IMT – 16: INTERNATIONAL TRADE - MT2

PART – A

Q1. With the help of examples describe the gains from international trade. 

Q2. What are the recent trends in world trade? 

Q3. Discuss the reasons for the increase in international trade in developing regions.

Q4. Explain the comparative advantage theory of international trade. 

Q5. Briefly describe the mercantilism theory of international trade. 

PART – B

 Q1. Critically examine the Heckscher–Ohlin theory of international trade.

Q2. Explain the non-tariff barriers of international trade.

Q3. Briefly describe Raymond Vernon’s theory of international product life cycle and international trade.

Q4. What are the benefits and lessons of trade liberalization in India?

Q5. What role is played by MNCs in the host country? Explain with reference to the Indian economy. 

PART – C

Q1. What are the benefits of use of letter of credit in international transactions? Explain the steps and parties involved in the operation of letter of credit.

Q2. What are the reasons for disequilibrium in balance of payments? State the methods to adjust the deficit.

Q3. State the significance for compilation of the balance of payments by a country.

Q4. How does IMF help in promotion of international trade?

Q5. What is the role of SAPTA in promotion of trade in the region?

CASE STUDY – I

New United Motor Manufacturing, Inc. (NUMMI) is an automobile manufacturing plant in Fremont, California, opened in 1984 and closed in 2010. NUMMI was established at the site of a former GM site that had been closed two years earlier. The factory which NUMMI took over was built by General Motors (GM) and operated by them from 1962 to 1982. GM and Toyota reopened the factory as a joint venture in 1984 to manufacture vehicles to be sold under both brands.

The idea of reopening the plant emerged out of the need that GM had to build high-quality and profitable small cars and the need Toyota had to start building cars in the United States, a requirement due to the possibility of import restrictions by the U.S. Congress. GM saw the joint venture as an opportunity to learn about lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to implement its production system in an American labor environment.

The choice of the Fremont plant and its workers was unusual. At the time of its closure, the Fremont employees were "considered the worst workforce in the automobile industry in the United States", according to the United Auto Workers. Employees drank alcohol on the job, were frequently absent (enough so that the production line couldn't be started), and even committed petty acts of sabotage such as putting "Coke bottles inside the door panels, so they'd rattle and annoy the customer." In spite of the history and reputation, when NUMMI reopened the factory for production in 1984, most of the troublesome GM workforce was rehired, with some sent to Japan to learn the Toyota Production System.

By December 1984, the first car, a yellow Chevrolet Nova rolled off the assembly line. And almost right away, the NUMMI factory was producing cars with as few defects per 100 vehicles as those produced in Japan. But 15 years later, GM had still not been able to implement lean manufacturing in the rest of the United States, though GM managers trained at NUMMI were successful in introducing the approach to its unionized factories in Brazil. Up to May 2010, NUMMI built an average of 6000 vehicles a week, or nearly eight million cars and truck.

The first model NUMMI produced was the Chevrolet Nova (1984–1988). This was followed by the Geo Prizm (1989–1997), the Chevrolet Prizm (1998–2002) and the Hilux (1991–1995, predecessor of the Tacoma), as well as the Toyota Voltz, the Japanese right-hand drive version of the Pontiac Vibe. Both of the latter are based on the Toyota Matrix. Production of the Pontiac Vibe hatchback was discontinued in August 2009 as GM phased out the Pontiac brand. Beginning in September 1988, the NUMMI plant produced the Toyota Corolla compact car. In 1995, it began producing the Toyota Tacoma pickup truck.

On June 29, 2009, General Motors announced that they would discontinue the joint venture with Toyota. The announcement was made following GM CEO Fritz Henderson announcing in April that General Motors would discontinue the Pontiac Vibe production at NUMMI. The two automakers were in discussions but could not find a suitable product to be produced at the factory. “After extensive analysis, GM and Toyota could not reach an agreement on a future product plan that made sense for all parties,” GM North America President Troy Clarke said in a statement. "Toyota’s hope was to continue the venture and we haven’t yet decided any plans at the factory,” said Hideaki Homma, Toyota’s Tokyo-based spokesman. “While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota.” Before GM decided to sever its stake in the NUMMI joint venture, Toyota was considering offering a version of its Prius hybrid to GM that would be built at the factory and sold as a GM model but Toyota indicated that it was seriously considerin exiting the venture also.

On August 27, 2009, Toyota announced that it would discontinue its production contract with NUMMI, shifting Tacoma production to its San Antonio, Texas pickup plant and Corolla assembly to Cambridge, Ontario. A total of 5,400 employees will be affected, including 4,550 UAW hourly workers.

GM pulled out of the venture in June 2009, and several months later Toyota announced plans to pull out by March 2010. At 9.40am on April 1, 2010, the plant produced its last car, a red Toyota Corolla S believed to be destined for a museum in Japan. On May 20, 2010, it was announced that Tesla Motors purchased a part in the NUMMI plant and will be collaborating with Toyota on the "development of electric vehicles, parts, and production system and engineering support". The plant International will first be used to produce the Tesla Model S sedan with "future vehicles" following in the coming years. The plant will be producing 20,000 vehicles a year and employ 1000 workers to start.

Questions

1. Why did Toyota prefer joint venture rather than exporting, to enter US market? What were the reasons for GM to enter into the joint venture and finally to discontinue it?

2. Why did GM select Fremont, California, automobile manufacturing plant for NUMMI? 

3. What are the other modes of entry that Toyota could have selected to enter US market?

CASE STUDY – II

Unfair Protection and Valid Defense

“Mexico Widens Anti-Dumping Measure … Steel at the Core of US-Japan Trade Tensions … Competitors in other Countries Are Destroying an American Success Story … It must be Stopped”, scream the headlines around the world. International trade theories argue that nations should open their doors to trade. Conventional free trade wisdom says that by trading with others, a country can offer its citizens a greater volume of goods at cheaper prices than it could in the absence of it. Nevertheless, truly free trade still does not exist because national governments intervene. Despite the efforts of the World Trade organization (WTO) and smaller group of nations governments seem to be crying foul in the trade game now more than ever before.

We see efforts at protectionism in the rising trend in governments charging foreign producers for “dumping” their goods on world markets. Worldwide, the number of antidumping cases that were initiated stood at about 150 in 1995, 225 in 1996, 230 in 1997 and 300 in 1998. There is no shortage of similar examples. The United States charges Brazil, Japan and Russia with dumping their products in the US market as a way out of tough economic times. The US Steel industry wants the government to slap a 200 per cent tariff on certain types of steel. But car makers in the Unites State are not complaining, and General Motors even spoke out against the anti-dumping charge-as it is enjoying the benefits of low-cost steel for use I n its auto-production. Canadian steel makers followed the lead of the United States and are pushing for antidumping actions against four nations.

Emerging markets, too, are jumping into the fray. Mexico recently expanded the coverage of its Automatic Import Advise System. The system requires the importers (from a list of countries) to notify Mexican officials of the amount and price of shipment ten days prior to its expected arrival in Mexico. The ten days notice gives domestic producers advance warning of incoming loe-priced products so they can complain of dumping before the products clear customs and enter the marketplace. India is also getting onboard by setting up a new government agency to handle anti-dumping cases. Even Argentina, China, Indonesia, South Africa, South Korea and Thailand are using this recently – popularised tool of protectionism.

Why is dumping on the rise in the first place? The WTO has made major inroads on the use of tariffs, slashing them across almost every product category in recent years. But the WTO does not have the authority to punish companies, but only governments. Thus, the WTO cannot pass judgements against individual companies that are dumping products in other markets. It can only pass rulings against the government of the country that imposes an anti-dumping duty. But the WTO allows countries to retaliate against nations whose producers are suspected of duping when it can be shown that: (1) the alleged offenders are significantly hurting domestic producers, and (2) the export price is lower than the cost of production or lower than the home-market price.

Supporters of antidumping tariffs claim that they prevent dumpers from undercutting the prices charged by producers ina target market and driving the out of business. Another claim in support of antidumping is is that it is an excellent way of retaining some protection against potential dangers of totally free trade. Detractors of antidumping charge that once such tariffs are imposed they are rarely remove. They also claim that it costs companies and governments a great deal of time and money to file or argue their cases. It is also argued that the fear of being charged with dumping causes international competitors to keep their prices higher than would otherwise be the case. This would allow domestic companies to charge higher prices and not lose market share-forcing consumers to pay more for their goods.

Questions

1. WTO cannot punish individual companies for dumping and can only take actions against individual countries. Is this a wise policy? Why or why not?

2. Why is protectionism on the rise in recent years?