Chapter Three Global Trade and Integration. Copyright 2012, SAGE Publications, Inc.

Transcription

1 Chapter Three Global Trade and Integration

2 Learning Objectives At the end of the session, the student should be able to describe: 1. How does free trade influence the international marketing context? 2. What are the relationships between free trade, integration, and international marketing? 3. What are the major trade agreements around the world? 4. How does protectionism affect free trade? 5. How do laws and ethical concerns affect trade and international marketing globally?

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4 Learning Objective #1 1. How does free trade influence the international marketing context?

5 Free Trade The movement of goods forms the foundation of international marketing activities. Free trade occurs when goods travel across boundaries with little governmental interference. Basic questions emerge regarding whether free trade should be encouraged and if it hurts local citizens by leading to the loss of jobs. Should free trade be encouraged?

6 Theory of Absolute Advantage A country has an advantage when it can produce more of a good or service using the same amount of resources as other countries can produce. Country-level absolute advantages lead to trade. Trade leads to higher levels of innovation through specialization. Each country focuses on its area of expertise, and more domestic competitors emerge to meet the needs of the global market.

7 Absolute Advantage Example

8 Theory of Comparative Advantage Nations trade with less-developed or leastdeveloped countries that do not hold advantages in any type of production. Explanation? Comparative advantage states that a country has an ability to produce a good or service at lower levels of opportunity cost than other countries. Each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other.

9 Comparative Advantage Example Without Trade Designers required by product: Product Country A Country B 1 Piece of software 5 designers 30 designers 1 Piece of cloth 10 designers 15 designers

10 Comparative Advantage Example Without Trade Output by country deploying 30 designers on each product:

11 Comparative Advantage Example With Trade Output by country deploying all 60 designers on theirs competitive advantages:

12 Comparative Advantage Example With Trade Exchanging 3 pieces of cloth for 3 pieces of software Country A Country B Initial stage Without trade With specialization and after the interchange 6 Pieces of software 1 Piece of software 3 Pieces of cloth 2 Pieces of cloth 12 3 = 9 Pieces of software = 3 Pieces of cloth = 3 Pieces of software 4 3 = 1 Piece of cloth

13 Comparative Advantage and Trade Trade creates benefits for everyone involved. Countries specialize Benefits from specialization: Production efficiency increases. Consumers in both countries are able to purchase cheaper goods. Countries become more skilled at their own specialty.

14 Benefits of Free Trade

15 Trade and Governmental Forms Governments play a key role in promoting trade. A democracy vests political power in the citizens of a country, either directly or through elected representatives. An authoritarian government rests power in the hands of a small number of individuals, or even one person (a monarchy). Dictatorships are governments in which the ruling elite or ruling individual holds all the political power. Theocracy vests political power into a ruler or ruling body due to religious reasons and in many cases is ruled by a religious figure. Anarchism occurs when there is an absence of any ruling governmental form.

16 Examples of Governmental Type

17 Governmental Policies Supporting Trade Free trade zones, or specially designated areas within a country that have separate laws designed to encourage trade Reduction or complete removal of tariffs or fees on goods entering or leaving through the free trade zone. Preferential currency exchange rates Reduction of business start-up fees Preferential access to distribution channels Governmental organizations designed to facilitate trade The Export-Import Bank of the United States is an example. The bank, a U.S. governmental entity, provides credit to businesses to assist with the financing of exporting activities.

18 Learning Objective #2 2. What are the relationships between free trade, integration, and international marketing?

19 Integration Integration refers to the process of using agreements between countries to lower limits on the movements of products, capital, or labor.

20 Levels of Integration Defined Free trade areas are created by a group of countries that have entered into an agreement to reduce tariffs, quotas, and other barriers to the movement of goods and services. Example North American Free Trade Area (NAFTA) Custom union members agree to remove barriers to the movement of goods and services and consent to a uniform tariff policy toward nonmember countries. Example MERCOSUR (Mercado Común del Sur), or the Southern Cone Common Market

21 Levels of Integration Defined (Cont.) Common markets remove barriers to trade within the market, maintain a common tariff for nonmembers, and allow the free movement of capital and labor within the market. Example the European Community Economic union members have a harmonized economic policy between members, a common currency, and central bank. Example the Eurozone Political union, the complete integration of political and economic policy, is the final step before the creation of a new country.

22 Reasons for Integration Success Successful past integration builds skills and commitment to the integrative process. A cultural disposition toward trade and connections and a lack of contested historical conflicts or events Complementary resources that fill gaps for the countries involved, such as Canada, Mexico, and the United States Geographic distance increases costs and complicates shipping.

23 Integration Trends Initially, trade deals focused on the movement of manufactured goods, but increasingly services are traded. Offshoring and outsourcing are increasingly common. Offshoring refers to the movement of a business activity to another country. Outsourcing refers to relinquishing organizational control of a business process and hiring an external third party to conduct the process. Business process outsourcing (BPO), or the outsourcing of business support services, growing.

24 The World Trade Organization and Integration A global organization that facilitates trade between its 153 member countries

25 World Trade Organization Powers The WTO is a forum for the negotiation of trade agreements and is the arbitrating party for settling trade disputes. A fundamental component of WTO membership is most-favored nation (MFN) status. All member countries with MFN status must be treated equally. The WTO helps establish tariff rates with the goal of the lowest rates possible. The organization supports some trade barriers to protect consumers, prevent the spread of disease, to serve as punishment for failing to follow WTO rules, or assist developing markets. In cases where barriers exist, the WTO encourages transparency and consistency. The WTO adjudicates trade disputes. No ability to fine members Can allow the aggrieved party to charge counter tariffs

26 Learning Objective #3 3. What are the major trade agreements around the world?

27 European Integration European Union the main integrating body in Europe

28 European Integration (Cont.)

29 Organization of the European Union

30 Other European Trade Organizations European Free Trade Association Limited trade barriers among members and common policies toward nonmembers Free trade with members of the European Union The Commonwealth of Independent States Includes many Eastern European or Central Asian countries that have not made steps to join the European Union

31 Integration in the Americas

32 North American Free Trade Agreement (NAFTA) The United States, Canada, and Mexico formed NAFTA on January 1, 1994, leading to the world s largest free trade area. Controversial Loss of jobs Environmental concerns Disputes over flow of goods

33 South American Integration MERCOSUR Founded in 1991 Current members include Argentina, Brazil, Paraguay, and Uruguay Andean Community Founded in 1969 Current members include Bolivia, Colombia, Ecuador, and Peru Union of South American Nations (UNASUR) Founded 2004 Goals political more than economic

34 Map of South American Integration

35 Other Western Hemisphere Integrative Bodies Dominican Republic Central America United States Free Trade Agreement (CAFTA-DR) Signed in 2004 Includes Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua The Caribbean Community (CARICOM) In 2001, signed treaty stating a long-term goal of starting a CARICOM Single Market and Economy (CSME) The first step of this process is the CARICOM Single Market, which currently has twelve members. Eight Caribbean countries share a currency, the Eastern Caribbean dollar, through the Eastern Caribbean Central Bank (ECCB). (1) Antigua and Barbuda, (2) Dominica, (3) Grenada, (4) St. Kitts and Nevis, (5) St. Lucia, (6) St. Vincent and the Grenadines, (7) Anguilla, and (8) Montserrat

36 CARICOM Member Countries

37 Bilateral Trade Agreements for the United States

38 Integration in Asia Integration less in Asia than in Europe or the Americas

39 Association of Southeast Asian Nations Free Trade Area Oldest trade agreement in Asia, it began in Limited by conflict between member states Insert Map 3.5 here (please confirm that it is the Southeast Asia map)

40 Asia-Pacific Economic Cooperation 40% of the world s population, almost 44% of world trade, and more than half of the global GDP

41 South Asian Association for Regional Cooperation Signed in 1993 and some discussions of a free trade area Political conflicts, particularly between India and Pakistan, limit growth.

42 Integration in the Middle East Various agreements The Greater Arab Free Trade Area (GFTA), founded in 1997, now encompasses all seventeen members of the Arab League plus Algeria. The Cooperation Council for the Arab States of the Gulf (GCC), founded in 1981, has great ambitions. Recent political change sweeping region has constrained growth of agreements.

43 African Integration Africa has many agreements creating loose ties between countries. Actual implementation is limited. Currency unions also common: Central African Franc West African Franc West African Monetary Union

44 Member States in African Agreements

45 Learning Objective #4 4. How does protectionism affect free trade?

46 Protectionism Protectionism refers to the desire to protect domestic businesses from the exports of foreign firms through governmental policy. Governments play a key role in limiting trade. Lobbying by domestic companies creates pressures on governments to respond.

47 Government Policies Limiting Trade

48 Arguments for Protectionism

49 Learning Objective #5 5. How do laws and ethical concerns affect trade and international marketing globally?

50 Trade and U.S. Laws Trade leads to legal issues for U.S. businesspeople. The application of laws outside of country borders is called extraterritoriality. U.S. law outlaws bribery. In 1977, the U.S. Congress passed the Foreign Corrupt Practices Act. Outlaws the payment of bribes to any government official in return for any business preference or favors. In 1998, an amendment increased its coverage to any foreign person or firms who, either directly or through a third party, cause the payment of a bribe in the United States. Any company that lists securities in the United States must abide by the Foreign Corrupt Practices Act.

51 Trade and U.S. Laws (Cont.) The U.S. government prohibits U.S. companies and citizens from participating in any foreign country sponsored boycott. The Anti-Boycott Law Governments regulate businesses to make sure that monopolies do not form through antitrust laws. The Sherman Act The Clayton Act The Federal Trade Commission and the Justice Department enforce the statutes.

52 Group Assignment (four students) 1. Think about your home country and the product you are planning to export. Does your country have any trade or free trade agreements with other countries? If so, when did these agreements originate? Find articles that either support or do not support these trade agreements. Write a paragraph on why you agree or disagree with the articles and state your stance on the trade agreement.