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Ethical Considerations in International Retailers

Dracca is prohibited from selling its Funny Bunny toys in the United States because they do not meet product safety guidelines. Because there is a high profit margin on these toys, Dracca sells them overseas via electronic contracts. Dracca offered 100 cartons of Funny Bunny toys to a retailer in Canada known as Northern Toys, Ltd (NT). NT accepted the offer, stating, "We accept your offer for 100 cartons of Funny Bunny toys, but require an additional 20 cartons of Happy Hippos for the same price."

Another international retailer with which Dracca does business is Baby Supplier out of Mexico. Baby Supplier discovered it could easily manufacture the GlideStride stroller for much cheaper in its plant in Mexico City. The GlideStride is patent pending in the United States.
The GlideStride is shipped to six other countries, including several countries in the European Union. Upon shipment to the EU, a Dracca employee offered a customs official $1,000 U.S. dollars in exchange for levying duties on only half of the shipment. This could save Dracca $5,700 U.S. dollars over a two-month period.

The GlideStride is manufactured by Dracca in Indonesia at a plant that employs children as young as eight. Recently, a television news program in the United States reported that Dracca products were made in factories where workers were paid less than the applicable minimum wage, were required to work excessive overtime, and were exposed to toxic chemicals in violation of applicable health and safety laws. It was noted that the GlideStride could not be manufactured in the United States due to environmental restrictions.

Dracca issued publicity refuting the allegations of the television report. Tanya Crier sued Dracca on behalf of the public, claiming Dracca's statements were false and misleading. Dracca moved to dismiss the complaint, noting its statements were protected under the First Amendment to the United States Constitution.

In light of these facts, please respond to the following questions using course material and credible outside research to support your findings.

1.) What are the ethical considerations of Dracca selling the Funny Bunny toys in Canada when they are banned in the United States?

2.) Under the CISG, has Dracca entered a contract with NT? Why or why not?

3.) What are the legal and ethical ramifications of the Dracca employee's offer to the customs official?

4.) What legal and ethical issues are presented by Baby Supplier's manufacture of the GlideStride?

5.) What legal and ethical issues are presented by the working conditions of Dracca's Indonesian factory?

6.) Can a corporation such as Dracca participating in a public debate be subjected to liability for factual inaccuracies? Would the First Amendment protection apply to Dracca's statements?

7.) What actions (internal and external) do you recommend to Dracca to remedy the ethical and legal considerations of this scenario? Be specific and detailed, and be sure to base recommendations on relevant legal and ethical principles.

Solution Preview

1.) What are the ethical considerations of Dracca selling the Funny Bunny toys in Canada when they are banned in the United States?

When considering a question about ethics, you should analyze both sides. For example, on the one hand, the toys do not meet safety regulations in the U.S. This could imply that the toys are dangerous, which would make the sale of the toys unethical. However, it could also imply that the toys simply fail to meet a particularly stringent aspect of a U.S. rule. Failure to meet this aspect does not necessarily make the toys unsafe or the sale of the toys objectively unethical. On the other hand, it seems like the sale of the toys is legal in Canada. Canada is an informed and developed nation. Their people entrust their government to create safety standards that adequately protect them. As long as the sale of the toys is legal in Canada, then it will not likely be unethical to sell them there. Since we do not know where Dracca is headquartered and whether the law in that jurisdiction prevents vendors from selling particular types of goods in foreign markets, we cannot say that it is unethical for Dracca to sell something in Canada simply because the product cannot be sold in the U.S.

2.) Under the CISG, has Dracca entered a contract with NT? Why or why not?

We do not know where Dracca is headquartered. Therefore, we do not know whether the country in which it is headquartered is a signatory to the CISG. Canada is a signatory. This problem presupposes that the CISG is governing law.

On the one hand the CISG follows the mirror image rule.

"Article 19 of the Convention, in contrast, returns almost entirely to the mirror-image approach. Indeed, the first subsection sounds a [page 244] ringing retreat: "A reply to an offer which purports to be an acceptance but contains additions, limitations or other modification a rejection of the offer and constitutes a counter-offer." Article 19(2) prevents a complete relapse into the mirror-image world by providing that a reply containing only immaterial additional or different terms "constitutes an acceptance." Even in that case, however, the original offer or can prevent contract formation by promptly objecting to the immaterial variances. Article 19(3) provides that additional or different terms are material if they relate "among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes...." This extremely broad list assures that the vast majority of non-matching responses will contain materially-altering terms that, under CISG Article 19, will block formation of a contract. (Brand & Flechtner, 1993).

On the other hand one might argue that a contract was formed for the Funny Bunnies, which is severable from the Happy Hippo contract, and that the Happy Hippo terms fall out (this is more like the UCC). This cannot be under the CISG since NT's response says, "but require." This language equivocates on the original agreement by adding the condition of receiving the Happy Hippos for the same price, which is a new material term. Following the CISG, no contract was formed.

3.) What are the legal and ethical ramifications of the Dracca ...

Solution Summary

The ethical considerations in international retailers are determined.