1. Introduction to Global Supply Chain Management Module One: Introduction to Global Trade 1

2. Class Agenda The globalization of trade: What is it and how did it happen? The main drivers of trade globalization Removal of tariff & Non-tariff barriers to trade Preferential duty programs Free Trade Agreements The ocean container Outsourcing Technology & The Internet The role of Long Beach & Los Angeles in global trade 2

3. What is Globalization & Trade Liberalization? In general commercial terms, globalization (trade liberalization) is the process through which countries have agreed to facilitate the movement of goods, services, funds, people and information across international borders. From a pure trade perspective, globalization has been driven by a series of agreements between governments around the world that remove both tariff and non-tariff barriers to trade. While governments have set the stage for globalization, its true impetus comes from the inventors, innovators, entrepreneurs and business people that buy and sell goods internationally, every day. 3

4. The Main Drivers Behind The Globalization of Trade (1945-Present) Reductions in tariff and non-tariff barriers to trade Preferential duty programs Free Trade Agreements The World Trade Organization Global use of the ocean container Outsourcing Technology & The Internet 4

5. Drivers of Trade Globalization: Reductions in Tariff & Non-Tariff Barriers to Trade A “tariff” is a tax that is charged by a country on imported goods entering its economy (a.k.a. “duty” or “customs duty”) Tariffs are normally charged as a percentage of the value of the goods being imported (e.g. a 5% duty on cotton socks entering the U.S. from the Dominican Republic) After WWII (1945), countries agreed to reduce customs duties to promote trade between nations General Agreement on Tariffs & Trade (GATT) 5

6. Drivers of Trade Globalization: Reductions in Tariff & Non-Tariff Barriers to Trade A “non-tariff barrier to trade” is an obstacle that a country creates to discourage imports Import license requirements Difficult Customs procedures Currency controls Countries sometimes create these barriers in an attempt to protect their own domestic industries and jobs Through the GATT countries also agreed to begin reducing non-tariff barriers to trade 6

7. Drivers of Trade Globalization: Preferential Duty Programs Used extensively by the U.S., a Preferential Duty Program (PDP) allows for the importation of goods from specific countries at a lower duty rate than other countries The purpose of a PDP is to promote economic development and growth in selected countries The U.S. implemented its first PDP in 1974 with the “Generalized System of Preferences” 7

8. List of U.S. Preferential Duty Programs Generalized System of Preferences (106 countries) Automotive Products Trade Act Agreement on Trade in Civil Aircraft African Growth & Opportunity Act (40 countries) Caribbean Basin Economic Recovery Act (18 countries) Agreement on Trade in Pharmaceutical Products Uruguay Round Concessions on Intermediate Chemicals for Dyes Products of the Freely Associated States (3) U.S. Caribbean Trade Partnership Act (7 countries ) 8 Source: HTSUS

9. Drivers of Global Trade: Free Trade Agreements A Free Trade Agreement (FTA) is not the same as a Preferential Duty Program Under an FTA, two (or more) countries agree to allow mutual access to their home markets The goal is to eliminate tariff and non-tariff barriers to trade between the parties (countries) The framework for FTA’s is provided by the World Trade Organization (WTO) 9

10. Drivers of Global Trade: Free Trade Agreements As part of an FTA, countries negotiate how and when specific products will eventually have “duty free” access to their respective markets Upwards of 80% of all products become duty free once an FTA in implemented The rest are reduced to zero duty over a period of years In order to qualify for duty free status, a product must be qualify under “country of origin” rules 10

11. Examples of Free Trade Agreement Around the World There are literally dozens of FTA’s around the world The North American Free Trade Agreement (NAFTA): Canada, Mexico and the U.S. Mercosur: Argentina, Brazil, Paraguay & Uruguay (Bolivia, Chile & Venezuela are associates members) The Association of South East Asian Nations: Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Myanmar, Philippines, Indonesia, Singapore, Thailand & Vietnam 11

12. U.S. Free Trade Agreements Currently in Place Australia Bahrain Canada Chile Colombia Costa Rica Dominican Republic El Salvador Guatemala Honduras Israel Jordan Korea Mexico Morocco Nicaragua Oman Panama Peru Singapore 12

13. The Next Generation of FTA: The Trans-Pacific Partnership The Trans-Pacific Partnership is a trade agreement that is currently being negotiated between 12 countries Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, U.S. & Vietnam U.S. announced participation in November of 2009 A “21 st Century” FTA that contains multiple sections Source: Office of USTR

14. Drivers of Global Trade: The Ocean Container Before the U.S. invention of the ocean container in 1957, ocean transportation was for “bulk” cargo only (goods shipped “loose”) The ocean container drove globalization for several reasons: Dramatic reductions in shipping costs Saved time by reducing the handling of bulk (loose) cargo Allowed for the construction of “purpose built” ships and ports The largest ships in the world now carry up to 20,000 TEU (Twenty Foot Equivalency Units ) 14

15. Drivers of Global Trade: The Advent of Outsourcing “ Outsourcing” is a business practice whereby companies contract with third parties (in other countries) to providing a variety of services Manufacturing Information Technology Logistics Outsourcing began in the late eighties and early nineties, and has grown at very fast rates ever since Criticized in the U.S. for “exporting jobs” 15

16. Drivers of Global Trade: The Advent of Outsourcing Outsourced manufacturing started in China but has expanded to other countries and regions This decades-long process is what created growth in “emerging economies” like Eastern Europe, Southeast Asia and Latin America I.T. services have also been outsourced India and other English speaking nations Logistics services is also an area where outsourcing is very popular (more on that later ) 16

17. Trade Globalization: How It All Came Together 17 Marshall Plan 1947 Japan Reconstruction 1945 GATT 1948 Containerized Shipping 1966 Nixon Visits China in 1972 Economic Reforms In China 1980 GSP in U.S. 1976 Deregulation of U.S. Transportation 1978 WTO 1995 E.U. Single Market 1993 U.S. First FTA 1985 1945 1995

18. Drivers of Global Trade: Technology Technology has been a major contributor to the globalization of trade Hardware & software Telecommunication & Wireless The Internet For purposes of global trade, there are literally thousands of software packages that facilitate the movement of goods Forecasting Sales & Operations Planning Transportation & Warehouse Management Cargo tracking 18

19. End of Module One Congratulations!!!