International code of ethics would be good for business.

Case 6.7

Product Dumping- Please answer the questions below in detail.

Once the Consumer Product Safety Commission prohibits the sale of a particular product

in the United States, a manufacturer can no longer sell the product to U.S. wholesalers or

retailers. However, the product can be sold in other countries that have not prohibited its

sale. The same is true of other countries’ sales to the United States. For example, Great

Britain outlawed the sale of the prescription sleeping pill Halcion, but sales of the drug con-

tinue in the United States. * The British medical community reached conclusions regarding

the pill’s safety that differed from the conclusions reached by the medical community and

the Food and Drug Administration here. Some researchers who conducted studies on the

drug in the United States simply concluded that stronger warning labels were needed.

The Consumer Product Safety Commission outlawed the sale of three-wheel all-terrain

cycles in the United States in 1988.47 Although some manufacturers had already turned to

four-wheel models, other manufacturers still had inventories of three-wheel cycles. Testi-

mony on the cycles ranged from contentions that although the vehicles themselves were

safe, the drivers were too young, too inexperienced, and more inclined to take risks (e.g., to

“‘hot dog”). However, even after the three-wheel product was banned here, outlawed vehi-

cles could still be sold outside the United States.

For many companies, chaos follows a product recall because inventory of the recalled

product may be high. Often, firms must decide whether to “dump” the product in other coun-

tries or to take a write-off that could damage earnings, stock prices, and employment stability.

Discussion Questions

1. If you were a manufacturer holding a substantial

inventory of a product that had been outlawed in

the United States, would you have any ethical con-

cerns about selling the product in countries that do

not prohibit its sale?

2. Suppose the inventory write-down that you will

be forced to take because of the regulatory obso-

lescence is material-~-nearly a 20% reduction in

income will result. If you can sell the inventory in a

foreign market, legally, there will be no write-down

and no income reduction. A reduction of that magni-

tude would substantially lower share market price,

which in turn would lead your large, institutional

shareholders to demand explanations and possibly

seek changes in your company’s board of directors.

In short, the write-down would set off a wave of

events that would change the structure and stability

of your firm. Do you now feel justified in selling the

product legally in another country?

3. Is selling the product in another country simply a

matter of believing one aspect of the evidence-

that the product is safe? Is this decision a matter of

the credo as well?

4. Would you include any warnings with the product?