August 12, 1992, was a really bad day for John Martin. That was the day Canada, Mexico, and the United States announced an agreement in principle to form the North American Free Trade Agreement. Under the plan, all tariffs between the three countries would be eliminated within the next 10 to 15 years, with most being cut in 5 years. What disturbed John most was the plan's provision that all tariffs on trade of textiles among the three countries were to be removed within 10 years. Under the proposed agreement, Mexico and Canada would also be allowed to ship a specific amount of clothing and textiles made from foreign materials to the United States each year, and this quota would rise slightly over the first …show more content…
• How should a US firm that currently exports only to Western Europe respond to the creation of a single market?
• How should a firm with self-sufficient production facilities in several EU 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?
this chapter pursued three main objectives: to examine the economic and political debate surrounding regional economic integration; to review the progress toward regional economic integration in Europe, the Americas, and elsewhere; and to distinguish the important implications of regional economic integration for the practice of international business. This chapter made the following points:
1. A number of levels of economic integration are possible in theory. In order of increasing integration, they include a free trade area, a customs union, a common market, an economic union, and full political union.
2. In a free trade area, barriers to trade between member countries are removed, but each country determines its own external trade policy. In a customs union, internal barriers to trade are removed and a common external trade policy is adopted. A common market is similar to a customs union, except that a common market also allows factors of