MGT 323 SEU The NAFTA Tomato Wars Case Study

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College of Administrative and Financial Sciences Assignment 2 Deadline: 20/11/2021 @ 23:59 Course Name: Introduction to International Business Student’s Name: Course Code: MGT-321 Student’s ID Number: Semester: I CRN: Academic Year: 1442/1443 H For Instructor’s Use only Instructor’s Name: Students’ Grade: Marks Obtained/Out of Level of Marks: High/Middle/Low Instructions – PLEASE READ THEM CAREFULLY • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT be accepted. Assignment Regulation: • All students are encouraged to use their own word. • Assignment -2 should be submitted on or before the end of Week-11 in Black Board only. • This assignment is an individual assignment. • Citing of references is also necessary. Assignment Structure: A.No Assignment-2 Total Type Critical Thinking Marks 5 5 Learning Outcomes: • Discuss the reasons for and methods of governments’ intervention in trade (Lo 1.2) • Identify and evaluate the significant trade agreements affecting global commerce (Lo 1.1) • Carry out effective self-evaluation through discussing economic systems in the international business context (Lo. 3.1) Critical Thinking Read the Management Focus on, “NAFTA’s Tomato Wars,” available in your e-book (page no. 620), and answer the following questions: Assignment Question(s): (Marks: 5) 1. Do you think that Mexican producers were dumping tomatoes in the United States? Discuss. (mark:1) 2. Was the Commerce Department right to establish a new minimum floor price rather than scrap the agreement and file an antidumping suit? Who would have benefited from an antidumping suit against Mexican tomato producers? Who would have suffered? (marks:3) 3. What do you think is the optimal government policy response here? Explain your answer. (mark:1) Answer: 1. 2. 3. &&&& The NAFTA Tomato Wars When the North America Free Trade Agreement (NAFTA) went into effect in December 1992 and tar-iffs on imported tomatoes were dropped, U.S. tomato producers in Florida feared that they would lose busi-ness to lower-cost producers in Mexico. So they lobbied the government to set a minimum floor price for toma-toes imported from Mexico. The idea was to stop Mexican producers from cutting prices below the floor to gain share in the U.S. market. In 1996, the United States and Mexico agreed on a basic floor price of 21.69 cents a pound. At the time, both sides declared themselves to be happy with the deal. As it turns out, the deal didn’t offer much protection for U.S. tomato growers. In 1992, the year before NAFTA was passed, Mexican producers ex-ported 800 million pounds of tomatoes to the United States. By 2011, they were exporting 2.8 billion pounds of tomatoes, an increase of 3.5-fold. The value of Mexican tomato exports almost tripled over the same period, to $2 billion. In contrast, tomato production in Florida has fallen by 41 percent since NAFTA went into effect. Flor-ida growers complained that they could not compete against low wages and lax environmental oversight in Mexico. They also alleged that Mexican growers were dumping tomatoes in the U.S. market at below the cost of production, with the goal of driving U.S. producers out of business. In 2012, Florida growers petitioned the U.S. Depart-ment of Commerce to scrap the 1996 minimum price agreement, which would then free them up to file an anti-dumping case against Mexican producers. In September 2012, the Commerce Department announced a prelimi-nary decision to scrap the agreement. At first glance, it looked as if the Florida growers were going to get their way. It soon became apparent, however, that the situation was more complex than appeared at first glance. More than 370 business and trade groups in the United States—from small family-run importers to meat and vegetable producers and Wal-Mart Stores—wrote or signed letters to the Commerce Department in favor of continuing the 1996 agreement. Among the letter writers was Kevin Ahern, the CEO of Ahern Agribusiness in San Diego. His company sells about $20 million a year in tomato seeds and trans-plants to Mexican farmers. In a letter sent to The New York Times, Ahern noted that “yes, Mexico produces their tomatoes on average at a lower cost than Florida; that’s what we call competitive advantage.” Without the agreement Ahern claimed that his business would suf-fer. Another U.S. company, NatureSweet Ltd., grows cherry and grape tomatoes under 1,200 acres of green-houses in Mexico for the American market. It employs 5,000 people, although all but 100 work in Mexico. The CEO, Bryant Ambelang, said that his company couldn’t survive without NAFTA. In his view, Mexican-grown tomatoes were more competitive because of lower labor costs, good weather, and more than a decade of invest-ment in greenhouse technology. In a similar vein, Scott DeFife, a representative of the U.S. National Restau-rant Association, stated, “people want tomato-based dishes all the time. . . . You plan over the course of the year where you are going to get your supply in the win-ter, spring, fall.” Without tomatoes from Mexico, a win-ter freeze in Florida, for example, would send prices shooting up, he said. Faced with a potential backlash from U.S. importers, and from U.S. producers with interests in Mexico, the Commerce Department pulled back from its initial con-clusion that the agreement should be scrapped. Instead, in early 2013, it reached an agreement with Mexican grow-ers to raise the minimum floor price from 21.69 cents a pound to 31 cents a pound. The new agreement also es-tablished even higher prices for specialty tomatoes and tomatoes grown in controlled environments. This was clearly aimed at Mexican growers, who have invested bil-lions to grow tomatoes in greenhouses. Florida tomatoes are largely picked green and treated with gas to change their color.
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College of Administrative and Financial Sciences

Assignment 2
Deadline: 20/11/2021 @ 23:59
Course Name: Introduction to
International Business

Student’s Name:

Course Code: MGT-321

Student’s ID Number:

Semester: I

CRN:
Academic Year: 1442/1443 H

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out
of

Level of Marks: High/Middle/Low

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United States-Mexico Tomato Trade
Answer Question One
There has been an extended tomato trade dispute between Mexico and the United States;
this dispute began when Mexico started tomato production and exported them to the United States
in the 1960s (Devadoss et al., 2020). The tomato exports in Mexico continued to expand after the
Mexican peso devaluation of 1994, the implementation of NAFTA, the technological advancement
which extended the shelf life of vine-ripened tomatoes, and the glasshouse production. According
to Devadoss et al. (2020), between 1994 and 1996, the tomato exports from Mexico to the United
States increased by 93%, which led to an increase in supply, which in result the United States
production decreased at a rate of 21%, and a 20% decrease in the United States producer price.
Due to the increase in tomato exports in Mexico, they became the second most treasured
agricultural product (Devadoss et al., 2020). Therefore, the Mexican producers were not dumping
tomatoes in the United States; they were taking control of their competitive superiority in the
market. Dumping can only happen when the Mexican producers sell tomatoes to the United States
at a lower price than the Mexican prices (Devadoss et al., 2020), which is not the case.
Answer Question Two
The Commerce Department is right to establish a new minimum floor price, rather than
scrap the agreement and file an anti-dumping suit, due to the facts and the evidence which shows
that Mexican producers are not dumping any tomatoes in the United States. Therefore, an antidumping action cannot take place (Devadoss et al., 2020). In 1996, the Mexican producers and the
United States government signed a Suspension agreement contract. This contract suspended the
anti-dumping inspection and launched a floor price for the tomatoes to be imported in the United

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States from Mexico. Devadoss et al. (2020), the Mexican producers, and the United States
government signed this agreement as a bargain between free trade and conducting a detailed
inspection of the tomato dumping allegations and free trade, where the free trade price is slightly
lower than the minimum import price. When the United States tried to withdraw from the
Suspension Agreement and relaunch the anti-dumping inspection in 2012, Mexico reacted to that
by announcing the implementation a $1.9 billion cost of retributory tariffs if the US went ahead to
apply the anti-dumping duties. As a result of this, in 2013, the United States and Mexico signed a
new contract that considerably raised the minimum price (Devadoss et al., 2020), covered all types
of tomatoes, and applied different minimum rates for each of these tomatoes which brought all the
Mexican producers into the floor price. Unlike the previous agreement, where only 85% of the
producers were subjected to the minimum price. According to Villarreal et al. (2020), on January
29, 2020, the United States president and the Mexican and Canadian leaders signed a contract
known as the United States Mexico–Canada Agreement (USMCA). In July, the agreement was
fully implemented, which modernized and replaced the NAFTA (North American Free Trade
Agreement). The previous Suspension Agreement limited Mexican exports, which gained a lot in
the United States (Villarreal et al., 2020).
In the United States, the floor prices benefit the producers. Still, they harm the consumers,
which causes a net welfare loss that increases because the United States government does not gain
any revenues from...


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