriminate against the other countries; which are not parties to the agreement, through tariffs. They also discriminate against the goods produced by other countries. The approach towards regional integration has been increasing throughout the globe. The member countries of the group adopt a system of preferential tariffs like lower rates of duty on imports. In a free trade area, the member charges low rates of tariff or abolish them regarding the trade among themselves and different countries, charge different rates to non-members. European Free Trade Association is a good example of economic integration. The economic integration of the countries of the same region or areas increases the size of market, aggregate demand for product and services, quantity of production employment and ultimately the economic activity of the region. The people of the region get a variety of products at comparatively lower prices.

ECONOMIC INTEGRATION Economic integration is an economic alliance or network-based on cooperation, collaboration, flexibility, adaption, risk and cost reduction, shared interests and objectives, closeness and a commitment between two countries on an integrating, ongoing based. Thus, economic integration means that it is creation of network like-minded states together and design economic goals and work together to attain these goals. It can be accomplished on a case to basis, or it can be an ongoing collaboration over a period of time. For example, the cooperation between Tornio in finland and Haparanda in Sweden. These two border towns have decided economic activity in the region. Both the cities have been benefits from the enhanced city provided services which each town would no successful enough in their economic integration that are now talk about integrating the entire region straddling the sea of bothnia. The successful economic integration of this region can be used as a model for other areas both in Scandinavia and throughout the world. Economic integration is not an easy task. This is clearly evidence from its nature and even more so a problem in the Baltic region where there have been so many political changes in recent years. We have seen the formation of three newly independent states, Estonia, Latvia and Lithuania. East and West Germany have been reunited to form a new nation. The communist Government of the former social block has been replaced by democracy. These changes have made economic integrated not only more difficult but also to some extend more necessary. Europe as a whole is becoming an economically integrated union mainly in the nations of the European Union, but in non-member nations as well. Perhaps, the best example of this phenomenon of economic integration is the introduction of a common European currency; the Euro. This, more than anything signifies the changes and levels of increasing co-operation between European Union nations. Another example could be the creation of a common

tax base and the abolition of import-export fees and the creation of the common European Market, where business effectively get to treat the entire European Union as one state. Economic integration has been a major issue in the new EU. There have been long lasting effects on the Baltic Sea region. VASAB 2010 project has investigated aviation development in Scandinavia and its feasibility as well as the possibility of a Helsinki-Tallin link similar to the bridge-link opened in ovcsund. It has touched the aspect effecting transportation issue with relation to economics in the Baltic Sea region. GOALS OF ECONOMIC INTEGRATION The goals of economic integration are to create a network of likeminded states that together design economic goals and work together design economic goals and work together to attain these goals. Economic integration can be accomplished on a case basis on can be ongoing collaboration between nations to enhance economic condition over long period of time. Thus, the following are the objectives of economic integration. (1) To protect domestic industries or certain other sectors of the economy. (2) To guard against dumping. (3) To promote indigenous research and development. (4) To conserve the foreign exchange resource of the country. (5) To make the balance of payment position more favorable.

FORMS OF ECONOMIC INTEGRATION: The important forms of economic integration between countries are given below. (1) Preferential Trading Agreements: A preferential Trading

Agreement is the simplest form of economic integration. A group of countries have formal agreement to allow each others good to be traded on preferential terms. The preferential treatment may be in the form of reduced or special quota for the goods of the countries. (2) Free trade Area (FTA): Free trade area is a permanent agreement between neighboring countries. There is a complete removal of traffic on goods trades between the members of the free trade area. It involves tariff free trade among the members countries. The members are free to impose their own trade restrictions on imports from countries outside Free Trade Area. As a result of this, the goods from outside FTA may enter into the free trade area through the member countries levying the lowest tariffs. To overcome this problem, the members have to maintain customs points at their common borders to make sure that imports do not enter into the free trade area through the member levying the lowest tariff on each item. They should also agree on rules of origin to establish while a good is made in a member country and therefore, it is able pass duty free across their borders. (3) Customs Unions: Customs Union is a free trade area plus an agreement to establish common barriers to trade with the rest world. They have a common tariff against the outside world therefore; the members need not have their customs control of goods moving among themselves or rules of the origin. Agreement is needed on the level of the common external tariff and on the administration of the tariff revenues.

(4) Common Markets: Common market is a customs union when internal non-tariff barriers have also been removed. It allows free movement of goods services and capital among the member countries. A common market implies that there is an internal market; compromise all the member nations, which is common to all firms trading within that market. (5) Economic Union: Economic Union is the most complete form of economic integration between countries. This involves common market and also the harmonization of economic policies in particular Monetary Union and the coordination of fiscal policies. Monetary union may involves a fixed change rate system between the member countries with a single or common currency and control over interest rates and other instruments of monetary policy. Fiscal policy coordination involves rationalization of tax rates and some degree of control over government budgets and budget deficits. There is also likely coordination of other economic policies such as agricultural industries and other policies. Thus economies closely so that in effect, they function as a single economy.

TRADE BLOC
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states. Historic economic blocs include the Hanseatic League, a trading alliance in northern Europe in existence between the 13th and 17th centuries and the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empire from 1871. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted under regional trade blocs. Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization. Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade. Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system. Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement (NAFTA) or part of a regional organization (such as the European Union). Depending on the level of economic integration, trade blocs can fall into different categories, such as: preferential trading areas, free trade areas, customs unions, common markets and economic and monetary unions.

Definition
An agreement between states, regions, or countries, to reduce barriers to trade between the participating regions. The most well known trade bloc is NAFTA, between the United States, Canada, and Mexico. Some opponents of trade blocs believe that such agreements are detrimental to global free trade.

The main advantages for members of trading blocs

1) Free trade within the bloc Knowing that they have free access to each other's markets, members are encouraged to specialise. This means that, at the regional level, there is a wider application of the principle of comparative advantage. 2) Market access and trade creation Easier access to each others markets means that trade between members is likely to increase. Trade creation exists when free trade enables high cost domestic producers to be replaced by lower cost, and more efficient imports. Because low cost imports lead to lower priced imports, there is a 'consumption effect', with increased demand resulting from lower prices. See: Trade creation and trade diversion 3) Economies of scale Producers can benefit from the application of scale economies, which will lead to lower costs and lower prices for consumers. 4) Jobs Jobs may be created as a consequence of increased trade between member economies.

5) Protection Firms inside the bloc are protected from cheaper imports from outside, such as the protection of the EU shoe industry from cheap imports from China and Vietnam.

The main disadvantages of trading blocs

1) Loss of benefits The benefits of free trade between countries in different blocs is lost. 2) Distortion of trade Trading blocs are likely to distort world trade, and reduce the beneficial effects of specialisation and the exploitation of comparative advantage. Inefficiencies and trade diversion Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. For example, inefficient European farmers may be protected from low-cost imports from developing countries. Trade diversion arises when trade is diverted away from efficient producers who are based outside the trading area.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) The North American Free Trade Agreement (NAFTA; French: Accord de libre-change nord-amricain, ALNA; Spanish: Tratado de Libre Comercio de Amrica del Norte, TLCAN) is an agreement signed by Canada, Mexico, and the United States, Of the free trade unions NAFTA is the most limited. It is restricted to eliminating tariffs, quotas and other trade impediments amongst the three countries involved. It has no governing structure, although there are boards set up to settle agreements. There is no common customs or tariff agreement for imported goods and services. No monetary union is in the works and there is no movement to making education or training of professions similar as in the EU. Most importantly, there is no free movement of citizens allowed. It is a very powerful trade bloc, nonetheless, because of the economic and political power of the United States. It involves about the same number of citizens as the EU, about 400 million, but it has a slightly higher total GNP, about 9 trillion dollars. It should be noted that NAFTA is in the processof becoming a free trade zone. It has not reached this goal entirely yet, as there are a number of industries that still receive protection such as citrus, lumber, and Mexican petroleum. For a look at the key provisions of NAFTA please look at a site maintained by the U.S. Embassy in Mexico creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the CanadaUnited States Free Trade Agreement between the U.S. and Canada. In terms of combined purchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Following diplomatic negotiations dating back to 1986 among the three nations, the leaders met in San Antonio, Texas, on December 17, 1992, to sign NAFTA. U.S. President George H. W. Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas, each responsible for spearheading and promoting the agreement, ceremonially signed it. The signed agreement then needed to be ratified by each nation's legislative or parliamentary branch. The agreement's supporters included 132 Republicans and 102 Democrats. NAFTA passed the Senate 61-38. Senate supporters were 34 Republicans and 27 Democrats. Clinton signed it into law on December 8, 1993; it went into effect on January 1, 1994. Clinton, while signing the NAFTA bill, stated that "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement."

Trade The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural goods such as eggs, corn, and meats to be tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale.

Trade balances The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009. The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010. The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latest data available). Investment The US foreign direct investment (FDI) in NAFTA Countries (stock) was $327.5 billion in 2009 (latest data available), up 8.8% from 2008. The US direct investment in NAFTA countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and mining sectors. The foreign direct investment, of Canada and Mexico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.

Industry Maquiladoras (Mexican factories that take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. These are plants that moved to this region from the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector has increased 15.5% since the implementation of NAFTA in 1994. Other sectors now benefit from the free trade agreement, and

the share of exports from non-border states has increased in the last five years while the share of exports from maquiladora-border states has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as Toluca, Len and Puebla; all three larger in population than Tijuana, Ciudad Jurez, and Reynosa. Agriculture From the earliest negotiation, agriculture was (and still remains) a controversial topic within NAFTA, as it has been with almost all free trade agreements that have been signed within the WTO framework. Agriculture is the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The CanadaU.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the MexicoU.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North South FTA on agriculture to be signed). NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification. The study focused on the effects that gradual "phase-in" periods in regional trade agreements, including NAFTA, have on trade flows. Most of the increase in members agricultural trade, which was only recently brought under the purview of the World Trade Organization, was due to very high trade barriers before NAFTA or other regional trade agreements. Mobility of persons According to the Department of Homeland Security Yearbook of Immigration Statistics, during fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign professionals (64,633 Canadians and 9,247 Mexicans) were

admitted into the United States for temporary employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status.[21] Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-1 admission is valid for three years, the number of non-immigrants in TN status present in the U.S. at the end of the fiscal year is approximately equal to the number of admissions during the year. (A discrepancy may be caused by some TN entrants leaving the country or changing status before their three-year admission period has expired, while other immigrants admitted earlier may change their status to TN or TD, or extend TN status granted earlier).

EUROPEAN UNION The European Union (EU) is an economic and political union of 28 member states that are located primarily in Europe. The EU operates through a system of supranational independent institutions and intergovernmental negotiated decisions by the member states. Institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, the European Central Bank, the Court

of Auditors, and the European Parliament. The European Parliament is elected every five years by EU citizens. The EU's de facto capital is Brussels. The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958, respectively. In the intervening years the community and its successors have grown in size by the accession of new member states and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993. The latest major amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. The EU has developed a single market through a standardised system of laws that apply in all member states. Within the Schengen Area (which includes 22 EU and 4 non-EU states) passport controls have been abolished. EU policies aim to ensure the free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and maintain common policies on trade, agriculture, fisheries, and regional development. The eurozone, a monetary union, was established in 1999 and came into full force in 2002. It is currently composed of 17 member states. Through the Common Foreign and Security Policy the EU has developed a role in external relations and defence. Permanent diplomatic missions have been established around the world. The EU is represented at the United Nations, the WTO, the G8, and the G-20. With a combined population of over 500 million inhabitants, or 7.3% of the world population, the EU in 2012 generated a nominal gross domestic product (GDP) of 16.584 trillion US dollars, constituting approximately 23% of global nominal GDP and 20% when measured in terms of purchasing power parity,

which is the largest nominal GDP and GDP PPP in the world. The EU was the recipient of the 2012 Nobel Peace Prize. LEADERS President of the Commission- Jos Manuel Barroso (EPP) President of the European Council- Herman Van Rompuy (EPP) ESTABLISHMENT - Treaty of Paris 23 July 1952 - Treaty of Rome 1 January 1958 - Merger Treaty 1 July 1967 - Treaty of Maastricht 1 November 1993 - Lisbon Treaty 1 December 2009

MEMBER STATES

Austria Belgium Bulgaria Croatia Cyprus

Ireland Italy Latvia Lithuania Luxembourg

Czech Republic Denmark Estonia Finland France Germany Greece Hungary United Kingdom

Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden

Governance Main articles: Institutions of the European Union and Legislature of the European Union The European Union has seven institutions: the European Parliament, the Council of the European Union, the European Commission, the European Council, the European Central Bank, the Court of Justice of the European Union and the European Court of Auditors. Competencies in scrutinising and amending legislation are divided between the European Parliament and the Council of the European Union while executive tasks are carried out by the European Commission and in a limited capacity by the European Council (not to be confused with the aforementioned Council of the European Union). The monetary policy of the eurozone is governed by the European Central Bank. The interpretation and the application of EU law and the treaties are ensured by the Court of Justice of the European Union. The EU budget is scrutinised by the European Court of Auditors. There are also a number of ancillary bodies which advise the EU or operate in a specific area.

SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical union of the eighth member nations that are primarily located in South Asia contingent.[9] Its secretariat is headquartered in

Current members

Observers

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

Australia[42] China European Union[43] Japan[43] Iran Mauritius[44] Myanmar South Korea United States[45]

Kathmandu, Nepal. The idea of regional political and economical cooperation in South Asia was first coined in 1980 and the first summit held in Dhaka on 8 December in 1985 led to its official establishment by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. In the intervening years, its successors have grown in size by the accession of new member states. Afghanistan was the first to have been accessed in the physical enlargement of the SAARC in 2007.

The SAARC policies aim to promote welfare economics, collective self-reliance among the countries of South Asia, and to accelerate socio-cultural development in the region. The SAARC has developed a role in external relations around with world. Permanent diplomatic relations have been established with the EU, the UN (as an observer), and other multilateral entities. On annual scheduled basis, the official meetings of leaders of each nation are held; meetings of foreign secretaries, twice annually. The next summit is expected to be held in Kathmandu in 2013, but the official dates for the summit is yet to be determined. Potential future members

China has expressed interest in upgrading its status from an observer to a full member of SAARC. Supported by Pakistan, Bangladesh, Nepal, Maldives, Sri Lanka.

Burma has expressed interest in upgrading its status from an observer to a full member of SAARC.

Russia has expressed interest in becoming an observer of SAARC. Supported By India.

SAARC summits No Date Country Host Host leader

1st

78 1985

December Bangladesh

Dhaka

Ataur Khan

Rahman

2nd

1617 November 1986

India

Bangalore

Rajiv Gandhi

3rd

24 1987

November

Nepal

Kathmandu

Marich Man Singh Shrestha

14th

34 April 2007

India

New Delhi

Manmohan Singh

15th

13 2008

August

Sri Lanka

Colombo

Mahinda Rajapaksa

16th

2829 2010

April

Bhutan

Thimphu

Jigme Thinley

1011 17th November 2011[48] Maldives Addu

Mohammed Nasheed

18th

2013[49]

Nepal

Kathmandu

Khil Raj Regmi

Objectives Of SAARC The objectives and the aims of the Association as defined in the Charter are:

to promote the welfare of the people of South Asia and to improve their quality of life;

to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realise their full potential ;

to promote and strengthen selective self-reliance among the countries of South Asia;

to contribute to mutual trust, understanding and appreciation of one another's problems;

to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields;

to strengthen co-operation with other developing countries; to strengthen co-operation among themselves in international forums on matters of common interest; and

to co-operate with international and regional organisations with similar aims and purposes.

to maintain peace in the region

ASIA-PACIFIC ECONOMIC COOPERATION Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim member economies that seeks to promote free trade and economic cooperation throughout the Asia-Pacific region. It was established in 1989 in response to the growing interdependence of Asia-Pacific economies and the advent of regional trade blocs in other parts of the world; to fears that highly industrialized Japan (a member of G8) would come to dominate economic activity in the AsiaPacific region; and to establish new markets for agricultural products and raw materials beyond Europe (where demand had been declining). APEC works to raise living standards and education levels through sustainable economic growth and to foster a sense of community and an appreciation of shared interests

among Asia-Pacific countries. APEC includes newly industrialized economies, although the agenda of free trade was a sensitive issue for the developing NIEs at the time APEC founded, and aims to enable ASEAN economies to explore new export market opportunities for natural resources such as natural gas, as well as to seek regional economic integration (industrial integration) by means of foreign direct investment. Members account for approximately 40% of the world's population, approximately 54% of the world's gross domestic product and about 44% of world trade.[3] For APEC Economic Trends Analysis in 2012, see. An annual APEC Economic Leaders' Meeting is attended by the heads of government of all APEC members except the Republic of China (who is represented by a ministerial-level official under the name Chinese Taipei as economic leader). The location of the meeting rotates annually among the member economies, and until 2011, a famous tradition involved the attending leaders dressing in a national costume of the host member. Member economies APEC currently has 21 members, including most countries with a coastline on the Pacific Ocean. However, the criterion for membership is that the member is a separate economy, rather than a state. As a result, APEC uses the term member economies rather than member countries to refer to its members. One result of this criterion is that membership of the forum includes Taiwan (officially the Republic of China, participating under the name "Chinese Taipei") alongside People's Republic of China (see Cross-Strait relations), as well as Hong Kong, which entered APEC as a British colony but it is now a Special Administrative Region of the People's Republic of China. APEC also includes three official observers: ASEAN, the Pacific Islands Forum and the Pacific Economic Cooperation Council.

APEC's Three Pillars To meet the Bogor Goals, APEC carries out work in three main areas: 1. Trade and Investment Liberalisation 2. Business Facilitation 3. Economic and Technical Cooperation APEC and Trade Liberalisation According to the organization itself, when APEC was established in 1989 average trade barriers in the region stood at 16.9 percent, but had been reduced to 5.5% in 2004.

APEC's Business Facilitation Efforts APEC has long been at the forefront of reform efforts in the area of business facilitation. Between 2002 and 2006 the costs of business transactions across the region was reduced by 6%, thanks to the APEC Trade Facilitation Action Plan (TFAPI). Between 2007 and 2010, APEC hopes to achieve an additional 5% reduction in business transaction costs. To this end, a new Trade Facilitation Action Plan has been endorsed. According to a 2008 research brief published by the World Bank as part of its Trade Costs and Facilitation Project, increasing transparency in the region's trading system is critical if APEC is to meet its Bogor Goal targets. The APEC Business Travel Card, a travel document for visa-free business travel within the region is one of the concrete measures to facilitate business. In May 2010 Russia joined the scheme, thus completing the circle.

Proposed Free Trade Area of the Asia-Pacific APEC first formally started discussing the concept of a Free Trade Area of the Asia-Pacific at its summit in 2006 in Hanoi. However, the proposal for such an area has been around since at least 1966 and Japanese economist Kiyoshi Kojima (ja)'s proposal for a Pacific Free Trade agreement proposal. While it gained little traction, the idea led to the formation of Pacific Trade and Development Conference and then the Pacific Economic Cooperation Council in 1980 and then APEC in 1989. In more recent times, economist C. Fred Bergsten has been the foremost advocate of a Free Trade Agreement of Asia-Pacific. His ideas convinced the APEC Business Advisory Council to support this concept.

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues. The organization's goals are to "maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis." The creation of the conference was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations.

In the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO). The United Nations Conference on Trade and Development was established in 1964 to provide a forum where the developing countries could discuss the problems relating to their economic development. UNCTAD grew from the view that existing institutions like GATT (now replaced by the World Trade Organization, WTO), the International Monetary Fund (IMF), and World Bank were not properly organized to handle the particular problems of developing countries. The primary objective of the UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. The conference ordinarily meets once in four years. The first conference took place in Geneva in 1964, second in New Delhi in 1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth in Manila in 1979, the sixth in Belgrade in 1983, the seventh in Geneva in 1987, the eighth in Cartagena in 1992 and the ninth at Johannesburg (South Africa) in 1996. The permanent secretariat is in Geneva. One of the principal achievements of UNCTAD has been to conceive and implement the Generalised System of Preferences (GSP). It was argued in UNCTAD that to promote exports of manufactured goods from developing countries, it would be necessary to offer special tariff concessions to such exports. Accepting this argument, the developed countries formulated the GSP scheme under which manufacturers' exports and some agricultural goods from the developing countries enter duty-free or at reduced rates in the developed countries. Since imports of such items from other developed countries are subject to the normal rates of duties, imports of the same items from developing countries would enjoy a competitive advantage.

Currently, UNCTAD has 194 member states and is headquartered in Geneva, Switzerland. UNCTAD has 400 staff members and an bi-annual (20102011) regular budget of $138 million in core expenditures and $72 million in extrabudgetary technical assistance funds. It is a member of the United Nations Development Group. There are non-governmental organizations participating in the activities of UNCTAD. MEMBERS As of October 2012, 194 states are UNCTAD members:[4] all UN members and the Holy See. UNCTAD members are divided into four lists, the division being based on United Nations Regional Groups[4] with six members unassigned: Armenia, Kiribati, Nauru, South Sudan, Tajikistan, Tuvalu. List A consists mostly of countries in the African and Asia-Pacific Groups of the UN. List B consists of countries of the Western European and Others Group. List C consists of countries of the Group of Latin American and Caribbean States (GRULAC). List D consists of countries of the Eastern European Group. The lists, originally defined in 19th General Assembly resolution 1995 serve to balance geographical distribution of member states' representation on the Trade Development Board and other UNCTAD structures. The lists are similar to those of UNIDO, an UN specialized agency. Meetings The inter-governmental work is done at five levels of meetings:

The UNCTAD Conference held every four years:

o o o

UNCTAD VIII in Cartagena, Colombia on 825 February 1992 UNCTAD IX in Midrand, South Africa on 27 April 11 May 1996 UNCTAD X in Bangkok, Thailand on 1219 February 2000[6]

o o o

UNCTAD XI in So Paulo, Brazil on 1318 June 2004[7] UNCTAD XII in Accra, Ghana on 2125 April 2008[8] UNCTAD XIII in Doha, Qatar on 2126 April 2012[9]

The UNCTAD Trade and Development Board the Board manages the work of UNCTAD between two conferences and meets up to three times every year; Four UNCTAD Commissions and one Working Party these meet more often than the Board to take up policy, programme and budgetary issues; Expert Meetings the commissions will convene expert meetings on selected topics to provide substantive and expert input for Commission policy discussions.

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION The United Nations Industrial Development Organization (UNIDO), French/Spanish/Portuguese acronym ONUDI, is a specialized agency in the United Nations system, headquartered in Vienna, Austria. The Organization's primary objective is the promotion and acceleration of industrial development in developing countries and countries with economies in transition and the promotion of international industrial cooperation. It is also a member of the United Nations Development Group. Overview UNIDO believes that competitive and environmentally sustainable industry has a crucial role to play in accelerating economic growth, reducing poverty and achieving the Millennium Development Goals. The Organization therefore

works towards improving the quality of life of the world's poor by drawing on its combined global resources and expertise in the following three interrelated thematic areas:

Poverty reduction through productive activities; Trade capacity-building; and Energy and environment.

Activities in these fields are strictly aligned with the priorities of the current United Nations Development Decade and related multilateral declarations, and reflected in the long-term vision statement, business plan and mid-term programme frameworks of UNIDO. In order to fulfill these objectives, UNIDO

assists developing countries in the formulation of development, institutional, scientific and technological policies and programmes in the field of industrial development;

analyzes trends, disseminates information and coordinates activities in their industrial development;

acts as a forum for consultations and negotiations directed towards the industrialization of developing countries; and

provides technical cooperation to developing countries for implementing their development plans for sustainable industrialization in their public, cooperative and private sectors.

UNIDO thus works largely in developing countries, with governments, business associations and individual companies. The Organization's "service modules" are Industrial Governance and Statistics, Investment and Technology Promotion, Industrial Competitiveness and Trade, Private sector Development,

Agro-Industries, Sustainable energy and Climate Change, Montreal Protocol, and Environmental management. UNIDO was established as a UN programme in 1966 with headquarters in Vienna, Austria, and became a specialized agency of the United Nations in 1985. In 2004, UNIDO established the UNIDO Goodwill Ambassador programme. In 2010, UNIDO created two new flagship publications, Making It: Industry for Development and UNIDO Times. MEMBERS Members of the UN, or of UN specialized agencies, or of the IAEA, are eligible for membership with UNIDO. The process of becoming a Member of the Organization is achieved by becoming a party to the Constitution. Observer status is open, upon request, to those enjoying such status in the General Assembly of the United Nations, unless the UNIDO General Conference decides otherwise. The Conference has the authority to invite other observers to participate in the work of the Organization in accordance with the relevant rules of procedure and the provisions of the Constitution. As of 14 August 2013, 172 States are UNIDO Members, all of them being UN members. UNIDO Members are divided into four lists, with Turkmenistan still unassigned. List A consists of all UNIDO countries in the African + Asian Groups of UN (along with Israel, while excluding Cyprus, Japan and Turkmenistan). List B consists of all UNIDO countries in WEOG group of UN (along with Cyprus and Japan, and excluding Israel). List C consists of all UNIDO countries in GRULAC group of UN. List D consists of all UNIDO countries in the Eastern European group of UN

Overview UNIDO believes that competitive and environmentally sustainable industry has a crucial role to play in accelerating economic growth, reducing poverty and achieving the Millennium Development Goals. The Organization therefore works towards improving the quality of life of the world's poor by drawing on its combined global resources and expertise in the following three interrelated thematic areas:

Poverty reduction through productive activities; Trade capacity-building; and Energy and environment.

Activities in these fields are strictly aligned with the priorities of the current United Nations Development Decade and related multilateral declarations, and reflected in the long-term vision statement, business plan and mid-term programme frameworks of UNIDO. In order to fulfill these objectives, UNIDO

assists developing countries in the formulation of development, institutional, scientific and technological policies and programmes in the field of industrial development;

analyzes trends, disseminates information and coordinates activities in their industrial development;

acts as a forum for consultations and negotiations directed towards the industrialization of developing countries; and

provides technical cooperation to developing countries for implementing their development plans for sustainable industrialization in their public, cooperative and private sectors.

UNIDO thus works largely in developing countries, with governments, business associations and individual companies. The Organization's "service modules" are Industrial Governance and Statistics, Investment and Technology Promotion, Industrial Competitiveness and Trade, Private sector Development, Agro-Industries, Sustainable energy and Climate Change, Montreal Protocol, and Environmental management. UNIDO was established as a UN programme in 1966 with headquarters in Vienna, Austria, and became a specialized agency of the United Nations in 1985. In 2004, UNIDO established the UNIDO Goodwill Ambassador programme. In 2010, UNIDO created two new flagship publications, Making It: Industry for Development and UNIDO Times. Executive heads UNIDO Directors[2] 19671974 19751985 UNIDO Directors-General[2] 19851992 19931997 19982005 2006 June 2013 Domingo L. Siazon Jr. ( Philippines) Mexico) Argentina) Ibrahim Helmi Abdel-Rahman ( Abd-El Rahman Khane ( Egypt) Executive

Algeria)

Mauricio de Maria y Campos ( Carlos Alfredo Magarios ( Kandeh Yumkella (

Sierra Leone)

July 2013

LI Yong () (

China)

EUROPEAN FREE TRADE ASSOCIATION The European Free Trade Association (EFTA, in French 'Association europenne de libre-change' : AELE) is a free trade organisation between four European countries that operates in parallel with and is linked to the European Union (EU). The EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable or unwilling to join the then-European Economic Community (EEC) which has now become the EU. The Stockholm Convention, establishing the EFTA, was signed on 4 January 1960 in the Swedish capital by seven countries (known as the "outer seven"). Today's EFTA members are Iceland, Liechtenstein and Norway and Switzerland, of which the latter two were founding members. The initial Stockholm Convention was superseded by the Vaduz Convention, which enabled greater liberalisation of trade among the member states. EFTA states have jointly concluded free trade agreements with a number of other countries. Three of the EFTA countries are part of the European Union Internal Market through the Agreement on a European Economic Area (EEA), which took effect in 1994; the fourth, Switzerland, opted to conclude bilateral agreements with the EU. In 1999, Switzerland concluded a set of bilateral agreements with the European Union covering a wide range of areas, including movement of people, transport, and technical barriers to trade. This development prompted the EFTA states to modernise their Convention to ensure that it will continue to provide a successful framework for the expansion and liberalization of trade among themselves and with the rest of the world.

AFTA
ASEAN started out primarily as a political organization and only lately has created AFTA. Indonesia, Malaysia, the Philippines, Singapore and Thailand were the original creators of ASEAN. Brunei and Vietnam, Laos, Myanmar and Cambodia have since been admitted as members. In effect, ASEAN, and AFTA, now represent Southeast Asia. AFTA is essentially a free-trade zone in the making. It still is working out agreements amongst all ten countries to eliminate tariffs, quotas and other restrictions on trade. By 2001, 90 percent of a list of 9,000 manufactured and agricultural products are set to be under a 0-5 percent tariff. All products will fall under tariff range by 2002. It has concentrated lately on removing restrictions on capital and services, but it is behind the other trade blocs in these areas. ASEAN is a political organization of countries that are trying to protect themselves from their powerful neighborsChina, Japan and India. The countries of Southeast Asia are finding that economic integration is helping their political goals. For a brief look at AFTA, ASEAN and their relationships to the United States business community please look here. Possible Advantages to Free Trade Zones Most agree that free trade agreements provide higher quality goods and services to consumers in all countries at lower prices. This tends to be true for several reasons. First, competition increases. The elimination of tariffs, quotas, and other restrictions allow companies who were once prevented from doing business to compete on equal footing with national companies. Competition usually lowers prices and improves quality by itself. In the United States, for example, NAFTA, seems to be helping keep the prices of

textiles, shoes, lumber and some agricultural goods low. While this is generally true, it is not true in all cases because some free trade blocs erect higher tariffs and other restrictions to goods and services from outside the countries in the bloc. For example, both the EU and MERCOSUR have created higher tariffs for agricultural goods coming in from outside. This has kept food prices artificially high. Secondly, the cost of production for goods and services tend to decline as companies take advantage of the lower costs of labor, cheaper natural resources and easier access to quality services and specialized knowledge. Dell Computer Corporation based in Texas, for example, uses low-cost Mexican labor to assemble many of its monitors. U.S. software and computer companies are helping to make many more Mexican companies efficient. The free movement of knowledge is especially important. Free trade allows companies to set up subsidiaries in other countries where they can simply use their existing technology. It also allows businesses to create arrangements where their company can sell its knowledge easily to other businesses. A U.S. pharmaceutical company can now sell and produce medicines in Mexico and Canada, allowing consumers in those countries to take advantage of the medical discoveries made by a U.S. company. This same pharmaceutical company may well negotiate deals with Mexican or Canadian companies to market, package or distribute their products. A Canadian company that discovers a better engine for trucks can sell the engine or the knowledge to make the engine to companies in all three countries, thereby allowing a much larger number of people to take advantage of the discoveries and providing a greater incentive to creating discoveries in all countries. Specialization is also increased in free trade zones. A larger market allows countries to spend their resources producing things that they do well, rather than

inefficiently producing goods or services that other countries can provide at lower prices. (In economics this is called comparative advantage.) In the NAFTA for example, it seems clear that in the foreseeable future Mexico will be home to many assembly industries that use low-cost labor. Automotive and computer parts are two that come to mind as well as textiles (clothing). Citrus and produce might also be more likely to be grown in Mexico where the land is cheaper and winter freezes dont interfere with growing seasons. Canadian and U.S. financial services and high-tech industries meanwhile are beginning to dominate some markets in Mexico. A country that specializes is much the same as a person who specializes. It becomes extremely good at what it does and therefore very productive. Productivity increases income. Free trade zones also allow for economies of scale to take place. Canada might not have a large enough market to justify the creation of company that puts communications satellites into orbit around the earth to provide better Internet access. It might be able to do so if it can offer these services to consumers in Mexico and the United States. Similarly it may make sense to create a company that provides Internet access at $15 a month unlimited use if the company can make a one dollar a month profit off each account--- if the customer base is over a million. Companies can get discounts if they buy in large quantities. These factors allow the costs of providing services or producing goods to come down, thus allowing for reductions in prices to consumers. This leads to the next two advantages to free trade. It tends to increase income and employment in all of the countries involved. Its easy to see how many jobs have been created in Mexico by NAFTA. Now and in the future Mexicans will be receiving better employment opportunities by the factories that have been created by U.S. and Canadian firms seeking low-cost labor. As the income of Mexican workers has increased their consumption of goods and services produced in the U.S. and Canada has increased as well. U.S. banks, insurance

companies, stockbrokerage firms and others have seen increases in purchases from Mexican consumers. More computers with processors and software made in the USA and Canada are being sold to Mexico. This has increased employment in high-paying jobs in Canada and Mexico. Those who have received these new jobs buy new homes, use more dry cleaning and home cleaning services. They frequent more restaurants and buy more services from local businesses. All of these activities create other jobs. In short, all countries tend to see an increase in income and employment over time. These increases are not equal, however, some countries will benefit more than others in free trade agreements Another advantage for consumers is that there is often a greater variety of goods and services available in free trade blocs. Products like beer, detergent, clothing, and machine tools are often produced in all the countries after the free trade agreement they are often stocked in many stores. Products like satellite hook ups for televisions, computers and telephones are usually made more available to developing countries. Internet service providers are now able to sell to larger markets and more consumers have opportunities to purchase or use these services. A big advantage to poor countries in trade blocs is that they are usually recipients of large amounts of capital investments made by the wealthier countries. New buildings, technology, and sophisticated equipment are created by foreign investors or by businesses from the more developed countries in the trade blocs. The flip side to this is the opportunity for investment that the wealthier countries now have. There are other long-term political and social benefits to trade blocs. As economies become more intertwined the political reasons for close cooperation

within the bloc increase. Countries understand that they have a stake in each other and make greater efforts to get along. In that same vein, increased business contacts usually mean that people must learn the culture of their trading partners. Many must learn new languages and different business practices. In short, more people will come into contact with each other and will need to learn more about each other. This breeds increased understanding amongst people. Possible Disadvantages to Free Trade Blocs Possibly the greatest drawback to free-trade blocs is job and economic sector displacement. For many reasons, some industries will be shut down or forced to downsize because of increased competition from trading partners. These business sectors often employ large numbers of workers who find that their jobs no longer exist. This is an inevitable process in free-trade agreements. If some industries were not closed it would mean that there was little need for the agreement in the first place. The workers who lose their jobs are often without work for an extended period and when they do find work it may well be at a lower wage. The closing of factories that were their lifeblood has devastated some communities. In the United States, for example, some automobile parts plants have moved to Mexico as have many textile factories in the southern states. Soon the citrus industry in Florida will face increased competition from Mexico and eventually from Central America. It may well have to sell many groves and shut down citrus processing plants. Many Mexican banks and insurance companies are now under pressure from northern financial institutions. Mexicans fear that large retail chains based in the USA will push many small family businesses out as they have done in the United States and Canada.

As stated above, this is an inevitable result of restructuring that occurs in freetrade pacts. This knowledge does not make it any easier for those who have lost their jobs or businesses, however. The other major possible drawback to free-trade agreements is increased dependency. As countries become more specialized they become more dependent on their trading partners. This means that each country loses some control over its economy or sovereignty. Decisions by foreign businesses can greatly affect domestic economies. Many are made uncomfortable knowing that most of their food is now grown in other countries. A strike in automobile parts in Canada or Mexico can throw many thousands of U.S. workers out of work. If U.S. firms eventually supply most of the electrical power in northern Mexico what happens if there is a political rift between the two countries? MERCOSUR countries were frightened by the near collapse of the Brazilian currency at the end of 1998. If the Brazilian economy went into a depression it would surely drag its trading partners along with it. The USA went out of its way to bail out the Mexican peso in 1994-5. It also pushed the IMF to help. With NAFTA, the United States and Canada did not want to see Mexico sink economically. Imagine what will happen to Mexico the next time the United States and Canada go into recessions? Weaker economies in trade blocs clearly have the most to gainand to lose. They fear being swallowed by the more advanced countries. This is exactly what the Mexicans and Canadians fear about NAFTA. They fear that they will all eventually be working for Uncle Sams businesses. They may well be richer, but they will lose control of their economic lives.

There are also environmental concerns raised by these agreements. NAFTA, in particular, has little in it to prevent Mexican businesses from pouring their effluents into the water or air. Thus, as more manufacturing industries shift to production in Mexico, pollution in North America might well increase. This has also put U.S. and Canadian firms at a disadvantage when competing with Mexican firms since companies will have to pay for pollution control in the former countries and perhaps not in Mexico.

CONCLUSION