International Business Study Set 9

There are two general classifications of import duties: tariff and nontariff barriers. a. Describe the various types of tariff barriers. b. What are some of the nontariff barriers?

It seems that free, unrestricted international trade, in which each nation produces and exports products for which it has a comparative advantage, will enable everyone to have a higher level of living. Why, then, does every country have import duty restrictions?

How can ICs use their strengths to influence government policies?

Why might business fear sudden changes in government policies?

Why might governments nationalize firms, and why might a government-owned firm have an unfair advantage over privately owned companies?

"Workers are paid $20 an hour in the United States but only $4 in Taiwan. Of course, we can't compete. We need to protect our jobs from cheap foreign labor." What are some possible problems with this statement?

According to the WTO, what is dumping? Why would a government be opposed to having their citizens or businesses be able to obtain products at lower costs?

When you last savored a bar of rich chocolate, a cup of hot cocoa, or a piece of chocolate cake or scoop of chocolate ice cream, did you know that you may have unwittingly been consuming a product made with child slaves? Chocolate is one of the most-traded agricultural products in the world. The top 10 chocolate-consuming nations are all developed countries in Europe or the United States, yet about 70 percent of the world's cocoa is produced in West Africa. In practice, beans from different nations are usually mixedtogether during their exportation and transport to processing plants in the importing nations. So Hershey bars, Snickers, M Ms, KitKats, Nestlé chocolates, fudge, hot chocolate-essentially all of these delicacies that are regularly enjoyed by hundreds of millions of consumers-will include cocoa from West Africa, especially the Côte d'Ivoire (Ivory Coast). With about 46 percent of the world's total cocoa production, Côte d'Ivoire produces nearly twice the level of the secondlargest cocoa producer, Ghana. Results of a survey on child labor in West Africa, released in 2002, found that 284,000 children were working in hazardous conditions on West African cocoa farms, with the majority (200,000) working in Côte d'Ivoire. Nearly two thirds of the child laborers were under the age of 14. Working conditions were described as slave-like, with 29 percent of the surveyed child workers in the Côte d'Ivoire indicating that "they were not free to leave their place of employment should they so wish." Many of these children had been brought into the cocoa-growing areas from distant regions of the Côte d'Ivoire or from poverty-stricken countries such as Burkina Faso, Mali, and Togo, often after being kidnapped. Some of the child laborers had been sold by their parents in the expectation that the child's earnings would be sent home. Although paid less than 60 percent of the rate of adult workers, children frequently worked for more than 12 hours per day, 6 days a week, and were regularly beaten. More than half of the children applied pesticides without protective gear. Only 34 percent of the children working on cocoa farms went to school, which was about half the level for children who were not working on cocoa farms. The rate of school enrollment was even lower for girls. These child laborers seemed to be trapped in a vicious cycle: they were forced into work due to kidnapping or economic circumstances faced by themselves and/or their families; they earned subsistence wages; and because most had not been to school and had minimal skills, their prospects for seeking other employment options were limited. Efforts to raise awareness of the exploitation of child labor in the cocoa industry faced great challenges, and even today, a majority of consumers seem unaware of the circumstances behind the production of their favorite chocolate treats. Yet the atrocious nature of the child labor situation in the cocoa industry compelled the media, public interest groups, and others to continue their efforts. Hard-hitting news stories began to appear on television and radio and in magazines and newspapers across North America and Europe. Fearing the implications of boycotts, trade sanctions, or certification and labeling requirements in key markets such as the United States and Europe, representatives from the chocolate industry attempted to develop a strategy for dealing with the problem. The Chocolate Manufacturers Association hired former senators George Mitchell and Bob Dole to lobby against legislation establishing certification and labeling requirements. Once that defeat was secured, the industry agreed to self-regulate and attempted to change the child labor practices. A protocol for the industry was developed that established a timetable for eliminating child labor and forced labor in the production of cocoa. A self-imposed deadline was set for establishing a viable monitoring and certification system: July 1, 2005. Some important cocoa-producing nations have worked with the International Labor Organization and the International Programme on the Elimination of Child Labour (IPEC) to establish national programs to eliminate child labor in their countries. However, as of 2010, there was evidence suggesting that child labor continued to be a widespread problem in Côte d'Ivoire and Ghana. Industry representatives have complained that progress toward eliminating child labor in cocoa production has been hindered by traditional culture in the agriculturally based producing nations, compounded by civil war and other complications. In the absence of prompt and effective action by the chocolate and cocoa industry, a number of companies have begun producing fair-trade-certified chocolate. Through observing a strict set of guidelines associated with fair-trade certification, these companies guarantee that a consumer of one of their chocolate products is "not an unwitting participant in this very inhumane situation." Fairtrade Labeling Organizations International, a consortium of fair-trade organizations from Canada, the United States, Japan, Australia, New Zealand, and 15 European nations, establishes certification standards. Fair-trade practices essentially involve international subsidies to farmers in developing countries, ensuring that farmers who are certified as engaging in fair-trade practices will receive a price for their produce that will at least cover their costs of production. By providing a price floor, fairtrade practices protect Third World farmers from the ruinous fluctuations in commodity prices that result from free trade practices. At the same time, fair-trade certification requires that farmers engage in appropriate social, labor, and environmental practices, such as paying livable wages and not using child or slave labor. In addition to the cocoa program, fair-trade certification programs have been implemented for a range of other products, such as coffee, bananas, nuts, spices, tea, and crafts. Although still a nascent movement, sales of fair-trade certified products are growing and are projected to reach $9 billion in 2012. Will there be a similar result for chocolate? Already, more than 50 companies make fair-trade chocolate products in the United States, including ClifBar, Cloud Nine, Newman's Own Organics, Scharffen Berger, and Sweet Earth Chocolates. With regard to trade in products such as cocoa, what options are available to governments, businesses, and consumers for dealing with practices such as child labor or slave labor in other countries? What are the implications associated with each of these options?

When you last savored a bar of rich chocolate, a cup of hot cocoa, or a piece of chocolate cake or scoop of chocolate ice cream, did you know that you may have unwittingly been consuming a product made with child slaves? Chocolate is one of the most-traded agricultural products in the world. The top 10 chocolate-consuming nations are all developed countries in Europe or the United States, yet about 70 percent of the world's cocoa is produced in West Africa. In practice, beans from different nations are usually mixedtogether during their exportation and transport to processing plants in the importing nations. So Hershey bars, Snickers, M Ms, KitKats, Nestlé chocolates, fudge, hot chocolate-essentially all of these delicacies that are regularly enjoyed by hundreds of millions of consumers-will include cocoa from West Africa, especially the Côte d'Ivoire (Ivory Coast). With about 46 percent of the world's total cocoa production, Côte d'Ivoire produces nearly twice the level of the secondlargest cocoa producer, Ghana. Results of a survey on child labor in West Africa, released in 2002, found that 284,000 children were working in hazardous conditions on West African cocoa farms, with the majority (200,000) working in Côte d'Ivoire. Nearly two thirds of the child laborers were under the age of 14. Working conditions were described as slave-like, with 29 percent of the surveyed child workers in the Côte d'Ivoire indicating that "they were not free to leave their place of employment should they so wish." Many of these children had been brought into the cocoa-growing areas from distant regions of the Côte d'Ivoire or from poverty-stricken countries such as Burkina Faso, Mali, and Togo, often after being kidnapped. Some of the child laborers had been sold by their parents in the expectation that the child's earnings would be sent home. Although paid less than 60 percent of the rate of adult workers, children frequently worked for more than 12 hours per day, 6 days a week, and were regularly beaten. More than half of the children applied pesticides without protective gear. Only 34 percent of the children working on cocoa farms went to school, which was about half the level for children who were not working on cocoa farms. The rate of school enrollment was even lower for girls. These child laborers seemed to be trapped in a vicious cycle: they were forced into work due to kidnapping or economic circumstances faced by themselves and/or their families; they earned subsistence wages; and because most had not been to school and had minimal skills, their prospects for seeking other employment options were limited. Efforts to raise awareness of the exploitation of child labor in the cocoa industry faced great challenges, and even today, a majority of consumers seem unaware of the circumstances behind the production of their favorite chocolate treats. Yet the atrocious nature of the child labor situation in the cocoa industry compelled the media, public interest groups, and others to continue their efforts. Hard-hitting news stories began to appear on television and radio and in magazines and newspapers across North America and Europe. Fearing the implications of boycotts, trade sanctions, or certification and labeling requirements in key markets such as the United States and Europe, representatives from the chocolate industry attempted to develop a strategy for dealing with the problem. The Chocolate Manufacturers Association hired former senators George Mitchell and Bob Dole to lobby against legislation establishing certification and labeling requirements. Once that defeat was secured, the industry agreed to self-regulate and attempted to change the child labor practices. A protocol for the industry was developed that established a timetable for eliminating child labor and forced labor in the production of cocoa. A self-imposed deadline was set for establishing a viable monitoring and certification system: July 1, 2005. Some important cocoa-producing nations have worked with the International Labor Organization and the International Programme on the Elimination of Child Labour (IPEC) to establish national programs to eliminate child labor in their countries. However, as of 2010, there was evidence suggesting that child labor continued to be a widespread problem in Côte d'Ivoire and Ghana. Industry representatives have complained that progress toward eliminating child labor in cocoa production has been hindered by traditional culture in the agriculturally based producing nations, compounded by civil war and other complications. In the absence of prompt and effective action by the chocolate and cocoa industry, a number of companies have begun producing fair-trade-certified chocolate. Through observing a strict set of guidelines associated with fair-trade certification, these companies guarantee that a consumer of one of their chocolate products is "not an unwitting participant in this very inhumane situation." Fairtrade Labeling Organizations International, a consortium of fair-trade organizations from Canada, the United States, Japan, Australia, New Zealand, and 15 European nations, establishes certification standards. Fair-trade practices essentially involve international subsidies to farmers in developing countries, ensuring that farmers who are certified as engaging in fair-trade practices will receive a price for their produce that will at least cover their costs of production. By providing a price floor, fairtrade practices protect Third World farmers from the ruinous fluctuations in commodity prices that result from free trade practices. At the same time, fair-trade certification requires that farmers engage in appropriate social, labor, and environmental practices, such as paying livable wages and not using child or slave labor. In addition to the cocoa program, fair-trade certification programs have been implemented for a range of other products, such as coffee, bananas, nuts, spices, tea, and crafts. Although still a nascent movement, sales of fair-trade certified products are growing and are projected to reach $9 billion in 2012. Will there be a similar result for chocolate? Already, more than 50 companies make fair-trade chocolate products in the United States, including ClifBar, Cloud Nine, Newman's Own Organics, Scharffen Berger, and Sweet Earth Chocolates. Should labor practices in another country be a relevant consideration in international trade? Why or why not?

Is country risk assessment an exact science? Explain.

Sugar Subsidies: Sweet for Producers, Not for Consumers Although they lack comparative advantage in sugar production, the United States, Japan, and the EU, among others, have maintained strong protection for their domestic sugar industries. A World Bank report called sugar the "most policy-distorted of all commodities." Protectionism by developed countries harms foreign sugar producers, many of which are poor farmers in developing countries, by reducing demand and prices for their product. Oxfam estimated, for example, that EU sugar supports had caused Malawi to experience losses that exceeded its total budget for primary health care. Before being forced by the WTO into making changes in November 2005, the EU maintained domestic sugar prices that were triple world market prices. In the United States, sugar tariffs have been in place since 1789. Imports are allocated through tariff-rate quotas among 40 nations and limited to about 15 percent of the U.S. market, except in years when there is a shortfall in the U.S. domestic supply, as in 2005 after Hurricane Katrina. High price supports result in overproduction of sugar domestically, yet at the same time the price of raw sugar in the United States has averaged more than double the world price during the past decade, costing American consumers and businesses an estimated $4 billion annually. The benefits are highly concentrated among a small number of companies. A mere 1 percent of sugar growers enjoys 42 percent of the benefits from protectionist U.S. sugar policies. Nicaraguan Jackson Riveras carries a load of freshly cut sugarcane on a plantation near Turrucares of Alajuela, Costa Rica. Like many Nicaraguan immigrants, Ramirez came to Costa Rica to work the harvest season in order to earn higher wages and send money back to his family. Excess sugar production also contributes to environmental problems. In Florida, for example, pollution and disruption of water flows from sugar production have been cited as a major contributor to environmental degradation of the Everglades. Similar pollution concerns have been voiced in South Texas, where the annual "burn" sends burnt chaff into the sky. Mechanization has eliminated the labor intensity of producing sugar from sugar beets or sugarcane in the United States. Sugar is produced in 18 states and supports 146,000 American jobs, although only about 60,000 people now work directly in the production or refining of sugar. Movement to free trade in sugar would result in an estimated loss of fewer than 2,500 workers in the sugar industry, meaning that the cost for each protected job is more than $1.5 million. In addition, protection of the U.S. sugar industry has cost thousands of jobs in other sectors, such as food and beverage manufacturing. For example, sugar accounts for 32.7 percent of the total cost of producing breakfast cereals, and high sugar prices led to the loss of an estimated 112,000 jobs at sugar-consuming companies between 1997 and 2009. High sugar prices were also a major factor in companies' decisions to relocate operations to non-U.S. sites, especially Canada and Mexico, contributing to an increase in imports of sugar-containing products. As one Commerce Department executive said, "We are seeing U.S. jobs move to countries that don't have the competitive disadvantage of high sugar prices that we face in the United States." Efforts to reform protection of the sugar industry have made limited progress, at least partly due to the strength of the sugar lobby. Sugar accounts for less than 1 percent of U.S. agricultural sales but an estimated 17 percent of all agricultural political contributions since 1990. "It's a very effective lobby," commented Claude Barfield of the American Enterprise Institute. "They've traditionally given a lot of money to both parties." Sugar lobbying resulted in the complete exclusion of sugar from the U.S.-Australia free trade agreement, the first bilateral trade treaty in which the United States required that a product be entirely excluded-and a dangerous precedent. However, change may yet occur. In 2008, the United States and Mexico finally ended their decade-long battle over access to the U.S. sugar market under NAFTA, with all barriers to trade in sugar being removed between the two countries. In 2011, legislation was introduced into the U.S. Congress to completely eliminate sugar subsidies, although the likelihood of its passage was questioned by many.

What options does a company have for helping to prevent terrorism or to better manage terrorist actions if they occur?

When you last savored a bar of rich chocolate, a cup of hot cocoa, or a piece of chocolate cake or scoop of chocolate ice cream, did you know that you may have unwittingly been consuming a product made with child slaves? Chocolate is one of the most-traded agricultural products in the world. The top 10 chocolate-consuming nations are all developed countries in Europe or the United States, yet about 70 percent of the world's cocoa is produced in West Africa. In practice, beans from different nations are usually mixedtogether during their exportation and transport to processing plants in the importing nations. So Hershey bars, Snickers, M Ms, KitKats, Nestlé chocolates, fudge, hot chocolate-essentially all of these delicacies that are regularly enjoyed by hundreds of millions of consumers-will include cocoa from West Africa, especially the Côte d'Ivoire (Ivory Coast). With about 46 percent of the world's total cocoa production, Côte d'Ivoire produces nearly twice the level of the secondlargest cocoa producer, Ghana. Results of a survey on child labor in West Africa, released in 2002, found that 284,000 children were working in hazardous conditions on West African cocoa farms, with the majority (200,000) working in Côte d'Ivoire. Nearly two thirds of the child laborers were under the age of 14. Working conditions were described as slave-like, with 29 percent of the surveyed child workers in the Côte d'Ivoire indicating that "they were not free to leave their place of employment should they so wish." Many of these children had been brought into the cocoa-growing areas from distant regions of the Côte d'Ivoire or from poverty-stricken countries such as Burkina Faso, Mali, and Togo, often after being kidnapped. Some of the child laborers had been sold by their parents in the expectation that the child's earnings would be sent home. Although paid less than 60 percent of the rate of adult workers, children frequently worked for more than 12 hours per day, 6 days a week, and were regularly beaten. More than half of the children applied pesticides without protective gear. Only 34 percent of the children working on cocoa farms went to school, which was about half the level for children who were not working on cocoa farms. The rate of school enrollment was even lower for girls. These child laborers seemed to be trapped in a vicious cycle: they were forced into work due to kidnapping or economic circumstances faced by themselves and/or their families; they earned subsistence wages; and because most had not been to school and had minimal skills, their prospects for seeking other employment options were limited. Efforts to raise awareness of the exploitation of child labor in the cocoa industry faced great challenges, and even today, a majority of consumers seem unaware of the circumstances behind the production of their favorite chocolate treats. Yet the atrocious nature of the child labor situation in the cocoa industry compelled the media, public interest groups, and others to continue their efforts. Hard-hitting news stories began to appear on television and radio and in magazines and newspapers across North America and Europe. Fearing the implications of boycotts, trade sanctions, or certification and labeling requirements in key markets such as the United States and Europe, representatives from the chocolate industry attempted to develop a strategy for dealing with the problem. The Chocolate Manufacturers Association hired former senators George Mitchell and Bob Dole to lobby against legislation establishing certification and labeling requirements. Once that defeat was secured, the industry agreed to self-regulate and attempted to change the child labor practices. A protocol for the industry was developed that established a timetable for eliminating child labor and forced labor in the production of cocoa. A self-imposed deadline was set for establishing a viable monitoring and certification system: July 1, 2005. Some important cocoa-producing nations have worked with the International Labor Organization and the International Programme on the Elimination of Child Labour (IPEC) to establish national programs to eliminate child labor in their countries. However, as of 2010, there was evidence suggesting that child labor continued to be a widespread problem in Côte d'Ivoire and Ghana. Industry representatives have complained that progress toward eliminating child labor in cocoa production has been hindered by traditional culture in the agriculturally based producing nations, compounded by civil war and other complications. In the absence of prompt and effective action by the chocolate and cocoa industry, a number of companies have begun producing fair-trade-certified chocolate. Through observing a strict set of guidelines associated with fair-trade certification, these companies guarantee that a consumer of one of their chocolate products is "not an unwitting participant in this very inhumane situation." Fairtrade Labeling Organizations International, a consortium of fair-trade organizations from Canada, the United States, Japan, Australia, New Zealand, and 15 European nations, establishes certification standards. Fair-trade practices essentially involve international subsidies to farmers in developing countries, ensuring that farmers who are certified as engaging in fair-trade practices will receive a price for their produce that will at least cover their costs of production. By providing a price floor, fairtrade practices protect Third World farmers from the ruinous fluctuations in commodity prices that result from free trade practices. At the same time, fair-trade certification requires that farmers engage in appropriate social, labor, and environmental practices, such as paying livable wages and not using child or slave labor. In addition to the cocoa program, fair-trade certification programs have been implemented for a range of other products, such as coffee, bananas, nuts, spices, tea, and crafts. Although still a nascent movement, sales of fair-trade certified products are growing and are projected to reach $9 billion in 2012. Will there be a similar result for chocolate? Already, more than 50 companies make fair-trade chocolate products in the United States, including ClifBar, Cloud Nine, Newman's Own Organics, Scharffen Berger, and Sweet Earth Chocolates. How would international trade theorists view the fair-trade movement?

"We certainly need defense industries, and we must protect them from import competition by placing restrictions on competitive imports." True or false? Is there an alternative to trade restrictions that might make more economic sense?

It seems entirely reasonable for a government to undertake efforts to protect a new or recently established-often called an "infant"-industry. Why, then, might international trade professionals argue against governmental efforts to protect a new or recently established industry?