Chapter 3 The Global Trade Environment: Regional Market Characteristics and Preferential Trade Agreements.
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1 Chapter 3 The Global Trade Environment: Regional Market Characteristics and Preferential Trade Agreements
2 GATT General Agreement on Tariffs and Trade treaty among nations to promote trade among membersHandled trade disputesLacked enforcement powerReplaced by World Trade Organization in 1995
3 The World Trade Organization Provides forum for trade-related negotiations among 141 membersbased in Genevaserves as dispute mediatorsempowered with ability to enforce rulingsCountries found in violation of WTO rules are expected to change policies or else face sanctions
5 Preferential Trade Agreements Many countries seek to lower barriers to trade within their regionsFree Trade AreasCustoms UnionsCommon MarketEconomic UnionsA preferential trade agreement is a mechanism that confers special treatment on select trading partners. By favoring certain countries, such agreements frequently discriminate against others. For that reason, it is customary for countries to notify the WTO when they enter into preference agreements. Over the past 10 years, more than 150 preferential trade agreements have been notified to the WTO.
6 North America Canada, United States, Mexico NAFTA established free trade areaall three nations pledge to promote economic growth through tariff reductions and expanded trade and investmentno common external tariffsrestrictions on labor and other movements remainThe agreement was approved by both houses of the U.S. Congress and became effective on January 1, The result is a free trade area with a combined population of roughly 425 million and a total GNP of $11.9 trillion
8 Latin America Caribbean, Central, and South America 4 preferential trade agreements in placeCentral American Integration SystemAndean CommunityCommon Market of the SouthCaribbean Community and Common MarketThe allure of the Latin American market has been its considerable size and huge resource base. After a decade of no growth, crippling inflation, increasing foreign debt, protectionism, and bloated government payrolls, the countries of Latin America have begun the process of economic transformation. Balanced budgets are a priority and privatization is underway. Free markets, open economies, and deregulation have begun to replace the policies of the past. With the exception of Cuba, democratically elected governments are found throughout Latin America. Policy makers have recognized the benefits of free-market forces and the advantages of participating fully in the global economy. In many countries, tariffs that sometimes reached as much as 100 percent or more have been lowered to 10 to 20 percent.
9 Andean Community Bolivia, Colombia, Ecuador, Peru, Venezuela Customs unionAgreement abolished foreign exchange, financial and fiscal incentives, and export subsidiesCommon external tariffs were established
10 Common Market of the South (Mercosur) Argentina, Brazil, Paraguay, UruguayCustoms union, seeks to become common marketinternal tariffs eliminatedcommon external tariffs up to 20% establishedin time, factors of production will move freely through member countriesChile and Bolivia -associate membersparticipation in free trade area but not customs union
11 Caribbean Community and Common Market (CARICOM) Antigua, Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts, St. Lucia, St. Vincent, the Grenadines, Trinidad, TobagoReplaced Caribbean Free Trade AssociationAgreed to establish economic union with common currency in 1998
12 Asia-Pacific Includes 23 countries and 56% of world population Japan Newly industrializing economiesAssociation of Southeast Asian Nations
13 Japan Generates 14% of world’s GNP Key factors population densitygeographic isolationRecent economic struggles despite status as high income countryStrong culture requires flexibility and commitment from global marketers
14 Newly Industrializing Economies (NIEs) Strong economic growth in recent decadesforeign investmentexport-driven industrial developmentSometimes called the 4 Tigers of AsiaSouth KoreaTaiwanSingaporeHong Kong
15 Association of Southeast Asian Nations (ASEAN) Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Cambodia, Laos, BurmaGoal to implement a free trade area by 2003Tariffs of 20+% will be reduced to 0 - 5%Singapore represents great success among ASEAN nations
16 Europe European Union European Free Trade Area European Economic Area The Lome ConventionCentral European Free Trade Association (CEFTA)
17 European Union Initially began with the 1958 Treaty of Rome Objective to harmonize national laws and regulations so that goods, services, people and money could flow freely across national boundaries1991 Maastricht Treaty set stage for transition to an economic union with a central bank and single currency (the Euro)
18 Strategic Implications for Business and Marketing The complexity in the marketplace will changeFor MNC’s enlarged marketsReduced or abolished country-by-country tariffs and restrictionsRules and regulations can be more sophisticatedProduction, financing, labor, and marketing decisions are affected.Competition will intensifyWill still have to deal with national markets due to differences in language, customs, instability etc.
19 Opportunities Large mass markets (initial advantage to large MNC’s) Mass production and distribution (economies of scale)Lower prices will be beneficial to be competitiveMajor savings resulting from not having to develop different versions of the same product to satisfy national standardsThe initial disadvantage to smaller companies will disappear with mergers, joint ventures acquisitions etc.Coordinated programs to develop economic growthProtects businesses that operates within the borders
20 Threats or Market Barriers It could be difficult for smaller companies to meet new and more sophisticated product standardsExporters will find it very difficult to compete
21 Marketing Mix Implications Reduced number of brandsMuch less price differential (more standardized pricing) among member countriesIntegrated and competitive distribution systemCompetition among small and medium size retailersInternet marketing will grow
22 Free Trade AreasTwo or more countries agree to abolish all internal barriers to trade amongst themselvesCountries continue independent trade policies with countries outside agreement
23 Free Trade Areas Return To date, dozens of free trade agreements, many of them bilateral. have been successfully negotiated; for example, Mexico has free trade agreements with 31 countries. The table above lists free trade areas that the United States and Chile have, respectively, established with other countries. Additional examples of FTAs include the European Economic Area, a free trade area that includes the 25-nation European Union plus Norway, Liechtenstein, and Iceland; and the Group of Three (G3), an FTA encompassing Colombia, Mexico, and Venezuela; and the Closer Economic Partnership Agreement, a free trade agreement between China and Hong Kong.Return
24 Customs Unions Evolution of Free Trade Area Includes the elimination of internal barriers to trade (as in FTA) ANDEstablishes common external barriers to tradeReturn
25 Common MarketIncludes the elimination of internal barriers to trade (as in free trade area) ANDEstablishes common external barriers to trade (as in customs union) ANDAllows for the free movement of factors of production, such as labor, capital, and informationReturn
26 Economic UnionsIncludes the elimination of internal barriers to trade (as in free trade area) ANDEstablishes common external barriers to trade (as in customs union) ANDAllows for the free movement of factors of production, such as labor, capital, and information (as in common market) ANDCoordinates and harmonizes economic and social policy within the union
27 Economic Unions Full evolution of economic union creation of unified central bankuse of single currencycommon policies on issues ranging from agriculture to taxationrequires extensive political unityReturn