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The Dynamic Environment of
International Trade
Week 2
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
General Agreement on Tariffs and Trade
(GATT)
 Covers three basic areas:
• trade shall be conducted on a nondiscriminatory basis;
• protection shall be afforded domestic industries through
customs tariffs, not through such commercial measures as
import quotas; and
• consultation shall be the primary method used to solve
global trade problems.
2-2
World Trade Organization (WTO)
Unlike GATT, WTO is an institution, not an agreement
 It sets many rules governing trade between its 132
members
 WTO provides a panel of experts to hear and rule on
trade disputes between members, and, unlike GATT,
issues binding decisions
2-3
The IMF and the World Bank
 The International Monetary Fund (IMF) and the
World Bank Group are two global institutions
created to assist nations in becoming and remaining
economically viable.
 These organizations play important roles in
international trade:
• by helping maintain stability in the financial markets and
• by assisting countries that are seeking economic
development and restructuring
2-4
World Trade Goes Bananas!
 The Banana wars and conflict between the U.S. and
Europe started out as a simple tariff dispute between
France and U.S. companies exporting bananas from
Latin American countries to France
 France gave preferential treatment for bananas
coming from its former colonies in the Caribbean and
Africa
 The rest is history and politics, see more here:
“Banana Wars”
6-5
Government Encouragement
 Governments can both encourage and discourage
foreign investment
 The key reason to encourage foreign investment is to
accelerate the country’s economic growth
 During the recent economic downturn, the U.S.
government has been particularly creative in helping
promote American exports
6-6
Introduction to International Law


No single, uniform international commercial law
governing foreign business transactions exists
International marketers must comply with the laws
of each country within which it operate
7-7
Bases for Legal Systems
 Common law, derived from English law and found in
England, the United States, Canada, and other
countries once under English influence
 The basis for common law is tradition, past practices,
and legal precedents set by the courts through
interpretations of statutes, legal legislation, and past
rulings.
7-8
Bases for Legal Systems
 Civil or code law, derived from Roman law and found
in Germany, Japan, France, and in non-Islamic and
non-Marxist countries
 Code law is based on an all-inclusive system of
written rules (codes) of law.
7-9
Common Law
Code Law
Based on tradition, past
practices and legal
precedents set by courts
through interpretation of
past rulings/statutes, etc.
Based on an all-inclusive
system of written rules
(codes) of law. Legal
system is divided into 3
codes: commercial, civil &
criminal.
Not All-Inclusive
Considered complete
“catchall provisions” Some
broad interpretations are
possible.
7-10
Common Law
Code Law
Ownership is
determined by use
Based on an allinclusive Ownership is
determined by
registration
Agreements may be
binding so long as
proof of the
agreement can be
established.
Agreements may not
be enforceable unless
properly notarized or
registered.
7-11
Bases for Legal Systems

Islamic law, derived from the interpretation of the
Koran and found in Pakistan, Iran, Saudi Arabia,
and other Islamic states
7-12
Level of Market Development*
 The level of market development roughly parallels
the stages of economic development
 The more developed an economy, the more
sophisticated and specialized the institutions become
to perform marketing functions
 As countries develop, the distribution channel
systems develop
 Marketing structures of many developing countries
are simultaneously at many stages
9-13
Demand in Developing Countries*
 Estimating market potential in less-developed
countries involves challenges
 Most of the difficulty is from the coexistence of three
distinct kinds markets in each country:
(1) the traditional rural/agricultural sector
(2) the modern urban/high-income sector and
(3) the often very large transitional sector
usually represented by low-income
urban slums
9-14
NAFTA*
 When NAFTA was ratified and became effective in 1994, it
became a single market of 360 million people with a $6 trillion
GNP
 NAFTA required the three countries to remove all tariffs and
barriers to trade over 15 years
 In 2008, all tariff barriers were officially dropped
 The purpose was to:
• generate income and employment gains
• Enhance global competitiveness of NAFTA firms
9-15
United States–Central American Free Trade Agreement–
Dominican Republic Free Trade Agreement (DR-CAFTA)*
 In August 2005, President George Bush signed into
law a comprehensive free trade agreement among
Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Honduras, Nicaragua, and the
United States
 The agreement includes a
wide array of tariff reductions
aimed at increasing trade and
employment among the
seven signatories
9-16
Southern Cone Free Trade Area
(Mercosur)*
 Mercosur (including Argentina, Bolivia, Brazil, Chile,
Paraguay, and Uruguay) is the second-largest common-market
agreement in the Americas after NAFTA
 The Treaty of Asunción, which provided the legal basis for
Mercosur, was signed in 1991 and formally inaugurated in 1995.
 The treaty calls for a common market that would eventually allow
for the free movement of goods, capital, labor, and services among
the member countries, with a uniform external tariff
 Because Mercosur members were concerned about sacrificing
sovereign control over taxes and other policy matters, the
agreement envisioned no central institutions similar to those of the
European Union institutions.
9-17
Southern Cone Free Trade Area
(Mercosur)
 Mercosur has become the most influential
and successful free trade area in South America.
 With the addition of Bolivia and Chile in 1996,
Mercosur became a market of 220 million people
with a combined GDP of nearly $1 trillion and the
third largest free trade area in the world.
 More recently Colombia and Ecuador have become
associate members, with Venezuela to follow shortly
 Mexico has observer status as well
9-18
Latin American Economic Cooperation
 Other Latin American market groups (Exhibit 9.7)
• Latin American Integration Association (LAIA)
• The long-term goal of the LAIA is a gradual and progressive
establishment of a Latin American common market
• There was is the differential treatment of member countries according
to their level of economic development
• The provision that permits members to establish bilateral trade
agreements among member countries
• Caribbean Community and Common Market (CARICOM)
• It has worked toward a single-market economy and in 2000
established the CSME (CARICOM Single Market and Economy) with
the goal of a common currency for all members.
• The introduction of a common external tariff structure was a major
step toward that goal.
9-19
NAFTA to FTAA or SAFTA?
 Initially NAFTA was envisioned as the blueprint for a free
trade area extending from Alaska to Argentina
 The first new country to enter the NAFTA fold was to be
Chile, then membership was to extend south until there
was a Free Trade Area of the Americas (FTAA) by 2005
 Will there will be an FTAA or a tri-country NAFTA in the
north and a South American Free Trade Area (SAFTA) led
by Brazil and the other member states of Mercosur in the
south?
 Future political and economic policies will determine the
future of all of these plans
9-20
Strategic Implications for Marketing
 As a country develops, incomes change, population
concentrations shift , expectations for a better life adjust
to higher standards, new infrastructures evolve, and
social capital investments are made
 Large households can translate into higher disposable
incomes
 Markets are changing rapidly, and identifiable market
segments with similar consumption patterns are found
across many countries
 Emerging markets will be the growth areas of the 21st
century
9-21