Regional Economic Integration Chapter 9
283
proposed merger between World Com and Sprint
both U.S.companies, and it carefully reviewed
the merger between AOL and Time Warner
again both U.S. companies.)
5. What were the causes of the 2010-2012 sover
eien debt crisis in the EU What does this
crisis tell us about the weaknesses of the curo?
Do you think the euro will survive the sover-
eign dei crisis?
6. How should a U.S.firm that currently exports
only to ASEAN countries respond to the creation
of a single market in this regional grouping?
7. How should a firm with self-sufficient production
facilities in several ASEAN countries respond
to the creation of a single market? What are the
constraints on its ability to respond in a manner
that minimizes production costs?
8. After a promising start, Mercosur, the major
Latin American trade agreement, has faltered
and made little progress since 2000. What
problems are hurting Marcosur? What can
he done to solve these problems?
9. Would establishment of a Free Trade Area of the
Americas (FTAA) be good for the two mos ad.
Vanced economies in the hemisphere, the United
States and Canada How might the establish
ment of the FTAA affect the strategy of North
American fimms?
globalEDGE research task gabaltymu.
Use the globalEDGE website (globaledge.msu.edu) to
complete the following exercises
1. The World Trade Organization maintains a data
base of regional trade agreme You can search
this database to identify all agreements that a spe
cific country participates in Search the database
to identify the trade agreements that Japan cur-
rently purticipates in. What patterns do you see?
Which region for regions of the world does Japan
seem to be focusing on in its trade endeavors!
2. Your company has assigned you with the task of
investigating the various trade blocs in Africa to
see if your company can benefit from these teade
agreements while expanding into African mar
kets. The first trade bloc you come across is
COMESA. Prepare a short executive summary for
your company explaining the level of integration
the bloc has currently achieved the level it as
pires to accomplish, and the relationships it has
with other African trade blocs.
CLOSING CASE
Tomato Wars
When the North American Free
themselves to be happy with the
Trade Agreement (NAFTA) went
deal. As it turns out, the deal didn't
into effect in December 1992 and
offer much protection for US to-
tariffs on imported tomatoes were
mato growers. In 1992, the year be
dropped US, tomato producers in
fare NAFTA was passed. Mexican
Horida feared that they would lose
producers exported 800 million
business to lower-cost producers in
pounds of tomatoes to the United
Mexico. So they lobbied the gov
States. By 2011 they were exporting
ernment to set a minimum floor
2.8 billion pounds of tomatoes, an
price for tomatoes imported from
increase of 3.5-fold. The value of
Mexico. The idea was to stop Mexi
Mexican tomuto exports almost tri-
can producers from cutting prices Tomatoforming is an important business glob pled over the same period to $2 bil-
below the floor to gain share in the aly Tomatoes ongated in the South Amencantion. In contrast, omalo production
US market. In 1996 the Uniteddon by the south excin Horida has fallen by 41 percent
States and Mexico agreed on a basic
since NAFTA went into cffect
as a food
floor price of 21.69 cents a pound
Florida growers complained that
At the time, both sides declared
Samehe RadioGety Images
they could not compete against low
284
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Part 3
The Global Trade and Investment Environment
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
billions to grow tomatoes in greenhouses. Florida
tomatoes are largely picked green and treated with gas to
change their color
Sources: E. Malkin, "Mexico Finds Unlikely Allies in Trade Fight. The
New York Times December 25, 2012, p. BI: S. Strom. "United States and
Mexico Reach Tomato Deal. Averting a Trade War." The New York
Times, February 3, 2013: J. Margolis, "NAFTA 20 Years After: Florida's
Tomato Growers Struggling." The World, December 1, 2012.
wages and lax environmental oversight 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. Department of Com-
merce to scrap the 1996 minimum price agreement, which
would then free them up to file an antidumping case against
Mexican producers. In September 2012 the Commerce
Department announced a preliminary decision to scrap the
agreement. At first glance, it looked as if the Florida grow-
ers 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 Depart-
ment 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 transplants 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 suffer. Another U.S. com-
pany, NatureSweet Ltd., grows cherry and grape tomatoes
under 1,200 acres of greenhouses 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 investment in greenhouse technology. In a sim-
ilar vein, Scott DeFife, a representative of the U.S. National
Restaurant 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 winter,
spring, fall." Without tomatoes from Mexico, a winter
freeze in Florida, for example, would send prices shooting
up, he said. Faced with a potential backlash from U.S.
importers, and U.S. producers with interests in Mexico, the
Case Discussion Questions
1. Was the establishment of a minimum floor price for
tomatoes consistent with the free trade principles
enshrined in NAFTA?
2. Why despite the establishment of a minimum
floor price have imports from Mexico grown over
the years?
3. Who benefits from the importation of tomatoes
grown in Mexico? Who suffers?
4. Do you think that Mexican producers were dump-
ing tomatoes in the United States?
5. 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?
6. What do you think will be the impact of the new
higher floor price? Who benefits from the higher
floor price? Who suffers?
7. What do you think is the optimal government
policy response here? Explain your answer.
Endnotes
1. Information taken from World Trade Organization website and
current as of April 2012. www.wto.org
2. Ibid
3. The Andean Community has been through a number of changes
since its inception. The latest version was established in 1991. See
"Free Trade Free for All,"The Economist, January 4, 1991. p. 63,
4. D. Swann, The Economics of the Common Marker, 6th ed.
(London: Penguin Books, 1990).
5. See J. Bhagwati, "Regionalism and Multilateralism: An Over-
view," Columbia University Discussion Paper 603. Department
of Economics, Columbia University. New York: A. de la Torre
and M. Kelly, "Regional Trade Arrangements." Occasional
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