Introduction to IBT Victor H. Bouganim WCL, American University.

Introduction to IBTIntroduction to IBTVictor H. Bouganim

WCL, American University

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2

Commerce or Isolation?Commerce or Isolation?

Why do nations trade?– Exchange natural resources

– More efficient use of resources

– Take advantage of local skills

– Comparative advantage: Comparative advantage: SpecializationSpecialization


Development of SpecializationDevelopment of Specialization

Self-sufficient economy: Produce what is needed, no more.

Development of agrarian economies: Produce what is available and more efficient– Some people were experts at producing

pottery, some at food production, so they traded.


Protectionist NationsProtectionist Nations A country may require exporting entities to obtain

permits before exporting. Free trade may be limited to protect local

industries. Standards may be set for labeling goods and for

technical specifications. Ports may be designated for imports. Countries may try to limit trade by other means.


Quotas and TariffsQuotas and Tariffs

Nations may set quotas or limits on the number of types of goods that may be imported per year.– The country may want to ensure demand

continues for local goods. Nations may set a tariff or tax on imported

goods.– The country can generate revenue by collecting

the tariff on imports.


AlliancesAlliances

Similar politics and trade interdependence resulted in the formation of alliances.– Development of

trade policies multilateral trade agreements foreign exchange policy

Economic policy influences trade patterns.


Need for GlobalizationNeed for Globalization

Global threats to peace and security

One earth - the environment

Cyberspace - the ‘global village’

Global trade and global markets– e.g. the financial market

Barriers Common approach still

based on:– sovereignty– nation-state oriented– national interests

Re-nationalization Implementation in

domestic laws


Class DiscussionClass Discussion

Is the trend toward globalization positive? To what extent should governments be

involved with international business transactions?

What should be the role of international economic organizations?

What should be done regarding developing nations?


Global TrendsGlobal Trends

GlobalizationInternation-

alizationRenational-

ization

Markets

Politics

Law


Globalization of LawGlobalization of Law Based on article by Jost Delbruck

Globalization of Law, Politics and Markets - Implications for Domestic Law: A European Perspective, Global Legal Studies Journal

Theoretical framework of the new international economic ordereconomic arrangements:

global (GATT/WTO) supra-national (EU) and regional (NAFTA, EFTA)


What is ‘Globalization’?What is ‘Globalization’?

The process of denationalization of markets, laws and politics in the sense of interlacing people and individuals for the sake of the common good.

Harmonization and denationalization of the domestic legal orders, through international agreements that oblige the states to transpose the international legal obligations into domestic law.


InternationalizationInternationalization

A means to enable nation-state to satisfy the national interest in areas where they are incapable of doing so on their own.

Enhancement of national interests: an instrument to supplement national governments.


RenationalizationRenationalizationAs people worldwide have become more

politically conscious and, therefore, less ready to accept public authority as such, they are turning to measures of “self-help”, violently if necessary, and to religiously (mostly fundamentalist) based group identification.

As the results a fast growing diversity of political actors are confronting the international scene.


Basic StrategiesBasic Strategies

The belief in centralized planning or interventionist strategies and mechanisms.

Reliance on decentralized, liberal market-oriented strategies.

Policy goals Market-oriented Maximizing

economic welfare for the greatest number.

Intervention is accepted only when there is market failure.


Market FailureMarket Failure

Supply of public goods.

Managing optimal use of common resources.– e.g. the environment

Achieving wealth distribution.

Promoting social goals and values.

The debate over the necessity of intervention

e.g. clean air – not ‘public goods’:

the right to use it can be tradable

– ‘public goods’ : there is a need for intervention


Globalization ConcernsGlobalization Concerns

Increasing integration of countries’ individual economies

Rise in world trade Impact on ordinary people of multinational

companies Effect of large sums of money moving in and out

of economies Increasing number of cross-border social, cultural

and technological links


Anti-Globalization ProtestsAnti-Globalization Protests

“Anti-globalization” is the umbrella term for a group of different protest causes, including– Environmentalism– Third world debt– Animal rights– Child labor– Anarchism– Anti-capitalism and opposition to multi-nationals

corporations


Anti-Globalization TargetsAnti-Globalization Targets

Meetings of the– World Trade Organization (WTO)

promotes free trade between countries

– International Monetary Fund (IMF) gives countries loans when their economies are in crisis

– World Bank Gives longer term loans to countries for development

– Summit of the Americas

– World Economic Forum


Argument for Anti-GlobalizationArgument for Anti-Globalization

Globalization leads to– Exploitation of the world’s poor, workers

and environment

– Less accountability for rich companies

– Americanization of individual cultures McDonalds Starbucks


Forms of International BusinessForms of International Business

Trading goods across borders: Exports and Imports– Traditional international trade:

Sales of goods

– New Economy: Electronic commerce and trade in information

Licensing production abroad– Technology transfer

Foreign Investment


Role of LawyersRole of Lawyers

Lawyers plan, negotiate, and implement international business transactions– Need for advice of those skilled in the rules

of international trade and investmentLawyers advocate policies and help

establish rules which govern those transactions


The Actors in IBTThe Actors in IBT

The individual is the last of a series of links in a foreign trade relationship.– A Japanese camera purchased in the U.S. may

have been purchased from abroad.– A local Japanese distributor may have sold the

camera– Other actors may include banks, shippers,

insurance companies.


Multinational CorporationsMultinational Corporations

Many of the largest corporations participate in international trade.

Corporations may take part in foreign investments or foreign trade.

A U.S. corporation may own subsidiaries abroad. A U.S. corporation may sell goods almost

exclusively abroad. U.S. companies may engage in joint ventures with

foreign entities.


Government as ActorGovernment as Actor

Nations participate in trading and investment activities:– Germany buys tanks from England– Brazil purchase hydroelectric turbines from

Japan– Paraguay sells hydroelectric power to Brazil

Governments may have equity investments in multinational corporations.


Government RolesGovernment Roles Governments set up the regulatory

framework for international trade:– tariffs– costs of entry for goods entering a country– customs officials examine goods and determine

their classification– governments may grant subsidies to encourage

exports– pass legislation and administrative regulations


Developing NationsDeveloping Nations

Countries which have not achieved a certain level of development– Advanced developing countries include Mexico,

Brazil and India– Newly industrializing countries include Korea,

Taiwan and Singapore When developing countries achieve levels of

development they may receive benefits such as tariff reductions.


Least-Developed NationsLeast-Developed Nations

Poorest countries of the worldFew or scarce natural resourcesNot successfully exploiting human

resourcesMay receive benefits such as World

Bank loans or favored status in international trade treaties


Class DiscussionClass Discussion

How should differences in culture affect the way actors behave in international business?

What is the importance of international agreements with regard to international business?

Is the trend toward international agreements such as the EU or NAFTA a positive one?

Introduction to IBT Victor H. Bouganim WCL, American University.

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