International Marketing

14th Edition P h i l i p R. C a t e o r a M a r y C. G i l l y John L. Graham

The Dynamic Environment of International Trade

Chapter 2
McGraw-Hill/Irwin International Marketing 14/e

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

What Should You Learn?

The basis for the reestablishment of world trade following World War II The importance of balance-of-payment figures to a countrys economy

The effects of protectionism on world trade

The seven types of trade barriers

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What Should You Learn?

The provisions of the Omnibus Trade and Competitiveness Act The importance of GATT and the World Trade Organization

The emergence of the International Monetary Fund and the World Bank Group

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Trade Barriers An International Marketers Minefield Countries take advantage of U.S. open markets while putting barriers in the way of U.S. exports Tariff and nontariff barriers to trade are major issues confronting international marketers

Global Perspective

To realize the benefits of the social, political, and economic changes, free trade must prevail throughout the global marketplace
WTO (World Trade Organization)

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Top Ten 2007 U.S. Trading Partners

($ billions, merchandise trade)
Exhibit 2.1

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The 20th to the 21st Century

First Half of the Twentieth Century
Depression WW I and WW II

Marshall Plan

Move toward international cooperation among trading nations

General Agreement on Tariffs an Trade, (GATT)

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The 20th to the 21st Century

Last half of the 20th century marred by competing approaches to economic development
Socialist Marxist Democratic capitalist

Rapid growth of war-torn economies and previously underdeveloped countries Large-scale economic cooperation and assistance Rising standards of living
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World Trade and U.S. Multinationals

New global marketing opportunities 1950s U.S. companies began to export and make significant investments in overseas marketing and production facilities

1960s U.S. multinational corporations (MNCs) faced major challenges on two fronts
Resistance to direct investment Increasing competition in export markets

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World Trade and U.S. Multinationals

American MNCs confronted by a resurgence of competition from all over the world
NIC (Newly Industrialized Countries) SOE (State-Owned Enterprises)

The balance of merchandise trade

U.S. trade deficit

U.S. dilemma of how to encourage trading partners to reciprocate with open access to their markets without provoking increased protectionism
WTO (World Trade Organization) NAFTA AFTA (American Free Trade Area) APEC (Asia-Pacific Economic Cooperation Conference)
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Worlds 100 Largest Industrial Corporations (Annual Revenues)

Exhibit 2.2

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Beyond the First Decade of the 21st Century

U.S. economy has slowed dramatically World growth (except China) also slowed
The Organization for Economic Cooperation and Development (OECD) estimates 3% average annual growth for next 25 years

Developing countries will grow faster

From an annual rate of 4% in the past quarter to a rate of 6% for the next 25 years Share of world output will range from one-sixth to one-third

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Beyond the First Decade of the 21st Century

Level of intensity of competition will change as companies focus on gaining entry or maintaining their position
Emerging markets Regional trade areas Established markets in Europe, Japan, and the U.S.

Smaller companies also seeking new markets

Novel approaches Technological expertise

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Balance of Payments
Balance of payments the system of accounts that records a nations international finance transactions Transactions recorded annually

Must always be in balance

A record of condition, not determinant of condition

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Balance of Payments
A balance of payments statement includes three accounts
Current account Capital account Reserves account

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U.S. Current Account

by Major Components, 2007 ($ billions)
Exhibit 2.3

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U.S. Current Account Balance

(% of GDP)
Exhibit 2.4

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What Would One U.S. Dollar Buy?

Exhibit 2.5

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Protectionism
Tariffs, quotas, and nontariff barriers are designed to protect markets from intrusions by foreign countries Nations utilize barriers to restrain entry of unwanted goods
Legal Exchange Psychological Private market

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Protection Logic and Illogic

Arguments concerning protectionism on trade
Protection of infant industry Protection of the home market Need to keep money at home Encouragement of capital accumulation Maintenance of the standard of living and real wages Conservation of natural resources Industrialization of a low-wage nation Maintenance of employment and reduction of unemployment National defense Increase of business size Retaliation and bargaining
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Trade Barriers
Tariffs

Quotas
Voluntary Export Restraints (VER) Boycotts and embargoes Monetary barriers
Blocked currency Differential exchange Government approval

Standards
Antidumping penalties
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Types of Nontariff Barriers

Exhibit 2.6

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The Omnibus Trade and Competitiveness Act

Designed to deal with trade deficits, protectionism, and overall fairness of our trading partners Covers three critical areas in improving U.S. trade
Market access Export expansion Import relief

Four ongoing activities to support the growth of international trade

GATT The associated World Trade Organization (WTO) International Monetary Fund (IMF) The World Bank Group
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General Agreement on Tariffs and Trade

Paved way for first effective worldwide tariff agreement

Basic elements of the GATT

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 Consultation shall be the primary method used to solve global trade problems

Eliminating international trade barriers Uruguay Round

The General Agreement on Trade in Services (GATS) Trade-Related Investment Measures (TRIMs) Trade-Related aspects of Intellectual Property Rights (TRIPs)
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World Trade Organization

WTO is an institution not an agreement
Sets many rules governing trade between its 148 members Provides a panel exports to hear and rule on trade disputes between members Issues binding decisions All member countries will have equal representation Member countries have open their markets and to be bound by the rules of the multilateral trading system

U.S. ratification concerns

Possible loss of sovereignty over its trade laws to WTO Lack of veto power Role U.S. would assume when a conflict arises over an individual states laws that might be challenged by a WTO member

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Skirting the Spirit of GATT and WTO

Loopholes
Reducing tariffs while at the same time increasing number and scope of technical standards and inspection requirements

Imposing antidumping duties

Negotiating bilateral trade agreements

May lead to multinational concessions Not necessarily consistent with WTO goals and aspirations

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The International Monetary Fund

Created to assist nations in becoming and remaining economically viable Objectives of the IMF
Stabilization of foreign exchange rates Establishment of freely convertible currencies to facilitate the expansion and balanced growth of international trade

Special Drawing Rights (SDRs)

Paper gold

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The World Bank Group

Institution created to reduce poverty and improve standard of living
By promoting sustainable growth and investment in people

The World Bank has five institutions which perform the following services:
Lending money to the governments of developing countries Providing assistance to governments for developmental projects to the poorest developing countries Lending directly to the private sector Providing investors with guarantees against noncommercial risk Promoting increased flows of international investment
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Protests against Global Institutions

The basic complaint against the WTO, IMF and others is the amalgam of unintended consequences of globalizing
Environmental concerns Worker exploitation and domestic job losses Cultural extinction Higher oil prices Diminished sovereignty of nations

Terrorism in London (2005) Antisweatshop campaigns

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Summary
The benefits from absolute or comparative advantage clearly can accrue to any nation Increased pressure for protectionism from every region of the globe

The consumer seldom benefits from such protection

Free international markets help underdeveloped countries become self-sufficient

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Summary
Freer trade will always be partially threatened by various governmental and market barriers that exist or are created for the protection of local businesses The future of open global markets lies with the controlled and equitable reduction of trade barriers

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