978-0134324838 Chapter 7 Solution Manual Part 3

● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu

7-22. Your firm is considering exporting to two countries: Kenya and Vietnam. However,

management’s knowledge about the trade policies of these countries is limited. Conduct

a search at globalEDGE™ to identify the current import policies, tariffs, and restrictions

in these countries. Prepare a brief report on your findings. In addition to globalEDGE™,

other useful sites include the World Trade Organization (www.wto.org; enter country name

in the search engine) and the U.S. Commercial Service (www.buyusa.gov).

(LO 7.2; LO 7.3; AACSB: Analytical Thinking)

The solution for Kenya is included here. Tariffs in Kenya are as follows. Import tariffs involve:

Mixed duties apply to products such as commodities (wheat, maize, rice, sugar), milk, textiles

and clothing, footwear, tobacco, spirits, and manufactured goods.

Specific duties are imposed on petroleum products.

Common External Tariff (CET) (preferential duties under trade agreements). As a member of

Common Market for East and South Africa (COMESA), Kenya’s CET duties are: 0% on capital

goods; 5% on raw materials; 15% on intermediate goods; 30% on final goods.

In terms of Normal Trade Relations (NTR) and Most Favored Nation (MFN), Kenya grants all

countries, including non-WTO countries, MFN treatment (ad valorem, mixed, specific duties).

Kenya has an importing licensing system that applies only to a list of ‘negative’ products that

entail environmental, health and security concerns. Import authorization or approval is required

for nuclear reactors and parts (via the Ministry of Energy); pyrotechnic articles, propellant

7-23. The United States Trade Representative (USTR) develops international trade and

investment policies for the U.S. government. Visit the USTR Web site from globalEDGE™

or directly (www.ustr.gov). Search for “National Trade Estimate Report” for the latest year.

This document summarizes trade barriers around the world. See the reports for the

country of your choice. What are the country’s import policies and practices? What are

its nontariff trade barriers? What about barriers in the services sector? Are there any

sectors that seem to be particularly protected (for example, energy,

telecommunications)? What is the nature of government restrictions on e-commerce? If

you worked at a firm that exported its products to the country, how would you use the

USTR report to develop international business strategies?

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(LO 7.2; LO 7.3; LO 7.4; AACSB: Analytical Thinking)

Brazil’s average tariff rate is 10.73%. As a member of MERCOSUR, common external tariffs

(CETs) prevail. Although there are some country-specific exceptions, CETs range from 0% to

35% ad valorem (taxes are assessed according to the value of the imported item). Brazil has a

list of 100 exceptions to CET. The tariff ceiling, for example, is 55% for certain imported produce

such as peaches and nectarines, although the government only assesses them at a 10% tariff.

Brazil imposes additional taxes and charges to effectively increase importing costs by 100% for

In the telecommunications section, Former state-owned telecom companies enjoy the

advantages of more favorable interconnection charge, among other perks, which creates

formidable entry barriers for foreign telecom companies. Foreign ownership of Brazilian cable

companies is restricted to 49% and foreign owners must have a headquarters in the country and

Brazilian government restriction on e-commerce seems to be limited. Foreign exporters can sell

directly to Brazilian consumers or distributors via Internet. However, different customs rules

Managers at companies that desire to export products to Brazil should be apprised of the tariffs

and non-tariff barriers that exist. To effectively penetrate the Brazilian market via exporting,

managers should first research the country’s trade control instruments in order to see which

ones apply to its products and how severe the trade restrictions will impact its ability to profitably

serve this market. Second, they should seek favorable customs classifications for its exported

7-24. There has been much opposition to the Trans-Pacific Partnership (TPP). For a

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sampling of arguments against this proposed pact, visit:

www.globalexchange.org, www.citizenstrade.org, and www.citizen.org. Also visit the

U.S. government site promoting the TPP at http://ustr.gov/tpp, or obtain information on

the proposed pact from globalEDGE™. Based on your reading of this chapter, evaluate

the arguments against the TPP. Do you agree with arguments made by the critics? Why

or why not? Would the proposed TPP harm special interest groups? Would it be a boon

international trade? Justify your answers.

(LO 7.5; LO 7.7; LO 7.8; AACSB: Analytical Thinking; Reflective thinking)

The Trans-Pacific Partnership (TPP) is a regional trade agreement that seeks to eliminate

tariffs among member countries.

Overview

The TPP proposes:

●To lower trade barriers such as tariffs

Goal

The stated goal of the agreement is to “enhance trade and investment among the TPP partner

For the U.S., TPP is considered to be the companion agreement to Transatlantic Trade and

History

In the late 1990s, several Asia Pacific Economic Cooperation (APEC) economies including

Singapore, New Zealand and Chile began discussing a framework for tariff liberalization. These

discussions led to the formation of the P4 (renamed TPP). The U.S. expressed interest in 2008,

and then in 2009 President Obama affirmed that the U.S. wished to be involved in Asia through

2006- The TPP is an extension of the Trans-Pacific Strategic Economic Partnership Agreement

(TPSEP or P4) which was signed in 2006 by Brunei, Chile, Singapore, and New Zealand.

2008- Beginning in 2008, additional countries joined the agreement for a total of twelve

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Contents

According to the website of the Office of the United States Trade Representative, TPP chapters

include:

●Competition

●Co-operation and capacity building

●Cross-border services

●Customs

●E-commerce

https://en.wikipedia.org/wiki/Trans-Pacific_Partnership

Accessed September 26, 2015

Also according to the USTR, the contents of the TPP seek to address issues that promote:



Comprehensive market access by eliminating tariffs and other barriers to goods and



A fully regional agreement by facilitating the development of production and supply



Cross-cutting trade issues by building on work being done in APEC and other fora by

incorporating four new cross-cutting issues in the TPP. These issues are:

1. Regulatory coherence: Commitments will promote trade between the countries

2. Competitiveness and business facilitation: Commitments will enhance the

3. Small- and Medium-Sized Enterprises: Commitments will address concerns

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4. Development: Comprehensive and robust market liberalization, improvements in



New trade challenges by promoting trade and investment in innovative products and



Living agreement by enabling the updating of the agreement when needed to address

Issues

Although the goal was to finalize negotiations by 2012, issues such as agriculture, intellectual

property, and services and investments have delayed negotiations with the latest round taking

ARGUMENTS AGAINST THE TPP

CON:

[1] INTELLECTUAL PROPERTY

The Intellectual Property Rights and Environmental chapters of the TPP revealed “just how far

apart the US is from the other nations involved in the treaty, with 19 points of disagreement in

The Electronic Frontier Foundation has been highly critical of the chapter on intellectual

property covering copyright, trademarks, and patents. In the U.S., this is likely to further

CON:

[2] CURRENCY MANIPULATION

Since countries can devalue their currency to boost exports and gain a trade advantage,

economists claim that currency manipulation by Asian manufacturing countries has become

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pervasive, “allowing them to boost their exports at the expense of manufacturing companies in

the U.S. and Europe.”

Furthermore, organizations such as the WTO or IMF cannot control such currency manipulation.

Senator Lindsey Graham and Representative Sander Levin “gathered a group of economists,

CON:

[3] LACK IF TRANSPARENCY

While the text of the treaty has not been made public, some documents have been leaked. The

secrecy of negotiations, the agreement’s expansive scope, and controversial clauses in leaked

United States Senator Ron Wyden (D-OR) said:

“The majority of Congress is being kept in the dark as to the substance of the TPP negotiations,

while representatives of U.S. corporations—like Haliburton, Chevron, PHRMA, Comcast, and

In addition, in 2013, Senator Elizabeth Warren (D-Mass) and Rep. Alan Grayson (D-Fla.) were

among a group of individuals who criticized the Obama administration’s secrecy policies on the

Trans-Pacific Pact.

https://en.wikipedia.org/wiki/Trans-Pacific_Partnership

Accessed September 26, 2015

CON:

[4] COST OF MEDICINE

A June 2015 article in the New England Journal of Medicine summarized concerns about TPP´s

impact on healthcare in developed and less developed countries including potentially increased

https://en.wikipedia.org/wiki/Trans-Pacific_Partnership

Accessed September 26, 2015

CON:

[5] INCOME INEQUALITY

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Those opposed to the TPP believe the agreement will lead to a larger gap between the rich and

the poor. In 2013, Nobel prize-winning economist Joseph Stiglitz warned that based on leaked

drafts of the TPP, it presented “grave risks” and “serves the interests of the wealthiest.

CON:

[6] ENVIRONMENT

Ilana Solomon, Sierra Club’s director of responsible trade, argued that the TPP “could directly

threaten our climate and our environment [including] new rights that would be given to

CON:

[7] CHINA NOT INTERESTED

The most fundamental challenge for the TPP project regarding China is that “it may not

constitute a powerful enough enticement to propel China to sign on to these new standards on

CON:

[8] WTO DOMINANCE

In reality, the TPP will be of secondary importance, (just like many bilateral and regional trade

CON:

[9] GLOBAL RACE TO THE BOTTOM

In a statement denouncing the TPP, Senator (I-VT) Bernie Sanders wrote:

“Let’s be clear: the TPP is much more than a “free trade” agreement. It is part of a global race to

the bottom to boost the profits of large corporations and Wall Street by outsourcing jobs;

ARGUMENTS FOR THE TPP

PRO:

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[1] WINNERS

According to the New York Times, “the clearest winners of the Trans-Pacific Partnership

agreement would be American agriculture, along with technology and pharmaceutical

PRO:

[2] RESHAPE GLOBAL ARCHITECTURE

TPP is often talked about as a “high standard,” 21st century trade agreement that could reshape

PRO:

[3] SMALL BUSINESSES

Small businesses tend to benefit disproportionately from trade liberalization, since they are less

PRO:

[4] U.S. IS A PLAYER IN THE ASIA-PACIFIC REGION

The TPP will also help counter the trend toward greater economic integration, which excludes

ADDITIONAL POINTS

With trade promotion authority (TPA) – also called fast track negotiating authority – the

President of the United States has authority to negotiate international agreements that

Given TPA, The Trans Pacific Partnership (TPP) trade pact will likely be one of the first

considerations.

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http://www.heritage.org/research/commentary/2015/5/after-obama-a-7-step-economic-recovery-

plan-for-america

Accessed September 26, 2015

When evaluating the arguments surrounding TPP, six of the eight chapter themes are

relevant:

EVOLUTION AND CONSEQUENCES OF GOVERNMENT INTERVENTION

Government intervention and trade barriers raise ethical concerns when one segment is

HOW FIRMS CAN RESPOND TO GOVERNMENT INTERVENTION

Given the lack of TPP transparency, firms cannot conduct the requisite research to

REGIONAL INTEGRATION AND ECONOMIC BLOCS

Under regional economic integration, groups of countries form alliances to promote free

trade, cross-national investment, and other mutual goals. This integration results from

THE LEADING ECONOMIC BLOCS

There are hundreds of economic integration agreements in the world. The successful ones

have more similarities than differences. The success of TPP remains in question.

ADVANTAGES AND SUCCESS FACTORS OF REGIONAL INTEGRATION

Regional integration contributes to corporate and industrial growth and hence to economic

growth, better living standards, and higher tax revenues for the member countries. It

CHALLENGES AND MANAGERIAL IMPLICATIONS OF REGIONAL INTEGRATION

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Consequences of regional integration:

●Regional integration can concentrate power into large firms and large nations inside the

bloc.

●Regional integration results in economic restructuring, which may harm particular

industries and firms.

Do you agree with arguments made by the critics? Why or why not?

Both sides have been presented. For an interesting in-class exercise, you might split the class

Would the proposed TPP harm special interest groups?

Yes, according to the above arguments.

Would it be a boon international trade?

Yes, according to the above argumen

CAREER TOOLBOX EXERCISE

PERFORMING A PRELIMINARY COUNTRY RISK ANALYSIS

Visit MyManagementLab for more information.

 Simulation Tariffs, Subsidies, and Quotas

Apply what you have learned in this chapter by doing a simulation and answering questions on

Go to MyManagementLab to access the simulation.

MyManagementLab

Go to MyManagementLab.com for Auto-graded writing questions as well as the following

Assisted-graded writing questions.

 7-25. Discuss the relationship between government intervention and protectionism.

 7-26. How did government intervention evolve between the first and second halves of

the twentieth century?

 7-27. MyManagementLab Only– comprehensive writing assignment for this

chapter.

Visit MyManagementLab for suggested answers.

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