Chapter 3
The Global Trade
Environment: Regional
Market Characteristics and
Preferential Trade
Agreements
PowerPoint
by
Kristopher Blanchard
North Central University
© 2005 Prentice Hall
6/1/2023 3-1
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
© 2005 Prentice Hall 2
The World Trade Organization
Provides forum for trade-related
negotiations among 141 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
© 2005 Prentice Hall 3
Recent WTO Cases
© 2005 Prentice Hall 4
Preferential Trade Agreements
Many countries seek to lower barriers to
trade within their regions
– Free Trade Areas
– Customs Unions
– Common Market
– Economic Unions
© 2005 Prentice Hall 5
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
© 2005 Prentice Hall 6
NAFTA Income and Population
© 2005 Prentice Hall 7
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
© 2005 Prentice Hall 8
Andean Community
Bolivia, Colombia,
Ecuador, Peru, Venezuela
Customs union
– Agreement abolished
foreign exchange,
financial and fiscal
incentives, and export
subsidies
– Common external
tariffs were established
© 2005 Prentice Hall 9
Common Market of the South (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
© 2005 Prentice Hall 10
Caribbean Community and
Common Market (CARICOM)
Antigua, Barbuda, Bahamas, Barbados,
Belize, Dominica, Grenada, Guyana,
Haiti, Jamaica, Montserrat, St. Kitts, St.
Lucia, St. Vincent, the Grenadines,
Trinidad, Tobago
Replaced Caribbean Free Trade
Association
Agreed to establish economic union with
common currency in 1998
© 2005 Prentice Hall 11
Asia-Pacific
Includes 23 countries and 56% of world
population
– Japan
– Newly industrializing economies
– Association of Southeast Asian Nations
© 2005 Prentice Hall 12
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
© 2005 Prentice Hall 13
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
© 2005 Prentice Hall 14
Association of Southeast Asian Nations
(ASEAN)
Brunei, Indonesia, Malaysia, Philippines,
Singapore, Thailand, Vietnam, Cambodia,
Laos, Burma
Goal to implement a free trade area by 2003
– Tariffs of 20+% will be reduced to 0 - 5%
Singapore represents great success among
ASEAN nations
© 2005 Prentice Hall 15
Europe
European Union
European Free Trade Area
European Economic Area
The Lome Convention
Central European Free Trade Association
(CEFTA)
© 2005 Prentice Hall 16
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)
© 2005 Prentice Hall 17
European Free Trade Area and the
European Economic Area
Austria, Finland, Sweden, 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
Norway, Iceland, Liechtenstein, and Switzerland
maintain free trade agreements with other
countries as well
© 2005 Prentice Hall 18
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
© 2005 Prentice Hall 19
Central European Free Trade
Association (CEFTA)
Hungary, Poland, Czechoslovakia
Allows for cooperation in many areas
including:
– infrastructure and telecommunications
– sub-regional projects
– inter-enterprise cooperation
– tourism and retail trade
© 2005 Prentice Hall 20
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
© 2005 Prentice Hall 21
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
© 2005 Prentice Hall 22
Economic Community of
West African States (ECOWAS)
Benin, Burkina Faso, Cape Verde, The
Gambia, Ghana, Guinea, Guinea-Bissau,
Ivory Coast, Liberia, Mali, Mauritania,
Niger, Nigeria, Senegal, Sierra Leone, Togo
Free trade area with unified monetary zone
© 2005 Prentice Hall 23
East African Cooperation
Kenya, Uganda, Tanzania
Free trade area with possibility of expansion
to a customs union
© 2005 Prentice Hall 24
South African Development
Community (SADC)
Angola, Botswana, Congo, Lesotho,
Malawi, Mauritius, Mozambique, Namibia,
South Africa, Seychelles, Swaziland,
Tanzania, Zambia, Zimbabwe
Mechanism to promote trade, cooperation,
and economic integration by black-ruled
states
Ultimately seeks to form customs union
© 2005 Prentice Hall 25
Looking Ahead to Chapter 4
Social and Cultural Environments
© 2005 Prentice Hall 26
Free Trade Areas
Two or more countries agree to abolish all
internal barriers to trade amongst
themselves
Countries continue independent trade
policies with countries outside agreement
© 2005 Prentice Hall 27
Free Trade Areas
Return
© 2005 Prentice Hall 28
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
Return
© 2005 Prentice Hall 29
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
Return
© 2005 Prentice Hall 30
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
© 2005 Prentice Hall 31
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
© 2005 Prentice Hall 32
