1. Global Marketing Chapter 3
Regional Market Characteristics and Preferential Trade Agreements
Global Marketing Chapter 3

2. Introduction This chapter looks at: Global trade organizations
Four types of agreements
Individual countries and their preferential trade agreements

3. Preferential Trade Agreements
Many countries seek to lower barriers to trade within their regions
PTAs give partners special treatment and may discriminate against others
Over 150 PTAs have been notified to the WTO
ASEAN- PR CHINA PTA (2005)
Thailand- Laos (1991)
It is customary to notify the WTO when countries enter into PTAs. Strictly speaking, few fully conform to WTO requirements; none, however, has been disallowed.

4. Free Trade Area
Two or more countries agree to abolish tariffs and other barriers to trade amongst themselves.
Countries continue independent trade policies with countries outside agreement.
Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another.
(ACFTA), in effect as of 1 January 2010
(AIFTA), in effect as of 1 January 2010
Sometimes duties may be eliminated on the day of the agreement or phased out over time.
Chile and Canada established a FTA in A Caterpillar tractor made in Canada could be shipped to Chile duty free. A U.S. made tractor could not be shipped through Canada to Chile because the Made in the USA label would subject it to about $13,000 in duties. Little wonder that the U.S. negotiated its own agreement with Chile that came into effect in 2003.
Other FTAs:
European Economic Union—the EU plus Norway, Liechtenstein, and Iceland
The Group of Three (G3)—Colombia, Mexico, and Venezuela
The Closer Economic Partnership Agreement—China and Hong Kong
NAFTA Protest in Ottawa

5. Customs Union Evolution of Free Trade Area
Includes the elimination of internal barriers to trade (as in FTA)
AND establishes common external barriers to trade
Examples: The EU and Turkey, the Andean Community, etc.
The EU’s and Turkey’s agreement eliminated tariffs averaging 14% that added $1.5 billion/year to the cost of European goods imported into Turkey.

6. Common Market
Includes the elimination of internal barriers to trade (as in free trade area)
AND establishes common external barriers to trade (as in customs union)
AND allows for the free movement of factors of production, such as labor, capital, and information
Mercosur is an example
Mercosur member countries -Brazil, Argentina, Venezuela, Paraguay and Uruguay.
Current Central and South American customs unions may evolve into common markets.

7. Economic Union
Includes the elimination of internal barriers to trade (as in free trade area)
AND establishes common external barriers to trade (as in customs union)
AND allows for the free movement of factors of production, such as labor, capital, and information (as in common market)
AND coordinates and harmonizes economic and social policy within the union
In the European Union, countries must harmonize their licensing standards so that professionals such as doctors or lawyers qualified in one country may work in another. Harmonization is an important concept to be stressed.

8. Economic Union Full evolution of economic union
European Union Flag
Full evolution of economic union
creation of unified central bank
use of single currency
common policies on issues such as agriculture, social policy, transport, competition, mergers, taxation
requires extensive political unity
would lead to a central government in time
The EU has not ratified the European Constitution. It was approved by 16 countries but derailed after voters in France and the Netherlands vetoed it.

9. North America—NAFTA Canada, United States, Mexico
NAFTA established free trade area
All three nations pledge to promote economic growth through tariff reductions and expanded trade and investment
No common external tariffs
Restrictions on labor and other movements remain
The U.S. is home to more global industry leaders than any other nation and dominates in the computer, software, aerospace, entertainment, medical equipment, and jet engine industries.
The agreement does leave the door open for discretionary protectionism. California avocado growers won government protection for a $250 million market. Mexican avocado growers can only ship during the winter and only to the northeast U.S. and are subject to a $30 million quota. Mexico imposed tariffs on chicken leg quarters and on red and golden apples.
The U.S. and Canada formed the Canada-U.S. Free Trade Area in The $400 billion of goods traded each year is the biggest trading relationship between any two countries.
In 1994, the U.S., Canada, and Mexico began trading under NAFTA. The NAFTA represents a combined population of roughly 430 million and a total GNI of almost $14 trillion.
U.S.-Mexico Border Crossing

10. NAFTA Income and Population

11. U.S. Goods Exports in 2008

12. U.S. Goods Imports in 2008

13. Asia-Pacific: The Association of Southeast Asian Nations (ASEAN)
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam
Trading partners U.S., EU, China
Geographically close; historically divided
“ASEAN plus six” (Japan, China, Korea, Australia, New Zealand, India) working towards an economic community

14. ASEAN

15. European Union 27 countries 491 million people Combined GNI of
$14.7 trillion
Euro currency, 1999
Harmonization of laws and regulations

16. Assignment -3
Topic for self study: Diffusion Theory in Chapter 4
Read the above topic in chapter 4 and collect more information related to the topic if possible and prepare the assignment and PowerPoint.

17. Looking Ahead to Chapter 4
Social and Cultural Environments