Memorandum Corporation Name Date: TO: (Yulius Santoso), Rank in Corporation FROM: ), Rank/Division in Corporation SUBJECT: MGMT1100 Our company produces and exports Australian honey, and we plan to export our goods to Mexico/France (choose one). Since this country is part of NAFTA/EU (respectively), what are the pros and cons of us exporting to this regionally integrated market? I strongly recommend that our company shouldn’t be doing any exports to not only France but all the members within EU, or any similar regionally integrated markets.
Since the main justification behind regional trade agreement is in the best interest of the regional members and at the expense of diverting trades from third party countries. In another word, very few advantages can be found from an exporter’s point of view, not to mention a great deal of stumbling blocks in terms of government protectionism for the better soundness of EU’s internal trade. Countries like EU are very regionally economically integrated in that there are strong economic union as well as political integration, especially in terms of trade.
As a result, EU will very much benefit from its regionalism from the reduction of tariff and non-tariff barriers that are only enjoyed by member states. Certainly it’s more profitable to expand our market, especially in big country like France, however the drawbacks outweigh extensively in that our competitive advantages will be easily offset by the internal reduction of barriers in EU honey manufacturing industry, consequently leaving us very little profit margin.
Besides the fact the sales might shoot up in the short term, there are almost no pros but cons in exporting to EU, including a lengthy due- processes, no advantages compare to EU members and great degree of country and economic risks. France is the second biggest member in EU in terms of honey consumptions. It will certainly account for a major proportion of our production outsource. This will largely increase our sales revenue as well as the economy of scale to expand the company.
Moreover, when penetrating regional integrated market like France, it’s likely our company will be subsidized by government which is critical in logistic and country risk cost cutting. However, prior to entering, EU firstly has laid down extensive and lengthy legislation applying to the EU import of honey intended for human consumption “Before an EU buyer places an order, he needs to be sure your honey complies with the EU requirements and his own quality demands.
EU buyers will therefore require documentation on chemical analyses of each batch of honey. Most EU honey importers make use of the internationally acknowledged chemical laboratory on honey, Applica, to perform analyses” (CBI, March, 2008) Along with the import license acquisition, it requires extremely long due-process and in turn increasing our inventory storage cost. Secondly, with regional free trade, production shifts toward the most efficient manufacturers of honey within the RTA.
The fact that they retaining barriers to trade with nonmembers deprives our cost leadership and consumers will never consider our honey when there are cheaper options elsewhere. Lastly, highly integrated RTA in EU also reflects a strong economic union that readily affects France, which makes France’s economic and cultural prospects very volatile to predict and understand since the internal members are very inter-related particularly when there’s an economic recession, for instance the recent contagion of Greek debt crisis towards EU.
In a nutshell, it’s clear that exporting to France won’t be very lucrative choice however this is only the consideration from a profit perspective in the short term. Macrowise, the more trade occur internationally, the more incentives are lying on Australian government to further participate into WTO, collaborating with increasing countries’ RTA, making trades more liberal and efficient in resource allocation globally. Reference: Eric Novinson, July 11, 2010, The Advantages of Regional Trade Agreements, eHow Contributor, available from: http://www. ehow. om/list_6721244_advantages-regional-trade-agreements. html France legislation: Pre-conditions for export of HONEY, Centre of promotion of Imports from developing countries (CBI), March 2008, available from:http://www. cbi. eu/marketinfo/cbi/docs/france_legislation_pre_conditions_for_export_of_honey Edward L. Hudgins, January 17, 1996. REGIONAL AND MULTILATERAL TRADE AGREEMENTS: COMPLEMENTARY MEANS TO OPEN MARKETS, the CatoJournal Vol. 15 No. 2-3 Dennis A. Shields, Regional Trade Agreements and U. S. Agriculture, Sept 1998, Forthcoming ERS report p25
