Chapter 7 international business

__________ are put in place to make it difficult for imports to enter a country.

Administrative trade policies

What is one provision of the Uruguay Round Agreement?

Agricultural subsidies were to be substantially reduced.

According to the __________, U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage.

Buy America Act

The U.S. Department of Education put out a contract for 250,000 SmartBoards and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the SmartBoards were produced in the United States. Which legislative act is this stipulation based on?

Buy America Act

Jenson Electronics believes that a foreign producer of component parts is dumping production in the U.S. market and the company filed a complaint with the government. If the government determines that the complain has merit, which governmental agency may impose an antidumping duty on the foreign producer?

Commerce Department

Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

General Agreement on Tariffs and Trade (GATT)

The first official government policy for free trade occurred in which country?

Great Britain

What is one drawback of government intervention in international trade?

Intervention can be dangerous and lead to retaliation efforts.

Why is retaliation by government intervention a risky strategy?

It could result in increased tariff barriers by the country that is being pressured.

Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997?

It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.

The economic prosperity enjoyed by __________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.

Japan

Solar Tech Corp., based in Phoenix, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does Solar Tech's management agree with?

Krugman

What is one major advantage the World Trade Organization has over the GATT agreement?

Procedures under the WTO have strict time limits.

How do voluntary export restraints affect the prices of goods?

VERs always raise the domestic price of an imported good.

Krugman advocated that government should help establish the rules of the game that minimize the use of trade-distorting subsidies. Which entity takes on that role?

World Trade Organization

A charge of 16 percent is levied by the government of a foreign nation on the value of refrigerator and freezer components imported from a neighboring country. This results in an increase in the price of those imported appliances for the consumer. This foreign nation is using a(n)

ad valorem tariff.

If Switzerland decides it wants to make it difficult for other countries to export cheese to Swiss businesses and creates pasteurization standards that don't exist anywhere else in the world, it would be implementing __________ policies as a way to restrict these imports.

administrative trade

Economic arguments for government intervention in trade are usually concerned with

boosting the overall wealth of a nation.

One of the reasons why protectionist pressures arose around the world during the 1980s was the

different ways many countries found to get around GATT regulations.

The group that benefits the most from receiving subsidies is

domestic producers.

If Italy exports vast quantities of footwear to Germany, selling them at below their costs of production, it would be an example of

dumping

Arguments for international trade typically focus on political and __________ reasons.

economic

The Smoot-Hawley Act had a damaging effect on

employment abroad

The Smoot-Hawley Act tried to divert consumer demand away from foreign products by

establishing tariff barriers.

In 1975, OPEC did not allow the export of U.S. crude oil in order to drive up the price of oil. This action is an example of a(n)

export ban.

One way to ensure that there is sufficient supply of a good within a country is to enact a(n) __________, which discriminates against producers from exporting goods.

export tariff

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that

firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.

The WTO rules say that a country can impose antidumping duties on

foreign goods being sold cheaper than at home.

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something GATT had never done. Two of the first industries targeted for this reform were

global telecommunication and financial services industries.

The focus of the TRIPS agreement is to

have common international rules for intellectual property rights.

During the 1980s and 1990s, trade sanctions were put in place by Western governments against South Africa in response to the apartheid policies in place there. These trade sanctions were a response to

human rights violations.

Some countries limit the amount of sugar that can be imported. This restriction is called a(n)

import quota

A tiny South Pacific island nation produces large quantities of honey-based products. To protect this industry, the island government mandates that only designated trading companies can import the crop, each of which is allocated the right to import a maximum number of pounds of honey each year. This is an example of a(n)

import quota.

The principal function of the trade sanctions the United States has in place against Cuba is to

impoverish Cuba to lead to the downfall of the communist government.

Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

infant industry argument.

Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. This demonstrates the

infant industry argument.

On Track Limited has an order to sell 50,000 pieces of fitness equipment to Brazil, but the Brazilian government stipulated that 35 percent of the component parts of the equipment must be produced in Brazil. This stipulation is an example of a(n)

local content requirement.

A major reason why many economists remain critical of the infant industry argument is because it

makes the domestic industry inefficient.

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because

neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action.

Paint products containing lead are banned from entering the United States. This ban is in place to

protect consumers from unsafe products.

Ultimately, antidumping policies are put in place to

protect domestic producers from unfair foreign competition

Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to

provoke retaliation

Domestic producers experience limited import competition when a VER is in place. As a result, these producers make extra profit because supply is artificially limited by the import quota. This extra profit is called

quota rent

One objective of export tariffs is to

reduce exports from a sector to ensure a sufficient supply.

CoverColor makes high-end hair color for women. This hair color is manufactured and patented in France. Manufacturers in Indonesia create counterfeit CoverColor hair color and sell it in local markets at nearly similar prices to the original CoverColor hair color sold in other countries. This lack of intellectual property protection is like to result in

reduction in the export opportunities for CoverColor hair color in Indonesia.

GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area?

services

A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade?

specific tariff

In some years, the U.S. government has paid soybean farmers an additional $1.65 on every bushel of soybeans they sell. This money is an example of a(n)

subsidy

A(n) __________ is in place when a lower tariff rate is applied to imports within the government quota than those over the quota.

tariff rate quota

For many years, there have been limits set on the amount of sugar that foreign producers can sell in the U.S. market. This is mandated by a

tariff rate quota system.

Following the global financial downturn in 2008-2009, some developed nations subsidized automobile makers to help them survive the economic climate. One negative consequence of this action was that

the companies had an unfair competitive advantage in the global industry.

Dumping takes place when foreign producers

unload excess production of a good in foreign markets.

A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the

vague definition of what constitutes "dumping."

If a country is experiencing a surge of construction machinery from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

voluntary export restraint (VER).