Briefly, discuss the effectiveness of consent degrees and Section 14141 of the Violent Crime Control and Law Enforcement Act of 1994. In doing so, describe the legal provision which allowed the Department of Justice DOJ to intervene in instances where allegations are made that constitutional policing is not followed as a matter of patterns and practices.
Question 1 (35 marks; Max 2 pages)
Read the following article and answer the questions that follow:
“Emissiongate” at Volkswagen
It’s been dubbed the “diesel dupe”. In September, 2015 the Environmental Protection Agency (EPA) found that many VW cars being sold in America had a “defeat device” – or software – in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results.
The outlines of the scandal are now well known. For nearly a decade, from 2006 to September 2015, VW anchored its U.S. sales strategy — aimed at vaulting the company past Toyota to become the world’s No. 1 carmaker — on a breed of cars that turned out to be a hoax. They were touted as “Clean Diesel” vehicles. About 580,000 such sedans, SUVs and crossovers were sold in the U.S. under the company’s VW, Audi and Porsche marques. With great fanfare, including Super Bowl commercials, the company flacked an environmentalist’s dream: high performance cars that managed to achieve excellent fuel economy and emissions so squeaky clean as to rival those of electric hybrids like the Toyota Prius.
It was all a software-conjured mirage. The exhaust control equipment in the VW diesels was programmed to shut off as soon as the cars rolled off the regulators’ test beds, at which point the tailpipes spewed illegal levels of two types of nitrogen oxides pollutants (referred to collectively as NOx) into the atmosphere, up to 40 times above what is allowed in the US causing smog, respiratory disease and premature death. The EPA’s findings cover 482,000 cars in the US only, including the VW-manufactured Audi A3, and the VW models Jetta, Beetle, Golf and Passat.
Over the past two years, prosecutors in the U.S. and Germany have been tracing who was aware of the scheme and have identified more than 40 people involved, spread out across at least four cities and working for three VW brands as well as automotive technology supplier Robert Bosch. They brought formal charges against former Volkswagen engineer Oliver Schmidt who ultimately received seven years in prison for his role in the scandal. However Schmidt was a henchman, everyone understood, and his sentence, a stand-in. Above all, the courtroom was haunted by the shadow of an individual who was absent: Martin Winterkorn, who was VW’s CEO during almost all of the fraud.
At first, Volkswagen insisted the fraud was pulled off by a group of rogue engineers like Schmidt. But over time the company has quietly backed away from that claim, increasingly focusing on protecting a small cadre of top officials. The crime may well have started among a relatively small number of engineers afraid to admit to feared top executives that they couldn’t reconcile the company’s goals and the law’s demands. Schmidt had committed his crime according to the prosecutor, “to impress … senior management and the board.” He was talking about Winterkorn, who was not only CEO from 2007 until the scandal brought him down in 2015, but also chairman of the company’s management board. Winterkorn was also then the highest paid CEO in Germany, having made $18.6 million the previous year, more than 100 times Schmidt’s pay.
Examining the chronology of the company’s behavior in light of that information leaves little doubt that knowledge of the wrongdoing reached high up the ranks, repeatedly coming within a whisker of CEO Winterkorn himself. According to Schmidt, he and a second employee had made presentations to Winterkorn and other senior officials at a meeting on July 27, 2015 where they were unmistakably informed of the cheating. The CEO’s response to that information looked suspiciously like a cover-up. Winterkorn did not direct his subordinates to notify authorities about the cheating or launch an investigation to determine exactly what had happened. Instead, he sent Schmidt on a mission to persuade U.S. regulators to allow the sale of 2016 VWs.
The German car giant has since admitted cheating emissions tests in the US. “We’ve totally screwed up,” said VW America boss Michael Horn, while the group’s chief executive at the time, Martin Winterkorn, said his company had “broken the trust of our customers and the public”. Mr Winterkorn resigned as a direct result of the scandal and was replaced by Matthias Mueller, the former boss of Porsche.The company also pleaded guilty in April to federal criminal charges of conspiracy, fraud, making false statements and obstruction of justice.
In the U.S., Volkswagen agreed to pay roughly $15 billion in civil compensation and restitution to consumers and federal and state authorities for the 2.0-liter cars involved, and the sum has since crept up to more than $25 billion, as deals were reached for the 3.0-liter cars, and for criminal fines and penalties. Volkswagen has bought back or fixed most of the offending vehicles, and customers have received thousands of dollars per car in compensation for a variety of losses, including the deception itself and diminished resale value. That resulted in the company posting its first quarterly loss for 15 years of €2.5bn in late October. (Adapted from articles in BBC and Fortune)
(a) Examine the behavior of the managers who tampered with the emissions systems of the cars sold in the United States from the perspective of the appropriate roots of such unethical behavior. Please apply relevant concepts and provide evidence from the article in support of your answer. (15 marks)
(b) Upper-level managers at Volkswagen were apparently unaware of the tampering that was going on in order to ensure that Volkswagen vehicles sold in the United States met EPA regulations. How does this reflect on the decision making process at Volkswagen with regard to its emphasis on ethics? Please apply relevant concepts for your explanation. (10 marks)
(c) Evaluate VW’s tampering of the emission system of its vehicles purely from the perspective of appropriate economic considerations based ethical practices. Please apply relevant conceptsand provide explanation. (10 marks)
Question 2 (30 marks; Max. 2 pages)
Read the following article and answer the questions that follow:
Burberry Shifts Its Entry Strategy in Japan
For nearly half a century, Burberry outlets in Japan have sold everything from golf bags to miniskirts and Burberry-clad Barbie dolls — the result of a decades-old license agreement that left the British luxury brand’s Japanese business in the hands of a local vendor.Now, Burberry Group PLC is taking sales in Japan, the world’s second-largest luxury market, intoits own hands. In June, Burberry ended a 45-year pact with its last Japanese licensee, Sanyo Shokai, one of its longest-running contracts.Over the next two months, the closure of Sanyo Shokai’s shops will shrink Burberry’s presence in Japan to about two dozen outlets from nearly 400 and replace moderately priced items created by the Japanese company with a high-end line of trench coats and scarves that costs up to 10 times more.
“The license has been suffering from overexposure,” says Pascal Perrier, chief executive for Burberry in the Asia-Pacific region. “We will never do that again.” Burberry’s Japan move caps a decade-plus quest to regain control of its image after years of expansion in foreign markets and licensing agreements left a legacy of disparately branded and priced products, including baseball caps, dog clothes and Scotch whisky.License agreements gained popularity in the 1980s and 1990s because they gave brands a foothold in foreign markets where they didn’t have distribution networks or local expertise — along with royalties ranging from 2% to 10% of each sale. The pacts often gave licensees leeway to develop branded products for the local market. But the deals threatened to tarnish luxury names whose reputations depended on exclusivity.
In recent years, the move to take back licenses is being driven by an increase in the number of consumers buying luxury goods online and on trips abroad, making it more important for brands to control their images globally. “With the globalization of the luxury-goods market and the sophistication of consumers, brands have tried to close down their licenses,” said Mario Ortelli, an analyst for Sanford C. Bernstein.
Mr. Perrier, Burberry’s Asia chief executive, said he realizes relaunching the brand in Japan will hurt financially at the beginning, since the Sanyo Shokai deal generated about GBP 500 million ($800 million) in sales and GBP 50 million in royalties annually. But Mr. Perrier said he expects to replace three-quarters of that income in the next few years by selling higher-margin products. “We are able to say no to some revenue for the sake of the brand,” he said.
Burberry’s Blue Label and Black Label lines, created by Sanyo Shokai, appealed to young Japanese, with women’s shirts priced as low as $70, compared with around $250 for a cotton blouse from the standard Burberry line. Critics say those more cheaply priced labels hurt the brand’s image globally. Mr. Perrier seems to agree, stressing that Burberry should not be a mass premium brand. Instead, he said, it should be positioned as a luxury line and recognized in the class that includes Louis Vuitton.He said Burberry plans to offer only the highest-end products in Japan — such as its $1,800 trench coat — and operate only in the most exclusive locations. Stores will be spacious enough to display purses, scarves, accessories and other items, creating a “Burberry world.”
Ending the contract with Sanyo Shokai means the group should lose about 300 stores operated by the Japanese concern. But Perrier also said the planned network of new stores will provide appropriate scale for the Japanese market. The group will not pursue a mass expansion to make Burberry stores ubiquitous, he said.The goal is to have 35 to 50 directly operated stores by 2018. Burberry began taking actions in line with its new plan in November. It relocated its flagship store in Tokyo’s Omotesando area to make the store 60% larger, a move received positively by customers. In March, it plans to open stores in Osaka’s Shinsaibashi and Tokyo’s Shinjuku districts, and has blueprints for a new store in Tokyo’s Ginza shopping district in the future.The group is also negotiating with department stores to sell its products on luxury-brand floors, with good responses so far, Mr. Perrier noted.
As Japanese consumers increasingly seek high-quality items, and more foreigners visit, Japan will continue to be a key market, Mr. Perrier said. While Burberry’s main customers appear to be in their 40s, the group will also steer marketing toward potential buyers in their 20s and 30s, an age range sensitive to fashion. However, how many fans will remain is unclear. At a Burberry kiosk in a department store in Tokyo, one woman browsing the Burberry Blue Label line said she preferred that line because Burberry’s originals feel too conservative. (Adapted from articles in Wall Street Journal and Nikkei Asian review)
(a)Consider Burberry’s licensing arrangement with Sanyo Shokai in Japan. What are the main benefits of such an arrangement from the perspective of Burberry? Please apply relevant concepts and use evidence from the article in support of our explanation. (10 marks)
(b)What were the main problems with the licensing arrangement that prompted Burberry to shift to a new strategy in Japan? Which FDI theory/theories provide(s) the most appropriate explanation for this new strategy? Please use relevant concepts supplemented with appropriate evidence from the article in support of your answer. (12 marks)
(c) Evaluate the new strategy that Burberry is undertaking in Japan from the perspective of both short-term and long-termimpact on Burberry’s profitability, in Japan and globally. Please provide relevant explanation in support of your answer. (8 marks)
Question 3 (35 marks; Max. 2 pages)
Read the following article and answer the questions that follow:
The Greek Debt Crisis and Its Aftermath
All economic crises eventually become political crises. But they don’t all follow the same pattern. It floored countries like Iceland and Ireland, where the prosperity and property booms were found to be driven by a financial system that went quickly bust. But Greece is on a different level: it’s not the banks that are bust but the country.
The incoming Pasok (Pan-hellenic socialist) government discovered that instead of 3%, or even the revised 6% of GDP, the budget deficit was running to 13%. Somebody had been misstating the figures; whole tranches of defence expenditure, for example, seem to have been covered up.But it’s not just successive Greek governments that look culpable. The European Union (EU) turned a blind eye to consistent rule breaking. It offered the protection of a single currency and a central bank, without requiring fiscal discipline. Having scraped into the Eurozone at the height of an economic upturn, Greece has never looked like it could stay within the rules without some massive reform program that the political system is incapable of delivering.
If Greece were a “true sovereign”, with its own currency, that currency would now be the subject of a massive speculation. But it is part of the Eurozone,so only the insurance policies on its national debt can be the subject of wild speculation. As George Magnus points out, sovereign debt crises usually need four measures to resolve: devalue the currency, slash interest rates, monetize the debt – by the central bank buying up government debt – and a bailout. Of these only a bailout would be possible for Greece. The Eurozone makes the first two impossible and the third nearly so. So it’s bailout or bust.
Eventually Greece was financially rescued by the European Union and International Monetary Fund. Bailouts – emergency loans aimed at saving sinking economies – began in 2010. Greece received three successive packages, totaling €289bn (£259bn; $330bn), but they came with the price of drastic austerity measures.Consequently, the economy is now 25% smaller than when the crisis began and it will take decades to pay off its debt pile of 180% of GDP.More than 400,000 people emigrated and in 2013 the unemployment rate peaked at 27.5% – but for those under 25 it was 58%.
The adjustment from austerity was particularly painful for crisis-hit countries like Greece becauseas the member of a single-currency bloc it had to cut wages, domestic demand and employment. The resultant squeeze on consumption and investment from eight years of austerity, have resulted in more than 25% fall in imports compared to 2007. Due to this Greece’s current account deficit has shrunk significantly.
While current account deficits in Eurozone crisis countries keep shrinking, meanwhile surpluses in other Eurozone countries like Germany and the Netherlands have grown. As a consequence, the Eurozone in total has a substantial current-account surplus. In the year to June it was 3.6% of GDP (the same as the record for a calendar year, set in 2016). In 2017, according to the IMF’s External Sector Report, published last month, the Euro area had the world’s biggest absolute current-account surplus, $442bn. Germany has the largest of any single country.This current account surplus that the Eurozone as a whole bloc is now running is mostly at the expense of the US. But the US is becoming increasingly intolerant of being forced into the role of consumer of last resort. President Donald Trump already sees Europe as a “foe” because of its bilateral trade surplus with America. He has slapped tariffs on European steel and aluminum, and threatened them on cars. (Adapted from articles in BBC, Economist and Forbes)
(a) How did being a Eurozone member hinder Greece’s ability to resolve its debt crisis through domestic policy measures? Why are bailouts, that Greece eventually received, difficult to execute within an economic union like the Eurozone? Provide explanationsthrough relevant concepts. (15 marks)
(b)How would thecurrent account surplus of the Eurozone countries with the US affect the value of the Euro vis-à-vis the US$ eventually? What would be the impact of this change in Euro/US$ exchange rate be on Eurozone bloc companies either exporting to US or having operations through direct subsidiaries in the US? Please explain your answer using relevant concepts. (12 marks)
(c) Why does President Trump regard the trade surplus that the Eurozone countries have with the US adversely? How would the tariffs he has imposed on the European goods impact the trade surplus? Please explain your answer using relevant concepts. (8 marks)
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