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Global Business Today Eleventh Edition Chapter 7
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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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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?
