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Contributions to Economics

Marcel van Marion

International
Trade Policy and
European Industry
The Case of the Electronics Business
Contributions to Economics

For further volumes:

http://www.springer.com/series/1262
.
Marcel van Marion

International
Trade Policy and
European Industry
The Case of the Electronics Business
Marcel van Marion
Eindhoven
Netherlands

ISSN 1431-1933
ISBN 978-3-319-00391-7 ISBN 978-3-319-00392-4 (eBook)
DOI 10.1007/978-3-319-00392-4
Springer Cham Heidelberg New York Dordrecht London
Library of Congress Control Number: 2013941991

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Preface

The writing of this book was initiated by the understanding that many developments
in the electronics business have remained unexplained or will be forgotten. An
account of practical experience related to trade policy and trade policy rules may
also be lost. Some sectors of European business have disappeared. That would not
be a disaster if ignoring some facts would not cause repeated catastrophes.
According to the rules of probability, such disasters do not occur twice at the
same spot. This may be correct.
Almost 25 years of practice in the electronics business, with Philips Electronics,
and in the boards of industry associations plus an additional period as a private trade
policy counsellor rendered me experience in the use of trade policy instruments.
This book is a report on my experiences in this domain. Often it describes
adventures that have gone astray in the jungle of rules and politics. It describes
victories and defeats in the arena of international economic relations. Defeats have
truncated the industry and reduced the need for trade policy representation.
I thank many people at Philips for giving me the opportunity to be at the centre of
many events of international relations. Members of the board of Philips Electronics
entrusted me with some interesting, even fascinating tasks.
Extremely important were those amazingly few members of the staff of Philips’
Bureau for International Economic Relations who contributed to some of the
episodes sketched on the pages hereafter. I would like to mention Karine Hustinx,
Diny Janssen, Casper Garos, Wicko van Haalen, Frank Smits and André Rhoen,
brilliant and dedicated people, who made a formidable contribution to the advance-
ment of the international relations of Philips and the industry.
Companion in arms, Henri Anus, former délégué général of the French
Simavelec, offered his friendship and fine cooperation in the many years that I
worked on behalf of the European electronics industry and provided me with some
supplementary documents used in this book.
I am grateful to Edwin Vermulst, this worthy opponent in various anti-dumping
cases, gifted with an exceptional knowledge – causing envy – of international trade
law, for his encouraging remarks and particularly for the intellectually stimulating

v
vi Preface

discussions over the years, although we often found ourselves on different sides of
the fence.
Frits Bolkestein earns my lasting gratitude for his friendship and encouragement
during important stages of my career.
Showing her intellectual grasp of the matters described in the book and thanks to
her quick mind and efficiency, Maegan McCann has made an invaluable contribu-
tion by editing and polishing texts that needed improvement. I thank her for it.
And last but not least, and in contrast to the Windhundverfahren in export
licensing – first come, first served, as described in Sect. 3.3 of this book – I express
my gratitude to my dear wife Anja, who gave a solid base to the project and has
patiently waited until the completion of this book, encouraging me and requesting
to be prudent in the texts, probably knowing that she asked for the impossible.

June 2013 Marcel van Marion

Abbreviations

ADA Anti-Dumping Agreement, Agreement on Implementation of

Article VI of the General Agreement on Tariffs and Trade 1994
ALARM Association for Legal Auto Radio Measures, Temporary
European Association of Car Audio Producers
ANIE Associazone Nazionale Italiano dell’ Industrie Elettrotecniche ed
Elettroniche, Italian Electro Technical and Electronics
Association
BCG Boston Consulting Group
Benelux Belgium Netherlands and Luxemburg (Economic Union)
BREMA British Radio and Electronic Equipment Manufacturers’
Association
BTS Broadcast Television Systems (a Bosch Philips Joint Ventrue)
CAP Common Agricultural Policy
CCC Community Customs Code
CCC Customs Cooperation Council, predecessor of the WCO
CFL-i Compact Fluorescence Lamps Integrated (Electronic)
CIAJ Communications Industry Association of Japan; now:
Communications and Information Network Association of Japan
CIF Seller Must Pay the Costs, Insurance and Freight to Bring the
Goods to the Port of Destination.
CN Combined Nomenclature: Codes and Product Definitions for
Common Customs Tariff and of the External Trade Statistics
COP Cost of Production
EACEM European Association of Consumer Electronics Manufacturerts
ECSC European Coals and Steel Community
EEC European Economic Community
EECA European Electronic Components Manufacturers’ Association
EFTA European Free Trade Area
EIAJ Electronics Industry Association of Japan
EPR Effective Rate of Protection
ESL Energy Saving Lamp

vii
viii Abbreviations

Fabrimetal Belgian Federation of Metal and Electrical Industry, Since 2000

Agoria
FME Federation of Metal and Electrical Industry (in the Netherlands)
FOB Free on Board: The Seller Must Load the Goods on Board the
Vessel Nominated by the Buyer and Bear Costs Including
Loading
GATT General Agreement on Tariffs and Trade
GEC General Electric Company Ltd, A UK Electronics Company
HDTV High Definition Television Broadcasting System
HiFi High Fidelity, Originally Meeting the Standard of Deutsche
Industrie Normierung (DIN) 45500
HS Harmonized System: International Code and Tariff Nomenclature
IC Integrated Circuit
ITT International Telephone & Telegraph Corp., later ITT Corp.,
Electronics Conglomerate Broken Up in 1995
JMEA Japan Machinery Exporters’ Association (Private Branch of
METI)
JVC Victor Corporation of Japan, a Subsidiary of Panasonic
LGE LG Electronics, Formerly Lucky GoldStar
LoT Level of Trade Adjustment (the Addition to the CIF Value of
Imported Products for Calculation of Resale Price)
MES Market Economy Status
MET Market Economy Treatment
METI Ministry of Economy, Trade and Industry of Japan, Previously
MITI
MITI Ministry of International Trade and Industry (of Japan). In 2001:
Ministry of Economy, Trade and Industry (METI)
NEC Nippon Denki Kabushiki Gaisha, Nippon Electric Company,
Limited
NEDC National Economic Development Council (Advisory Council for
Industry Development) (Neddy)
NHK Nippon Hoso Kyokai, Japan Broadcasting Corporation
NME Non-Market Economy
NTSC National Television System Committee (of the USA)
NTT Nippon Telephone and Telegraph Company
OCT Ordinary Course of Trade
OECD Organisation for Economic Co-operation and Development
OEM Original Equipment Manufacturers, Traders with Own Production
in the Sector
OMA Orderly Market Agreement
PAL Phase Alternating Line
PCB Printed Circuit Board
PCN Product Code Number (Code for a Product with the Specific
Characteristics)
Abbreviations ix

PDO Philips DuPont Optical, a Joint Venture for Optical Media, (CD,
DVD, Magneto-Optical Discs)
POETIC Producers of European Televisions in Cooperation, Temporary
Association of Television Producers
PPF Plain Paper Fax
QR Quantitative Restriction (Quota)
RCA Radio Corporation of America
RIC Radio Industry Council, a British Industry Platform
RTC la Radiotechnique Compélec, Frenchpart of Philips Components
Division
SCAN Society of Coherent Anti-dumping Norms, Temporary European
Association of CTV Producers
SCART Syndicat des Constructeurs d’Appareils Radiorécepteurs et
Téléviseur, Later SIMAVELEC
SEL Standard Elektrik Lorenz AG, since 1979 Part of ITT, Which was
in 1988 Sold to NOKIA
SIMAVELEC le syndicat des industries de matériels audiovisuels électroniques
SWP Sector Working Party (of NEDC)
TCE Thomson Consumer Electronics, previously Thomson Grand
Public
TMM Thomson Multi Media, Successor to TCE
TSP Thermo Sensitive Paper
TT Thermo Transfer
VCR Video Cassette Recorders
VCR-TV Combinations of Video Cassette Recorders and Television
VER Voluntary Export Restraint
VHS Video Home System, Video Cassette Format Introduced by JVC
VRA Voluntary Restraint Agreement
WCO World Customs Organisation, Successor of the CCC
WTO World Trade Organisation
ZVEI Zentralverband Elektrotechnik- und Elektronikindustrie, Central
Association of Electrotechnical and Electronic Industry
.
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Limitations of Voluntary Restraints . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 VRA Fashion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Benefits and Luxury of a Benelux Agreement . . . . . . . . . . . . . . 6
2.3 Voluntary Agreement on Suicide: Euthanasia of United Kingdom
Consumer Electronics Industry . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Video Recorders: Informal Peace to a Format War . . . . . . . . . . . 25
2.5 European Trade Policy of Foreign Make: Japanese
Self-Restraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.6 Voluntary Restraints as Trade Policy Instrument: Preliminary
Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3 Follies of Voluntary Restraints: Politics and Economics . . . . . . . . . 51
3.1 Some Characteristics of Voluntary Export Restraints
in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.2 History of Voluntary Restraints . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.3 Commercial and Legal Consequences of VRAs . . . . . . . . . . . . . 58
3.4 VRA and Economic Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3.5 Politics and Economics of the VRA on VCRs . . . . . . . . . . . . . . 62
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4 CD Players: Laser Light at the End of the Tunnel . . . . . . . . . . . . . . . . . 65
4.1 Emergency Call: Fear of Failure . . . . . . . . . . . . . . . . . . . . . . . . 65
4.2 Industrial Concerns of a Big Corporation . . . . . . . . . . . . . . . . . . 68
4.3 Hard Work on Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.4 Market Perceptions and Market Realities: Fear of Distortion . . . . 71
4.5 Trade Policy Innovation for a Novel Product . . . . . . . . . . . . . . . 73
4.6 Japan’s Conduct and the Trade Environment . . . . . . . . . . . . . . . 79

xi
xii Contents

4.7 New Products and Innovation of GATT Rule . . . . . . . . . . . . . . . 79

4.8 The Aftermath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5 Meeting the Challenge: Blind Alley of New Protection . . . . . . . . . . 85
5.1 Revival of European Industry? . . . . . . . . . . . . . . . . . . . . . . . . . 85
5.2 Beaten Tracks of Trade Policy Again? . . . . . . . . . . . . . . . . . . . . 91
5.3 Japanese Shoe Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
5.4 The Uruguay Round and Tariff Reductions . . . . . . . . . . . . . . . . 99
5.5 Customs Classification as a Trade Policy Tool:
Mechanical Decks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.6 Camera Recorder Customs Heading: “Essential Characteristics”,
Buying or Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.7 EC’s Enlargement as a Tool: The Customs Union Tariff
Harmonisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
5.8 Blind Alley of Mere Protection . . . . . . . . . . . . . . . . . . . . . . . . . 107
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
6 Trade Rules and Struggle for Margin . . . . . . . . . . . . . . . . . . . . . . . 109
6.1 Computing Competitors’ Advantages . . . . . . . . . . . . . . . . . . . . . 109
6.2 Effective Rate of Protection: VCR and Mechanical Deck . . . . . . 110
6.3 Outward Processing and Duty on Exported Components . . . . . . . 115
7 Japan’s Market Structure as International Trade Barrier . . . . . . . 119
7.1 In Search of Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
7.2 Japan’s Captive Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
7.3 Market Structure: Ancillary Suppliers . . . . . . . . . . . . . . . . . . . . 127
7.4 Market Structure: Restriction of Competition . . . . . . . . . . . . . . . 127
7.5 Captive Distribution as a Import Barrier . . . . . . . . . . . . . . . . . . 133
7.6 Captive Distribution: Customs Duty Equivalence . . . . . . . . . . . . 134
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
8 Market Structure and Dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.1 Assumptions in Models of Dumping . . . . . . . . . . . . . . . . . . . . 141
8.2 Domestic Competition and Exports: Bertrand
and Cournot Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
8.3 Conflicting Market Perceptions . . . . . . . . . . . . . . . . . . . . . . . . 148
8.4 Dumping Defined and Explained . . . . . . . . . . . . . . . . . . . . . . . 149
8.5 Domestic Competition and: Dumped. Exports . . . . . . . . . . . . . 152
8.6 Costs and Benefits of Dumping and Anti–Dumping
Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
8.7 Methodology of Finding Dumping and Injury and
Differences in Causes of Dumping . . . . . . . . . . . . . . . . . . . . . . 163
8.8 Korean Distribution and Imports . . . . . . . . . . . . . . . . . . . . . . . 164
8.9 Distribution and International Trade Rules . . . . . . . . . . . . . . . . 165
8.10 Business Case: Tosoh’s Dumping of MODs in a Proposal
for a Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Contents xiii

9 Myth of Japanese Efficiency: Dumping of Compact

Disc Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
9.1 Discovery of Massive Dumping . . . . . . . . . . . . . . . . . . . . . . . . 173
9.2 Strategies and Tactics in the Anti-Dumping Proceeding . . . . . . . 177
9.3 Politics and Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
9.4 Much Ado About Nothing: Mishit . . . . . . . . . . . . . . . . . . . . . . . 187
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
10 Aftermath of VCRs: The Politicised End to a Continuing Story . . . 193
10.1 New Troubles in the VCR Market . . . . . . . . . . . . . . . . . . . . . . 193
10.2 Japanese Affection for Koreans . . . . . . . . . . . . . . . . . . . . . . . . 194
10.3 MITI’s Discipline Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
10.4 Company Politics and Trade Law . . . . . . . . . . . . . . . . . . . . . . 198
10.5 Reshuffle of the European Theatre . . . . . . . . . . . . . . . . . . . . . . 201
10.6 Failed Attempt of Appeasement . . . . . . . . . . . . . . . . . . . . . . . . 206
10.7 Case Lost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
11 Blurred Picture: Trade Policy and Television’s Future
in the Dark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
11.1 Quotas and the Origin of Origin Rules . . . . . . . . . . . . . . . . . . 215
11.2 Dumping and Origin Rule: Does the Origin Change the
Nature of Dumping? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
11.3 Grundig’s Taiwanese Television Troubles and Mullard’s
Comfort by an Origin Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 221
11.4 Origin as Commercial Strategy: Grundig and Philips
Struggle in Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
11.5 CTV Dumping, Market and Tailored “Like Product”
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
11.6 Politics of Origin: Deceptions About Origin and Non-market
Economy Normal Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
11.7 Multinationals and Origin in CTV Dumping . . . . . . . . . . . . . . 233
11.8 Dictate by a Company of the State . . . . . . . . . . . . . . . . . . . . . 235
11.9 State Aid and Undercutting or Underselling: Doom for
European Television Industry . . . . . . . . . . . . . . . . . . . . . . . . 236
11.10 Dissimilarity of Philips and Thomson: Industrial Flexibility
Versus Political Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
11.11 Appearances of Privileged Treatment and the Damage to
European Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
11.12 Dark Picture for European CTV Industry . . . . . . . . . . . . . . . . 249
11.13 Industry Status and Profile of Courage . . . . . . . . . . . . . . . . . . 253
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
12 Orientation on Origin Rules: A Digression on Discrimination . . . . 255
12.1 Objectives and Functioning of Origin Rules . . . . . . . . . . . . . . 255
12.2 Change in Origin by Dumping . . . . . . . . . . . . . . . . . . . . . . . . 257
12.3 Like Product and Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
12.4 Origin and in- or Exclusion by Confusion . . . . . . . . . . . . . . . 260
xiv Contents

12.5 Origin Rule as Trade Barrier . . . . . . . . . . . . . . . . . . . . . . . . . 269

12.6 Origin, Determination of Normal Value and
Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
12.7 Denial of Economics of Dumping and
Discrimination Again . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
12.8 License to Kill the European Industry: Preferential
Dumping Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
12.9 Origin Rules and Fraud in Television Trade . . . . . . . . . . . . . . 286
12.10 Origin and Definition of European Industry . . . . . . . . . . . . . . 291
12.11 Origin and Other Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
12.12 Example of Other Origin Rules: Integrated Circuits . . . . . . . . 295
12.13 Accession of Spain and Portugal to the European
Community: Temporary Preferential Origin . . . . . . . . . . . . . . 296
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
13 Inter and Intra European Company Politics . . . . . . . . . . . . . . . . . . 299
13.1 The Workers’ Council Courageous Chairman . . . . . . . . . . . . . . 299
13.2 Dutch Disbelief of a Japanese Cartel in the United States:
The Council’s Draw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
13.3 A Japanese Camera Cartel and European
Community Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
13.4 Internal Inhibitions to Trade Policy: The CD Car Radio
and Changers Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
14 Trade Policy and Pressure Politics: Fax Machines . . . . . . . . . . . . . 321
14.1 Fax Machine and Facsimile Markets . . . . . . . . . . . . . . . . . . . . 321
14.2 Technologies and Markets: European Producers, Market
and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
14.3 Trade and Distribution in Exporting Countries: The
Competitiveness Issue Again . . . . . . . . . . . . . . . . . . . . . . . . . . 328
14.4 Fax Market Volume and Trends . . . . . . . . . . . . . . . . . . . . . . . 334
14.5 Procedure: Politics, Pressure and Product Definition . . . . . . . . . 336
14.5.1 Pressure and Product . . . . . . . . . . . . . . . . . . . . . . . . . 336
14.5.2 Politics and Proceeding . . . . . . . . . . . . . . . . . . . . . . . 341
14.6 From “Victims” to Customers: Anti-Dumping and
Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
14.7 Original Equipment Manufacturers: A New and
Original Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
14.8 Politics and Defeat of Principles: Playing the Rules . . . . . . . . . 346
14.9 Reorganisation and Relocation: End of a Business . . . . . . . . . . 350
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
15 Dark Practices in Lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
15.1 European Manufacturers’ Manoeuvres . . . . . . . . . . . . . . . . . . 353
15.2 Chinese Environment: Energy Saving Lamp Production
and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
Contents xv

15.3 European Industry: Errors and Omissions . . . . . . . . . . . . . . . . 358

15.4 Proceeding, Chinese and European Political Actions
and Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
15.5 Dumping Duties and Criminal Commerce . . . . . . . . . . . . . . . 363
15.6 Anti-circumvention: Fraud in the Floodlight . . . . . . . . . . . . . . 371
15.7 The Politics of Definition of “Community Industry” . . . . . . . . 376
15.8 Circumvention, Origin and Definition of Industry . . . . . . . . . . 399
15.9 Politics, Competence, Competency and Environment . . . . . . . 401
15.10 Politics, Pressure and Profitability . . . . . . . . . . . . . . . . . . . . . 404
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406
16 Methodology of Dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
16.1 Demonstration of Dumping: Product Concerned . . . . . . . . . . . 407
16.2 Product Concerned, Injury and the European Community
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408
16.3 The Problem of the Origin of Products Concerned . . . . . . . . . 410
16.4 Product Definition: Similar or Like Product . . . . . . . . . . . . . . 411
16.5 Choice of Market Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 413
16.6 Elements in the Determination of the Level of Measures . . . . . 413
16.7 Determination of Normal Value . . . . . . . . . . . . . . . . . . . . . . . 414
16.8 Determination of Export Price . . . . . . . . . . . . . . . . . . . . . . . . 422
16.9 Comparison of Normal Value and Export Price . . . . . . . . . . . 424
16.10 OEM, Normal Value and Non-market Economy . . . . . . . . . . . 427
16.11 Summary of Various Approaches of Normal Value and
Export Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
16.12 Injury: The gap Between industry’s Price and
Import Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435
16.13 The Lesser Duty Rule in General . . . . . . . . . . . . . . . . . . . . . . 442
16.14 Tenability of the Lesser Duty Rule . . . . . . . . . . . . . . . . . . . . 443
16.15 European Community Interest . . . . . . . . . . . . . . . . . . . . . . . . 444
16.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
16.17 Conclusions on Methodology . . . . . . . . . . . . . . . . . . . . . . . . 445
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
17 After All . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
17.1 Trade Policy and the Decline of an Industry . . . . . . . . . . . . . . . 447
17.2 Trade Policy and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
17.3 Trade Policy, Politicians and Officials . . . . . . . . . . . . . . . . . . . 449
17.4 State and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
17.5 Business and Protectionism . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
17.6 The Law as a Non-tradable . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
17.7 Abuse of Trade Policy and the Demise of Electronics
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
17.8 Trade Policy in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
.
List of Graphs

Graph 2.1 Average VCR shipment prices .. . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . 31

Graph 2.2 First a blow in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Graph 4.1 Cost and volume of production of CD players: projection
1982–1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Graph 4.2 Prognoses on CD market by Japanese producers
and Philips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Graph 4.3 Development of retail price and Philips’ prognosis .. . . .. . .. . .. . 81
Graph 7.1 Korea’s competitiveness in microwaves . . . . . . . . . . . . . . . . . . . . . . . . . 130
Graph 7.2 VCR market shares of Korean and Japanese and their
“related” subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Graph 7.3 Relation between domestic and offshore production of
Japanese firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Graph 9.1 Imports of CD players into the European Community . . . . . . . . . 185
Graph 9.2 Development of turnover and results of Philips CD
production in Europe (indices) . . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . 186
Graph 12.1 Switch in tube origin enables continuation of dumping . . . . . . . . 284
Graph 15.1 EU sales and imports of integrated CFLs from China . . . . . . . . . . 356
Graph 15.2 Falling average CFL selling prices in Europe . . . . . . . . . . . . . . . . . . . 356
Graph 15.3 Philips’ declared import priorities as carrier of dumping
of CFLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
Graph 15.4 Composition of CFL sales by OSRAM in the
European Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
Graph 15.5 Composition of CFL sales by Philips and development
of capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
Graph 15.6 Composition of GE’s CFL sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Graph 15.7 Stick lamp price competition between the big four . . . . . . . . . . . . . 396
Graph 15.8 The struggle between the major two in bulb and
candle CFL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396

xvii
.
List of Diagrams

Diagram 3.1 Effect of a quantitative restriction (QR) . . . . . . . . . . . . . . . . . . . . . . . . 59

Diagram 3.2 Effect of a voluntary export restraint . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Diagram 7.1 Structure of distribution in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Diagram 8.1 The Bertrand duopolistic price competition model . . . . . . . . . . . . 144
Diagram 8.2 Cournot reaction functions and reciprocal equilibrium . . . . . . . 146
Diagram 8.3 Domestic and foreign demand; costs, profits and dumping
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Diagram 8.4 The Predator’s victim and its reactions . . . . . . . . . . . . . . . . . . . . . . . . . 157
Diagram 8.5 Production possibility frontier, restriction of competition
and dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

xix
.
List of Pictures

Picture 2.1 The Sanyo Betamax VTC 5000 top loader in Sanyo’s
offer to Grundig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Picture 2.2 Copy of the “Weather Forecast” . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 37
Picture 4.1 Philips’ CD 100 top loader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Picture 4.2 Result of panic: CD 303 with front loader
(including motor with driving mechanism) . . . . . . . . . . . . . . . . . . . . . 82
Picture 6.1 Content of VCR: mechanical deck with drum or scanner . . . . . 110
Picture 9.1 Administrative burden: verification visit at Matsushita’s . . . . . 180
Picture 9.2 Technological discrepancies: CD mechanisms . . . . . . . . . . . . . . . . . 186
Picture 15.1 A “production process” in Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Picture 15.2 Housing and ballasts of Firefly and Ecopak lamps:
circumvention and fraud . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . 375
Picture 15.3 European and Chinese lamps compared: “circumvention”
or “originating” .. . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . .. . . .. . . 397

xxi
.
List of Tables

Table 2.1 Share of 22-in. sets and above in Japan’s CTV market .. . .. . .. 7
Table 2.2 European production of CTVs by Japanese producers,
compared with three Europeans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 2.3 Dumping calculation on a Sanyo Betamax VCR . . .. . . . .. . . . .. . 34
Table 2.4 Brand policies and the VHS group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Table 2.5 The VCR “Weather Forecast” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table 2.6 Details of “Weather Forecast” consequences . . . . . . . . . . . . . . . . . . . 42
Table 2.7 Alarming prediction: doom for Betamax and Video 2000
(units x 1,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Table 5.1 Protection of radio or modules by customs duties . . . . . . . . . . . . . 88
Table 5.2 VCR imports and market share of Korea (1985–1987) . . . . . . . . 94
Table 5.3 VCR imports from two rebellious Japanese producers . . . . . . . . 94
Table 5.4 Compensation for the VCR duty increase
(values in €1,000,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Table 5.5 Products used as credit for exclusion from EEC tariff
reductions in GATT . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . 100
Table 6.1 Values of VCR and components at world market prices . . . . . . 112
Table 6.2 Value of VCR and components with added value and
effective protection . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . 113
Table 6.3 Consequence of reclassification of mechanical decks and
effective protection . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . 114
Table 6.4 Outward processing benefit by mecadeck duty increase . . . . . . 116
Table 7.1 Japanese distribution with captive retail shops . . . . . . . . . . . . . . . . . 124
Table 7.2 Domestic market share of Japanese major producers in
consumer electronics . . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . 126
Table 7.3 Foreign country’s shares in CTV, VCR and DVD player
imports into Japan (year 2000) .. . . . . . .. . . . . .. . . . . .. . . . . .. . . . . . .. . 129
Table 7.4 Microwave oven cost comparison General Electric and
Samsung . . . .. . . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . . .. . 130
Table 7.5 Market of consumer electronics in Japan in 2003 in
million Yen (excl. tax) . . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . 137

xxiii
xxiv List of Tables

Table 7.6 Turnover at 1 % market share of exporter and 1 % rebate

and bonuses (million Yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Table 7.7 The tariff effect of varying market shares and trade margins:
price of and for fear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Table 8.1 Various outcomes of duopolistic behaviour compared
(monopoly ¼ 100) .. . .. . .. .. . .. . .. .. . .. . .. . .. .. . .. . .. .. . .. . .. .. . .. . 147
Table 8.2 Tosoh’s royalty statement (1995): Japan and dumping in
the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Table 8.3 Mitsui chemical supplying evidence on dumping . . . . . . . . . . . . . . 166
Table 8.4 Persistent price gap: Japan’s dumping of magneto
optical discs . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . 167
Table 8.5 Basic data of a Tosoh’s proposed joint venture . . . . . . . . . . . . . . . . 168
Table 8.6 Basic data of a Tosoh’s proposed joint venture applied to
Tosoh and PDO media . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . 169
Table 8.7 Fixed and variable cost; domestic sales, exports and results:
stimulus to dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Table 8.8 Tosoh’s profitable domestic market and export sales:
dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Table 9.1 An example: dumping of CD players by Kenwood . . . . . . . . . . . . 175
Table 9.2 Aversion from cooperation by Japan’s exporters . . . . . . . . . . . . . . 181
Table 9.3 Provisional and definitive dumping margins and duties:
dumping or injury as basis? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Table 9.4 Sony’s dumping margins and anti-dumping duties . . . . . . . . . . . . 184
Table 10.1 Shares in the European Community VCR market: Koreans
and Japanese (1984–1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Table 10.2 Average price of Korean electronics for export and
domestic market in 2000 (US$) . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . 195
Table 10.3 Total market share of VCR imports from Japan . . . . . . . . . . . . . . . 199
Table 10.4 Actual VCR production of Thomson and ambitions . . . . . . . . . . . 206
Table 10.5 Relation of VCR retail prices to iR3 supply prices of
some iR3 customers (Germany) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Table 10.6 iR3 customers’ retail prices compared with Thomson and
Korean VCRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Table 10.7 Market of VCRs in the European Community of
15 member states (1989––1994) ( 1,000) . . . . . . . . . . . . . . . . . . . . . 208
Table 10.8 Market change and Thomson in Singapore: low cost and
long time to market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
Table 10.9 Market share of VCR imports from Korea and Singapore . . . . 213
Table 11.1 Example of cost structure of television set for
determination of Turkish origin . . . . . . . .. . . . . . . .. . . . . . .. . . . . . . .. . . 216
Table 11.2 Effect on origin of change in components sourcing:
non-Turkish (Malaysian) origin . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 217
Table 11.3 Dumping from Turkey: non-Turkish (Malaysian) origin . . . . . . 218
Table 11.4 CTV dumping margins, undercutting margins and
anti-dumping measures: lesser duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
List of Tables xxv

Table 11.5 Effect of undercutting or underselling for an

anti-dumping duty . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 238
Table 11.6 Politics of target profit allocation for CTVs . . . . . . . . . . . . . . . . . . . . 239
Table 11.7 European production and other factors: political prejudice
and over-optimism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Table 11.8 A “mature product growing by 5.8 % annually
(1995–1999) ......................................................... 241
Table 11.9 Options for Thomson: non-payment of duties or
improvement of profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Table 11.10 Uninhibited Turkish dumping and undercutting at retail
level (minus VAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
Table 12.1 Imports and “originating” imports: misappropriation of
injury in Asia 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
Table 12.2 Duty incidence on tubes of AD duties on CTVs due to EC
origin rule for CTVs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Table 12.3 Origin and false determination of normal value (NV) . . . . . . . . . 278
Table 12.4 Origin rule, construction of normal value and
discrimination . . .. . .. . .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 280
Table 12.5 Shift of tubes purchases by Vestel and change in origin
in order to continue dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
Table 12.6 Estimate of Turkish fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Table 12.7 Thomson’s “fraud” due to a perverse origin rule . . . . . . . . . . . . . . 290
Table 13.1 Main television camera parts . . . . . .. . . . . . .. . . . . . .. . . . . . .. . . . . . .. . . 315
Table 13.2 Cost composition of a television camera . .. . . . . . .. . . . . .. . . . . . .. . 315
Table 13.3 Dumping margins found for CD combinations
and changers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
Table 14.1 Printing device and technology background of fax suppliers to
European Community (Calculated on basis of the GfK market
surveys on June/July 1996 and August/September 1997) . . . . . 323
Table 14.2 Sales and share in sales per fax printing technology
(Table 14.2 shares the same basis as the source referenced
in the previous note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Table 14.3 Price elasticities of fax printing technologies (1996–1997)
(Table 14.3 is based off of the same source as the
preceding table) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Table 14.4 Examples of OEM and stencil branded fax supplies . . . . . . . . . . . 326
Table 14.5 Fax imports into Japan and the EU-15 (1996, prices in
ECU ¼ €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
Table 14.6 Panasonic’s Singaporean home faxes dumping: Japan and
Europe compared (ECU rate ¼ €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330
Table 14.7 Fax dumping and undercutting: Japan and the
competitiveness gap . . . .. . . . . . . .. . . . . . . .. . . . . . . .. . . . . . . .. . . . . . . .. . . 332
Table 14.8 Price destruction in the German thermo sensitive market
(Philips €512.34 ¼ 100) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Table 14.9 Estimated European total European fax market . . . . . . . . . . . . . . . . 335
xxvi List of Tables

Table 14.10 Fax machines: Philips’ cost composition and blind

decision-making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Table 15.1 Production subsidies on energy saving lamps in China . . . . . . . 355
Table 15.2 Cost composition and comparison Chinese, Chinese
European and European producers (ex-works) (in indices:
European materials are 100) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
Table 15.3 Consequences of transfer of CFL production from
Netherlands to Poland . . .. .. . .. .. . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. 361
Table 15.4 Dumping margins, anti-dumping duties and the lesser duty:
dumping or injury of CFL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Table 15.5 Deflection of trade and average CIF prices to the European
Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Table 15.6 Materials bill and added value of energy saving lamps . . . . . . . 374
Table 15.7 CFL imports from China and circumvention
(in million units) . .. .. . .. . .. .. . .. . .. .. . .. . .. .. . .. . .. .. . .. . .. .. . .. . .. 377
Table 15.8 Role of Chinese imports in sales of Philips . .. . . . . . . . . . . . . . . . . . . 382
Table 15.9 Self-destruction: undercutting of Philips’ production by its
own Chinese imports .. . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . .. . . . .. . 383
Table 15.10 Commissioner Mandelson’s new ideas: untenable thesis
as basis for a new policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Table 15.11 Challenging familiar understanding: Mandelson’s
“value based” analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Table 15.12 Thinking in anti-thesis: increase in dumping is
value creation in the European Community . . . . . . . . . . . . . . . . . . . . 390
Table 15.13 “Keeping value” in the European Community and Chinese
import share . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . 391
Table 15.14 Movement of average CFL prices (January/February
2002–2006) in the German market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Table 15.15 Yankon’s selling prices and Philips’ assumed profit
(in Euro) . .. . . .. . . .. . .. . . .. . . .. . . .. . .. . . .. . . .. . .. . . .. . . .. . .. . . .. . . .. . 397
Table 15.16 Yankon’s price offer FOB in 2002 in US$ . . . . . . . . . . . . . . . . . . . . . 398
Table 15.17 The environment and European or Chinese energy
saving lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Table 16.1 Profitability analysis with exclusion of unprofitable sales
(indexation of real case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
Table 16.2 Example of a disclosure (in indexes) on dumping
(with market economy status) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Table 16.3 (Non-MET) normal value (analogue country) applied
to MET exporter in Table 16.2 .. . .. .. . .. . .. .. . .. . .. . .. .. . .. . .. .. . 423
Table 16.4 Related companies’ data and constructed export price:
inflating the dumping margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Table 16.5 Negative dumping margins with non-zeroing . . . . . . . . . . . . . . . . . . 427
Table 16.6 Zeroing negative dumping margins . . .. .. . .. . .. .. . .. .. . .. .. . .. . .. 427
Table 16.7 Different circumstances, diverging duties . . . . . . . . . . . . . . . . . . . . . . 434
Table 16.8 Calculation of undercutting and injury margin . . . . . . . . . . . . . . . . . 439
Chapter 1
Introduction

Abstract International trade policy is a tool of business rather than of solemn

statements. Some examples of industrial allocation policy issues and formal
statements about international trade rounds show the discrepancy between the
two. Knowledge of trade rules may prevent serious errors in settlement of industrial
activities, of which some cases are presented. However, trade rounds offer serious
opportunities for active input by industry for tangible results from trade
negotiations, of which some examples are given.

“International Trade Policy and European Industry, The Case of the Electronics
Business” is, of course, about trade policy: the rules, the economics of the law and
the practical problems encountered the by European electronics business, and the
outcome of the solutions it created or invoked. Trade policy is frequently, but
incorrectly, conceived as the domain of governmental and international
organisations. Cohorts of professional travellers from business urging governments
to act vigorously might have created this idea. They have accompanied opening
conferences of trade rounds with solemn declarations, suggesting that their pres-
ence at such conferences as in Punta del Este of the Uruguay Round and the many
ministerial meetings in Doha, Cancún and Hong Kong of the Doha Development
Round was of vital importance for both their enterprises and the success of the
international negotiations. It is not. Ministerial meetings are mostly a start of actual
negotiations and a signal for industry to do its homework. Business must take stock
of its direct interests, make practical contributions and pay attention to whether
there is a need to adjust to new conditions of competition.
Trade policy is definitely not restricted to governmental affairs. If they are used
as tool of business management, companies can improve their competitive envi-
ronment. Of course, they may and sometimes must adjust to outcomes of the trade
policy decision-making processes, but they also may join the game and influence
rules and outcomes. They can take existing rules for granted, or bend them. They
may provide input into trade negotiations by influencing or even by specifying
concessions. Knowledge of trade rules is required in any case. Rules and their

M. van Marion, International Trade Policy and European Industry, 1

Contributions to Economics, DOI 10.1007/978-3-319-00392-4_1,
© Springer International Publishing Switzerland 2014
2 1 Introduction

applications are not immutable. They are multi-interpretable and alterable. And
they can be implemented divergently. Corporate lawyers tend to explain the rules,
and their explanations generally suggest that these rules do not leave room for
executives to shape a trade environment to serve their interests. The opposite is the
illusion that by trade measures, all management problems can be solved.
At Philips, for instance, some management wanted a panacea; they envisaged all
of their industrial problems to be solved by trade policy, generally by protectionist
measures. An example of this attitude was the rash establishment of a video
recorder assembly factory in Hungary. Soon after the Iron Curtain was raised, in
1989 the management of the Philips video recording division in its headquarters in
Vienna, Austria, concluded in an entrepreneurial dash and sufficient blindness that
they “had to be there”, i.e. in East Europe. A big factory was hurriedly built in the
west Hungarian town of Szekesfehervar, where VCRs were assembled from kits
and subassemblies made in Vienna. Austria was not yet a member of the European
Community, but of the European Free Trade Area (EFTA). According to the origin
rules in the preferential trade agreement between the European Economic Commu-
nity (EEC) and EFTA, VCRs from Austria had duty-free access if wholly made in
Austria or with sufficient components from Austria or other EFTA members or
from the European Community. Before the transfer of assembly to Hungary, all
Austrian made recorders had duty-free access to EFTA and the European Commu-
nity. According to origin rules in the preferential trade agreement between the
European Community and Hungary, all VCRs with sufficient combined Hungarian
and EEC value and components had duty-free access to the European Community.
VCRs made in Hungary from mainly Austrian components did not qualify for 0 %
customs duty access to the EEC. The management of the VCR business found out
that VCRs exported from Hungary to the European Community were unexpectedly
hit with a customs duty of 14 %. This shows the importance of knowledge of origin
rules. Management of the VCR division was furious, although not about the
mistakes. They felt that the existing rules were radically wrong and they should
immediately be changed; Philips experts and lobbyists should adopt a “street
fighters” mentality and should change these unjustifiable rules. Efforts were made
to change the rules and a change was on the verge of realisation when Austria joined
the European Community in 1995. Due to Austria’s accession, the problem of
Hungarian assembly and origin was solved. Emergency brakes had to be applied
immediately in order to avoid that the new rules would be implemented and become
advantageous to others.
Fortunately, the factory in Hungary had perforce started production of VCR-TV
combinations. Before this accidental VCR investment in Hungary, nobody within
Philips had ever shown any interest in the production or marketing of these
combinations. It was generally assumed that they were a useless and unprofitable
product. Only Koreans and a few Japanese had the ambition to manufacture and
market this worthless product. With a cathode ray tube from the European Com-
munity (made by Philips in Barcelona, Spain) this equipment had sufficient Euro-
pean Community content for duty-free access to the European Community after
processing in Hungary. The 14 % EEC was therefore avoided. That was a sufficient
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stopped. There was the creak of a boat against the piles, a swash of
waves and silence. The mechanical piano had stopped. Jimmy sat
sipping his wine. He could smell the rankness of salt marshes
seeping into the house. Under him there was a little lapping sound of
the water against the piles. Another motorboat was beginning to
sputter in the far distance.
“Got a nickel?” asked Congo breaking into the room suddenly.
“Make music.... Very funny night tonight. Maybe you and Annette
keep piano goin. I didnt see McGee about landin.... Maybe
somebody come. Must be veree quick.” Jimmy got to his feet and
started fishing in his pockets. By the piano he found Annette. “Wont
you dance?” She nodded. The piano played Innocent Eyes. They
danced distractedly. Outside were voices and footsteps. “Please,”
she said all at once and they stopped dancing. The second
motorboat had come very near; the motor coughed and rattled still.
“Please stay here,” she said and slipped away from him.
Jimmy Herf walked up and down uneasily puffing on a cigarette.
He was making up the story in his mind.... In a lonely abandoned
dancehall on Sheepshead Bay ... lovely blooming Italian girl ... shrill
whistle in the dark.... I ought to get out and see what’s going on. He
groped for the front door. It was locked. He walked over to the piano
and put another nickel in. Then he lit a fresh cigarette and started
walking up and down again. Always the way ... a parasite on the
drama of life, reporter looks at everything through a peephole. Never
mixes in. The piano was playing Yes We Have No Bananas. “Oh
hell!” he kept muttering and ground his teeth and walked up and
down.
Outside the tramp of steps broke into a scuffle, voices snarled.
There was a splintering of wood and the crash of breaking bottles.
Jimmy looked out through the window of the diningroom. He could
see the shadows of men struggling and slugging on the boatlanding.
He rushed into the kitchen, where he bumped into Congo sweaty
and staggering into the house leaning on a heavy cane.
“Goddam ... dey break my leg,” he shouted.
“Good God.” Jimmy helped him groaning into the diningroom.
 “Cost me feefty dollars to have it mended last time I busted it.”
“You mean your cork leg?”
“Sure what you tink?”
“Is it prohibition agents?”
“Prohibition agents nutten, goddam hijackers.... Go put a neeckel
in the piano.” Beautiful Girl of My Dreams, the piano responded
gayly.
When Jimmy got back to him, Congo was sitting in a chair nursing
his stump with his two hands. On the table lay the cork and
aluminum limb splintered and dented. “Regardez moi ça ... c’est
foutu ... completement foutu.” As he spoke Cardinale came in. He
had a deep gash over his eyes from which a trickle of blood ran
down his cheek on his coat and shirt. His wife followed him rolling
back her eyes; she had a basin and a sponge with which she kept
making ineffectual dabs at his forehead. He pushed her away. “I
crowned one of em good wid a piece o pipe. I think he fell in de
water. God I hope he drownded.” Johnny came in holding his head
high. Annette had her arm round his waist. He had a black eye and
one of the sleeves of his shirt hung in shreds. “Gee it was like in the
movies,” said Annette, giggling hysterically. “Wasnt he grand,
mommer, wasn’t he grand?”
“Jez it’s lucky they didn’t start shootin; one of em had a gun.”
“Scared to I guess.”
“Trucks are off.”
“Just one case got busted up.... God there was five of them.”
“Gee didnt he mix it up with em?” screamed Annette.
“Oh shut up,” growled Cardinale. He had dropped into a chair and
his wife was sponging off his face. “Did you get a good look at the
boat?” asked Congo.
“Too goddam dark,” said Johnny. “Fellers talked like they came
from Joisey.... First ting I knowed one of em comes up to me and sez
I’m a revenue officer an I pokes him one before he has time to pull a
gun an overboard he goes. Jez they were yeller. That guy George on
the boat near brained one of em wid an oar. Then they got back in
their old teakettle an beat it.”
“But how they know how we make landin?” stuttered Congo his
face purple.
“Some guy blabbed maybe,” said Cardinale. “If I find out who it is,
by God I’ll ...” he made a popping noise with his lips.
“You see Meester ’Erf,” said Congo in his suave voice again, “it
was all champagne for the holidays.... Very valuable cargo eh?”
Annette, her cheeks very red sat still looking at Johnny with parted
lips and toobright eyes. Herf found himself blushing as he looked at
her.
He got to his feet. “Well I must be getting back to the big city.
Thank’s for the feed and the melodrama, Congo.”
“You find station all right?”
“Sure.”
“Goodnight Meester ’Erf, maybe you buy case of champagne for
Christmas, genuine Mumms.”
“Too darn broke Congo.”
“Then maybe you sell to your friends an I give you commission.”
“All right I’ll see what I can do.”
“I’ll phone you tomorrow to tell price.”
“That’s a fine idea. Good night.”
Joggling home in the empty train through empty Brooklyn suburbs
Jimmy tried to think of the bootlegging story he’d write for the
Sunday Magazine Section. The girl’s pink cheeks and toobright eyes
kept intervening, blurring the orderly arrangement of his thoughts. He
sank gradually into dreamier and dreamier reverie. Before the kid
was born Ellie sometimes had toobright eyes like that. The time on
the hill when she had suddenly wilted in his arms and been sick and
he had left her among the munching, calmly staring cows on the
grassy slope and gone to a shepherd’s hut and brought back milk in
a wooden ladle, and slowly as the mountains hunched up with
evening the color had come back into her cheeks and she had
looked at him that way and said with a dry little laugh: It’s the little
Herf inside me. God why cant I stop mooning over things that are
past? And when the baby was coming and Ellie was in the American
Hospital at Neuilly, himself wandering distractedly through the fair,
going into the Flea Circus, riding on merrygorounds and the steam
swing, buying toys, candy, taking chances on dolls in a crazy blur,
stumbling back to the hospital with a big plaster pig under his arm.
Funny these fits of refuge in the past. Suppose she had died; I
thought she would. The past would have been complete all round,
framed, worn round your neck like a cameo, set up in type, molded
on plates for the Magazine Section, like the first of James Herf’s
articles on The Bootlegging Ring. Burning slugs of thought kept
dropping into place spelled out by a clanking linotype.
At midnight he was walking across Fourteenth. He didnt want to
go home to bed although the rasping cold wind tore at his neck and
chin with sharp ice claws. He walked west across Seventh and
Eighth Avenues, found the name Roy Sheffield beside a bell in a
dimly lit hall. As soon as he pressed the bell the catch on the door
began to click. He ran up the stairs. Roy had his big curly head with
its glass-gray gollywog eyes stuck out the door.
“Hello Jimmy; come on in; we’re all lit up like churches.”
“I’ve just seen a fight between bootleggers and hijackers.”
“Where?”
“Down at Sheepshead Bay.”
“Here’s Jimmy Herf, he’s just been fighting prohibition agents,”
shouted Roy to his wife. Alice had dark chestnut dollhair and an
uptilted peaches and cream dollface. She ran up to Jimmy and
kissed him on the chin. “Oh Jimmy do tell us all about it.... We’re so
horribly bored.”
“Hello,” cried Jimmy; he had just made out Frances and Bob
Hildebrand on the couch at the dim end of the room. They lifted their
glasses to him. Jimmy was pushed into an armchair, had a glass of
gin and ginger ale put in his hand. “Now what’s all this about a fight?
You’d better tell us because were certainly not going to buy the
Sunday Tribune to find out,” Bob Hildebrand said in a deep rumbling
voice.
Jimmy took a long drink. “I went out with a man I know who’s
shiek of all the French and Italian bootleggers. He’s a fine man. He’s
got a cork leg. He set me up to a swell feed and real Italian wine out
in a deserted poolroom on the shores of Sheepshead Bay....”
“By the way,” asked Roy, “where’s Helena.”
“Dont interrupt Roy,” said Alice. “This is good ... and besides you
should never ask a man where his wife is.”
“Then there was a lot of flashing of signal lights and stuff and a
motorboat loaded down with Mumm’s extra dry champagne for Park
Avenue Christmases came in and the hijackers arrived on a
speedboat.... It probably was a hydroplane it came so fast ...”
“My this is exciting,” cooed Alice. “... Roy why dont you take up
bootlegging?”
“Worst fight I ever saw outside of the movies, six or seven on a
side all slugging each other on a little narrow landing the size of this
room, people crowning each other with oars and joints of lead pipe.”
“Was anybody hurt?”
“Everybody was.... I think two of the hijackers were drowned. At
any rate they beat a retreat leaving us lapping up the spilled
champagne.”
“But it must have been terrible,” cried the Hildebrands. “What did
you do Jimmy?” asked Alice breathless.
“Oh I hopped around keeping out of harm’s way. I didnt know who
was on which side and it was dark and wet and confusing
everywhere.... I finally did drag my bootlegger friend out of the fray
when he got his leg broken ... his wooden leg.”
 Everybody let out a shout. Roy filled Jimmy’s glass up with gin
again.
“Oh Jimmy,” cooed Alice, “you lead the most thrilling life.”

James Merivale was going over a freshly decoded cable, tapping

the words with a pencil as he read them. Tasmanian Manganese
Products instructs us to open credit.... The phone on his desk began
to buzz.
“James this is your mother. Come right up; something terrible has
happened.”
“But I dont know if I can get away....”
She had already cut off. Merivale felt himself turning pale. “Let me
speak to Mr. Aspinwall please.... Mr. Aspinwall this is Merivale.... My
mother’s been taken suddenly ill. I’m afraid it may be a stroke. I’d like
to run up there for an hour. I’ll be back in time to get a cable off on
that Tasmanian matter.”
“All right.... I’m very sorry Merivale.”
He grabbed his hat and coat, forgetting his muffler, and streaked
out of the bank and along the street to the subway.
He burst into the apartment breathless, snapping his fingers from
nervousness. Mrs. Merivale grayfaced met him in the hall.
“My dear I thought you’d been taken ill.”
“It’s not that ... it’s about Maisie.”
“She hasnt met with an accid...?”
“Come in here,” interrupted Mrs. Merivale. In the parlor sat a little
roundfaced woman in a round mink hat and a long mink coat. “My
dear this girl says she’s Mrs. Jack Cunningham and she’s got a
marriage certificate to prove it.”
“Good Heavens, is that true?”
 The girl nodded in a melancholy way.
“And the invitations are out. Since his last wire Maisie’s been
ordering her trousseau.”
The girl unfolded a large certificate ornamented with pansies and
cupids and handed it to James.
“It might be forged.”
“It’s not forged,” said the girl sweetly.
“John C. Cunningham, 21 ... Jessie Lincoln, 18,” he read aloud....
“I’ll smash his face for that, the blackguard. That’s certainly his
signature, I’ve seen it at the bank.... The blackguard.”
“Now James, don’t be hasty.”
“I thought it would be better this way than after the ceremony,” put
in the girl in her little sugar voice. “I wouldnt have Jack commit
bigamy for anything in the world.”
“Where’s Maisie?”
“The poor darling is prostrated in her room.”
Merivale’s face was crimson. The sweat itched under his collar.
“Now dearest” Mrs. Merivale kept saying, “you must promise me not
to do anything rash.”
“Yes Maisie’s reputation must be protected at all costs.”
“My dear I think the best thing to do is to get him up here and
confront him with this ... with this ... lady.... Would you agree to that
Mrs. Cunningham?”
“Oh dear.... Yes I suppose so.”
“Wait a minute,” shouted Merivale and strode down the hall to the
telephone. “Rector 12305.... Hello. I want to speak to Mr. Jack
Cunningham please.... Hello. Is this Mr. Cunningham’s office? Mr.
James Merivale speaking.... Out of town.... And when will he be
back?... Hum.” He strode back along the hall. “The damn scoundrel’s
out of town.”
 “All the years I’ve known him,” said the little lady in the round hat,
“that has always been where he was.”

Outside the broad office windows the night is gray and foggy.
Here and there a few lights make up dim horizontals and
perpendiculars of asterisks. Phineas Blackhead sits at his desk
tipping far back in the small leather armchair. In his hand protecting
his fingers by a large silk handkerchief, he holds a glass of hot water
and bicarbonate of soda. Densch bald and round as a billiardball sits
in the deep armchair playing with his tortoiseshell spectacles.
Everything is quiet except for an occasional rattling and snapping of
the steampipes.
“Densch you must forgive me.... You know I rarely permit myself
an observation concerning other people’s business,” Blackhead is
saying slowly between sips; then suddenly he sits up in his chair. “It’s
a damn fool proposition, Densch, by God it is ... by the Living Jingo
it’s ridiculous.”
“I dont like dirtying my hands any more than you do.... Baldwin’s a
good fellow. I think we’re safe in backing him a little.”
“What the hell’s an import and export firm got to do in politics? If
any of those guys wants a handout let him come up here and get it.
Our business is the price of beans ... and its goddam low. If any of
you puling lawyers could restore the balance of the exchanges I’d be
willing to do anything in the world.... They’re crooks every last
goddam one of em ... by the Living Jingo they’re crooks.” His face
flushes purple, he sits upright in his chair banging with his fist on the
corner of the desk. “Now you’re getting me all excited.... Bad for my
stomach, bad for my heart.” Phineas Blackhead belches portentously
and takes a great gulp out of the glass of bicarbonate of soda. Then
he leans back in his chair again letting his heavy lids half cover his
eyes.
“Well old man,” says Mr. Densch in a tired voice, “it may have
been a bad thing to do, but I’ve promised to support the reform
candidate. That’s a purely private matter in no way involving the
firm.”
“Like hell it dont.... How about McNiel and his gang?... They’ve
always treated us all right and all we’ve ever done for em’s a couple
of cases of Scotch and a few cigars now and then.... Now we have
these reformers throw the whole city government into a turmoil.... By
the Living Jingo ...”
Densch gets to his feet. “My dear Blackhead I consider it my duty
as a citizen to help in cleaning up the filthy conditions of bribery,
corruption and intrigue that exist in the city government ... I consider
it my duty as a citizen ...” He starts walking to the door, his round
belly stuck proudly out in front of him.
“Well allow me to say Densch that I think its a damn fool
proposition,” Blackhead shouts after him. When his partner has gone
he lies back a second with his eyes closed. His face takes on the
mottled color of ashes, his big fleshy frame is shrinking like a
deflating balloon. At length he gets to his feet with a groan. Then he
takes his hat and coat and walks out of the office with a slow heavy
step. The hall is empty and dimly lit. He has to wait a long while for
the elevator. The thought of holdup men sneaking through the empty
building suddenly makes him catch his breath. He is afraid to look
behind him, like a child in the dark. At last the elevator shoots up.
“Wilmer,” he says to the night watchman who runs it, “there ought
to be more light in these halls at night.... During this crime wave I
should think you ought to keep the building brightly lit.”
“Yassir maybe you’re right sir ... but there cant nobody get in
unless I sees em first.”
“You might be overpowered by a gang Wilmer.”
“I’d like to see em try it.”
“I guess you are right ... mere question of nerve.”
Cynthia is sitting in the Packard reading a book. “Well dear did
you think I was never coming.”
“I almost finished my book, dad.”
 “All right Butler ... up town as fast as you can. We’re late for
dinner.”
As the limousine whirs up Lafayette Street, Blackhead turns to his
daughter. “If you ever hear a man talking about his duty as a citizen,
by the Living Jingo dont trust him.... He’s up to some kind of monkey
business nine times out of ten. You dont know what a relief it is to me
that you and Joe are comfortably settled in life.”
“What’s the matter dad? Did you have a hard day at the office?”
“There are no markets, there isnt a market in the goddam world that
isnt shot to blazes.... I tell you Cynthia it’s nip and tuck. There’s no
telling what might happen.... Look, before I forget it could you be at
the bank uptown at twelve tomorrow?... I’m sending Hudgins up with
certain securities, personal you understand, I want to put in your safe
deposit box.”
“But it’s jammed full already dad.”
“That box at the Astor Trust is in your name isnt it?”
“Jointly in mine and Joe’s.”
“Well you take a new box at the Fifth Avenue Bank in your own
name.... I’ll have the stuff get there at noon sharp.... And remember
what I tell you Cynthia, if you ever hear a business associate talking
about civic virtue, look lively.”
They are crossing Fourteenth. Father and daughter look out
through the glass at the windbitten faces of people waiting to cross
the street.
Jimmy Herf yawned and scraped back his chair. The nickel glints
of the typewriter hurt his eyes. The tips of his fingers were sore. He
pushed open the sliding doors a little and peeped into the cold
bedroom. He could barely make out Ellie asleep in the bed in the
alcove. At the far end of the room was the baby’s crib. There was a
faint milkish sour smell of babyclothes. He pushed the doors to again
and began to undress. If we only had more space, he was muttering;
we live cramped in our squirrelcage.... He pulled the dusty cashmere
off the couch and yanked his pyjamas out from under the pillow.
Space space cleanness quiet; the words were gesticulating in his
mind as if he were addressing a vast auditorium.
He turned out the light, opened a crack of the window and
dropped wooden with sleep into bed. Immediately he was writing a
letter on a linotype. Now I lay me down to sleep ... mother of the
great white twilight. The arm of the linotype was a woman’s hand in a
long white glove. Through the clanking from behind amber foots
Ellie’s voice Dont, dont, dont, you’re hurting me so.... Mr. Herf, says
a man in overalls, you’re hurting the machine and we wont be able to
get out the bullgod edition thank dog. The linotype was a gulping
mouth with nickelbright rows of teeth, gulped, crunched. He woke up
sitting up in bed. He was cold, his teeth were chattering. He pulled
the covers about him and settled to sleep again. The next time he
woke up it was daylight. He was warm and happy. Snowflakes were
dancing, hesitating, spinning, outside the tall window.
“Hello Jimps,” said Ellie coming towards him with a tray.
“Why have I died and gone to heaven or something?”
“No it’s Sunday morning.... I thought you needed a little luxury.... I
made some corn muffins.”
“Oh you’re marvelous Ellie.... Wait a minute I must jump up and
wash my teeth.” He came back with his face washed, wearing his
bathrobe. Her mouth winced under his kiss. “And it’s only eleven
o’clock. I’ve gained an hour on my day off.... Wont you have some
coffee too?”
“In a minute.... Look here Jimps I’ve got something I want to talk
about. Look dont you think we ought to get another place now that
you’re working nights again all the time?”
“You mean move?”
“No. I was thinking if you could get another room to sleep in
somewhere round, then nobody’d ever disturb you in the morning.”
“But Ellie we’d never see each other.... We hardly ever see each
other as it is.”
 “It’s terrible ... but what can we do when our office-hours are so
different?”
Martin’s crying came in a gust from the other room. Jimmy sat on
the edge of the bed with the empty coffeecup on his knees looking at
his bare feet. “Just as you like,” he said dully. An impulse to grab her
hands to crush her to him until he hurt her went up through him like a
rocket and died. She picked up the coffeethings and swished away.
His lips knew her lips, his arms knew the twining of her arms, he
knew the deep woods of her hair, he loved her. He sat for a long time
looking at his feet, lanky reddish feet with swollen blue veins,
shoebound toes twisted by stairs and pavements. On each little toe
there was a corn. He found his eyes filling with pitying tears. The
baby had stopped crying. Jimmy went into the bathroom and started
the water running in the tub.

“It was that other feller you had Anna. He got you to thinkin you
didnt give a damn.... He made you a fatalist.”
“What’s at?”
“Somebody who thinks there’s no use strugglin, somebody who
dont believe in human progress.”
“Do you think Bouy was like that?”
“He was a scab anyway ... None o these Southerners are
classconscious.... Didn’t he make you stop payin your union dues?”
“I was sick o workin a sewin machine.”
“But you could be a handworker, do fancy work and make good
money. You’re not one o that kind, you’re one of us.... I’ll get you
back in good standin an you kin get a good job again.... God I’d
never have let you work in a dancehall the way he did. Anna it hurt
me terrible to see a Jewish girl goin round with a feller like that.”
“Well he’s gone an I aint got no job.”
 “Fellers like that are the greatest enemies of the workers.... They
dont think of nobody but themselves.”
They are walking slowly up Second Avenue through a foggy
evening. He is a rustyhaired thinfaced young Jew with sunken
cheeks and livid pale skin. He has the bandy legs of a garment
worker. Anna’s shoes are too small for her. She has deep rings
under her eyes. The fog is full of strolling groups talking Yiddish,
overaccented East Side English, Russian. Warm rifts of light from
delicatessen stores and softdrink stands mark off the glistening
pavement.
“If I didn’t feel so tired all the time,” mutters Anna.
“Let’s stop here an have a drink.... You take a glass o buttermilk
Anna, make ye feel good.”
“I aint got the taste for it Elmer. I’ll take a chocolate soda.”
“That’ll juss make ye feel sick, but go ahead if you wanter.” She
sat on the slender nickelbound stool. He stood beside her. She let
herself lean back a little against him. “The trouble with the workers
is” ... He was talking in a low impersonal voice. “The trouble with the
workers is we dont know nothin, we dont know how to eat, we dont
know how to live, we dont know how to protect our rights.... Jez
Anna I want to make you think of things like that. Cant you see we’re
in the middle of a battle just like in the war?” With the long sticky
spoon Anna was fishing bits of icecream out of the thick foamy liquid
in her glass.
George Baldwin looked at himself in the mirror as he washed his
hands in the little washroom behind his office. His hair that still grew
densely down to a point on his forehead was almost white. There
was a deep line at each corner of his mouth and across his chin.
Under his bright gimleteyes the skin was sagging and granulated.
When he had wiped his hands slowly and meticulously he took a
little box of strychnine pills from the upper pocket of his vest,
swallowed one, and feeling the anticipated stimulus tingle through
him went back into his office. A longnecked officeboy was fidgeting
beside his desk with a card in his hand.
 “A lady wants to speak to you sir.”
“Has she an appointment? Ask Miss Ranke.... Wait a minute.
Show the lady right through into this office.” The card read Nellie
Linihan McNiel. She was expensively dressed with a lot of lace in the
opening of her big fur coat. Round her neck she had a lorgnette on
an amethyst chain.
“Gus asked me to come to see you,” she said as he motioned her
into a chair beside the desk.
“What can I do for you?” His heart for some reason was pounding
hard.
She looked at him a moment through her lorgnette. “George you
stand it better than Gus does.”
“What?”
“Oh all this.... I’m trying to get Gus to go away with me for a rest
abroad ... Marianbad or something like that ... but he says he’s in too
deep to pull up his stakes.”
“I guess that’s true of all of us,” said Baldwin with a cold smile.
They were silent a minute, then Nellie McNiel got to her feet.
“Look here George, Gus is awfully cut up about this.... You know he
likes to stand by his friends and have his friends stand by him.”
“Nobody can say that I haven’t stood by him.... It’s simply this, I’m
not a politician, and as, probably foolishly, I’ve allowed myself to be
nominated for office, I have to run on a nonpartisan basis.”
“George that’s only half the story and you know it.”
“Tell him that I’ve always been and always shall be a good friend
of his.... He knows that perfectly well. In this particular campaign I
have pledged myself to oppose certain elements with which Gus has
let himself get involved.”
“You’re a fine talker George Baldwin and you always were.”
Baldwin flushed. They stood stiff side by side at the office door.
His hand lay still on the doorknob as if paralyzed. From the outer
offices came the sound of typewriters and voices. From outside
came the long continuous tapping of riveters at work on a new
building.
“I hope your family’s all well,” he said at length with an effort.
“Oh yes they are all well thanks ... Goodby.” She had gone.
Baldwin stood for a moment looking out of the window at the gray
blackwindowed building opposite. Silly to let things agitate him so.
Need of relaxation. He got his hat and coat from their hook behind
the washroom door and went out. “Jonas,” he said to a man with a
round bald head shaped like a cantaloupe who sat poring over
papers in the highceilinged library that was the central hall of the
lawoffice, “bring everything up that’s on my desk.... I’ll go over it
uptown tonight.”
“All right sir.”
When he got out on Broadway he felt like a small boy playing
hooky. It was a sparkling winter afternoon with hurrying rifts of sun
and cloud. He jumped into a taxi. Going uptown he lay back in the
seat dozing. At Fortysecond Street he woke up. Everything was a
confusion of bright intersecting planes of color, faces, legs, shop
windows, trolleycars, automobiles. He sat up with his gloved hands
on his knees, fizzling with excitement. Outside of Nevada’s
apartmenthouse he paid the taxi. The driver was a negro and
showed an ivory mouthful of teeth when he got a fiftycent tip. Neither
elevator was there so Baldwin ran lightly up the stairs, half
wondering at himself. He knocked on Nevada’s door. No answer. He
knocked again. She opened it cautiously. He could see her curly
towhead. He brushed into the room before she could stop him. All
she had on was a kimono over a pink chemise.
“My God,” she said, “I thought you were the waiter.”
He grabbed her and kissed her. “I dont know why but I feel like a
threeyear old.”
“You look like you was crazy with the heat.... I dont like you to
come over without telephoning, you know that.”
 “You dont mind just this once I forgot.”
Baldwin caught sight of something on the settee; he found himself
staring at a pair of darkblue trousers neatly folded.
“I was feeling awfully fagged down at the office Nevada. I thought
I’d come up to talk to you to cheer myself up a bit.”
“I was just practicing some dancing with the phonograph.”
“Yes very interesting....” He began to walk springily up and down.
“Now look here Nevada.... We’ve got to have a talk. I dont care who
it is you’ve got in your bedroom.” She looked suddenly in his face
and sat down on the settee beside the trousers. “In fact I’ve known
for some time that you and Tony Hunter were carrying on.” She
compressed her lips and crossed her legs. “In fact all this stuff and
nonsense about his having to go to a psychoanalyst at twentyfive
dollars an hour amused me enormously.... But just this minute I’ve
decided I had enough. Quite enough.”
“George you’re crazy,” she stammered and then suddenly she
began to giggle.
“I tell you what I’ll do,” went on Baldwin in a clear legal voice, “I’ll
send you a check for five hundred, because you’re a nice girl and I
like you. The apartment’s paid till the first of the month. Does that
suit you? And please never communicate with me in any way.”
She was rolling on the settee giggling helplessly beside the neatly
folded pair of darkblue trousers. Baldwin waved his hat and gloves at
her and left closing the door very gently behind him. Good riddance,
he said to himself as he closed the door carefully behind him.
Down in the street again he began to walk briskly uptown. He felt
excited and talkative. He wondered who he could go to see. Telling
over the names of his friends made him depressed. He began to feel
lonely, deserted. He wanted to be talking to a woman, making her
sorry for the barrenness of his life. He went into a cigarstore and
began looking through the phonebook. There was a faint flutter in
him when he found the H’s. At last he found the name Herf, Helena
Oglethorpe.
 Nevada Jones sat a long while on the settee giggling hysterically.
At length Tony Hunter came in in his shirt and drawers with his bow
necktie perfectly tied.
“Has he gone?”
“Gone? sure he’s gone, gone for good,” she shrieked. “He saw
your damn pants.”
He let himself drop on a chair. “O God if I’m not the unluckiest
fellow in the world.”
“Why?” she sat spluttering with laughter with the tears running
down her face.
“Nothing goes right. That means it’s all off about the matinees.”
“It’s back to three a day for little Nevada.... I dont give a damn.... I
never did like bein a kept woman.”
“But you’re not thinking of my career.... Women are so selfish. If
you hadn’t led me on....”
“Shut up you little fool. Dont you think I dont know all about you?”
She got to her feet with the kimono pulled tight about her.
“God all I needed was a chance to show what I could do, and now
I’ll never get it,” Tony was groaning.
“Sure you will if you do what I tell you. I set out to make a man of
you kiddo and I’m goin to do it.... We’ll get up an act. Old Hirshbein’ll
give us a chance, he used to be kinder smitten.... Come on now, I’ll
punch you in the jaw if you dont. Let’s start thinkin up.... We’ll come
in with a dance number see ... then you’ll pretend to want to pick me
up.... I’ll be waitin for a streetcar ... see ... and you’ll say Hello Girlie
an I’ll call Officer.”

“Is that all right for length sir,” asked the fitter busily making marks
on the trousers with a piece of chalk.
 James Merivale looked down at the fitter’s little greenish wizened
bald head and at the brown trousers flowing amply about his feet. “A
little shorter.... I think it looks a little old to have trousers too long.”
“Why hello Merivale I didn’t know you bought your clothes at
Brooks’ too. Gee I’m glad to see you.”
Merivale’s blood stood still. He found himself looking straight in
the blue alcoholic eyes of Jack Cunningham. He bit his lip and tried
to stare at him coldly without speaking.
“God Almighty, do you know what we’ve done?” cried out
Cunningham. “We’ve bought the same suit of clothes.... I tell you it’s
identically the same.”
Merivale was looking in bewilderment from Cunningham’s brown
trousers to his own, the same color, the same tiny stripe of red and
faint mottling of green.
“Good God man two future brothersinlaw cant wear the same suit.
People’ll think it’s a uniform.... It’s ridiculous.”
“Well what are we going to do about it?” Merivale found himself
saying in a grumbling tone.
“We have to toss up and see who gets it that’s all.... Will you lend
me a quarter please?” Cunningham turned to his salesman. “All
right.... One toss, you yell.”
“Heads,” said Merivale mechanically.
“The brown suit is yours.... Now I’ve got to choose another ... God
I’m glad we met when we did. Look,” he shouted out through the
curtains of the booth, “why dont you have dinner with me tonight at
the Salmagundi Club?... I’m going to be dining with the only man in
the world who’s crazier about hydroplanes than I am.... It’s old man
Perkins, you know him, he’s one of the vicepresidents of your
bank.... And look when you see Maisie tell her I’m coming up to see
her tomorrow. An extraordinary series of events has kept me from
communicating with her ... a most unfortunate series of events that
took all my time up to this moment.... We’ll talk about it later.”
Merivale cleared his throat. “Very well,” he said dryly.
 “All right sir,” said the fitter giving Merivale a last tap on the
buttocks. He went back into the booth to dress.
“All right old thing,” shouted Cunningham, “I’ve got to go pick out
another suit ... I’ll expect you at seven. I’ll have a Jack Rose waiting
for you.”
Merivale’s hands were trembling as he fastened his belt. Perkins,
Jack Cunningham, the damn blackguard, hydroplanes, Jack
Cunningham Salmagundi Perkins. He went to a phone booth in a
corner of the store and called up his mother. “Hello Mother, I’m afraid
I wont be up to dinner.... I’m dining with Randolph Perkins at the
Salmagundi Club.... Yes it is very pleasant.... Oh well he and I have
always been fairly good friends.... Oh yes it’s essential to stand in
with the men higher up. And I’ve seen Jack Cunningham. I put it up
to him straight from the shoulder man to man and he was very much
embarrassed. He promised a full explanation within twentyfour
hours.... No I kept my temper very well. I felt I owed it to Maisie. I tell
you I think the man’s a blackguard but until there’s proof.... Well
good night dear, in case I’m late. Oh no please dont wait up. Tell
Maisie not to worry I’ll be able to give her the fullest details. Good
night mother.”

They sat at a small table in the back of a dimly lighted tearoom.

The shade on the lamp cut off the upper parts of their faces. Ellen
had on a dress of bright peacock blue and a small blue hat with a
piece of green in it. Ruth Prynne’s face had a sagging tired look
under the street makeup.
“Elaine, you’ve just got to come,” she was saying in a whiny voice.
“Cassie’ll be there and Oglethorpe and all the old gang.... After all
now that you’re making such a success of editorial work it’s no
reason for completely abandoning your old friends is it? You dont
know how much we talk and wonder about you.”
“No but Ruth it’s just that I’m getting to hate large parties. I guess I
must be getting old. All right I’ll come for a little while.”
 Ruth put down the sandwich she was nibbling at and reached for
Ellen’s hand and patted it. “That’s the little trouper.... Of course I
knew you were coming all along.”
“But Ruth you never told me what happened to that traveling
repertory company last summer....”
“O my God,” burst out Ruth. “That was terrible. Of course it was a
scream, a perfect scream. Well the first thing that happened was that
Isabel Clyde’s husband Ralph Nolton who was managing the
company was a dipsomaniac ... and then the lovely Isabel wouldn’t
let anybody on the stage who didn’t act like a dummy for fear the
rubes wouldnt know who the star was.... Oh I cant tell about it any
more.... It isnt funny to me any more, it’s just horrible.... Oh Elaine
I’m so discouraged. My dear I’m getting old.” She suddenly burst out
crying.
“Oh Ruth please dont,” said Ellen in a little rasping voice. She
laughed. “After all we’re none of us getting any younger are we?”
“Dear you dont understand ... You never will understand.”
They sat a long while without saying anything, scraps of
lowvoiced conversation came to them from other corners of the dim
tearoom. The palehaired waitress brought them two orders of fruit
salad.
“My it must be getting late,” said Ruth eventually.
“It’s only half past eight.... We dont want to get to this party too
soon.”
“By the way ... how’s Jimmy Herf. I havent seen him for ages.”
“Jimps is fine.... He’s terribly sick of newspaper work. I do wish he
could get something he really enjoyed doing.”
“He’ll always be a restless sort of person. Oh Elaine I was so
happy when I heard about your being married.... I acted like a damn
fool. I cried and cried.... And now with Martin and everything you
must be terribly happy.”