ali abdeen assignment

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Semester Summer, 2020

Assessment week Week 2

Course International Marketing Management

Course Code MKT 420

Section O1

Assessment Individual Assignment 2

Assessment weight 15%

Faculty Name Dr. Marsela Thanasi

To be completed by the student

Student Name : Student ID :

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World Trade Goes Bananas Read the mini case “World Trade Goes Bananas” and answer the questions accordingly.

Rather than bruising Chiquita Bananas, the wrath of politics instead hammered Prosciutto di Parma

ham from Italy, handbags from France, and bath oils and soaps from Germany. These and a host

of other imported products from Europe were all slapped with a 100 percent import tariff as

retaliation by the U.S. government against EU banana-import rules that favored Caribbean bananas

over Latin American bananas. Keep in mind that no bananas are exported from the United States,

yet the United States has been engaged in a trade war over the past seven years that has cost

numerous small businesses on both sides of the Atlantic millions of dollars. But how can this be,

you ask? Politics, that’s how!

One small business, Reha Enterprises, for example, sells bath oil, soaps, and other supplies

imported from Germany. The tariff on its most popular product, a herbal foam bath, was raised

from 5 percent to 100 percent. The customs bill for six months spiraled to $37,783 from just

$1,851—a 1,941 percent tax increase. For a small business whose gross sales are less than $1

million annually, it was crippling. When Reha heard of the impending “banana war,” he called

everyone—his congressperson, his senator, and the United States Trade Representative (USTR).

When he described his plight to the USTR, an official there expressed amazement. “They were

surprised I was still importing,” because they thought the tariff would cut off the industry entirely.

That was their intention, which of course would have meant killing Reha Enterprises as well.

In effect, he was told it was his fault that he got caught up in the trade war. He should have attended

the hearings in Washington, just like Gillette and Mattel, and maybe his products would have been

dropped from the targeted list, just as theirs were. Scores of European products, from clothing to

stoves to glass Christmas ornaments, dolls, and ballpoint pens that were originally targeted for the

retaliatory tariffs escaped the tariff. Aggressive lobbying by large corporations, trade groups, and

members of Congress got most of the threatened imported products off the list. The USTR had

published a list of the targeted imports in the Federal Register, inviting affected companies to

testify. Unfortunately, the Federal Register was not on Reha’s reading list.

In that case, he was told, he should have hired a lobbyist in Washington to keep him briefed. Good

advice—but it doesn’t make much sense to a company that grosses less than $1 million a year.

Other advice received from an official of the USTR included the off-the-record suggestion that he

might want to change the customs number on the invoice so it would appear that he was importing

goods not subject to the tariff, a decision that could, if he were caught, result in a hefty fine or jail.

Smaller businesses in Europe faced similar problems as their export business dried up because of

the tariffs.

How did this banana war start? The European Union imposed a quota and tariffs that favored

imports from former colonies in the Caribbean and Africa, distributed by European firms, over

Latin American bananas distributed by U.S. firms. Chiquita Brands International and Dole Food

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Company, contending that the EU’s “illegal trade barriers” were costing $520 million annually in

lost sales to Europe, asked the U.S. government for help. The government agreed that unfair trade

barriers were damaging their business, and 100 percent tariffs on selected European imports were

levied. Coincidentally, Chiquita Brands’ annual political campaign contributions increased from

barely over $40,000 in 1991 to $1.3 million in 1998.

A settlement was finally reached that involved high tariffs on Latin America bananas and quotas

(with no tariffs) on bananas from Europe’s former colonies. But the bruising over bananas

continued, and not in a straightforward way! In 2007 the issue shifted to banana bending. That is,

bananas from Latin America tend to be long and straight, while those from the non-tariff countries

are short and bent. Because the latter are not preferred by the shippers or retailers (the bendier ones

don’t stack as neatly and economically), the bananas from the former colonies were still not

preferred. And new regulations were adopted by the European Commission that mandated that

bananas must be free from “abnormal curvature of the fingers.” So the bendy banana producers

threatened to renege on the whole agreement. Circa 2007 everyone involved found this prospect

very unappealing.

The tale does have a happy ending though. In 2009, after marathon meetings among all parties in

Geneva, the 16-year banana split was finally healed: The European Union cut import tariffs on

bananas grown in Latin America by U.S. firms.

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Answer the questions:

1. What does this trade dispute reveal about the relationship between politics and global

business? (30 marks) 150 words

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2. How could Reha Enterprises have legally mitigated the effects of this trade war on their

business? (30 marks) 150 words

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3. What important lessons does this “Banana War” teach business owners about global

trade? (40 marks) 150 words