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REGIONAL AND ECONOIC INTEGRATION

The Euro

Prior to the implementation of the Euro (the single European currency), member countries moved to converge their economies by

• Reducing inflation so that each country’s inflation would be no more than 1.5 percentage points above the average of the three lowest inflation rates in Europe
• Reducing long-term interest rates so that each country’s rate would be no more than two percentage points above the average of the three lowest.
• Reducing the government’s budget deficit to no more than 3.5% of GDP
• Reducing the stock of public debt so that it would not exceed 60% of GDP.

Eleven countries adopted the Euro as of January 1999. The Euro will show up as an actual bank note (replacing individual currencies) in 2002. It is already widely used for a variety of no cash transactions.

Implications of the EU:

Although Europe is moving closer together through the Euro and the Single Market program, it is still not as homogenous as the U.S. market. Differences in languages, cultures, and governments still splinter Europe, and the eventual addition of new countries will create even more divisions in the market. Companies need to develop a pan-European strategy without sacrificing different national strategies.

Read more: MGT520 - International Business - Lecture Handout 40

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GATT AND WTO

The World Trade Organization:

The World Trade Organization (WTO) was founded in 1995, and is comprised of 146 member countries and 30 observer countries. The WTO has three primary goals: to promote trade flows by encouraging nations to adopt non-discriminatory and predictable trade policies, to reduce remaining trade barriers through multilateral negotiations, and to establish impartial procedures for resolving trade disputes among members.

Problem Sectors:

One challenge facing the WTO is dealing with sectors of the economy such as agriculture and textiles that most nations protect. Groups including the Cairns Group (a group of major agricultural exporters) have pressured the WTO to ensure that the Uruguay Round policies dealing with agricultural trade are implemented according to schedule. Similarly, developing countries are monitoring the dismantling of the Multifibre Agreement (MFA), which created a complex array of quotas and tariffs on trade in textiles and apparel.

Read more: MGT520 - International Business - Lecture Handout 30