CHAPTER 3 REGIONAL MARKET CHARACTERSTICS AND PREFERENTIAL TRADE AGREEMENTS SUMMARY This chapter examines the environment for

world trade, focusing on the institutions and regional cooperation agreements that affect trade patterns. The multilateral World Trade Organi a!ion, created in 1995 as the successor to the General Agree"en! on Tari##$ and Trade, provides a forum for settling disputes among member nations and tries to set policy for world trade. The world trade environment is also characterized by %re#eren!ial !rade agree"en!$ among smaller numbers of countries on a regional and sub-regional basis. These agreements can be conceptualized on a continuum of increasing economic integration. Free !rade area$ such as the one created by the Nor!& A"eri'an Free Trade Agree"en! (NAFTA) represent the lowest level of economic integration. The purpose of a #ree !rade agree"en! is to eliminate tariffs and uotas. R*le$ o# origin are used to verify the country from which goods are shipped. ! '*$!o"$ *nion "e.g. #ercosur$ represents a further degree of integration in the form of 'o""on e+!ernal !ari##$, %n a 'o""on "ar-e! such as &entral !merican %ntegration 'ystem "'%&!$, restrictions on the movement of labor and capital are eased in an effort to further increase integration. !n e'ono"i' *nion, such as the (uropean )nion "()$, the highest level of economic integration is achieved by unification of economic policies and institutions. Har"oni a!ion. the coming together of varying standards and regulations, is a *ey characteristic of the (). +ther important cooperation arrangements include the !ssociation of 'outheast !sian ,ations "!'(!,$, the &ooperation &ouncil for the !rab 'tates of the -ulf "-&&$. %n !frica, the two main cooperation agreements are the (conomic &ommunity of .est !frican 'tates "(&+.!'$ and the 'outh !frican /evelopment &ommunity "'!/&$. O/ER/IEW The year 0112 mar*eted the sixtieth anniversary of the General Agree"en! on Tari##$ and Trade (GATT), a treaty among nations whose governments agree, at least in principle, to promote trade among members.

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ANNOTATED LECTURE0OUTLINE THE WORLD TRADE ORGAN1IATION AND GATT W&a! i$ GATT2

The -eneral !greement on Tariffs and Trade "-!TT$ was treaty among nations whose governments agreed to promoted trade among members. -!TT was intended to be a multilateral, global initiative which liberalized world trade and handled 711 disputes over fifty years8 however, -!TT lac*ed enforcement power. The successor to -!TT, the .orld Trade +rganization ".T+$, born in 1995, provides a forum for trade-related negotiations among its 151 members and mediates trade disputes. The /ispute 'ettlement 9ody "/'9$ mediates complaints concerning unfair trade barriers8 during a :1-day consultation period, parties engage in good-faith negotiations "see Table 7 -1$. ;ailing that, the /'9 convenes a panel and acts on the panel<s recommendations8 if after due process, the losing party violates .T+ rules, the .T+ can impose trade sanctions. .T+ trade ministers meet annually to wor* on improving world trade, but politicians in many countries resist the .T+<s plans to move swiftly in removing trade barriers. The current round of .T+ negotiations began in 01118 the tal*s collapsed in 0115, and attempts to revive them in 011: were not successful. PREFERENTIAL TRADE AGREEMENTS The -!TT treaty promotes free trade on a global basis8 in addition, countries in each of the world=s regions are see*ing to liberalize trade within their regions. W&a! i$ a 3%re#eren!ial !rade agree"en!42

! %re#eren!ial !rade agree"en! is a mechanism that confers special treatment on select trading partners. 9y favoring certain countries, such agreements fre uently discriminate against others. Free Trade Area Ho5 i$ a #ree !rade area #or"ed2

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! #ree !rade area ";T!$ is formed when two or more countries agree to eliminate tariffs and other barriers that restrict trade. ! free trade area comes into being when trading partners successfully negotiate a #ree !rade agree"en! "also abbreviated ;T!$, the ultimate goal of which is zero duties on goods that cross borders between the partners. R*le$ o# origin are used to discourage the importation of goods into the member country with the lowest external tariff for transshipment to one or more ;T! members with higher external tariffs. To date, dozens of free trade agreements, many of them bilateral, have been successfully negotiated. C*$!o"$ Union$ ! '*$!o"$ *nion represents the logical evolution of a free trade area. %n addition to eliminating internal barriers to trade, members of a customs union agree to the establishment of 'o""on e+!ernal !ari##$ "&(Ts$. 'ome of the customs unions discussed in this chapter are the !ndean &ommunity, the &entral !merican %ntegration 'ystem "'%&!$, #ercosur, and &!>%&+#. Co""on Mar-e! ! 'o""on "ar-e! is the next level of economic integration. %n addition to the removal of internal barriers to trade and the establishment of common external tariffs, the common mar*et allows for free movement of factors of production, including labor and capital. E'ono"i' Union !n e'ono"i' *nion builds upon the elimination of the internal tariff barriers, the establishment of common external barriers, and the free flow of factors. %t see*s to coordinate and harmonize economic and social policy within the union to facilitate the free flow of capital, labor, goods, and services from country to country. T&e #*ll e6ol*!ion o# an e'ono"i' *nion 5o*ld in6ol6e 5&a!2

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The full evolution of an economic union would involve the creation of a unified central ban*, the use of a single currency, and common policies on agriculture, social services and welfare, regional development, transport, taxation, competition, and mergers. ! true economic union re uires extensive political unity, which ma*es it similar to a nation. The further integration of nations that were members of fully developed economic unions would be the formation of a central government that would bring together independent political states into a single political framewor*. The (uropean )nion is approaching its target of completing most of the steps re uired to become a full economic union. NORTH AMERICA ,orth !merica, which includes &anada, the )nited 'tates, and #exico, comprises a distinctive regional mar*et. The ).'. has more industry leaders than any other nation, dominating the computer, software, aerospace, entertainment, medical e uipment, and ?et engine industry sectors. In 5&a! 7ear did CFTA #or"all7 'o"e in!o e+i$!en'e2

The ).'.-&anada ;ree Trade !rea "&;T!$ came into existence in 19@9, resulting in over A611 billion per year trade between the two countries. W&o are !&e !o% !&ree !rading %ar!ner$ o# !&e U,S,2

&anada is the number one trading partner of the ).'.8 #exico is second, and &hina ran*s third. !merican companies have more invested in &anada than in any other country. The Nor!& A"eri'an Free Trade Agree"en! "NAFTA) became effective in 19968 the result is a free trade area with a combined population of 671 million and a total -,4 of roughly A16 trillion "see Table 7-6 and ;igure 7-0$. W&7 doe$ NAFTA 'rea!e a #ree !rade area a$ o%%o$ed !o a '*$!o"$ *nion or a 'o""on "ar-e!2

The governments of all three nations pledge to promote economic growth through tariff elimination and expanded trade and investment. !t present, however, there are no common external tariffs nor have restrictions on labor and other factor movements been eliminated. %llegal immigration from #exico remains a contentious issue.

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,!;T! allows for discretionary protectionism "e.g., &alifornia avocado growers won protection, allowing #exican avocados into the ).'. during the winter only in the northeast at a uota$. LATIN AMERICA8 SICA. Andean Co""*ni!7. Mer'o$*r. CARICOM Batin !merica includes the &aribbean and &entral and 'outh !merica8 the mar*et is sizeable, has a huge resource base, and Batin !merica has begun economic transformation. 9alanced budgets are a priority, and privatization is underway. ;ree mar*ets, open economies, and deregulation are replacing past policies8 tariffs are now reduced to 11 to 01 percent. -lobal corporations see import liberalization, prospects for lower tariffs within subregional trading groups, and the potential for more efficient production. #any envision a free trade area throughout the hemisphere. W&a! are !&e "o$! i"%or!an! !rading arrange"en!$ in La!in A"eri'a2

%mportant trading arrangements includeC &entral !merican %ntegration 'ystem "'%&!$ !ndean &ommunity The &ommon #ar*et of the 'outh "#ercosur$ The &aribbean &ommunity and &ommon #ar*et "&!>%&+#$. Cen!ral A"eri'an In!egra!ion S7$!e" &entral !merica is trying to revive its common mar*et, which originally had five membersC W&a! 'o*n!rie$ originall7 'o"%ri$ed !&e Cen!ral A"eri'an In!egra!ion S7$!e"2 (l 'alvador 5onduras -uatemala ,icaragua &osta >ica

%n 1992, with 4anama as a member, the group changed its name to the &entral !merican %ntegration 'ystem "'%&!$. "Table 7-5 shows the income and population data in the region$.

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&ommon r*le$ o# origin allow for freer movement of goods among '%&! countries which agreed to a common external tariff of 5 to 01 percent for most goods by the mid1991s. 'till, attempts to achieve integration are uncoordinated, inefficient, and costly "e.g., there are still tariffs on imports of products D sugar, coffee, and alcoholic beverages.$ Andean Co""*ni!7 The !ndean &ommunity was formed in 19:9 to accelerate development of member states through economic and social integration. ";igure 7-6 and Table 7-:$. W&a! 'o*n!rie$ "a-e *% !&e Andean Co""*ni!72

The member countries of the !ndean &ommunity areC 9olivia &olombia (cuador 4eru Eenezuela #embers lowered tariffs on intra-group trade and decided what products each country should produce. ;oreign goods and companies were *ept out as much as possible. ! sub-regional free trade zone was formed, abolishing foreign exchange, financial and fiscal incentives, and export subsidies by 1990. &ommon external tariffs were established. .hile 4eru has one of the fastest-growing economies in the region, (cuador has experienced years of economic and political instability. Ho5 &a6e r*ral re$iden!$ and !&e *r9an %oor 6ie5ed !&e %rogre$$ o# !&e Andean Co""*ni!72

+verall, rural residents and the urban poor in the region have become frustrated and impatient with the lac* of progress. Co""on Mar-e! o# !&e So*!& (Mer'o$*r) #arch 011: mar*ed the fifteen anniversary of the signing of the !sunciFn Treaty. W&a! 'o*n!rie$ 5ere !&e original "e"9er$ o# Mer'o$*r2

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The treaty signified the agreement by the governments of "see Table 7-2 and ;igure 7 -6$C !rgentina, 9razil, 4araguay, and )ruguay. %nternal tariffs were eliminated, and common external tariffs of up to 01 percent were established8 in theory goods, services, and factors of production will move freely. )ntil this goal is achieved, #ercosur will operate as a customs union. Trade among member nations pea*ed at A01 billion in 199@. ! ma?or impediment to further integration is the lac* of economic and political discipline and responsibility D a situation reflected in the volatile currencies of #ercosur countries. !rgentina provides a case study in how a country can emerge from an economic crisis as a stronger global competitor. %n 0110, !rgentina devalued its currency by 09 percent for exports and capital transactions. "Table 7 D 2$. W&7 5a$ C&ile no! allo5ed !o 9e'o"e a #*ll "e"9er o# Mer'o$*r2

%n 199:, &hile became an associate member of #ercosur8 policyma*ers bloc*ed full membership because &hile had lower external tariffs that the rest of #ercosur. &hile had been negotiating for inclusion in ,!;T!8 however, after #exico<s deficit with the ).'. became a trade surplus, ).'. interest in expanding ,!;T! cooled. &hile<s export-driven success ma*es it a role model for the rest of Batin !merica as well as &entral and (astern (urope. 9olivia, &olombia, (cuador, and 4eru are associate members of #ercosur, because they recently agreed to merge with the !ndean &ommunity. The () is #ercosur<s number-one trading partner. W&a! 'o*n!r7 i$ !&e ne5e$! "e"9er o# Mer'o$*r2

Eenezuela became a full #ercosur member in 011:. ;lush with revenues from oil exports, Eenezuela is expected to have a positive impact on regional integration. Cari99ean Co""*ni!7 and Co""on Mar-e! (CARICOM) W&o are !&e "e"9er 'o*n!rie$ o# CARICOM2

CARICOM was formed in 1927 with the following member statesC

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!ntigua and 9arbuda 9ahamas 9arbados 9elize /ominica -renada -uyana 5aiti Gamaica #ontserrat 't. Hitts and ,evis 't. Bucia 't. Eincent and the -renadines Trinidad and Tobago

The population of the entire 15-member &!>%&+# is about 15 million8 disparate levels of economic development can be seen by comparing -,4 per capita in !ntigua and 5aiti."Table 7-@$. W&a! doe$ CARICOM &a6e a$ i!$ "ain o9:e'!i6e2

To date, &!>%&+#=s main ob?ective has been to achieve a deepening of economic integration by means of a &aribbean common mar*et. 5owever, &!>%&+# was largely stagnant during its first two decades of existence. %n 199@, leaders agreed to establish an economic union with a common currency. ! recent study of the issue has suggested, however, that the limited extent of intra-regional trade would limit the potential gains from lower transaction costs. (nglish-spea*ing &!>%&+# members defend their privileged position with the ).'. "e.g., -uatemala$. !s of 0111, the &aribbean 9asin Trade 4artnership !ct exempts textile and apparel exports from the &aribbean to the ).'. from duties and tariffs. ";igure 7-5$. C*rren! Trade;Rela!ed I$$*e$ +ne of the biggest issues pertaining to trade is the ;ree Trade !rea of the !mericas. #any Batin !merican countriesI9razil in particularIare frustrated by !merica<s bro*en promises. !s a result, 9razil and #ercosur advocate slower three-stage negotiations to includeC discussions on customs forms and deregulation8 dispute settlement and
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rules of origin8 and tariffs.

ASIA;PACIFIC8 T&e A$$o'ia!ion o# So*!&ea$! A$ian Na!ion$ (ASEAN) The !ssociation of 'outheast !sian ,ations "!'(!,$ was established in 19:2 as an organization for economic, political, social, and cultural cooperation among its member countries. W&o 5ere !&e original "e"9er$ o# ASEAN2

The original six members of !'(!, wereC 9runei %ndonesia #alaysia the 4hilippines 'ingapore Thailand W&a! 5a$ !&e #ir$! Co""*ni$! na!ion !o :oin ASEAN2

Eietnam became the first &ommunist nation in the group when it was admitted to !'(!, in Guly 1995. ";igure 7-: and Table 7 -9$. &ambodia and Baos were admitted at the organization=s thirtieth anniversary meeting in Guly 1992. 9urma "*nown as #yanmar by the ruling military ?unta$ ?oined in 199@. W&o are ASEAN4$ !o% !&ree !rading %ar!ner$2

%ndividually and collectively, !'(!, countries are active in regional and global trade. !'(!,=s top trading partners include the )nited 'tates "A50.@ billion in 0110 exports$, the (uropean )nion "A6@ billion in exports$, and &hina "A07 billion$. %n 1996, economic ministers from the member nations agreed to implement an !'(!, ;ree Trade !rea "!;T!$ by 0117, 5 years earlier than previously discussed. W&a! i$ <ASEAN %l*$ !&ree=2 W&a! 'o*n!rie$ 5ere added !o re$*l! in <ASEAN %l*$ $i+=2

>ecently, Gapan, &hina, and Horea were informally added to the member roster8 some observers called this configuration J!'(!, plus three.K .hen the roster expanded again to include !ustralia, ,ew Lealand, and %ndia, it was dubbed J!'(!, plus six.K %n fewer than three decades, 'ingapore has transformed itself from a 9ritish colony to a vibrant, 061-s uare-mile industrial power.
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'ingapore has an extremely efficient infrastructure D the 4ort of 'ingapore is the world=s second-largest container port "5ong Hong=s ran*s first$ D and a standard of living second in the region only to Gapan<s. 'ingapore accounts for more than one-third of ).'. trading activities with !'(!, countries. Mar-e!ing I$$*e$ in !&e A$ia;Pa'i#i' Ri" #astering the Gapanese mar*et ta*es flexibility, ambition, and a long-term commitment. Gapan has changed from being a closed mar*et to one that<s ?ust tough, with barriers in attitudes and laws. Gapan re uires top- uality products and services, tailored to local tastes. &ountless visits and socializing with distributors are necessary to build trust, and mar*eters must master the keiretsu system of tightly *nit corporate alliances. WESTERN. CENTRAL. AND EASTERN EUROPE The countries of .estern (urope are among the most prosperous in the world. (ntering the first decade of the twenty-first century, the governments of .estern (urope have achieved unprecedented levels of economic integration. T&e E*ro%ean Union (EU) (Ta9le 3;>?), The () began in 195@ with the Treaty of >ome and original members 9elgium, ;rance, 5olland, %taly, Buxembourg, and .est -ermany. %n 1927, -reat 9ritain, /enmar*, and %reland were admitted, followed by -reece in 19@1 and 'pain and 4ortugal in 19@:. The ob?ective is to harmonize national laws and regulations so that goods, services, people, and eventually money can flow freely across national boundaries. The () encourages a community-wide labor pool and establishes rules of competition patterned after ).'. antitrust law. %mprovements to highway and rail networ*s are underway. ;inland, 'weden, and !ustria ?oined in 1995 &yprus, the &zech >epublic, (stonia, 5ungary, 4oland, Batvia, Bithuania, #alta, the 'lova* >epublic, and 'lovenia became full () members on #ay 1, 0116. 9ulgaria and >omania ?oined in 0112.
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Today, the 02 nations of the () represent 691 million people and a combined -,% of A15.1 trillion. The 1991 Maa$!ri'&! Trea!7 prepared the transition to an economic and monetary union "(#)$ with a (uropean central ban* and a new currency, the e*ro. The euro brings the benefits of eliminating currency conversion costs and exchange rate uncertainty. %n 0110, euro coins and paper money were issued to replace national currencies such as the ;rench franc. Mar-e!ing I$$*e$ in !&e E*ro%ean Union The business environment in (urope has undergone considerable transformation since 1990, with significant implications for all elements of the mar*eting mix. "Table 7 -11$. #ar*eting mix issues must be addressed in (urope=s single mar*et "e.g., content and other product standards that varied among nations must be harmonized$. Har"oni a!ion means that content and other product standards that varied among nations have been brought into alignment. "Table 7-11$. /irect comparability of prices in the euro zone forces companies to review pricing policies8 the mar*eting challenge is to develop strategies to ta*e advantage of a large, wealthy mar*et. The enlargement of the () will further impact mar*eting strategies and harmonized laws8 food safety laws in the () are different form those in &entral (uropean countries. 9ecause they are in transition, the mar*ets of &entral and (astern (urope present interesting opportunities and challenges. -lobal companies view the region as an important new source of growth, and the first country to penetrate a country mar*et often emerges as an industry leader. W&a! &a$ 9een !&e #a6ored "ode o# en!r72

(xporting has been a favorite entry mode, but direct investment is on the rise8 low wage rates, below 'pain and -reece, ma*e this region attractive for low-cost manufacturing. ;or consumer products, distribution is a critical mar*eting mix element because availability is *ey to sales8 studies show that consumers and businesses are embracing global brands.

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! study found a high degree of standardization of mar*eting program elements8 the core product and brand elements were largely unchanged from those used in .estern (urope. THE MIDDLE EAST W&a! 'o*n!rie$ 'o"%ri$e !&e Middle Ea$!2

The #iddle (ast includes 1: countriesC !fghanistan &yprus 9ahrain (gypt %ran %ra %srael Gordan Huwait Bebanon +man Matar 'audi !rabia 'yria The )nited !rab (mirates Nemen The ma?ority is !rab, a large percentage 4ersian, and a small percentage Gews. The population is 95 percent #uslim and 5 percent &hristian and Gewish. /espite apparent homogeneity, #iddle (astern countries fall into all categories of the index of economic freedom from Jmostly freeK "9ahrain, Huwait, 'audi !rabia, )nited !rab (mirates$ to JrepressedK "%ran and, until the 0117 regime change, %ra $. The #iddle (ast lac*s a single societal type with a typical belief, behavior, and tradition8 each ma?or city has many social groups, different in religion, social class, education, and wealth. The price of oil drives business. 9ahrain, %ra , %ran, Huwait, +man, Matar, and 'audi !rabia hold significant world oil reserves which have widened the gap between rich and poor nations. /isparities contribute to political and social instability. 'audi !rabia is the main mar*et in the region, with 05 percent of the worlds *nown oil reserves.

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/uring the 4ersian -ulf .ar against %ra , -ulf !rabs bro*e unwritten rules including accepting help from the ).'., an ally of %srael. !nti-!mericanism flared in 0117 during the invasion of %ra to remove 'addam 5ussein from power. 5aving returned sovereignty to %ra in Gune 0116, !mericans remain in %ra . Coo%era!ion Co*n'il #or !&e Ara9 S!a!e$ o# !&e G*l# The -ulf &ooperation &ouncil "-&&$ was established in 19@1. The six gulf countries hold about 65 percent of the world<s *nown oil reserves, but production is only about 1@ percent of world oil output. "Table 7 -10 and ;igure 7 -@$. 'audi !rabia and other #iddle (astern countries post account deficits because they import most goods and services and depend on oil revenues to pay for imports. The organization provides coordination, integration and cooperation in all economic, social, and cultural affairs. &ommittees coordinate trade development, industrial strategy, agricultural policy, and uniform petroleum policies and prices. -oals include establishing an !rab &ommon #ar*et and increasing trade ties with !sia. %n 19@9, two other organizations were formed. #orocco, !lgeria, #auritania, Tunisia, and Bibya formed the !rab #aghreb )nion "!#)$. (gypt, %ra , Gordan, and ,orth Nemen created the !rab &ooperation &ouncil "!&&$. #any !rabs see their regional groups as economic communities to foster the development of inter-!rab trade and investment. Mar-e!ing I$$*e$ in !&e Middle Ea$! Connection is a *ey word in conducting business in the #iddle (ast8 developing relationships with *ey business and government figures are li*ely to cut through red tape. 9argaining is culturally ingrained, and business people should be prepared for haggling8 establishing personal trust, mutual trust, and respect are essential. /ecisions are not made by correspondence or telephone. The !rab businessperson does business with the individual, not the company. .omen are not part of the business or entertainment scene for traditional #uslim !rabs. AFRICA
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%t is not really possible to treat !frica as a single economic unit. W&a! are !&e !&ree *ni@*e region$ o# A#ri'a2

The 56 nations on the continent can be divided into three distinct areasC the >epublic of 'outh !frica, ,orth !frica, and sub-'aharan or 9lac* !frica

.ith 1.7 percent of the world=s wealth and 11.5 percent of its population, !frica is a developing region with an average per capita income of less than A:11. The !rabs living in ,orth !frica are differentiated politically and economically. The six northern nations are richer and more developed, and severalInotably Bibya, !lgeria, and (gyptI benefit from large oil resources. For 5&a! doe$ !&e a'ron7" <Mena= $!and2

The #iddle (ast and ,orth !frica are viewed as a regional entity J#enaK8 the economies of non-oil, Jemerging #enaK "Gordan, Bebanon, #orocco, Tunisia$ have performed best. E'ono"i' Co""*ni!7 o# We$! A#ri'an S!a!e$ (ECOWAS) "see Table 7 D 17$. (&+.!' was established in 1925 to promote trade, cooperation, and self-reliance in .est !fricaC 9enin 9ur*ina ;aso &ape Eerde, The -ambia, -hana -uinea -uinea-9issau %vory &oast Biberia #ali #auritania ,iger ,igeria 'enegal 'ierra Beone
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Togo

%n 19@1, members established a free trade area for unprocessed agricultural products and handicrafts. 9y 1991, tariffs on twenty-five items had been eliminated, with measures ta*en to create a single monetary zone by 1996. 'till, economic development has occurred unevenly in the region. Ea$! A#ri'an Coo%era!ion %n 199:, Henya, )ganda, and Tanzania established a mechanism to promote free trade and economic integration. Tariff issues and a customs union are being explored. /evelopment of regional tourism and energy pro?ects are underway. So*!& A#ri'an De6elo%"en! Co""*ni!7 (SADC) '!/& promotes trade, cooperation, and economic integration8 members includeC !ngola 9otswana /emocratic >epublic of &ongo Besotho #alawi #auritius #ozambi ue ,amibia 'outh !frica 'eychelles 'waziland Tanzania Lambia, Limbabwe The goal is a fully developed customs union. 'outh !frica ?oined the community in 1996, and represents 25 percent of regional income and @: percent of intraregional exports 'outh !frica has explored the formation of a free trade area with the (). 'outh !frica, 9otswana, Besotho, ,amibia, and 'waziland belong to the 'outhern !frican &ustoms )nion "'!&)$.

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Mar-e!ing I$$*e$ in A#ri'a %n 0111, 4resident -eorge .. 9ush signed the !frican -rowth and +pportunities !ct "!-+!$ into law. &reated with the theme of JTrade ,ot !idK, the law is designed to support !frican nations that ma*e significant progress toward economic liberalization. !-+! also represents a formal step toward a ).'. D !frica free trade zone.

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DISCUSSION AUESTIONS 1. (xplain the role of the .orld Trade +rganization. .hy has the /oha >ound of trade tal*s stalledO The .orld Trade +rganization ".T+$ is the successor to -!TT. 9ased in -eneva, the .T+ has a dispute-settlement body "/'9$ representing all member countries that mediates trade complaints concerning unfair trade barriers and other issues. /uring a :1-day consultation period, parties to a complaint are expected to engage in good-faith negotiations and reach amicable resolution of a given issue. ;ailing that, the complainant can as* the /'9 to appoint a three-member panel to hear the case. !fter convening, the panel has nine months within which to issue its ruling. The /'9 is empowered to act on the panel<s recommendations. The losing party to a dispute can turn to the seven-member appellate body. %f a country<s trade policies are found to violate .T+ rules, it is expected to change those policies and negotiate compensation via lower tariffs with the winning country. %f appropriate changes and compensation are not forthcoming, the .T+ can authorize trade sanctions against the loser. 0. /escribe the similarities and differences between a free trade area, a customs union, a common mar*et, and an economic union. -ive an example of each. !ll four forms of economic integration eliminate tariffs and uotas among member nations. !t the next level, customs unions, common mar*ets, and economic unions all have common external tariff and uota systems. &ommon mar*ets and economic unions provide for reducing or eliminating restrictions on people, money, and other factors. !n economic union is the most highly evolved form of integration, calling for harmonization of economic policies and institutions. (xamples includeC free trade area D ,!;T!8 customs union D ()8 common mar*et D &entral !merican &ommon #ar*et "&!&#$8 economic union D (). 7. The creation of the 'ingle #ar*et in (urope has led to harmonization. .hat does this meanO 5ow does harmonization affect a company<s global mar*eting strategiesO 5armonization, is the coming together of varying standards and regulations across countries. 5armonization means that content and other product standards that varied among nations have been brought into alignment. !s a result, companies may have an opportunity to reap economies of scale by cutting bac* on the number of product adaptation. %n addition, harmonization can shift mar*eting strategies from brand to benefit segmentation, standardize pac*aging and labeling re uirements.

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6. .hat are the criteria for ?oining the euro zoneO The ob?ective of the () is to harmonize national laws and regulations so that goods, services, people, and eventually money can flow freely across national borders. #embers in the euro zone D !ustria, 9elgium, ;inland, %reland, the ,etherlands, ;rance, -ermany, %taly, Buxembourg, 4ortugal, and 'pain all use a single currency called the (uro. 5. %dentify a regional economic organization or agreement in each of the following areasC Batin !merica, !siaP4acific, .estern (urope, &entral (urope, The #iddle (ast, and !frica. Three important trade agreements in Batin !merica are the &entral !merican %ntegration 'ystem "'%&!$, !ndean -roup, and 'outhern &one &ommon #ar*et "#ercosur$. The !siaP4acific region is home to the !ssociation of 'outheast !sian ,ations "!'(!,$. The (uropean )nion "()$ and (uropean (conomic !rea "((!$ are the important trading blocs in .estern (urope. ;urther east, the new &entral &ooperation &ouncil "-&&$ dates bac* to 19@18 newer agreements include the !rab &ooperation &ouncil "!&&$ and !rab #aghreb )nion (conomic &ommunity of .est !frican 'tates "(&+.!'$8 elsewhere on the continent, the ten-nation 'outh !frican /evelopment &oordination &onference "'!/&&$ has existed since 19@1. :. 'everal *ey dates mentioned in the chapter are listed here. &an you identify the event associated with eachO !nswers follow this uestion in the text.

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