case study


618 Part 7 Cases

4. Government support programs for sugar producers were introduced in the 1930s, yet they are still in place today, long after the original rationale disap- peared. What does this tell you about political deci- sions relating to international trade?

5. If you had the power to make changes here, what would you do and why?

Case Discussion Questions 1. Who benefits from subsidies to U.S. sugar produc-

ers? Who loses? 2. Do the benefits of U.S. government support to the

U.S. sugar industry outweigh the losses? 3. What do you think would happen if the U.S. govern-

ment removed all support for U.S. sugar producers?

In the mid-2000s, Volkswagen announced that it would invest directly in automobile production in Russia. The decision to invest was driven by a number of factors. Russia’s economy was growing rapidly at the time and living standards were rising, while the level of car owner- ship per capita was still low by European standards. This suggested that demand for cars would grow rapidly going forward. Indeed, forecasts predicted that by 2020, Russia would surpass Germany to become the largest car market in Europe. Moreover, Volkswagen’s global rivals, including most notably Toyota, General Motors, and Ford, were also investing in production facilities in Russia, so Volkswagen felt that it had to make direct investments in order to avoid being preempted by its rivals.

The Russian government also created incentives for carmakers to invest directly in Russian production facilities, allowing them to avoid import tariffs and a punitive tax on imports of parts if they produced at least 25,000 cars in the country. In 2011, the government announced that it would keep tariffs on imported components at 0.3 percent if a for- eign automaker built at least 300,000 in the country by 2020 and produced 60 percent of the value of the car locally.

Spurred on by such incentives, in 2007 Volkswagen opened a plant in …