mba 531 week 2 overview (chapters 1 - 4)

MBA 531Business in Today’s Global

Environment

Overview of Week 2 Textbook Readings: Chapters 5 – 7

Chapter 5

Ethics in International Business

5-3

What Is Ethics? Ethics - accepted principles of right or wrong

that govern the conduct of a person the members of a profession the actions of an organization

Business ethics - accepted principles of right or wrong governing the conduct of business people

Ethical strategy - a strategy, or course of action, that does not violate these accepted principles

5-4

Which Ethical Issues Are Most Relevant To International Firms? The most common ethical issues in

business involve1. employment practices2. human rights3. environmental pollution4. corruption5. moral obligations of multinational

companies

5-5

How Are Ethics Relevant To Employment Practices?

Suppose work conditions in a host nation are clearly inferior to those in the multinational’s home nation

Which standards should apply? home country standards host country standards something in between

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How Are Ethics Relevant To Employment Practices?

Firms should establish minimal acceptable standards that

safeguard the basic rights and dignity of employees

audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the standards

take corrective action as necessary

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How Are Ethics Relevant To Human Rights?

Basic human rights are taken for granted in developed countries freedom of association freedom of speech freedom of assembly freedom of movement

Question: What are the responsibilities of firms in countries where basic human rights are not respected?

5-8

How Are Ethics Relevant To Human Rights?

Question: Is it ethical for companies to do business with countries with repressive regimes? Myanmar Nigeria

Question: Does multinational investment actually help bring change to these countries and ultimately improve the rights of citizens? China

5-9

How Are Ethics Relevant To Environmental Regulations?

Some parts of the environment are a public good that no one owns, but anyone can despoil

What happens when environmental regulations in host nations are far inferior to those in the home nation? Is it permissible for multinationals to pollute in

developing countries simply because there are no regulations against it? legal versus ethical behavior

The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation

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How Are Ethics Relevant To Corruption?

The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business amended to allow for facilitating payments

The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was adopted by the Organization for Economic Cooperation and Development (OECD) obliges member states to make the bribery of

foreign public officials a criminal offense

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How Are Ethics Relevant To Corruption?

But, is it permissible for multinationals to pay government officials facilitating payments if doing so creates local income and jobs? is it ok to do a little evil in order to do a greater

good? does grease money actually improve

efficiency and help growth?

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How Are Ethics Relevant To Moral Obligations?

Social responsibility refers to the idea that managers should consider the social consequences of economic actions when making business decisions there should be a presumption in favor of

decisions that have both good economic and good social consequences it is the right way for a business to behave

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How Are Ethics Relevant To Moral Obligations?

Advocates argue that businesses need to recognize their noblesse oblige - honorable and benevolent behavior that is the responsibility of successful companies give something back to the societies that have

made their success possibleBut, are multinationals morally required to

use their power to enhance local welfare?

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What Are Ethical Dilemmas? Ethical dilemmas - situations in which none of

the available alternatives seems ethically acceptable real-world decisions are complex, difficult to frame,

and involve consequences that are difficult to quantify the ethical obligations of an MNE toward employment

conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut the right course of action is not always clear

5-15

Why Do Managers Behave Unethically?

Several factors contribute to unethical behavior including

1. Personal ethics - the generally accepted principles of right and wrong governing the conduct of individuals

expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture

managers fail to question whether a decision or action is ethical, and instead rely on economic analysis when making decisions

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2. Decision-making processes - the values and norms that are shared among employees of an organization organization culture that does not

emphasize business culture encourages unethical behavior

3. Organization culture - organization culture can legitimize unethical behavior or reinforce the need for ethical behavior

4. Unrealistic performance expectations - encourage managers to cut corners or act in an unethical manner

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5. Leadership - helps establish the culture of an organization, and set the examples that others follow when leaders act unethically, subordinates may act

unethically, too6. Societal culture – firms headquartered in

cultures where individualism and uncertainty avoidance are strong are more likely to stress ethical behavior than firms headquartered in cultures where masculinity and power distance rank high

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Determinants of Ethical Behavior

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What Are The Philosophical Approaches To Ethics?

There are several different approaches to business ethics

Straw men approaches deny the value of business ethics or apply the concept in an unsatisfactory way

Others approaches are favored by moral philosophers and are the basis for current models of ethical behavior

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What Are The Straw Men Approaches To Business Ethics?

There are four common straw men approaches1. Friedman doctrine - the only social responsibility

of business is to increase profits, so long as the company stays within the rules of law

2. Cultural relativism - ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate

“when in Rome, do as the Romans do”

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What Are The Straw Men Approaches To Business Ethics?

3. Righteous moralist - a multinational’s home country standards of ethics should be followed in foreign countries

4. Naïve immoralist - if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

All approaches offer inappropriate guidelines for ethical decision making

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What Are Utilitarian And Kantian Approaches To Ethics?

Utilitarian ethics - (David Hume, Jeremy Bentham, John Stuart Mill) - the moral worth of actions or practices is determined by their consequences actions are desirable if they lead to the best possible

balance of good consequences over bad consequences

but, it is difficult to measure the benefits, costs, and risks of an action

the approach fails to consider justice

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What Are Utilitarian And Kantian Approaches To Ethics?

Kantian ethics - (Immanuel Kant) - people should be treated as ends and never purely as means to the ends of others people have dignity and need to be respected

people are not machines

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What Are Rights Theories?

Rights theories - human beings have fundamental rights and privileges which transcend national boundaries and cultures establish a minimum level of morally acceptable

behavior the Universal Declaration of Human Rights - basic

principles that should always be adhered to irrespective of the culture in which one is doing business

Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions which have an ethical component

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What Are Justice Theories?

Justice theories focus on the attainment of a just distribution of economic goods and services a just distribution is one that is considered fair and

equitable John Rawls argued that all economic goods and

services should be distributed equally except when an unequal distribution would work to everyone’s advantage impartiality is guaranteed by the veil of ignorance -

everyone is imagined to be ignorant of all his or her particular characteristics

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How Can Managers Make Ethical Decisions?

1. Hire and promote people with a well- grounded sense of personal ethics refrain from promoting individuals who have

acted unethically try to hire only people with strong ethics prospective employees should find out as

much as they can about the ethical climate in an organization prior to taking a position

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2. Build an organizational culture that places a high value on ethical behavior articulate values that place a strong

emphasis on ethical behavior emphasize the importance of a code of

ethics - formal statement of the ethical priorities a business adheres to

implement a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not

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3. Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric give life and meaning to words make sure that leaders emphasize the

importance of ethics verbally and through their actions

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4. Put decision-making processes in place that require people to consider the ethical dimensions of business decisions

Ask whether decisions fall within the accepted values of

standards that typically apply in the organizational environment

decisions can be communicated to all stakeholders affected by it

if colleagues would approve of decisions

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Managers can also use a five-step process to think through ethical problems:

Step1: Identify which stakeholders (the individuals or groups who have an interest, stake, or claim in the actions and overall

performance of a company) a decision would affect and in what ways

internal stakeholders are people who work for or who own the business such as employees, the board of directors, and stockholders

external stakeholders are the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

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Step 2: Determine whether a proposed decision would violate the fundamental rights of any stakeholders

Step 3: Establish moral intent - place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated

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Step 4: Engage in ethical behavior Step 5: Audit decisions and review them to

make sure that they are consistent with ethical principles this step is often overlooked even

though it is critical to finding out whether a decision process is working

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What Is An Ethics Officer?

Many firms now have ethics officers to ensure all employees are trained in ethics ethics is considered in the decision-making

process the company’s code of conduct is followed

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5. Develop moral courage enables managers to walk away from a decision

that is profitable, but unethical gives an employee the strength to say no to a

superior who instructs her to pursue actions that are unethical

gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company

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In the end, there are clearly things that an international business should do, and there are things that an international business should not do

But, it is important to remember that not all ethical dilemmas have a clean and obvious solution in these situations, firms must rely on the

decision-making ability of its managers

Chapter 6

International Trade Theory

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Why Is Free Trade Beneficial?Free trade - a situation where a

government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country

Trade theory shows why it is beneficial for a country to engage in international trade even for products it is able to produce for itself

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Why Is Free Trade Beneficial?International trade allows a country

to specialize in the manufacture and export of products and services that it can produce efficiently

import products and services that can be produced more efficiently in other countries limits on imports may be beneficial to

producers, but not beneficial for consumers

5-39

Why Do Certain Patterns Of Trade Exist?

Some patterns of trade are fairly easy to explain it is obvious why Saudi Arabia exports oil,

Ghana exports cocoa, and Brazil exports coffee

But, why does Switzerland export chemicals, pharmaceuticals, watches, and jewelry?

Why does Japan export automobiles, consumer electronics, and machine tools?

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What Role Does Government Have In Trade?

The mercantilist philosophy makes a crude case for government involvement in promoting exports and limiting imports

Smith, Ricardo, and Heckscher-Ohlin promote unrestricted free trade

New trade theory and Porter’s theory of national competitive advantage justify limited and selective government intervention to support the development of certain export-oriented industries

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What Is Mercantilism?

Mercantilism (mid-16th century) suggests that it is in a country’s best interest to maintain a trade surplus—to export more than it imports advocates government intervention to achieve

a surplus in the balance of trade Mercantilism views trade as a zero-sum

game—one in which a gain by one country results in a loss by another

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What Is Smith’s Theory Of Absolute Advantage?

Adam Smith (1776) argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it countries should specialize in the production

of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries

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How Does The Theory Of Absolute Advantage Work?

Assume that two countries, Ghana and South Korea, both have 200 units of resources that could either be used to produce rice or cocoa

In Ghana, it takes 10 units of resources to produce one ton of cocoa and 20 units of resources to produce one ton of rice Ghana could produce 20 tons of cocoa and no rice,

10 tons of rice and no cocoa, or some combination of rice and cocoa between the two extremes

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How Does The Theory Of Absolute Advantage Work?In South Korea it takes 40 units of

resources to produce one ton of cocoa and 10 resources to produce one ton of rice South Korea could produce 5 tons of cocoa

and no rice, 20 tons of rice and no cocoa, or some combination in between

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How Does The Theory Of Absolute Advantage Work?Without trade

Ghana would produce 10 tons of cocoa and 5 tons of rice

South Korea would produce 10 tons of rice and 2.5 tons of cocoa

With specialization and trade Ghana would produce 20 tons of cocoa South Korea would produce 20 tons of rice Ghana could trade 6 tons of cocoa to South

Korea for 6 tons of rice

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How Does The Theory Of Absolute Advantage Work?After trade

Ghana would have 14 tons of cocoa left, and 6 tons of rice

South Korea would have 14 tons of rice left and 6 tons of cocoa

If each country specializes in the production of the good in which it has an absolute advantage and trades for the other, both countries gain trade is a positive sum game

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How Does The Theory Of Absolute Advantage Work?

Absolute Advantage and the Gains from Trade

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What Is Ricardo’s Theory Of Comparative Advantage?

David Ricardo asked what happens when one country has an absolute advantage in the production of all goods

The theory of comparative advantage (1817)—countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries even if this means buying goods from other

countries that they could produce more efficiently at home

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How Does The Theory Of Comparative Advantage Work?

Assume Ghana is more efficient in the production of both cocoa and rice

In Ghana, it takes 10 resources to produce one ton of cocoa, and 13 1/2 resources to produce one ton of rice

So, Ghana could produce 20 tons of cocoa and no rice, 15 tons of rice and no cocoa, or some combination of the two

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In South Korea, it takes 40 resources to produce one ton of cocoa and 20 resources to produce one ton of rice

So, South Korea could produce 5 tons of cocoa and no rice, 10 tons of rice and no cocoa, or some combination of the two

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With trade Ghana could export 4 tons of cocoa to South

Korea in exchange for 4 tons of rice Ghana will still have 11 tons of cocoa, and 4

additional tons of rice South Korea still has 6 tons of rice and 4 tons

of cocoa if each country specializes in the production of

the good in which it has a comparative advantage and trades for the other, both countries gain

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Comparative advantage theory provides a strong rationale for encouraging free trade total output is higher both countries benefit

Trade is a positive sum game

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Comparative Advantage and the Gains from Trade

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Is Unrestricted Free Trade Always Beneficial?

Unrestricted free trade is beneficial, but the gains may not be as great as the simple model of comparative advantage would suggest immobile resources diminishing returns dynamic effects and economic growth the Samuelson critique

But, opening a country to trade could increase a country's stock of resources as increased supplies become

available from abroad the efficiency of resource utilization and so free up resources for

other uses economic growth

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Could A Rich Country Be Worse Off With Free Trade?

Paul Samuelson - the dynamic gains from trade may not always be beneficial free trade may ultimately result in lower

wages in the rich country The ability to offshore services jobs that were

traditionally not internationally mobile may have the effect of a mass inward migration into the United States, where wages would then fall but, protectionist measures could create a

more harmful situation than free trade

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What Is The Heckscher-Ohlin Theory?

Eli Heckscher (1919) and Bertil Ohlin (1933) - comparative advantage arises from differences in national factor endowments the extent to which a country is endowed with

resources like land, labor, and capitalThe more abundant a factor, the lower its

cost

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What Is The Heckscher-Ohlin Theory?

The pattern of trade is determined by factor endowments Heckscher and Ohlin predict that countries

will export goods that make intensive use of

locally abundant factors import goods that make intensive use of

factors that are locally scarce

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Does The Heckscher-Ohlin Theory Hold?

Wassily Leontief (1953) theorized that since the U.S. was relatively abundant in capital compared to other nations, the U.S. would be an exporter of capital intensive goods and an importer of labor-intensive goods. However, he found that U.S. exports were

less capital intensive than U.S. imports Since this result was at variance with the

predictions of trade theory, it became known as the Leontief Paradox.

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What Is The Product Life-Cycle Theory?

The product life-cycle theory - as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade proposed by Ray Vernon in the mid-1960s

At this time most of the world’s new products were developed by U.S. firms and sold first in the U.S.

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According to the product life-cycle theory the size and wealth of the U.S. market gave U.S.

firms a strong incentive to develop new products initially, the product would be produced and sold in

the U.S. as demand grew in other developed countries, U.S.

firms would begin to export demand for the new product would grow in other

advanced countries over time making it worthwhile for foreign producers to begin producing for their home markets

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U.S. firms might set up production facilities in advanced countries with growing demand, limiting exports from the U.S.

As the market in the U.S. and other advanced nations matured, the product would become more standardized, and price would be the main competitive weapon

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Producers based in advanced countries where labor costs were lower than the United States might now be able to export to the United States

If cost pressures were intense, developing countries would acquire a production advantage over advanced countries

Production became concentrated in lower-cost foreign locations, and the U.S. became an importer of the product

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The Product Life-Cycle Theory

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Does The Product Life- Cycle Theory Hold?

The product life-cycle theory accurately explains what has happened for products like photocopiers and a number of other high technology products developed in the United States in the 1960s and 1970s mature industries leave the U.S. for low cost

assembly locations

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Does The Product Life Cycle Theory Hold?

But, the globalization and integration of the world economy has made this theory less valid today the theory is ethnocentric production today is dispersed globally products today are introduced in multiple

markets simultaneously

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What Is New Trade Theory?

New trade theory suggests that the ability of firms to gain economies of scale (unit cost reductions associated with a large scale of output) can have important implications for international trade

Countries may specialize in the production and export of particular products because in certain industries, the world market can only support a limited number of firms new trade theory emerged in the 1980s Paul Krugman won the Nobel prize for his

work in 2008

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1. Through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average cost of those goods without trade, nations might not be able to produce

those products where economies of scale are important

with trade, markets are large enough to support the production necessary to achieve economies of scale

so, trade is mutually beneficial because it allows for the specialization of production, the realization of scale economies, and the production of a greater variety of products at lower prices

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2. In those industries when output required to attain economies of scale represents a significant proportion of total world demand, the global market may only be able to support a small number of enterprises first-mover advantages - the economic and

strategic advantages that accrue to early entrants into an industry

economies of scale first movers can gain a scale based cost

advantage that later entrants find difficult to match

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What Are The Implications Of New Trade Theory For Nations?

Nations may benefit from trade even when they do not differ in resource endowments or technology a country may dominate in the export of a good

simply because it was lucky enough to have one or more firms among the first to produce that good

Governments should consider strategic trade policies that nurture and protect firms and industries where first-mover advantages and economies of scale are important

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What Is Porter’s Diamond Of Competitive Advantage?

Michael Porter (1990) tried to explain why a nation achieves international success in a particular industry identified four attributes that promote or

impede the creation of competitive advantage1. Factor endowments - a nation’s position in

factors of production necessary to compete in a given industry can lead to competitive advantage can be either basic (natural resources, climate,

location) or advanced (skilled labor, infrastructure, technological know-how)

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2. Demand conditions - the nature of home demand for the industry’s product or service influences the development of capabilities sophisticated and demanding customers pressure

firms to be competitive3. Relating and supporting industries - the

presence or absence of supplier industries and related industries that are internationally competitive can spill over and contribute to other industries successful industries tend to be grouped in clusters

in countries

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4. Firm strategy, structure, and rivalry - the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry different management ideologies affect the

development of national competitive advantage vigorous domestic rivalry creates pressures to

innovate, to improve quality, to reduce costs, and to invest in upgrading advanced features

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Determinants of National Competitive Advantage: Porter’s Diamond

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Does Porter’s Theory Hold?

Government policy can affect demand through product standards influence rivalry through regulation and antitrust laws impact the availability of highly educated workers and

advanced transportation infrastructure. The four attributes, government policy, and

chance work as a reinforcing system, complementing each other and in combination creating the conditions appropriate for competitive advantage

So far, Porter’s theory has not been sufficiently tested to know how well it holds up

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What Are The Implications Of Trade Theory For Managers?

1. Location implications - a firm should disperse its various productive activities to those countries where they can be performed most efficiently firms that do not may be at a competitive

disadvantage2. First-mover implications - a first-mover advantage can

help a firm dominate global trade in that product3. Policy implications - firms should work to encourage

governmental policies that support free trade want policies that have a favorable impact on each

component of the diamond

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What Is The Balance Of Payments?

A country’s balance-of-payments accounts keep track of the payments to and receipts from other countries for a particular time period double entry bookkeeping sum of the current account balance, the

capital account and the financial account should be zero

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There are three main accounts1. The current account records transactions of goods,

services, and income, receipts and payments current account deficit - a country imports more

than it exports current account surplus – a country exports more

than it imports2. The capital account records one time changes in the

stock of assets3. The financial account records transactions that involve

the purchase or sale of assets net change in U.S. assets owned abroad foreign owned assets in the U.S.

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United States Balance-of-Payments Accounts, 2011

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Is A Current Account Deficit Bad?

Question: Does current account deficit in the United States matter?

A current account deficit implies a net debtor so, a persistent deficit could limit future

economic growth But, even though capital is flowing out of the

U.S. as payments to foreigners, much of it flows back in as investments in assets

Yet, suppose foreigners stop buying U.S. assets and sell their dollars for another currency a dollar crisis could occur

Chapter 7

The Political Economy of International Trade

5-81

What Is The Political Reality Of International Trade?

Free trade occurs when governments do not attempt to restrict what citizens can buy from another country or what they can sell to another country many nations are nominally committed to free

trade, but intervene to protect the interests of politically important groups

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How Do Governments Intervene In Markets?

Governments use various methods to intervene in markets including

1. Tariffs - taxes levied on imports that effectively raise the cost of imported products relative to domestic products

Specific tariffs - levied as a fixed charge for each unit of a good imported

Ad valorem tariffs - levied as a proportion of the value of the imported good

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Tariffs increase government revenues force consumers to pay more for certain

imports are pro-producer and anti-consumer reduce the overall efficiency of the world

economy

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2. Subsidies - government payments to domestic producers Subsidies help domestic producers

compete against low-cost foreign imports gain export markets

Consumers typically absorb the costs of subsidies

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3. Import Quotas - restrict the quantity of some good that may be imported into a country Tariff rate quotas - a hybrid of a quota and a

tariff where a lower tariff is applied to imports within the quota than to those over the quota

A quota rent - the extra profit that producers make when supply is artificially limited by an import quota

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4. Voluntary Export Restraints - quotas on trade imposed by the exporting country, typically at the request of the importing country’s government Import quotas and voluntary export

restraints benefit domestic producers raise the prices of imported goods

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5. Local Content Requirements - demand that some specific fraction of a good be produced domestically benefit domestic producers consumers face higher prices

6. Administrative Policies - bureaucratic rules designed to make it difficult for imports to enter a country polices hurt consumers by limiting choice

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7. Antidumping Policies–also called countervailing duties–punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition dumping - selling goods in a foreign market below

their costs of production, or selling goods in a foreign market below their “fair” market value enables firms to unload excess production in

foreign markets may be predatory behavior - producers use

profits from their home markets to subsidize prices in a foreign market to drive competitors out of that market, and then later raise prices

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Why Do Governments Intervene In Markets?

There are two main arguments for government intervention in the market

1. Political arguments - concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)

2. Economic arguments - concerned with boosting the overall wealth of a nation – benefits both producers and consumers

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What Are The Political Arguments For Government Intervention?

1. Protecting jobs - the most common political reason for trade restrictions results from political pressures by unions or

industries that are "threatened" by more efficient foreign producers, and have more political clout than consumers

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2. Protecting industries deemed important for national security - industries are often protected because they are deemed important for national security aerospace or semiconductors

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3. Retaliation for unfair foreign competition - when governments take, or threaten to take, specific actions, other countries may remove trade barriers if threatened governments do not back down,

tensions can escalate and new trade barriers may be enacted

risky strategy4. Protecting consumers from “dangerous”

products – limit “unsafe” products

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5. Furthering the goals of foreign policy - preferential trade terms can be granted to countries that a government wants to build strong relations with trade policy can also be used to punish

rogue states

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6. Protecting the human rights of individuals in exporting countries – through trade policy actions

7. Protecting the environment – international trade is associated with a decline in environmental quality concern over global warming enforcement of environmental regulations

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What Are The Economic Arguments For Government Intervention?

1. The infant industry argument - an industry should be protected until it can develop and be viable and competitive internationally accepted as a justification for temporary

trade restrictions under the WTO

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Question: When is an industry “grown up” ? Critics argue that if a country has the potential

to develop a viable competitive position, its firms should be capable of raising necessary funds without additional support from the government

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2. Strategic trade policy – first-mover advantages can be important to success governments can help firms from their

countries attain these advantages governments can help firms overcome

barriers to entry into industries where foreign firms have an initial advantage

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When Should Governments Avoid Using Trade Barriers?

Paul Krugman argues that strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries countries that attempt to use such policies will

probably provoke retaliation Krugman argues that since special interest

groups can influence governments, strategic trade policy is almost certain to be captured by such groups who will distort it to their own ends

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How Has The Current World Trading System Emerged?

Until the Great Depression of the 1930s, most countries had some degree of protectionism Smoot-Hawley Act (1930)

After WWII, the U.S. and other nations realized the value of freer trade established the General Agreement on Tariffs

and Trade (GATT) - a multilateral agreement to liberalize trade

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In the 1980s and early 1990s protectionist trends emerged Japan’s perceived protectionist (neo-

mercantilist) policies created intense political pressures in other countries

persistent trade deficits by the U.S use of non-tariff barriers increased

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The Uruguay Round of GATT negotiations began in 1986 focusing on1. Services and intellectual property

going beyond manufactured goods to address trade issues related to services and intellectual property, and agriculture

2. The World Trade Organization it was hoped that enforcement mechanisms

would make the WTO a more effective policeman of the global trade rules

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The WTO encompassed GATT along with two sisters organizations the General Agreement on Trade in Services

(GATS) working to extend free trade agreements to

services the Agreement on Trade Related Aspects of

Intellectual Property Rights (TRIPS) working to develop common international

rules for intellectual property rights

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The WTO has emerged as an effective advocate and facilitator of future trade deals, particularly in such areas as services 159 members in 2013 so far, the WTO’s policing and enforcement

mechanisms are having a positive effect most countries have adopted WTO

recommendations for trade disputes a magnet for various groups protesting free

trade

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What Is The Future Of The World Trade Organization?

The current agenda of the WTO focuses on the rise of anti-dumping policies the high level of protectionism in agriculture the lack of strong protection for intellectual

property rights in many nations continued high tariffs on nonagricultural goods

and services in many nations

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What Is The Future Of The World Trade Organization?

The WTO launched a new round of talks at Doha, Qatar in 2001 that have already gone on for 12 years and are currently stalled.

The agenda includes cutting tariffs on industrial goods and services phasing out subsidies to agricultural producers reducing barriers to cross-border investment limiting the use of anti-dumping laws

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What Do Trade Barriers Mean For Managers?

Managers need to consider how trade barriers affect the strategy of the firm and the implications of government policy on the firm

1. Trade barriers raise the cost of exporting products to a country

2. Voluntary export restraints (VERs) may limit a firm’s ability to serve a country from locations outside that country

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What Do Trade Barriers Mean For Managers?

3. To conform to local content requirements, a firm may have to locate more production activities in a given market than it would otherwise

Managers have an incentive to lobby for free trade, and keep protectionist pressures from causing them to have to change strategies

mba 531 week 2 overview (chapters 1 - 4)

Education