The purpose of this document is to analyze ASEAN and NAFTA trading blocs in terms of Riordan Manufacturing’s business expansion. The document defines barriers to trade, advantages and disadvantages of being a member in presented trading blocs, identifies membership conditions and determines the impact that these conditions may have on Riordan Manufacturing business expansion. The document assesses the cost of compliance and non-compliance with rules and regulations of mentioned trade blocs and analyzes the impact of trade relations among member and non-member countries. Based on this analysis the document rationalizes the NAFTA trading bloc as the proper choice for the future expansion proposal.
“In today’s global market place, meeting standards or other specific requirements, and obtaining the independent confirmation that you do, have become essential for business success. In the domestic market, traders have to make sure that your products or services do not pose a risk to users, consumers or the environment. The trend is for business-related laws to place the responsibility for compliance squarely with business. Internationally, many markets rely on more specific technical requirements that must be met before products can be placed on the markets. Many countries insist that the traders use standard and specifications that they are familiar with. Many foreign regulators require their own testing and certification before allowing the products to be sold in their country.” (ASEAN Secretariat, n.d.)
In order to expand globally Riordan Manufacturing Inc. will have to identify, assess and comply with many laws and regulations with no particular relevance to the area of expansion. These laws and regulations will depend on the country chosen for the expansion. The responsibility of Riordan management’s is to maximize the profit for the shareholders. All decisions must be based with this intent as the primary objective.
North America Free Trade Agreement (NAFTA)
NAFTA has already shed most of the trade barriers. “Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008.” (USDA, 2008) With few exceptions to the agricultural trade, trade barriers between U.S. and Canada were removed as well. Mexico and Canada have reached an agreement in terms of the agricultural market with exceptions to dairy, eggs, poultry and sugar products. Most tariffs were eliminated and others will be eliminated over the course of 5 to 15 years.
United States has signed many trade agreements with other countries as well as trading regions. Nearly every country has some sort of a trade agreement with U.S. For example, in 2005 president Bush signed a Central America Free Trade Agreement – Dominican Republic (CAFTA – DR). This agreement allows certain trade behavior between Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. To present another example, on April 1, 2007, United States and Korea signed a free trade agreement. “Ambassador Schwab signed the KORUS-FTA on behalf of the United States. Trade Minister Kim Hyun-chong signed on behalf of Korea in a ceremony held in Cannon House Office Building on Capitol Hill and witnessed by over 150 guests, including U.S. Commerce Secretary Carlos Gutierrez, and other government officials, and representatives from the manufacturing, agriculture and service sectors.” (USTR, 2007) This is a tremendous opportunity for both countries. Under the Korea, United States Free Trade Agreement (KORUS FTA) 64% of imported agriculture from United States will be duty free. Industrial good...
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