Assessing the Effects of Possible Trade Barriers
Savanta Company is based in the United States. Its sales of jewelry have consistently increased, primarily because the stones used in the production process are imported from the country of Ketraz at a very low cost. Savanta’s major competitions are U.S. companies that do not import their stones.
The country of Ketraz has a free trade agreement with the United States. In addition, Savanta company has an excellent business relationship with Ketraz, and even considered setting up a subsidiary in Ketras that would produce the jewelry in Ketraz before shipping the jewelry to the United States.
Recently, the government of Ketraz has received some negative publicity for not enforcing its child labor laws.
a) Why might the negative news about the government of Ketraz adversely affect Savanta Company’s business?
b) Assume that Savanta wishes to continue to rely on stones from Ketraz. Savanta Company cannot influence the government’s enforcement on child labor laws. Offer a possible solution for Ketraz that could possibly allow it to rely on stones from Ketraz while ensuring that its business with Ketra causes no violation of child labor laws in Ketraz.
c) Explain a possible disadvantage of your solution in answer b. In which it might stop one form of criticism but then be subject to another form of criticism