Page 18 - DMGT548_GLOBAL_HRM

Unit 1: Introduction to Global HRM

International trade Notes

An absolute trade advantage exists when countries can produce a commodity with less costs per
unit produced than could its trading partner. By the same reasoning, it should import commodities
in which it has an absolute disadvantage. While there are possible gains from trade with absolute
advantage, comparative advantage—that is, the ability to offer goods and services at a
lower marginal and opportunity cost—extends the range of possible mutually beneficial
exchanges. In a globalised business environment, companies argue that the comparative
advantages offered by international trade have become essential to remaining competitive.
Trade agreements, economic blocks and special trade zones

A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that
are more free-market-oriented than a country’s typical or national laws. “Nationwide” laws
may be suspended inside these special zones. The category ‘SEZ’ covers many areas, including Free
Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial parks or Industrial
Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of a structure is to
increase foreign direct investment by foreign investors, typically an international business or
a multinational corporation (MNC). These are designated areas in which companies are taxed
very lightly or not at all in order to encourage economic activity. Free ports have historically
been endowed with favourable customs regulations, for example, the free port of Trieste. Very
often free ports constitute a part of free economic zones.
A FTZ is an area within which goods may be landed, handled, manufactured or reconfigured,
and re-exported without the intervention of the customs authorities. Only when the goods are
moved to consumers within the country in which the zone is located do they become subject to
the prevailing customs duties. Free trade zones are organised around major seaports, international
airports, and national frontiers—areas with many geographic advantages for trade. It is a region
where a group of countries has agreed to reduce or eliminate trade barriers.
A free trade area is a trade bloc whose member countries have signed a free-trade agreement,
which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services
traded between them. If people are also free to move between the countries, in addition to free-
trade area, it would also be considered an open border. The European Union, for example, a
confederation of 27 member states, provides both a free trade area and an open border.
Qualifying Industrial Zones (QIZ) are industrial parks that house manufacturing operations in
Jordan and Egypt. They are a special free trade zones established in collaboration with
neighbouring Israel to take advantage of the free trade agreements between the United States
and Israel. Under the trade agreements with Jordan as laid down by the United States, goods
produced in QIZ-notified areas can directly access US markets without tariff or quota restrictions,
subject to certain conditions. To qualify, goods produced in these zones must contain a small
portion of Israeli input. In addition, a minimum 35% value to the goods must be added to the
finished product. The brainchild of Jordanian businessman Omar Salah, the first QIZ was
authorised by the United States Congress in 1997.

The Asia-Pacific has been described as “the most integrated trading region on the planet” because
its intra-regional trade accounts probably for as much as 50–60% of the region’s total imports
and exports. It has also extra-regional trade: consumer goods exports such as televisions, radios,
bicycles, and textiles into the United States, Europe, and Japan fuelled the economic expansion.
The ASEAN Free Trade Area is a trade bloc agreement by the Association of Southeast Asian
Nations supporting local manufacturing in all ASEAN countries. The AFTA agreement was
signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed,

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