Nontariff Barriers. In addition to elimination of tariffs, Mexico will eliminate nontariff barriers and other trade-distorting restrictions. U.S. exporters will benefit immediately from the removal of most import licenses that have acted as quotas essentially limiting the importation of products into the Mexican market. NAFTA also eliminates a host of other Mexican barriers such as local content, local production, and export performance requirements that have limited U.S. exports.
Rules of Origin. NAFTA reduces tariffs only for goods made in North America. Tough rules of origin will determine whether goods qualify for preferential tariff treatment under NAFTA. Rules of origin are designed to prevent ―free riders‖ from benefiting through minor processing or transshipment of non-NAFTA goods. For example, Japan could not assemble autos in Mexico and avoid U.S. or Canadian tariffs and quotas unless the auto had a specific percentage of Mexican (i.e., North American) content. For goods to be traded duty free, they must contain substantial (62.5 percent) North American content. Since NAFTA rules of origin have been strengthened, clarified, and simplified over those contained in the U.S.-Canada Free Trade Agreement, they supersede the CFTA rules. Customs Administration. Under NAFTA, Canada, Mexico, and the U.S. have agreed to implement uniform customs procedures and regulations. Uniform procedures ensure that exporters who market their products in more than one NAFTA country will not have to adapt to multiple customs procedures. Most procedures governing rules of origin documentation record keeping, and origin verification will be the same for all three NAFTA countries. In addition, the three will issue advanced rulings, on request, on whether or not a product qualifies for tariff preference under the NAFTA rules of origin. Investment. NAFTA will eliminate investment conditions that restrict the trade of goods and service to Mexico. Among conditions eliminated are the requirements that foreign investors export a given level or percentage of goods or services, use domestic goods or services, transfer technology to competitors, or limit imports to a certain percentage of exports.
Services. NAFTA establishes the first comprehensive set of principles governing services trade. U.S. and Canadian financial institutions are permitted to open wholly owned subsidiaries in Mexico, and all restrictions on the services they offer will be lifted by the year 2000. U.S. and Canadian trucking companies are able to carry international cargo into Mexican border states and, by 1999, they will be able to truck throughout Mexico. Intellectual Property. NAFTA will provide the highest standards of protection of intellectual property available in any bilateral or international agreement. The agreement covers patents, trademarks, copyrights, and trade secrets, semiconductor integrated circuits, copyrights for North American movies, computer software, and records. Government Procurement. NAFTA guarantees businesses fair and open competition for procurement in North America through transparent and predictable procurement procedures. In Mexico, Pemex (national oil company), CFE (national electric company), and other government-owned enterprises will be open to U.S. and Canadian suppliers. Standards. NAFTA prohibits the use of standards and technical regulations used as obstacles to trade. However, NAFTA provisions do not require the United States or
Canada to lower existing health, environmental, or safety regulations, nor does NAFTA require the importation of products that fail to meet each country’s health and safety standards.
9. For each regional trade group—EC, NAFTA, AFTA, ASEAN+3 and Mercosur—cite which of
the factors for success are the strongest and which are the weakest. Discuss each factor.
Students will have different responses to this question. The important point is if they realize the importance of the different factors on the ultimate success of any regional trade group. In most cases, there are cultural, social, economic, political and ever, geographical differences among country members. The critical point is if their commitment to economic integration is sufficiently strong to allow them to deal with the differences that will arise as a result. Each response to this question will be different. For what it is worth, the author would rank them as follows:
EC NAFTA AFTA MERCOSUR POLITICAL S W to S S, S to W ECONOMIC S to W W to S S W to S SOCIAL S S to W W to S S GEOGRAPHIC S S W to S S
10. What is the motive behind ASEAN+3 and what are the probable implications for global
trade?
One result of the Asian financial crisis of 1997–98 was the creation of ASEAN+3 (ASEAN plus China, Japan and South Korea), to deal with trade and monetary issues facing Asia. Most East Asia felt that they were both let down and put upon by the West who they felt created much of the crisis by pulling out in the midst of the crisis. It was felt that the leading financial powers either declined to take part in the rescue operations, as the US did in Thailand, or that they proposed unattainable solutions. The result was the creation of ASEAN+3,1 consisting of the foreign and finance ministers of each country, which meets annually after ASEAN meetings. Their first meeting was devoted to devising a system whereby they share foreign exchange reserves to defend their currencies against future attack. While still only tentative, there was also discussion among the members of ASEAN+3 of creating a common market and even a single currency or, perhaps, a new Asian entity encompassing both Northeast and Southeast Asia.2 Closer links between Southeast Asia and Northeast Asia is seen as a step towards strengthening Asia’s role in the global economy and the creation of a global three-block configuration.3
11. Discuss the economic and trade importance of the big emerging markets.
The Department of Commerce estimates that over 75 percent of the expected growth in the world trade over the next two decades will come from the more than 130 developing and newly industrialized countries (NICs). There is a small core of these that will account for over half of that growth. They predict that the countries identified as Big Emerging Markets (BEMs) alone will be a bigger import market by the end of this decade than the European Union and by the year 2010, will be importing more than the EU and Japan combined.
The BEMs differ from other developing countries because they import more than smaller markets an more than economies of similar size. As they embark on economic development, demand for capital goods to build their manufacturing base and develop infrastructure increases. Increased economic activity means more jobs and more income to spend on products not yet produced locally. Thus, as their economies expand, there is an accelerated growth in demand for goods and services, much of which must be imported. BEM merchandise imports are expected to be nearly one trillion dollars higher than they were in 1990; if services are added, the amount jumps beyond one trillion dollars.
12. What are the traits of those countries considered to be big emerging markets? Discuss Those BEMs, as the Department of Commerce refers to them, share a number of important traits: They are all physically large; have significant populations; represent considerable markets for a wide range of products; all have strong rates of growth or the potential for significant growth have all undertaken significant problems of economic reforms; are all of major political importance within their regions; are ―regional economic drivers;‖ will engender further expansion in neighboring markets as they grow.
While these criteria are general ion nature and each country does not meet all the criteria, the Department of Commerce has identified the following BEMs. In Asia: China, Indonesia, India, and South Korea. In Latin America: Mexico, Argentina, and Brazil. In Africa: South Africa. In Central Europe: Poland. In Southern Europe: Turkey. Vietnam, Thailand, Venezuela, and Columbia may warrant inclusion in the near future. The list is fluid in that some countries will drop off while others will be added as economic conditions change. The message is clear, the Department of Commerce is focusing on countries that demonstrate the greatest potential for growth.
Chapter 3History and Geography: The Foundation of Culture
2. Why study geography in international marketing? Discuss.
Geography is a study of the physical characteristics of a particular region of the earth. Involved in this study are climate, topography, and population. The interaction of the physical characteristics is one of the principal determinants of a country’s customs, products, industries, needs, and methods of satisfying those needs.
Marketing is concerned with satisfying the needs of people. International marketing seeks out the whole world as its marketplace. Therefore, for an international marketer to know how to satisfy the needs of the international market, he must be familiar enough with geography to know what the various causal factors of the people’s needs are. He must know that various climates and topographies do exist and that they are vital in shaping the
marketing plans that an international marketer must make. As an example, a producer selling machinery in the tropics would have to realize that special protection is needed to keep a machine running properly in hot and humid climates. 3.
Why study a country’s history? Discuss
History helps define a nation’s ―mission,‖ how it perceives its neighbors, how it sees its place in the world, and how it sees itself. Insights into the history of a country are important for understanding attitudes about the role of government and business, the relations between managers and the managed, the sources of management authority, and attitudes toward foreign corporations.
To understand, explain, and appreciate a people’s image of itself and the attitudes and unconscious fears that reflected in its view of foreign cultures, it is necessary to study the culture as it is now as well as to understand the culture as it was—that is, a country’s history. Unless you have a historical sense of the many changes that have buffeted Japan—seven centuries under the shogun feudal system,i the isolation before the coming of Admiral Perry in 1853, the threat of domination by colonial powers,ii the rise of new social classes, Western influences, the humiliation of World War II, and involvement in the international community—it is difficult to fully understand its contemporary behavior.
Loyalty to family, to country, to company, and to social groups and the strong drive to cooperate, to work together for a common cause, permeate many facets of Japanese
behavior and have historical roots that date back thousands of years. Loyalty and service, a sense of responsibility, and respect for discipline, training, and artistry have been stressed since ancient times as necessary for stability and order. Confucian philosophy, taught throughout Japan’s history, emphasizes the basic virtue of loyalty ―of friend to friend, of wife to husband, of child to parent, of brother to brother, but, above all, of subject to lord,‖ that is, to country. A fundamental premise of Japanese ideology reflects the importance of cooperation for the collective good. Japanese achieve consensus by agreeing that all will unite against outside pressures that threaten the collective good. A historical perspective gives the foreigner in Japan a basis on which to begin developing cultural sensitivity and a better understanding of contemporary Japanese behavior.
4.
How does an understanding of history help an international marketer?
1. To understand, explain, and appreciate a people’s image of itself and the fundamental attitudes and unconscious fears that are often reflected in its view of foreign cultures, it is necessary to study the culture as it is now as well as to understand culture as it was, that is, a country’s history. An awareness of the history of a country is particularly effective for understanding attitudes about the role of government and business, the relations between managers and the managed, the sources of management authority, and attitudes toward foreign MNC’s. History is what helps define a nation’s ―mission,‖ how it perceives its neighbors, and how it sees its place in the world. To understand a country’s attitudes, prejudices, and fears it is necessary to look beyond the surface or current events to the inner subtleties of the country’s entire past for clues.
2. 5. Why is there a love/hate relationship between Mexico and the United States? Discuss.
A crucial element in understanding any nation’s business and political culture is the subjective perception of its history. To a Mexican, the United States is seen as a threat to their political, economic, and cultural independence. To most citizens in the United States, the causes for such feelings are a mystery. After all, the U.S. has always been Mexico’s ―good neighbor.‖ Most would agree with President Kennedy’s proclamation during a visit to Mexico, ―Geography has made us neighbors, tradition has made us friends.‖ North Americans may be surprised to learn that most Mexicans felt it more accurate to say, ―Geography has made us closer, tradition has made us far apart.‖
North Americans feel they have been good neighbors. They see the Monroe Doctrine as protection for Latin America from European colonization and the intervention of Europe in the governments of the Western Hemisphere. Latin Americans tend to see the Monroe Doctrine as an offensive expression of U.S. influence in Latin America. Or to put it
another way, ―Europe keep your hands off, Latin American is only for the United States.‖
3.
United States Marines sing with pride of their exploits ―form the Halls of Montezuma to the shores of Tripoli.‖ To the Mexican, the ―Halls of Montezuma‖ is remembered as U.S. troops marching all the way to the center of Mexico City and extracting as tribute 890,000 square miles that included Texas, New Mexico, Arizona and California. Most U.S. citizens probably do not know of the boy heroes of Chaptultepec Park but every Mexican can recount the heroism of ―Los Ninos Heroes,‖ and the loss of Mexican territory to the United States.
4. 6. Some say the global environment is a global issue rather than a national one. What does
this mean? Discuss.
Many view the problem as a global issue rather than a national one. One report on the global environment stressed . . . ―it is quite clear that a number of critical problems—the threat to the ozone layer, the greenhouse effect, the loss of biodiversity, and ocean pollution—cannot be addressed by nations in isolation.‖
Companies looking to build manufacturing plants in countries with more liberal pollution regulations than they have at home are finding that regulations everywhere are becoming stricter. Many Asian governments are drafting new regulations and strictly enforcing existing ones. A strong motivator for Asia and the rest of the world is the realization that pollution is on the verge of getting completely out of control.
Neither Western Europe nor the rest of the industrialized world are free of environmental damage; rivers are polluted and the atmosphere in many major urban areas is far from clean. The very process of controlling industrial wastes leads to another and perhaps equally critical issue: the disposal of hazardous waste, a by-product of pollution control. Estimates of hazardous wastes collected annually exceed 300 million tons; the critical question is disposal that does not move the problem elsewhere.
The business community is responding positively to the notion that the focus must be on the global environment rather than ―the quality of the air, land, and water in our own
backyards.‖ An International Chamber of Commerce Industry Forum on the environment reflected a shift in company attitudes toward environmental issues away from a reactive and largely defensive stance to a proactive and constructive approach. Some skeptics may