test 2

Five things an international business can do to make sure that ethical issues are considered in a business decision(IMPLICATIONS FOR MANAGERS)

(1) favor hiring and promoting people with a well grounded sense of personal ethics; (2) build an organizational culture that places a high value on ethical behavior; (3) make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric; (4) put decision making processes in place that require people to consider the ethical dimension of business decisions; (5) develop moral courage.

code of ethics

a formal statement of the ethical priorities a business adheres to

Free trade

a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country

subsidy

a government payment to a domestic producer

Tariff Rate Quota

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

The Naïve Immoralist

asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

tariff

a tax levied on imports (or exports) that effectively raises the cost of imported (or exported) products relative to domestic products

Rights theories

a twentieth-century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures

Administrative trade polices

bureaucratic rules that are designed to make it difficult for imports to enter a country. The effect of these polices is to hurt consumers by denying access to possibly superior foreign products

dumping motivations

dumping is viewed as a method by which firms unload excess production in foreign markets. Alternatively, some dumping may be the result of predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market. Once this has been achieved the predatory firm can raise prices and earn substantial profits.

Environmental Issues

ethical issues arise when environmental regulations in host nations are inferior to those in the home nation

Business ethics reflects personal ethics

generally accepted principles of right and wrong governing the conduct of individuals

political union

independent states are combined into a single union. The EU is on the road to at least partial political union. The United States provides an example of even closer political union.

Specific tariffs

levied as a fixed charge for each unit of a good imported

ad valorem tariffs

levied as a proportion of the value of the imported good

subsidy drawbacks

many subsidies are not that successful at increasing the international competitiveness of domestic producers. Moreover, consumers typically absorb the costs of subsidies.

Utilitarian approaches

moral worth of actions or practices is determined by their consequences. An action is judged to be desirable if it leads to the best possible balance of good consequences over bad consequences.

ETHICAL ISSUES IN INTERNATIONAL BUSINESS

most common ethical issues involve employment practices, human rights, environmental regulations, corruption, and the moral obligation of multinational companies

tragedy of the commons

occurs when a resource held in common by all, but owned by no one, is overused by individuals resulting in its degradation (deforestation, animal extinction, depletion of natural resources)

Andean Pact

originally formed in 1969, was based on the EU model, but was far less successful in achieving its stated goals. By the mid-1980s, the Andean Pact had more or less failed. However, in the late 1980s, Latin American governments began to adopt free market economic policies, and in 1990, the Andean Pact was relaunched. The renamed Andean Community now operates as a customs union, and in 2003, it signed an agreement with MERCOSUR to restart negotiations towards the creation of a free trade area between the two trading blocs.

Treaty of Lisbon

ratified in 2009 gives all member states more power to the European Parliament, which will effectively become the co-equal legislator for almost all European laws.

infant industry argument(ECONOMIC reason for trade restrictions)

suggests that an industry should be protected until it can develop and be viable and competitive internationally. Unless an industry is allowed to develop and achieve minimal economies of scale, foreign competitors may undercut prices and prevent a domestic industry from developing. The infant industry argument has been accepted as a justification for temporary trade restrictions under the WTO.

ethics

refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization

social responsibility(right way for a business to behave)

refers to the idea that business people should take the social consequences of economic actions into account when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences

organization culture

refers to the values and norms that are shared among employees of an organization

ROOTS OF UNETHICAL BEHAVIOR

the determinants of ethical behavior include personal ethics, decision making processes, leadership, unrealistic performance expectations, and organizational culture.

quota rent

the extra profit that producers make when supply is artificially limited

Who suffers and who gains from tariffs?

the government gains, because the tariff increases government revenues. Domestic producers gain, because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods. Consumers lose since they must pay more for certain imports.

Rawl's Theory of Justice

- Protect the weakest in society - Counters utilitarianism - "Original position" and "veil of ignorance(everyone is imagined to be ignorant of all his or her particular characteristics)"

1947-1979: GATT, Trade Liberalization, and Economic Growth

-After WWII, the U.S. and other nations realized the value of freer trade, and established the General Agreement on Tariffs and Trade (GATT) -The approach of GATT (a multilateral agreement to liberalize trade) was to gradually eliminate barriers to trade. Over 100 countries became members of GATT, and worked together to further liberalize trade.

THE CASE AGAINST REGIONAL INTEGRATION

-Although the tide has been running strongly in favor of regional free trade agreements in recent years, some economists have expressed concern that the benefits of regional integration have been oversold, while the costs have often been ignored. -Whether regional integration is in the economic interests of the participants depends upon the extent of trade creation as opposed to trade diversion. TRADE CREATIONS: occurs when low cost producers within the free trade area replace high cost domestic producers. TRADE DIVERSION: occurs when higher cost suppliers within the free trade area replace lower cost external suppliers. A regional free trade agreement will only make the world better off if the amount of trade it creates exceeds the amount it diverts.

Organization Culture and Leadership(3 things)

-First, the business must explicitly articulate values that place a strong emphasis on ethical behavior -Second, leaders in the business should give life and meaning to the code of ethics by repeatedly emphasizing its importance, and then acting on it -Third, the business should put in place a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not.

free trade area

-all barriers to the trade of goods and services among member countries are removed. In a theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between member nations. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. -The most enduring free trade area in the world is the European Free Trade Association (EFTA). EFTA currently joins four countries-Norway, Iceland, Liechtenstein, and Switzerland. Other free trade areas include the North American Free Trade Agreement (NAFTA).

common market

-also has no barriers to trade between member countries and a common external trade policy. Unlike in a customs union, in a common market, factors of production also are allowed to move freely between members. Thus, labor and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between markets. -Currently, MERCOSUR, the South America grouping that includes Brazil, Argentina, Paraguay, Venezuela, and Uruguay, is aiming to eventually establish itself as a common market.

economic union

-entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production between members and the adoption of a common external trade policy. Unlike a common market, a full economic union also requires a common currency, harmonization of the member countries' tax rates, and a common monetary and fiscal policy. -The European Union (EU) is an economic union, although an imperfect one since not all members of the EU have adopted the euro, the currency of the EU, and differences in tax rates across countries still remain.

European Union (EU

-is the product of two political factors: first, the devastation of two world wars on Western Europe and the desire for a lasting peace, and second, the European nations' desire to hold their own on the world's political and economic stage. -The forerunner of the EU was the European Coal and Steel Community, which had the goal of removing barriers to trade in coal, iron, steel, and scrap metal formed in 1951. The European Community was formed in 1957 at the TREATY OF ROME. While the original goal was for a common market, progress was generally very slow. Over the years the EU expanded in spurts, as well as moved towards ever-greater integration -Today, the EU has 28 members, a population of almost 500 million, and a GDP of €11 trillion. Map 8.1 in the text shows the current membership of the EU. Most recently, Turkey has expressed a desire to join the EU. However, at this time, there appears to be considerable resistance to the idea among many EU countries.

customs union

-one step further along the road to full economic and political integration. A customs union eliminates trade barriers between member countries and adopts a common external trade policy. -Customs unions around the world include the current version of the Andean Pact (between Bolivia, Columbia, Ecuador, and Peru).

Political Arguments for Intervention

-protecting jobs, protecting industries deemed important for national security, retaliating against unfair foreign competition, protecting consumers from "dangerous" products, furthering the goals of foreign policy, and protecting the human rights of individuals in exporting countries

Straw men approaches to business ethics

1) Friedman doctrine 2) Cultural relativism 3) Righteous Moralist 4) Naive immoralist

problems with the infant industry argument

1. How long is temporary? 2. How can firms become competitive if they are protected from foreign competition 3. this argument is not relevant for mature, industrialized economies like the U.S. Some industries that are just plain inefficient and uncompetitive have argued they are still infants after 50 years

Universal Declaration of Human Rights

A 1948 statement in which the United Nations declared that all human beings have rights to life, liberty, and security regardless of the culture in which one is doing business

just distribution

A distribution that is considered fair and equitable.

Straw Man

A fallacy that occurs when a speaker chooses a deliberately poor or oversimplified example in order to ridicule and refute an idea.

Enlargement of the European Union

A number of countries, , particularly from Eastern Europe, have applied for membership in the EU. In December of 2002, the EU formally agreed to accept the applications of 10 countries that joined on May 1, 2004. Their inclusion expanded the EU to 25 states, creating an EU population of 450 million people, and a single continental economy with a GDP of €11 trillion. In 2007, the EU welcomed its newest members, Bulgaria and Romania.

The Uruguay Round and the World Trade Organization

Against the background of rising protectionist pressures, in 1986 GATT members embarked on their eighth round of negotiations to reduce tariffs (called the Uruguay Round). This was the most ambitious round to date.

stakeholders

All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address.

Costs of Euro

Another drawback of the euro is that the EU is not what the economists would call an optimal currency area. An optimal currency area is an area where similarities in the underlying structure of economic activities make it feasible to adopt a single currency and use a single exchange rate as an instrument of macro-economic policy. Many of the European economies in the euro-zone, however, are very dissimilar.

Opportunities

B) Creation of a single market offers significant opportunities because markets that were formerly protected from foreign competition are opened. C) The greatest implication for MNEs is that the free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes, makes it possible for them to realize potentially enormous cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal. By specialization and the shipping of goods between locations, a much more efficient web of operations can be created. D) On the other hand, even after the removal of barriers to trade and investment, enduring differences between nations in culture and competitive practices often limit the ability of companies to realize cost economies by centralizing production in key locations and producing a standardized product for a single multi-country market.

The North American Free Trade Agreement (NAFTA)

B) The United States, Canada, and Mexico established the North American Free Trade Agreement (NAFTA) in 1994. NAFTA's Contents C) The free trade agreement between the United States, Canada, and Mexico contains the following actions: • abolishes by 2004, tariffs on 99 percent of the goods traded between Mexico, Canada, and the United States, • removes most barriers on the cross-border flow of services, • protects intellectual property rights, • removes most restrictions on FDI between the three member countries, • allows each country to apply its own environmental standards, provided such standards have a scientific base, • establishes two commissions with the power to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored.

Protecting Human Rights(political reason for trade restrictions)

Concern over human rights in other countries plays an important role in foreign policy. Governments sometimes use trade policy to improve the human rights policies of trading partners. Governments also use trade policies to put pressure on governments to make other changes. Unless a large number of countries choose to take such action, however, it is unlikely to prove successful. Some critics have argued that the best way to change the internal human rights of a country is to engage it in international trade. The decision to grant China most favored nation status was based on this philosophy.

Protecting Consumers(political reason for trade restrictions)

Consumer protection can also be an argument for restricting imports. The Country Focus suggests that the European Union's concern over beef was, in part, due to an interest in protecting consumers. Since different countries do have different health and safety standards, what may be acceptable in one country may be unacceptable in others.

Cultural Relativism

Cultural relativism is the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate, or in other words, "when in Rome, do as the Romans do."

One notable trend in the global economy in recent years has been the accelerated movement toward regional economic integration. Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Despite the rapid spread of regional trade agreements designed to promote free trade, there are those who fear that the world is moving toward a situation in which a number of regional trade blocks compete against each other. In this scenario of the future, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs.

Retaliation(political reason for trade restrictions)

Government intervention in trade can be used as part of a "get tough" policy to open foreign markets. By taking, or threatening to take, specific actions, other countries may remove trade barriers. But when threatened governments do not back down, tensions can escalate and new trade barriers may be enacted.

1980-1993: Protectionist Trends

During the 1980s and early 1990s the world trading system as "managed" by GATT came under strain. First, Japan's economic strength and huge trade surplus stressed what had been more equal trading patterns, and Japan's perceived protectionist (neo-mercantilist) policies created intense political pressures in other countries. Second, persistent trade deficits by the United States, the world's largest economy, caused significant economic problems for some industries and political problems for the government. Third, many countries found that although limited by GATT from utilizing tariffs, there were many other more subtle forms of intervention that had the same effects and did not technically violate GATT (e.g. VERs).

Smoot-Hawley Act (1930)

Established high tariffs —designed to protect domestic producers from foreign competition—resulted in depressed world economy —anti-free trade.

societal culture(cause of unethical behavior)

Ethical policies may differ by country

Threats

F) Just as the emergence of single markets in the EU and North America creates opportunities for business, it also presents a number of threats. For one thing, the business environment within both groups will become more competitive. A further threat to non-EU and/or non-North American firms arises from the likely long-term improvements in the competitive position of many European and North American companies. G) Another threat to firms outside of trading blocks is the threat of being shut out of the single market by the creation of a "trade fortress." Finally, firms may be limited in their ability to pursue the strategy of their choice in the EU as the EU increases its willingness and ability to intervene and impose conditions on companies proposing mergers and acquisitions.

moral compass questions

First, does my decision fall within the accepted values of standards that typically apply in the organizational environment? Second, am I willing to see the decision communicated to all stakeholders affected by it? Third, would the people with whom I have significant personal relationships approve of the decision?

Justice Theories

Focus on the attainment of a just distribution of economic goods and services There is no one theory of justice, and several theories of justice conflict with each other in important ways

Association of Southeast Asian Nations

Formed in 1967, the Association of Southeast Asian Nations (ASEAN) currently includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam (see Map 8.3 in the text). The basic objectives of ASEAN are to foster freer trade between member countries and to achieve some cooperation in their industrial policies. C) In 2003, an ASEAN Free trade Area (AFTA) between the six original members of ASEAN came into effect. Vietnam, Laos, and Myanmar joined later, and Cambodia is expected to be a member by 2010. The goal of AFTA is to reduce import tariffs among the six original members by 2010, and for the newer members by 2015.

Domestic Politics

Governments do not always act in the national interest when they intervene in the economy. Instead special interest groups may influence governments. Thus, a further reason for not embracing strategic trade policy, according to Krugman, is that such a policy is almost certain to be captured by special interest groups within an economy, who will distort it to their own ends.

Expanding Trade Agreements

In 1997, 68 countries that account for more than 90 percent of world telecommunications revenues pledged to open their markets to foreign competition and to abide by common rules for fair competition in telecommunications. Similarly, 102 countries pledged to open to varying degrees their banking, securities, and insurance sectors to foreign competition. Like the telecommunications deal, the agreement covers not just cross-border trade, but also foreign direct investment.

Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good. These economists believe that in a country where preexisting political structures distort or limit the workings of the market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to government bureaucrats to "speed up" approval for business investments may actually enhance welfare.

In contrast, other economists have argued that corruption reduces the returns on business investment and leads to low economic growth.

Policy Implications

In general, international firms have an incentive to lobby for free trade, and keep protectionist pressures from causing them to have to change strategies. While there may be short-term benefits to having governmental protection in some situations, in the long run these can backfire and other governments can retaliate.

A New Round of Talks: Doha

In late 2001, the WTO launched a new round of talks at Doha, Qatar. The agenda includes cutting tariffs on industrial goods and services, phasing out subsidies to agricultural producers, reducing barriers to cross-border investment, and limiting the use of anti-dumping laws.

Chp. 9 summary

In this chapter, the topic of regional economic integration is explored. The levels of regional economic integration discussed (from least integrate to most integrated) include: a free trade area, a customs union, a common market, an economic union, and a full political union. The arguments for and against regional economic integration are provided. Many students will remember some of these arguments from the debate of the ratification of the North American Free Trade Agreement (NAFTA). The chapter also provides information about the major trade blocks of the world, including the European Union, NAFTA, the Andean Group, MERCOSUR, and several other Latin American and Asian trade alliances. In addition, the implications for business of these trade agreements and others are fully discussed.

Retaliation and Trade War

Krugman argues that strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries. A country that attempts to use such policies will probably provoke retaliation.

Leadership(cause of unethical behavior)

Leaders are vital in helping a firm establish its organization culture, and setting examples. If leaders are not acting ethically, other employees may not act ethically.

DEVELOPMENT OF THE GLOBAL TRADING SYSTEM

Many governments recognize the value of unrestricted free trade, but are hesitant to unilaterally lower their trade barriers in case other countries do not follow suit. Since World War II, and international trading framework has evolved that enables governments to negotiate a set of rules to govern cross-border trade and lower trade barriers. For the first 50 years, the framework was known as the General Agreement on Tariffs and Trade (GATT). More recently, it has been known as the World Trade Organization (WTO).

The Friedman Doctrine

Nobel Prize winning economist's Milton Friedman's classic position on business ethics is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law. He rejects the idea that businesses should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business.

Free Trade of the Americas

On April 1998, 34 heads of state traveled to Santiago, Chile for the second summit of the Americas where they formally inaugurated talks to establish a FTAA (Free Trade of The Americas) by 2005. While an agreement was not reached, the continuing talks have addressed a wide range of economic, political, and environmental issues related to cross-border trade and investment. N) At the moment, there are two major stumbling blocks preventing an agreement. First, the United States wants the southern countries to agree to tougher enforcement of intellectual property rights and lower manufacturing tariffs. Second, Brazil and Argentina want the United States to reduce agricultural subsidies, and eliminate tariffs on agricultural imports. O) If the FTAA is established, it will have major implications for cross-border trade and investment flows within the hemisphere. The FTAA would create a free trade area of over 850 million people who accounted for $16 trillion in GDP in 2007.

Furthering Foreign Policy Objectives(political reason for trade restrictions)

On occasion, governments will use trade policy to support their foreign policy objectives. One aspect of this is to grant preferential trade terms to countries that a government wants to build strong relations with. Trade policy has also been used several times as an instrument for pressuring punishing "rogue states" that do not abide by international laws or norms. In recent years the United States has imposed trade restrictions against Libya, Iran, Iraq, North Korea, Cuba, and other countries where governments were pursuing policies that were not viewed favorably by the U.S. government. A serious problem with using trade as an instrument of foreign policy is that other countries can undermine any unilateral trade sanctions. The U.S. Congress has passed two acts, the HELMS-BURTON ACT and the D'AMATO ACT, in an effort to protect American companies from such actions.

Services and Intellectual Property

One goal was to expand beyond the regulation of manufactured goods and address trade issues related to services and intellectual property, and agriculture.

The Case against NAFTA

Opponents of NAFTA argued that jobs would be lost and wage levels would decline in the United States and Canada, Mexican workers would emigrate north, pollution would increase due to Mexico's more lax standards, and Mexico would lose its sovereignty.

The Case for NAFTA

Proponents of NAFTA have argued that it will provide economic gains to all countries: Mexico will benefit from increased jobs as low cost production moves south, and will attain more rapid economic growth as a result. The United States and Canada will benefit from the access to a large and increasingly prosperous market and from the lower prices for consumers who buy goods produced in Mexico. In addition, U.S. and Canadian firms with production sites in Mexico will be more competitive on world markets

National Security(political reason for trade restrictions)

Protecting industries because they are important for national security is another argument for trade restrictions. The U.S. government protects industries like steel, aerospace, and electronics, on the basis of this argument, and has made special arrangements to protect the semiconductor industry

Rawls suggests that under these conditions, people would unanimously agree on two fundamental principles of justice. First, that each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others, and second, that once equal basic liberty is assured, inequality in basic social goods is to be allowed only if it benefits everyone.

Rawls formulates what he calls the difference principle, which is that inequalities are justified if they benefit the position of the least advantaged person

The Economic Case for Integration

Regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the World Trade Organization.

REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS

Regional economic integration is on the rise in the Americas. The North American Free Trade Agreement (NAFTA) is the most significant attempt. Other efforts include the Andean group and MERCOSUR. In addition, there are plans to establish a hemisphere wide Free Trade Area of the Americas (FTAA.)

Human Rights

Rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are by no means universally accepted

Dumping

Selling goods in another country below cost of production or market prices

NAFTA: The Results so Far

Studies of NAFTA's impact to date suggest that its initial effects were at best muted, and both advocates and detractors may have been guilty of exaggeration. The most significant impact of NAFTA may not have been economic, but rather political. The agreement has helped to create the background for increased political stability in Mexico.

The Future: Unresolved Issues and the Doha Round

Substantial work still remains to be done on the international trade front. Four issues on the current agenda of the WTO are the rise of anti-dumping policies, the high level of protectionism in agriculture, the lack of strong protection for intellectual property rights in many nations, and continued high tariffs on nonagricultural goods and services in many nations.

strategic trade policy

Suggests that in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages. Strategic trade policy also suggests that governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage.

The WTO in Seattle: A Watershed?

The 1999 meeting of the WTO in Seattle was important not only for what happened between the member countries, but also for what occurred outside the building. Inside, members failed to agree on how to work toward the reduction of barriers to cross-border trade in agricultural products and cross-border trade and investment in services. Outside, the WTO became a magnet for various groups protesting free trade.

Asian Pacific Economic Cooperation (APEC)

The Asia-Pacific Economic Cooperation (APEC) currently has 21 members including such economic powerhouses as the United States, Japan, and China. The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.

The Establishment of the Euro

The Maastricht Treaty, signed in 1991, committed the EU to adopt a single currency, the euro, by January 1, 1999. The euro is now used by 19 of the 28 member states. By adopting the euro, the EU has created the second largest currency zone in the world after that of the U.S. dollar. For now, three EU countries, Britain, Denmark, and Sweden, are opting out of the euro-zone. -Euro notes and coins were not actually issued until January 1st, 2002. In the interim, national currencies circulated in each of the 12 countries. However, in each participating state the national currency stood for a defined amount of euros.

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

The Organization for Economic Cooperation and Development (OECD) adopted the convention which obliges member states to make the bribery of foreign public officials a criminal offense in 1997

The Stimulus for the Single European Act

The Single European Act was born out of frustration among EC members that the community was not living up to its promise. In the early 1980s, many of the EC's prominent businesses people mounted an energetic campaign to end the EC's economic divisions. The result was the Single European Act, which was independently ratified by the parliaments of each member country and became EC law in 1987. -(i) the removal of all frontier controls between EC countries, (ii) mutual recognition of standards to apply the principle of "mutual recognition," which is that a standard developed in one EC country should be accepted in another, provided it meets basic requirements in such matters as health and safety, (iii) open public procurement to non-national suppliers, (iv) financial services to lift barriers to competition in the retail banking and insurance businesses, (v) the removal of all restrictions on foreign exchange transactions between members by the end of 1992, (vi) the abolishment of all restrictions on cabotage (the right of foreign truckers to pick up and deliver goods within another member's borders), by the end of 1992.

The Single European Act

The Single European Act, adopted by the EU member nations in 1987, committed the EC countries to work toward establishment of a single market by December 31, 1992.

Protectionism in Agriculture

The WTO is concerned with the high level of tariffs and subsidies in the agricultural sector of many economies. However, the advanced countries of the world defend the current system because they want to protect their producers from lower-cost producers from developing nations.

Market Access for Nonagricultural Goods and Services

The WTO would like to bring down tariff rates on nonagricultural goods and services, and reduce the scope for the selective use of high tariff rates. The hope is that at some point, rates would move to zero.

Protecting Intellectual Property

The agreement to protect intellectual property (TRIPS) obliges WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. The basis for this agreement was a strong belief among signatory nations that the protection of intellectual property rights is an essential element of the international trading system.

Political Structure of the European Union

The four main institutions of the EU are the EUROPEAN COMISSION (responsible for implementing aspects of EU law and monitoring member states to ensure they are complying with EU laws), tTHE COUNCIL OF THE EUROPEAN UNION, (the ultimate controlling authority within the EU), THE EUROPEAN PARLIMENT, (debates legislation proposed by the commission and forwarded to it by the council), and the COURT OF JUSTICE, (the supreme appeals court for EU law).

The Political Case for Integration

The political case for integration has two main points: 1) by linking countries together, making them more dependent on each other, and forming a structure where they regularly have to interact, the likelihood of violent conflict and war will decrease, and 2) by linking countries together, they have greater clout and are politically much stronger in dealing with other nations

The Righteous Moralist

The righteous moralist approach to business ethics claims that a multinational's home country standards of ethics are the appropriate ones for companies to follow in foreign countries. The main criticism of the righteous moralist approach is that its proponents go too far.

Benefits of Euro

There are a number of reasons why the Europeans decided to establish a single currency in the EU. First, they believe that business and individuals will realize significant savings from having to handle one currency, rather than many. Second, and perhaps most importantly, the adoption of a common currency will make it easier to compare prices across Europe. Third, faced with lower prices European producers will be forced to look for ways to reduce their production costs in order to maintain their profit margins. Fourth, the introduction of a common currency should give a strong boost to the development of a highly liquid pan-European capital market. Finally, the development of a pan-European euro denominated capital market will increase the range of investment options open both to individuals and institutions.

Regional Trade Blocs in Africa

There are nine trade blocs on the African continent, however progress toward the establishment of meaningful trade blocs has been slow.

Impediments to Integration

There are two main impediments to integration. First, although economic integration benefits the majority, it has costs. Although a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. A second impediment to integration arises from concerns over national sovereignty.

Central American Common Market and CARICOM

There are two other trade pacts in the Americas: the Central American Common Market (between Costa Rica, El Salvador, Guatemala, Honduras, the Dominican Republic, and Nicaragua) and CARICOM (includes the English-speaking countries of the Caribbean), although neither has made much progress as yet. K) In 2005, an agreement was reached between the United States and the members of the Central American Common Market. The agreement, known as the Central American Free Trade Agreement (CAFTA), is designed to lower trade barriers between the United States and the six countries on most goods and services. L) In 2006, six members of CARICOM established the Caribbean Single Market and Economy (CSME) with the goal of lowering trade barriers, and harmonizing macro-economic and monetary policy between member states.

Anti-Dumping Actions

There has been a proliferation of antidumping actions in recent years, perhaps because of the rather vague definition of what constitutes dumping. The WTO is encouraging members to strengthen the regulations governing the imposition of antidumping duties.

Trade Barriers and Firm Strategy

Trade barriers are a constraint upon a firm's ability to disperse its productive activities. First, trade barriers raise the cost of exporting products to a country. Second, voluntary export restraints (VERs) may limit a firm's ability to serve a country from locations outside that country. Third, to conform to local content requirements, a firm may have to locate more production activities in a given market than it would otherwise. All of the above effects are likely to raise the firm's costs above the level that could be achieved in a world without trade barriers. In addition, the threat of antidumping action could limit the ability of a firm to use aggressive pricing as a way to gain market share.

From Smith to the Great Depression

Up until the Great Depression of the 1930s, most countries had some degree of protectionism. Great Britain, as a major trading nation, was one of the strongest supporters of free trade.

Protecting jobs and industries(political reason for trade restrictions)

Usually this results from political pressures by unions or industries that are threatened by more efficient foreign producers, and have more political clout than the consumers who will eventually pay the costs

The World Trade Organization

When the WTO was established, its creators hoped the WTO's enforcement mechanisms would make it a more effective policeman of the global trade rules than the GATT had been. The WTO encompassed GATT along with two sister organizations, the General Agreement on Trade in Services (GATS) and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

import quota

a direct restriction on the quantity of some good that may be imported into a country

Ethics Officers

a number of firms now have ethics officers who are responsible for making sure all employees are trained to be ethically aware, that ethical considerations enter the business decision-making process, and that the company's code of ethics is followed

Voluntary Export Restraint (VER)

a quota on trade imposed by the exporting country, typically at the request of the importing country's government EX: Japan imposed a VER on its auto exports into the U.S. as a result of American pressure in the 1980s. The VER subsequently gave the U.S. auto industry some protection against a flood of foreign competition.

ethical strategy

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

Business ethics

accepted principles of right or wrong governing the conduct of business people

Kantian ethics

based on the philosophy of Immanuel Kant who argued that people should be treated as ends and never purely as means to the ends of others

Decision Making Processes(cause of unethical behavior)

business people sometimes do not realize that they are behaving unethically simply because they fail to ask the relevant question—is this decision or action ethical?

Corporations contribution to the global tragedy of commons

by moving production to locations where they are free to pump out pollutants into the environment, thereby harming these valuable global commons. The question here is whether the decision to do so, while perhaps legal, is ethical.

Employment Practices

critical ethical issue facing companies doing business in a foreign country involves employment practices. When work conditions in a host nation are clearly inferior to those in a multinational's home nation,

unethical organization culture(cause of unethical behavior)

de-emphasizes business ethics, reducing all decisions to the purely economic

local content requirement

demands that some specific fraction of a good be produced domestically. As with import quotas, local content requirements benefit domestic producers, but consumer face higher prices

personal ethical code(cause of unethical behavior)

guides our behavior comes from a number of sources, including our parents, our schools, our religion, and the media

MERCOSUR

originated in 1988 as a free trade pact between Brazil and Argentina. In 1990 it was expanded to include Paraguay and Uruguay. In 2005, Venezuela joined the bloc. MERCOSUR made some progress on reducing trade barriers between member states, however, given some fairly high tariffs for goods from other countries, it would appear that in some industries MERCOSUR is trade diverting rather than trade creating, and local firms are investing in industries that are not competitive on a worldwide basis. As of 2008, critics of the bloc suggested that the customs union was becoming more imperfect over time.

Foreign Corrupt Practices Act

outlawed the practice of paying bribes to foreign government officials in order to gain business in the USA

Antidumping polices(also known as countervailing duties)

policies designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from "unfair" foreign competition.

Unrealistic Performance Expectations(cause of unethical behavior)

pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner

Ethical dilemmas

situations in which none of the available alternatives seems ethically acceptable

Ethics from an international business perspective

some argue that what is ethical depends upon one's cultural perspective

Moral Courage

the will to stand up for what is right, regardless of personal cost(It is important to recognize that employees in an international business may need significant moral courage.)

REGIONAL ECONOMIC INTEGRATION IN EUROPE

there are two trade blocks in Europe: the European Union (EU) and the European Free Trade Association. Of the two, the EU is by far the more significant, not just in terms of membership, but also in terms of economic and political influence in the world economy.

Types of arguments FOR GOVERNMENT INTERVENTION

there are two types of arguments for government intervention, political and economic. Political arguments for intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers). Economic arguments for intervention are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers).