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Ethics is the study of morality and standards of conduct. It is important in the study
of international management because ethical behavior often varies from one
country to another. Ethics manifests in the ways societies and companies address
issues such as employment conditions, human rights, and corruption. A danger in
international management is the ethical relativism trapWhen in Rome, do as the
Romans do.
During the years ahead, multinationals likely will become more concerned about
being socially responsible. NGOs are forcing the issue. Countries are passing laws
to regulate ethical practices and governance rules for MNCs. MNCs are being
more proactive (often because they realize it makes good business sense) in making
social contributions in the regions in which they operate and in developing codes of
conduct to govern ethics and social responsibility. One area in which companies
have been especially active is pursing strategies that blend environmental
sustainability in business objectives.
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Chapter 03 - Ethics and Social Responsibility
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Chapter 03 - Ethics and Social Responsibility
Teaching Tip: The Institute for Global Ethics is an independent, nonprofit organization
dedicated to elevating public awareness and promoting the discussion of ethics in a global
context. The site provides links to a variety of ethics related material and is available at
{http://www.globalethics.org/}. Another excellent site is the Carnegie Council on Ethics
and International Affairs at {http://www.cceia.org/}.
1) There are a range of ethical theories and approaches around the world.
a) Kantian philosophical traditions argue that individuals and organizations have
responsibilities based on a core set of moral principles that go beyond those of narrow
self interest.
b) Aristotelian virtue ethics focus on core, individual behaviors and actions and how they
express and form individual character.
c) Utilitarianism favors the greatest good for the greatest number of people under a given
set of constraints.
d) Eastern philosophy views the individual as part of rather than separate from nature.
Teaching Tip: There is a fascinating web site dealing with global business ethics at
{http://www.globalethics.org}. One of the ongoing features of the site is a set of "ethical
dilemmas" that companies face in conducting business both domestically and overseas.
This site is well worth a visit to obtain interesting material for classroom discussion.
Human Rights
1) Human rights issues often come into question when dealing with MNCs as there is
currently no universally adopted standard.
a) Womens rights can be considered a subset of human rights as women continue to
strive for equality in the workplace. While the number of women in the workplace has
increased substantially worldwide, most are still experiencing the effects of a glass
ceiling, meaning that it is difficult, if not impossible, to reach the upper management
positions.
b) Japan may have more troubles than any other countries, but the glass ceiling is
pervasive throughout the world. Today, women earn less than men for the same job in
the United States, though a lot of progress has been made in this regard.
c) France, Germany, and Great Britain have seen an increase in the number of women
not only in the workforce but also in management positions.
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Chapter 03 - Ethics and Social Responsibility
2) The Environmental Kuznets Curve (EKC) hypothesizes that the relationship between per
capital income and the use of natural resources and/or emission of wastes increase with
income.
2) The Integrative Social Contracts Theory (ISCT) attempts to navigate a moral position that
does not force decision makers to engage exclusively in relativism versus absolutism.
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Chapter 03 - Ethics and Social Responsibility
1) Corporate social responsibility (CSR) can be defined as the actions of a firm to benefit
society beyond the requirements of the law and the direct interests of the firm.
a) Nongovernmental organizations (NGOs) are private, not-for-profit organizations that
seek to serve societys interests by focusing on social, political and economic issues
such as poverty, social justice, education, health, and the environment.
2) Civil Society, NGOs, MNCs, and Ethical Balance: The emergence of organizational
civil society and NGOs has dramatically altered the business environment globally and the
role of MNCs within it.
3) Response to Social Obligations: Agreements and codes of conduct are established for
MNCs to maintain a minimum level of social and environmental standards, both locally
and globally. Examples include the UN Global Compact, Global Reporting Initiative, and
ISO14000. These approaches ay also contribute to rising standards in the developing
world through the transfer of best practices to local firms.
a) Fair trade is an organized social movement and market-based approach that aims to
help producers in developing countries obtain better trading conditions and promote
sustainability.
4) Sustainability: In the boardroom, the term sustainability may first be associated with
financial investments or the hope of steadily increasing profits, but for a growing number
of companies, this term means the same to them as it does to an environmental
conservationist.
Corporate Governance
1) Corporate governance the system by which business corporations are directed and
controlled.
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Chapter 03 - Ethics and Social Responsibility
Corruption
International Assistance
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Chapter 03 - Ethics and Social Responsibility
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Chapter 03 - Ethics and Social Responsibility
Answer: None of these groups has a superior advantage over the others. However,
each is likely to be best equipped for certain roles and types of assistance. As we
progress toward more capitalism and free markets, MNCs are most likely to have
the financial resources and necessary tools to implement and publicize best
practices in social responsibility. More focused forms of assistance are likely to be
implemented by MNCs, such as those in the area of workplace standards. On the
other hand, NGOs possess the credibility and the global spread necessary for
addressing the needs of diverse stakeholders. Local governments are likely to
assume the role of adapting and overseeing coordination and application of
resources at the individual country level.
3. Do corporations have the responsibility to use their best ethics and social
responsibility when they do business in other countries, even if those countries
practices are different?
Answer: Answers may vary. Organizations have the obligation of being impartial in
implementing their business practices globally. In other words, corporate values and
standards should be established and followed, and taking advantage of cross-
country differentials in ethical practices should be avoided. The interests of various
stakeholders should guide decisions in grey areas. In general, with the increased
global awareness of ethical concerns, and the likely eventual local litigation and
global initiatives regarding the most pressing ethical issues, it seems to make better
business sense, both economically and politically, for organizations to be proactive
in their socially responsible initiatives.
4. How can companies leverage their ethical reputation and social and environmental
responsibility to improve business performance?
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Chapter 03 - Ethics and Social Responsibility
Key Terms
Corporate governance
Corporate and social responsibility (CSR)
Ethics
Fair trade
Nongovernmental organizations (NGOs)
Sustainability
1. How might different ethical philosophies influence how managers make decisions
when it comes to offshoring of jobs?
Answer: The Kantian approach would suggest that offshoring decisions be made in
accordance with a set of principles that measure the decision against core tenets
such as corporate code of conduct. The virtue theory would suggest that offshoring
decisions consider the effect of the decision on the community and other social
variables. The utilitarian approach would suggest that the benefits and costs of the
decision should be measured to ensure that the benefits outweigh the costs. The
eastern philosophical approach would suggest that broader, longer-term, more
integrative view that considers the impact of the decision on humans and also on
the environment.
2. What lessons can U.S. multinationals learn from the political and bribery scandals
in recent years, such as those affecting contractors doing business in Iraq
(Halliburton) as well as large MNCs such as Siemens, HP, and others? Discuss
two.
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Chapter 03 - Ethics and Social Responsibility
3. In recent years, rules have tightened such that those who work for the U.S.
government in trade negotiations are now restricted from working for lobbyists for
foreign firms. Is this a good idea? Why or why not?
Answer: Prohibiting those who represent the U.S. government in trade negotiations
from working as lobbyists for foreign firms can minimize the conflict of interest
that could occur with such rules. It would seem that an individual who is engaged
in both roles would naturally support trade policies that would improve the lot of
the firm that he or she is lobbying for. By restricting this type of situation, trade
negotiations can be on a more level playing field.
4. What are some strategies for overcoming the impact of counterfeiting? Which
strategies work best for discretionary (for instance, movies) versus nondiscretionary
(pharmaceutical) goods?
5. Why are MNCs getting involved in corporate social responsibility? Are they
displaying a sense of social responsibility, or is this merely a matter of good
business? Defend your answer.
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Chapter 03 - Ethics and Social Responsibility
1. Many firms, in addition to Johnson & Johnson and HP, are very proactive in terms
of social responsibility initiatives. Ask your students to search the web and find at
least three additional examples of firms that are heavily involved in social
responsibility initiatives. These initiatives are often referred to in a company's
home page on the Internet.
1. What are some current issues facing Saudi Arabia? What is the climate for doing
business in Saudi Arabia today?
Answer: The Gulf War probably did not help Saudi Arabia. Even though it
received help from the U.S., the whole region has suffered. The same applies to the
U.S.-led war in Iraq. On the economic front there is a shortage of Saudi skilled
workers for all types of jobs, and as a result, Saudi Arabia is forced to hire outsiders
who often have little patience or respect for Islamic customs. As Saudi schools and
universities graduate more technicians and professionals, there is a move by the
government to release some of the foreigners and develop and fund new projects in
order to provide full employment for their own newly educated people.
Many aspects of the Saudi economy appear vibrant, particularly in areas outside of
the petroleum sector. For example, exports to Saudi Arabia are on the upswing, and
many Saudi Arabian businesses are eager to seek out new U.S. firms to operate in
an attractive market. It seems that the market potential in Saudi Arabia is in areas
where U.S. firms in particular have distinct advantages. For example, there is high
demand in the Saudi market for anything in the medical sector, high-tech
agricultural equipment, computers, and service sector operations and maintenance.
A big challenge for Saudi Arabia and the Western world is in preserving a stable,
long-term market for the tremendous oil reserves of the country. The Saudi
government is currently encouraging privatization and joint ventures, and invites
competitive imports like automobile dealerships. Saudi Arabia will continue to
maintain good relations with the U.S., Japan, and Europe for mutual trade benefits
and continued development.
2. Is it legal for Auger's firm to make a payment of $100,000 to help ensure this
contract?
Answer: It is not legal under U.S. law for the firm to make such a payment.
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Chapter 03 - Ethics and Social Responsibility
American law strictly forbids such action even though it is being carried out in a
foreign environment. Even if Auger believes the minister, it is against the law for
the company to take any such action to increase the potential of winning the
contract.
3. Do you think other firms are making these payments, or is Auger's firm being
singled out? What conclusion can you draw from your answer?
Answer: This is a difficult question to answer. From what Auger's Saudi friend said
toward the end of the case, it is likely that other firms are not making payments
similar to the one being asked of Auger. Rather, his firm is being singled out.
Why? One reason may be that the company is going to get the contract and the
minister (and/or those he represents) would like to shake them down now before the
announcement is made. A second reason may be that the decision will take quite a
while and the minister (and/or those he represents) feels that this is a good time to
take advantage of the firm. In any event, there is no proof that the minister is
telling Auger the truth.
Answer: The company cannot and should not pay the money. There are two
reasons for this. First, it is illegal. Second, even if Auger was willing to break the
law, why should he? There is no proof that paying this money will have any value
in helping ensure the contract. In short, the company is probably being lied to by
the minister. It would be better off obeying the law and letting the chips fall where
they may.
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Chapter 03 - Ethics and Social Responsibility
1. If Scherer finds out that the French company has been paying its largest customer
$10,000 a month, should Brattle back out of the deal? If Brattle goes ahead with
the deal, should it continue to make these payments?
Answer: Brattle needs to do some research into how bribes, etc. are handled within
the French culture and where the law stands with regard to them. Unlike the U.S.,
bribes are customary in many countries. If they are in France, Brattle faces a
dilemma. If the Lyon firm has been showing acceptable profits over the past
several years, after the payments have been made to customers and charity, the
profits should be no different after the sale. It is a touchy issue legally too. Such
payments may be illegal and yet eyes are averted to French businesses that do it.
Would they also be ignored if an American firm paid them? Probably not. Bribery
is illegal in the U.S. and therefore Brattle cannot pay bribes and should back out.
2. If Scherer finds out that the customer has been making up the story and no such
payments were actually made, what should she do? What if this best customer says
he will take his business elsewhere?
Answer: Certainly, a conference with the French firm is called for to clarify just
what is going on. If this customer did not get such payments in the past, it is trying
to solicit a bribe through withholding of business.
Brattle needs to find out how much business the firm does with the potential
subsidiary, how much business is directed to the subsidiary, and whether it could
actually direct business away from Brattle. Once Scherer has actual figures and
information regarding what percent of sales this firm accounts for, he can make
some decisions. If the firm is not as powerful as he thinks, he can choose to ignore
the payment issue. If the firm is very important to annual revenues, he will have to
sit down and explain that he is unable to pay bribes and attempt to persuade the
customer that he will compete on the basis of price and service.
3. If Brattle buys the French subsidiary, should Scherer continue to give $5,000
monthly to the local community? Defend your answer.
Answer: Any firm doing business has obligations to the community it does business
in. The $5000 a month civic and charity donations in France are no different than
what is expected of U.S. firms to give to the United Way, and the multitude of other
organizations that ask for donations or sponsorship. If Brattle added up what his
firm gives annually in the U.S., he might be surprised what the total comes to. In
the U.S., five percent of profits donated to such causes are tax deductible. Brattle
should investigate French law to see if the donations are tax deductible. Even if
they are not, continuing them is advisable. Showing support for the community is
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Chapter 03 - Ethics and Social Responsibility
important.
Answer: Colgate made the decision to acquire fifty percent of Hawley and Hazel as
a way to quickly get a large share of the Asian market without having to build its
own plant. Strategic issues included increased growth, sales activity, and profits.
The ethical issue confronting Colgate was that it promoted the brand label Darkie
toothpaste in foreign markets. The use of Al Jolson to promote the product brand
Darkie had ethical and legal repercussions for Colgate and Hawley and Hazel.
This campaign was widely criticized in the United States, and Colgate was forced
to develop a strategy to repair the damage it suffered with consumer perceptions of
the product brand Darkie toothpaste. Colgate proposed that the brand name be
changed to Darlie, Darbie, Hawley, or Dakkie, and that a new logo be developed
that included a dark, nondescript silhouette and a well-dressed black man.
2. What do you think Colgate should have done to handle the situation?
Answer: Colgate should have been more aware of the implications of the product
and its marketing campaign from the start. Once the problem became apparent,
Colgate should have moved quickly to make changes to both the product name and
the promotional campaign associated with it.
3. Is it possible for Colgate and Hawley and Hazel to change the toothpastes
advertising without sacrificing consumer brand loyalty? Is that a possible reason
for Colgates not responding quickly to domestic complaints?
Answer: The promotional mix along with the advertising must be changed to
reflect a more positive image of the product brand. Sales promotions, advertising,
public relations, and personal selling efforts must be pursued to recapture market
share and growth in the future. A reactive strategy is not the solution however a
more proactive approach should have been pursued by management. These types
of issues must be pursued and anticipated to accommodate the needs of the
consuming public. This can be related to the Firestone case where a combative
strategy was utilized and would not be recommended.
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Chapter 03 - Ethics and Social Responsibility
4. In the end, was a no management rights clause good for Colgate? What could
have happened during the negotiations process to get around this problem?
Answer: The no management rights clause was not right for Colgate. As part of
negotiations, Colgate should have maintained management rights to make any
decisions relevant for their marketing strategy of this product brand. It is important
to maintain management rights when acquiring a competing firm. Colgate should
have maintained a social responsibility with an ethical code policy to be enforced
with all subsidiaries.
Answer: These issues include, but are not limited to the following:
wage rates and benefits
working conditions such as job security, workplace safety, temperature,
ventilation and other standards, working hours, breaks, vacations, worker
compensation and unemployment benefits
discrimination against women, older workers, cultural and religious
minorities
human rights violations such as child and prison labor
environmental standards
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Chapter 03 - Ethics and Social Responsibility
2. Would the use of third party independent contractors alleviate or insulate MNCs
from being attached, and would such use be a good defensive shield against charges
of abuse of their employees?
Answer: As is the case in the United States, the independent contractor status can
only be supported through clear, legally defensible criteria, such as the amount of
control the contractor has over the tasks to be achieved, the method the contractor
is paid, the freedom of the contractor to work on other contracts simultaneously,
and so on. Legally, these criteria are not likely to apply to the foreign workers of
companies like Nike, who tend to have limited control over their performance,
work long, fixed hours on company premises, and be paid on an hourly or piece
rate. Therefore, it would be illegal to classify these workers as independent
contractors, which exposes MNCs to more problems.
Moreover, even if MNCs find a legal loophole to continue to classify their foreign
workers as independent contractors, this will not shield their public image and
reputation from public scrutiny and criticism for acting unethically and evading
their social responsibilities, including paying these workers fair wages and
protecting them with benefits, unemployment, and social security-type provisions,
which independent contractors are not eligible for.
3. Do you think statements by companies that describe good social and moral conduct
in the treatment of their workers part of the image those companies create and
therefore are part of their advertising message? Do consumers judge companies and
base their buying decisions on their perceptions of corporate behavior and values?
Is the historic made in question (e.g. Made in the USA) now being replaced by
the made by inquiry (e.g. Made by Company X or for Company X by Company
Y)?
It is not likely that consumers will completely displace their emphasis on where
products are made. Quality standards across countries are likely to continue to
shape purchasing decisions, reinforcing the idea of purchasing products made in
countries that emphasize quality. Prestigious associations of some products or
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Chapter 03 - Ethics and Social Responsibility
ingredients with certain countries are also likely to persist (e.g. Italian leather,
Brazilian coffee, Egyptian cotton, etc.). However, there is likely to be an integration
of where a product is made with which company is making it and how it is being
made, as viewed in Nike and many other cases.
4. Given the principles noted in the case, how can companies comment on their
positive actions to promote human rights so consumers will think well of them?
Would you propose a company (a) do nothing, (b) construct a corporate code of
ethics, or (c) align itself with some of the universal covenants or compacts prepared
by international agencies?
Answer: There are two sets of interrelated considerations involved in this issue:
ethical considerations and communication issues. The bottom line response with
regard to communication issues is that companies should emphasize truthfulness in
all of their communications, regardless of whether they are for public relations,
advertising, shareholder reporting, regulation compliance, or any other purposes.
The natural outcome of communicating socially responsible actions will usually be
good publicity.
On the other hand, the above alternatives address approaches in dealing with ethical
considerations, which should be shaped by the organizations pre-established
corporate values and codes of conduct, and informed by consequences of past
actions, future forecasts, changes in the external and internal corporate
environment, actions, initiatives and interests of diverse global stakeholders, and
others. In other words, good publicity should be a by-product, rather than the goal,
of ethical conduct and corporate social responsibility.
5. What does Nikes continued financial success, in spite of the lawsuit, suggest about
consumers reactions to negative publicity? Have American media and NGOs
exaggerated the impact of a firms labor practices and corporate social
responsibility on its sales? How should managers of an MNC respond to such
negative publicity?
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Chapter 03 - Ethics and Social Responsibility
Answer: Many U.S. companies today are shifting production to countries like
China and India in order to capitalize on the lower wage rates in those countries.
When making the decision to open manufacturing operations in a foreign country,
companies need to consider the risks involved by assessing factors such as the
political, legal, and economic environments. Companies also need to act in an
ethical and socially responsible manner wherever they operate. Therefore,
companies need to recognize that just because regulations on labor or
environmental issues are not as defined or enforced as they are in developed
countries does not mean that the rights of labor should be ignored, or that it is
acceptable to damage the environment. Companies should respect the rights of all
stakeholders when making decisions. In fact, some students may suggest that
companies maintain the same standards in their foreign operations as they do in
their domestic ones. Companies that choose to outsource to other companies must
ensure that the company doing the work follows a similar set of corporate values
and standards. To avoid problems like sweatshop scandals, many companies today
do surprise inspections of the companies making their products, or work directly
with the companies to ensure that they are following appropriate policies.
2. Do you think that sweatshops can be completely eliminated throughout the world in
the near future? Provide an argument as to why you think this can or cannot be
achieved?
Answer: Most students will probably suggest that it would be very difficult to
eliminate all sweatshop operations. Victims of sweatshop situations are there
because they have no alternatives. Because there will always be people who need
to work regardless of how harsh the conditions, sweatshops will continue to exist.
However, the propensity of sweatshops can be greatly diminished if governments
put appropriate regulations in place, and then enforce them. Organizations like
United Students Against Sweatshops can also help eradicate sweatshops by
publicizing violations and shaming companies in action.
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Chapter 03 - Ethics and Social Responsibility
3. Would you agree that in order to eliminate sweatshop conflicts large corporations
such as Russell Athletic should retain the same high labor standards and regulations
that they have in the home country (for example, in the U.S.) when they conduct
business in developing countries? How hard or easy can this be to implement?
Answer: While it can be easy to suggest that companies develop a set of standards
and then stick with them regardless of where in the world they operate, it may also
be a bit nave. The situation in some countries can demand different approaches.
For example, while most companies would probably avoid child labor, a company
that acquires a plant in a country where children are forced to work simply to help
their family survive could actually do more harm by firing the children, than by
allowing them to continue to work.
4. Do you think that the public and NGOs like USAS should care about labor
practices in other countries? Isnt this a responsibility of the government of each
particular country to regulate the labor practice within the borders of its country?
Who do you think provides a better mechanism of regulating and improving the
labor practices: NGOs or country governments?
Answer: This question will probably generate a fair amount of debate among
students. Some students will argue that it is because governments are failing to
insist that companies operate in a socially responsible and ethical way that
organizations like USAS have emerged. Other students may suggest that if
companies are following local laws, organizations like USAS should not be
permitted to harass the companies simply because the local laws do not uphold the
loftier standards that may exist in another country. Most students will probably
agree that NGOs like USAS can be very successful at getting organizations to be
ethical and socially responsible, and may in fact be more effective than country
governments.
5. Would you agree that Russell Athletic made the right decision by conceding to
USAS and union demand? Isnt a less expensive way to handle this sort of
situation simply to ignore the scandal? Please state your pros and cons regarding
Russells decision to compromise with the workers union and NGOs as opposed to
ignoring this scandal.
Answer: Russell Athletic capitulated to the demands of USAS only after the
organization threatened the companys profits by getting schools and universities to
suspend their contracts with the company. Some students may suggest that Russell
Athletic should have reconsidered its decision much earlier in the process. In doing
so, the company could have avoided much of the negative publicity it received.
Other students however, will probably argue that by conceding to the USAS Russell
Athletic may have paved the way for other organizations to act like the USAS, and
that in the long run, actions by NGOs like this could hamper the ability of
companies to make their own strategic decisions.
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Chapter 03 - Ethics and Social Responsibility
The main arguments for this approach are not only ethical and humanitarian
concerns, but also prospects of long term global development that are likely to
amount to long term prosperity for all involved. Arguments against such approaches
primarily include economic and intellectual property concerns. (The next question
provides further details.)
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Chapter 03 - Ethics and Social Responsibility
2. What are the principal arguments of pharmaceutical companies that oppose making
exception to IPR laws for developing countries? What are the arguments by NGOs
and others for relaxing IPR laws?
3. What impact would you expect South Africas decision to levy duties on drug
imports from Western nations to have on the international distribution of drugs to
South Africa?
Answer: Any protectionist measure from either side is likely to hinder the process
of making these drugs available to where they are most needed. However, such
pressures by South Africa may also pressure pharmaceutical companies to relax
their efforts, as their operations in South Africa become less profitable, and allow
for local production of these products. In the meantime, revenues from these duties,
paid by richer patients, may be used to make the drug available for poorer patients
through public programs.
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Chapter 03 - Ethics and Social Responsibility
4. In June 2002, the WTO extended the transition period during which least-developed
countries (LDCs) had to provide patent protection for pharmaceuticals. In your
opinion, was this an appropriate change in policy or a dangerous precedent? What
could be some of the negative ramifications of this resolution? What about the
effects for other industries?
Answer: In this situation, such action may have been warranted, but there is no
guarantee that it will not be used as a precedent by other industries. Negative
ramifications may include delayed enforcement of IPR in many developing
countries, reducing the global incentives for research, development, innovation and
creativity. In the pharmaceutical industry, this may result in slowed drug inventions
and production, and consequently lower-quality healthcare and reduced human
welfare in general. The same may occur in other vital industries. It is unlikely, but
still possible for this incident to be used as precedent in clearly distinct industries
such as entertainment for example, but may grey areas remain to be explored, such
as food products, weapons, etc.
5. Given the initiatives announced by global development and aid organizations and
among pharmaceutical companies themselves, was it necessary to relax IPR rules in
order to ensure that adequate supplies of AIDs medications would be available for
distribution in the developing world?
Answer: Apparently, these actions were still necessary. The price of the
medications continued to be beyond the reach of many patients. Generic drug
producers were still able to supply the drugs at lower prices, which would help
patients and conserve the budgets of various humanitarian funds.
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2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 03 - Ethics and Social Responsibility
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2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.