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

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

2. 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

3. Economic Systems • 4 main types of economic systems • Market Capitalism • Centrally planned socialism • Centrally planned capitalism • Market socialism

4. Economic Systems Resource Allocation Market Command Centrally Planned Capitalism Private Resource Ownership State Market Capitalism Centrally Planned Socialism Market Socialism

5. Big Emerging Markets • China • India • Indonesia • South Korea • Brazil • Mexico • Argentina • South Africa • Poland • Turkey ██ Emerging markets██ Developed markets

6. 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.

7. 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)

8. Influencing the World Economy • Group of Seven (G-7) • Organization for Economic Cooperation and Development • The Triad

9. 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

10. 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

11. Members

12. Recent WTO Cases ACP: Africa, Caribbean and Pacific

13. Preferential Trade Agreements • Many countries seek to lower barriers to trade within their regions • Free Trade Areas • Customs Unions • Common Market • Economic Unions

15. 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

16. 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

17. NAFTA Income and Population

19. Major Trade Partners of NAFTA Trade = Imports + Exports

20. The Maquiladoras • Maquiladoras (Mexican factories which take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico

21. 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

22. 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

23. Members of Andean Community

24. 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)

25. 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

26. 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

27. 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)

28. Asia-Pacific • Includes 23 countries and 56% of world population • Japan • Newly industrializing economies • Association of Southeast Asian Nations

29. 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

30. 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 亞洲四小龍 • Singapore • Hong Kong

31. 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.

32. 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

33. ASEAN (2006) ASEAN Regional Forum: ██ ASEAN countries ██ Other ASEAN Regional Forum participants

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

35. 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)

36. EU

37. EU Statistics Turkey

38. 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

39. 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

40. 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

42. 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

43. 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

44. اتحاد المغرب العربي(Arab Maghreb Union ) • Arab Maghreb Union is a Pan-Arab trade agreement aiming for economic and political unity in Northern Africa.

45. 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

46. 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

48. 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

49. ECOWAS

50. 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