espond to Critical Thinking and Discussion Question 9 in Chapter 9.
To successfully complete this discussion board, the student is to make two postings. The postings are to be made early enough to allow for comments from other students. (10 points maximum)
First posing: Your initial response to the discussion board questions
Second posting: Response to another student’s initial response to the discussion board questions
first post:qustion9. Read the Management Focus feature in this chapter, in the world economy? “NAFTA’s Tomato Wars,” then answer the following questions:
∙ Was the establishment of a minimum floor price for
tomatoes consistent with the free trade principles
enshrined in the NAFTA agreement?
∙ Why, despite the establishment of a minimum floor
price, have imports from Mexico grown over the years?
∙ Who benefits from the importation of tomatoes grown
in Mexico? Who suffers?
∙ Do you think that Mexican producers were dumping
tomatoes in the United States?
∙ 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?
∙ What do you think will be the impact of the new higher floor price? Who benefits from the higher floor price? Who suffers?
∙ What do you think is the optimal government policy response here? Explain your answer.
second post(reply to a student):1. Was the establishment of a minimum floor price for tomatoes consistent with the free trade principles enshrined in NAFTA?
NAFTA’s free-trade principles seek to encourage free trade between Canada, the United States and Mexico to improve competitiveness and benefit manufacturers and consumers. The principles of free trade aim to eliminate tariff and non-tariff barriers to free trade. Setting a floor price is now a clear violation of the free trade principles enshrined in NAFTA. That’s because the floor serves as a nontariff barrier designed to limit Mexico’s competitive advantage and protect Florida tomato producers.
2. Why despite the establishment of a minimum floor price have imports from Mexico grown over the years?
Despite the floor price, tomato imports from Mexico are growing for several reasons. First, Mexican producers were able to supply tomatoes at a set floor price because their production costs were low, thanks to low wages in Mexico. Second, tomatoes grown in Mexico are of better quality than those grown in Florida. The weather in Mexico is good for growing tomatoes. In Florida, tomatoes are treated with gas to make them turn green when they are picked.
3. Who benefits from the importation of tomatoes grown in Mexico? Who suffers?
American business and trade groups that produce tomatoes in Mexico will benefit because they can import cheap tomatoes from Mexico and sell them in the United States at higher prices. Suppliers of raw materials to the tomato industry, such as seeds or agricultural equipment, also benefit. As far as victims are concerned, American tomato producers, mainly in Florida, are at a disadvantage. That is because their output is less competitive in quality and price than Mexico’s. Tomato imports from Mexico have reduced demand for Florida-grown tomatoes, hurting Florida growers’ business.
4. Do you think that Mexican producers were dumping tomatoes in the U.S.?
No, I don’t think Mexican producers are dumping tomatoes in the United States. With low wages, favorable weather and lax environmental regulations, they are simply taking advantage of their competitive position in the field. Dumping occurs when Mexican growers sell tomatoes in the United States for less than Mexican prices.
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?
Yes, the Commerce Department is right. The facts and evidence of the case clearly show that Mexico did not dump tomatoes on the United States. Therefore, mofcom is unlikely to bring an anti-dumping action. Florida growers would benefit from an anti-dumping lawsuit. As far as the victims are concerned, Mexican growers, us businesses and trading groups that are involved in the production of tomatoes in Mexico and supply the industry with raw materials, such as seeds or suppliers of agricultural equipment, will suffer.
6. What do you think will be the impact of the new higher floor price? Who benefits from the higher floor price? Who suffers?
A higher base price of 31 cents a pound would benefit Florida growers by making prices more competitive on the market. They will have an extra cushion, provided by a rise in floor prices. Higher minimum prices will reduce Mexican exports to some extent. Mexican exporters will now be unable to sell below 31 cents a pound, so they will lose some of their competitive edge.
7. What do you think is the optimal government policy response here? Explain your answer.
The government’s best policy response should be to remove all forms of barriers. At present, China has set up non-tariff barriers in the form of floor prices. Even so, we should eliminate this in order to achieve true free trade. If allowed, Florida growers would be forced to improve their competitiveness in the market. At the moment they are reluctant to do so because floor price protections are limited.