CHAPTER 3 • REGIONAL MARKET CHARACTERISTICS AND PREFERENTIAL TRADE AGREEMENTS 79STRATEGIC DECISION MAKING IN GLOBAL MARKETINGSixty Years of Trade Negotiation000200010270740623Between 1947 and 1994, the member countries of GATTcompleted eight rounds of multilateral trade negotiations.Tariffs have been reduced from an average of 40 percent in 1945to 5 percent today. The result has been a tremendous growth intrade: In the three decades from 1945 to 1975, the volume ofworld trade expanded by roughly 500 percent. The seventh roundof negotiations was launched in Tokyo and ran from 1973 to1979. These talks succeeded in cutting duties on industrialproducts valued at $150 billion by another 30 percent so that theremaining tariffs averaged about 6 percent. In terms of agriculturaltrade, there was a standoff between the United States, Europe,and Japan. The confrontation pitted the interests of the Americanfarm lobby against the equally politically powerful farmers ofEurope and Japan. Deep-rooted differences resulted in littlechange in the agricultural area during the Tokyo round. The mostnotable feature of the Tokyo round was not the duty cuts, butrather a series of nine new agreements on nontariff trade barriers.GATT officials also devoted considerable attention to theservices industry, addressing market-entry barriers in banking,insurance, telecommunications, and other sectors. The servicesissue was so contentious that the opening of the Uruguay roundwas delayed from 1982 until 1986. In addition to trade in services,these negotiations revisited the issue of nontariff measures thatrestrict or distort trade, including agricultural trade policy, intellectualproperty protection, and restrictions on foreign investment.Agricultural subsidies and quotas that developed outside themultilateral framework remain a divisive issue. Critics argue thattrade patterns are distorted when affluent countries protect andsubsidize farm production. While home-market consumers payhigher prices, surplus output is sold abroad at artificially low prices.According to the Organization for Economic Cooperation andDevelopment, in the mid-1990s, the total cost of these subsidies torich-country taxpayers and consumers was more than $200 billion ayear. Critics also believe that subsidies deny poor countries a naturalpath out of poverty, namely food exports. For example, in a 2002report, Oxfam International estimated that U.S. cotton subsidies costcotton farmers in Africa $300 million in lost exports each year.The Uruguay negotiations were suspended in December 1990after 30,000 French farmers took to the streets of Brussels toprotest a proposed 30 percent cut in agricultural export subsidies.Negotiations resumed a few months later against the backgroundof the united Western war effort in the Persian Gulf War. Negotiatorsfinally succeeded in reaching an agreement by the December 15,1993, deadline. A stalemate over agricultural subsidies was broken,with France and the EU nations agreeing to reductions. The U.S.Congress voted in favor of GATT at the end of 1994.Competitive companies will benefit as tariffs are cut oreliminated entirely. The Triad nations agreed to end tariffs inpharmaceuticals, construction and agricultural equipment,Scotch whisky, furniture, paper, steel, and medical equipment.Also, U.S. restrictions on textile and apparel imports from developingcountries were phased out over a 10-year period. Majorissues remain unresolved in the entertainment industry; Francehas insisted on preferences and subsidies for French producers oftelevision programming and motion pictures in order to limitwhat they feel is “cultural imperialism.” Talks aimed at reducingEuropean broadcast restrictions on U.S.-produced movies andtelevision programming were unsuccessful.Efforts to break the deadlock over agriculture have met withsome success. For one thing, the EU’s Common Agricultural Policy(CAP) is distinctly different than it was two decades ago. In 1999, EUgovernments agreed on Agenda 2000 reforms that have resulted inprice support reductions and increased attention to environmentalissues. In 2003, the EU undertook further reform of CAP bydecoupling agricultural income support from production. In 2004,Brazil successfully challenged the EU sugar regime at the WTO. In2005, the EU proposed cutting subsidies for agricultural exports; italso agreed to cut sugar subsidies by 36 percent over a four-yearperiod. Meanwhile, industry trade groups such as the Committee ofProfessional Agriculture Organizations and the General Confederationof Agricultural Cooperatives (COPA-COGECA) in the EUare steadfast in their efforts to serve the interests of farmers andprovide input to policymakers; COPA-COGECA also is an advocatefor sustainable development and related issues.For its part, the U.S. government has proposed cappingsubsidies at a maximum of $250,000 per farmer per year. In 2005,the WTO ruled in favor of Brazil’s challenge to U.S. cotton subsidies;meanwhile, a grassroots anti-subsidy movement is gaining traction.As Jerry Moran, a Republican congressman from Kansas, told theWall Street Journal, “There are a growing number of people whowant to weigh in on farm policy. They care about Africa. They careabout the environment. They care about nutrition.”Sources: Alan Beattie, “Weight of Expectation Buries Deal,” FinancialTimes (July 25, 2006), p. 2; Scott Killman and Roger Thurow, “Pork Chops:In Fight Against Farm Subsidies, Even Farmers Are Joining Foes,” The WallStreet Journal (March 14, 2006), pp. A1, A16; Keith Bradsher, “Trade TalksNow Expected to Focus on Exports of Poorest Nations,” The New YorkTimes (December 12, 2005), pp. C1, C3; Noelle Knox, “French RallyAround Farmers at WTO Talks,” USA Today (November 30, 2005), p. 5B;Scott Miller, “Trade Talks Twist in the Wind,” The Wall Street Journal(November 8, 2005), pp. A14, A15; Shailagh Murray, “Subsidies ShackleEU Competitiveness,” The Wall Street Journal (October 28, 1996), p. A13;“GATT’s Last Gasp,” Economist (December 1, 1990), p. 16; Joseph A.McKinney, “How Multilateral Trade Talks Affect the U.S.,” Baylor BusinessReview (Fall 1991), pp. 24–25; Bob Davis, “Squeaky Wheels: GATT TalksResume, with France and India Calling Many of the Shots,” The Wall StreetJournal (January 31, 1992), pp. A1, A13; “Free Trade’s Fading Champion,”Economist (April 11, 1992), p. 65; Davis and Lawrence Ingrassia, “TradeAcceptance: After Years of Talks, GATT Is at Last Ready to Sign Off On aPact,” The Wall Street Journal (December 15, 1993), pp. A1, A7.and relatively high receptivity to innovations and new ideas both in consumer and industrialproducts. The United States is home to more global industry leaders than any other nation in theworld. For example, U.S. companies are the dominant producers in the computer, software, aerospace,entertainment, medical equipment, and jet engine industry sectors.Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.
80 PART 2 • THE GLOBAL MARKETING ENVIRONMENTIn 1988, the United States and Canada signed a free trade agreement (U.S.-Canada Free TradeAgreement, or CFTA); the Canada-U.S. Free Trade Area formally came into existence in 1989.This helps explain the fact that more than $400 billion per year in goods and services flowsbetween Canada and the United States, the biggest trading relationship between any two singlenations. Canada takes 20 percent of U.S. exports and the United States buys approximately85 percent of Canada’s exports. Figure 3-1 illustrates the economic integration of North America:Canada is the number one trading partner of the United States, Mexico is second, and China ranksthird. American companies have more invested in Canada than in any other country. Many U.S.manufacturers, including GE and IBM, use their Canadian operations as major global suppliers forsome product lines. By participating in the Canadian auto market, U.S. automakers gain greatereconomies of scale. The CFTA, which was fully implemented when all duties were eliminatedeffective January 1998, is creating a true continental market for most other products.In 1992, representatives from the United States, Canada, and Mexico concluded negotiationsfor the North American Free Trade Agreement (NAFTA). The agreement was approved by bothhouses of the U.S. Congress and became effective on January 1, 1994. The result is a free tradearea with a combined population of roughly 430 million and a total GNI of almost $14 trillion (seeTable 3-4 and Figure 3-2).Why does NAFTA create a free trade area as opposed to a customs union or a commonmarket? The governments of all three nations pledge to promote economic growth through tariffFIGURE 3-1U.S. Trade Partners2008Source: U.S. Bureau of theCensus, www.census.gov.CanadaMexicoChinaJapanGermanyUnited KingdomNetherlandsSouth KoreaBrazilFranceTotal U.S. 2008 Goods Exports $1.27 trillion261.4151.571.566.654.753.840.234.832.929.2ChinaCanadaMexicoJapanGermanyUnited Kingdom0 100 200 300 400Billions of dollarsTotal U.S. 2008 Goods Imports $2.1 trillion337.8335.6215.9139.297.658.6Saudi ArabiaVenezuelaSouth KoreaFrance54.851.448.1440 100 200 300 400Billions of dollars000200010270740623Global 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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