International Business Chapter 7 Homework You Are Employee At the time of its establishment, the great hope was that the WTO might emerge as an effective advocate and facilitator of future trade deals

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Lecture Note: To see current issues at the WTO, go to https://www.wto.org.

WTO: EXPERIENCE TO DATE

I) At the time of its establishment, the great hope was that the WTO might emerge as an effective

advocate and facilitator of future trade deals, particularly in such areas as services. In general, the

telecommunications deal, the agreement covers not just cross-border trade, but also foreign direct

investment.

THE FUTURE OF THE WTO: UNRESOLVED ISSUES AND THE DOHA ROUND

L) Substantial work still remains to be done on the international trade front. Four issues on the

current agenda of the WTO are the rise of antidumping policies, the high level of protectionism

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R) The WTO would like to bring down tariff rates on nonagricultural goods and services, and

reduce the scope for the selective use of high tariff rates. The hope is that at some point, rates

1. What does the Institute for International Economics suggest about the benefits of free trade?

2. According to the Institute for International Economics study, a move toward free trade would

cause disruption in employment. Is it still worth pursuing free trade if it means that some people

lose their jobs?

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CONNECT

Click and Drag

Milestones in Trade

Summary

This activity focuses on the development of the international trading framework. Following

World War II, a small number of countries committed to an agreement supporting free trade.

Today, some 150 countries follow the basic rules outlined in the initial agreement.

Activity

Students are asked to put various trade milestones into chronological order showing the

development of the world trading system.

Class Discussion

The framework for free trade that began with the General Agreement on Tariffs and Trade

(GATT) and continues today under the umbrella of the World Trade Organization (WTO), which

sets the rules of trade along with enforcing mechanisms. Discuss the role of GATT and the WTO

in facilitating international business.

MULTILATERAL AND BILATERAL AGREEMENTS

S) While the Doha negotiations have seemingly stalled, countries are still working to achieve its

objectives forming multilateral or bilateral trade agreements. These reciprocal trade

agreements are designed to capture gains from trade beyond what is currently attainable under

WTO treaties. One effort is the formation of the Trans-Pacific Partnership (TPP). Following the

decision by Donald Trump to withdraw the United States from the agreement, the remaining 11

countries involved went forward with a revised agreement.

Video Note: To expand this discussion, consider the video, How Many Manufacturing Jobs Can

U.S. Realistically Maintain? in the International Business Library at http://bit.ly/MHEIBVideo.

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discussion questions. Please feel free to leave comments in the library that you feel might be

helpful to your colleagues.

THE WORLD TRADING SYSTEM UNDER THREAT

T) In 2016, two events—the vote by Britain to withdraw from the European Union and the

election of Donald Trump—challenged the long-held belief that free trade is beneficial. Given

that the United States and Britain have led the push for free trade, there is now uncertainty about

its future.

FOCUS ON MANAGERIAL IMPLICATIONS

Trade Barriers, Firm Strategy, and Policy Implications

A) What does all of this mean for business? Managers need to consider how trade barriers impact

1. Do you think governments should consider human rights when granting preferential trading

rights to countries? What are the arguments for and against taking such a position?

2. Whose interests should be the paramount concern of government trade policy: the interests of

producers (businesses and their employees) or those of consumers?

3. Given the arguments relating to the new trade theory and strategic trade policy, what kind of

trade policy should business be pressuring government to adopt?

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4. You are an employee of a U.S. firm that produces personal computers in Thailand and then

exports them to the United States and other countries for sale. The personal computers were

originally produced in Thailand to take advantage of relatively low labor costs and a skilled

workforce. Other possible locations considered at that time were Malaysia and Hong Kong. The

U.S. government decides to impose punitive 100 percent ad valorem tariffs on imports of

computers from Thailand to punish the country for administrative trade barriers that restrict U.S.

exports to Thailand. How should your firm respond? What does this tell you about the use of

targeted trade barriers?

5. Reread the Management Focus “Protecting U.S. Magnesium.” Who gains most from the

antidumping duties levied by the United States on imports of magnesium from China and

Russia? Who are the losers? Are these duties in the best national interests of the United States?

Exercise 1

Search phrase: import and export regulations

Resource Name: National Trade Estimate Report on Foreign Trade Barriers

Exercise 2

Search phrase: World Trade Organization

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Resource Name: World Trade Organization (WTO)

Website: http://www.wto.org

globalEDGE™ Category: Global, Organizations

1. Are there any circumstances under which the subsidies that Airbus received in its early years

might be justified?

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2. Do you think that Boeing originally benefited from subsidies? If they did, could they be

justified?

3. Boeing and Airbus have allegedly been receiving subsidies for decades. How might ongoing

subsidies distort the market for large commercial jet aircraft?

4. Who benefits from government subsidies to Boeing and Airbus? Who loses?

5. Under what circumstances, if any, should national governments subsidize the development of

new technologies?

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This is an interesting question that should generate interesting discussion among students.

Investing in the future and putting a nation in a strong position globally is seen as beneficial in

6. What would be the optimal outcome (in terms of economic welfare) of the ongoing trade

dispute between the U.S. and the EU countries backing Airbus? How might such an agreement

be enforced?

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This activity is designed to test the student’s knowledge of geography. Questions related to

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Continuous Case Concept

As automakers establish production operations in multiple countries around the world, and rely

on suppliers from numerous countries, the question of tariffs and quotas becomes more

important. In this chapter’s Continuous Case Concept, explore what happens if a country places a

tariff or other trade barrier on imported cars.

• Ask students to consider, for example, how consumers would react if the U.S. charged a

tariff on every car that is imported from Japan. What would be the likely reaction of

Japanese automakers? What would American producers do?

• Next, ask students to consider whether such as tariff is “fair.” Who really pays the tariff?

Who benefits from the tariff? Who would benefit from free trade in automobiles and car

parts?

• Finally, explore the decision by the state of Tennessee to offer German automaker VW

incentives totaling over $165 billion to open a new factory. As part of the deal, Tennessee

will also provide a grant of $12 million to train workers for the new VW facility. Is this

fair to U.S. automakers? How does it affect the competitiveness of U.S. companies?

Should Tennessee offer similar incentive packages to U.S. companies to encourage them

to locate production in the state? Why or why not?

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Additional Readings and Sources of Information

WTO rejects vast majority of US claims in Airbus dispute

http://trade.ec.europa.eu/doclib/press/index.cfm?id=1841

The turbulent feud between Airbus and Boeing

https://www.telegraph.co.uk/business/2017/09/17/turbulent-feud-airbus-boeing

India Sugar Production Set to Reach Record on Higher Yields

https://www.bloomberg.com/news/articles/2018-04-25/india-s-sugar-production-set–to-reach-

record-on-higher-yields

Sweet spike: India Set to replace Brazil as biggest producer of sugar

https://www.business-standard.com/article/economy-policy/sweet-spike-india-set-to-replace-

brazil-as-biggest-producer-of-sugar-118090200629_1.html

Should We Subsidize Manufacturing?

https://www.newyorker.com/news/news-desk/should-we-subsidize-manufacturing

Does The U.S. Auto Industry Pay Its Fair Share Of Taxes?

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https://www.washingtonpost.com/opinions/the-problems-in-the-farm-bill-go-way-beyond-

sugar/2018/05/13/c5d57776-5479-11e8-9c91-

7dab596e8252_story.html?utm_term=.10552fa9e723