Free «One Afternoon at the United States International Trade Commission» Essay

One Afternoon at the United States International Trade Commission

(1) Summary

The case under analysis is the discussion of the investigation TA-201-55 regarding non-rubber footwear, which took place at the United States International Trade Commission. The main concern was about the existing comparative advantage of foreign countries in footwear production. The staff admitted that the existing situation was the result of the fact that the comparative advantage of the country was in the production of goods with a high ratio of capital to labor while footwear industry involved mostly labor-intensive processes with less financial costs. It was the fourth footwear case under consideration; and a number of steps had already been taken in attempt to improve the situation. Nevertheless, domestic industry had generally shown poor productivity that resulted in closing some of the unprofitable plants.

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Therefore, some additional measures that the Commission could recommend to the President to improve the existing situation included several possible recommendations.

(2) Recommendations

Recommendation 1. To introduce an overall limit on imports of 474 million pairs except for imported shoes at the value below $2.50 per pair.

Recommendation 2. To gradually intensify the limitation on imports according to a five-years Quota plan.

Recommendation 3. To launch the sale of import licenses through the auctioning system.

(3) Assessment

Each of the given recommendations has its strengths and weaknesses.

Thus, following the first recommendation would increase domestic footwear production and domestic sales correspondingly. Also, it would make the import share drop while domestic employment would rise.

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Nevertheless, it would not change the basic conditions of the competition that footwear industry faces. This step would not have immediate effect; certain time period is needed for it to impact the existing situation. Besides, it would reduce the possibility for consumers to purchase less expensive shoes.

In its turn, the second measure would give the footwear industry a short period of relief and time to reduce the competitive advantage of the imported footwear. Gradual intensifying of the limitations would make the process less painful both for producers and consumers. Still, it should be taken into consideration that this step itself would not remedy the damage that exists in this branch of economics since footwear producers would need to involve certain financial, intellectual and technical resources to benefit.

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The third measure would shorten the list of possible importers because some of them would be unable to cover such additional expenses. It would draw additional capital that could be used to subsidize footwear industry modernization. Also, finances spent on buying import licenses would increase prices for imported shoes and that, in its turn, would make prices for domestically produced footwear more competitive. Unfortunately, this measure might also influence negatively some groups of consumers who used to buy cheaper imported footwear.

Therefore, to make the right decision, the suggested recommendations should be accepted or declined on the basis of thorough cost/benefit analysis.

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