1. The Trade Environment
Regional Market Characteristics and Preferential Trade Agreements

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

3. GATT General Agreement on Tariffs and Trade
Treaty among nations to promote trade among members established in 1947
Handled trade disputes
Lacked enforcement power
Replaced by World Trade Organization in 1995

4. The World Trade Organization
Aims are to increase international trade by promoting lower trade barriers and providing a platform for the negotiation of trade and to their business
Provides forum for trade-related negotiations among 153 members (& 30 observers, most seeking membership)
Based in Geneva
Serves as dispute mediator through DSB (Dispute Settlement Body)
Has enforcement power and can impose sanctions
Countries found in violation of WTO rules are expected to change policies or else face sanctions

5. Members

6. WTO Structure

7. GATT and WTO Trade Rounds
Name
Start
Duration
Countries
Subjects covered
Achievements
Geneva
April 1947
7 months 23
Tariffs
Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade
Annecy
April 1949
5 months 13
Countries exchanged some 5,000 tariff concessions
Torquay
September 1950
8 months 38
Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%
Geneva II
January 1956 26
Tariffs, admission of Japan
$2.5 billion in tariff reductions
Dillon
September 1960
11 months
Tariff concessions worth $4.9 billion of world trade
Kennedy
May 1964
37 months 62
Tariffs, Anti-dumping
Tariff concessions worth $40 billion of world trade
Tokyo
September 1973
74 months
102
Tariffs, non-tariff measures, "framework" agreements
Tariff reductions worth more than $300 billion dollars achieved
Uruguay
September 1986
87 months
123
Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc
The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.
Doha
November 2001 ?
141
Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc
The round is not yet concluded.

8. WTO -- Doha Development Round
The WTO conducts negotiations through rounds.
The Doha Development Round commenced at Doha, Qatar in November 2001 and is still continuing.
Objective is ğ to lower trade barriers around the world, permitting free trade between countries of varying prosperity.
The intent of the round according to its proponents was ğ to make trade rules fairer for developing countries.
As of 2008, talks have paused over a divide between the developed nations led by the European Union, the United States and Japan and the major developing countries (represented by the G20 developing nations), led and represented mainly by India, Brazil, China and South Africa.

9. G20 developing nations (The Group of 20)
G20 was formally established at the G-7 finance ministers' meeting on September 26, 1999.
In trade negotiations, the group has pressed for an end to subsidies from industrialized nations to their farmers and opposed liberalization, although little changes are needed except implicit reforms in the governmental structures, of their own agricultural sectors.
The core leadership of the G-20, known as the G4 bloc, consists of China, India, Brazil, and South Africa.

10. Preferential Trade Agreements
Many countries seek to lower barriers to trade within their regions
A preferential trade agreement ğ a mechanism that give special treatment on selected trading partners.
By favoring certain countries, such agreements frequently discriminate against others.
It is customary for countries to notify the WTO when they enter into preference agreements (over 150 PTAs have been notified to the WTO)

11. Preferential Trade Agreements
Types for preferential trade agreements
Free Trade Areas
Customs Union
Common Market
Economic Unions

12. NAFTA Protest in Ottawa
Free Trade Area (FTA)
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
NAFTA Protest in Ottawa

13. Examples of FTAs The European Economic Area The Group of Three (G3)
An FTA that includes the 27-nation European Union plus Norway, Liechtenstein, and Iceland
The Group of Three (G3)
an FTA encompassing Colombia, Mexico, and Venezuela
The Closer Economic Partnership Agreement (CEPA)
a free trade agreement between China and Hong Kong.

14. Turkey
Turkey has bilateral agreements with the following countries and blocs:
Bosnia and Herzegovina
Croatia
Egypt
Israel
Morocco
Macedonia
Palestinian Authority
Tunisia
The European Free Trade Association
GCC (Gulf Cooperation Council) - proposed

15. 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, Mercosur, CARICOM, Central American Integration System (SICA)

16. List of Customs Unions Southern African Customs Union
East African Community
Gulf Cooperation Council
MERCOSUR
Central American Customs Union
EU - Turkey Customs Union (since 1996)
EU - Andorra Customs Union
EU - San Marino Customs Union
Economic and Monetary Community of Central Africa (CEMAC)
West African Economic and Monetary Union (UEMOA)
Andean Community (CAN)
Israel - Palestinian territories (since 1994)
Switzerland - Liechtenstein (since 1924)

17. 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

18. 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

19. 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

22. 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
U.S.-Mexico Border Crossing

23. NAFTA
The North American Free Trade Agreement (NAFTA) created the world’s largest free market.
430 million U.S., Canadian, and Mexican consumers

24. NAFTA Income and Population

25. Latin America Includes the Caribbean, Central, and South America
History of no growth, inflation, debt, and protectionism has given way to free markets, open economies, and deregulation
Some concern for further growth with the rise of left-leaning politicians

26. Latin America
Includes the Caribbean as well as Central and South America
4 preferential trade agreements in place
The Central American Integration System (SICA)
The Andean Community
The Common Market of the South (MERCOSUR)
The Caribbean Community and Common Market (CARICOM)

27. Central American Integration System (SICA)
El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica, and Panama
Moving towards a common market
Common External Tariff of 0 to 15%
Retains tariffs on goods also produced in importing country

28. Andean Community Bolivia, Colombia, Ecuador, Peru, Venezuela
Customs Union
Abolished foreign exchange, financial and fiscal incentives, and export subsidies
Established common external tariffs

29. Common Market of the South (MERCOSUR)
Argentina, Brazil, Paraguay, Uruguay, Venezuela
Customs union, seeks to become common market
Internal tariffs eliminated
Established common external tariffs up to 20%
In time, factors of production will move freely through member countries
Chile, Colombia, Ecuador, Peru, Bolivia
Associate members
Participate in free trade area but not customs union

30. MERCOSUR
*Indicates mean

31. Caribbean Community and Common Market (CARICOM)

32. CARICOM

33. Asia-Pacific Includes 23 countries and 56% of world population Japan
Newly industrializing economies
Association of Southeast Asian Nations (ASEAN)

34. 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 6” (Japan, China, Korea, Australia, New Zealand, India) working towards an economic community

35. ASEAN

36. Singapore Represents great success among ASEAN nations
World’s 2nd largest container port
2nd highest standard of living in the region behind Japan
4.2 million people
93% literacy rate
Over 3,000 companies
Crime is nearly nonexistent

37. Japan Generates 14% of world’s GNP Key factors population density
geographic isolation
Recent economic struggles despite status as high income country
Strong culture requires flexibility and commitment from global marketers

38. Newly Industrializing Economies (NIEs)
Strong economic growth in recent decades
foreign investment
export-driven industrial development
Sometimes called the 4 Tigers of Asia
South Korea
Taiwan
Singapore
Hong Kong

39. East Asian Tigers The common characteristics:
Focused on exports to richer industrialized nations
Trade surplus with aforementioned countries
Sustained rate of double-digit growth for decades
Non-democratic and relatively authoritarian political systems during the early years
High level of U.S. treasury bond holdings
High savings rate
A high degree of what is referred to as economic freedom.

40. NICs: Newly Industrialized Countries
Africa: South Africa, Egypt
North America: Mexico
South America: Argentina, Brazil
Asia: China, India, Malaysia, Philippines and Thailand
Europe: Turkey

41. Europe European Union European Free Trade Area European Economic Area
The Lome Convention
Central European Free Trade Association (CEFTA)

42. The European Union (EU)
Initially began with the 1958 Treaty of Rome
Objective is to harmonize national laws and regulations so that goods, services, people, and money could flow freely across national boundaries
1991 Maastricht Treaty set stage for transition to an economic union with a central bank and single currency (the Euro)

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

44. European Union

45. European Free Trade Area and the European Economic Area
EFTA: Norway, Iceland, Liechtenstein, Switzerland
Free trade area
Members (excluding Switzerland) chose to establish European Economic Area (EEA)
Non-EU members of the EEA are expected to adopt EU guidelines
EEA Members: Iceland, Liechtenstein and Norway, without Switzerland – and the 27 EU Member States along with the European Community.
Norway, Iceland, Liechtenstein, and Switzerland maintain free trade agreements with other countries as well

46. Lomé Convention and the Contonou Agreement
Lomé Convention (1975) was replaced by the Contonou Agreement in 2000
An accord between EU and 71 countries in Africa, Caribbean, and the Pacific (first signed in feb.1975 in Lomé, Togo)
Promotes trade and provides poor countries with financial assistance from a European development fund

47. Central European Free Trade Association (CEFTA)
Hungary, Poland, the Czech Republic, Slovakia, Slovenia, Romania, Bulgaria
Created after the political and economic reforms of the early 1990s
Achieved the common goal of becoming EU members

48. Central European Free Trade Association (CEFTA)
Allows for cooperation in many areas including:
infrastructure and telecommunications
sub-regional projects
inter-enterprise cooperation
tourism and retail trade

49. The Middle East
Afghanistan, Bahrain, Cyprus, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates, Yemen
Primarily Arab, some Persian and Jews
95% Muslim, 5% Christian and Jewish
34.7 million people, 24 million in Saudi Arabia
25% of world’s oil in Saudi Arabia
Strong impact of world economic crisis on Dubai
Countries fall into all categories of economic freedom as discussed in Chapter 2.
The price of oil drives business. Bahrain, Iraq, Iran, Kuwait, Oman, Qatar, and Saudi Arabia hold significant world oil reserves. Saudi Arabia, with 22 million people and 25% of the world’s oil, is the most important market in the region.
Connection is a key word in conducting business in the Middle East. Forming relationships, establishing trust, and respect are key. Arab businesspeople do business in person, not over the phone or through correspondence. Women are not usually part of a business or social scene for traditional Arabs.

51. Gulf Cooperation Council
Established in 1981 by 6 countries with 45% of world’s oil
These countries are attempting to diversify industries

52. Africa 54 nations over three distinct areas Regional agreements
Republic of South Africa
North Africa
Black Africa or sub-Saharan Africa
Regional agreements
Economic Community of West African States
East African Cooperation
South African Development Community

53. Economic Community of West African States (ECOWAS)
Free trade area with unified monetary zone
ECOWAS Travel certificate has entered into circulation in Burkina Faso, Gambia, Ghana, Guinea, Niger, Nigeria and Sierra Leone.
ECOWAS Passport is printed and operational in Benin, Mali and Senegal

54. ECOWAS

55. East African Community
plans to introduce a monetary union with a common currency by 2009
plans for a common market and a political union with a common President (initially on a rotation basis) & a common parliament by 2010

56. South African Development Community SADC