1. 1 Introduction Administration 1. Confirm Group Assignments http://courses.fas.harvard.edu/sum/32584 2. Multiple Choice Questions: www.mhhe.com/hill Assignment #1: “Culture” Comments Chapter 4: Ethics in International Business Case Study: The Ecuadoran Rose Industry Chapters 5 & 6: International Trade Theory & The Political Economy of International Trade WTO “Music in Bars” & “Broom Corn Brooms” (time permitting)

2. 2 Interesting Comments Theis mentioned that Denmark is a protected but Capitalist country Jolly noted that Nepal his high cronyism it’s not always what you know but it’s who you know Helena said Spaniards are lazy but open minded Jonathan said in the USA Children are very independent, unlimited opportunities Livia said Brazilians are very friendly, relaxed & create bonds, colorful presentations Berre said in the Netherland people don’t take risks Andres noted that Columbia is the oldest democracy in Latin America Dominic noted that Hong Kong is protected by Chinese army for free no tax paid to China. Nakul said if you have seen all of India you have seen the whole world Livia said in Brazil there is intense discussion about environmental protection Vikram noted Hypocrisy in India Berre mentioned “Tulip Mania” in the Netherlands Compiled by Charlene Selle

3. 3 Cultural Lens As you do business internationally, think about the cultural lens your customers, employees, suppliers, & politicians see your company through… Image source: http://www.visionaryblogging.com/wp-content/uploads/magnifying-glass-eye.jpg

4. 4 Wendy Jeffus Harvard Summer School Chapter 4: Ethics in International Business

5. 5 What are “business ethics”? The accepted principles of right or wrong governing the conduct of business people.

6. 6 Ethics in the Classroom http://www.morris.umn.edu/academic/philosophy/Photos/ethics.jpg

7. 7 What would you do? Imagine that you are asked to pay a small amount of money to get your company’s product into a foreign country… – What if the bribe expedites the delivery of a life saving machine? – What if that machine was for your mother? Would you sell patent-infringed drugs to less developed countries? Or allow a 12 year old to work in a factory? Would you buy pirated CDs? – Or buy a fake Louie Vuitton product?

8. 8 The Bottom Line Ethics is not an easy subject to discuss, but it is an IMPORTANT subject to discuss!

9. 9 The Big Picture… Ethical situations often revolve around the following issues: – Employment Conditions (Human Rights) – Pollution – Corruption

10. 10 Employment A question that international managers face is: What standards should they apply? – Hours worked per day – Pay levels Another question: What distance should the firm’s ethical policy reach? – Home market vs. – Foreign subsidiary vs. – Subcontractor vs. – Supplier vs. – Your customers?

11. 11 Human Rights UN Universal Declaration of Human Rights Established in May 2006. – 47 countries – Replaced the Commission on Human Rights Some (of the many) Articles: – Everyone, without any discrimination, has the right to equal pay for equal work – Everyone who works has the right to earn an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection – Everyone has the right to form and to join trade unions. http://www.ohchr.org/english/bodies/hrcouncil/

12. 12 The Environment “The environment is a public good that no one owns... but almost anyone can harm.” The Tragedy of the Commons – 16 th century England, “the Commons” were used as a pasture… the poor allowed their livestock to feed on the grass to supplement their income, but over-grazing lead to the loss of the ability to sustain the livestock.

13. 13 Corruption Corruption (typically relates to bribes paid or demanded). CPI – Corruption Perceptions Index. – Transparency International estimates that $400B is spent on bribes for government contracts each year.* Foreign Corrupt Practices Act (1977) – Outlawed paying bribes to get business… but does not include “facilitating payments” www.transparency.org, *Figure is worldwide, noted from Hill, Chapter 2, p. 51.

14. 14 Unrealistic Goals The book relates corruption and ethics to unrealistic goals on the part of management. I think that’s a weak excuse….

15. 15 My Advice… MANY jobs have “unrealistic goals” In addition, some employees take enormous risks (it isn’t good for you OR for the company)! Pass it up. – Only the CEO of the company should make decisions regarding these “gray areas” Start to apply for another job! Think of Creative Solutions! – Example: Adoption in Ukraine

16. 16 Moral Obligations Moral obligation is related to power and social responsibility. (Companies should favor decisions that have good economic and social consequences). “Power is morally neutral. It is how power is used that matters.” BP has a 33.15% working interest in Salah Gas – Algeria. – Built two desalination plants to provide drinking water for the local community and distributed containers so they could take the water from the plant to their home.

17. 17 Moral Obligation Why I COMPLETELY DISAGREE with one sentence in your book… “There was no economic reason for BP to make this social investment, but the company believes it is morally obligated to use its power in constructive ways.”

18. 18 Moral Obligation IT MAKES ECONOMIC SENSE! http://www.bp.com/sectiongenericarticle.do?categoryId=426&contentId=2000566

19. 19 http://www.treehugger.com/files/2010/05/bp-gulf-oil-spill-timeline.php

20. 20 Ethical Decisions Make Economic Sense! A relatively new (and exciting) concept is that strategy, marketing & ethics can be communicated to shareholders in financial terms!

21. 21 Ethical Business is GOOD Business! Reduces legal expenses Increases employee pride and productivity – Reduces costs associated with strikes and boycotts – Reduces “rework” costs Improves relationships – With suppliers, governments, regulatory bodies, activist groups, etc. Consumers want to buy products from ethical companies!

22. 22 Ethical Dilemmas What is an ethical dilemma? A situation in which none of the available alternatives seems ethically acceptable. Example: Classic “Trolley Problem” – You’re in the control booth and see two trains coming towards each other. Tragedy is unavoidable. 1) If you (do nothing) don’t switch: 5 of your workers die 2) If you (act) switch: 1 worker dies. Dilemma: Do you flip the switch or not?

23. 23 A Big Issue. Many of the ethical issues and dilemmas in international business are due to the fact that political systems, laws, economic development, and culture vary significantly from nation to nation. “When in Rome” is not a good long term strategy!

24. 24 Source Google images search term: “jail”

25. 25 ZHENG Xiaoyu… Zheng Xiaoyu, 62 Court found that 8 Pharmaceutical companies had paid Zheng over $832,000 between 1998 to 2005. China's former food and drug safety chief was given a death sentence for taking bribes and approving unsafe medicines. Hainan Kongliyuan Group – The company acquired 277 approvals of medicines from the SFDA. http://www.usatoday.com/news/world/2007-05-29-china_N.htm http://english.people.com.cn/200704/08/eng20070408_364736.html http://news.xinhuanet.com/english/2007-07/10/content_6353536.htm He was executed on July 10, 2007 for corruption.

26. 26 Enron… Ken Rice Court found him guilty of securities fraud in the Enron's 2001 collapse. Former CEO of Enron's broadband division was sentenced to 27 months in prison on June 18, 2007. Rice becomes the ninth ex-Enron executive to receive a jail term after pleading guilty to crimes http://money.cnn.com/2007/06/18/news/newsmakers/enron.reut/index.htm http://www.msnbc.msn.com/id/19293341/ http://money.cnn.com/2006/02/14/news/companies/enron/index.htm http://www.usatoday.com/money/industries/energy/2006-02-12-ken-rice-usat_x.htm Rice pleaded guilty and agreed to cooperate with prosecutors in hope of securing a lighter prison sentence. Rice has pleaded guilty to a single count of securities fraud, agreeing to pay nearly $15 million, and faces up to 10 years in prison. Enron's 2001 bankruptcy was the largest in history at the time and was the first of a wave of business scandals that shook corporate America and led to the passage of tough new disclosure laws. Enron was once the nation's seventh-largest company.

27. 27 Other CEOs behind bars… Former WorldCom Inc. Chief Executive Officer Bernard Ebbers, 67, is housed at the Federal Correctional Institution in Oakdale, Louisiana. John Rigas, 84, the ex-CEO of Adelphia Communications Corp., is imprisoned at the Federal Correctional Institution in Butner, North Carolina. June 2011, The Paul Allen, 55, CEO of Taylor Bean sentenced "I messed up. I messed up big," Allen told U.S. District Judge Leonie Brinkema before he was sentenced, apologizing to his family and "the entire financial community. "There was no excuse for my behavior.“ – The fraud also contributed to the collapse of Alabama-based Colonial Bank — the sixth largest bank failure in U.S. history. Two other banks — Deutsche Bank and BNP Paribas — lost nearly $2 billion after buying corporate paper from Taylor Bean that was not properly backed with collateral, authorities said. http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=aCaVUDaGGcAY http://en.wikipedia.org/wiki/Minneapolis_City_Council http://www.google.com/hostednews/ap/article/ALeqM5jDicS3RORnxvpz6gGB0jmrbBotTA?docId=7c25a94d5bb644a1b9ae2af47363519d

28. 28 Capitalism You have two cows… … And you sell one to buy a bull.

29. 29 The Mockery of Capitalism You have two cows… … And you go public telling shareholders you have three cows, using letters of credit…. … You then execute a debt / equity swap with associated general offer so that you get all four cows back, with a tax deduction for keeping five cows… …The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows' milk back to the listed company. …Your annual report says that the company owns eight cows, with an option on one more.

30. 30 The Mockery of Capitalism …And meanwhile your original two cows have died, because you couldn’t afford to feed them. Anonymous first source, although several websites have versions of this including: http://sharpgary.org/Cows.html

31. 31 Source Google images search term: “jail”

32. In the news today… July 6, 2011 A federal appeals court on Tuesday upheld the fraud convictions and 10-year prison sentence of Charles McCall, former chairman of health care giant McKesson Corp., for his role in revenue inflation that cost shareholders $8.6 billion. McCall was the CEO of HBO & Co., a medical software company, before McKesson acquired it for $13.9 billion in January 1999. – Prosecutors said he and other HBOC executives pumped up its sales and revenue by more than $100 million, backdating contracts, recording revenue from sales not yet completed, and concealing their actions from company auditors. 32 http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/07/05/BU8P1K6P7T.DTL

33. 33 The Cockroach Theory For every one you see, hundreds more are hiding in the woodwork…

34. 34 Beyond “the Law” While the law functions as a way to determine what is wrong… The foundation for ethical behavior must be set within an organization.

35. 35 The Roots of Un/Ethical Behavior Process based on cost, delivery, and product quality (should also consider hidden risks: environment, human rights, corruption)

36. 36 New Area of Ethics: NeuroEthics “Will airport security staff ask travelers if they are terrorists while scanning their brains? If so, the science had better be awfully good.”* – Steven Laken, CEO of No Lie MRI in Framingham, MA is working to commercialize the polygraph test. * Source Wired Magazine, “Mind Readers” June 2008, pp. 120-128

37. 37 Managerial Implications What can an international business can do to make sure ethical issues are considered? 1. Hire and promote people with a well-grounded sense of personal ethics 2. Build an organizational culture that places a high value on ethical behavior 3. Make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in a manner that is consistent with that rhetoric 4. Implement decision-making processes that require people to consider the ethical dimension of business decisions 5. Develop moral courage.

38. 38 Code of Ethics Companies can strengthen the moral courage of employees by committing themselves to not retaliate against employees who exercise moral courage, say no to superiors, or otherwise complain about unethical actions. For example, consider the following extract from Unilever’s code of ethics: – “Any breaches of the Code must be reported in accordance with the procedures specified by the Joint Secretaries. The Board of Unilever will not criticize management for any loss of business resulting from adherence to these principles and other mandatory policies and instructions. The Board of Unilever expects employees to bring to their attention, or to that of senior management, any breach or suspected breach of these principles. Provision has been made for employees to be able to report in confidence and no employee will suffer as a consequence of doing so.”

39. Discussion of this topic should continue beyond the classroom… A few final comments regarding ethics. 39

40. 40 Take a Break… Groups (& Team 1) if you haven’t done so, load your presentations on the desktop, grab a drink, meet your classmates… see you in 10 min. Image source: http://www.graduatejunction.net/images/take_a_break.jpg

41. 41 Case Presentation The Ecuadoran Rose Industry Present a 5-10min (timed) assessment of the case (answer case questions) All group members must participate.

42. 42 Wendy Jeffus Harvard Summer School Chapter 5: International Trade Theory

43. 43 Overview of Trade Theory Free trade occurs when 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. – The U.S. has several types of quotas from absolute to tariff-rate quotas.* Examples: Anchovies; Brooms; Ethyl alcohol; Milk and cream; Olives; Tuna; Upland cotton; etc. The benefits of trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. *See US Customs and Border Protection website: http://www.cbp.gov/ImageCache/cgov/content/publications/quotas_2edoc/v1/quotas.doc

44. 44 Mercantilism Mid 16 th century – First theory of trade – Goal: balance-of-trade surplus (i.e. maximize exports minimize imports) – Believed in a zero-sum game – A nation’s wealth depends on accumulated treasure Gold and silver were the currency of trade In 1776 Adam Smith attacked Mercantilism with his book Wealth of Nations. Photo source: wikkipedia.org

45. 45 Theory of Absolute Advantage Proposed in 1776 by Adam Smith (Wealth of Nations): – Suggests countries differ in abilities, therefore specialization leads to more for everyone A country should produce only goods where it is most efficient, and trade for goods where it is not efficient Trade between countries is, therefore, beneficial – Key assumption: there is an absolute balance among nations See example on next slide

46. 46 Example: Absolute Advantage Sri Lanka (100 units of Labor) Requires 10 units of labor per ton of wheat & 4 units of labor per ton of tea Max Output is 10-wheat or 25-tea ************************************** At 50% Allocation: Sri Lanka: 5-wheat and 12.5-tea With specialization: Sri Lanka: 25-tea USA (100 units of Labor) Requires 5 units of labor per ton of wheat & 20 units of labor per ton of tea Max Output is 20-wheat or 5-tea **************************************** At 50% Allocation: USA: 10-wheat and 2.5-tea With specialization: USA: 20 wheat Total World Output (before specialization): 15-wheat and 15-tea Total Output (after trade): 20-wheat and 25-tea Source: Dr. Chugh’s class notes

47. 47 Theory of Comparative Advantage 19 th century – David Ricardo (Principles of Political Economy, 1817) Unrestricted free trade brings increased world production Free trade stimulates economic growth creating dynamic gains for both countries – Efficiency of resource utilization leads to more productivity. Makes better use of resources. – A country should import even if it is more efficient in producing a product. Only trade if comparatively more efficient. Makes better use of resources Trade is a positive-sum game See example on next slide

48. 48 Example: Comparative Advantage Sri Lanka (100 units of Labor) If 10 units of labor per ton of wheat And 10 units of labor per ton of tea Max is 10-wheat or 10-tea *************************************** At 50% Allocation: Sri Lanka: 5-wheat and 5-tea With specialization: Sri Lanka: 0-wheat and 10-tea USA (100 units of Labor) If 4 units of labor per ton of wheat And 5 units of labor per ton of tea Max is 25-wheat or 20-tea **************************************** At 50% Allocation: USA: 12.5-wheat and 10-tea With specialization: USA: 18.75-wheat and 5-tea or 17.5-wheat and 6-tea Total output (before trade): 17.5-wheat and 15-tea Total output: 18.75-wheat and 15-tea OR 17.5-wheat and 16-tea Source: Dr. Chugh’s class notes

49. 49 Extensions of the Ricardian Model Immobile resources: – Resources do not always move easily from one economic activity to another. For example can we easily shift from producing tea to wheat? Will a textile worker from South Carolina be happy (or able) to start writing software for Microsoft? Diminishing returns: – Diminishing returns to specialization suggests that after some point, the more units of a good the country produces, the greater the additional resources required to produce an additional item. For example, some land is better suited for wheat, as specialization requires additional resource allocation, the return per resource unit might be lower. In addition, not all goods use the same amount of resources (i.e. coca might use more land and less labor than another traded good, like rice).

50. 50 Heckscher-Olin Theory 20 th century Comparative advantage arises from differences in national “factors endowments” – i.e. land, labor, & capital Note: Factor endowments can be impacted by government policy – (i.e. minimum wage) Export abundant resources and import scarce resources Export goods that intensively use factor endowments which are locally abundant Patterns of trade are determined by differences in factor endowments - not productivity Remember, focus on relative advantage, not absolute advantage Interested students might want to view Dr. Mankiw’s Blog: http://gregmankiw.blogspot.com/2007/04/ricardo-vs-heckscher-ohlin.html

51. 51 Trade Ruler Game http://nobelprize.org/educational_games/econo mics/trade/index.html

52. 52 Product Life-Cycle Theory 1966 – Raymond Vernon Attempt to explain trade patterns. Stage 1: Introduction – New products are introduced to meet local (i.e., national) needs, and new products are first exported to countries with similar needs, preferences, and incomes. Stage 2: Growth – A copy product is produced elsewhere and introduced in the home country to capture growth in market. This moves production to other countries, usually on the basis of cost of production. Stage 3: Maturity – The industry contracts and concentrates -- the lowest cost producer wins in this stage. Stage 4: Decline – Poorer countries constitute the only markets for the product. Therefore many declining products are produced in less developed countries. Examples: Medical Equipment, Sony’s Electronic Book Photo: http://www.primedic-ltd.com/home.html

53. 53 New Trade Theory 1970’s – Attempted to solve the difference between predictions and real-world trade flows. – Economies of scale (the price per unit declines) Microsoft spread the fixed cost of developing software (~$1B for a new version of Windows) over 100 M users. – First mover advantages (sometimes only a handful of companies are required to meet world demand so the first-movers win) Microsoft, Airbus/Boeing Implications of New Trade Theory: – Role of the government Strategic trade policy (i.e. government subsidies, infant industry arguments)

54. 54 National Competitive Advantage 1990 – Michael Porter, HBS: The theory attempts to analyze the reasons for a nation’s success in a particular industry Factor Endowments – Basic Factors – Natural resources, climate, location, demographics – Advanced Factors – Communication infrastructure, skilled labor, research facilities, technological know-how Demand Conditions – Domestic demand Relating & Supporting Industries – Absence/Presence of suppliers & related industries (Clusters) Firm Strategy, Structure, & Rivalry – Domestic rivalry & government policies on creating, organizing, and managing companies Porter recognizes two additional variables: Chance and Government Source: http://www.hno.harvard.edu/gazette/2000/12.07/01-michaelporter.html

55. 55 National Competitive Advantage Japan Consumer Electronics Germany’s large pool of engineers U.S. Biotech India’s Movie Industry In Germany & Japan engineers in top management positions drive quality & innovation What do finance exec’s drive in the U.S.?

56. 56 Porter’s Diamond http://www.teagasc.ie/research/reports/foodprocessing/4984/eopr-4984.htm Example: Irish Food Processing Industry

57. 57 Example: Children’s Book: U.S. Market http://www.teagasc.ie/research/reports/foodprocessing/4984/eopr-4984.htm Example: Children’s Book: U.S. Market Government X Chance Demand Conditions Factor Conditions Related & Supporting Industries Firm Strategy, Structure, & Rivalry X X X X X

58. Porter’s Diamond Factor Endowments – Basic Factors – Natural resources, climate, location, demographics – Advanced Factors – Communication infrastructure, skilled labor, research facilities, technological know-how Demand Conditions – Domestic demand Relating & Supporting Industries – Absence/Presence of suppliers & related industries (Clusters) Firm Strategy, Structure, & Rivalry – Domestic rivalry & government policies on creating, organizing, and managing companies Porter recognizes two additional variables: Chance and Government 58 http://www.businessballs.com/portersfiveforcesofcompetition.htm

59. 5 Forces 59 http://www.businessballs.com/portersfiveforcesofcompetition.htm

60. 60 Final Project Find out from www.cia.gov what the major exports and trading partners are for your country. Determine what your target nation’s competitive advantages may include. Develop a “Diamond” Diagram / 5-forces Analysis of your product.

61. 61 Wendy Jeffus Harvard Summer School Chapter 6: The Political Economy of International Trade

62. 62 Barriers to Trade Both tariff and non-tariff trade barriers can limit trade. A tariff is a lax levied on imports (or exports). – Specific tariffs are levied as fixed charge for each unit imported. Example $3 per barrel of oil. – Ad valorem tariffs are levied as a proportion of the value of the imported good. Example 8% on steel. Non-tariff barriers to trade include: quotas, licensing requirements, documentation requirements, administrative fees, requirements on packaging, etc. http://en.wikipedia.org/wiki/Non-tariff_barriers_to_trade

63. 63 Since the 2008 Crisis Ecuador has raised duties on 600 products Russia has increased import tariffs on used cars India has placed import tariffs on steel imports In addition, according to the World Bank 2 / 3 rds of the protectionist measures have been in the form of nontariff barriers (designed to get around WTO rules) – Indonesia specified certain goods (clothes, shoes, and toys) can only be imported through 5 ports. – Argentina imposed a license requirement on car parts, textiles and televisions. – China has stopped food and drink products from Europe (citing safety standards) – India has banned imports of toys from China for safety reasons. Developed nations have increased subsidies (the U.S., Britain, Canada, Fran, Germany, Italy and Sweden gave over $45B in subsidies to car companies) From International Business 8 th Ed. Introduction to Chapter 6 http://difference-between.com/business/duty-and-tariff/

64. 64 Source: Anti-WTO website (http://www.thirdworldtraveler.com/WTO_MAI/WTO.html)

65. 65 Historical Perspective After WWII countries of the industrialized world, convinced that the horrors of war were due in part to the isolationist economies of the 1930s, launched a series of institutions designed to prevent such policies from ever again holding sway over the world’s economies. – The General Agreement on Tariffs and Trade (GATT) was at the center of this institutional framework. GATT was a broad and overarching organization with the explicit mandate to reduce tariff barriers and thus expand global flows of trade. – The World Trade Organization (WTO) was created from GATT by the Uruguay Round negotiations (1986-94) www.gatt.org Responsibilities: Arbitrating trade disputes & monitoring trade policies of member countries. If offenders fail to comply with the arbitration panel’s recommendations, they may face penalty fees or trade sanctions. – Sister organizations were the International Monetary Fund (IMF) and the World Bank. (Chapter 10) IMF – sought to provide a stable structure for international monetary cooperation. World Bank – charged with providing funds for war-ravaged economies to rebuild themselves.

66. 66 WTO (Main Features) The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. Functions – Administers WTO trade agreements – Forum for trade negotiations (Handles trade disputes) – Monitors national trade policies – Provides technical assistance and training for developing countries – Cooperates with other international organizations Recent News: Russia’s possibly entry into the WTO http://www.npr.org/templates/story/story.php?storyId=128160125 The WTO has ruled on subsidiaries to Airbus http://www.google.com/hostednews/ap/article/ALeqM5goQ43HwAawkJhX892UjzQUeWZPogD9GKF4EG0

67. 67 Arguments For and Against WTO Pros The system helps promote peace Disputes are handled constructively – Rules make life easier for everyone Freer trade provides more choice of products and qualities – Trade raises incomes and stimulates economic growth Governments are shielded from lobbying – The system encourages good government Cons Companies are free to move companies where environmental regulations are lax. – Production is shifted to countries where worker’s rights are routinely violated. The system is anti-democratic, by taking power away from elected governments. What’s so great about having “more”?

68. 68 Doha Round The Doha round began with a ministerial-level meeting in Doha, Qatar in 2001, with subsequent ministerials in Cancún, Mexico (2003), and Hong Kong, China (2005). – The 2003 Cancún talks — intended to forge concrete agreement on the Doha round objectives — collapsed after four days during which the members could not agree on farm subsidies and access to markets. South Korean Farmers and Fisheries President Lee Kyung Hai committed suicide on the first day of the conference in protest of the price distorting agricultural subsidies of the EU and US. Recent News: – June 2011: WTO reported to attempt to salvage the Doha Round talks… http://www.ft.com/cms/s/0/eed080f6-9510-11e0-a648- 00144feab49a.html#ixzz1RMfTL2Ha http://www.wto.org/english/tratop_e/dda_e/dda_e.htm

69. 69 Examples of Disputes Agricultural products Alcoholic beverages Anti-dumping measures Apples Automobiles Bananas Beef Broom and corn brooms Ceramic floor tiles Cereals Cigarettes Coffee Computers Copyright Gambling and betting Hormones, meat Minimum import prices Movie tax Music in bars Orange juice Patents Peaches Pet food Shrimp Sugar Tax treatment for exports Tax treatment on imports Water, bottled

70. 70 Timeline

71. 71 27 July 1999, the EC made a request to the Director-in-Charge to determine the composition of the Panel 15 June 2000 the report was circulated Example: Music in Bars Complainant: European Communities Complainant: European Communities Respondent: United States Respondent: United States Third Parties: Australia, Brazil, Canada, Japan, Switzerland Third Parties: Australia, Brazil, Canada, Japan, Switzerland The problem: the US Copyright Act permits, under certain conditions, the playing of radio and television music in public places (bars, shops, restaurants, etc.) without the payment of a royalty fee. The problem: the US Copyright Act permits, under certain conditions, the playing of radio and television music in public places (bars, shops, restaurants, etc.) without the payment of a royalty fee. 26 January 1999, the EC requested consultations with the US 15 April 1999, the EC requested the establishment of a panel 28 April 1999, the DSB deferred the establishment of a panel 26 May 1999. Brazil, Australia, Canada, Japan and Switzerland reserved their third-party rights a second request to establish a panel was made by the EC 6 August 1999, the Panel was composed DSB adopted the Panel Report at its meeting on 27 July 2000 17 months

72. 72 9 November 2001, the arbitrator determined that the level of EC benefits which were being impaired amounted to Euro 1,219,900 per year 24 August 2000 the U.S. informed the DSB that it would implement the recommendations over 15 months 15 January 2001 the Arbitrator determined that the reasonable period of time for the US to implement the recommendations and rulings of the DSB in this case is 12 months from the date of the adoption of the panel report 23 October 2000, the EC requested that the reasonable period of time for implementation be determined by means of binding arbitration 24 July 2001, the DSB agreed to the US proposal to extend the reasonable period of time until 31 December 2001 23 July 2001, the US and the EC notified the DSB of their agreement to pursue arbitration in order to determine the level of impairment of benefits to the EC as a result of the Act 19 months 21 months 24 months 30 months 34 months

73. 73 26 February 2002, the parties requested the arbitrator to suspend the arbitration proceeding 25 February 2002, the US submitted a status report regarding implementation of the DSB recommendations and rulings 18 January 2002, the parties indicated, that they were engaged in constructive negotiations and were hopeful of finding a mutually satisfactory solution 17 April 2002, the US presented a status report indicating that it was engaged in discussions with the EC to find a positive and mutually acceptable solution to the dispute. The EC expressed its concern about the US’ slow progress in implementation and requested the US to provide more information in its next status report 18 December 2001, the US indicated that it was engaged in productive discussions with the EC with a view to resolving the dispute before the end of the expiry of the reasonable period of time 17 January 2002, the US objected to the level of suspension of obligations proposed by the EC and requested the DSB to refer the matter to arbitration 7 January 2002, on the grounds that that the US had failed to bring its measures into conformity within the reasonable period of time, the EC requested authorization to suspend concessions 24 June 2002, the US presented a status report on its progress in implementing the DSB’s recommendations Australia also expressed its concern about the delay and requested that any compensatory arrangement between the parties must be applied on a non-discriminatory basis 41 months

74. 74 11 November 2002, the US presented its status report 1 October 2002, the US presented its status report 24 June 2002 Australia reiterated its concern about the delay by the US in implementing the recommendations 29 July 2002, the US reiterated its previous statement - the EC acknowledged the efforts being made by the US Administration, but expressed concern about the significant delay. 23 June 2003, the US and the EC informed the DSB of a mutually satisfactory temporary arrangement 28 November 2002 the US presented its status report 27 January 2003 the US presented its status report The EC expressed disappointment with the lack of implementation by the US and urged the US to take rapid and concrete action to settle this dispute 53 months - about 4 ½ years later!

75. 75 Broom Corn Brooms

76. 76 A PROCLAMATION TO FACILITATE POSITIVE ADJUSTMENT TO COMPETITION FROM IMPORTS OF BROOM CORN BROOMS- - - - - - - BY THE PRESIDENT OF THE UNITED STATES OF AMERICA, WILLIAM JEFFERSON CLINTON

77. 77 The Trade Act (19 U.S.C. 2253) Pursuant to ….the Trade Act (19 U.S.C. 2253), and after taking into account the considerations specified in section(s)…, I have determined to implement ….[a] duty [i.e., a tariff] on imported brooms, except whisk brooms, made wholly or in part of broom corn... Such increase in, or imposition of, duty on such goods shall be effective for a three-year period, and shall apply to imports from all countries, except Canada and Israel and developing countries that account for less than three percent of the relevant imports over a recent representative period. [The U.S. broom corn industry must make] efforts …. to make a positive adjustment to import competition… (during this protected period.)

78. 78 …At the same time… "Trade has divided Americans for too long," President Clinton declared in his January 19, 1999 State of the Union address. "We must find the common ground on which business, workers, environmentalists, farmers, and government can stand together. We must tear down barriers, open markets, and expand trade."

79. 79 The Broom Corn Broom Industry The corn broom industry employed 382 people in 1995; down from about 600 five years earlier. However, some observers though this was due more to the American consumer’s switch in preferences to plastic brooms.

80. 80 The Trade Act (19 U.S.C. 2253)… The President’s proclamation states: – [The] “Imports of such brooms produced in Mexico, considered individually, accounted for a substantial share of total imports of broom corn brooms and contributed importantly to the serious injury caused by imports…”, – but he also noted that “…such brooms produced in Canada did not so account or contribute." … Note… Broom corn brooms from Mexico were typically valued at less than a dollar and had entered free of tariffs so long as Mexico shipped not more than 121,478 dozen—or 1,457,736 brooms. – Valued at $0.96, the duty free imports could amount to about $1.4 million. – Over time, Mexican imports had grown to about $7 million.

81. 81 NAFTA… The cause of the American corn broom makers is helped by language in NAFTA specifying that tariffs can be restored if American broom makers suffer. This was engineered by Democratic Rep. Glenn Poshard of Illinois, home of Arcola, the self- styled "Broomcorn Capital of the World." – (Incidentally, no broom corn had been grown in Illinois or elsewhere in the U.S. for 20 years. It was virtually all imported from Mexico.) In Alabama, broom corn making is also taken seriously, it is considered a traditional folk art and part of the region’s cultural heritage. The Mexican corn broom industry is centered mostly in a poor region of the state of Nuevo Leon not far from the U.S. border.

82. 82 Retaliation… Early in December 1996, Mexico retaliated by boosting "tariffs on eight U.S. products, including notebooks, wine coolers, brandy and Tennessee whiskey." The WSJ claims retaliation doesn't make sense: why should Mexican children pay more for notebooks or grownups more for a cocktail. *The “trapper keeper” a popular notebook is exported to Mexico from a company based in Virginia. (http://en.wikipedia.org/wiki/MeadWestvaco) *California produces brandy & wine coolers for export http://www.tastings.com/spirits/brandy.html http://en.wikipedia.org/wiki/E_%26_J_Gallo_Winery

83. 83 In January 1997, Mexico requested establishment of a dispute settlement panel under NAFTA Chapter 20. The arbitral panel ruled in their favor, finding there was no merit to the Clinton administration claim. Soon thereafter, President Clinton decided that the US "broom corn broom industry [had] not made adequate efforts to make a positive adjustment to import competition." Subsequently, the increased duties were dropped. Though ultimately scrapped, the President had in fact imposed duties on Mexican corn brooms between December 2, 1996 and December 3, 1998.

84. 84 Broom Corn Brooms

85. Please make sure to read the Trump Case available on my website: www.wendyjeffus.com prior to class on Monday.www.wendyjeffus.com Enjoy your weekend! 85