Russell Corporation: Choosing Between Global and Regional Free Trade

Russell Corporation: Choosing between Global and Regional free Trade

Q#1 what is the background of the formation of FTA called DR-CAFTA?

ANS After the expiration of the multi fiber agreement (MFA), many countries became exposed to full force of cheap imports from low cost producers in Asia and China increased its apparel exports to U.S. So to protect the home market U.S imposed trade barriers against china it was on the temporary basis. After that WTO rules require to U.S to remove the barriers against imports. After some time for this U.S apparel industry see DR-CAFTA to compete with the china. DR-CAFTA eliminates the trade barriers between the U.S and six Latin American countries. Due to this it increases the trade with U.S and the Central American region. DR-CAFTA gave U.S producers an equal footing to sell their products to Central America. Its also give advantages to U.S firms  companies to cost effectively source raw materials in Central America and freely source their value adding activities (Procurement of Raw Material, Manufacturing/Production, Assembly etc) throughout the region.

Q#2 what are the advantages if the firms do its production in Honduras?

Ans The firms get so many advantages while doing production in the Honduras, like they are able to get the low cost labor, Honduras offers a generous tax packages, no income tax, value added tax and duties. The firms also get the advantage of biggest port in just 30 minutes. From there it takes only 22 hours to reach at Miami by containership good as to compare with the china. Honduras also investing to improve Puerto Cortes and creating a textile university for to enhance the capabilities of the future managers and supervisors .The firms also get the advantages of total package buying fabrics and sometimes even designing the garments as well as final assembly. So they also giving the advantages to the firms in the shape of labor intensive and capital intensive advantages.

Q#3 what are the advantages for the firm if it manufactures it’s product in China and Eastern Europe?

 Ans The firms get the advantages to manufacture its product in China and Eastern Europe; if the firm manufactures its product in Eastern Europe the firms can get the huge access to the EU markets. Producers are advantaged by being so close to the 500 million consumers in the EU. Maintain a presence in the Latin America would give firms favorable positions for targeting new markets. And another reason for doing business in the Eastern Europe and china would be the unattractiveness/declining growth prospectus in several Central American Countries due to their reliance on the trade with the United states and other advanced economies, which reduced their imports from the region during the recent global recession.