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Global Business Today Eleventh Edition Chapter 9
9-14
American in order to qualify for zero tariffs. In addition, it requires that 40 percent of parts for
1535751028.
Did You Know Video Clip
The video clip asks: “Did you know NAFTA was thought to produce a giant sucking sound?”
1. What did Ross Perot mean by the “giant sucking sound” that would occur after NAFTA?
2. What must one consider to determine if NAFTA was beneficial to the U.S.?
3. Did NAFTA actually result in U.S. job losses? What are some other reasons for a loss of jobs?
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CONNECT
Video Case
NAFTA
CONNECT
Video Case
Toyota’s van Zyl on USMCA Deal, Brexit, Electric Vehicles
Summary
This activity explores regional economic integration and specifically revisions to NAFTA and
successful in achieving its stated goals. By the mid-1980s, the Andean Pact had more or less
failed. However, in the late 1980s, Latin American governments began to adopt free-market
economic policies, and in 1990, the Andean Pact was relaunched. The renamed Andean
Community now operates as a customs union, and in 2003, it signed an agreement with
Mercosur to restart negotiations towards the creation of a free trade area between the two trading
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MERCOSUR
I) Mercosur originated in 1988 as a free trade pact between Brazil and Argentina. In 1990, it
was expanded to include Paraguay and Uruguay. In 2006, Venezuela joined the bloc, although it
Nicaragua) and CARICOM (includes the English-speaking countries of the Caribbean),
although neither has made much progress as yet.
K) In 2005, an agreement was reached between the United States and the members of the Central
American Common Market. The agreement, known as the Central American Free Trade
Agreement (CAFTA), is designed to lower trade barriers between the United States and the six
associated with economic integration.
Activity
Students are asked to match various examples of regional economic integration with the correct
description.
Class Discussion
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CONNECT
Click and Drag
REI in the Americas
2015. In 2010, ASEAN signed a new free trade agreement with China to remove tariffs on 90
percent of traded goods.
REGIONAL TRADE BLOCS IN AFRICA
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President Trump, the U.S has pulled out of the Trans Pacific Partnership (TPP) and the
Transatlantic Trade and Investment Partnership (TTIP) has been put on hold.
FOCUS ON MANAGERIAL IMPLICATIONS
locations where the mix of factor costs and skills is optimal. Through specialization and the
shipping of goods between locations, a much more efficient web of operations can be created.
D) On the other hand, even after the removal of barriers to trade and investment, enduring
differences between nations in culture and competitive practices often limit the ability of
companies to realize cost economies by centralizing production in key locations and producing a
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1. NAFTA produced significant net benefits for the Canadian, Mexican, and U.S. economies.
Discuss.
2. What are the economic and political arguments for regional economic integration? Given these
arguments, why don’t we see more substantial examples of integration in the world economy?
3. What in general was the effect of the creation of a single market and a single currency within
the EU on competition within the EU? Why?
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4. Do you think it is correct for the European Commission to restrict mergers between American
companies that do business in Europe? (For example, the European Commission vetoed the
proposed merger between WorldCom 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 sovereign debt crisis in the EU? What does this crisis
tell us about the weaknesses of the euro? Do you think the euro will survive the sovereign debt
crisis?
6. How should a U.S. firm that currently only exports 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?
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8. After a promising start, Mercosur, the major Latin American trade agreement, has faltered and
made little progress since 2000. What problems are hurting Mercosur? What can be done to
solve these problems?
Exercise 1
Search phrase: Regional Trade Agreements
Resource Name: World Trade Organization: Regional Trade Agreements
Global Business Today Eleventh Edition Chapter 9
Exercise 2
Search phrase: COMESA
Resource Name: COMESA: Introduction
Website: http://www.comesa.int
globalEDGE™ Category: Trade Blocs: COMESA
1. Why are African countries more likely to trade with Europe and America than they are with
each other?
2. What are the likely gains from trade to be had from TFTA if it is fully implemented as a
common market?
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Continuous Case Concept
A major point of contention in the KOREU Free Trade agreement that went into effect in 2011
between South Korea and the European Union was its impact on the auto industry, and especially
on South Korean automakers. Hyundai Motor India for example, was worried that competition
from its parent company could threaten sales in Europe. Europe is one of India’s largest export
markets for cars, and Hyundai Motor India relies on the market for over half of its sales.
• Ask students to consider the implications of trade agreements like the one between South
Korea and the European Union. How can companies avoid being shut out of large
markets like the European Union? Hyundai Motor India claimed that it would be virtually
impossible for it to compete in Europe if the free trade agreement were implemented.
• Next, consider the benefits for companies like Hyundai of operating in the European
Union or NAFTA/USMCA countries instead of individual markets. How does a single
market environment affect issues such as product pricing, or the location of
manufacturing? Should Hyundai Motor India consider shifting production to Europe?
• Finally, while most of the world’s major players in the auto industry already have a
presence in both North America and the European Union, consider what a common set of
external trade policies means to companies like Hyundai Motor India that want to enter
these markets. How does it affect the cost and choice of entry mode? What does it mean
in terms of risk?
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Additional Readings and Sources of Information
Africa’s big new free trade agreement, explained
https://www.washingtonpost.com/news/monkey-cage/wp/2018/03/29/the-countdown-to-the-
african-continental-free-trade-area-starts-now/?utm_term=.49412caab3c3
