Case Study 1

The small island state of Boga which comprises about 2 million inhabitants has recently been recovering from a civil war. Boga suffered serious economic decline throughout the period of the civil war. The country’s companies and other businesses also closed down as the civil war disrupted manufacturing. Its infrastructure was also totally damaged. Following the war, the incumbent government of Boga is striving hard to rebuild the country back up and give hope to its citizens. The government is doing this with the assistance of external donors, including the government of Canada and Canadian non-governmental institutions.

To stimulate the economy and create a fresh start, the government of Boga is providing various incentives to businesses in the country to enable them hire staff, train them and produce goods for both the domestic economy and the international marketplace. One of the companies receiving assistance from the government of Boga is Syntax Electricals which produces light bulbs and other electrical items. The assistance that the government of Boga provides to Syntax – over five million dollars for an initial 4-year period – is helping the company to rebuild their factory which was destroyed during the civil war as well as to cover production costs so that the citizens of the country can buy Syntax’s products at cheap rates. To ensure that Syntax has sufficient leverage to produce enough electrical products for Boga’s domestic economy, the government has provided additional tax incentives for the company and also placed restrictions on imports of electrical products, such that only licensed companies in Boga can import those products into the country.

Because of the incentives it receives from the government of Boga, Syntax can sell its products at cheaper prices both domestically and internationally. Products of other electrical companies are unable to compete with Syntax because of the basement rates at which it sells its products. For example, while its costs Syntax $4.00 to produce a single led bulb, they sell it at the rate of $3.00 in Boga. Among the countries that Syntax exports its electrical products is Vietnam where Syntax’s products are competing with those locally manufactured in Vietnam. Syntax’s led bulbs are sold in Vietnam at the rate of $2.50. The Vietnamese manufacturers – whose led bulbs are sold at the average rate of $5.00 each – are worried that they may be unable to compete with Syntax whose electrical products come in cheaper than those manufactured in Vietnam. They are of the strong opinion that Syntax is dumping its led bulbs in Vietnam. Both Boga and Vietnam are members of the World Trade Organization.

Answer the following questions –

[1] What is dumping? Do you agree with the Vietnamese electrical products manufacturers that Syntax is dumping its led bulbs in the Vietnamese market. What actions can the government of Vietnam take under the WTO rules to protect its companies from Syntax’s alleged dumping actions? (7.5%)

[2] Would you consider Boga government’s incentives to Syntax Electricals to be unfair trade practice? If yes, describe the unfair trade practice involved, and especially what makes it unfair. (7.5%)