recent world trade trends

8/8/2019 Recent World Trade Trends

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RECENT WORLD TRADE

TRENDS


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WHEN INTERNATIONAL TRADE?


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DRIVERS

Worldwide trend of the economies of the world

becoming borderless and interlinked.

National economies merging into an

interdependent global economic system.

Declining trade and investment barriers

Perceived distances are shrinking due to advances

in transportation and telecommunications.


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The Shrinking Globe-The death of distance

1500-1840

1850-1930

1950s

1960s

Best average speed ofhorse-drawn coaches andsailing ships, 10mph.

Steam locomotives average 65mph.Steamships average 36mph.

Jet passenger aircraft

500-700mph.


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GAAT

(GENERAL AGREEMENT ONAGREEMENT ONTARIFFS & TRADE)TARIFFS & TRADE)


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General Agreement on Tariffs and Trade (GATT)

originated after World War II (1939-1945) as a charter forthe International Trade Organization (ITO), a proposed

specialized agency of the United Nations. GATT was

signed by 23 nations at a trade conference in 1947 and

became effective in January 1948. Although the ITOfailed to win ratification by the United States Congress in

1950 and never came into being, the GATT remained in

use to govern international trade. It is a treaty among

international trade organization in existence from 1948 to

1995.


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W.T.O.

(WORLD TRADE ORGANIZATION)


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W.T.O.

The World Trade Organization (WTO) is the only globalinternational organization dealing with the rules of trade

between nations. Its main function is to ensure that trade

flows as smoothly, predictably and freely as possible. . At

its heart are the WTO agreements, negotiated and signed

by the bulk of the worlds trading nations and ratified in theirparliaments. The goal is to help producers of goods and

services, exporters, and importers conduct their business.

Its an organization for liberalizing trade. Its a forum for

governments to negotiate trade agreements. Its a place forthem to settle trade disputes. It operates a system of trade

rules.


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Its a negotiating forum - The WTO is a place where member governments go, to

try to sort out the trade problems they face with each other. The first step is to talk.

The WTO was born out of negotiations, and everything the WTO does is the result of

negotiations.

Its a set of rules - At its heart are the WTO agreements, negotiated and signed by

the bulk of the worlds trading nations. These documents provide the legal ground-

rules for international commerce. They are essentially contracts, binding

governments to keep their trade policies within agreed limits.

It helps to settle disputes - Trade relations often involve conflicting interests.

Agreements, including those painstakingly negotiated in the WTO system, often

need interpreting. The most harmonious way to settle these differences is through

some neutral procedure based on an agreed legal foundation. That is the purpose

behind the dispute settlement process written into the WTO agreements.

Role of W.T.O.


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Principles of Trading System

Freer trade: gradually, throughnegotiation

Predictability: through binding and

transparency

Promoting fair competition

Encouraging development and economic

reform


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World Trade Organization: Rounds

Rounds of GATT

Multilateral Trade Negotiations

No. Years Name Accomplishments

1-5 1947-61 Reduced tariffs6 1964-67 Kennedy Tariffs + anti-dumping

7 1973-79 Tokyo Tariffs + NTBs

8 1986-94 Uruguay Tariffs, NTBs, Services, Intellectual Property,Textiles, Ag., Dispute Settlement, CreatedWTO

9 2001-? Doha ? (Doha Development Agenda)


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Foreign Direct Investment (FDI) is defined as

"investment made to acquire lasting interest in enterprises

operating outside of the economy of the investor."

The FDI relationship consists of a parent enterpriseand a foreign affiliate, which together form a Trans-

national Corporation (TNC).


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When is FDI Preferable to Trade?

Transportation costs too high for exporting

Tariff and non-tariff barriers very high

Lack of excess domestic capacity

Scale economies not significant in competitiveness(especially when products are more differentiated)

Location specific advantages such as natural resources


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Why Do Firms Invest Overseas?

Labour Market Imperfections

Intangible Assets

Vertical Integration

Product Life Cycle

Shareholder Diversification


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Labour Market Imperfections

Country Hourly Cost

Germany $27.37Japan $21.38

France/U.S. $17.10

Israel $9.06Taiwan $5.47

Mexico $2.57

Persistent wage

differentials across

countries exist. This

is one on the mainreasons MNCs are

making substantial

FDIs in less

developed nations.


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Intangible Assets

Coca-Cola has a very valuable asset in its closely

guarded secret formula.

To protect that proprietary information, Coca-Cola

has chosen FDI over licensing. Since intangible assets are difficult to package and

sell to foreigners, MNCs often enjoy a comparative

advantage with FDI.


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VerticalIntegration

MNCs may undertake FDI in countries where inputsare available in order to secure the supply of inputs at

a stable accounting price.

Vertical integration may be backward or forward:

Backward: e.g. a furniture maker buying a logging

company.

Forward: e.g. a U.S. auto maker buying a Japanese

auto dealership.


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Product Life Cycle

U.S. firms develop new products in the developed world for the

domestic market, and then markets expand overseas.

FDI takes place when product maturity hits and cost becomes an

increasingly important consideration for the MNC.


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Product Life Cycle

Quan

tity

Quanti

ty

The U.S.

Less advanced

countries

production

New product Maturing product Standardized product

New product Maturing product Standardized product

exports

consumption

cons

umption

imports

production

imports

exports


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Cisco

Networking major Cisco's CEO John Chambers announced a $1.1 billion

investment package for India. Chambers said that the company is also

considering India as a manufacturing base.

Intel: Intel Corporation said the company would invest more than $1

billion in the next five years to expand its operations in India and in localtechnology companies.


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Toyota

Global auto giant Toyota is setting up a gearbox manufacturing plant inIndia to serve the Asian market. Toyota is planning to invest around Rs

387 crore (Rs 3.87 billion) in collaboration with its mini-vehicle making

arm Daihatsu. The aim is to develop a compact car for the Indian market.

Besides, Toyota, Honda Motorcycle, Suzuki Motor (Maruti Suzuki) andKansai Paints are firming up plans to pump in foreign direct investment

(FDI) of at least $1.5 billion in the next three years.


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Telecom sector

LG Electronics has invested Rs 900 cr (Rs 9 billion) at Ranjangaon,Samsung has planned to set up a mobile manufacturing base in India.

Finnish mobile handset giant Nokia set up a manufacturing plant in

Chennai with an investment of up to $150 million to meet the booming

demand for its handsets in India. The Chennai unit will be Nokia's tenth mobile device production facility

globally and will roll out India-specific entry level and mid and upper

end GSM and CDMA handsets.


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Strategic Alliances

A strategic alliance is an arrangement

between two or more companies to pursue a

common business objective.


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Wal-Marts experience

Moved into other countries

Growth opportunities at home were becoming constrained

Create value by transferring core skills to markets where indigenous competitors lacked those skills

Preempt other retailers who were expanding globally

Discovered had to change US model

Differences in local taste, preferences and local infrastructure

Change store location, layout and stocking practices

Keep companys core strategies and operations emphasize everyday low prices & realize operating efficiencies from world class logistics management

and information systems

Benefits becoming transnational corporation

Enhanced bargaining power with suppliers

Ability to transfer valuable ideas from one country to another

Balance global standardization with local customization


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Success factors

FOCUS AND DIRECTION: Pharmaceutical giants like SmithKline

Beecham have linked arms with relative minnows to enter

unfamiliar fields like biotechnology. SmithKline Beecham's

necessities included tapping into drug-related research fields, like

biotechnology, where it had no position itself. Pilkington jointly owns float glass manufacture in Latin America

with its deadly European rival, St.Gobain. Since alliance with a

Japanese competitor was the key to expanding in automotive glass in

the US and other markets


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recent world trade trends

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