Global Marketing Chapter 3 Regional Market Characteristics and Preferential Trade Agreements Global Marketing Chapter 3

Introduction This chapter looks at: Global trade organizations Four types of agreements Individual countries and their preferential trade agreements

Preferential Trade Agreements Many countries seek to lower barriers to trade within their regions PTAs give partners special treatment and may discriminate against others Over 150 PTAs have been notified to the WTO ASEAN- PR CHINA PTA (2005) Thailand- Laos (1991) It is customary to notify the WTO when countries enter into PTAs. Strictly speaking, few fully conform to WTO requirements; none, however, has been disallowed.

Free Trade Area 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. (ACFTA), in effect as of 1 January 2010 (AIFTA), in effect as of 1 January 2010 Sometimes duties may be eliminated on the day of the agreement or phased out over time. Chile and Canada established a FTA in 1997. A Caterpillar tractor made in Canada could be shipped to Chile duty free. A U.S. made tractor could not be shipped through Canada to Chile because the Made in the USA label would subject it to about $13,000 in duties. Little wonder that the U.S. negotiated its own agreement with Chile that came into effect in 2003. Other FTAs: European Economic Union—the EU plus Norway, Liechtenstein, and Iceland The Group of Three (G3)—Colombia, Mexico, and Venezuela The Closer Economic Partnership Agreement—China and Hong Kong NAFTA Protest in Ottawa

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, etc. The EU’s and Turkey’s agreement eliminated tariffs averaging 14% that added $1.5 billion/year to the cost of European goods imported into Turkey.

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 Mercosur is an example Mercosur member countries -Brazil, Argentina, Venezuela, Paraguay and Uruguay. Current Central and South American customs unions may evolve into common markets.

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 In the European Union, countries must harmonize their licensing standards so that professionals such as doctors or lawyers qualified in one country may work in another. Harmonization is an important concept to be stressed.

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 The EU has not ratified the European Constitution. It was approved by 16 countries but derailed after voters in France and the Netherlands vetoed it.

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 The U.S. is home to more global industry leaders than any other nation and dominates in the computer, software, aerospace, entertainment, medical equipment, and jet engine industries. The agreement does leave the door open for discretionary protectionism. California avocado growers won government protection for a $250 million market. Mexican avocado growers can only ship during the winter and only to the northeast U.S. and are subject to a $30 million quota. Mexico imposed tariffs on chicken leg quarters and on red and golden apples. The U.S. and Canada formed the Canada-U.S. Free Trade Area in 1989. The $400 billion of goods traded each year is the biggest trading relationship between any two countries. In 1994, the U.S., Canada, and Mexico began trading under NAFTA. The NAFTA represents a combined population of roughly 430 million and a total GNI of almost $14 trillion. U.S.-Mexico Border Crossing

NAFTA Income and Population

U.S. Goods Exports in 2008

U.S. Goods Imports in 2008

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

ASEAN

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

Assignment -3 Topic for self study: Diffusion Theory in Chapter 4 Read the above topic in chapter 4 and collect more information related to the topic if possible and prepare the assignment and PowerPoint.

Looking Ahead to Chapter 4 Social and Cultural Environments