idiary of an American company.
The processed food in shortest supply in Cuba is canned milk (Rudolph, 1987). The Carnation Company, headquartered in Los Angeles, is particularly well suited to establish a Cana dian subsidiary for the purpose of producing canned milk pro ducts for export to Cuba. Canadian raw milk production is more than sufficient to support such an operation.
International trade occurs because of differences in costs of production between countries, and because it increases the economic welfare of trading partners, by widening the range of 3goods and services available for consumption. Over the years, three significant economic theories relative to international trade have been developed which have remained valid over time. One of these theories is the theory of comparative advantage.
The theory of comparative advantage holds that mutually advantageous trade between countries will always be available, because trade patterns will be based on relative prices, as opposed to absolute prices (the theory of absolute advantage, wherein mutually advantageous trade between countries might not always be possible). The reasoning behind the theory of comparative advantage is that no single country can have com parative advantage in all commodities. Initially, the theory was based on labor cost differentials. In the 1990s, it is recognized that both supply and demand factors are at work in the determination of relative prices which establish a basis for a mutually advantageous exchange between countries.
Cuba does not have a strong dairy industry. Canada, by contrast has an excess supply of dairy products, with respect to domestic consumption demand
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