Name: Muhammad Adeel Qayum Shaikh
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Managerial Exercise 2
The Asian country of Tamoa imports large quantities of down pillows each year. DownPillow, a US company, would like to do more business there, but it has a problem. Tamoa has a large number of regulations affecting importation and the sale of down bedding. After reading the following five regulations, evaluate their legality and their impact on DownPillow. What course of action should DownPillow take?
1. Pillows made from down harvested from Tamoan flocks may be labeled as ‘goose down’ even though they contain up to 25 percent duck down, (Down is taken from both geese and ducks, but duck down is considered inferior). If the pillow is made from foreign down, then a pillow labelled ‘goose down’ may contain no more than 5 percent duck down. US regulations recognize that geese and ducks often get plucked together and therefore permit goose down to contain up to 10 percent down duck. DownPillow believes the 10 percent tolerance is reasonable, but given farming methods in most countries it is not possible to sort out the geese and the ducks any better than that. Tamoa believes that the stricter standard for imported pillows is justified to protect Tamoan consumers from fraud, and because Tamoan farmers do not raise any ducks, the 25 percent domestic standard is irrelevant anyway.
Ans: DownPillow should look at procurement rules that protect foreign firms from government favoring domestic producers. They can ask the USTR to present the case to WTO if the domestic standard is irrelevant. Also, the MFA agreement can work in DownPillow’s favor to get restrictions reduced.
2. Tamoa also requires that the cotton coverings of all pillows be certified to meet certain ecology and human health standards for textiles, they may not contain any harmful chemicals such as chlorine, and they must be tested to minimum standards set by the International Organization for Standardization. Certifications are accepted from testing labortaries in any country. US regulations don’t require certification.
Ans; According to the principle of less restrictive trade, these regulations may not be used more than necessary, and unless they are trade neutral. DownPillow can also bring the WTO agreement on Sanitary and Unsanitary restrictions into light that do not allow imposing of such standards if they restrict trade.
3. All pillow imports must be inspected on arrival in Tamoa. No inspects are permitted at the foreign factory. Taomoa has one inspector who must remove down from at least three pillows from every shipment and subject it to laboratory analysis. Given the current backlog, inspections are taking up to 4 weeks, during which pillows can be damaged by humid weather.
Ans: This certainly makes DownPillow suffer a loss. They should bring the WTO agreements on notice that do not allow such inspection to take place if it is making imports too restrictive.
4. Tamoan restrictions also require DownPillow’s plant to be inspected, and the sterilization process to be approved by officials. In the US, the down is sanitized and washed, and subjected to hot air. But the Tamoan ministry refused to accept sterilization permits, and approvals from state health department in the US. Tamoa doesn’t pay the overseas travel expenses of its inspectors.
Ans: This violates the fair trade practices and agreements such as the MFA. Tamoa’s exports to the US will suffer if they continue this practice. According to fair trade rules set by the WTO, the sterilization process can be relaxed and permits by the US health department can be accepted if trade is being harmed.
5. Tamoan regulations prohibit pillows and comforters from being vacuum packed and compressed for shipment to ensure the down is not damaged in the shipment. DownPillow ships smaller orders by air freight and larger orders by ocean container.
Ans. DownPillow can envoke the clause of the WTO that prohibiting these two items from being compressed or vacuum packed prevents damage to them, as the WTO doesn’t encourage such policies unless they are backed by scientific evidence.
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