MARKET

INTEGRATION
 A. INTERNATIONAL
FINANCIAL INSTITUTIONS
1) The General Agreement on Tariffs and Trade
(GATT) and the World Trade Organization (WTO)

2) The International Monetary Fund (IMF) and

the World Bank

3) The Organization for Economic Cooperation and

Development, the Organization of Petroleum
Exporting Countries, and the European Union

4) North American Free Trade Agreement (NAFTA)

 INTERNATIONAL FINANCIAL
INSTITUTIONS
• World economies have been brought closer
together by globalization.
• The strength of a more powerful economy
brings greater effect on other countries.
• The same with the crises on weaker economies
have less effect on other countries.
• Countries are heavily affected by the gains and
crises in the world economy, the organizations
that they consist also contribute to these
events.
 1. The General Agreement on Tariffs and Trade
(GATT) and the World Trade Organization (WTO)

The General Agreement on Tariffs and Trade

(GATT)

• The GATT was established in 1947 (Goldstein et.

al., 2007) and one of the system born out form the
Bretton Woods System.
• It was a forum for the meeting of representatives
from 23 countries and it focused on trade goods
through multinational trade agreements in many
"round" of agreement, it was out of Uruguay round
that an agreement was reached to create the World
Trade Organizations (WTO)" (Ritzer, 2015, p.60).
World Trade Organizations (WTO)

• The WTO headquarters is located in Geneva, Switzerland

with 152 members as of 2008 (Trachtman, 2007).
• It is an independent multilateral organization that became
responsible in trade and services, non-tariff-related
barriers to trade, and other broad areas of trade
liberation.
• The general idea where that WTO is based was that of
neoliberalism.
 Significant Criticisms to WTO
• Issues in agriculture. Trade barriers created
by developed countries cannot be countered
enough by WTO.
• Decision-making process. Highly influenced by
larger trading power, in the so-called Green
Room, while excluding smaller powers in
meetings.
• International Non-Government Organizations
(INGO's) are not involved. Leading to the
staging of regular protests and demonstrations
against the WTO.
2) The International Monetary Fund (IMF)
and the World Bank

• IMF and World Bank were founded after

WWII.
• These institutions aimed to help the
economic stability of the world.
• Both of them are basically banks, but
instead of being started by individuals
like regular banks, they are started by
countries.
• IMF and the World Bank to designed to
complement each other.
The International
Monetary Fund (IMF)
• Main Goal: to help
countries which were in
trouble at that time
and who could not
obtain money by any
means.
• Perhaps, their economy
collapsed or their
currency was
threatened. IMF, in this
case served as the
lender or a last resort
for countries which
needed financial
assistance.
The World Bank
• The World Bank, in
comparison, had a
more long-term
approach.
• Main Goals: revolve
around the
eradication of
poverty and it
funded specific
projects that helped
them reach their
goals, especially in
poor countries.
3) The Organization for Economic Cooperation and
Development, the Organization of Petroleum
Exporting Countries, and the European Union

The Organization for Economic

Cooperation and Development (OECD)
• The most encompassing club of the
richest countries in the world.
• It has 35 member states as of 2016,
with Latvia as the latest member.
• OECD is highly influential, despite the
group having little formal power.
The Organization of Petroleum Exporting
Countries (OPEC)
• In 1960, the OPEC was originally
compromised of Saudi Arabia, Iraq, Kuwait,
Iran, and Venezuela.
• OPEC was formed because member countries
wanted to increase the price of the oil, which
in past had a relatively low price and had
failed in keeping up with inflation.
• Today, the UAE, Algeria, Libya, Qatar,
Nigeria and Indonesia are also included as
members.
The European Union
• The EU is made up of 28 member
states.
• Most members in the Eurozone
adopted the euro as a basic
currency but some Western Europe
countries like Great Britain,
Sweden, and Denmark did not.
4) North American Free Trade Agreement
(NAFTA)

• NAFTA is a trade pact between the US, Mexico,

and Canada created on January 1, 1994 when
Mexico joined the other two nations.
• It was created in 1989 with only Canada and
US as trading partners.
• NAFTA helps in developing and expanding
world trade by broadening international
cooperation.
• It also aims to increase cooperation for
improving working conditions in North America
by reducing barriers to trade as it expands the
markets of the three countries.
• The creation of NAFTA has caused
manufacturing jobs from developed
nations (Canada or the US) to transfer to
less developed nations (Mexico) in order
to reduce the cost of their products.

• One can argue that NAFTA was to blame

for job losses and wage stagnation in the
US because competition from Mexican
firms had forced many US firms to
relocate to Mexico. This is because
developing nations have less government
regulations and cheaper labor. This is
called outsourcing.
• As for Canada, 76% of Canadian
exports go to US and about
quarter of the jobs to Canada are
dependent in some way on the
trade with the US.
• Generally, NAFTA has its positive and negative
consequences.

Positive Consequences
• it lowered prices by removing tariffs;
• opened up new opportunities for small and medium
sized business to establish a name for itself;
• quadrupled trade between the three countries; and
• created 5 million US jobs.

Negative Consequences
• excessive pollution;
• loss of more than 682,000 manufacturing jobs;
• exploitation of workers in Mexico; and
• moving Mexican farmers out of business.
B. HISTORY OF GLOBAL
MARKET INTEGRATION
1) 15TH Century

2) Between the end of

Napoleonic Wars and
beginning of World War 1

3) Post War Period

 15TH Century

• The voyages of Columbus, Vasco da Gama, and other explorers

initiated a period of trade over even vaster distances.

• These voyages of discovery were made possible by advances in

European ship technology and navigation, including
improvements in the compass, in the rudder, and in sail design.

• Much of this trade ultimately came under the control of the

trading companies created by the English and the Dutch.

• Influenced by the prevailing mercantilist view of trade as a zero-

sum game, European nation-states competed to dominate
profitable markets, a competition that sometimes spilled over
into military conflict.
Between the end of Napoleonic Wars and
beginning of World War 1

• Global economic integration took

another major leap forward during the
period between the end of the
Napoleonic Wars in 1815 and the
beginning of World War I.

• International trade again expanded

significantly as did cross-border flows
of financial capital and labor.
Once again, new technologies played an
important role in facilitating integration:

• Transport costs plunged

 as steam power replaced the sail
 railroads replaced the wagon or the barge
 an ambitious public works project, the opening of
the Suez Canal, significantly reduced travel times
between Europe and Asia.

• Communication costs likewise fell

 as the telegraph came into common use
 One observer in the late 1860s described the just
completed trans-Atlantic telegraph cable as having
annihilated both space and time in the transmission
of intelligence" (Standage, 1998, p. 90).
• The structure of trade during the post-Napoleonic period followed
a "core- periphery" pattern.
 Capital-rich Western European countries, particularly Britain, were the
center, or core, of the trading system and the international monetary
system.
 Countries in which natural resources and land were relatively
abundant formed the periphery.
 Manufactured goods, financial capital, and labor tended to flow from
the core to the periphery, with natural resources and agricultural
products flowing from the periphery to the core.

• For the most part, government policies during this era fostered
openness to trade, capital mobility, and migration.
 Britain unilaterally repealed its tariffs on grains in 1846, and a series of
bilateral treaties subsequently dismantled many barriers to trade in
Europe.
 A growing appreciation for the principle of comparative advantage, as
forcefully articulated by Adam Smith and David Ricardo, may have
made governments more receptive to the view that international
trade is not a zero-sum game but can be beneficial to all participants.
• Domestic opposition to free trade eventually
intensified, as cheap grain from the periphery
put downward pressure on the incomes of
landowners in the core.
• Beginning in the late 1870s, many European
countries raised tariffs, with Britain being a
prominent exception.
• In the United States, tariffs on manufactures
were raised in the 1860s to relatively high
levels, where they remained until well into
the twentieth century.
• Unfortunately, the international economic integration
achieved during the nineteenth century was largely
unraveled in the twentieth by two world wars and the
Great Depression.
• After World War II, the major powers undertook the
difficult tasks of rebuilding both the physical
infrastructure and the international trade and
monetary systems.
• The industrial core--now including an emergent Japan
as well as the United States and Western Europe--
ultimately succeeded in restoring a substantial degree
of economic integration, though decades passed
before trade as a share of global output reached pre-
World War I levels.
 Post War Period

• Postwar economic re-integration was supported by several

factors, both technological and political.
• Technological advances further reduced the costs of
transportation and communication.
• Taken together, these advances allowed an ever-broadening
set of products to be traded internationally.
• In the policy sphere, tariff barriers--which had been
dramatically increased during the Great Depression--were
lowered, with many of these reductions negotiated within
the multilateral framework provided by the General
Agreement on Tariffs and Trade.
• Globalization was, to some extent, also supported by
geopolitical considerations, as economic integration among
the Western market economies became viewed as part of
the strategy for waging the Cold War.
C. THE GLOBAL
CORPORATIONS
1) International Companies

2) Multinational Companies

3) Global Companies

4) Transnational Companies
THE GLOBAL CORPORATIONS
• Global corporations intentionally surpass
national borders and take advantage of
opportunities in different countries to
manufacture, distribute, market, and sell their
products.
• The contemporary global corporation is
simultaneously and commonly referred to
either as a multinational corporation (MNC),
a transnational corporation (TNC), an
international company, or a global
company.
 1. International Companies

• are importers and exporters, typically without

investment outside of their home country
 2. Multinational Companies

• have investment in other countries, but do not have

coordinated product offerings in each country
• they are more focused on adapting their products
and services to each individual local market
 3. Global Companies

• have invested in and are present in many countries

• they typically market their products and services to
each individual local market
 4. Transnational Companies

• are more complex organizations which have invested in

foreign operations, have a central corporate facility but give
decision-making, research and develop (R&D) and marketing
powers to each individual foreign market
• Transnational corporations have
significant role in the global economy.
Some have greater production
advantages than an entire nation. They
influence the economy and politics by
donating money to a specific political
campaigns or lobbyist. They can
influence the global trade laws of the
international regulatory groups.
• Global corporations often locate their
factories in countries which they can
provide the cheapest labor in order to save
up for the expenses for making of a
product.
• In the end, however, these incentives often
hurt the working population of the
developing nations. The upper classes may
benefit from the business of the corporation
but the people working in the factories are
exploited as their wages are cut.