Assessing Global Market

Opportunities

THE GLOBAL TRADE ENVIRONMENT:

Regional Market Characteristics
And Preferential Trade Agreements

USC School of Business and Economics

Department of Business Administration

International Business Environment

By:
Joyce Natalie Yang, MBEcon
USC- SBE Global Business










 Learning from post-WWII
• Historic enemies:
– Germany vs. France
– Japan vs. U.S.

• Anything can be bought, on very easy credit

terms, SO WHY FIGHT?

• Why should the Japanese fight the US and

lose all those profitable markets

• France and Germany, linked intimately in the

EU market, are now each other’s largest
trading partners.
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 Learning from post-WWII
• Closed systems build huge armies and waste their
resources on guns and troops

• Open countries spend their money on new machines

(to crank out Barbie dolls or some other consumer
products).
– Bright young people find out how to run machines
or provide services, not how to fire the latest
missile.
– They get rich faster, and lose interest in military
adventures.
– EX. Japan gets away with “selling you to death,”
not “shooting you to death.”
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Learning from post-WWII

• FREEDOM is about options.
– A true option is opportunity to make meaningful decision,
to exercise virtue.
• INTERNATIONAL BUSINESS is freedom to almost
an unlimited growth potential.
– However, cost of freedom is rising.
– Free trade (or free choice) is not actually “free”; there’s a
price to pay for it.
– We pay a higher price due to global terrorism.
– Costs: higher cost of shipment, scrutinizing customers,
conforming to government regulations.

(Ex. Accreditation of International Ports)

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 World Trade Organization
and GATT
• 1997: 50th anniversary of GATT
– General Agreement on Tariffs and Trade
– Treaty among nations whose governments agree, at
least in principle, to promote trade among members.
– Intended to be a multilateral, global initiative to
liberalize world merchandise trade.

• 1995: WTO succeeds GATT

– WTO –World Trade Organization
– Based in Geneva, Switzerland
– Trade ministers representing the WTO member nations
met annually to discuss improvement of world trade.
– 152 members (2011).

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Protectionism (trade barriers)

• Although GATT has effectively
reduced tariffs, countries still resort
to measures of protectionism.
– Legal barriers
– Exchange barriers
– Psychological barriers
– (private businesses) private market
barriers

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Trade (tariff and non-tariff) Barriers

• Tariff - A tax imposed by a government
on goods entering at its borders.
!Used as a revenue-generating tax
!Discourage importation of goods

• Quota – a specific unit or dollar limit

applied to a particular type of good.
!Puts an absolute restriction on the quantity of
a specific item that can be imported.
!Tend to increase prices of imported goods.

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 Tariffs commonly used

• An ad valorem tax (VAT) is a percentage of the value of the
item, say 10 cents on the dollar, while
• a specific tariff is so-much per weight, say $5 per ton.

• A "revenue tariff" is a set of rates designed primarily to

raise money for the government.
– EX. A tariff on coffee exports (imposed upon countries which
do not grow coffee) raises a steady flow of revenue.

• A "protective tariff" is intended to artificially inflate prices

of imports and "protect" domestic industries from foreign
competition.
– EX. a 50% tax on a machine that importers formerly sold for
$100 and now sell for $150. Without a tariff the local
manufacturers could only charge $100 for the same machine;
now they can charge $149 and make the sale.

• A prohibitive tariff is one so high that no one imports any of

that item.
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 Trade (tariff and non-tariff) Barriers

• Voluntary Export Restraint (VER) - agreement
between countries to limit volume of exports of a
certain product
! Common among textiles, clothing, steel, agriculture,
automobiles
! Exporting country sets the limit; beyond VER volume,
importations are charged a higher tariff.

• Boycott & Embargo – absolute restriction against

the purchase and importation of certain goods from
other countries.
! Boycott: (government sponsored or private industry
sponsored) a formal or informal refusal to buy from
countries with which there is a dispute. Ex: Cuba, Iran,
Iraq
! Embargo: refusal to sell to a specific country

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 Trade (tariff and non-tariff) Barriers

• Monetary barrier - An exchange control restriction
to regulate international trade.
! to preserve its balance of payments position
! to encourage or provide advantage to certain industries in
the country
! Used as a political weapon of a country

• Standards – set of requirements of an importing

country to be complied by products and services
being exported, in order for it to be allowed entry to
a country.
– Sometimes used in an unduly stringent or discriminating
way to restrict trade, but the sheer volume of regulations
in this category is a problem in itself.
! to protect health, safety, and product quality
! Ex. ISO, EMS, HACCP, OHSAS, ILO (8/184)
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Trade (tariff and non-tariff) Barriers

• Anti-dumping - laws that prevent an exporting
country from selling their products at prices less
than the cost of production to undermine
competition and take control of the market.
! To keep foreign goods out of the market
! Violators are assessed anti-dumping duties for selling
below cost and are assessed countervailing duties to
prevent use of foreign government subsidies to
undermine the local industry.
! Many countries have similar laws allowed under WTO
rules.

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THE GLOBAL TRADE ENVIRONMENT:

 – Treaty focused on reducing prevailing high tariffs
• 1995: WTO succeeds GATT
– WTO : World Trade Organization
– Based in Geneva, Switzerland
– Forum for trade related negotiations
– 153 members; no new members since 2008
WTO Director General
– Has enforcement power and can impose sanctions Pascal Lamy

OTHER INSTITUTIONS

Global
United Nations -->
WTO
monetary --> IMF, WB

Regional
OECD (rich 30; eliminate bribery)
OPEC (cartel of 12 petrol countries) 2009 G-8 Leaders in Italy
G8 (triggered by 1973 oil crisis concerns)

 PATTERNS OF

✤ PREFERENTIAL TRADE AGREEMENTS

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 PATTERNS OF

Advanced commitment to participate in the

financing of a new joint venture.

(ex. Columbia & Venezuela building a hydroelectric

generating plant.)

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 PATTERNS OF

Many countries seek to lower

barriers to trade within their
regions
Free Trade Areas
Customs Unions
Common Market

Economic Unions
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 PATTERNS OF

Free Trade Areas

- 2 or more countries agree to
reduce or eliminate customs
duties and non-tariff barriers
among themselves

 PATTERNS OF

Free Trade Areas

Customs Unions
(FTA) reduced or eliminated internal
tariffs.
Adds a common external tariff on
products imported from countries
outside the union.

 PATTERNS OF

Free Trade Areas

Customs Unions
Common Market
(FTA) Elimination of all tariffs and other restrictions to internal
trade
(CU) Adoption of a set of external tariffs
(+) Removal of all restriction on the free flow of capital,
labor, and information among member nations
A common marketplace for movement of goods, services, and capital.

 PATTERNS OF

Free Trade Areas

Customs Unions
Common Market
Economic Unions (Political, Monetary)
Fullest integration
Elimination of internal barriers to trade (FTA)
AND establishes common external barriers to trade (CU)
AND allows for the free movement of factors of production,
such as labor, capital, and information (CM)
AND coordinates and harmonizes economic and social policy
within the union

 PATTERNS OF

Free Trade Areas

Customs Unions
Common Market
Economic Unions (Political, Monetary)
Unified Central Bank; Single currency
Common policies of government
Political unity; one political framework
Leads to a central government, in time....

 resource allocation

market command

centrally-planned
private capitalism capitalism
resource
ownership
market centrally-planned
state socialism socialism

PREFERENTIAL TRADE
AGREEMENTS
America Europe Asia
CEFTA GCC
USMCA EU MENA
(formely NAFTA) EFTA ASEAN
FTAA CIS SAARC
MEFTA
Africa
MERCOSUR COMESA
CARICOM ECOWAS Oceania others
CACM SADC
Andean EAC PICTA APEC
Unasur UEMOA PIF RCEP
CAIS WAMS PACER TPP
ECCAS
https://www.piie.com/research/piie-charts/which-countries-are-cptpp-and-rcep-trade-agreements-and-which-want
EMERGING MARKETS

Industrialized
economies
Hong Kong
Singapore
Taiwan

not countries; small

population

MAJOR INDUSTRIALIZED
COUNTRIES OF THE WORLD
 EMERGING MARKETS
G8 G 8 + 12 Emerging = G
20
USA Australia
UK Argentina
JAPAN Brazil
CANADA China
GERMANY India
Indonesia
FRANCE Mexico
ITALY Saudi Arabia
RUSSIA South Africa
South Korea
Spain (EU)

GULF COOPERATION
COUNCIL

• Established in 1981 by 6 countries with 45% of world’s oil

• These countries are attempting to diversify industries

AFRICA

• 54 nations over three distinct areas

– Republic of South Africa

– North Africa

– Black Africa or sub-Saharan Africa

• Regional agreements

– Economic Community of West African States (ECOWAS)

– East African Cooperation (EAC)

– South African Development Community (SADC)

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 CENTRAL AMERICAN INTEGRATION
SYSTEM (SICA)

• El Salvador, Honduras,
Guatemala, Nicaragua, Costa
Rica, and Panama

• Moving towards a common

market

• Common External Tariff of 0 to

15%

• Retains tariffs on goods also

produced in importing country

ANDEAN COMMUNITY

• Bolivia, Colombia, Ecuador,

Peru, Venezuela

• Customs Union

– Abolished foreign
exchange, financial and
fiscal incentives, and
export subsidies

– Established common
external tariffs

 COMMON MARKET OF THE

SOUTH (MERCOSUR)

• Argentina, Brazil, Paraguay, Uruguay, Venezuela

• Customs union, seeks to become common market
– Internal tariffs eliminated
– Established common external tariffs up to 20%
– In time, factors of production will move freely
through member countries
• Chile, Colombia, Ecuador, Peru, Bolivia
– Associate members
– Participate in free trade area but not customs union

CARICOM
THE NILE RIVER

White Nile Blue Nile

Uganda Rwanda
Sudan (N/S) Burundi
Egypt Zaire
Tanzania
Kenya
Ethiopia
Egypt

THE SUEZ CANAL

Suez Canal
man-made construction; took
10 years
Connects Mediterranean and
Red Seas
shortest route between
Europe and Asia

 GLOBAL
OPPORTUNITIES

THINK local ,

VIEW regional ,

ACT global !

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