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The focus of the DMA is direct marketing businesses, and it offers membership to companies as diverse as technology companies, service providers, and media businesses. The association assists businesses in becoming more efficient and up to date in their marketing endeavors by relying on accurate consumer data and adjust- ing to new technology. It also provides training and workshops for businesses to learn more about new features in marketing, as well as how to ethically implement marketing changes. The DMA has outlined several regulations for their members in a formal document called “the Code.” The Code highlights different rules on how members are to treat customers, as well as each other. It emphasizes the following core values: Respect privacy, be honest and fair, be diligent with data, and take responsibility. It also discusses benefits to members’ businesses, while emphasizing that the customer comes first. Transparency is a huge regulatory practice with DMA. For example, members are required to be honest and open about exactly who they are and what the data they collect will be used for. They must also provide a way for consumers to end future communication if the consumer so chooses.28

Self-regulatory programs like the BBB and DMA have a number of advantages over government regulation. The establishment and implementation of such programs are usually less costly, and their guidelines or codes of conduct are gener- ally more practical and realistic. Furthermore, effective self-regulatory programs reduce the need to expand government bureaucracy. However, self-regulation has several limitations. Nonmember firms are under no obligation to abide by a trade association’s industry guidelines or codes. Moreover, most associations lack the tools or authority to enforce their guidelines. Finally, these guidelines are often less strict than the regulations established by government agencies.

Global Regulation The twentieth century brought a number of regional trade agreements that decreased the barriers to international trade. NAFTA and the EU are two such alliances that were formed with the intention of enhancing regional competitiveness and decreas- ing inequalities. NAFTA, which eliminates virtually all tariffs on goods produced and traded between the United States, Canada, and Mexico, makes it easier for businesses of each country to invest in the other member-countries. The agreement also provides some coordination of legal standards governing business transactions among the three countries. NAFTA promotes cooperation among various regulatory agencies to encourage effective law enforcement in the free trade area. Within the framework of NAFTA, the United States and Canada have developed many agree- ments to enforce each other’s antitrust laws. The agreement provides for cooperation in investigations, including requests for information and the opportunity to visit the territory of the other nation in the course of conducting investigations. The pending United States-Mexico-Canada Agreement (USMCA), which is intended to modernize and replace NAFTA, also supports trade in North America.

The EU was established in 1958 to promote free trade among its members and now includes 28 European nations, with more expected to join in the coming years.29! However, in 2016, the United Kingdom (UK) voted to leave the EU. If the! separation takes place, it will take some years for it to occur. As shown in Table!4.3, these changes will likely have a profound impact on both the UK and the EU economy.

To facilitate trade among its members, the EU standardized business laws and trade barriers, eliminated customs checks among its members, and introduced the euro as a standard currency. Moreover, the Commission of the European Communities entered into an agreement with the United States, similar to NAFTA, regarding joint antitrust laws. The EU is in favor of tighter financial-market regulation in the wake of the most recent financial crisis. Proposals discussed by the European Commission include laws restricting proprietary trading at large

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Chapter 4 Business, Government, and Regulation 109

banks, revisions on rules regulating occupational pension funds, and improving benchmarks used as reference prices for financial instruments.30 However, not all countries in the EU agree on which reforms to adopt. Citizens in the United Kingdom disagreed on certain policies such as immigration and disliked the impact the EU’s financial struggles were having on the economy. This likely contributed to the Brexit vote to leave the EU. It is noteworthy that the vote won by only a slim margin—less than 4 percent.31

A company that engages in commerce beyond its own country’s borders must contend with the potentially complex relationship among the laws of its own nation, international laws, and the laws of the nation in which it will be trading, as well as restrictions imposed on international trade. International business activities are affected to varying degrees by each nation’s laws, regulatory agencies, courts, political environment, and special-interest groups. The EU, for example, has been tough on large businesses, leaving some critics in the United States to call the EU anticompetitive and anti-innovative. However, as regulations in the United States and the EU continue to be modified as a result of the 2008–2009 financial crisis, incongruences from each side can be seen. For example, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the United States mandated that large banks rely more on liquid capital than on debt for financing. While this mandate seems to reduce risks in the financial industry, those banks in the EU see this mandate as creating a competitive disadvantage. Financial firms have historically been held to the local standards of the country where business is conducted. EU regulators fear that this new capital requirement will restrict economic growth and give U.S. firms an advantage over those in the EU. They also cite potential issues regarding international trade.32

This example demonstrates how companies can experience major barriers when doing business in foreign countries. In addition to stricter regulations, countries can establish import barriers, including tariffs, quotas, minimum price levels, and port-of-entry taxes that affect the importation of products. Other laws govern product quality and safety, distribution methods, and sales and advertising practices.

Although there is considerable variation in focus among different nations’ laws, many countries have laws that are quite similar to those in the United States. Indeed, the Sherman Antitrust Act has been copied throughout the world as the basis for regulating fair competition. Antitrust issues, such as price fixing and

Table 4.3 Projected Impact of Brexit on the UK Annual Impact of Leaving the EU on the UK after 15 Years

(Difference from Being in the EU)

European Economic Area

Negotiated Bilateral Agreement

World Trade Organization

GDP level – central !3.8% !6.2% !7.5%

GDP level !3.4% to !4.3% !4.6% to !7.8% !5.4% to !9.5%

GDP per capita – central* !£1,100 !£1,800 !£2,100

GDP per capita* !£1,000 to !£1,200 !£1,300 to !£2,200 !£1,500 to !£2,700

GDP per household – central* !£2,600 !£4,300 !£5,200

GDP per household* !£2,400 to !£2,900 !£3,200 to !£5,400 !£3,700 to !£6,600

Net impact on receipts !£20 billion !£36 billion !£45 billion

Adapted from HM Treasury Analysis: The Long-Term Economic Impact of EU Membership and the Alternatives, April 2016; *Expressed in terms of 2015 GDP in 2015 prices, rounded to the nearest £100

Source: Will Kenton, “Brexit,” Investopedia, May 24, 2019, https://www.investopedia.com/terms/b/brexit.asp (accessed June 10, 2019).

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market allocation, have become a major arena of international cooperation in the regulation of business.33 Table 4.4 provides a list of situations and signs indicating that antitrust violations may become a concern.

Government’s Nonregulatory Influence on Business

Governments can have influence on business through nonregulatory actions without enforcement. Government can encourage industries to engage in self- regulation. The growth of voluntary civil regulations has advanced in the global economy. Civil regulations include pressures exerted in society to encourage and persuade organizations to address issues in the social and physical environments. For example, pressure is placed on firms to address sustainability. The widespread acceptance of fair trade, which addresses economic, social, and environmental inequalities, is an example of a nongovernment global initiative. Government often supports these types of global initiatives. Civil regulations include multishareholder codes and the involvement of nongovernmental organizations (NGOs).

Industry agreements include product certifications that can persuade govern- ment to decrease or avoid regulations. The key to avoiding formal regulations is to achieve assurance that businesses understand the formal regulatory environment and are addressing legal and ethical challenges. The government often provides resources and works with NGOs and businesses to reach standards and informa- tion to achieve best practices of appropriate conduct. As mentioned previously, the NAD independently evaluates the truth and accuracy of advertising. If an advertiser disagrees, they can appeal the decision. If not resolved, the FTC may evaluate and take action on the case. Therefore, the agency supports and cooper- ates with the NAD. National conferences include advertisers, NAD staff, and FTC staff. The Ethics & Compliance Initiative (ECI) educates and guides organizations on regulatory compliance, as well as best ethical practices. Government officials from regulatory agencies, such as the U.S. Department of Justice, often speak at their conferences.

civil regulations pressures exerted in society to encourage and persuade organizations to address issues in the social and physical environment

nongovernmental organizations (NGOs) nonprofit, citizen-based groups that function independent of government

Ethics & Compliance Initiative (ECI) a community of organizations that educates about regulatory compliance and best ethical practices

Table 4.4 Signs of Possible Antitrust Violations • Any evidence that two or more competing sellers of similar products have agreed to price their

products a certain way, to sell only a certain amount of their product, or to sell only in certain areas or to certain customers.

• Large price changes involving more than one seller of very similar products of different brands, particularly if the price changes are of an equal amount and occur at about the same time.

• Suspicious statements from a seller suggesting that only one firm can sell to a particular cus- tomer or type of customer.

• Fewer competitors than normal submit bids on a project.

• Competitors submit identical bids.

• The same company repeatedly has been the low bidder on contracts for a certain product or service or in a particular area.

• Bidders seem to win bids on a fixed rotation.

• There is an unusual and unexplainable large dollar difference between the winning bid and all other bids.

• The same bidder bids substantially higher on some bids than on others, and there is no logical cost reason to explain the difference.

Source: U.S. Department of Justice, “Antitrust Enforcement and the Consumer,” http://www.justice.gov/atr/public/div_ stats/antitrust-enfor-consumer.pdf (accessed June 17, 2016).

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