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CHAPTER 3 • REGIONAL MARKET CHARACTERISTICS AND PREFERENTIAL TRADE AGREEMENTS 77TABLE 3-2 Free Trade Agreements Around the WorldFTAs negotiated globally300 (approx.)FTAs negotiated since 2002 in Asia Pacific 119Percentage of world trade occurring through FTAs 50%Countries with which China is negotiating or has proposed FTAs 28EU FTAs 21U.S. FTAs 10Source: Business Roundtable, March 2007. Reprinted by permission of Business Roundtable.Three (G-3), an FTA encompassing Colombia, Mexico, and Venezuela; and the CloserEconomic Partnership Agreement, a free trade agreement between China and Hong Kong. Asnoted in the chapter introduction, the United States is currently negotiating an FTA with SouthKorea; negotiations are also ongoing with Panama and Colombia (see Exhibit 3-2).Exhibit 3-2: Many smallbusiness owners areadvocates of free tradeagreements. Speaking onbehalf of the ConsumerElectronics Association,the CEO of electronicsmanufacturer Thiel notes,“Today we’re a leadingmaker of high-performancespeakers with 30 Americanemployees and thousandsof global trade partners.We’re also one of 2,200 CEAmembers growing oureconomy thanks to freetrade. Speak out for freetrade. Support free tradeagreements with Colombia,Panama, and South Korea.”Source: Used by permission ofConsumer ElectronicAssociation.000200010270740623Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.
78 PART 2 • THE GLOBAL MARKETING ENVIRONMENTTABLE 3-3 Forms of Regional Economic IntegrationStage ofIntegrationElimination ofTariffs and QuotasAmong MembersCommon ExternalTariff (CET)and Quota SystemElimination ofRestrictions onFactor MovementsHarmonization andUnification of Economicand Social Policiesand InstitutionsFree Trade Area Yes No No NoCustoms Union Yes Yes No NoCommon Market Yes Yes Yes NoEconomic Union Yes Yes Yes YesCustoms UnionA customs union represents the logical evolution of a free trade area. In addition to eliminatinginternal barriers to trade, members of a customs union agree to the establishment of common externaltariffs (CETs). In 1996, for example, the European Union and Turkey initiated a customs unionin an effort to boost two-way trade above the average annual level of $20 billion. The arrangementcalled for the elimination of tariffs averaging 14 percent that added $1.5 billion each year to the costof European goods imported by Turkey. Other customs unions discussed in this chapter are theAndean Community, the Central American Integration System (SICA), Mercosur, and CARICOM.Common MarketA common market is the next level of economic integration. In addition to the removal ofinternal barriers to trade and the establishment of common external tariffs, the common marketallows for free movement of factors of production, including labor and capital. The AndeanCommunity, the SICA, and CARICOM, which currently function as customs unions, mayultimately evolve into true common markets.Economic UnionAn economic union builds upon the elimination of the internal tariff barriers, the establishment ofcommon external barriers, and the free flow of factors. It seeks to coordinate and harmonize economicand social policy within the union to facilitate the free flow of capital, labor, and goods andservices from country to country. An economic union is a common marketplace not only for goodsbut also for services and capital. For example, if professionals are going to be able to work anywherein the EU, the members must harmonize their practice licensing so that a doctor or lawyer qualifiedin one country may practice in any other. The full evolution of an economic union would involve thecreation of a unified central bank, the use of a single currency, and common policies on agriculture,social services and welfare, regional development, transport, taxation, competition, and mergers. Atrue economic union requires extensive political unity, which makes it similar to a nation. Thefurther integration of nations that were members of fully developed economic unions would be theformation of a central government that would bring together independent political states into a singlepolitical framework. The EU is approaching its target of completing most of the steps required tobecome a full economic union, with one notable setback. Despite the fact that 16 member nationsratified a proposed European Constitution, the initiative was derailed after voters in France and theNetherlands voted against the measure. Table 3-3 compares the various forms of regional economicintegration.NORTH AMERICANorth America, which includes Canada, the United States, and Mexico, comprises a distinctiveregional market. The United States combines great wealth, a large population, vast space, andplentiful natural resources in a single national economic and political environment and presentsunique marketing characteristics. High product-ownership levels are associated with high income000200010270740623Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.
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