Definition of 'Globalization'

The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only international trade, but

also cultural exchange.

Investopedia explains 'Globalization'

The advantages and disadvantages of globalization have been heavily scrutinized and debated in recent years. Proponents of globalization say that it helps developing nations "catch up" to industrialized nations much faster through increased employment and technological advances. Critics of globalization say that it weakens national sovereignty and allows rich nations to ship domestic jobs overseas where labor is much cheaper. Read more: http://www.investopedia.com/terms/g/globalization.asp#ixzz1yBpxW4de is the tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, allowing them to become interconnected with different markets. Proponents of globalization say that it helps developing nations "catch up" to industrialized nations much faster, through increased employment and technological advances, and Asian economies are often highlighted as examples of globalization's success. Critics of globalization say that it weakens national sovereignty and allows rich nations to ship domestic jobs overseas, where labor is much cheaper. What is the real story on globalization? It largely depends on your personal perspective. In this article, we'll examine the issue from both sides. SEE: Economics Basics The View from the Penthouse For business leaders and members of the economic elite, globalization is good. Cheaper labor overseas enables them to build production facilities in locations where labor and healthcare costs are low, and then sell the finished goods in locations where wages are high. (For related reading, see What Is International Trade?) Profits soar due to the greatly reduced wages for workers, and Wall Street rewards the big profit gains with higher stock prices. The CEOs of global companies also get credit for the profits. Their rewards are usually generous compensation packages, in which company stock and stock options figure prominently. Institutional investors and wealthy individuals also take home the big gains when stock prices increase. The View from the Street But globalization doesn't only affect CEOs and high-net-worth individuals. Competition for jobs

stretches far beyond the immediate area in a global marketplace. From technology call centers in India, to automobile manufacturing plants in China, globalization means that workers must compete with job applicants from around the world. Some of these changes arose because of the North American Free Trade Agreement (NAFTA). NAFTA sent the jobs of U.S. autoworkers to Mexico, a developing country, where wages are significantly lower than those in the U.S. A few years later, some of those same jobs were relocated to third-world countries in East Asia, where wages are even lower. In both cases, the auto manufacturers expected U.S. consumers to continue buying those products at U.S. prices. While critics of globalization decry the loss of jobs that globalization can entail for developed countries, those who support globalization argue that the employment and technology that is brought to developing countries helps those populations toward industrialization and the possibility of increased standards of living. The View from the Middle Ground In the globalization battleground, outsourcing is a double-edged sword. On the one hand, low wages in foreign countries enable retailers to sell clothing, cars and other goods at reduced rates in western nations where shopping has become an ingrained part of the culture. This allows companies to increase their profit margins. At the same time, shoppers save money when they buy these goods, causing some supporters of globalization to argue that while sending jobs overseas tends to lower wages, it may also lower prices at the same time. Lower-income workers also enjoy some of the benefits of stock price appreciation. Many workers have mutual funds holdings, particularly in their 401(k) plans. When companies outsource jobs and get rewarded with rising share prices, mutual funds with those shares also increase in value. The Effects of Globalization The ever-increasing flow of cross-border traffic in terms of money, information, people and technology isn't going to stop. Some argue that it is a classic situation of the rich get richer while the poor get poorer. While global standards of living have risen overall as industrialization takes root in third-world countries, they have fallen in developed countries. Today, the gap between rich and poor countries is expanding, as is the gap between the rich and poor within these countries. Homogenization of the world is another result, with the same coffee shop on every corner and the same big-box retailers in seemingly every city in every country. So, while globalization does promote contact and exchange between cultures, it also tends to make them more similar to one another. At the market level, linked global financial markets propel local issues into international problems, such as meltdowns in Southeast Asia and the 1998 Russian debt default.

What Lies Ahead? Deviation from the status quo on this issue is likely to be minimal. The massive outsourcing of U.S. manufacturing jobs that began decades ago continues today. White collar jobs, such as call center workers, medical technicians and accountants have also joined the outsource parade, leaving many to argue that those profiting from the arrangement have little incentive to change it, while those most impacted by it are virtually powerless. Politicians have latched onto the idea of the disappearing middle class as a political issue, but none of their income redistribution schemes are likely to have any immediate substantial impact. (For related reading, see Losing The Middle Class.) The Bottom Line Public scrutiny of CEO compensation has encouraged business leaders to begin to see that a rising tide doesn't necessarily lift all boats. In many cases, low-wage workers get hurt the most because they don't have transferable skills. The concept of retraining workers is on the radar, but it's easier said than done and decades too late for the American manufacturing industry. (To learn more, see Evaluating Executive Compensation.) Until a better solution is found, education, flexibility and adaptability are the keys to survival. So far, the only answer that politicians and business leaders agree on is the value of an educated, flexible, adaptable workforce. (At the individual level, you can take action on this issue if you Invest In Yourself With A College Education.) Read more: http://www.investopedia.com/articles/07/globalization.asp#ixzz1yBr9D8HT

Introduction by John Brockman Though the notion that we live in an era of unprecedented globalization is becoming increasingly evident, that change is more often than not attributed exclusively to the convergence of technology with the financial markets. But too often in these discussions, the larger point is missed: that we have a historic opportunity. As Anthony Giddens, director of the London School of Economics, writes, "we have the chance to take over where the 20th century failed, and a key project for us is to drag the history of the 21st century away from that of the 20th." According to Giddens, "the driving force of the new globalization is the communications revolution," and beyond its effects on the individual, this revolution is fundamentally altering the way public institutions interact. Giddens uses the idea of risk as an essential component of this future-oriented environment, asserting that scientific innovation explores "the edge between the positive and negative sides of risk." Risk management, then, becomes a necessary a field of analysis. JB

Appointed as Director of the London School of Economics and Political Science (LSE) in 1997, ANTHONY GIDDENS was previously a Fellow and Professor of Sociology at King's College, Cambridge. Among his 34 books are The Third Way: The Renewal of Social Democracy, The Third Way and It's Critics, and Runaway World : How Globalization is Reshaping Our Lives. There is a substantial body of academic writing and criticism about his work.He co-founded the academic publishing house Polity Press in 1985. He was the 1999 BBC Reith Lecturer. Anthony Giddens is the most widely-read and cited social theorist of his generation. His ideas have profoundly influenced the writing and teaching of sociology and social theory around the world. Frequently referred to as Tony Blair's guru, Giddens has made a strong impact on the evolution of New Labour. Anthony Giddens Edge Bio Page

THE SECOND GLOBALIZATION DEBATE A Talk With Anthony Giddens

One of the big debates at the moment concerns the theme of globalization. This is a completely amazing thing, because only about 10 to 12 years ago it was hard to get people to talk about it, to use the notion of globalization at all. And now only a decade later, everybody's using it. It's in the papers all the time. Politicians talk about it. Businessmen talk about it. The whole globalization debate has itself become globalized, and that shows you that this truly is a period of dramatic, intense change. When you get a notion which comes from nowhere and comes to be everywhere, it's obviously going to get debate about it, and there is a very intense debate, and there were two phases to that debate. Continued.....

(In)equality: Is globalization a force for good? [ ]

[Edit]

Yes

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[ ]

[Edit] No

Globalization further widens the gap between the rich and the poor. "Most international trade and investment is concentrated in North America, Europe, and East Asia. States that have already prospered from globalization continue to do so, while othersBangladesh, Bolivia, Belize, Burmaare left behind. Inequality between the haves and have-nots within and among countries has increased dramatically over the last 20 years, and the share of global income of the poorest people on earth has dropped from 2.3 percent to 1.4 percent in the last decade. A recent United Nations report *Elizabeth Becker, U.N. Study Finds Global Trade Benefits Are Uneven, New York Times(February 24, 2004)+ found that 188 million people worldwide (or 6.2 percent of the global labor force) are unemployed. The report also found that the gap between rich and poor nations has widened, with countries representing 14 percent of the worlds population accounting for half the worlds trade and foreign investment." *"AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization increases inequality within a country. "China, Mexico, India, Nigeria, and other countries that have liberalized their economies and have taken advantage of economic globalization have also seen dramatic increases in inequality within their countries." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain]

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[ ] Economics: Is globalization a desirable process? [ ]

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Yes

Globalizations helps international trade flourish. "Economic globalization is a process that leads to the reduction in official obstacles to cross-border economic transactions. This often makes it as inexpensive to do business with foreigners as it is to do business at home, thus reducing the advantages held by domestic businesses." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization allows for specialization. "According to neoclassical liberal economic theory, reducing tariff barriers and other impediments to the free movement of goods and capital, which makes it easier for countries to trade with each other, lifts the wealth of all states by allowing them to concentrate on those things in which they have greatest expertise. In general, poor countries that have lowered their tariff barriers have seen overall increases in employment and national income because labor and capital shifts to capital-generating export industries. In addition to providing jobs, foreign companies moving to developing countries often bring with them higher wages and better working conditions compared with those offered by domestic companies. The experiences of India and South Korea suggest that as countries increase their levels of growth and development, their wage levels rise, and a shift from labor-intensive industry to more capital and knowledge-intensive industry is seen." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalizations allows for foreign direct investment. Foreign direct investment (one of the pillars of globalization) is closely linked to transmission of ideas and technical information, creation of new jobs, as it serves as a boost for ailing economies. Globalization helps eradicate poverty. "Over the past 20 years, 200 million people have left absolute poverty -- defined as living on the equivalent of less than $1 a day." "The Benefits of Globalization", by Pete Geddes, January 2004 Foreign competition boosts innovation. [Yuriy Gorodnichenko, Jan Svejnar, and Katherine Terrell, "Globalization and Innovation in Emerging Markets," NBER Working Paper no.14481 November 2008]

[ ] [Edit] No

Globalization increases market sensitivity. "Each actor in the international system is tied together more closely and in numerous ways. As a result, each becomes more sensitive to the decisions or actions of others and more vulnerable to the effects of others choices and actions." Our economies are becoming more interdependent, and thus more sensitive and vulnerable. ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization undermines social welfare programs. "Structural adjustment programs often force countries in the developing world to streamline the economy and redirect spending away from social welfare and toward export sectors and other profit-yielding enterprises. This can

lead to a reduction in or elimination of many social welfare programs such as health, food, and housing subsidies." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain]

Globalization accelerates the "race to the bottom". Multinational companies tend to "seek the lowest level of regulation and taxation, forcing competing governments to lower their standards of labor, human rights, and environmental protection, taxation, and other regulation." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization can lead to a "brain drain". "For developing countries, the reduced cost of movement across borders to access jobs or education (...) can also lead to a brain drain, as the best minds and most educated leave their country for greater opportunities or rewards elsewhere." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization can cause higher unemployment and wage stagnation or even declines in developed economies. "This could happen for three reasons: the out-migration of capital, inmigration of labour, and competition from low-wage foreign workers via their exports of cheaper consumer goods and services to developed nations." "Globalization: Curse or Cure? Policies to Harness Global Economic Integration to Solve Our Economic Challenge", by Jagadeesh Gokhale, February 2010 Financial liberalization is difficult to implement. "Lacking mature financial sectors, emerging nations are unable to float their currencies if they wish to attract foreign capital because exchange rate volatility would reduce foreign investment inflows. (...) Prominent economists such as Joseph Stiglitz and Jagdish Bhagwati believe that financial liberalizations by developing countries would most likely lead to financial collapse. (...) Although greater economic and financial integration permits diversification from narrow production bases, it also induces greater specialization in production and makes countries susceptible to external economic shocks." "Globalization: Curse or Cure? Policies to Harness Global Economic Integration to Solve Our Economic Challenge", by Jagadeesh Gokhale, February 2010

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[ ] Politics: Do we benefit from globalization? [ ]

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Yes

Globalization has enabled us to solve global problems. Had it not been for globalization, we would be bereft of international organizations and institutions that allow for more effective decision-making on a global scale. Globalization helps democracy thrive. "Governments also have a harder time controlling the flow of information and ideas in a more globalized world. It is harder to hide human rights abuses when survivors can go online to share stories, or when CNN cameras let us witness the aftermath of demonstrations or riots, or when satellites pick up the existence of mass graves." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization is a liberating force. "The integration of rich and poor nations is not a zero-sum game where the gains of one come at the expense of the other. Driven by the rapid democratization of information, technology, and finance, globalization is turning out to be a remarkably progressive, liberating force." "The Benefits of Globalization", by Pete Geddes, January 2004

[ ] [Edit] No

We are "forced" to give up national sovereignty. As it is impossible to isolate ourselves from globalization and international organizations, we have to "go with the flow" and thus - in exchange for possible economic benefits - to give up a little bit of our national sovereignty (such as members of the EU, WTO, etc.). Globalization has made it more difficult to ensure safety and stability. "Countries have less control than ever before over the flow of people, communicable diseases, pollution, drugs, arms, hazardous materials, and even terrorist activity. Terrorists such as Al Qaeda are stateless and have acquired the knowledge, resources, and support to employ destructive capability using the same technology through which you or I might place a phone call home or check stock prices. Terrorists, arms dealers, and drug cartels all operate as underground cross-border networks, moving money, people, or contraband across borders with greater ease than ever before." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] "Globalization can lead to state disintegration and often to violence, ethnic conflict, civil war, or secessionism. Examples abound, from the influence of terror networks on the secessionist war in Chechnya to the uprising in Chiapas in 1994, sparked in part by the signing of the North Atlantic Free Trade Agreement (NAFTA)." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Institutions of global governance mean a democratic deficit, meaning that "international institutions of governance represent elites and governments rather than individuals or groups, and are thus not able to be held accountable for their actions. Rarely is an individual able to

elect (or vote out) representatives to a supranational body (a rare exception being representatives to the European Parliament). Thus, unlike politics at the national level in a democratic system of governance, there are few if any avenues through which global citizens may articulate their interests via conventional politics." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] [Edit] [ [ [ [ ] ] ] ]

[ ] Environment: Is globalization a force for good? [ ]

[Edit] Yes

Click on the pencil icon and research and write arguments here
[ ]

[Edit] No

Globalization harms the environment. Globalization and subsequent "industrialization leads to more emissions, contributing to global warming and a deterioration of air and water quality. In addition, profitable resource-based industries such as oil drilling, forestry, mining, and fisheries exploit resources of countries with little regard to the environmental cost." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain]

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[ ] Gender issues: Is globalization a force for good? [ ]

[Edit] Yes

Globalization has improved the status of women. "Globalization has rapidly improved the social and economic status of women in the developing world. (...) In a competitive, globalized world, the role of women becomes ever more valuable. Cultures that exclude women from full participation (e.g., Saudi Arabia) fall ever further behind." "The Benefits of Globalization", by Pete Geddes, January 2004

[ ] [Edit] No

"On the whole, women have been harmed more than men by globalization. Structural adjustment programs often force countries in the developing world to streamline the economy and redirect spending away from social welfare and toward export sectors and other profityielding enterprises. This can lead to a reduction in or elimination of many social welfare programs such as health, food, and housing subsidies. Women on average are poorer than men and, as such, are the majority of those dependent on social welfare programs. Therefore, elimination or reduction in these programs affects them disproportionately to men." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] "Foreign subsidized agriculture or foreign imports undermine womens traditional livelihoods as subsistence farmers or small producers in many developing countries. Put out of work by global competition, many women then face cultural barriers when looking for alternative occupations." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain]

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[ ] Culture and society: Is globalization desirable? [ ]

[Edit] Yes

Globalization can help preserve traditions and cultures. "...paradoxically, the new global media have proven a powerful means of projecting traditional culture and values, as well as the ideas of radical opponents of globalization. It is also a medium through which cultural practices and ideas otherwise unknown outside a local area are also transmitted globally." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] "Globalization helps break the regressive taboos responsible for discriminating against people on the basis of gender, race, or religious beliefs. It is an antidote to the intolerant fundamentalism that oppresses millions of the worlds poorest." "The Benefits of Globalization", by Pete Geddes, January 2004 Globalization helps eradicate child labour. Child labor declines as a countrys income increases. As trade promotes economic growth, globalization results in less child labor over time. In 1960, children made up 32 percent of the labor force in low-income countries. Forty years later, following the massive expansion in international trade, child labor in the same countries had declined to 19 percent. "The Benefits of Globalization", by Pete Geddes, January 2004

[ ] [Edit] No

Globalization is a threat to traditions. Globalization means "many cultural changes, the loss of traditional existence, the marginalization of indigenous groups, and the problems associated with rapid urbanization and industrialization pollution, increased crime rates, dramatic inequalities, and a location for a hotbed of social and political instability and upheaval." ["AP Comparative Government and Politics Briefing Paper: Globalization", by Matthew Krain] Globalization equals loss of individualism. Globalization is, in effect, a process in which people give up individualism in exchange for homogenization, or belonging. As popular culture spreads, creativity and individual values disappear.

[Edit]

See also
Major interest groups in the world economy?
Answer It! In: Business Globalization, 2009 Economic Stimulus Plan [Edit categories]

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Relevant answers:

What are the Major interest groups in the world economy in globalization?

i think mulitinational companies and the nation of interest is a player in globalization

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How do public-interest groups differ from other interest groups?

public-interest groups work for the bnefits of all citizens.

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FEDECOR is a public interest group

What is a person who is paid by an interest group to represent that groups interest?

lobbyist

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INTEREST GROUP

Business globalization is generally connecting economic regions worldwide in a network of trade, communication and transportation. The companies that use these networks manage resources on a global scale to meet their financial goals.

FROM ANTHONY Question 1 Summarize the globalization debate. What are the major interest groups in the world economy? How are they affected by different elements of globalization?

Answer to Question 1
Summary of Globalization debate
Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. The globalization debate is about views, approval and disapproval about the existence, emergence, importance and effects of globalization on different groupings of the world, e.g. the developed economy nations and the emerging economy nations. The debate is on the effects that globalization brings about on the environment, culture, political systems, economic developments and on human physical well-being in societies around the world as a whole. There are three different views held about globalization. The first group of thought sees it as a recent phenomenon driven by technological innovations and western ideology focused on exploiting and dominating the world through Multinational Enterprises (MNEs). This group, who are mainly opponents of globalization, claim it promotes environmental stress, social injustice and sweatshop labour. They advocate for the cessation of globalization or it being slowed down. The second group is neither opponents nor are for globalization. Their view is that globalization has always been part and parcel of human history. They believe that it is one-directional evolution since the dawn of human history. The third group, who are proponents of globalization, sees it as closer integration of countries and people of the world which has brought about enormous reduction in cost of travelling and communications and has broken down artificial barriers to the flow of goods and services,

capital, knowledge and to a lesser extent, people across borders. They view globalization process as being similar to the pendulum that swings from one extreme end to the other from time to time. They however, believe the benefits far out ways its negative effects. Whether globalization is a new phenomenon or a long-run historical evolution, the reality is that it is changing trends in economical, political, cultural and social lives of people all around the world. What are the effects of this globalization that is unable to keep on going in one direction ? The debate goes on.

What are the major interest groups in the world economy?

The major interest groups in the world economy are the identifiable groups that influence and are affected by changes in the world economy. These groups are: Multinational Enterprise (MNEs) which engage in cross-border activities in a form of foreign direct investments. They are dominant forces in the world economy. Economic groupings. These are intergovernmental organizations (IGOs) which are formed for various goals and scopes, often outlined in the treaty or charter . Some are dedicated to free trade, the reduction of trade barriers (the World Trade Organization) and International Monetary Fund. Others are focused on international development. International cartels, such as the Organization of Petroleum-Exporting Countries (OPEC). Transnational Media Organization which transmits massive inflows of information and has extended its marketing reach to every corner of every hemisphere. Non-governmental Organization (NGOs) groups such as environmentalist, human rights activists, and consumer groups who tackle consumer problems connected with cross-border transactions in both goods and services, and to help ensure exchanges of information among the participants for mutual benefit and understanding. Regional Groupings such as the European Union(EU) whose aims are to reduce trade and investment barriers within their regions Individual States such as the developed and the emerging economy nations. The International Monetary Fund (IMF) assessment in 2009, recognizes thirty-three countries as forming the develop economy and one hundred and forty-nine nations forming the emerging economy.

How are they affected by different elements of globalization?

All the interest groups mentioned above have enjoyed some economic growth and improved standard of living at the dawn of the 21st century. Alliances, such as the European Union (EU), in Europe and the Economic Community of West African States (ECOWAS), in West Africa have also been formed for economic benefits. Globalization has brought more cultural integration resulting in the trading of cultural items like fashionable wears and food items that were hitherto alien to most regions. Globalization has resulted in Multinational Enterprises (MNEs) having so much power that they tend to violate some of the host nations statutes. Their activities sometimes undermine the wages in the rich countries and also exploit workers in the poor nations. Economic globalization brought about the advent of electronic commerce (e-commerce), as a result of combination of telecommunication and computers, which have changed the business models across the world drastically. E-commerce has increased consumers ability to gather information about products and prices and conduct online shopping. However, e-commerce is exposed to fraud, unfair and deceptive practices by some business entities.

Question 2
Who benefits and who loses from a shift in jobs to low-wage economies? Consider this question from the perspective of consumers, labour, technological change, firms, and nation-states. Are the net benefits likely to be positive?

Most MNEs see the world as one big market. Managers of the MNEs take various and different decisions to minimize their production cost thereby maximizing profits. Labour cost ontributes significantly to the total cost of production. Many managers of MNEs from developed countries with high wage economy see it as more profitable to locate their production plants in lower wage areas outside their home country where they have large markets. Examples are the Unilever subsidiaries and the Coca-Cola factories all around the world.

Lower wages for production staff in the host nation compared to that of the home nation (high wage economy) of the MNE will reduce the cost of production relatively and may afford the MNE to expand production base to enjoy economy of large scale. This may afford them to reduce their prices for that commodity and this will be beneficial to consumers as they will pay less compared to when same commodity is produced in the high wage economy. Besides, the reduction in production cost will swell the profit margin of the firm thereby being able to pay higher dividends to the owners and shareholders of the firm. The shift of production base will affect labour in the home country of the MNE as most of the labour force that would have been engaged in the home country for same production will be engaged in the host country thereby creating jobs for the host nation and while denying the home nation of those employment opportunities. The MNEs may need to train certain workers to be able to perform certain duties in the production chain. In effect some technology will be transferred to the host country thereby increasing their technological base. In most cases shift in jobs are detrimental to the home nation in terms of labour, however the firm gain higher dividends in the foreign direct investments that are sent back to the home nation. The host nation gains in terms of employment creation, taxes collected from the firms trading activities, technology transfer and the citizen having to buy the commodities at cheaper prices. The benefits of job shifts from high-wage area to low-wage area tends to be more positive than otherwise.

Modelski: ...globalization is a process along four dimensions: economic globalization, formation of world opinion, democratization, and political globalization. This was rounded off with the assertion that changes along one of these dimensions (such as economic globalization) elicited changes among the other dimensions. Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world. ( globalization 101)

QUEST3
This is a big issue for any company operating globally, because each country has their own sets of laws, regulations, and cultural standards. Sweatshops are a great example, as they've been in the news a lot lately. Say, Nike, an American footwear company, manufacturing its shoes in sotheast asia. In the US, it's illegal for kids to work under a certain age, but in other countries, it's not only legal, but accepted and encouraged. In many of these less-developed countries, working children are essentialy for bringing income into the household. So while it seems shameful and abusive, from a US-perspective, it's completely find from another. In fact, some people would make the argument that you're doing a disservice to the people in these other countries by NOT allowing children to work. Another example would be bribery. In the US, it's completely illegal to bribe anyone, especially government officials, in the context of business. But in many countries, such as Indonesia, it's not only accepted, but expected. In fact, if you conform to US standards and do not offer bribes, you'll never get anywhere, and your business will fail. So do you keep US standards and just not operate in these countries, or do you change your standard from place to place in order to operate successfully there? Take Yahoo as another example. The were recently forced to turn over information on some of their users to the Chinese government. Here in the US, that information is private and protected, and Yahoo would have no obligation to hand over the information. But in China, such information on individuals is not protected. So what was Yahoo to do? Start compromising their privacy standards in order to operate in China, or face being kicked out of the country all together. Just a few issues. Good luck!
BUSINESS AND CONFLICT
>elements

conflict_management
11

exec summary
Instability is affecting much needed investment in some of the poorest nations in the world. The risks involved in conflict make companies justifiably

cautious, and they may well feel it is not for them to intercede, but just as pro-active action to tackle pollution can pay dividends so can pro-active involvement in conflict resolution. Care is needed though, if a company is going to get involved there are many pitfalls to avoid. However, the scale of global corporations and the resources available to them means they can be important players in

creating solutions.

>

Other firms have played prominent roles in conflict prevention, conflict resolution and postconflict reconstruction. Lonrho actively engaged in facilitating the peace process between Mozambiques rebels and government in the early 1990s. CONFLICT MANAGEMENT Conflict typically emerges from a complex mix of causal factors, such as insecure or inequitable access to resources, competition between social groups for political power, or incompatibilities between groups with distinct value systems. A company can play the role of instigator or victim of violence. It can profit from the conflict, or avoid playing any role at all. The company can be a party to the conflict, or be a lead player in seeking to achieve its resolution. Many of these roles can be taken up intentionally or inadvertently, with a company frequently playing more than one role simultaneously. There are three basic means for resolving conflict: reconciling disputants basic interests, typically through negotiation or dialogue; adjudicating between rights, such as through a legal process; or contests of relative power, through strikes or military force. A manager who is faced with a conflicted, or potentially conflicted situation, may advise her company not to enter into the investment, or to

divest from an existing investment. She might advise the company to deal with the impacts of the conflict and conflict-related issues as they emerge, or she can argue for a systematic conflict management strategy. Systematic management of risks typically involves a set of activities to reduce the costs should an adverse event occur, to shift the costs to other parties and to reduce the likelihood of adverse event itself. In managing the risk of oil spilling from its supertanker, for example, a firm would: prepare a rapid-response clean-up team; purchase insurance against the event happening, and double-hull the tanker. The equivalent approach to conflict would involve a portfolio of strategies designed to:
Reduce the impacts of adverse events kidnapping of personnel, destruction of property, public naming and shaming by hiring the services of a professional security firm, establishing a public relations strategy or building walls around its operations; Share the costs of adverse events by maintaining political risk insurance or partnering with the host government or an international financial institution such as the World Bank. Reduce the risk of adverse events through proactive conflict management identifying, reducing and resolving the sources of social tension that lead to conflict.

While the first two strategies have frequently been employed in the past, it is only in recent years that companies have recognised the potential payoff from engaging in proactive conflict management. According to a joint study by International Alert and the International Business Leaders Forum, there is an economic benefit [for companies] in resolving violent conflicts and preferably preventing them from happening in the first place. So how are companies proactively managing conflict? TOWARDS PROACTIVE CONFLICT MANAGEMENT A firm can determine how proactive to be in conflict management based on an assessment of the costs and benefits of the various options; the causes, nature and stage of the conflict; the firms relationship to the various actors and the firms conflict management capacity, financial and ownership structure and reputational exposure. The firm may then develop proactive management activities to address conflict prevention and resolution, conflict impact reduction, and post-conflict reconstruction. The more direct a companys engagement in the conflict, the greater the risk to its reputation and personnel.
Advocate for Human Rights protection. Mining company WMC has worked with indigenous communities in the region of the Tampakan prospect, on the island of Mindanao in the Philippines, to obtain official recognition of their indigenous status from their government, as a basis for royalty payments and legal protection of their ancestral domains. Preserve and enhance livelihood opportunities. In order to head off confrontation between its staff and artisanal miners in the Las Cristinas prospect area in southern Venezuela, Placer Dome has allocated a tract of the concession to the local miners, also providing training in mining techniques

and business management. Address environmental sources of conflict. Talisman Energy in war-torn Sudan has responded to NGO, UN and government pressure by helping alleviate water pressures in the region. The company is working in partnership to survey water needs and develop community wells. It is also providing residents with conflict resolution training. Develop common standards of practice. In January 2001, a group of oil and mining companies, NGOs and the governments of the US and UK established common principles albeit voluntary for business to use in maintaining the safety and security of their operations within a framework that ensures respect for human rights and fundamental freedoms

EXAMPLES OF PROACTIVE ENGAGEMENT Proactive conflict management interventions include:

Information gathering and sharing, such as through social and environmental impact assessment; stakeholder identification and empowerment, or sponsorship of fact-finding missions; Diplomatic intervention, through mediation, dialogue and appeal to outside diplomatic efforts Provision of incentives and negative sanctions to the various actors, such as through investment, capacity building, and threat of divesting. Direct intervention in conflict, such as by putting private forces on the ground to preserve the peace.

CHALLENGES The legitimacy, accountability and effectiveness of sticking a corporate nose in the affairs of a conflicted society are controversial issues. A companys participation in the prevention or resolution of violent conflict is necessarily limited by the duration of the companys operations in the area. Moreover, companies may be good at building value, but are they good at making peace? In spite of their best efforts in proactive conflict management, firms may still be seen as complicit in the violence, as long as they continue to operate in a particular region. Misplaced intervention can draw unwanted attention to the company both locally and internationally. And it can make a bad situation worse. On the other hand, corporate financial and managerial capacity often outstrips that of the state in which it is operating, and firms can sometimes act far more decisively and effectively than official multilateral organizations. The greater a firms direct involvement in the conflict, therefore, the greater the need to work in partnership with civil society and international organisations, governments and community groups. Otherwise, the firm will face challenges in regard to its legitimacy in tampering with a countrys domestic affairs, and in regards to its limited know-how in addressing complex community development and political affairs. Likewise, a company needs to be strategic in identifying those areas of intervention least likely to deepen social cleavages. In many cases of conflict, access to or quality of natural resources may be the bone of contention most amenable to resolution. One of the conclusions of the World Conservation Unions Task Force on Environment and Security is that common environmental interests can bring disputants together in dialogue and innovative problem solving. PRO-ACTIVISM PAYS As the discussion above has made clear, the risk of conflict is a prominent factor in international investment decisions, a threat to capital stock, to reputation, to share price and to personnel. Traditionally, companies have managed this risk through public relations campaigns, danger pay, insurance, and private security forces. Yet this is an end-of-the-pipe approach to political risk management. It does nothing to address the underlying roots of insecurity and of investment risk. In the field of environmental management, proactive investments

in pollution prevention and continual improvement have often paid for themselves by reducing the costs of legal compliance. Proactive investment in community stability might also pay dividends by protecting a firms social license to operate more efficiently than the end-of-the-pipe alternatives. It is in the interest of all for managers operating in regions where the potential for violence is high, to learn to manage conflict in a practical and systematic way.
JASON SWITZER IS THE PROJECT OFFICER FOR ENVIRONMENT AND SECURITY AT THE INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

Globally, while the number of violent conflicts has declined since 1987, 95% are taking place within national borders, killing over 1,400 people each day of the last decade.
World Bank/UNDP 12 >elements

conflict_management

Through Different Lenses: Common Sources of Conflict Between Multinational Corporations and Indigenous Peoples
The territories of Indigenous Peoples are exceedingly rich in natural resources precious metals, fossil fuels, timber and much more making these lands zones of potential conflict between the people who have tended these lands for tens of thousands of years and those corporations who seek to tap this resource abundance to fuel industrial societies. Too often, these resources have been taken with little, if any, consultation, leaving Indigenous Peoples, the most resource abundant people on earth, also some of our planets poorest. In the process, cultures have been threatened, and in some cases, even rendered extinct. In more recent times, corporations have recognized that a different path to development is needed, one that reduces the risks from protest-induced project delays, and damage to reputation caused by perceived disrespectful practice. But even where aspirations have shifted, significant challenges remain. Many of these challenges are embedded in the vastly different lenses through which corporate developers and Indigenous stewards see the land. This paper will explore some of those differences.

Timing is everything
Different orientations to time are the most common conflict between corporations and Indigenous Peoples. Pressured by expiring land tenures, fluctuating commodity prices, and needs to fill in portfolio

reserves, corporations are eager, often overly so, to move projects ahead. Indigenous Peoples, on the other hand, take a long view of their land, and need to build comfort not only in the relationship, but also in the changes to their land and community as a result of the development process. Corporations often approach the early stage of development cautiously. Unsure of the development potential they seek to minimize discussions with the community until more is known, and there is something to talk about. What the company sees as prudent and good business sense, the community will often see as secrecy that breeds distrust. During this early phase, the companys engineers and project designers are busy crafting a range of possible scenarios to which subsequently developed data can be mapped as the decision about commercialization draws near. Thus by the time the decision to pursue commercialization is made, the company already has a pretty strong design for the project in place. It is at this point that community engagement begins, most often with a presentation of the companys tentative plans. Often the community arrives at the table with negative feelings about the earlier period of secrecy, only to realize just how much planning has gone on without them as the companys fully blown ideas are laid on the table before them. Now once the dialogue begins, the concerns and suggestions of the community are often heard by engineers and planners as budget-busters and time-delayers. The structure of the process has brought the two sides to a point of conflict and perhaps impasse. This conflict might have been mitigated by beginning consultations early: when the geologists begin their investigations of what lies beneath the soil, the socio-geologists should be in the community, 2 understanding the concerns and ideas of what lies above the ground. Altering the development process in this manner, allows both sides the time to learn about the other, and to begin to build trust. In indigenous communities where there is a cultural premium placed on leader to leader communications, corporations sometimes struggle with the choice of who should have primary responsibility to build and maintain the relationship with local chiefs. Is it the culturally-aware delegate who has time to spend but very little authority or the real decision maker with little knowledge/ respect/appreciation for the indigenous culture and not enough time for relationship building and story sharing over tea? The answer to these questions depends on a host of factors including the size of the corporate enterprise and the size of the project. As with other tensions, balance is the preferred path. Though it is not workable for the primary decision maker of a large enterprise to be the primary

relationship holder with a community, it is worthwhile and reasonable to expect that corporate leader to have visited the project and met with the community at some point during the development period. Such visits not only demonstrate respect toward the community, they move the decision making beyond a simple intellectual exercise, and move it in a more holistic direction that is akin to and compatible with Indigenous decision-making practices. Part of the companys learning needs center on better understanding the cycles of time in the community. Are there religious or customary times throughout the year where work should not be scheduled, or where corporate activity in the development area should give way to the communitys cultural use of the area? Having these conversations can demonstrate that the company is willing to compromise its strict time pressures, lengthen development and production periods in order to be respectful, good neighbors and project partners.

The backyard is huge

Indigenous and non-Indigenous Peoples are often thought to have very different understandings of place. European settlers in North America frequently sought out places that reminded them of their homes in the Old Country and when they found those places, they bestowed the names of the places they left on their new homes New Amsterdam (which later was renamed New York), Nova Scotia, Boston, Bristol, Manchester and Plymouth, are but a few names to have leapt the Pond. Other times immigrants adopted as the names of their towns and regions the names given them by prior inhabitants: Manhattan, Massachusetts, Chicago, Iowa, and Mississippi are but a few Indian-derived place names which remain in use today. Corporations often add a third nomenclature, naming corporate assets either after the corporation itself, or perhaps its own esteemed leaders. In seeking to explain why my concerns about possible environmental damage to an area were misplaced, a geologist explained the development site was more than 150 miles from where the people lived, and then asked, Do you care what happens 150 miles from your home? The engineer appealed to our perceived common understandings as children of NIMBY (not in my backyard) societies. Indigenous Peoples backyards are not so small. Names bring honor, and names carry the stories of places and the people who call them home. When non-Indigenous people introduce themselves it is common for them to say what they do for work. In 3 Indigenous communities, people often begin by saying where they are from, what land nurtured them.

For Indigenous Peoples life and place are inseparable, part of the reinforcing protectionproduction fabric. This is true even in places where strict subsistence has given way to mixed economies, for the land sustains the culture as well. It is where the characters of the young are shaped and cultural values are passed on. If the people protect the land, it will produce what they need and sustain them. Resource development decisions are subjected to this protection-production framework.

Preserve the asset

One development project of a large international oil corporation has as its first organizational goal, preserve the asset. This project has been stymied from moving ahead by members of the community whose goal is also preserving the assets. For the corporation, the asset is obviously the timelimited right of tenure for the purpose of exploration. For the community, their goal is preserving and protecting the asset, so that it might continue to produce and preserve them in their lifestyle and culture. Taken at its face value, the oil corporations interest in preserving the asset must include maintaining a strong relationship with the community, for if the community opposes the corporations tenure, then the tenure has little value. The two sides differing views of asset preservation need not be mutually exclusive. But how is this possible, when one sides understanding of asset preservation presupposes development, while the other side holds tightly to the opposite view. Within Indigenous communities the concept of assets is broad and holistic. The community holds many assets one of which is the land and its resources. But other assets are just as important: culture, language, and kinship networks (that provide economic and physical security). Asset development within an Indigenous context means acting in a way that enriches all of the assets of a community together. A development strategy which develops and monetizes one asset (natural resources) at the expense of other community assets (culture, kinship) leads to impoverishment and is not development at all. Yet this has been the predominant industrial development model in Indigenous territories for centuries. Many Indigenous communities have decades of experience with industrial developers. While some maintain strict no development positions, many others support some forms of development. The question becomes one of scope and scale of impact and preservation of other interdependent community assets. One wonderful example of the issue of scope and scale can be found in the timber business developed by the Menominee Nation over the last 160 years. Menominee Tribal Enterprises

has sustainably harvested tribal forests of more than two dozen diverse species, and are the envy of the forest products industry in terms of quality and consistent profitability. Trees are selectively harvested, leaving the forest as a thriving habitat for eagles, osprey, deer, wolf, bear and the people themselves. Historically, mining, energy and timber industries have constructed their plans to maximize the efficiency of extraction, optimizing infrastructure to hit these ideal targets. More often than not, this maximizes their footprint, and hence their impact. Desirable profitability for the corporation, leads to undesirable risks for the community, and once again, an impasse is often not far off. Projects that can be drawn out over longer periods of time are often more sustainable. Rather than ramping up production 4 and building out an infrastructure from a network of roads to housing for imported workers, only to have the projects resources exhausted in less than a decade, leaves the community with scarred land and abandoned buildings, bearing the brunt of boom-bust development cycles. In negotiating land tenure with sovereign governments, most developers embrace a goal of maximizing both the land open to exploration and the flexibility of technologies used in development. The underlying goal of this strategy is control. In this setting, control is a zero-sum game in which success in maximizing the corporations control also serves to maximize the communitys perceived risks, and thus can catalyze their opposition. As exploration progresses and more is learned about the resource, it becomes clear that parts of the tenure position are not needed, nor are the full panoply of technologies. Rather than passively retaining such freedoms, corporations can reduce their risks by returning a portion of control to the community, perhaps things like sacred sites, or areas heavily used for cultural practice, or by agreeing not to use technologies that are not well understood by the community and not necessary in the project. Broadening the understanding of preserving the asset from one principally of getting on with development to one that seeks to balance preservation of the impacted Indigenous communities, while often requiring corporations to incur a slower pace of production that violates project efficiency models, over a longer period of time reduces the risk for all involved, including the ever-increasing risk of reputational damage that seeps across projects half a world away of where the reputational damage occurred.

When you show up, history accompanies you

Even leadership companies that are committed to beginning dialogue early can make the mistake of not fully understanding the histories brought together by the prospects of new development. The

relationship between the community and the corporation does not begin with the tenure awards, but often years, even generations, before. Most corporations recognize that they arrive not only with their own reputations in other communities, but also the reputations of other industry peers and even nonindustry developers as part of the relationship building context. In order to overcome the negative legacies left by others, successful leadership companies need to quickly and clearly indicate their intent to raise the performance bar and become a partner of choice in the area. Companies should be prepared to be as specific as possible in telegraphing how their work represents a departure from the business practices employed by others in the past. Fewer corporations have a clear understanding of how their choices of alliances also affect the historical baggage. One of the most common alliances that cause problems is the alliance between the sovereign state and the corporation. While many corporations have an uneasy relationship with governments, most corporations nonetheless accrue benefits from the government as arbiter of disputes and protector of rights. For many, if not most, Indigenous Peoples, government has played a starkly different role, often as an institution that settles disputes among non-Indigenous Peoples in ways harmful to Indigenous Peoples and their communities. And most governments, even those which score highly on measures of 5 effectiveness, have painful and shameful legacies of abrogating the rights of Indigenous Peoples. Corporations that plant their flag solidly with sovereign governments may be inviting conflicts with Indigenous Communities. This is particularly true when corporations turn to governments to enforce compliance with development agendas moves which hearken back to histories where governments took things from Indigenous Peoples without consultation or compensation. Just as corporations seek to build their social license to operate in traditionally indigenous areas, there is the case of governmental bodies who are struggling to clarify their license to govern. The seemingly definitive nature of the laws and regulations becomes false assurance when the corporation shows up and realizes that the local indigenous groups hardly recognize, much less respect, the governmental mandates. The power of the corporation stems from the law, while the power of the community stems from the countervailing need for legitimacy the social license to operate. In order to proceed, the project must be both legal and legitimate. Successful leadership companies balance the realm where they hold more

power the power of the law with the realm in which they hold less power the need for legitimacy. Finding this balance sometimes will involve the judicious use of power just because a legal right to development exists does not mean it should forcefully be exerted. Failing to respect the need to balance legality and legitimacy can result in loss of trust and make the gaining of a social license to operate even more of a challenge. Sustaining the development agenda of the corporation necessitates balance between governments and Indigenous communities. There are several ways that corporations have found to work toward that balance. First, corporations can commit to resolving conflicts with the community directly, without invoking the governments punitive powers. (Even better, is to utilize the communitys own dispute resolution process to settle differences.) Second, corporations can use their political capital to advocate for the political advancement of Indigenous Peoples right and recognition within the broader society. This might include such things as lobbying governments to strengthen constitutional protections of aboriginal rights. Finally, some corporations have successfully and responsibly weighed in on lingering land claim disputes by voluntarily recognizing aboriginal land claims through the payment of royalties or the granting of equity shares in projects to Indigenous communities. This sign that an economically and politically powerful institution recognizes the rights and claims of Indigenous Peoples at the margin is often a powerful catalyst in Indigenous Peoples struggle for self-determination. It also signals that the corporation has alliances both with the sovereign authorities and with the Indigenous traditional owners. Such a leadership move is not however without risks of its own. When Freeport MacMoRan voluntarily set up a community benefits trust in Papua with a 1% of gross revenues royalties, the Indonesian government was none too pleased, but beyond expressing its displeasure publically, the government was not in a position to take any other action against the corporation who remained its ally, and provider of substantial revenue for the Indonesian public.

Cultures are not easily reduced to policy manuals

Leadership corporations have a strong need for working toward standards, to ensuring consistent performance through unified policies and best practices. Cultures, unlike chemical or biological processes, are not easily reduced to formulas and procedures that if strictly followed assure safety and 6 quality. Policy statements that are focused on a series of linear steps that if followed lead to desirable

outcomes pose particular challenges. Cultures are not linear; small changes in one aspect can have cascading impacts on others. Not only are there a myriad of Indigenous cultures that a large multinational firm is likely to encounter, but the multinational itself is comprised of numerous cultures, which may or may not be visible to its own internal leadership. While many corporate leaders assume that a body of standards and best practices define and frame their particular corporate culture, those policies are given out to those with their own cultural contexts and experiences. Policies in the hands of a Brit, an American, a Canadian, an Australian or a German will generate different outcomes in Athabascan, Cadigal, Inuit, Mursi or Saami cultures. Policies crossing cultures more often lead to exceptions rather than a strict adherence to the rules. Best practices which have a rigid understanding of desired outcome may prove more of a hindrance than a toolbox full of better practices some of which will be better in one setting, others of which are better in the next. Leaders with an ear and an eye for cultural nuances will serve the corporation better than a manager who is culturally tone-deaf, but who follows the rules well. Within corporations, working in indigenous areas can foster challenging cross-cultural communication issues across functional lines. With luck, there are corporate employees- usually from the external affairs, communications, or community development arenas- who understand and seek to honor/preserve/work with Indigenous Peoples culture. In some cases, these professionals share the cultural heritage and/or are hired from the intended work area. Typically, these folks work at the direction of the scientists, engineers and economists who drive the bottom line corporate ambitions. Despite their useful indigenous cultural insight, when a lower-status employee continuously challenges project design choices, there is a common organizational impulse to distrust and eventually marginalize these very people who can help to bridge the gap between the community and the corporation.

Parallel universes are not just the stuff of science fiction

Corporations are used to gaining a myriad of permits as a project advances through the development process. While these permits cover a wide range of issues, from health and safety, to environmental protection, to worker benefits, most are granted by sovereign governments, each with a hierarchical head and a reasonably transparent dispute resolution process. While few corporations have any trouble spinning tales of the hoops that had to be jumped through to satisfy difficult government officials, even the most involved of these stories are usually far less

complicated and challenging than those faced when operating in Indigenous territories. Most Indigenous communities throughout the world have a governance system recognized by (and frequently set up by) the sovereign government. In the United States, these would be the tribal councils established under the provisions of the Indian Reorganization Act; in Canada the First Nation councils established under the Indian Act; and in Australia, the Land Councils established by the Land Councils Act to make decisions pertaining to access to and development of traditional owners lands. In many 7 communities, traditional governance structures, commonly centered upon elders, also exist, and are frequently in conflict with the governance processes established by the sovereign state. Leadership companies recognize that in order for projects to move ahead they must be both legal (affirmed by the sovereign power and the Indigenous governance body established by the sovereign power) and also legitimate (affirmed by the community, often represented by the elders). Compounding this challenge further is the question of who exactly comprises the community. Lack of economic opportunities and historical government policies removing young people in order to promote assimilation have led many Indigenous populations to be broken apart, with some members remaining on the traditional land, while others move away from traditional lands to urban centers. In many instances, members of the tribe retain ownership rights to the land under both sovereign and traditional systems of governance. This reality creates two other parallel constituencies that the successful leadership corporation will attend to: those who retain rights as traditional owners (which includes those who are absentee owners) and those who are both owners and continue to live in affected communities. It is easy to see how the interests of these two groups diverge, and indeed, this dichotomy is often the catalyst of a split in the community, one that is often described as between those maintaining a more traditional lifestyle and those who are more oriented to the mainstream culture. This challenge is particularly acute in settings where those who live away outnumber those who remain on the land, giving the absentee owners greater political voice in development decisions. The actions of the corporation can either deepen this split or help it to heal. By aggressively soliciting the support of members of the Indigenous community who live away from the community the group that is most likely to be open to development the corporation is more likely to engender a backlash from those who remain in the community and thus bear the impact of development directly. Thus, responsible

practice calls once again for balance, being accountable both to traditional owners, but also accountable to place, as represented by the affected community. Leadership corporations will seek the consent of both.

Making a mark, or missing it

Another area of difference between Indigenous and non-Indigenous communities comes in the arena of leadership. Corporate leaders often seek to define their tenure, by making their mark steering the firm in some new and bold direction increasing, size, market share and profitability. In Indigenous communities, leaders will commonly introduce themselves both by identifying where they come from (previously mentioned and discussed) and who their parents and other relatives are. Their leadership thus aims not at boldness, but instead at faithfully carrying on the traditions given them by their elders. Corporations are commonly goal-oriented, looking to the future. The past is of interest as a benchmark, but little else. For Indigenous Peoples there is no future, without a past. The past holds stories, contains the accumulated cultural wisdom upon which a successful future rests. Corporations that base their engagement solely on the bright prospects for the future, without attending to understanding and honoring the past, risk engendering community resistance to their project development. 8

Are jobs the goal?

Leadership companies believe that development can be a win-win for the community and the corporation. It is common for these corporations to offer the promise of job creation in exchange for access to the development resource. But jobs can sometimes be a divisive force. For some, a job is at odds with culture and with spiritual practice. Jobs are seen as a bifurcated creation of western thought that separates work from life in a way foreign to Indigenous practice. But it need not be this way. A shining example comes from the Yawanawa Peoples of the Brazilian Amazon. Located three airplane flights and a two-day canoe paddle inland from Brasilia, the Yawanawa were threatened with cultural extinction, when they installed a new chief and charged him with strengthening their culture. After restoring cultural practices such as beginning each day with community dancing, he turned his attention to economic development. Chief Tashka Yawanawa began to focus on the colorful red berries that his people used in their colorful body paints. Their land provided an abundance of such berries, enough that they could trade. With this in mind the young chief attended the World Social Forum, where he met

representatives of Aveda Corporation, a leading manufacturer of organic and sustainably produced personal care products. The encounter quickly led to negotiations followed by a supply purchase contract. The terms of the contract called for a specific amount of the berries to be delivered to a designated place, leaving the details of the production process to the Yawanawa, When the Aveda representatives travelled to the community several months later, they found that the berry collection and processing had been incorporated into a new ceremony. When someone mentioned the jobs created, they were told there were no jobs, just the ceremony, just culture. Productive, creative acts can reinforce culture.

Is building infrastructure progress?

Like job creation, many leadership corporations point to the infrastructure improvements that can accompany development: roads, schools and health centers. While these investments represent progress in one world view, they are sometimes mixed blessings for Indigenous Peoples. This is particularly true about roads, for while they make travel easier for Indigenous Peoples in the community, they are often the gateway to continued development pressures, including inflows of tourists eager to take advantage of pristine areas. Roads may enhance communications between neighboring communities, but they are also paths for outside hunters and fishers as well as resource developers, all of whom can adversely affect the fish and animals relied upon for subsistence activities. One way of mitigating this concern is to cede control of roads to the Indigenous community. One example of this is Australia, where local Land Councils retain the right to control who travels on roads into their traditional territories. Visitors must apply for and pay for entry permits. Not only does this generate some revenue for the community, but it allows them to monitor who is coming to prospect for natural resources, or perhaps to sell alcohol in the dry communities.

Enoughness
Well intentioned corporations often enter Indigenous communities with the seemingly admirable goal of a project which delivers shared prosperity between the corporation and the community. Yet in 9 differing definitions of prosperity often lie the seeds of misunderstanding and conflict. In the competitive market in which corporations operate, maximizing revenues and profits is most often the goal. More is better. Those responsible for maintaining the relationship between their corporation and the community are often brought up short when they hear from their community counterparts, we dont need more development; we dont want more revenue; we have enough. If the prosperity the corporation has to offer lacks value, how can the corporation move forward?

One suggestion for moving forward is by redoubling efforts to invest in relationship-building, with a goal of listening to the communitys understanding for prosperity and to think creatively about how the resource development process might support the communitys understanding. For instance, in many communities prosperity goals might include advancing self-determination agenda and gaining political power and recognition in the broader society. Many companies regard using their political influence on behalf of communities as complicating their relationship with the sovereign governments who grant their tenure and refrain from such practice. Leadership companies, however, recognize that to partner with a community on its goals of self-determination opens the possibility that the community will partner with the corporation on its resource development objective. Often leadership companies face internal challenges in stepping up their investments in community engagement. While there is a recognition that non-technical risks in the community increasingly outdistance the technical risks of production, the demands of the marketplace often overshadow the recognition that more investment in community relationships pays long term dividends. Pressures to match the bottom line performance of those firms that lead the industry in financial terms but have failed to recognize the need for strong social investment programs can be balanced by quantifying the leadership firms investments in community engagement programs in much the same way that the investment in exploration and other portfolio additions are presently quantified.

Conclusion
Corporations and Indigenous communities often have vastly different world views and seemingly irresolvable divergent interests. Given that a disproportionate share of the worlds remaining natural resources are found on lands owned or claimed by Indigenous Peoples, successful corporate developers will be those who resist conventional development-as-usual, and instead find ways to comanage projects with communities in ways that combine the accumulated wisdom of the corporation with that of the community and lead to an outcome where both community and corporation prosper according to their own understandings of that word. --Scott Klinger First Peoples Worldwide July, 2008

Causes and Cures for Conflict

Understand different causes of conflict Understand jobs at risk for conflict Learn the outcomes of conflict There are many potential root causes of conflict at work. Well go over six of them here. Remember, anything that leads to a disagreement can be a cause of conflict. Although conflict is common to organizations, some organizations have more than others. Conflict tends to take different forms depending upon the organizational structure.Jaffe, D. (2000). Organizational theory: Tension and change. New York: McGraw Hill. For example, if a company uses a matrix structure as its organizational form, it will have decisional conflict built in because the structure specifies that each manager report to two bosses. For example, global company ABB is organized around a matrix structure based on the dimensions of country and industry. The of the structure is that it can lead to conflict around resource company is divided geographically into 1,200 units as well as by industry into 50 units.Taylor, W. (1991, MarchApril), The logic of global business: an interview with ABB_s Percy Barnevik, Harvard Business Review, pp.91105 Local managers reported to the country president as well as to the business industry leader. The advantage of the structure is that it lets the company be both local and global. The disadvantage allocations. On the other hand, if companies use a bureaucratic organizational structure, people at different levels may have different power, which can lead to conflict between high-power and low-power people. Resources such as money, time, and equipment are often scarce. Competition among people or departments for limited resources is a frequent cause for conflict. For example, cutting edge laptops and gadgets such as a BlackBerry or iPhone are expensive resources that may be allocated to employees on a need-to-have basis in some companies. When a group of employees have access to such resources while others do not, conflict may arise among employees or between employees and management. While technical employees may feel that these devices are crucial to their productivity, employees with customer contact such as sales representatives may make the point that these devices are important for them to make a good impression to clients. Because important resources are often limited, this is one source of conflict many companies have to live with. Another cause of conflict is task interdependence; that is, when accomplishment of your goal requires reliance on others to perform their tasks. For example, if youre tasked with creating advertising for your product, youre dependent on the creative team to design the words and layout, the photographer or videographer to create the visuals, the media buyer to purchase the advertising space, and so on. The completion of your goal (airing or publishing your ad) is dependent on others. Sometimes conflict arises when two parties think that their goals are mutually exclusive. Within an organization, incompatible goals often arise due to how different department managers are compensated. For example, a sales managers bonus may be tied to how many sales are made for the company. As a result, the individual might be tempted to offer customers freebies like expedited delivery in order to make the sale. In contrast, a transportation manager may be compensated on how much money the company saves on transit. In this case, the goal might be to eliminate expedited delivery because it adds expense. The two will butt heads until the company resolves the conflict by changing the compensation scheme. For example, if the company assigns the bonus based on profitability of a sale, not just the dollar amount, the cost of the expediting would be subtracted from the value of the sale. It might still make sense to expedite the order if the sale is large enough, in which case both parties would support it. On the other hand, if the expediting negates the value of the sale, neither party would be in favor of the added expense. Personality

differences among coworkers are common. By understanding some fundamental differences among the way people think and act, we can better understand how others see the world. Knowing that these differences are natural and normal lets us anticipate and mitigate interpersonal conflictits often not about you but simply a different way of seeing and behaving. For example, Type A individuals have been found to have more conflicts with their coworkers than Type B individuals.Baron, R.A. (1989). Personality and organizational conflict: Type A behavior pattern and self-monitoring. Organizational Behavior and Human Decision Processes, 44, 281297. Sometimes conflict arises simply out of a small, unintentional communication problem, such as lost emails or dealing with people who dont return phone calls. Giving feedback is also a case where the best intentions can quickly escalate into a conflict situation. When communicating, be sure to focus on behavior and its effects, not on the person. For example, say that Jeff always arrives late to all of your meetings. You think he has a bad attitude, but you don't really know what Jeff's attitude is. You do know, however, the effect that Jeff's behavior has on you. You could say, Jeff, when you come late to the meeting, I feel like my time is wasted. Jeff can't argue with that the statement because it is a fact of the impact of his behavior on you. It's indisputable because it is your reality. What Jeff can say is that he did not intend such an effect, and then you can have a discussion regarding the behavior. For example, Hershey Co. was engaged in talks behind closed doors with Cadbury Schweppes about a possible merger. No information about this deal was shared with Hersheys major stakeholder, the Hershey Trust. When Robert Vowler, CEO of the Hershey Trust, discovered that talks were underway without anyone consulting the Trust, tensions between major stakeholders began to rise. As Hershey Co. continued to under perform, steps were taken in what is now called the Sunday night massacre where several board members were forced to resign and Richard Lenny, Hersheys then current CEO, retired.Jargon, J., Karnitschnig, M., & Lublin, J.S. (2008, February 23). How Hershey went sour. The Wall Street Journal, p. B1, B5. This example shows how a lack of communication can lead to an escalation of conflict. Time will tell what the lasting effects of this conflict will be, but in the short term, effective communication will be the key. Now, lets turn our attention to the outcomes of conflict. One of the most common outcomes of conflict is that it upsets parties in the short run.Bergman,T.J., & Volkema, R.J. (1989). Understanding and managing interpersonal conflict at work: Its issues, interactive processes and consequences. In D.M. Kolb & J. M. Kolb (Eds.), Hidden conflict in organizations, 719. Newbury Park, CA: Sage. However, conflict can have both positive and negative outcomes. On the positive side, conflict can result in greater creativity or better decisions. For example, as a result of a disagreement over a policy, a manager may learn from an employee that newer technologies help solve problems in an unanticipated new way. Positive outcomes include: Consideration of a broader range of ideas, resulting in a better, stronger idea Surfacing of assumptions that may be inaccurate Increased participation and creativity Clarification of individual views that build learning On the other hand, conflict can be dysfunctional if it is excessive or involves personal attacks or underhanded tactics. Examples of negative outcomes include: Increased stress and anxiety among individuals, which decreases productivity and satisfaction Some people feel defeated and demeaned, which lowers their morale and may increase turnover A climate of mistrust develops, which hinders the teamwork and cooperation necessary to get work done You may be at increased risk for workplace violence if your job involves: Dealing with People Caring for others either emotionally or physically, such as at a nursing home. Interacting with frustrated customers, such as with retail sales. Supervising others, such as being a manager. Denying requests others make of you, such as with customer service. Being in

High-Risk Situations Dealing with valuables or exchanging money, such as in banking. Handling weapons, such as in law enforcement. Working with drugs, alcohol, or those under the influence of them, such as bartending. Working nights or weekends, such as gas station attendants. Sources: Adapted from information in LeBlanc, M.M., & Kelloway, E.K. (2002). Predictors and outcomes of workplace violence and aggression. Journal of Applied Psychology, 87, 444453; National Institute for Occupational Safety and Health. (1997). Violence in the workplace. http://www.cdc.gov/niosh/violfs.html; National Institute for Occupational Safey and Health. (2006). Workplace prevention strategies and research needs. http://www.cdc.gov/niosh/docs/2006-144/ Given these negative outcomes, how can conflict be managed so that it does not become dysfunctional or even dangerous? Well explore this in the next section. Conflict has many causes including organizational structures, limitations on resources, task interdependence, goal incompatibility, personality differences, and communication challenges. Outcomes of well managed conflict include increased participation and creativity while negatives of poorly managed conflict include increased stress and anxiety. Jobs that deal with people are at higher risk for conflict. What are some primary causes of conflict at work? What are the outcomes of workplace conflict? Which types of job are the most at risk for workplace violence? Why do you think that is? What outcomes have you observed from conflict?

What Are the Causes of Conflict in Organizations?

X By Althea Thompson, eHow Contributor

Every conflict presents an opportunity for developing innovative procedures, according to author Lawrence Khan in his article, "Fundamentals of Conflict for Business Organizations." Workplace conflicts are inevitable. People with different personalities and different work methods often disagree. This leads to loss of productivity, distraction and uncomfortable feelings in the workplace. However, organization leaders can resolve conflicts by listening to employees and learning from the experience.
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1.

Lack of Information
o

A cause for conflict in organizations is lack of information. Conflict911.com states that even with company email, newsletters and reports still do not always reach their destination. This lack of information comes from a variety of culprits, such as not knowing how to use email properly or not knowing how to read a report correctly. Employees should be knowledgeable about how to understand and utilize the information they receive. Staff and company meetings are an ideal way to educate a group of employees at one time. Teach methods for organizing emails, reading company reports and checking personal mailboxes frequently. Learning these skills will help avoid conflict from lack of information in the organization.

Ineffective Organization
o

Tammy Lenski, Ed.D describes conflict caused by ineffective organization systems in her article titled, "Conflict at Work: The Root Causes of Workplace Conflict Are Often Systemic." Dr. Lenski does not place the blame on individuals, but on the organizational system. She states that these organizational problems may be invisible, until the conflict arises. Organizational culture describes the way employees and leaders communicate. Dr. Lenski states that intervention systems between employees and leaders can help conflicts unfold in a healthy way. If employees and leaders are not communicating effectively, conflict will arise and have a ripple effect throughout the system.

Limited Resources
o

Mediate.com features an article by Lawrence Kahn called, "Fundamentals of Conflict for Business Organizations." In this article, Khan states that a major basis for conflict in organizations is limited resources. Competition in the organization arises over people's fight for resources, such as land and money. Intangible assets such as power, appreciation and stature may also cause conflict. Because many marketplaces deal with scarce funds, different departments within the same organization find themselves competing for the same money. Khan states that conflicts of this type can be resolved if management understands that the problem lies in the structure of the company, and not in the personalities of employees.

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What is Conflict?
Conflict is an unavoidable aspect of everyday life. Whether it is with others, yourself or an organization, conflict is an inevitable aspect of life experience. Understanding how it starts and how it escalates goes a long way towards knowing how to use it to your advantage. This article will address how to spot the seeds of conflict in a situation and take advantage of the possible outcomes that conflict can provide.

Difference between private and government companies?

When a company is formed at the initiative of the government and all or major portion of the shares are held by the government, such a company is generally known a government company. A private company, on the other hand, is one in which all or major portion of the shares are held by the members of the public. All companies, whether government or non-government, may be again sub-divided into public and private companies. A private company has a limited number of shareholders and such shares cannot be traded in the stock exchange. But in case of a public company, shares may be held by the entrepreneurs as well as by other members of the public and such a company qualifies for trading their shares in the stock exchange, subject to fulfilment of some conditions which are relevant to the enlistment with the stock exchange.

Why does the government regulate utility companies?

Government regulates business for several reasons. First is public safety and welfare. Many industries are regularly reviewed and overseen because their activities, if they go awry, can have significantly harmful effects to human health, financial well-being, or community structure. The second reason is protection of industry. Many regulations are in place to protect those who have developed their business correctly; licensing, permits, and inspections by the government weed out undesirables or criminal activities that undercut honest industries. The third reason is revenue generation. Many programs require certification or licensing that businesses must pay for in order to operate. The funds collected go to pay for the government programs that perform the oversight of the particular industry. However, in many cases, some portion of revenue is also sidetracked to general government purposes and is, effectively, a tax.

What are the difference between company and multinational company?

simple one is a national company and one is a smaller company, and one makes billions of dollars while the other may be struggling on income. a company operates in only 1 country whilst a multinational company operates in more than 1 country

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Discuss some possible conflicts between host governments and foreignowned companies?
mnc-host govt relationship is often complicated by the difference in PEST factors, and the Political/Legal environment is the most complicated factor. Labour/HR laws, Marketing/Promotion standards, Financial/Borrowing procedures and Ethics/Morals.

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Most regulation in its early history revolved around the railroad industry. At first, the responsibility of control of public industries fell on the individual states. However, the ineffectual legislation that was passed and the inability to control railroad monopolies made the need for federal regulation painfully apparent. The passage of the Interstate Commerce Act in 1887 created the first interstate regulatory committee. Though this group was not extremely effective in curbing the practices of the railroad, the precedent for federal regulation had been set. Later legislation, such as the Sherman and Clayton Anti-Trust Acts had more of an effect on large businesses. The latter bill created the Federal Trade Commission, which is the major regulatory body of monopolies today. The important question that arises from regulation is: Why does the government feel that it must control big businesses? Does this not violate the principles of freedom outlined in the Constitution? Indeed, the government never tried to stifle a corporation simply because it was strong. Instead, regulation exists to preserve competition and the freedom for smaller companies to enter the market. If one company controls the market share, smaller groups will never be able to flourish. For example, the dominance of Microsoft in recent years has raised the question of whether its practices are monopolistic. Because the corporation controls the majority of the market in nearly all of its markets, there is an overwhelming social pressure for regulation.

The earliest regulatory measures were not as focused on competition, however. The goal was to protect the consumer. For example, the Grangers (19th Century farmers) felt that they were being oppressed by unfair practices of the railroads. There was great social unrest in this population because of the practices of large corporations. To avoid revolt and turmoil, the state government passed the Granger Laws. This group of legislation was essentially an attempt to appease the troubled farmers. It was not until the end of the 19th Century and the beginning of the 20th that regulation made the turn toward preserving competition. Another trend in regulation is the unfortunate tendency of legislation to have little effect. Most of the laws created to control railroads were simply ignored by the large corporations. Similarly, the action of the Federal Trade Commission against Microsoft is often viewed as a trifle. Judge Stanley Sporkin rejected the June 1995 decision regarding the Microsoft monopoly, saying that the ruling was a mockery and that stricter control must be taken. Most attempts at federal regulation have been mediated, modulated, or amended until they lose much of their original bite. Clearly social and governmental history has shown an ever-present desire to curb the growth of corporations. The dangers of allowing one company to assume supremacy over a market have frightened the government into regulation. Though, in many instances, the legislation fails to achieve its original goal, governmental regulation has become a standard in interstate and international commerce. America was founded on the principle of free trade and freedom of competition. Therefore, the government has assumed the responsibility of preventing the formation of monopolies and curbing unfair practices of large corporations.
D. Market Factors to Assess Answer yes or no to the following questions to asses the potential of specific countries. 1. Demographic and Geographic Factors ___ Is there sufficient population size, growth and density in the correct demographic region? ___ Is the climate compatible with your product? ___ Is the shipping distance economically feasible? ___ Is there a sufficient physical distribution and communication network? ___ Are the natural resources you may need available? 2. Political Factors ___ Is the government amenable to trade with the United States? ___ Is the country politically stable? ___ Does the government have heavy involvement in business? ___ Are there existing trade restrictions, tariffs, non-tariff barriers or bilateral trade agreements? 3. Economic Factors ___ Is the economy sufficiently developed to support your product? ___ Is foreign trade a significant part of the economy? ___ Is the country's currency stable? What is the inflation rate, availability, controls and stability of

exchange rate? ___ Is the per capita income and distribution of income sufficient to support your product? 4. Social/Cultural Factors ___ What is the literacy rate and average educational level in the country? ___ Is there a middle class that would support your product? ___ Do the people have sufficient disposable income and a propensity to spend money on products similar to yours? ___ How is the market similar to and different from your domestic market? ___ Are there language and cultural barriers to doing business? 5. Market Access Factors ___ Are there limitations on trade, such as high tariff levels or quotas? ___ What documentation will you need? ___ Are there local standards, practices and other non-tariff barriers? ___ What is the country's policy on honoring patents and trademark protection? 6. Distribution and Production Factors ___ Are there intermediaries available if you need them? ___ Are there sufficient regional and local transportation and storage facilities? ___ Is there labor available with the skills you may need? ___ What are local manufacturing conditions? ___ What are local labor laws? When you're determining which foreign market to enter, one of the key factors may be the existence or absence of tariffs and non-tariff trade barriers. Tariffs are taxes imposed on imported goods in order to raise the price of imported goods to the level of domestic goods. Often tariffs become barriers to imported products because the amount of tax imposed makes it impossible for exporters to profitably sell their products in foreign markets. Non-tariff barriers are laws or regulations that a country enacts to protect domestic industries against foreign competition. Such non-tariff barriers may include subsidies for domestic goods, import quotas or regulations on import quality. Countries with low trade barriers in place are usually not good choices for global trade.

Globalization

Trade liberalization may shift economic inequality from a global to a domestic scale.[30] When rich countries trade with poor countries, the low-skilled workers in the rich countries may see reduced wages as a result of the competition, while low-skilled workers in the poor countries may see increased wages. Trade economist Paul Krugman estimates that trade liberalisation has had a measurable effect on the rising inequality in the United States. He attributes this trend to increased trade with poor countries and the fragmentation of the means of production, resulting in low skilled jobs becoming more tradeable. However, he concedes that the effect of trade on inequality in America is minor when compared to other causes, such as technological innovation, a view shared by other experts. Lawrence Katz estimates that trade has only accounted for 5-15% of rising income inequality. Some economists, such as Robert Lawrence, dispute any such relationship. Lawrence, in particular, argues that technological innovation and automation has meant that low-skilled jobs have been replaced by machine labor in wealthier nations, and that

wealthier countries no longer have significant numbers of low-skilled manufacturing workers that could be affected by competition from poor countries.[30]

Mitigating factors
Many factors constrain economic inequalitythey may be divided into two classes: government sponsored, and market driven. The relative merits and effectiveness of each approach is a subject of debate. Typical government initiatives to reduce economic inequality include:

Public education: increasing the supply of skilled labor and reducing income inequality due to education differentials.[41] Progressive taxation: the rich are taxed proportionally more than the poor, reducing the amount of income inequality in society.[42] Minimum wage legislation: raising the income of the poorest workers Nationalization or subsidization of products: providing goods and services that everyone needs cheaply or freely (such as food, healthcare, and housing), governments can effectively raise the purchasing power of the poorer members of society.

These provisions may lower inequality,[43] but have sometimes resulted in increased economic inequality (as in the Soviet Union, where the distribution of these government benefits was controlled by a privileged class). Political scientists have argued that public policy controlled by organizations of the wealthy have steadily eroded economic equality in the US since the 1970s. Economic inequality (also known as the gap between rich and poor, income inequality, wealth disparity, or wealth and income differences) comprises disparities in the distribution of economic assets (wealth) and income within or between populations or individuals. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of equity, equality of outcome, and equality of opportunity. Observers differ on both the morality and utility of inequality, whether, and/or how much inequality is necessary in society and how it can be affected. It has been praised as necessary and beneficial,[1] and attacked as a social problem.[2] Economic inequality varies between societies and historical periods; between economic structures or systems (for example, capitalism or socialism), ongoing or past wars, and differences in individuals' abilities to create wealth are all involved in the creation of economic inequality.

There are various numerical indices for measuring economic inequality. A prominent one is the Gini coefficient, but there are also many other methods. The labor market

A major cause of economic inequality within modern market economies is the determination of wages by the market. Inequality is caused by the differences in the supply and demand for different types of work. In a purely capitalist mode of production (i.e. where professional and labor organizations cannot limit the number of workers) the workers wages will not be controlled by these organizations, nor by the employer, but rather by the market. Wages work in the same way as prices for any other good. Thus, wages can be considered as a function of market price of skill. And therefore, inequality is driven by this price. Under the law of supply and demand, the price of skill is determined by a race between the demand for the skilled worker and the supply of the skilled worker. We would expect the price to rise when demand exceeds supply, and vice versa. Employers who offer a below market wage will find that their business is chronically understaffed. Their competitors will take advantage of the situation by offering a higher wage to snatch up the best of their labor. For a businessman who has the profit motive as the prime interest, it is a losing proposition to offer below or above market wages to workers.[20] A job where there are many workers willing to work a large amount of time (high supply) competing for a job that few require (low demand) will result in a low wage for that job. This is because competition between workers drives down the wage. An example of this would be jobs such as dish-washing or customer service. Competition amongst workers tends to drive down wages due to the expendable nature of the worker in relation to his or her particular job. A job where there are few able or willing workers (low supply), but a large need for the positions (high demand), will result in high wages for that job. This is because competition between employers for employees will drive up the wage. Examples of this would include jobs that require highly developed skills, rare abilities, or a high level of risk. Competition amongst employers tends to drive up wages due to the nature of the job, since there is a relative shortage of workers for the particular position. Professional and labor organizations may limit the supply of workers which results in higher demand and greater incomes for members. Members may also receive higher wages through collective bargaining, political influence, or corruption.[21] These supply and demand interactions result in a gradation of wage levels within society that significantly influence economic inequality.
Taxes

Another cause is the rate at which income is taxed coupled with the progressivity of the tax system. A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.[22][23][24][25][26] In a progressive tax system, the level of the top tax rate will have a direct impact on the level of inequality within a society, either increasing it or decreasing it. Additionally, a steeper progressivity results in a more equal distribution of income across the board. The difference between the Gini index for an income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation. Overall income tax rates in the United States are below the OECD average.[27]

There is debate between politicians and economists over the role of tax policy in mitigating or exacerbating wealth inequality. Economists such as Paul Krugman, Peter Orszag, and Emmanuel Saez have argued that tax policy in the post World War II era has indeed increased income inequality by enabling the wealthiest American workers far greater access to capital than lowerincome Americans. Some politicians, such as Paul Ryan, do not believe tax policy has created a chasm of wealth between the wealthy, middle, and lower class Americans.[28]
[edit] Computerization/Innovative Technology

Another factor that contributed to the already growing inequality in the 20th century was computerization and growth in technology with electricity replacing manpower. With this growing change in technology, the United States experienced increasing demand for skilled workers to use computers and operate the electrical inventions. This resulted in a rightward shift in the Demand for Skilled Labor Supply, and this created an increase in the relative wages of the skilled compared to the wages of the unskilled workers. Such a change in wages added to the inequality that was already present.[citation needed]
[edit] Education This section may need to be updated. Please update this section to reflect recent events or newly available information, and remove this template when finished. Please see the talk page for more information. (January 2012)

One important factor in the creation of inequality is variation in individuals' access to education. Education, especially in an area where there is a high demand for workers, creates high wages for those with this education. As a result, those who are unable to afford an education, or choose not to pursue optional education, generally receive much lower wages. During the mass high school education movement from 19101940, there was an increase in skilled workers which led to a decrease in the price of skilled labor. High school education during the period was designed to equip students with necessary skill sets to be able to perform at work. In fact, it differs from the present high school education, which is regarded as a stepping stone to acquire college and advanced degrees. This decrease in wages caused a period of compression and decreased inequality between skilled and unskilled workers.
[edit] Economic neoliberalism

John Schmitt and Ben Zipperer (2006) of the CEPR point to economic liberalism and the reduction of business regulation along with the decline of union membership as one of the causes of economic inequality. In an analysis of the effects of intensive Anglo-American neoliberal policies in comparison to continental European neoliberalism, where unions have remained strong, they concluded "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes.

Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility than all the continental European countries for which data is available Question 1 from the net

Q1. Summarize the globalization debate. What are the major interest groups in the world economy? How are they affected by different element of globalization? INTRODUCTION Today and more than ever before, the world has become a global village with the expansion of the communication networks, the rapid information exchange, the gradual shrink of borders and of attachment to identities and citizenship, the lifting of the barriers of visas and passports, the consecration of a new era when national sovereignty and the authority of the nation-state is fading away in favor of regional groupings, international organizations and international legality and law. This means the beginning of the return to the universal trend which is imposed by human instinct, but in a broader environment and in an evident endeavor to dominate the world. Todays universalism is marked by its reliance on sophisticated and highly performing technology that was not available for the old form of universalism.

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Globalization is also an act and a practice. It is equally an integrated system wherein the subject leaves no choice to the object destined to be shaped up. That is why globalization advocates describe it as inevitable for humanity, sooner or later Globalization is an idea whose time has come. From obscure origins in French and American writings in the 1960s, the concept of globalization finds expression today in the entire worlds major languages. Yet, it lacks precise definition. Indeed, globalization is in danger of becoming, if it has not already become, the clich of our times: the big idea which encompasses everything from global financial markets to the Internet but which delivers little substantive insight into the contemporary human condition. Clichs, nevertheless, often capture elements of the lived experience of an epoch. In this respect, globalization reflects a widespread perception that the world is rapidly being molded into a shared social space by economic and..

QUESTION 4

Is economy the world?

No, it is not the world itself, but more of the wealth and resources it contains...

How did the world economy affect your economy and your industries?
If the world economy is good, then money flow is most likely vibrant which means that people everywhere are willing to buy and sell products, start new businesses, etc. Money flow allows countries' economies to grow and stay healthy. More money flow means that everyone is buying from everyone else, which means that everyone wins in the end. Think of all the world's economies like a metal-link chain. The chain is really only as strong as the weakest link (aka the weakest country's economy). When the link breaks (aka country goes in a recession), all the other links fall apart because they are no longer connected. All the other countries need that economy to do well because they do business with that country and need them to buy and sell products in order to keep the money flow alive.

Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money. A monetary valuation can however be used in counter trade for accounting purposes. In dealings between sovereign states, the term bilateral trade is used. OR "Any transaction involving exchange of goods or service for something of equal value."

Contents
[hide]

1 Types of countertrade 2 Necessity 3 Role of countertrade in the world market 4 References

[edit] Types of countertrade

There are five main variants of countertrade:

Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Barter is the direct exchange of goods between two parties in a transaction. The principal exports are paid for with goods or services supplied from the importing market. A single contract covers both flows, in its simplest form involves no cash. In practice, supply of the principal exports is often held up until sufficient revenues have been earned from the sale of bartered goods. One of the largest barter deals to date involved Occidental Petroleum Corporation's agreement to ship sulphuric acid to the former Soviet Union for ammonia urea and potash under a 2 year deal which was worth 18 billion euros. Furthermore, during negotiation stage of a barter deal, the seller must know the market price for items offered in trade. Bartered goods can range from hams to iron pellets, mineral water, furniture or olive-oil all somewhat more difficult to price and market when potential customers must be sought.

Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country. Counter purchase: Sale of goods and services to one company in other country by a company that promises to make a future purchase of a specific product from the same company in that country. Buyback: occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract. Offset: Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation. Compensation trade: Compensation trade is a form of barter in which one of the flows is partly in goods and partly in hard currency.

[edit] Necessity
Countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible. In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oilfor-food program.

The Security Council noted: "... although locally produced food items have become increasingly available throughout the country, most Iraqis do not have the necessary purchasing power to buy them. Unfortunately, the monthly food rations represent the largest proportion of their household income. They are obliged to either barter or sell items from the food basket in order to meet their other essential needs. This is one of the factors which partly explains why the nutritional situation has not improved in line with the enhanced food basket. Moreover, the absence of normal economic activity has given rise to the spread of deep-seated poverty."

[edit] Role of countertrade in the world market

Noted US economist Paul Samuelson was skeptical about the viability of countertrade as a marketing tool, claiming that "Unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade". (This is called "double coincidence of wants".) But this is arguably a too simplistic interpretation of how markets operate in the real world. In any real economy, bartering occurs all the time, even if it is not the main means to acquire goods and services. The volume of countertrade is growing. In 1972, it was estimated that countertrade was used by business and governments in 15 countries; in 1979, 27 countries; by the start of 1990s, around 100 countries. (Vertariu 1992). A large part of countertrade has involved sales of military equipment (weaponry, vehicles and installations). More than 80 countries nowadays regularly use or require countertrade exchanges. Officials of the General Agreement on Tariffs and Trade (GATT) organization claimed that countertrade accounts for around 5% of the world trade. The British Department of Trade and Industry has suggested 15%, while some scholars believe it to be closer to 30%, with east-west trade having been as high as 50% in some trading sectors of Eastern European and Third World Countries for some years. A consensus of expert opinions (Okaroafo, 1989) has put the percentage of the value of world trade volumes linked to countertrade transactions at between 20% to 25%. According to an official US statement, "The U.S. Government generally views countertrade, including barter, as contrary to an open, free trading system and, in the long run, not in the interest of the U.S. business community. However, as a matter of policy the U.S. Government will not oppose U.S. companies' participation in countertrade arrangements unless such action could have a negative impact on national security." (Office of Management and Budget; "Impact of Offsets in Defense-related Exports," December, 1985).

[edit] References

Verzariu, P., (1992), "Trends and Developments in International Countertrade," Business America, (November 2), 2-6. Okaroafo, S., (1989) "Determinants of LDC Mandated Countertrade," International Management Review, (Winter), 1624

Using counter-trades to survive in harsh environments

in the modern world of international trade, firms do not always need to be paid in cash. Countertrade can be equally, if not more beneficial, to the seller. Essentially a counter-trade is whereby payment is made with goods or services of an equal value which are then sold to a third-party. Such an agreement can range from the basic barter contract whereby one set of goods or services are exchange for another to more elaborate agreements involving multiple parties. The most common type is a counter-purchase whereby there is at least a minimum of two contracts for the first supply of goods or services and then a second that allows the original supplier to covert the goods or services into cash. Counter-trade is not restricted to simply the private sector; governments also use it quite extensively. Recently, the Malaysian government purchased 20 locomotives from General Electric with the payment made through palm oil supplied by a plantation company. Large companies such as GE have a long history of using commodities in return for payment and also a special department for it.
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In today's trading environment countertrade is not only limited to large companies but can be strategic tool that small and medium enterprises (SMEs) can use to enter new markets. This is more so the case where the new market has certain trade impediments such as the restrictions on the transfer of capital, availability of reserves, and so on. As a result, counter-trade is an important manner of doing business in the lucrative markets with no money actually changing hands. It can also be an effective manner in which SMEs can procure reliable sources of raw materials. In most cases, counter-trade agreements tend to be confidential and reliable statistics difficult to obtain. Nevertheless various estimates show that it is a rapidly increasing form of trade finance with more than 100 countries using it. Studies show that the volume varies between 15 to 30 per cent of global trade. In some regions, it can be as high as 50 per cent of the total trade value. The rise has been greatly assisted by the internet, which has allowed firms to match needs with availability. In the past firms may have avoided counter-trade due to the difficulty in identifying a counter-party. In other words, success rested on the fact that as the economist Paul Samuelson noted "a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, otherwise neither can make a trade."

Historically, counter-trade was an inefficient system of trade finance because the initial seller also had to look for the parties who wanted the commodity or service that was received in exchange. For large companies such as GE, it was less of a problem because of their specialised trading departments, which facilitated the identification of counter parties. For the typical SME, counter-trade used to be difficult. However, the internet has changed this so that any SME can participate using widely accessible platforms such as Alibaba.com. These platforms allow even the smallest of SMEs to post the products available to potential customers all over the world. Anecdotal evidence shows that some SMEs have been able to improve their collections cycle as a result of counter-trade. Cash payments are typically dependent on a number of related factors such as liquidity, seniority of accounts payables, etc. However, with counter-trade the buyer simply exchanges a commodity which they have ownership over in return for the one that they are acquiring. Therefore, payments are not related to the liquidity position of the buyer. Avoiding official links More importantly, in countries where transfers are difficult or subject to restrictions, countertrade avoids the official payment mechanisms. Another important factor that is persuading more firms, and particularly SMEs, to be actively engaged in counter-trade is a more difficult business environment. When firms are transacting in stable business environments or those that have few hurdles, traditional payment mechanisms and trade finance tools are sufficient. However, when firms are transacting with buyers located in countries with difficult economic and commercial conditions, then sellers need to be innovative in the manner in which they do business. The interesting aspect of dealing with buyers in countries with difficult economic and business conditions is that there is usually a strong demand for goods and services. However, more often than not the strong demand is not necessarily matched by the immediate ability to pay with cash. Therefore, counter-trade offers buyers an immediate ability to finance imports without the use of cash. Of course, it does require the SME to be innovative in that it needs to identify what the buyer has readily available as a form of payment and to seek out potential counter parties.

Trade and development

Overview
The current consensus is that trade, development, and poverty reduction are intimately linked. Sustained strong growth over longer periods is strongly associated with poverty reduction, while trade and growth are strongly linked. Countries that develop invariably increase their integration

with the global economy, while export-led growth has been a key part of many countries successful development strategies. Continents, countries and sectors that have not developed and remain largely poor have comparative advantage in three main areas:

natural resource exploitation, i.e. running down of natural capital such as rain forest timber; low-education labor-intensive manufacturing, due to high population densities and little suitable land per person; agriculture, due to low population densities and relatively large areas of suitable land per person.

Crucially for poverty reduction, the latter two at least are labor-intensive, helping to ensure that growth in these sectors will be poverty-reducing. However, low value-added, price instability and unsustainability in these commodity sectors means they should be used only temporarily as stepping stones in the path to economic development.

[edit] Agriculture
In many developing countries, agriculture employs a large proportion of the labor force, whilst food consumption accounts for a large share of household income. The United Nations Conference on Trade and Development (UNCTAD) notes that this means that even small changes in agricultural employment opportunities, or prices, can have major socio-economic effects in developing countries. Thus whatever the development strategy a particular country adopts, the role of agriculture will often be crucial. In 1994, the agricultural sector employed over 70 % of the labor force in low-income countries, 30 % in middle-income countries, and only 4 % in high-income countries (UNCTAD 1999). In poor countries with low population densities and enough suitable land area, which includes most countries in Africa and Latin America, agriculture is central to the economy. In poor regions and rural areas within middle-income developing countries, the concentration of poverty in rural areas of otherwise better-off developing countries makes the development of agriculture vital there. Finally, in Net Food Importing Developing Countries (NFIDCs), there is a positive link between growing agricultural exports and increases in local food production, which makes agricultural development if anything even more important, as food security and the financial stability of the government are also at stake. In Vietnam in the 1990s, increases in production and export of coffee of 15% a year contributed to a nearly 50% rise in food production in the same period. As agricultural GDP grew 4.6% per year, rural poverty fell from 66% in 1993 to 45% in 1998 (Global Economic Prospects 2002:40). Anderson et al. (1999) estimate annual welfare losses of $19.8 billion for developing countries from agricultural tariffs even after Uruguay Round reforms. This is three times the loss from OECD import restrictions on textiles and clothing. A combination of better market access, and domestic reforms and foreign aid to enhance the ability of developing countries to take advantage of it, could have a significant impact on poverty reduction, and help to meet the Millennium Development Goals.

The largest beneficiaries of agricultural liberalization would be OECD countries themselves: welfare losses of $62.9bn a year are estimated as resulting from the distortionary policies (Binswanger and Ernst 1999:5). Nor is the traditional objective of OECD agricultural subsidy (supporting small farmers) achieved by this system in a manner that could be characterised as efficient: most of the producer support incomes goes to better-off farmers, with the poorest 40% receiving just 8% of the support spent.

[edit] Market access

[edit] Market access to developed countries

The issue of market access to high-income countries is a thorny but crucial one. The issues fall into three main groups: first, those relating to deliberately imposed barriers to trade, such as tariffs, quotas, and tariff escalation. Second, barriers to trade resulting from domestic and external producer support, primarily in the form of subsidies, but also including, for example, export credits. Third, those relating to indirect barriers to trade resulting from developing countries lack of institutional capacity to engage in the global economy and in multilateral institutions (e.g., the World Trade Organization) on equal terms.
[edit] Barriers to trade

High tariffs are imposed on agriculture: in high-income countries, the average tariff rate on agriculture is almost double the tariff for manufactures. And more than one third of the European Union's agricultural tariff lines, for instance, carry duties above 15% [1]. Tariff peaks within agriculture occur most frequently on processed products and temperate commodities, rather than the major export crops of least developed countries (unprocessed fruits and vegetables and tropical commodities). However, many developing countries in temperate zones have the potential of competing as lower-cost producers in temperate commodities. Thus liberalization could open up new development-through-trade possibilities. Strong tariff escalation is typically imposed on agricultural and food products by high-income countries. This strongly discourages the development of high value added exports, and hinders diversification in particular as well as development in general. In high-income countries, tariffs on agricultural products escalate steeply, especially in the EU and Japan. Complex tariffs make it more difficult for developing country exporters to access industrialisedcountry markets because of the disadvantages developing countries face in accessing, and in their capacity to process, information. Not only are price signals distorted, they are often unclear, subject to change (for example seasonally) and difficult to interpret. [2] Tariff-rate quotas (TRQs), introduced by the Uruguay Round with the aim of securing a minimum level of market access, have performed poorly. Average fill rates have been low and declining, from 67% in 1995 to 63% in 1998, with about a quarter of TRQs filled to less than 20%. The low fill rate may reflect high in-quota rates. Overall, the UR tariffication process which produced them has not resulted in the increased market access developing countries hoped for.

[edit] Producer support

Support to agricultural producers remains sizable, at about five times the level of international development assistance - $245 billion in 2000. Total support to agriculture, as defined by the OECD, reaches $327 billion - 1.3% of OECD countries GDP. To some extent these can be justified by multifunctionality arguments, but it remains a priority to find means of support which effectively meet the primary objectives without the negative developmental and environmental consequences that have been seen in the past. The dumping of unwanted production surpluses onto the world market through export subsidies has depressed prices for many temperate agricultural commodities, with EU surpluses of exportable wheat a prime example. (Despite several Common Agricultural Policy reforms, domestic support for wheat - as measured by OECD producer support estimates - declined only marginally from an average 52% of gross farm receipts in 1986-88, to around 48% in 1998-2000. [3]) The URAA has been relatively unsuccessful in disciplining export subsidies, with the proportion of subsidised exports in total exports increasing in many products of export interest for developing countries: for example for wheat, from 7% in 1995 to 25% in 1998. The cost to developing country production and exports is considerable, and only partially offset by the lower food prices available to NFIDC consumers. This form of transfer from high-income country taxpayers to low-income consumers is in any case rather inefficient, and the lower prices may harm production for local consumption even in NFIDCs. Agricultural reform as a whole, including the removal of export subsidies, would only result in quite small price rises for developingcountry consumers. The counter-cyclical nature of producer support is also harmful to developing-country producers. High-income farmers are insulated from changes in world prices, making production less responsive to swings in demand. As a result, world commodity prices are more volatile, and the burden of adjustment falls disproportionately on developing-country producers.

[edit] Lack of capacity

This includes non-tariff barriers such as food regulations and standards, which developing countries are often not (or not effectively) involved in setting, and which may be deliberately used to reduce competition from developing countries. In any case, the lack of capacity to meet implement regulations and ensure compliance with standards constitutes a barrier to trade, and must be met by increasing that capacity. Researchers at the Overseas Development Institute have identified many capacity related issues that developing economies face aside from tariff barriers[1]:
1. Traders and potential traders must know about an agreement and its details, however, the interests and skills of good producers lie in production and not in legal rules, only the largest firms can afford policy advisers. 2. Markets and suppliers must share information - producer associations, industrial organisations, and chambers of commerce exchange information among their members and this information exchange must then take place across borders (as seen between Brazil and Argentina after Mercosur). 3. A successful agreement must be flexible and governments need to accept that it will need to evolve.

4. Trade agreements must generate relevant reforms in areas such as customs documentation, but also more fundamentally in relaxing rules for cross-border transportation. 5. Selling to new markets requires adequate finance. 6. Poor or wrong infrastructure can restrict trade 7. Governments can support producers or traders in other ways.

The benefits of trade agreements for developing countries are not automatic, especially for SMEs whether or not they are already exporting as the costs of entering a new market are greater for them than for large companies when compared to their potential revenue.[1]
[edit] Market access to developing countries

Average applied tariffs in agriculture are higher in developing countries (although most of the very high rates, over 100%, are found in developed countries). With an increasing share of agricultural exports directed toward other developing countries, high levels of tariff protection in the South may impede prospects for export-led growth. This may be particularly true for the export opportunities of low-income countries, which have increased export market share in agriculture . "Open regionalism" holds the potential to stimulate global trade and improve the efficiency of regional producers. But regional arrangements can also become a vehicle for protection, trade diversion, and unintended inefficiency. Agreements in particular between richer and poorer developing countries risk generating trade losses for the poorer ones when their imports are diverted toward the richer members whose firms are not internationally competitive. However, where regional arrangements lead to the reduction of non-tariff barriers, trade creation is likely, and the dynamic benefits of effective regional integration in terms of improved governance and regional stability are likely to outweigh diversion concerns. The World Bank suggests that key conditions to benefit from expanded trade and investment include lowering common external trade barriers, stimulating competition, reducing transaction costs, and reinforcing nondiscriminatory investment and services policies. It should be noted that the greater structural differences between North and South economies mean that North-South arrangements hold the greatest promise for economic convergence and trade creation, including in agricultural products, underlining the importance of links between South-South arrangements and northern economies. Trade liberalization. According to the World Bank, most analyses suggest that unilateral reduction in barriers can produce the greatest and the quickest gains. [4] Some countries, such as Chile, China and Costa Rica, have undertaken domestic policy reforms. Caution must however be employed: as the case of Haiti shows, liberalization when institutions and the economy are not strong enough to face risks and opportunities can be harmful (Rodrik 2001). And while reforms may be beneficial in the long run, for example by reducing possibilities for customs corruption, in the short run they create both winners and losers. Low-income consumers, unskilled workers in sheltered industries, and previously-shielded producers may suffer in the transition period as the economy adapts to changed incentive structures. Temporary safety nets can help cushion the blow and ensure trade-led growth is pro-poor. Specific assistance to meet costs of adaptation for example of switching to a different crop may be appropriate.

[edit] Market access is vital, but not enough

It is important to recognise that the issues facing LDCs and middle-income developing countries differ significantly. For the middle-income countries, the primary issue is market access. Many of the worlds poor live in these countries, and so market access alone can have significant poverty-reducing effects in these countries. However, for the least-developed countries, the principal problem is not market access, but lack of production capacity to achieve new trading opportunities. This is recognised by paragraph 42 of the Doha Development Agenda: We recognize that the integration of the LDCs into the multilateral trading system requires meaningful market access, support for the diversification of their production and export base, and trade-related technical assistance and capacity building. So whilst the further development of middle-income countries, and in particular the tackling of rural poverty in these countries, can be achieved most importantly through increased market access in agriculture, lower-income countries need additional help, not only to take advantage of new opportunities, but to be able to adapt to changing conditions due to the loss of preferences. This additional help must take three main forms: support for developing-country agricultural production; support for participation in trade; and support for good policies and good governance.
[edit] Support for agricultural production

Support for agricultural modernization and development investment in productive capacity in agriculture and food processing. Support for agricultural-related development institutions which are not trade-distorting, e.g. research; e.g. risk-management of agricultural product price fluctuations; e.g. diversification.

[edit] Support for participation in trade and the global economy

Cases such as Haitis post-1986 liberalization show that the opportunities thereby created will not be taken advantage of if macroeconomic policies, institutions, and the investment climate are not favorable. This includes

trade-related infrastructure: the cost of exporting must be low enough to ensure competitiveness in rapidly-expanding high-value agricultural markets where competition is stiff such as fruits and vegetables. It also includes related issues that are part of the general investment climate but can be particularly important for exports, such as a weak financial sector. Here, export finance is often a major constraint inhibiting exports in many low-income countries. Other issues are more specific to exports: developing countries and their exporters may have difficulty with both the implementation of, and showing compliance with, international product standards and other multilateral agreements. Low-income developing countries need both technical and financial assistance in this area. Technical Assistance for negotiations is also needed to further developing-country interests in multilateral and bilateral arenas and ensure the success of future negotiations and agreements. Marketing of exports is also a challenge for low-income countries: product and country brands need to be built, and quality concerns met.

Given the importance of agriculture for poverty reduction, additional policies and institutional capacity are needed to ensure an effective supply response to market incentives provide by better market access. Rural infrastructure is particularly important in enabling agricultural exports in developing countries. Sufficient credit at competitive conditions is important for private sector investment in storage, transportation and marketing of agricultural products. Investment in skills and education in rural areas is needed to bolster agricultural productivity. Trade policy reforms must address any remaining anti-export bias. Efficient land policies and land tenure institutions are needed to ensure the functioning of land markets, property rights, and efficient farm structures.

[edit] World Trade Organization negotiations

The most recent round of World Trade Organization negotiations (the Doha "Development" Round) was promoted as being directed at the interests of developing countries, addressing issues of developed country protectionism. The introduction of the (investment-related) Singapore issues together with a lack of sufficient concessions to developing countries' interests has put the success of the negotiations in doubt.

[edit] See also

United Nations Conference on Trade and Development World Trade Organization Agricultural policy Common Agricultural Policy United States trade policy

[edit] References
1. ^ a b Sheila Page (2010) What happens after trade agreements? Overseas Development Institute

Anderson, Kym; Hoekman, Bernard; and Strutt, Anna (1999), Agriculture and the World Trade Organization: Next Steps, August 1999, mimeo Bilaterals are used frequently when the countries involved have small economies with miniscule share in world trade or controlled economies with foreign exchange shortages. This is largely true for erstwhile communist countries from Eastern Europe, single crop producing Latin American countries and small African nations. This assures a readymade market with constant demand for its goods that generally tend to be raw materials or farm products. It can be either a formal arrangement or simply an agreement to "develop mutual trade." In the wake of thriving competition & constant race for grabbing share of international trade even countries with fastest growing economies, like China, Indonesia, Malaysia & India, are entering into bilateral agreements either with each other to develop mutual trade or with countries having potential to emerge world leaders in select areas like Vietnam has in filed of natural gas exploration owing to its large reserves of natural gases. Reasons for Growth of Counter Trade The importance of

counter trade as a trading tool increased during early 1970s -especially in markets that suffered from a shortage of foreign exchange and credit facilities to pay up for their imports. Counter trades appeared as an effective marketing mechanism for doing business and expand export markets for these countries. Thus it became a common feature of trade agreements between countries from Socialist &Capitalist block as eastern bloc countries generally faced forex crunches. After the opening of Eastern bloc, counter trade tactics came handy to many multinationals to enter into the erst while communist countries. In the wake of oil prices hike, soon after formation of OPEC, oil import bills of developing countries ballooned while their forex earning remained stagnant. Therefore, developing countries began to actively indulge in counter trade agreements in missionary zeal to increase their exports at any costs. Many multinationals have realised the importance of counter trade as it enables to round off complex transactions, increase sale of capital goods, increase aggregate business, mitigate effects of recession & test waters in a new market. Guidelines for count trade transactions The London Counter trade Roundtable (LCR) It was established in 1988 as a focal point for all those involved in counter trade and related activities.. UNCITRAL Legal Guide on International Countertrade Transactions It was adopted by UNCITRAL in 1992.Its purpose is to assist parties negotiating international countertrade transactions. Published: November 15, 2005 Source: http://www.shvoong.com/business-management/60387-countertrade/#ixzz1yX9mlmKB

QUESTION 5 The Effects of Import Restrictions on GDPs

"Gross domestic product," or GDP, as defined by the United States Bureau of Economic Analysis, is the sum of all industrial output that a country creates. A GDP measurement, often set to a currency such as the American dollar, is one of the central measures of economic health for a country. Because of this, several economic policies may greatly impact a country's GDP.

Import Restrictions
o

Import restrictions are generally thought of as economic policies that give companies, businesses, merchants and consumers the disincentive to purchase imports. "Imports" are defined as goods purchased from industries found in other countries. Arguably, through trade agreements, some imports are cheaper to purchase than goods created in a home country. One example is the North American Free Trade Agreement. This agreement eliminated many trade restrictions between Canada, the U.S. and Mexico, allowing merchants and

businesses to utilize capital and import more freely between the three countries -without state intervention.

Tariffs
o

A well-known import restriction is the tariff. Tariffs are taxes levied against a company that purchases imports. In a sense, a tariff is a sales tax. For example, if a U.S. merchant imports $1 million worth of food products from Denmark, and the U.S. has a 10 percent tariff on Danish food products, then the merchant would have to pay $1.1 million -- an extra $100,000 taxed.

Possible Benefits
o

Import restrictions can have benefits to some countries depending on their economic situation. The Levin Institute at the State University of New York argues that import restrictions may help GDP slightly, because most states strategically and purposely impose import restrictions to help a domestic industry. For example, if it is cheaper for car merchants to purchase Japanese cars, then a state might impose high tariffs on Japanese cars. A state might do this hoping that merchants and consumers shift their spending power toward purchasing domestic cars. Overall, shifting demand toward a domestic industry may be seen as a way to power up GDP since more goods would be produced and sold within a country.

GDP Reduction
o

Importing goods without restrictions may lower the price of those goods globally, according to the National Council on Economic Education. The reason is that industries in any country can create and sell the goods on the international market, and can actively compete to sell those goods at a lower rate than other countries. However, when a state imposes import restrictions, then the price of domestic goods in that country either remain higher than the import average or go up -because demand is shifted toward the domestic market. This makes it harder for merchants or consumers to purchase goods at the cheapest possible price from a foreign industry. This can curve spending and investment, and hence, lower GDP since more money is needed by merchants to purchase domestic goods over imported goods.

17.3. Restrictions on International Trade Learning Objectives

1. Define the term protectionist policy and illustrate the general impact in a market subject to protectionist policy. 2. Describe the various forms of protectionist policy. 3. Discuss and assess the arguments used to justify trade restrictions. In spite of the strong theoretical case that can be made for free international trade, every country in the world has erected at least some barriers to trade. Trade restrictions are typically undertaken in an effort to protect companies and workers in the home economy from competition by foreign firms. A protectionist policyprotectionist policyPolicy that restricts the importation of goods and services produced in foreign countries. is one in which a country restricts the importation of goods and services produced in foreign countries. The slowdown in the U.S. economy late in 2007 and in 2008 has produced a new round of protectionist sentimentone that became a factor in the 2008 U.S. presidential campaign. The United States, for example, uses protectionist policies to limit the quantity of foreignproduced sugar coming into the United States. The effect of this policy is to reduce the supply of sugar in the U.S. market and increase the price of sugar in the United States. The 2008 U.S. Farm Bill sweetened things for sugar growers even more. It raised the price they are guaranteed to receive and limited imports of foreign sugar so that American growers will always have at least 85% of the domestic market. The bill for the first time set an income limitonly growers whose incomes fall below $1.5 million per year (for couples) or $750,000 for individuals will receive direct subsidies.[42] The U.S. price of sugar is almost triple the world price of sugar, thus reducing the quantity consumed in the United States. The program benefits growers of sugar beets and sugar cane at the expense of consumers.
Figure 17.10. The Impact of Protectionist Policies

Protectionist policies reduce the quantities of foreign goods and services supplied to the country that imposes the restriction. As a result, such policies shift the supply curve to the left for the good or service whose imports are restricted. In the case shown, the supply curve shifts to S2, the equilibrium price rises to P2, and the equilibrium quantity falls to Q2. In general, protectionist policies imposed for a particular good always reduce its supply, raise its price, and reduce the equilibrium quantity, as shown in Figure 17.11, U.S. Tariff Rates, 1820 2005. Protection often takes the form of an import tax or a limit on the amount that can be imported, but it can also come in the form of voluntary export restrictions and other barriers.
Tariffs

A tarifftariffA tax on imported goods and services. is a tax on imported goods and services. The average tariff on dutiable imports in the United States (that is, those imports on which a tariff is imposed) is about 4%. Some imports have much higher tariffs. For example, the U.S. tariff on imported frozen orange juice is 35 cents per gallon (which amounts to about 40% of value). The tariff on imported canned tuna is 35%, and the tariff on imported shoes ranges between 2% and 48%. A tariff raises the cost of selling imported goods. It thus shifts the supply curve for goods to the left, as in Figure 17.10, The Impact of Protectionist Policies. The price of the protected good rises and the quantity available to consumers falls.

Antidumping Proceedings

One of the most common protectionist measures now in use is the antidumping proceeding. A domestic firm, faced with competition by a foreign competitor, files charges with its government that the foreign firm is dumpingdumpingThe practice of a foreign firm charging a price in other countries that is below the price it charges in its home country., or charging an unfair price. Under rules spelled out in international negotiations that preceded approval of the World Trade Organization, an unfair price was defined as a price below production cost or below the price the foreign firm charges for the same good in its own country. While these definitions may seem straightforward enough, they have proven to be quite troublesome. The definition of production cost is a thoroughly arbitrary procedure. In defining cost, the government agency invariably includes a specification of a normal profit. That normal profit can be absurdly high. The United States Department of Justice, which is the U.S. agency in charge of determining whether a foreign firm has charged an unfair price, has sometimes defined normal profit rates as exceeding production cost by well over 50%, a rate far higher than exists in most U.S. industry. The practice of a foreign firm charging a price in the United States that is below the price it charges in its home country is common. The U.S. market may be more competitive, or the foreign firm may simply be trying to make its product attractive to U.S. buyers that are not yet accustomed to its product. In any event, such price discrimination behavior is not unusual and is not necessarily unfair. In the United States, once the Department of Justice has determined that a foreign firm is guilty of charging an unfair price, the U.S. International Trade Commission must determine that the foreign firm has done material harm to the U.S. firm. If a U.S. firm has suffered a reduction in sales and thus in employment it will typically be found to have suffered material harm, and punitive duties will be imposed.
Quotas

A quotaquotaA direct restriction on the total quantity of a good or service that may be imported during a specified period. is a direct restriction on the total quantity of a good or service that may be imported during a specified period. Quotas restrict total supply and therefore increase the domestic price of the good or service on which they are imposed. Quotas generally specify that an exporting countrys share of a domestic market may not exceed a certain limit. In some cases, quotas are set to raise the domestic price to a particular level. Congress requires the Department of Agriculture, for example, to impose quotas on imported sugar to keep the wholesale price in the United States above 22 cents per pound. The world price is typically less than 10 cents per pound. A quota restricting the quantity of a particular good imported into an economy shifts the supply curve to the left, as in Figure 17.10, The Impact of Protectionist Policies. It raises price and reduces quantity.

An important distinction between quotas and tariffs is that quotas do not increase costs to foreign producers; tariffs do. In the short run, a tariff will reduce the profits of foreign exporters of a good or service. A quota, however, raises price but not costs of production and thus may increase profits. Because the quota imposes a limit on quantity, any profits it creates in other countries will not induce the entry of new firms that ordinarily eliminates profits in perfect competition. By definition, entry of new foreign firms to earn the profits available in the United States is blocked by the quota.
Voluntary Export Restrictions

Voluntary export restrictionsvoluntary export restrictionsA form of trade barrier by which foreign firms agree to limit the quantity of goods exported to a particular country. are a form of trade barrier by which foreign firms agree to limit the quantity of goods exported to a particular country. They became prominent in the United States in the 1980s, when the U.S. government persuaded foreign exporters of automobiles and steel to agree to limit their exports to the United States. Although such restrictions are called voluntary, they typically are agreed to only after pressure is applied by the country whose industries they protect. The United States, for example, has succeeded in pressuring many other countries to accept quotas limiting their exports of goods ranging from sweaters to steel. A voluntary export restriction works precisely like an ordinary quota. It raises prices for the domestic product and reduces the quantity consumed of the good or service affected by the quota. It can also increase the profits of the firms that agree to the quota because it raises the price they receive for their products.
Other Barriers

In addition to tariffs and quotas, measures such as safety standards, labeling requirements, pollution controls, and quality restrictions all may have the effect of restricting imports. Many restrictions aimed at protecting consumers in the domestic market create barriers as a purely unintended, and probably desirable, side effect. For example, limitations on insecticide levels in foods are often more stringent in the United States than in other countries. These standards tend to discourage the import of foreign goods, but their primary purpose appears to be to protect consumers from harmful chemicals, not to restrict trade. But other nontariff barriers seem to serve no purpose other than to keep foreign goods out. Tomatoes produced in Mexico, for example, compete with those produced in the United States. But Mexican tomatoes tend to be smaller than U.S. tomatoes. The United States once imposed size restrictions to protect U.S. consumers from small tomatoes. The result was a highly effective trade barrier that protected U.S. producers and raised U.S. tomato prices. Those restrictions were abolished under terms of the North American Free Trade Agreement, which has led to a large increase in U.S. imports of Mexican tomatoes and a reduction in U.S. tomato production.[43]

Justifications for Trade Restriction: An Evaluation

The conceptual justification for free trade is one of the oldest arguments in economics; there is no disputing the logic of the argument that free trade increases global production, worldwide consumption, and international efficiency. But critics stress that the argument is a theoretical one. In the real world, they say, there are several arguments that can be made to justify protectionist measures.
Infant Industries

One argument for trade barriers is that they serve as a kind of buffer to protect fledgling domestic industries. Initially, firms in a new industry may be too small to achieve significant economies of scale and could be clobbered by established firms in other countries. A new domestic industry with potential economies of scale is called an infant industry.infant industryA new domestic industry with potential economies of scale. Consider the situation in which firms in a country are attempting to enter a new industry in which many large firms already exist in the international arena. The foreign firms have taken advantage of economies of scale and have therefore achieved relatively low levels of production costs. New firms, facing low levels of output and higher average costs, may find it difficult to compete. The infant industry argument suggests that by offering protection during an industrys formative years, a tariff or quota may allow the new industry to develop and prosper.
Figure 17.11. U.S. Tariff Rates, 18202005

Tariff rates on dutiable imports have fallen dramatically over the course of U.S. history. The infant industry argument played a major role in tariff policy in the early years of U.S. development. Figure 17.11, U.S. Tariff Rates, 18202005 shows average tariff rates on dutiable imports in the United States since 1820. The high tariffs of the early nineteenth century were typically justified as being necessary to allow U.S. firms to gain a competitive foothold in

the world economy. As domestic industries became established, tariff rates fell. Subsequent increases in tariffs were a response in part to internal crises: the Civil War and the Great Depression. Tariff rates have fallen dramatically since 1930. Critics of the infant industry argument say that once protection is in place, it may be very difficult to remove. Inefficient firms, they contend, may be able to survive for long periods under the umbrella of infant industry protection.
Strategic Trade Policy

A new version of the infant industry argument has been used in the past few years as technological developments have spawned whole new industries and transformed existing ones. The new version of the infant industry argument assumes an imperfectly competitive market. Suppose technological change has given rise to a new industry. Given the economies of scale in this industry, only a few firms are likely to dominate it worldwideit will likely emerge as an oligopoly. The firms that dominate the industry are likely to earn economic profits that will persist. Furthermore, because there will be only a few firms, they will be located in only a few countries. Their governments could conceivably impose taxes on these firms profits that would enhance economic well-being within the country. The potential for such gains may justify government efforts to assist firms seeking to acquire a dominant position in the new industry. Government aid could take the form of protectionist trade policies aimed at allowing these firms to expand in the face of foreign competition, assistance with research and development efforts, programs to provide workers with special skills needed by the industry, or subsidies in the form of direct payments or special tax treatment. Any such policy aimed at promoting the development of key industries that may increase a countrys domestic well-being through trade with the rest of the world is known as a strategic trade policy.strategic trade policyA policy aimed at promoting the development of key industries that may increase a countrys domestic well-being through trade with the rest of the world. Although strategic trade policy suggests a conceptually positive role for government in international trade, proponents of the approach note that it has dangers. Firms might use the strategic trade argument even if their development were unlikely to offer the gains specified in the theory. The successful application of the approach requires that the government correctly identify industries in which a country can, in fact, gain dominancesomething that may not be possible. Various European governments provided subsidies to firms that were involved in the production of Airbus, which is now a major competitor in the airplane industry. On the other hand, Britain and France subsidized the development of the supersonic plane called the Concorde. After only a few Concordes had been produced, it became obvious that the aircraft was a financially losing proposition and production was halted. The airline has now gone out of business. Finally, those firms whose success strategic trade policy promotes might have sufficient political clout to block the taxes that would redistribute the gains of the policies to the population in general. Thus, the promise of strategic trade policy is unlikely to be fulfilled.

National Security

It is sometimes argued that the security of the United States would be threatened if this country depended on foreign powers as the primary source of strategic materials. In time of war, the United States might be cut off from sources of foreign supply and lose some of the materials upon which U.S. industry depends. One area where the national security argument is applied is the oil industry. Given the volatility of the political situation in the Middle East, some people say, the United States should protect the domestic oil industry in order to ensure adequate production capability in the event Middle Eastern supplies are cut off. An alternative to tariff protection of strategic commodities is to stockpile those commodities for use in time of crisis. For example, the United States maintains a strategic petroleum reserve for use in case of a cutoff in foreign supplies or domestic crises. For example, strategic oil reserves were tapped in the wake of pipeline and refinery disruptions following Hurricane Katrina in 2005.
Job Protection

The desire to maintain existing jobs threatened by foreign competition is probably the single most important source of todays protectionist policies. Some industries that at one time had a comparative advantage are no longer among the worlds lowest-cost producers; they struggle to stay afloat. Cost cutting leads to layoffs, and layoffs lead to demands for protection. The model of international trade in perfect competition suggests that trade will threaten some industries. As countries specialize in activities in which they have a comparative advantage, sectors in which they do not have this advantage will shrink. Maintaining those sectors through trade barriers blocks a nation from enjoying the gains possible from free trade. A further difficulty with the use of trade barriers to shore up employment in a particular sector is that it can be an enormously expensive strategy. Suppose enough of a foreign good is kept out of the United States to save one U.S. job. That shifts the supply curve slightly to the left, raising prices for U.S. consumers and reducing their consumer surplus. The loss to consumers is the cost per job saved. Estimates of the cost of saving one job in the steel industry through restrictions on steel imports, for example, go as high as $800,000 per year.
Cheap Foreign Labor and Outsourcing

One reason often given for the perceived need to protect American workers against free international trade is that workers must be protected against cheap foreign labor. This is an extension of the job protection argument in the previous section. From a theoretical point of view, of course, if foreign countries can produce a good at lower cost than we can, it is in our collective interest to obtain it from them. But workers counter by saying that the low wages of foreign workers means that foreign workers are exploited. To compete with foreign workers, American workers would have to submit themselves to similar exploitation. This objection,

however, fails to recognize that differences in wage rates generally reflect differences in worker productivity. Consider the following example: Suppose U.S. workers in the tool industry earn $20 per hour while Indonesian workers in the tool industry earn only $2 per hour. If we assume that the tool industry is competitive, then the wages in both countries are based on the marginal revenue product of the workers. The higher wage of U.S. workers must mean that they have a higher marginal productthey are more productive. The higher wage of U.S. workers need not mean that labor costs are higher in the United States than in Indonesia. Further, we have seen that what matters for trade is comparative advantage, not comparative labor costs. When each nation specializes in goods and services in which it has a comparative advantagemeasured in the amounts of other goods and services given up to produce them then world production, and therefore world consumption, rises. By definition, each nation will have a comparative advantage in something. A particularly controversial issue in industrialized economies is outsourcingoutsourcingSituation in which firms in a developed country transfer some of their activities abroad in order to take advantage of lower labor costs in other countries., in which firms in a developed country transfer some of their activities abroad in order to take advantage of lower labor costs in other countries. Generally speaking, the practice of outsourcing tends to reduce costs for the firms that do it. These firms often expand production and increase domestic employment, as is discussed in the accompanying Case in Point essay.
Differences in Environmental Standards

Another justification for protectionist measures is that free trade is unfair if it pits domestic firms against foreign rivals who do not have to adhere to the same regulatory standards. In the debate over NAFTA, for example, critics warned that Mexican firms, facing relatively lax pollution control standards, would have an unfair advantage over U.S. firms if restraints on trade between the two countries were removed. Economic theory suggests, however, that differences in pollution-control policies can be an important source of comparative advantage. In general, the demand for environmental quality is positively related to income. People in higher-income countries demand higher environmental quality than do people in lower-income countries. That means that pollution has a lower cost in poorer than in richer countries. If an industry generates a great deal of pollution, it may be more efficient to locate it in a poor country than in a rich country. In effect, a poor countrys lower demand for environmental quality gives it a comparative advantage in production of goods that generate a great deal of pollution. Provided the benefits of pollution exceed the costs in the poor country, with the costs computed based on the preferences and incomes of people in that country, it makes sense for more of the good to be produced in the poor country and less in the rich country. Such an allocation leaves people in both countries better off than they would be otherwise. Then, as freer trade leads to

higher incomes in the poorer countries, people there will also demand improvements in environmental quality. Do economists support any restriction on free international trade? Nearly all economists would say no. The gains from trade are so large, and the cost of restraining it so high, that it is hard to find any satisfactory reason to limit trade.
Key Takeaways

Protectionist measures seek to limit the quantities of goods and services imported from foreign countries. They shift the supply curve for each of the goods or services protected to the left. The primary means of protection are tariffs and quotas. Antidumping proceedings have emerged as a common means of protection. Voluntary export restrictions are another means of protection; they are rarely voluntary. Other protectionist measures can include safety standards, restrictions on environmental quality, labeling requirements, and quality standards. Protectionist measures are sometimes justified using the infant industry argument, strategic trade policy, job protection, cheap foreign labor and outsourcing, national security, and differences in environmental standards.

Try It!

Suppose the United States imposes a quota reducing its imports of shoes by one-half (roughly 8590% of the shoes now sold in the United States are imported). Assume that shoes are produced under conditions of perfect competition and that the equilibrium price of shoes is now $50 per pair. Illustrate and explain how this quota will affect the price and output of shoes in the United States. Case in Point: Outsourcing and Employment
Figure 17.12.

The phenomenon of outsourcing has become common as the Internet and other innovations in communication have made it easier for firms to transfer aspects of their production overseas. At the same time, countries such as India and China have invested heavily in education and have produced a sizable workforce of professional people capable of filling relatively high level positions for firms in more developed countries. The very idea of outsourcing rankles politicians on the left and on the right. In the United States, there have been numerous congressional hearings on outsourcing and proposals to block firms that engage in the practice from getting government contracts. By outsourcing, firms are able to reduce their production costs. As we have seen, a reduction in production costs translates into increased output and falling prices. From a consumers point of

view, then, outsourcing should be a very good thing. The worry many commentators express, however, is that outsourcing will decimate employment in the United States, particularly among high-level professionals. Matthew J. Slaughter, an economist at Dartmouth University, examined employment trends from 1991 to 2001 among multinational U.S. firms that had outsourced jobs. Those firms outsourced 2.8 million jobs during the period. Were the 2.8 million jobs simply lost? Mr. Slaughter points out that there are three reasons to expect that the firms that reduced production costs by outsourcing would actually increase their domestic employment. First, by lowering cost, firms are likely to expand the quantity they produce. The foreign workers who were hired, who Mr. Slaughter refers to as affiliate workers, appeared to be complements to American workers rather than substitutes. If they are complements rather than substitutes, then outsourcing could lead to increased employment in the country that does the outsourcing. A second reason outsourcing could increase employment is that by lowering production cost, firms that increase the scale of their operations through outsourcing need more domestic workers to sell the increased output, to coordinate its distribution, and to develop the infrastructure to handle all those goods. Finally, firms that engage in outsourcing are also likely to increase the scope of their operations. They will need to hire additional people to explore other product development, to engage in research, and to seek out new markets for the firms output. Thus, Mr. Slaughter argues that outsourcing may lead to increased employment because domestic workers are complements to foreign workers, because outsourcing expands the scale of a firms operations, and because it expands the scope of operations. What did the evidence show? Remember the 2.8 million jobs that multinational firms based in the United States outsourced between 1991 and 2001? Employment at those same U.S. firms increased by 5.5 million jobs during the period. Thus, with the phenomena of complementarity, increases in scale, and increases of scope, each job outsourced led to almost two additional jobs in the United States. The experience of two quite dissimilar firms illustrates the phenomenon. Wal-Mart began expanding its operations internationally in about 1990. Today, it manages its global operations from its headquarters in Bentonville, Arkansas where it employs 15,000 people. Roughly 1,500 of these people coordinate the flow of goods among Wal-Marts stores throughout the world. Those 1,500 jobs would not exist were it not for globalization. Xilinx, the high technology research and development firm, generates sales of about $1.5 billion per year. Sixty-five percent of its sales are generated outside the United States. But 80% of its employees are in the United States. Outsourcing, then, generates jobs. It does not destroy them. Mr. Slaughter concludes: Instead of lamenting ongoing foreign expansion of U.S. multinationals, if history is our guide then we should be encouraging it.

Answer to Try It! Problem

The quota shifts the supply curve to the left, increasing the price of shoes in the United States and reducing the equilibrium quantity. In the case shown, the price rises to $68. Because you are not given the precise positions of the demand and supply curves, you can only conclude that price rises; your graph may suggest a different price. The important thing is that the new price is greater than $50.

EFFECT OF TRADE PROTECTION

Introduction
Robert C. Feenstra A magazine devoted to international economics recently asked a panel of experts to grade the performance of the Japadtrade policies undertaken by the Clinton administration (Grading the Clinton JapadTrade Policy 1994). The results ranged from B + to Z, with the latter being lower than an F. Less surprising than the range of scores (who would expect economists to agree?) was the attention given by nearly every person to the market-opening policies being pursued by the United States. Gone are the days in which the United States was evaluated by its ability to negotiate multilateral policies of mutual benefit to a broad group of countries; instead, the focus is on results-oriented policies in specific markets and with particular trading partners. There is little agreement, however, on whether the policies pursued have been helpful or harmful: the two lowest grades given to the Clinton administration came from individuals who felt that the actions taken toward Japan were either too harsh and a form of affirmation action promoting U.S. industries or too weak and likely to prove ephemeral. Such is the state of affairs in the evaluation of recent US. trade policies! The papers in this volume take a more dispassionate look at these policies and evaluate their effect with the benefit of hindsight and statistical inference. Of foremost concern are the policies affecting US.-Japan trade and investment, and nearly half the papers focus on these issues. A second section of the volume deals with the U.S. response to so-called unfair trading practices, while the final section contains an analysis of various industry- and country-specific trade policies. Three general themes arise from the papers. The first is that some policies can act as both import protection and export promotion. An exRobert C . Feenstra is professor of economics at the University of California, Davis, and director of the International Trade and Investment Program at the National Bureau of Economic Research. He is also the editor of the Journal of International Economics.

2 Robert C. Feenstra

ample is provided by the recent policies directed at the U.S. automobile industry, as examined by James Levinsohn. In that case, the goal of increasing Japanese purchases of U.S. auto parts (export promotion) was implemented through the threat of high tariffs on U.S. imports of Japanese luxury autos (import protection), with the result that the two cannot really be separated. A more complex example comes from the negotiations on antidumping in the Uruguay Round, discussed by Robert E. Cumby and Theodore H. Moran, where U.S. exporting and multinational firms-pursuing their own agendasdid not act as an effective counterweight to domestic firms seeking greater protection from imports. The second general theme is that the threat of protection can often have

effects that are as pronounced as when policies are actually implemented. This is illustrated by the response of the Japanese to the threatened tariffs on luxury automobiles but also by their response to threatened protection in other industries, which involved making direct investments in the United States, as analyzed by Bruce A. Blonigen and Robert C. Feenstra. Threats also lead to measurable reactions from firms faced with possible antidumping duties, discussed by Thomas J. Prusa, and from countries faced with Section 301 actions, discussed by Kimberly Ann Elliott and J. David Richardson in the section on unfair trade. The third theme is that domestic regulatory policy has as much effect on trade and investment patterns as trade policy itself. This is illustrated by the paper by Andrew R. Dick, dealing with the telecommunications industry; by the paper by David E. Weinstein, dealing with foreign investment in Japan; and by the papers in the final section, which deal with the effect of macroeconomic policy on U.S. wheat exports and on unemployment in Canada following the free trade agreement with the United States. Arguably, the automobile industry-defined to include both finished cars and the manufacture of automobile part-received the most trade policy attention throughout the 1980s and 1990s. The import competition faced by U.S. producers during the 1980s was offset by the application of a voluntary export restraint (VER) with Japan. This restraint had the further effect of encouraging foreign investment in the United States, as a result of which, with Japanese nameplates being produced in the United States, the VER became redundant by the end of the decade. Attention then shifted to the automobile parts industry, which had a very low foreign market share in Japan. In an effort to expand this share, the Clinton administration proposed a 100 percent tariff on thirteen Japanese luxury cars and threatened to implement this tariff unless the Japanese agreed to expand their purchases of automobile parts. The choice of instrument was strategic: a uniform tariff against all Japanese automobile imports would not have been effective since the majority of Japanese cars were produced in the United States. In this case, the threat apparently paid off, in that the Japanese agreed to various quantitative goals for the purchase of automobile parts. Levinsohn considers what would have happened had the tariff on luxury cars been implemented. He finds that the reduction in profits of the 3 Introduction Japanese manufacturers would have been very large, which may explain their decision to agree to various goals for the purchase of automobile parts. Surprisingly, he also finds that US. prices would have risen by nearly the full amount of the tariffs: there would have been little incentive for the Japanese producers to absorb some part of the tariff and pass though only a portion to U.S. consumers. Among the quantitative goals gained in this carwars episode, the Japanese agreed that their firms in the United States, and elsewhere would purchase more automobile parts; that they would increase the foreign market share in Japan; and that they would expand their transplant production in the United States. It can be questioned whether some of these targets could have been met even without the U.S. threat. In particular, the number of Japanese manufacturers in the United States has been rising steadily, and these firms all do some business with U.S. parts suppliers. The changing magnitude of these parts purchases is studied by Deborah L. Swenson. She makes use of a unique data set collected from the foreign trade zones (FTZs) in the United States within which the Japanese automobile producers (and many other firms) operate. Since these data provide trade flows to and from FTZs, the separate purchases of U.S. and Japanese parts can be quantified, and the effect of exchange rates and other factors on the sourcing decision can be estimated. Swenson finds that exchange rate fluctuations are important, and that there is a tendency for Japanese purchases of U.S. parts to grow over time, but this growth is not enough for the differences between these firms and their U.S. counterparts to

be eliminated. It was suggested above that the VER with Japan in automobiles resulted in the inflow of foreign direct investment. It is surprising, however, that the number of transplant firms grew so large that the VER became redundant. This suggests that the foreign firms were responding, not only to the actual protection, but also to the threat of protection. This hypothesis is tested by Blonigen and Feenstra, who measure the threat of protection by the initiation of antidumping or escape clause cases filed against a particular foreign industry. They test whether the use of these cases results in additional inflows of foreign direct investment and, conversely, whether the foreign investment lowers the probability of future protection. Using data on inflows of Japanese firms to the United States, support for both these hypotheses is obtained. These results confirm the idea of quid pro quo foreign investment that has been advanced by Jagdish Bhagwati, among others (see the references to chapter 3 of this volume). Looking at the opposite side of this issue, Weinstein investigates the level and determinants of foreign direct investment in Japan. The conventional wisdom has been that, measured by the share of employment or sales accounted for by foreign affiliates, the foreign presence in Japan is at most 1 percent. This is extremely low in comparison with other industrial countries. Weinstein argues that this estimate is in fact incorrect and that the actual foreign presence 4 Robert C. Feenstra is at least 5 percent of sales or employment: still at the low end compared to other countries, but five times higher than the conventional wisdom! To explain why foreign investment has not been higher, many authors have pointed to the keiretsu system of cross-shareholding and corporate control. Weinstein questions whether this system developed in order to limit foreign takeovers. He suggests instead that various Japanese financial regulations have had the effect of encouraging cross-shareholding between manufacturing and financial firms and among related firms in the manufacturing sector. Regulatory policies are also the focus of the paper by Dick, dealing with the telecommunications industry in the United States and Japan. In the early 1990s, the attempts of Motorola to enter the cellular telephone market in the Tokyo area led to extended discussions between government officials from the United States and Japan, which mirrored similar attempts to enter the market for radio pagers in the 1980s. Dick puts these actions into their historical context, arguing that deregulation in both countries since the 1970s, has had a profound effect on bilateral trade. Deregulation in the United States, including the divestiture of AT&T, had the effect of increasing imports from Japan (especially of terminal equipment) and other countries such as Canada (of network equipment). But deregulation in Japan had the effect of increasing imports from Hong Kong and Asia (of terminal equipment), with more limited increases of imports from Canada (of network equipment), with the result that the United States did not gain in terms of exports. The conclusion is that the vigorous enforcement of antitrust law in the United States (leading to the AT&T divestiture) had the effect of increasing the trade deficit with Japan, where comparable deregulation policies were not followed. The second section of the volume is devoted to policies that are a response to unfair trade, that is, situations in which the United States perceives that foreign industries or countries are engaged in practices particularly detrimental to domestic interests. An example is dumping: when foreign industries export their products at below their home prices or average costs. This practice has long justified the use of antidumping duties under U.S. and multilateral trade laws, but these provisions were renegotiated under the Uruguay Round of negotiations. The paper by Cumby and Moran argues that the new provisions are surprisingly lenient in terms of the criteria used to determine whether dumping

has occurred and that they therefore protect domestic producers. The question that the authors pose is why the executive branch of the government did not act as an effective counterweight to industry demands in this instance. The answer leads to a fascinating insiders account of negotiations during the Uruguay Round, in which, as one discussant observed, the names were omitted to protect the guilty. One reason that these authors focus on the antidumping laws is because these trade policies have been found to have very substantial effects, over and above those that occur when duties are actually applied. The paper by Prusa investigates some of these effects. Using highly disaggregated data for the 5 Introduction same line-item tariff codes at which investigations occur, he finds that the investigation itself has the effect of restricting imports and raising the price from the countries named in the investigation; of course, these effects persist and are amplified if duties are applied. However, the net protection offered to U.S. firms is less than these results suggest because of significant trade diversion toward countries that are not named in the investigation. These countries are able to increase their import volumes to the United States and raise their prices following the application of duties on the named countries, with the result that the overall volume of imports continues to grow. In addition to quantifying the effect of antidumping investigations on import prices, Prusa provides the first estimates of the extent of trade diversion to nonnamed countries. The use of antidumping duties is only one means by which the United States responds to perceived unfair trade, and, by necessity, this practice is restricted to particular commodities and countries. A more general response is contained in Section 301 of the Trade Act of 1974, which authorized the president to take action against unreasonable, unjustifiable, or discriminatory practices of foreign trade partners. These provisions were extended in the so-called Super 301 provisions of the Omnibus Trade and Competitiveness Act of 1988, which authorized the annual compilation of a list of countries engaged in egregiously unfair practices and subsequent negotiations to eliminate these practices. If the practices are indeed eliminated, then the action can be judged as successful from the U.S. point of view. Elliott and Richardson investigate the factors contributing to the perceived success or failure of the Section 301 actions. This study extends the work presented in Bayard and Elliot (1994) and adds to it a statistical analysis of the factors determining success (the earlier study used case methods). Among other conclusions, the authors find that the vulnerability of the foreign country influences the success of a 301 action, as does the simplicity of the foreign policies being targeted and the linkage of the action of some measure of reciprocity. In contrast, there is no evidence that cases involving the highest U.S. stakes are necessarily the most successful. The final section of the volume turns to U.S. policies that have targeted specific industries or countries. Of chief concern to advocates of industrial policy has been the high-technology industries, which are sometimes argued to benefit other industries in a spillover process and to be of strategic interest for national security. Both these arguments have been used to justify U.S. support for the development of flat panel displays, as described by Kala Krishna and Marie Thursby. Much of the information on this industry is proprietary, and these authors provide details that are not readily available, including the very high magnitude of subsidies provided by the Clinton administration. Rather than evaluating the overall social cost or benefit of these subsidies, Krishna and Thursby focus on one particular aspect that is also of relevance to other industries: whether subsidies are provided to capacity acquisition or to R&D expenditures. Both these policies were considered under the National Flat Panel Display Initiative. These authors find that subsidies to capacity ac 6
Robert C. Feenstra

quisition can have the perverse effect of reducing the steady-state level of R&D, which implies that the R&D subsidy is the preferred instrument for achieving long-term cost reductions. The second industry considered-agriculture-is at the opposite end of the spectrum in that the subsidies provided cannot be justified by any technological spillover or national security argument but rather are the result of political economy considerations. One program that has been in effect since 1985 is the Export Enhancement Program (EEP), which provides export subsidies to a range of commodities, especially wheat. In 1985, exports of wheat were very low by historical standards, leading to a large accumulation of U.S. stocks. Pinelopi K. Goldberg and Michael M. Knetter argue that these events should be attributed to the appreciation of the U.S. dollar during 1980-85. With the subsequent depreciation, export volumes should have returned to their historical levels, but this was not the case: exports were lower than expected. One explanation for this finding is the increased productivity and export subsidies provided to wheat by the European Community. These findings suggest that the EEP was ineffective in stimulating wheat exports and that, to the extent that it led to the increased use of subsidies within Europe, it may even have been counterproductive. Attention is turned from policies favoring specific industries to those favoring specific geographic locations in the paper by Gordon H. Hanson. Under the offshore assembly provisions of US. tariff laws, components that are exported, assembled abroad, and reimported into the United States receive preferential tariff treatment. Predictably, this provision has had the effect of encouraging the location of plants in Mexico near the U.S. border. Surprisingly, however, it has also encouraged the location of twin plants in the United States, at border cities near to their Mexican counterparts. Hanson estimates that fully half the growth in durable-goods activities in these U.S. cities is due to the expansion of assembly plants in Mexico. He also discusses how the choice of location is likely to be affected by the North American Free Trade Agreement (NAFTA). The final paper, by Keith Head and John Ries, considers the other American border-that with Canada-and the effect of the Canada-U.S. Free Trade Agreement of 1988. While this agreement attracted less attention in the United States than the subsequent agreement with Mexico under NAFTA, it was widely debated and criticized in Canada. The fear was that Canadian industries would not be able to compete head-on with U.S. industries and would therefore be forced to downsize and lay off workers. In fact, in the years following the agreement, there was unusually high unemployment in Canada, but this was due at least in part to the restrictive monetary policy. Head and Ries attempt to disentangle from industry-level data the changes in Canadian output and employment that were consistent with trade liberalization and the remaining changes that appear to be due to other factors. Using a model of monopolistic competition, they find that a significant part of the reduction in Canadian out7 Introduction put cannot be explained by this framework. They explore the extent to which macroeconomic policy, or other factors, is consistent with the additional unemployment that occurred.

References
Bayard, Thomas O., and Kimberly Ann Elliott. 1994. Reciprocig and retaliation in U.S. Grading the Clinton Japanhrade policy. 1994. International Economy 8, no. 6 (Notrade policy. Washington, D.C.: Institute for International Economics. VemberDecember): 18-23.

QUESTION 6 Price discrimination is the practice of one retailer, wholesaler, or manufacturer charging different prices for the same items to different customer. This is a widespread practice that does not necessarily imply negative discrimination. Early forms of price discrimination certainly existed in Jim Crow law states, where a black consumer might very likely pay more for the same quantity and items than a white consumer would. In general, this type of price discrimination is very rare today. Price discrimination, as it is now understood, is separated into degrees. First, second and third degree price discrimination exist and apply to different pricing methods used by companies. Much depends on the understanding of the market in segments, and also the consumers ability to pay a higher or lower price, called elasticity of demand. A person who might pay more for an item is thought to have a low elasticity of demand. Another person who will not pay as much has a high elasticity of demand. First-degree price discrimination occurs when identical goods are sold at different prices to each individual consumer. Obviously, the seller is not always going to be able to identify who is willing to pay more for certain items, but when he or she can, his profit increases. You can see this type of price discrimination in the sale of both new and used cars. People will pay different prices for cars with identical features, and the salesperson must attempt to gauge the maximum price at which the car can be sold. This type of price discrimination often includes a bargaining aspect, where the consumer attempts to negotiate a lower price. Second-degree price discrimination refers to companies charging lower prices for higher quantities. In companies where a client orders in bulk and is able to purchase a high number of the same items at once, the client may get a discounted rate. This rate would not apply to a client who only orders a few items at a time. In retail stores, second-degree price discrimination often exists. A reduced price may be offered if you buy two t-shirts instead of just one. This form helps to get rid of merchandise and generate more revenue for a company. Third degree price discrimination is based on understanding the market, and occurs with great frequency. This type takes many different forms, but in all cases attempts to derive the most sales from each segmented group of consumers. For example, senior citizens are considered a group, and are often offered discounts at movie theaters, for transportation, in restaurants, and even in retail stores where seniors may have a senior day each week that allows them to take a discount on merchandise. Students are another segmented group that may be offered lower prices. Both seniors and students have a higher elasticity of demand and can generally afford to pay less than the average worker. Market segmentation may also evaluate the socio-economic aspects of an area when considering elasticity of demand. Its not uncommon to see retail grocery stores offer differing prices in an area where the retailer knows he can get more money for a product. Alternately, where only one chain store exists in a certain location, retail grocery stores might offer higher prices because people have no alternative place to shop.

Another form of third degree price discrimination is temporary discounts for airfares that are meant to increase business. These discounts could be seasonal, and designed to promote the company. Those in urban areas may pay more for flights or hotel rooms than those in rural areas

Technical Information on anti-dumping Introduction What is dumping? Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. Thus, in the simplest of cases, one identifies dumping simply by comparing prices in two markets. However, the situation is rarely, if ever, that simple, and in most cases it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country (known as the normal value) and the appropriate price in the market of the importing country (known as the export price) so as to be able to undertake an appropriate comparison.

Article VI of GATT and the Anti-Dumping Agreement The GATT 1994 sets forth a number of basic principles applicable in trade between Members of the WTO, including the most favoured nation principle. It also requires that imported products not be subject to internal taxes or other changes in excess of those imposed on domestic goods, and that imported goods in other respects be accorded treatment no less favourable than domestic goods under domestic laws and regulations, and establishes rules regarding quantitative restrictions, fees and formalities related to importation, and customs valuation. Members of the WTO also agreed to the establishment of schedules of bound tariff rates. Article VI of GATT 1994, on the other hand, explicitly authorizes the imposition of a specific anti-dumping duty on imports from a particular source, in excess of bound rates, in cases where dumping causes or threatens injury to a domestic industry, or materially retards the establishment of a domestic industry. The Agreement on Implementation of Article VI of GATT 1994, commonly known as the AntiDumping Agreement, provides further elaboration on the basic principles set forth in Article VI itself, to govern the investigation, determination, and application, of anti-dumping duties.

Previous Agreements As tariff rates were lowered over time following the original GATT agreement, anti-dumping duties were increasingly imposed, and the inadequacy of Article VI to govern their imposition became ever more apparent. For instance, Article VI requires a determination of material injury,

but does not contain any guidance as to criteria for determining whether such injury exists, and addresses the methodology for establishing the existence of dumping in only the most general fashion. Consequently, contracting parties to GATT negotiated more detailed Codes relating to anti-dumping. The first such Code, the Agreement on Anti-Dumping Practices, entered into force in 1967 as a result of the Kennedy Round. However, the United States never signed the Kennedy Round Code, and as a result the Code had little practical significance. The Tokyo Round Code, which entered into force in 1980, represented a quantum leap forward. Substantively, it provided enormously more guidance about the determination of dumping and of injury than did Article VI. Equally important, it set out in substantial detail certain procedural and due process requirements that must be fulfilled in the conduct of investigations. Nevertheless, the Code still represented no more than a general framework for countries to follow in conducting investigations and imposing duties. It was also marked by ambiguities on numerous controversial points, and was limited by the fact that only the 27 Parties to the Code were bound by its requirements.

The UR Agreement back to top Basic principles Dumping is defined in the Agreement on Implementation of Article VI of the GATT 1994 (The Anti-Dumping Agreement) as the introduction of a product into the commerce of another country at less than its normal value. Under Article VI of GATT 1994, and the Anti-Dumping Agreement, WTO Members can impose anti-dumping measures, if, after investigation in accordance with the Agreement, a determination is made (a) that dumping is occurring, (b) that the domestic industry producing the like product in the importing country is suffering material injury, and (c) that there is a causal link between the two. In addition to substantive rules governing the determination of dumping, injury, and causal link, the Agreement sets forth detailed procedural rules for the initiation and conduct of investigations, the imposition of measures, and the duration and review of measures.

Committee on Anti-Dumping Practices The Committee, which meets at least twice a year, provides Members of the WTO the opportunity to discuss any matters relating to the Anti-Dumping Agreement (Article 16). The Committee has undertaken the review of national legislations notified to the WTO. This offers the opportunity to raise questions concerning the operation of national anti-dumping laws and regulations, and also questions concerning the consistency of national practice with the AntiDumping Agreement. The Committee also reviews notifications of anti-dumping actions taken by Members, providing the opportunity to discuss issues raised regarding particular cases. The Committee has created a separate body, the Ad Hoc Group on Implementation, which is open to all Members of the WTO, and which is expected to focus on technical issues of

implementation: that is, the how to questions that frequently arise in the administration of antidumping laws.

Dispute settlement Disputes in the anti-dumping area are subject to binding dispute settlement before the Dispute Settlement Body of the WTO, in accordance with the provisions of the Dispute Settlement Understanding (DSU) (Article 17). Members may challenge the imposition of anti-dumping measures, in some cases may challenge the imposition of preliminary anti-dumping measures, and can raise all issues of compliance with the requirements of the Agreement, before a panel established under the DSU. In disputes under the Anti-Dumping Agreement, a special standard of review is applicable to a panel's review of the determination of the national authorities imposing the measure. The standard provides for a certain amount of deference to national authorities in their establishment of facts and interpretation of law, and is intended to prevent dispute settlement panels from making decisions based purely on their own views. The standard of review is only for anti-dumping disputes, and a Ministerial Decision provides that it shall be reviewed after three years to determine whether it is capable of general application.

Notifications All WTO Members are required to bring their anti-dumping legislation into conformity with the Anti-Dumping Agreement, and to notify that legislation to the Committee on Anti-Dumping Practices. While the Committee does not approve or disapprove any Members' legislation, the legislations are reviewed in the Committee, with questions posed by Members, and discussions about the consistency of a particular Member's implementation in national legislation of the requirements of the Agreement. In addition, Members are required to notify the Committee twice a year about all anti-dumping investigations, measures, and actions taken. The Committee has adopted a standard format for these notifications, which are subject to review in the Committee. Finally, Members are required to promptly notify the Committee of preliminary and final antidumping actions taken, including in their notification certain minimum information required by Guidelines agreed to by the Committee. These notifications are also subject to review in the Committee.

Determination of dumping Determination of normal value back to top General rule

The normal value is generally the price of the product at issue, in the ordinary course of trade, when destined for consumption in the exporting country market. In certain circumstances, for example when there are no sales in the domestic market, it may not be possible to determine normal value on this basis. The Agreement provides alternative methods for the determination of normal value in such cases.

Sales in the ordinary course of trade One of the most complicated questions in anti-dumping investigations is the determination whether sales in the exporting country market are made in the ordinary course of trade or not. One of the bases on which countries may determine that sales are not made in the ordinary course of trade is if sales in the domestic market of the exporter are made below cost. The Agreement defines the specific circumstances in which home market sales at prices below the cost of production may be considered as not made in theordinary course of trade", and thus may be disregarded in the determination of normal value (Article 2). Those sales must be made at prices that are below per unit fixed and variable costs plus administrative, selling and general costs, they must be made within an extended period of time (normally one year, but in no case less than six months), and they must be made in substantial quantities. Sales are made in substantial quantities when (a) the weighted average selling price is below the weighted average cost; of (b) 20% of the sales by volume were below cost. Finally, sales made below costs may only be disregarded in the determination of normal value where they do not allow for recovery of costs within a reasonable period of time. If sales are below cost when made but are above the weighted average cost over the period of the investigation, the Agreement provides that they allow for recovery of costs within a reasonable period of time.

Insufficient volume of sales If there are sales below cost that meet the criteria set out in the Agreement, they can simply be ignored in the calculation of normal value, and normal value will be determined based on the remaining sales. However, exclusion of these below-cost sales may result in a level of sales insufficient to determine normal value based on home market prices. It is obvious that, in the case where there are no sales in the exporting country of the product under investigation, it is not possible to base normal value on such sales, and the Agreement recognizes this. However, it is also possible that, while there are some sales in the exporting country's market, the level of such sales is so low that its significance is questionable. Thus, the Agreement recognizes that in some cases sales in the home market may be so low in volume that they do not permit a proper comparison of home market and export prices. It provides that the level of home market sales is sufficient if home market sales constitute 5 per cent or more of the export sales in the country conducting the investigation, provided that a lower ratio should be accepted if the volume of domestic sales nevertheless is of sufficient magnitude to provide for a fair comparison.

Alternative bases for calculating normal value

Two alternatives are provided for the determination of normal value if sales in the exporting country market are not an appropriate basis. These are (a) the price at which the product is sold to a third country; and (b) the constructed value of the product, which is calculated on the basis of the cost of production, plus selling, general, and administrative expenses, and profits. The Agreement contains detailed and specific rules for the determination of a constructed value, governing the information to be used in determining the amounts for costs, expenses, and profits, the allocation of these elements of constructed value to the specific product in question, and adjustments for particular situations such as start-up costs and non-recurring cost items.

Constructed normal value The determination of normal value based on cost of production, selling, general and administrative expenses, and profits is referred to as the constructed normal value The rules for determining whether sales are made below cost also apply to performing a constructed normal value calculation. The principal difference is the inclusion of a reasonable amount for profits in the constructed value.

Third country price as normal value The other alternative method for determining normal value is to look at the comparable price of the like product when exported to an appropriate third country, provided that price is representative. The Agreement does not specify any criteria for determining what third country is appropriate.

Indirect exports In the situation where products are not imported directly from the country of manufacture, but are exported from an intermediate country, the Agreement provides that the normal value shall be determined on the basis of sales in the market of the exporting country. However, the Agreement recognizes that this may result in an inappropriate or impossible comparison, for instance if the product is not produced in the exporting country, there is no comparable price for the product in the exporting country, or the product is merely transshipped through the exporting country. In such cases, the normal value may be determined on the basis of the price of the product in the country of origin, and not the price in the exporting country.

Non-market economies In the particular situation of economies where the government has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, GATT 1994 and the Agreement recognize that a strict comparison with home market prices may not be

appropriate. Importing countries have thus exercised significant discretion in the calculation of normal value of products exported from non-market economies.

Determination of export price back to top General rule The export price will normally be based on the transaction price at which the foreign producer sells the product to an importer in the importing country. However, as is the case with normal value, the Agreement recognizes that this transaction price may not be appropriate for purposes of comparison.

Exceptions There may be no export price for a given product, for instance, if the export transaction is an internal transfer, or if the product is exchanged in a barter transaction. In addition, the transaction price at which the exporter sells the product to the importing country may be unreliable because of an association or a compensatory arrangement between the exporter and the importer or a third party. In such a case, the transaction price may not be an arms-length market price, but may be manipulated, for instance for tax purposes. The Agreement recognizes that, in such cases, an alternative method of determining an appropriate export price for comparison is needed.

Alternative method of calculation The Agreement provides that in circumstances where there is no export price, or where the export price is unreliable due to an association or compensatory arrangement between the exporter and the importer or a third party, an alternative method may be used to determine the export price. this results in a constructed export price, and is calculated on the basis of the price at which the imported products are first resold in an independent buyer. If the imported product is not resold to an independent buyer, or is not resold as imported, the authorities may determine a reasonable basis on which to calculate the export price.

Fair comparison of normal value and export price back to top Basic requirements The Agreement requires that a fair comparison of the export price and the normal value be made. The basic requirements for a fair comparison are that the prices being compared are those of sales made at the same level of trade, normally the ex-factory level, and of sales made at as nearly as possible the same time.

As part of the Agreement's requirements regarding transparency and participation, the investigating authorities are required to inform parties of the information needed to ensure a fair comparison, for instance, information regarding adjustments, allowances, and currency conversion, and may not impose an unreasonable burden of proof on parties.

Allowance To ensure that prices are comparable, the Agreement requires that adjustments be made to either the normal value, or the export price, or both, to account for differences in the product, or in the circumstances of sale, in the importing and exporting markets. These allowances must be made for differences in conditions and terms of sale, taxation, quantities, physical characteristics, and other differences demonstrated to affect price comparability.

Adjustments in case of constructed export price The Agreement also provides specific rules on the adjustment to be made if the comparison of normal value is to a constructed export price. In those circumstances, allowance must be made for costs, including duties and taxes, incurred between the importation of the product and the resale to the first independent purchaser, as well as for profits accruing. If price comparability has been affected, the Agreement requires either that the normal value be established at a level of trade equivalent to that of the constructed export price, which is likely to require an adjustment, or allowance must be made for differences in conditions and terms of sale, taxation, quantities, physical characteristics, and other matters demonstrated to affect price comparability.

Conversion of currency Where the comparison of normal value and export price requires conversion of currency, the Agreement provides specific rules governing that conversion (Article 2.4.1). Thus, the exchange rate used should be that in effect on the date of sale (date of contract, invoice, purchase order or order confirmation, whichever establishes material terms of sale). If a forward currency sale is directly linked to export sale, the exchange rate of forward currency sale must be used. Moreover, the Agreement requires that exchange rate fluctuations be ignored, and that exporters be allowed at least 60 days to adjust export prices for sustained exchange rate movements.

Calculation of dumping margins and duty assessment back to top Calculation of dumping margins The Agreement contains rules governing the calculation of dumping margins. In the usual case, the Agreement requires either the comparison of the weighted average normal value to the

weighted average of all comparable export prices, or a transaction-to-transaction comparison of normal value and export price (Article 2.4.2). A different basis of comparison can be used if there is targeted dumping: that is, if a pattern exists of export prices differing significantly among different purchasers, regions or time periods. In this situation, if the investigating authorities provide an explanation as to why such differences cannot be taken into account in weighted average-to-weighted average or transaction-to-transaction comparisons, the weighted average normal value can be compared to the export prices on individual transactions.

Refund or reimbursement The Agreement requires Members to collect duties on a non-discriminatory basis on imports from all sources found to be dumped and causing injury, except with respect to sources from which a price undertaking has been accepted. Moreover, the amount of the duty collected may not exceed the dumping margin, although it may be a lesser amount. The Agreement specifies two mechanisms to ensure that excessive duties are not collected. The choice of mechanism depends on the nature of the duty collection process. If a Member allows importation and collects an estimated anti-dumping duty, and only later calculates the specific amount of antidumping duty to be paid, the Agreement requires that the final determination of the amount must take place as soon as possible, upon request for a final assessment. In both cases, the Agreement provides that the final decision of the authorities must normally be made within 12 months of a request for refund or final assessment, and that any refund should be made within 90 days.

Individual exporter dumping margins The Agreement requires that, when anti-dumping duties are imposed, a dumping margin be calculated for each exporter. However, it is recognized that this may not be possible in all cases, and thus the Agreement allows investigating authorities to limit the number of exporters, importers, or products individually considered, and impose an anti-dumping duty on uninvestigated sources on the basis of the weighted average dumping margin actually established for the exporters or producers actually examined. The investigating authorities are precluded from including in the calculation of that weighted average dumping margin any dumping margins that are de minimis, zero, or based on the facts available rather than a full investigation, and must calculate an individual margin for any exporter or producer who provides the necessary information during the course of the investigation.

New shippers The Agreement makes provision for the assessment of anti-dumping duties on exports from producers or exporters who were not sources of imports considered during the period of investigation. In this circumstance, the investigating authorities are required to conduct an expedited review to determine a specific margin of dumping attributable to the exports of such a new shipper. While that review is in progress, the authorities may request guarantees or

withhold appraisement on imports, but may not actually collect anti-dumping duties on those imports.

Determination of injury and casual link Like product back to top Definition (Article 2.6) An important decision must be made early in each investigation to determine the domestic like product. Like product is defined in the Agreement as a product which is identical, i.e. alike in all respects to the product under consideration or, in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration. The determination involves first examining the imported product or products that are alleged to be dumped, and then establishing what domestically produced product or products are the appropriate like product. The decision regarding the like product is important because it is the basis of determining which companies constitute the domestic industry, and that determination in turn governs the scope of the investigation and determination of injury and causal link.

Domestic industry back to top Definition (Article 4) The Agreement defines the term domestic industry to mean the domestic producers as a whole of the like products or those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products.

Related domestic producers The Agreement recognizes that in certain circumstances, it may not be appropriate to include all producers of the like product in the domestic industry. Thus, Members are permitted to exclude from the domestic industry producers related to the exporters or importers under investigation, and producers who are themselves importers of the allegedly dumped product. The Agreement provides that a producer can be deemed related to an exporter or importer of the allegedly dumped product if there is a relationship of control between them, and if there is reason to believe that the relationship causes the domestic producer to behave differently from non-related producers.

Regional domestic industry

The Agreement contains special rules that allow in exceptional circumstances, consideration of injury to producers comprising a regional industry. A regional industry may be found to exist in a separate competitive market if producers within that market sell all or almost all of their production of the like product in that market, and demand for the like product in that market is not to any substantial degree supplied by producers of the like product located outside that market. If this is the case, investigating authorities may find that injury exists, even if a major proportion of the entire domestic industry, including producers outside the region, is not materially injured. However, a finding of injury to the regional industry is only allowed if (1) there is a concentration of dumped imports into the market served by the regional industry, and (2) dumped imports are causing injury to the producers of all or almost all of the production within that market.

Imposition of duties in regional industry cases If an affirmative determination is based on injury to a regional industry, the Agreement requires investigating authorities to limit the duties to products consigned for final consumption in the region in question, if constitutionally possible. If the Constitutional law of a Member precludes the collection of duties on imports to the region, the investigating authorities may levy duties on all imports of the product, without limitation, if anti-dumping duties cannot be limited to the imports from specific producers supplying the region. However, before imposing those duties, the investigating authorities must offer exporters an opportunity to cease dumping in the region or enter a price undertaking.

Injury back to top Types of injury The Agreement provides that, in order to impose anti-dumping measures, the investigating authorities of the importing Member must make a determination of injury. The Agreement defines the term injury to mean either (i) material injury to a domestic industry, (ii) threat of material injury to a domestic industry, or (iii) material retardation of the establishment of a domestic industry, but is silent on the evaluation of material retardation of the establishment of a domestic industry.

Basic requirements for determination of material injury The Agreement does not define the notion of material. However, it does require that a determination of injury must be based on positive evidence and involve an objective examination of (i) the volume of dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and (ii) the consequent impact of the dumped imports on domestic producers of the like product. Article 3 contains some specific additional factors to be considered in the evaluation of these two basic elements, but does not provide detailed guidance

on how these factors are to be evaluated or weighed, or on how the determination of causal link is to be made.

Basic requirements for determination of threat of material injury The Agreement sets forth factors to be considered in the evaluation of threat of material injury. These include the rate of increase of dumped imports, the capacity of the exporter(s), the likely effects of prices of dumped imports, and inventories. There is no further elaboration on these factors, or on how they are to be evaluated. The Agreement does, however, specify that a determination of threat of material injury shall be based on facts, and not merely on allegation, conjecture, or remote possibility, and moreover, that the change in circumstances which would create a situation where dumped imports caused material injury must be clearly foreseen and imminent.

Elements of analysis back to top Consideration of volume effects of dumped imports The Agreement requires investigating authorities to consider whether there has been a significant increase in the dumped imports, either in absolute terms or relative to production or consumption in the domestic industry. Consideration of price effects of dumped imports

Consideration of price effects of dumped imports In addition, the Agreement requires investigating authorities to consider whether there has been significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member. Investigating authorities are also required to consider whether the effect of dumped imports is otherwise to depress prices to a significant degree, or to prevent price increases, which otherwise would have occurred, to a significant degree.

Evaluation of volume and price effects of dumped imports The Agreement provides that no one or several of these factors can necessarily give decisive guidance. It does not specify how the investigating authorities are to evaluate the volume and price effects of dumped imports: merely that consideration of these effects is required. Thus, investigating authorities have to develop analytical methods for undertaking the consideration of these factors. Moreover, since no single factor or combination of factors will necessarily result in either an affirmative or negative determination, in each case investigating authorities have to evaluate which factors are relevant, and which are important, in light of the circumstances of the particular case at issue.

Examination of impact of dumped imports on the domestic industry The Agreement provides that, in examining the impact of dumped imports on the domestic industry, the authorities are to evaluate all relevant economic factors bearing upon the state of the domestic industry. The Agreement lists a number of factors which must be considered, including actual or potential declines in sales, profits, output, market share, productivity, return on investments, utilization of capacity, actual or potential effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments, and the magnitude of the margin of dumping. However, the list is not exhaustive, and other factors may be deemed relevant. In addition, the Agreement again specifies that no single factor or combination of factors will necessarily lead to either an affirmative or negative determination.

Demonstration of causal link The Agreement requires a demonstration that there is a causal relationship between the dumped imports and the injury to the domestic industry. This demonstration must be based on an examination of all relevant evidence. The Agreement does not specify particular factors or give guidance in how relevant evidence is to be evaluated. Article 3.5 does require, however, that known factors other than dumped imports which may be causing injury must be examined, gives examples of factors (such as changes in the pattern of demand, and developments in technology) which may be relevant, and specifies that injury caused by such other factors must not be attributed to dumped imports. Thus, the investigating authorities must develop analytical methods for determining what evidence is or may be relevant in a particular case, and for evaluating that evidence, taking account of other factors which may be causing injury.

Cumulative analysis Cumulative analysis refers to the consideration of dumped imports from more than one country on a combined basis in assessing whether dumped imports cause injury to the domestic industry. Obviously, since such analysis will increase the volume of imports whose impact is being considered, there is a greater possibility of an affirmative determination in a case involving cumulative analysis. The practice of cumulative analysis was the subject of much controversy under the Tokyo Round Code, and in the negotiations for the Agreement. Article 3.3 of the Agreement establishes the conditions in which a cumulative evaluation of the effects of dumped imports from more than one country may be undertaken. The authorities must determine that the margin of dumping from each country is not de minimis, that the volume of imports from each country is not negligible, and that a cumulative assessment is appropriate in light of the conditions of competition among the imports and between the imports and the domestic like product. De minimis dumping margins and negligible import volumes are defined in the Agreement.

Procedural requirements

Investigation back to top Initiation Agreement Article 5 of the Agreement establishes the requirements for the initiation of investigations. The Agreement specifies that investigations should generally be initiated on the basis of written request submitted by or on behalf of a domestic industry. This standing requirement includes numerical limits for determining whether there is sufficient support by domestic producers to conclude that the request is made by or on behalf of the domestic industry, and thereby warrants initiation. The Agreement establishes requirements for evidence of dumping, injury, and causality, as well as other information regarding the product, industry, importers, exporters, and other matters, in written applications for anti-dumping relief, and specifies that, in special circumstances when authorities initiate without a written application from a domestic industry, they shall proceed only if they have sufficient evidence of dumping, injury, and causality. In order to ensure that investigations without merit are not continued, potentially disrupting legitimate trade, Article 5.8 provides for immediate termination of investigations in the event the volume of imports is negligible or the margin of dumping is de minimis, and establishes numeric thresholds for these determinations. In order to minimize the trade-disruptive effect of investigations, Article 5.10 specifies that investigations should be completed within one year, and in no case more than 18 months, after initiation.

Conduct Article 6 of the Agreement sets forth detailed rules on the process of investigation, including the collection of evidence and the use of sampling techniques. It requires authorities to guarantee the confidentiality of sensitive information and verify the information on which determinations are based. In addition, to ensure the transparency of proceedings, authorities are required to disclose the information on which determinations are to be based to interested parties and provide them with adequate opportunity to comment. The Agreement establishes the rights of parties to participate in the investigation, including the right to meet with parties with adverse interests, for instance in a public hearing. Further guidance on the conduct of investigations is contained in two Annexes to the Agreement, which set forth rules for the on-the-spot investigations to verify information obtained from foreign parties, as well as rules for the use of best information available in the event a party refuses access to, or does not provide, requested information, or significantly impedes the investigation.

Provisional measures and price understandings back to top Imposition of provisional measures Article 7 of the Agreement provides rules relating to the imposition of provisional measures. These include the requirement that authorities make a preliminary affirmative determination of dumping, injury, and causality before applying provisional measures, and the requirement that no

provisional measures may be applied sooner than 60 days after initiation of an investigation. Provisional measures may take the form of a provisional duty or, preferably, a security by cash deposit or bond equal to the amount of the preliminarily determined margin of dumping. The Agreement also contains time limits for the imposition of provisional measures generally four months, with a possible extension to six months at the request of exporters. If a Member, in its administration of anti-dumping duties, imposes duties lower than the margin of dumping when these are sufficient to remove injury, the period of provisional measures is generally six months, with a possible extension to nine months at the request of exporters.

Price undertakings Article 8 of the Agreement contains rules on the offering and acceptance of price undertakings, in lieu of the imposition of anti-dumping duties. It establishes the principle that undertakings between any exporter and the importing Member, to revise prices, or cease exports at dumped prices, may be entered into to settle an investigation, but only after a preliminary affirmative determination of dumping, injury and causality has been made. It also establishes that undertakings are voluntary on the part of both exporters and investigating authorities. In addition, an exporter may request that the investigation be continued after an undertaking has been accepted, and if a final determination of no dumping, no injury, or no causality results, the undertaking shall automatically lapse.

Collection of duties back to top Imposition and collection of duties Article 9 of the Agreement establishes the general principle that imposition of anti-dumping duties is optional, even if all the requirements for imposition have been met. It also states the desirability of application of a lesser duty rule. Under a lesser duty rule, authorities impose duties at a level lower than the margin of dumping if this level is adequate to remove injury. In addition, the Agreement contains rules intended to ensure that duties in excess of the dumping margin are not collected, and rules for applying duties to new shippers.

Retroactive application of duties The Agreement sets forth the general principle that both provisional and final anti-dumping duties may be applied only as of the date on which the determinations of dumping, injury and causality have been made. However, recognizing that injury may have occurred during the period of investigation, or that exporters may have taken actions to avoid the imposition of an anti-dumping duty, Article 10 contains rules for the retroactive imposition of dumping duties in specified circumstances. If the imposition of anti-dumping duties is based on a finding of material injury, as opposed to threat of material injury or material retardation of the establishment of a domestic industry, anti-dumping duties may be collected as of the date provisional measures were imposed. If provisional duties were collected in an amount greater

than the amount of the final duty, or if the imposition of duties is based on a finding of threat of material injury or material retardation, a refund of provisional duties is required. Article 10.6 provides for retroactive application of final duties to a date not more than 90 days prior to the application of provisional measures in certain exceptional circumstances involving a history of dumping, massive dumped imports, and potential undermining of the remedial effects of the final duty.

Review and public notice back to top Duration, termination, and review of anti-dumping measures Article 11 of the Agreement establishes rules for the duration of anti-dumping duties, and requirements for periodic review of the continuing need, if any, for the imposition of antidumping duties or price undertakings. These requirements respond to the concern raised by the practice of some countries of leaving anti-dumping duties in place indefinitely. The sunset requirement establishes that dumping duties shall normally terminate no later than five years after first being applied, unless a review investigation prior to that date establishes that expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. This five year sunset provision also applies to price undertakings. The Agreement requires authorities to review the need for the continued imposition of a duty upon request of an interested party.

Public notice Article 12 sets forth detailed requirements for public notice by investigating authorities of the initiation of investigations, preliminary and final determinations, and undertakings. The public notice must disclose non-confidential information concerning the parties, the product, the margins of dumping, the facts revealed during the investigation, and the reasons for the determinations made by the authorities, including the reasons for accepting and rejecting relevant arguments or claims made by exporters or importers. These public notice requirements are intended to increase the transparency of determinations, with the hope that this will increase the extent to which determinations are based on fact and solid reasoning. QUESTION10

What is International Marketing Strategy?

Marketing can simply be defined as an organizational function and a set of processes for creating, communicating and delivering the value to the customers and managing the customer relationships in such a way that is beneficial for both the customers as well as the stakeholders. At international level, marketing can simply be defined as the process of finding out the needs of customers in foreign countries and then providing them the required entities at right place and at right price.

international level, but some modifications are always required. Only a few multinational organizations are lucky enough to use the same marketing strategy in the whole world, for examplea pen manufacturing organization that uses a marketing slogan finest writing in the world will not be required to change its marketing slogan in any part of world. But a majority of multinational organizations need to modify or specifically formulate theirmarketing strategy at the international level. QUESTION 7 A customs Union is a group of countries committed to: - removing all barriers to the free flow of goods and services between each other, and - the pursuit of a common external trade policy. The establishment of a common external trade policy necessitates significant administrative machinery to oversea trade relations with nonmembers. The NAFTA and EU for example are Custom Unions. However there are more steps towards full economic and political integration. They are Common Market, followed by Economic Union (EU), and the last is a Political Union, however a Political Union does not exist yet. And the effect of this is greater economic and political integration between states, which results into more peace and cooperation, which is good :)