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 1 of 1 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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