International Business

27 Jun


It had become almost a ritual. Every year Russian officials promised that by the end of the following year their country would complete the negotiations to join the World Trade Organization. Every year the timetable slipped by another year. But now Vladimir Putin, Russia’s prime minister, has broken with the ritual by announcing that, after 16 years of trying to get in, Russia no longer wants to join the WTO on its own but only as part of a customs union that it has forged with Belarus and Kazakhstan. The turnaround shocked trade negotiators on both sides, who only weeks ago were trying to iron out the last wrinkles in a deal. Why the change? The Kremlin may just be fed up with endless new demands and delays. After last August’s war with Georgia, Mr Putin accused the West of politicising the trade talks and said that Russia would not be pushed around. Both Ukraine and Georgia, two former Soviet republics that cause big headaches in the Kremlin, are now in the WTO, leaving Russia behind (and, not incidentally, acquiring a veto over its membership). By making his announcement before Barack Obama’s visit to Moscow, Mr Putin removed an easy concession the American president might have offered. “We really thought we could have completed [the talks] by the end of the year”, said a senior American official. In practical terms Russia will lose little. It exports mainly oil and gas, which are largely not covered by the WTO. Being outside the organization for a bit longer gives it more freedom to raise import duties on secondhand cars or export duties on timber. Some observers suggest that the Kremlin was never truly comfortable with the idea of free trade and saw the rules as a nuisance rather than a stimulus to restructure the economy. Yet Russia’s aspiration to membership, which in turn opened up the prospect of joining the Parisbased OECD club of rich countries, demonstrated its desire for integration into the global economic system. Now the Kremlin seems to prefer being a distinct regional power that can offer alternative economic and military institutions and alliances to the West’s. Mr Putin has long argued that international organizations such as the WTO and the International Monetary Fund have outlived their day and should be supplemented or even replaced by regional clubs. In the multipolar world that Russia advocates, it sees itself as a centre of regional influence. A military alliance between Russia and Uzbekistan, Belarus, Armenia, Kazakhstan, Kyrgyzstan and Tajikistan, called the Collective Security Treaty Organization (CSTO), should be «no worse than NATO», Dmitry Medvedev, Russia’s president, argued recently. Russia sees any foreign project that touches the former Soviet Union, including the European Union’s new eastern partnership, as a direct challenge. Yet the bigger threat to its ambitions to reassert regional influence lies in its own attitude towards the neighbours. Even as it was signing a customs union with Belarus, Russia imposed a ban on Belarusian milk products, which it claimed did not meet its new packaging rules (rather as it once argued that Georgian wine, fruit and mineral water were of substandard quality). But Alyaksandr Lukashenka, the autocratic president of Belarus, interpreted this (probably accurately) as a punishment for being rude about Russia and refusing to back its policy of recognizing the independence of the Georgian territories of Abkhazia and South Ossetia.

Answer the following question.

Q1. Why has Russia long been reluctant to join the World Trade Organization (WTO)?



During the 1990s, seeking to tame hyperinflation, Argentina had tied the value of its peso to the American dollar — a “convertibility” strategy that proved unsustainable because of rising global interest rates. The country privatized many industries, which led to high unemployment but also made Argentina’s economy more efficient. By 1999, however, it was clear to most economists that Argentina was marching inexorably toward a default and devaluation. The number of people under the poverty line was growing — it peaked at more than 50 percent of the population in 2002 — and unemployment was soaring. Social tensions rose. There were eight general strikes in Argentina in 2001, with looting and thousands of roadblocks. Huge lines formed outside many European embassies as waves of Argentines fled their country. In December the government fell, and the departing president fled as a riot raged below. Over the next 10 days, four presidents assumed power and then quickly resigned before a fifth, Eduardo Duhalde, declared the currency devaluation. A short time later, Congress formally approved the debt default that was already a de facto reality. In 2003 Mr. Kirchner was elected to succeed the interim president, Mr. Duhalde. Mr. Kirchner embarked on a new economic model — the one that his wife, continued to follow today. Its pillars are sustaining a weak currency to foster exports and discourage imports, and maintaining fiscal and trade surpluses that can be tapped for financing government and paying down debt. The Argentine government waited until 2005, when its economy was already in recovery, to conduct the first of two debt restructurings. Nongovernment foreign investors — the biggest included pension funds from Italy, Japan and the United States — took haircuts costing them twothirds of their investments. Notably, the one creditor that was paid back in full — in 2006 — was the International Monetary Fund, to which Argentina owed $9.8 billion dating to the 1990s. Since paying off the International Monetary Fund, Argentina has not borrowed from the fund. That enabled the Kirchner governments to avoid the agency’s typical prescription of cutting state spending. The Argentine government has maintained hefty subsidies on energy and some food to avoid public discontent — steps that would be anathema to the monetary fund. But high commodity prices have helped let Mrs. Kirchner maintain popularity at home through generous government outlays.

Answer the following question.

Q1. What were the nature and origins of the Argentine economic crisis in 2001?

Q2. What was the role of the International Monetary Fund during the crisis?

Q3. How can Argentina’s recent impressive economic record be explained?

Q4. What are the objectives and means of Argentina’s trade policy?



EU Trade Commissioner Karel De Gucht, the Belgian Minister of Foreign Affairs Steven Vanackere representing the Presidency of the Council of the European Union (EU), and the Korean Minister for Trade Kim Jong-Hoon today signed a Free Trade Agreement (FTA) between the EU and South Korea. This FTA is the most ambitious trade agreement ever negotiated by the EU and the first with an Asian country. Today’s signature signals a significant step on the road to its implementation and is one of the main events of the EU-Korea Summit taking place in Brussels today. “The agreement between the EU and South Korea marks a significant achievement in improving our trade links. It will provide a real boost to jobs and growth in Europe at this critical time. This wide-ranging and innovative deal is a benchmark for what we want to achieve in other trade agreements”, said Commissioner De Gucht. “Tackling the more difficult nontariff barriers to international commerce can cut the costs of doing business as much if not more than getting rid of import duties.” The text of the FTA was initialed between the European Commission and South Korea on 15 October 2009. Since then the text of the Agreement was translated into Korean and 21 EU languages. All EU Member States have signed the FTA ahead of today’s official signing ceremony. The date of provisional application will be 1 July 2011, provided that the European Parliament has given its consent to the FTA and the Regulation of the European Parliament and of the Council implementing the bilateral safeguard clause of the EU-South Korea FTA is in place. The EU Member States will have to also ratify the agreement according to their own laws and procedures. One study estimates that the deal will create new trade in goods and services worth €19.1 billion for the EU; another study calculates that it will more than double the bilateral EU-South Korea trade in the next 20 years compared to a scenario without the FTA. The agreement will remove virtually all import duties between the two economies as well as many nontariff barriers. It will relieve EU exporters of industrial and agricultural goods to South Korea from paying tariffs. Once the duties are fully eliminated, EU exporters will save € 1.6 billion annually. Half of these savings will be applicable already on the day of the entry into force of the Agreement. The FTA will also create new market access in services and investment and will make major advances in areas such as intellectual property, procurement, competition policy and trade and sustainable development.

Answer the following question.

Q1. What are the objectives and contents of the recent free trade agreement signed between the European Union and South Korea?

Q2. What are the economic underlying principles of this agreement?

Q3. Why has the agreement been questioned both in the EU and South Korea?

Q4. Why are Japanese businessmen worried about the agreement? Why are Japanese policymakers trying to sign a similar deal with the EU?



An excellent international case study comes from bike manufacturer Triumph, which lost steam in its British home base three decades ago, but found new life by heading overseas. In 2010, Triumph sold just 7,562 bikes in the UK, but 50,000 worldwide, indicating that an international interest paid off for the company. Triumph’s famous factory in Warwickshire closed up shop in 1983, but the Indian factory remained, and these days, the motorcycles have become the country’s Harley Davidson. The company struggles to meet demand in India, with a six month waiting list and a new factory being built. India’s middle class has embraced the vehicle as an affordable commodity, even giving them as dowries in weddings.

Answer the following question.

Q1. Give an overview of the case.

Q2. How did the bike manufacturer Triumph survive despite lost steam in his home town?

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