Transcript Document 7252101

Chapter 3
The Global Trade
Environment: Regional
Market Characteristics and
Preferential Trade
Agreements
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In Chapter 2
Market definition – People or organizations
with needs and wants; both have the
willingness and ability to buy or sell
The global economic environment plays a
large role in the development of new
markets for organizations
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Economic Systems
4 main types of economic systems
– Market Capitalism
– Centrally planned socialism
– Centrally planned capitalism
– Market socialism
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Economic Systems
Resource Allocation
Market
Private
Resource
Ownership
State
Command
Market
Capitalism
Centrally
Planned
Capitalism
Market
Socialism
Centrally
Planned
Socialism
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Big Emerging Markets
China
India
Indonesia
South Korea
Brazil
Mexico
Argentina
South Africa
Poland
Turkey
██ Emerging markets██ Developed markets
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Rapidly Developing Economies
The term "rapidly developing economies" is
now being used to denote emerging markets
such as
– The United Arab Emirates,
– Chile and
– Malaysia
that are undergoing rapid growth.
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Stages of Market Development
World Bank has defined four categories of
development
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High-income countries
Upper-middle income countries
Lower-middle income countries
Low-income countries
Based upon Gross National Product (GNP)
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Influencing the World Economy
Group of Seven (G-7)
Organization for Economic Cooperation and
Development
The Triad
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GATT
General Agreement on Tariffs and Trade
– treaty among nations to promote trade among
members
• Handled trade disputes
• Lacked enforcement power
• Replaced by World Trade Organization in
1995
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The World Trade Organization
Mission: The WTO states that its 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 150 members
– based in Geneva
– serves as dispute mediators
– empowered with ability to enforce rulings
Countries found in violation of WTO rules are
expected to change policies or else face sanctions
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Members
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Recent WTO Cases
ACP: Africa, Caribbean and Pacific
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Preferential Trade Agreements
Many countries seek to lower barriers to
trade within their regions
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Free Trade Areas
Customs Unions
Common Market
Economic Unions
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North America
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
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Economic Integration
in the Americas
The North American Free Trade Agreement
(NAFTA) created the world’s largest free market.
– 390 million U.S., Canadian, and Mexican consumers
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NAFTA Income and Population
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Major Trade
Partners of NAFTA
Trade = Imports + Exports
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The Maquiladoras
Maquiladoras (Mexican factories which take
in imported raw materials and produce
goods for export) have become the landmark
of trade in Mexico
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Latin America
Caribbean, Central, and South America
4 preferential trade agreements in place
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Central American Integration System
Andean Community
Common Market of the South
Caribbean Community and Common Market
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Andean Community
Bolivia, Colombia, Ecuador,
Peru,
Customs union
– Agreement abolished
foreign exchange, financial
and fiscal incentives, and
export subsidies
– Common external tariffs
were established
From January 1, 2005free flow
of people
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Members of Andean Community
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Common Market of the South (Mercosur)
Common Market of the South
Argentina, Brazil, Uruguay, and Paraguay
sign a three-step treaty
– 1991-94 creation of a FTA
– 1995 CU
– eventually common market (modeled after the
EU)
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MERCOSUR
Argentina, Brazil, Paraguay,
Uruguay
Customs union, seeks to become
common market
– internal tariffs eliminated
– common external tariffs up to 20%
established
– in time, factors of production will move
freely through member countries
Chile and Bolivia – associate members
– participation in free trade area but not
customs union
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Caribbean Community and
Common Market
(CARICOM)
Replaced Caribbean
Free Trade Association
Agreed to establish
economic union with
common currency in
1998
Caricom members and observers
██ full members
██ associate members
██ observers
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NICs: Newly Industrialized
Countries
Africa: South Africa, Egypt
North America: Mexico (OECD member, 1994)
South America: Argentina, Brazil
Asia: China, The GCC states, India;
Republic of, Malaysia, Philippines and
Thailand
Europe: Turkey (EU official candidate)
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Asia-Pacific
Includes 23 countries and
56% of world population
– Japan
– Newly industrializing
economies
– Association of Southeast
Asian Nations
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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
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Newly Industrializing Economies
(NIEs)
Strong economic growth in recent decades
– foreign investment
– export-driven industrial development
Sometimes called the 4 Tigers of Asia
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South Korea
Taiwan
Singapore
Hong Kong
亞洲四小龍
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亞洲四小龍
(4 Little Dragons of Asia)
The common characteristics of the East Asian Tigers are:
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.
Hong Kong, Singapore, Taiwan and South Korea are 1st,
2nd, 37th, and 45th respectively.
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Association of Southeast
Asian Nations (ASEAN)
ASEAN Free Trade Area (AFTA)
became fully operational on January
1, 2003
– Tariffs of 20+% will be reduced to 0 5%
– (2006 for Vietnam, 2008 for Laos and
Myanmar, and 2010 for Cambodia).
Singapore represents great success
among ASEAN nations
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ASEAN (2006)
ASEAN Regional Forum: ██ ASEAN countries ██ Other ASEAN Regional Forum participants
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Europe
European Union
European Free Trade Area
European Economic Area
The Lome Convention
Central European Free Trade Association
(CEFTA)
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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
boundaries
1991 Maastricht Treaty set stage for
transition to an economic union with a
central bank and single currency (the Euro)
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EU
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EU Statistics
Turkey
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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
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The Lome Convention
An accord between EU and 71 countries in
Africa, Caribbean, and the Pacific
Promotes trade and provides poor countries
with financial assistance from a European
Development Fund
Currently working to establish a successor
agreement
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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
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The Middle East
Afghanistan, Cyprus, Bahrain, 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
3 key regional organizations
– Gulf Cooperation Council
– Arab Maghreb Union
– Arab Cooperation Council
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‫مجلس التعاون الخليجي‬
(Cooperation Council
for the Arab States of the Gulf
GDP: $536,223
Yemen is currently
(as of 2006) in
negotiations for
GCC membership,
and hopes to join
by 2016
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‫اتحاد المغرب العربي‬
(Arab Maghreb Union )
Arab Maghreb
Union is a Pan-Arab
trade agreement
aiming for
economic and
political unity in
Northern Africa.
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Arab Cooperation Council (ACC)
founded in February 1989 by North Yemen,
Iraq, Jordan, and Egypt
the organization did not survive the crisis
that followed Iraq's invasion of Kuwait
on August 2, 1990
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Africa
53 nations over three distinct areas
– Republic of South Africa
– North Africa
– Black Africa
Regional agreements
– Economic Community of West African States
– East African Cooperation
– South African Development Community
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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
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ECOWAS
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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
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South African
Development
Community (SADC)
Mechanism to
promote trade,
cooperation, and
economic integration
by black-ruled states
Ultimately seeks to
form customs union
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SADC
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Looking Ahead to Chapter 4
Social and Cultural Environments
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Free Trade Areas
Two or more countries agree to abolish all
internal barriers to trade amongst
themselves
It is the second stage of economic
integration
Countries continue independent trade
policies with countries outside agreement
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Free Trade Areas
Turkey has bilateral agreements with the following
countries and blocs:
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Bosnia and Herzegovina
Croatia
Egypt
Israel
Morocco
Macedonia
Palestinian Authority
Tunisia
The European Free Trade Association
GCC (Gulf Cooperation Council) - proposed
Return
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Customs Unions
Evolution of Free Trade Area
Includes the elimination of internal barriers
to trade (as in FTA) AND
Establishes common external barriers to
trade
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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)
Return
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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
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List of Common Markets
the European Community (EC)
European Economic Area (EEA) between
the EC, Norway, Iceland and
Liechtenstein
the Caribbean Community single market
(CARICOM)
Return
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Economic Unions
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
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Economic Unions
Full evolution of economic union
– creation of unified central bank
– use of single currency
– common policies on issues ranging from
agriculture to taxation
– requires extensive political unity
Return
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