Chapter 3 The Global Trade Environment: Regional Market Characteristics and Preferential Trade Agreements

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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 Command
Centrally Planned Capitalism
Private Resource Ownership State
Market Capitalism
Centrally Planned Socialism
Market 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
• 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
• 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 worlds 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
• 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 worlds 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
• South Korea
• Taiwan ?????
• Singapore
• Hong Kong

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????? (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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???? ??????? ??????? (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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????? ?????? ?????? (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
• Bosnia and Herzegovina
• Croatia
• Egypt
• Israel
• Morocco
• Macedonia
• Palestinian Authority
• Tunisia
• The European Free Trade Association
• GCC (Gulf Cooperation Council) - proposed

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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)

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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)

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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

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