International Commerce & Free Trade Agreements – Comprehensive Lecture Notes

Course Schedule & Key Dates

  • Weekly double sessions; choose Group 1 (08:15–11:30) or Group 2 (12:15–15:45).
    • 26 Mar (Units 1–2) — Introduction & Globalization
    • 02 Apr (3–4) — International Commerce & Agreements
    • 09 Apr (5–6) — Theories of Internationalisation & Strategies (Instructor: SB)
    • 16 Apr (7–8) — International Market Selection & Entry Modes (SB)
    • 23 & 30 Apr (9–12) — Online group discussion / project workshops (SB)
    • 07–21 May (13–18) — Graded Presentation 1 (SB)
    • 04 Jun (19–20) — Cross-Cultural Influences (BC)
    • 11 Jun (21–22) — International HRM (BC)
    • 18 Jun (23–24) — Project workshop (BC)
    • 25 Jun (25–26) — International HRM (BC + JW)
    • 02 Jul (27–28) — Case Study & Exam Prep (BC)

International Commerce ‑ Why It Matters

  • Globalization recap: removal of boundaries → new markets, supply chains, capital flows.
  • Featured source for commercial relevance: The Treasurer Magazine – “Trading Places”.
  • WTO 2024 data illustrate:
    • Record merchandise trade volume growth despite geopolitical tension.
    • Shifting services trade dominance (digital, intellectual property, finance).

Foreign Trade Flows (WTO 2024)

  • Continual east-to-west & south-to-north trade imbalances.
  • Expansion of South–South corridors (e.g. \text{China} \rightarrow \text{Brazil} agribusiness).
  • Statistical reminders:
    • >!70\% of world exports originate from 15 economies.
    • Services share ≈ \frac{1}{4} of total trade; growing > goods trade CAGR.

Forms of Foreign Trade

  • Import — purchase of foreign-produced goods/services.
  • Export — sale of domestically produced goods/services abroad.
  • Entrepôt (Re-export) — import for processing or trans-shipment then export.
    • Example: Singapore imports crude, refines, re-exports fuel.

Foreign Direct Investment (FDI)

Definition

  • Investment that grants lasting interest & managerial control in a foreign enterprise ((\ge{}10\%) voting power is common threshold).

Advantages (host-country view)

  • Technology & know-how transfer → productivity spill-overs.
  • Job creation & up-skilling ("workstation structure").
  • Integration of local suppliers into global value chains.
  • Fiscal incentives offered by many governments (tax holidays, grants).

Kearney FDI Confidence Index 2024

  • Annual forward-looking survey of executives.
  • Tracks markets expected to attract most FDI over next 3 yrs.
  • Historically predictive of actual FDI_{inflow} rankings.

Potential Negative Sustainability Impacts

  • Environmental degradation (pollution havens, deforestation).
  • Social displacement (land grabbing, labor exploitation).
  • Fiscal race-to-the-bottom (tax competition undermining public goods).

Interactive Exercise

  1. Write specific negative FDI-sustainability examples on post-its.
  2. Categorise collaboratively (environmental / social / economic).

Case Study: Karuturi Global (Ethiopia)

  • Indian rose exporter leased \approx300{,}000\,ha in Gambella (2008) for palm oil, sugar cane, maize.
  • Global flows present:
    • Capital (Indian equity) → Ethiopia.
    • Goods (future agro-exports) → EU & others.
    • Labour migration & technology transfers.
  • Outcome: Land reclaimed by Ethiopian government (2017) due to unmet targets → illustrates risk of large-scale land acquisitions.
  • Sustainability analysis:
    • Economic +: promised infrastructure, export revenue.
    • Economic –: unrealised output, sunk public costs.
    • Ecological –: deforestation, biodiversity loss, water stress.
    • Social –: displacement of local communities, food security concerns.

Global Market – Dimensions of Development

1 Economical

  • Declining tariffs / trade barriers; capital-market liberalisation.
  • Location arbitrage (taxes, regulation, unions).
  • Convergence vs divergence of income across countries.

2 Technological

  • ICT enables real-time coordination, “track & trace”, Industry 4.0.
  • Efficient multimodal transport shrinks \text{time}\,\&\,\text{distance}.

3 Political & Social

  • Shifts in governance, labour-rights regimes, consumer activism.
  • Debate on capitalism’s legitimacy & stakeholder expectations.

4 Ecological

  • Climate change externalities ⇒ Paris Agreement, carbon pricing.
  • Rising eco-conscious buyer behaviour.

5 Risk Policy

  • Cross-border risk diversification, supply chain resilience.
  • Mapping macro-uncertainties (geopolitics, pandemics).

Resulting Business Imperatives

  • Market & buyer preference convergence.
  • Global product portfolios & scaling benefits.
  • Need for agile risk management frameworks.

Multinational Companies (MNCs)

Definition (Zhao 1996)

  • Firms linked under common title & strategy, leveraging shared resources (currency, IP, information systems) across ≥2 countries.

Three Target Categories

  1. Market potential — revenue growth, new customers.
  2. Resource potentials — access to raw materials, talent, technology.
  3. Efficiency potentials — cost reduction via economies of scale, location economies.

Exercise: Apply the three categories to Karuturi case.

Free Trade Agreements (FTAs)

Snapshot of Regional Trade Agreements (RTAs) in Force (WTO 2024)

  • Total notified & active: >370.
  • Regional counts: Europe 176, Africa 73, North America 50, East Asia 109, etc.

World Trade Organization (WTO)

  • Founded 1995, successor to GATT.
  • 159 members; HQ Geneva.
  • Objectives: barrier reduction, dispute settlement, technical assistance.
  • Facilitates negotiation "rounds" (Doha, etc.).

Examples Across 5 Continents

  • USMCA (North America)
  • MERCOSUR (South America)
  • EU Single Market (Europe)
  • AfCFTA (Africa)
  • ASEAN FTA (Asia–Pacific)

Classroom Exercise

  1. Teams receive ChatGPT-generated fact table of one FTA.
  2. Verify & correct data; add:
    • Key statistics (GDP covered, population, tariff lines).
    • Controversies (e.g. investor-state dispute settlement, labour clauses).
    • Corporate examples (e.g. Tesla, Nestlé supply chains).
    • Recommended reference pages.
  3. Submit revised single-column table via ILIAS (20 min).

Further Reading

  • McKinsey Global Institute – “Global Flows: The Ties that Bind”.
  • WTO iLibrary – “Global Trade Outlook & Statistics”.
  • World Economic Forum – “Global Risks Report 2024”.

Contact & Questions

  • Prof. Dr. Bașak Canboy
    Email: canboy@fh-aachen.de
    FH Aachen, Eupener Str. 70, 52066 Aachen
    Course Q&A slides marked “Questions?” appear after major sections — come prepared!