Chapter 6

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Which of the following are rules for the commercial conduct of trading nations established by the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization?

A "favor one, favor all" principle Provision of a conciliation panel to which a victimized country could express its grievance A mechanism whereby trade disputes among member countries can be settled The World Trade Organization provides a mechanism whereby trade disputes among member countries can be settled, so as to reduce the possibility of an international trade war. See section: "General Agreement on Tariffs and Trade." The GATT system improved predictability and stability by making countries' trade rules as clear and public (transparent) as possible. Countries were required to disclose their trade policies and practices publicly within the country or by notifying the GATT secretariat.

Who was the author of the "Report on Manufacturers," which introduced the infant industry argument?

Alexander Hamilton

What term is used to refer to a situation in which countries cannot discriminate between their trading partners?

Normal trade relations Under normal trade relations (formerly known as most favored nation status), countries cannot discriminate between their trading partners. Thus, reductions of trade restrictions agreed to by two nations must be extended to all other nations with which the bargaining nations have normal trade relations. The United States maintains normal trade relations with most nations of the world.

_________ of 1930 raised average U.S. tariffs to 53% on protected imports.

Smoot-Hawley Tariff Act Protectionism in the United States culminated with the passage of the Smoot-Hawley Tariff Act of 1930. The legislation raised U.S. average tariffs to 53% on protected imports and provoked retaliation by 25 trading partners of the United States.

Which of the following help determine the success of economic sanctions?

The degree to which the target nation has economic and political ties to the imposing nation The extent of political opposition in the target nation Cultural factors in the target nation Economic sanctions refer to trade and financial restrictions levied against a foreign country. Such restrictions are designed to impose economic hardship on the people of the foreign nation, compelling them to pressure the government to modify its political behavior. A country facing economic sanctions may initiate offsetting sanctions such as stockpiling crucial imports or purchasing goods from countries that do not participate in the sanctions.

Which of the following are trade remedy laws?

The escape clause Antidumping duties Countervailing duties Trade remedy laws attempt to redress hardships of U.S. producers that result from policies of foreign firms and governments, and thus create a fair trading environment. These laws include the escape clause, countervailing duties, antidumping duties, and Section 301 of the 1974 Trade Act, which deals with unfair trading practices by foreign nations. The escape clause provides temporary safeguards (relief) to U.S. firms and workers who are substantially injured by surges in imports that are fairly traded. To offset surging imports, the escape clause allows the president to terminate or make modifications in trade concessions granted foreign nations and to levy trade restrictions. The most common form of relief is tariff increases, followed by tariff rate quotas and trade adjustment assistance. Import relief can be enacted for an initial period of four years and extended for another four years. The temporary nature of safeguards is to give the domestic industry time to adjust to import competition. It is common for safeguards to decline during the period in which they are imposed so as to gradually wean the domestic industry from protectionism.

Which of the following are traditional arguments that justify protectionist barriers?

The infant industry argument The protective argument Traditional protectionist arguments (e.g., the protective argument and the infant industry argument) have influenced much of U.S. trade legislation. In 1791, Alexander Hamilton presented to Congress his famous "Report on Manufacturers," which proposed that young industries in the United States be granted import protection until they can grow and prosper—the infant industry argument. The early protectionist movement reached its high point in 1828 with the passage of the so-called Tariff of Abominations, which increased duties to an average level of 45%. The Payne-Aldrich Tariff of 1909 marked a turning point against rising protectionism. However, this was succeeded by another surge of protectionist legislation in the 1920s.

Which of the following are the techniques used by the governments to protect intellectual property?

Trademarks Copyrights Intellectual property refers to inventions, ideas and processes that are registered with the government and that awards the inventor (author) exclusive rights to use the invention for a given period of time. Although most nations have regulations protecting IPRs, many problems have been associated with trade in products affected by IPRs. One problem is differing IPR regulations across nations. A second problem is that IPR regulations are often poorly enforced—a notable problem in many developing countries, which, lacking significant R&D and patent innovation capabilities of their own, have little incentive to provide protection to products from which such countries can benefit. Governments use several techniques to protect intellectual property, such as copyrights, trademarks, and patents. However, as long as the cost of pirating technology, including the expected probability of being caught, is less than the profits captured by the firm doing the pirating, technology pirating will likely persist.

Traditional protectionist arguments ______ on U.S. trade legislation before the 1930s.

had much influenc

Pirating will continue as long as the cost of pirating technology, including the probability and costs of being caught, _______ the profits captured by the firm doing the pirating. Pirating ______ profits by firms in the innovating nations, which in turn ________ investment in research and development and leads to _______ products and welfare _____ for the people of both nations.

is less than reduces reduces fewer losses Intellectual property refers to inventions, ideas and processes that are registered with the government and that awards the inventor (author) exclusive rights to use the invention for a given period of time. Although most nations have regulations protecting IPRs, many problems have been associated with trade in products affected by IPRs. One problem is differing IPR regulations across nations. A second problem is that IPR regulations are often poorly enforced—a notable problem in many developing countries, which, lacking significant R&D and patent innovation capabilities of their own, have little incentive to provide protection to products from which such countries can benefit. Governments use several techniques to protect intellectual property, such as copyrights, trademarks, and patents. However, as long as the cost of pirating technology, including the expected probability of being caught, is less than the profits captured by the firm doing the pirating, technology pirating will likely persist.

The escape clause provides ______ relief to U.S. firms and workers in importing industries. To offset surging imports, the escape clause allows _______ to terminate or make modifications in trade concessions granted foreign nations and to levy trade restrictions.

temporary the president Trade remedy laws attempt to redress hardships of U.S. producers that result from policies of foreign firms and governments, and thus create a fair trading environment. These laws include the escape clause, countervailing duties, antidumping duties, and Section 301 of the 1974 Trade Act, which deals with unfair trading practices by foreign nations. The escape clause provides temporary safeguards (relief) to U.S. firms and workers who are substantially injured by surges in imports that are fairly traded. To offset surging imports, the escape clause allows the president to terminate or make modifications in trade concessions granted foreign nations and to levy trade restrictions. The most common form of relief is tariff increases, followed by tariff rate quotas and trade adjustment assistance. Import relief can be enacted for an initial period of four years and extended for another four years. The temporary nature of safeguards is to give the domestic industry time to adjust to import competition. It is common for safeguards to decline during the period in which they are imposed so as to gradually wean the domestic industry from protectionism.

The GATT system increased ______ of the trade rules by requiring countries to ________ their trade policies and practices.

the transparency disclose The World Trade Organization provides a mechanism whereby trade disputes among member countries can be settled, so as to reduce the possibility of an international trade war. See section: "General Agreement on Tariffs and Trade." The GATT system improved predictability and stability by making countries' trade rules as clear and public (transparent) as possible. Countries were required to disclose their trade policies and practices publicly within the country or by notifying the GATT secretariat.


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