International BusinessEnvironments and OperationsfIfteenth edItIon

John D. Daniels • Lee H. Radebaugh • Daniel P. Sullivan

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Chapter 5 Trade and Factor Mobility Theory 269

13 For a discussion of ways in which the theory does not fit the reality of trade, see Antoni Estevadeordal and Alan M. Taylor, “A Century of Missing Trade?” The American Economic Review 92:1 (2002): 383–93. For a study supporting the theory, see Yong-Seok Choi and Pravin Krishna, “The Factor Content of Bilateral Trade: An Empirical Test,” The Journal of Political Economy 112:4 (2004): 887–915.

14 See, for example, Donald R. Davis and David E. Weinstein, “An Account of Global Factor Trade,” The American Economic Review 91:5 (2001): 1423–53; Oner Guncavdi and Suat Kucukcifi, “Foreign Trade and Factor Intensity in an Open Developing Country: An Input-Output Analysis for Turkey,” Russian & East European Finance and Trade 37:1 (2001): 75–88.

15 See, for example, P. Krugman and A. J. Venables, “Globalization and the Inequality of Nations,” Quarterly Journal of Economics 110 (1995): 857–80.

16 See Paul Krugman, “Scale Economies, Product Differentiation, and the Patterns of Trade,” The American Economic Review 70 (1980): 950–59; James Harrigan, “Estimation of Cross-Country Differences in Industry Production Functions,” Journal of International Economics 47:2 (1999): 267–93.

17 Drusilla K. Brown and Robert M. Stern, “Measurement and Modeling of the Economic Effect of Trade and Investment Barriers in Services,” Title Review of International Economics 9:2 (2001): 262–86, discuss the role of economies of scale and trade barriers.

18 See Gianmarco I. P. Ottaviano and Diego Puga, “Agglomeration in the Global Economy: A Survey of the ‘New Economic Geography’,” The World Economy 21:6 (1998): 707–31; Gianmarco I. P. Ottaviano, Takatoshi Tabuchi, and Jacques-François Thisse, “Agglomeration and Trade Revisited,” International Economic Review 43:2 (2002): 409–35.

19 Stefan B. Linder, An Essay on Trade Transformation (New York: Wiley, 1961).

20 Dirk Pilat, “The Economic Impact of Technology,” The OECD Observer 213 (August–September 1998): 5–8.

21 Anthony J. Venables, “Shifts in Economic Geography and Their Causes,” Economic Review—Federal Reserve Bank of Kansas City 91:4 (2006): 61–85, referring to work by R. Hausmann and D. Rodrik, “Economic Development as Self Discovery” (2003), Harvard Kennedy School work-ing paper.

22 Two discussions of intra-industry trade are: Don P. Clark, “Determinants of Intra-industry Trade between the United States and Industrial Nations,” The International Trade Journal 12:3 (Fall 1998): 345–62; H. Peter Gray, “Free International Economic Policy in a World of Schumpeter Goods,” The International Trade Journal 12:3 (Fall 1998): 323–44.

23 Daniel Michaels, “Landing Rights,” Wall Street Journal (April 30, 2002): A1+.

24 Lars Håkanson and Douglas Dow, “Markets and Networks in International Trade: On the Role of Distances in Globalization,” Management International Review 52:6 (2012): 761–90.

25 Christopher A. Bartlett, “Global Wine Wars: New World Challenges Old,” Harvard Business School Case 9-303-056 (July 21, 2003).

26 Terry Hall, “NZ Finds Pirated Varieties in Chile,” Financial Times (January 21, 1999): 24.

27 Anthony J. Venables, “Shifts in Economic Geography and Their Causes.” 28 Jeffrey A. Frankel and David Romer, “Does Trade Cause Growth?” The

American Economic Review 89:3 (June 1999): 379–99. 29 J. L. Gallup and J. Sachs, “Geography and Economic Development,”

in B. Pleskovic and J. E. Stiglitz, eds., Annual World Bank Conference on Development Economics (Washington, DC: The World Bank, 1998).

30 See Raymond Vernon, “International Investment and International Trade in the Product Life Cycle,” Quarterly Journal of Economics 80 (May 1996): 190–207; David Dollar, “Technological Innovation, Capital Mobility, and the Product Cycle in North–South Trade,” American Economic Review 76:1 (1986): 177–90.

31 This is true according to various indicators. See, for example, International Bank for Reconstruction and Development, “Science and Technology,” The World Development Indicators (Washington, DC: International Bank for Reconstruction and Development, 2000): 300.

32 Michael E. Porter, “The Competitive Advantage of Nations,” Harvard Business Review 68:4 (1990): 73–93.

33 Kiyohiko Ito and Vladimir Pucik, “R&D Spending, Domestic Competition, and Export Performance of Japanese Manufacturing Firms,” Strategic Management Journal 14 (1993): 61–75.

34 Jeremy Wiesen, “The U.S. Needs Its Own Industrial Policy,” Wall Street Journal (September 13, 2010): A19.

35 Hubert Schmitz, “Reducing Complexity in the Industrial Policy Debate,” Development Policy Review 25:4 (2007): 417–28.

36 Liviu-George, Ion Ignat, and Andre Teofil Postolachi, “Theoretical Controversies on Strategic Trade Policy,” Economy Transdisciplinarity Cognition15:1 (2012): 300–07.

37 Sonny Nwankwo and Darlington Richards, “Institutional Paradigm and the Management of Transitions: A Sub-Saharan African Perspective,” International Journal of Social Economics 31:1/2 (2004): 111.

38 Jeffrey Sachs, “Institutions Matter, but Not Everything,” Finance and Development (June 2003): 38–41.

39 Nwankwo and Richards, “Institutional Paradigm and the Management of Transitions,” 111.

40 Andrés Rodríguez-Clare, “Clusters and Comparative Advantage: Implications for Industrial Policy,” Journal of Development Economics 82 (2007): 43–57.

41 Paul Krugman and Alasdair M. Smith, eds., Empirical Studies of Strategic Trade Policies (Chicago: University of Chicago Press, 1993); Howard Pack and Kamal Saggi, “Is There a Case for Industrial Policy?” The World Bank Research Observer 21:2 (2006): 267.

42 Paul M. Sherer, “Thailand Trips in Reach for New Exports,” Wall Street Journal (August 27, 1996): A8.

43 Richard Brahm, “National Targeting Policies, High-Technology Industries, and Excessive Competition,” Strategic Management Journal 16 (1995): 71–91.

44 Andrea E. Goldstein and Steven M. McGuire, “The Political Economy of Strategic Trade Policy and the Brazil-Canada Export Subsidies Saga,” The World Economy 27:4 (2004): 541.

45 Theresa M. Greaney, “Strategic Trade and Competition Policies to Assist Distressed Industries,” The Canadian Journal of Economics 32:3 (1999): 767.

46 Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2008 Revision Highlights (New York: United Nations, 2009): xi.

47 “List of Countries by Foreign-Born Population,” en.wikipedia.org/wiki/List_of_countries_by_foreign-born_population_in_2005 (accessed February 1, 2013).

48 Sevil Sönmez, Yorghos Apostopoulos, Diane Tran, and Shantyana Rentrope, “Human Rights and Health Disparities for Migrant Workers in the UAE,” Health and Human Rights Vol 13, No 2 (2011).

49 Patrick Barta and Joel Millman, “The Great U-Turn,” Wall Street Journal (June 6–7, 2009): A1.

50 “Flight to Nowhere,” The Economist (March 2, 2013): 58–59. 51 Trends in International Migration, retrieved March 18, 2005, from oecd.

org/dataoecd/7/49/24994376. 52 Miriam Jordan, “Migrants’ Cash Keeps Flowing Home,” Wall Street

Journal (Online) [New York, N.Y] 23 Sep 2012: n/a.,” Wall Street Journal (Online) [New York, N.Y] 23 Sep 2012: n/a.

53 Paul M. Vaaler, “Immigrant Remittances and the Venture Investment Environment of Developing Countries,” Journal of International Business Studies 42:9 (December 2011): 1121–49.

54 Keith Head and John Ries, “Exporting and FDI as Alternative Strategies,” Oxford Review of Economic Policy 20:3 (2004): 409–29.

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270 part 3 Connecting Countries through Trade and Factor Movements

55 Andrew E. Kramer, Russian Farm, Chinese Farmer,” New York Times (September 11, 2012): B1+.

56 See Frank D. Bean et al., “Circular, Invisible, and Ambiguous Migrants: Components of Differences in Estimates of the Number of Unauthorized Mexican Migrants in the United States,” Demography 38:3 (2001): 411–22; United Nations Conference on Trade and Development, World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development (New York and Geneva: United Nations, 2000): 312.

57 Paul Windrum, Andreas Reinstaller, and Christopher Bull, “The Outsourcing Productivity Paradox: Total Outsourcing, Organisational Innovation, and Long Run Productivity Growth,” Journal of Evolutionary Economics 19:2 (2009): 197–229.

58 June Kronholtz, “Immigrant Labor or Machines?” Wall Street Journal (December 19, 2006): A4.

59 “March of the Lettuce Bot,” The Economist (December 1, 2012): monitor 5. 60 Sources include the following: LUKOIL Annual Report 2012, retrieved

October 14, 2013 from http://www.lukoil.com/materials/doc/Annual_Report_2012/Lukoil_GO_2012_eng.pdf; “Alliances, Acquisitions Key to LUKOIL Ambitions,” International Petroleum Finance (June 8, 2007): 1; “World; LUKOIL to Boost Investment in 2011,” Interfax: Ukraine Business Daily [Kiev], December 13, 2010; “Iran Claims Denied as LUKOIL Looks East,” NEFT Compass, September 16, 2010; Sabrina Tavernise and Peter S. Green, “Oil Concerns in Russia Branch Out,” New York Times (April 2, 2002): W1; Bhushan Bahree, “Western Oil Flirts with Russia Firms, Insider Says,” Wall Street Journal (April 29, 2002): A13; Reuters, “Mobius and Chevron Exec

Nominated for LUKOIL Board,” (January 17, 2002), www.highbeam.com/doc/1G1-81866356.html; Paul Starobin, “LUKOIL Is Lonesome,” Business Week Online, retrieved October 2, 2009, http://www.busi-nessweek.com/stories/2000-04-23/lukoil-is-lonesome-intl-edition; www.lukoil.com; Vidya Ram, “A More Refined Lukoil,” Forbes.com, retrieved October 2, 2009, www.forbes.com/2008/06/24/erg-lukoil-refining-markets-equity-cx_vr_0624markets11.html; “Focus, the Russians Are Coming,” Petroleum Economist (December 31, 2000); Andrew Jack and Arkady Ostrovsky, “LUKOIL in U.S. Petro Deal,” Financial Times (November 4, 2000): 8; David Ignatius, “The Russians Are Pumping,” Pittsburgh Post-Gazette (December 28, 2001): A-21; Tina Obut, “Perspective on Russia’s Oil Sector,” Oil & Gas Journal (February 1, 1999): 20; LUKOIL Annual Report, various years; “Event Brief of September 30: ConocoPhillips and LUKOil,” CCBN Wire Service (September 30, 2004); “LUKOIL Leading Peers in Adding to Production outside Russia,” Platts Oilgram News (April 13, 2004): 1; “Russia,” retrieved October 14, 2013, www.cia.gov/library/publications/the-world-factbook/geos/rs.html.

61 Paul Markillie, “Manufacturing the Future,” The Economist (special issue, the world in 2013, no date): 128.

62 “Print Me a Stradivarius,” The Economist (February 10, 2011), retrieved February 17, 2011, from www.economist.com/node/18114327?story_id=18114327&fsrc=nwl; J. M. Pearce, C. Morris Blair, K. J. Laciak, R. Andrews, R. Nosrat, and I. Zelenika-Zovko, “3-D Printing of Open Source Appropriate Technologies for Self-Directed Sustainable Development,” Journal of Sustainable Development 3:4 (December 2010): 17–29.

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Chapter 6trade protectionism

ObjeCtives

After studying this chapter, you should be able to

1. explain why governments try to enhance and restrict trade

2. show the effects of pressure groups on trade policies

3. Compare the potential and actual effects of government intervention on the free flow of trade

4. illustrate the major means by which trade is restricted and regulated

5. Demonstrate the business uncertainties and opportunities created by governmental trade policies

6. Discern how businesses may respond to import competition

7. Fathom how the growing complexity of products and trade regulations may affect the future

M06_DANI6795_15_GE_C06.indd 271 31/03/14 9:07 AM

grow much cotton, it will hold pumped-in water very well. Meanwhile, the Vietnamese production has some competitive advantages that enable it to export. To begin with, the win-terless Vietnamese climate permits the fish to grow faster. One Vietnamese catfish species, the tra, can go to the sur-face to breathe air; thus, fish can be grown in greater density. Further, U.S. governmental regulations limit the discharge of fishpond waters into rivers, whereas Vietnam has no restric-tions. This difference also allows for a greater density of pro-duction in Vietnam. Finally, labor rates are lower in Vietnam than in the United States, an important factor in the cost of filleting and freezing the fish.

The U.S. IndUSTry FIghTS Back

Changing Names Alarmed by market losses, U.S. cat-fish growers’ first defense was to convince their congres-sional representatives to push successfully in 2002 to disallow Vietnamese imports to be called “catfish.” Thus, Shakespeare’s “A rose by any other name would smell as sweet” was deemed not to be analogous for catfish. (Approximately 3,000 fish species fall into the overall fam-ily of catfish found mainly in freshwater places all over the world.) Because Vietnamese fish were of a different variety than those farmed in the United States, the Vietnamese vari-eties had to be imported as tra, basa, or pangasius. (The Maine lobster industry and European Union sardine fisheries were unsuccessful, respectively, in having Chilean langostino lobsters called crabs and Peruvian sardines called pilchards.) The U.S. producers reasoned that consumers, mainly in the Deep South, were not likely to buy some strange-sounding and unknown fish in lieu of the catfish that was part of their regular diet. Although the name change may have slowed the Vietnamese inroad, it did not prevent it. One of the prob-lems the U.S. industry encountered was that few U.S. locales have truth-in-menu laws. Thus, the names for tra, basa, and pangasius were changed on menus to be “catfish,” a more expensive grouper, or just plain “fish.” Clearly, the U.S. cat-fish producers needed a different means to stifle the imports.

In the meantime, the U.S. industry was also facing a problem of diminished profit because of increased costs. In essence, the price of corn and soybean feed was rising faster than costs could be pushed onto consumers. The rising costs were due to a combination of harvest shortfalls, increased grain demands in Asia, and the use of corn and soybeans to produce ethanol. In order to raise prices and increase demand, an association representing catfish growers, the

Catfish are the sixth most consumed seafood or fish product in the United States and have long been part of the U.S. Deep South diet.1 The U.S. industry is centered in poor areas of four states—Alabama, Arkansas, Louisiana, and Mississippi—which account for over 90 percent of U.S. production. At its height, it employed about 10,000 people. However, as imports (mainly from Vietnam) have increased and taken a larger share of the U.S. market (20 in 2005 versus 76 percent in 2011), U.S production has fallen. Meanwhile, the Vietnamese industry is also located in one of the poorer areas of the country, the Mekong Delta. (The opening photo shows small boats there.) It employs about 1 million people and accounts for about 2 percent of Vietnam’s economy. The changing competitive situation has spurred a dispute between the two countries as the U.S. catfish industry has sought means to limit the importation of Vietnamese catfish. (Map 6.1 shows the production areas in the two countries.)

The rISe oF aqUacUlTUre

Humans have always depended on marine life for part of their food consumption, and during most of history this marine life grew faster than humans could consume it. However, the last half century has seen such an increase in marine catch (overfishing) that the numbers of many species are not being replenished. This increase has been due to a higher world population coupled with technology that enables fishing ves-sels to locate and land fish like never before. The boats must now go farther offshore, which increases fuel consumption at the same time that fuel prices are rising. One factor counter-ing the overfishing has been the rise in aquaculture, or “fish farming.” (The 2012 global revenue from commercial fishing and aquaculture combined was about $370 billion.) The cat-fish industry in both the United States and Vietnam has been part of the aquaculture revolution. In other words, rather than being caught in the wild in nets or hooked on fish line, cat-fish are grown in ponds and harvested when they grow to a certain size. As this change has taken place, the catfish have ceased to be traditional scavengers; instead, they are fed corn and soybean feed. Catfish growers in the United States, in turn, have publicized the feeding change to promote sales to consumers who do not want to eat scavenger fish.

The VIeTnameSe adVanTage

The U.S. catfish industry has been developed largely by con-verting unproductive cotton lands to fishponds. Much of that land is so high in clay content that, although it will no longer

The U.S.–Vietnamese Catfish DisputeCaSe

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Chapter 6 Trade Protectionism 273

Catfish Institute, decided to change the fish’s name. Basically, the name “catfish” has had a negative con-notation for many people. (The catfish has been referred to in many ways over the years, including some ways that would be inappropriate in this textbook.) The Institute noted how name changing had recently helped sales of other previously unpopular fish, such as the slimehead becoming “orange roughy” and the Patagonian toothfish “Chilean sea bass.” After market testing various names, the Institute has decided on “delacata” as a name for premium catfish. At this writing, it is too early to tell if the change-of-name strategy will work or not.

Unfair Competition: Dumping Let’s get back to the import question. Because the U.S. industry was los-ing jobs and sales, it petitioned for increased taxes on the imported Vietnamese fish, claiming that they were being sold below the cost of production (dumping). Given that Vietnam is a command economy, it was difficult to establish what the true production costs were; however, these were estimated on the basis of Bangladesh production costs, and antidumping taxes (tariffs) of 64 percent were placed on the impor-tation of the fish. In 2013 the industry succeeded in having estimates based on higher Indonesian costs.

Health Arguments Despite the higher prices, the Vietnamese fish have kept increasing their share of the U.S. market. Then, in 2007, the U.S. catfish industry seemed to have found salvation when about 39,000 U.S. dogs and cats were sickened or killed after consuming imported Chinese pet food. This led to an alert and negative attitude toward imported food products in general, especially seafood originating anywhere in Asia. The U.S. catfish farmers responded quickly with several initiatives. First, they publicly implied that imported fish may be contaminated, such as when the Catfish Institute put out publicity say-ing, “U.S. farm-raised catfish: Safety you can trust.” The Institute has pushed for and gotten several states to require country-of-origin labeling on food and menus by advocating that consumers have the right to

map 6.1 areas of major U.S. and Vietnam catfish productionThe catfish production for both the United States and Vietnam are near deltas of major rivers, the Mississippi and the Mekong respectively. Both areas have a great deal of poverty.

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