Chapter 3 - Pearson Learning Solutions

76 PART 2 • THE GLOBAL MARKETING ENVIRONMENTTABLE 3-1 Recent WTO CasesCountries Involved in DisputeUnited States, European Union,Canada versus ChinaUnited States versus BrazilAntigua and Barbuda versus theUnited StatesUnited States versus European UnionNature of Dispute and OutcomeIn 2006, the complainants asked the DSB to consider Chinese tariffs on imported autoparts. The complainants argued that their auto manufacturers were at a disadvantagebecause Beijing required them to buy components locally or pay high tariffs. In 2008,the WTO ruled that China had violated trade rules.In 2003, Brazil filed a complaint against the United States charging that cotton subsidiesdepressed prices and disadvantaged producers in emerging markets. In 2004, the DSB,in its first-ever ruling on agricultural subsidies, agreed that cotton subsidies violateinternational trade rules.In 2003, Antigua filed suit charging that, by prohibiting Internet gambling, the UnitedStates was violating global trade agreements. In 2004, the WTO ruled in favor ofAntigua.In 2002, U.S. President Bush imposed 30 percent tariffs on a range of steel importsfor a period of three years. The EU lodged a protest, and in 2003, the WTO ruled thatthe tariffs were illegal. President Bush responded by lifting the tariffs.“For the WTO processto work, countrieshave to startliberalizing policiesin politically sensitivesectors.” 2Daniel Griswold, Center forTrade Policy Studies, CatoInstitutesubsidies. The current round of WTO negotiations began in 2001; the talks collapsed in 2005 andattempts to revive them in the years since have not been successful. For more on the trade talks,turn to the Strategic Decision Making box on page 79.PREFERENTIAL TRADE AGREEMENTSThe GATT treaty promotes free trade on a global basis; in addition, countries in each ofthe world’s regions are seeking to liberalize trade within their regions. A preferential tradeagreement is a mechanism that confers special treatment on select trading partners. By favoringcertain countries, such agreements frequently discriminate against others. For that reason, it iscustomary for countries to notify the WTO when they enter into preferential trade agreements. Inrecent years, the WTO has been notified of approximately 300 preferential trade agreements.Few fully conform to WTO requirements; none, however, has been disallowed.Free Trade AreaA free trade area (FTA) is formed when two or more countries agree to eliminate tariffs andother barriers that restrict trade. When trading partners successfully negotiate a free tradeagreement (also abbreviated FTA), the ultimate goal of which is to have zero duties on goodsthat cross borders between the partners, it creates a free trade area. In some instances, duties areeliminated on the day the agreement takes effect; in other cases, duties are phased out over a setperiod of time. Countries that belong to an FTA can maintain independent trade policies withrespect to third countries. Rules of origin discourage the importation of goods into the membercountry with the lowest external tariff for transshipment to one or more FTA members withhigher external tariffs; customs inspectors police the borders between members.For example, because Chile and Canada established an FTA in 1997, a Canadian-builtCaterpillar grader tractor imported into Chile would not be subject to duty. If the same piece ofequipment was imported from a factory in the United States, the importer would pay about $13,000in duties. Could Caterpillar send the U.S.-built tractor to Chile by way of Canada, thereby allowingthe importer to avoid paying the duty? No, because the tractor would bear a “Made in the U.S.A.”certificate of origin indicating it was subject to the duty. Little wonder, then, that the U.S. governmentnegotiated its own bilateral free trade agreement with Chile that entered into force in 2003.According to the Business Roundtable, to date more than 300 free trade agreements havebeen negotiated globally; roughly 50 percent of global trade takes place among nations linked byFTAs (see Table 3-2). Additional examples of FTAs include the European Economic Area, a freetrade area that includes the 27-nation EU plus Norway, Liechtenstein, and Iceland; the Group of2 Scott Miller, “Trade Talks Twist in the Wind,” The Wall Street Journal (November 8, 2005), p. A14.000200010270740623Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.