1. The Global Trade Environment

2. 4 main types of economic systems
The global economic environment plays a large role in the development of new markets for organizations
Economic Systems
4 main types of economic systems
Market Capitalism
Centrally planned socialism
Centrally planned capitalism
Market socialism

3. Economic Systems Resource Allocation Market Command Centrally Private
Planned
Capitalism
Private
Resource
Ownership
State
Market
Capitalism
This classification is based on the dominant method of resource allocation (market versus command) and the dominant form of resource ownership (private versus state).
Centrally
Planned
Socialism
Market
Socialism

4. Stages of Market Development
Four categories of development
High-income countries
Upper-middle income countries
Lower-middle income countries
Low-income countries
Based upon Gross National Product (GNP)
Although the income definition for each of the stages is arbitrary, countries within a given category generally have a number of characteristics in common. Thus, the stages provide a useful basis for global market segmentation and target marketing.

5. 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

6. 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
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

7. Preferential Trade Agreements
Many countries seek to lower barriers to trade within their regions
Free Trade Areas
Customs Unions
Common Market
Economic Unions
A preferential trade agreement is a mechanism that confers special treatment on select trading partners. By favoring certain countries, such agreements frequently discriminate against others. For that reason, it is customary for countries to notify the WTO when they enter into preference agreements. Over the past 10 years, more than 150 preferential trade agreements have been notified to the WTO.

8. North America Canada, United States, Mexico
NAFTA established free trade area
The North American Free Trade Agreement (NAFTA) created the world’s largest free market
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 agreement was approved by both houses of the U.S. Congress and became effective on January 1, The result is a free trade area with a combined population of roughly 425 million and a total GNP of $11.9 trillion

9. 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

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

11. European Union
Objective to harmonize national laws and regulations so that goods, services, people and money could flow freely across national boundaries
European free trade area and the European economic area
Free trade area

12. The Lome Convention
Promotes trade and provides poor countries with financial assistance from a European Development Fund
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
The Lomé Convention is a trade and aid agreement between the European Union (EU) and 71 African, Caribbean, and Pacific (ACP) countries, first signed in February 1975 in Lomé, Togo.

13. South African Development Community (SADC)
Mechanism to promote trade, cooperation, and economic integration by black-ruled states
Ultimately seeks to form customs union

14. 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

15. 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
A customs union is a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency.
Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.
It is the third stage of economic integration.

16. 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
A single market is a customs union with common policies on product regulation, and freedom of movement of all the four factors of production (land, enterprise, capital and labor).
Sometimes a single market is differentiated as a more advanced form of common market. In comparison to common a single market envisions more efforts geared towards removing the physical (borders), technical (standards) and fiscal (taxes) barriers among the member states. These barriers obstruct the freedom of movement of the four factors of production. To remove these barriers the member states need political will and they have to formulate common economic policies.
This is the fourth stage of economic integration.

17. 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

18. 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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