QUESTIONS
7-1. List the advantages and disadvantages for the U.S. protection of its catfish industry.
7-2. As you read through the chapter, list the protective measures (instruments) the United States has not
used to protect its catfish industry. Briefly explain why each would or would not be successful.
TEACHING TIPS: Have students visit the Web site of the WTO (www.wto.org) and review the
current disputes found on that site. Have students report back what they have found and discuss
their opinions. Carefully review the PowerPoint slides for Chapter Six.
CLOSING CASE: Should U.S. Imports of Prescription
Drugs from Canada Be Widened? [See Fig. 7.3.]
The U.S. per capita spending on both health care and pharmaceuticals is the world’s highest. On the other
hand, U.S. pharmaceutical expenses have been rising faster than incomes, and the portion paid by workers
has been rising faster than the portion paid by health plans. There are numerous explanations to the
excessive price increases of essential drugs in the U.S. when there is little or no domestic competition.
Chief among them are restrictions on U.S. pharmaceutical imports, which, basically, allowed
U.S. pharmaceutical companies to set their U.S. prices and prohibited U.S. consumers from gaining
access to cheaper drugs that have not received FDA approval in foreign countries such as Canada. Most
assessments conclude that Canadian prescription drugs may cost 40–60 percent less at the retail level than
in the United States. Another explanation is safety, namely the danger that counterfeits and illegal drugs
might have on public health. Additionally, the price increase of essential drugs is defended by the need of
U.S. pharmaceutical companies to recoup the development costs. U.S. pharmaceutical companies claim
that they will have to greatly reduce their research budgets if they lose the ability to charge high U.S.
prices in the inception phase of their new drugs. Importing from Canada (or elsewhere) will counter this
ability.
Questions
7-3. Should the United States legalize the importation of lower cost pharmaceuticals? If so, should this
apply to individual consumers, pharmacies, or other entities?
7-4. If the United States were to permit importation of lower cost pharmaceuticals from abroad, should
this importation apply to all foreign countries or a limited number? If a limited number, which should
they be and why?
7-5. If the United States were to permit importation of lower cost pharmaceuticals from Canada, what
safeguards should be enacted to help assure the safety and efficacy of the
imports?
7-6. If the United States were to permit importation of lower cost pharmaceuticals from abroad, should
this apply to all pharmaceuticals or just to some? If just to some, what criteria should be used?
7-7. If pharmacies were allowed to import less costly drugs from abroad, should regulations be put into
effect to pass on some/all cost savings to consumers? If so, what should they be?
7-8. Consumers seldom propose the reduction of import restrictions to lower their costs. Why has this
occurred for pharmaceuticals and not for other products?
ADDITIONAL EXERCISES: Government Intervention in Trade
Exercise 7.1. As a result of the many rounds of the General Agreement on Tariffs and Trade (GATT)
and other trade negotiations, both tariff and nontariff barriers have been significantly reduced on a
worldwide basis. However, given recent shifts in productive assets and employment from many
industrialized countries to emerging economies such as India and China, cries for protectionist
measures can be heard from many quarters. Ask students to debate the possibility that governments
in industrialized countries will once again implement some form of protectionist measures in order to
protect their markets and industries. Do the students expect that such measures would be in the form
of tariffs or nontariff barriers? (LO: 1, Learning Outcome: To explain the rationales for
governmental policies that enhance and restrict trade, AACSB: Analytical Skills).
Exercise 7.2. From a global perspective one can observe excess capacity in the steel, automobile,
and commercial airline industries in both industrialized and emerging nations. Ask students to
discuss the logic of this from the standpoints of the Infant-Industry and the Industrialization
Arguments. Then ask them to debate whether each of the arguments should be applied only in the
case of emerging economies, or in the case of all countries. (LO: 5, Learning Outcome: To
demonstrate business uncertainties and business opportunities created by governmental trade
policies, AACSB: Dynamics of the Global Economy).
Exercise 7.3. Ask students to debate the issue of stakeholders in government trade policy, i.e.,
whose interests should be of paramount concern—producers, consumers, or the government. Can
sanctions by a single nation against another be truly effective, or must it be a multilateral, if not a
unilateral, action? (LO: 3, Learning Outcome: To describe the potential and actual effects of
governmental intervention of the free flow of trade, AACSB: Analytical Skills).
Exercise 7.4. Former U.S. Secretary of State Lawrence Eagleburger claims that instead of an
embargo, a more effective way to bring democracy to Cuba and other repressive nations would be to
increase their exposure to the United States and other industrialized nations through trade and travel.
Others claim, however, that governments that choose to violate human rights, expropriate private
property, etc. must not be economically rewarded. Ask students to discuss the tension that frequently
accompanies the use of economic means to achieve political ends. (LO: 4, Learning Outcome: To
illustrate the business uncertainties and business opportunities created by governmental trade
policies, AACSB: Dynamics of the Global Economy).