International Business Chapter 7
While there were a total of 196 cases handled by GATT, records show that between 1995 and 2017, the WTO successfully handled about _____ trade disputes.
500
A tex levied as a proportion of the value of an imported good
Ad Valorem
Company ABC in Scotland exports a pound of cheese to the US for $100. The US places a 9% tax on the cheese as a proportion of its value. What type of tariff is this?
Ad Valorem
True or false: GATT has NOT recognized the infant industry argument as a legitimate reason for protectionism.
False
Developed countries use local content requirements to
Protect local jobs from foreign competition
tariff levied as a fixed charge for each unit of good imported
Specific
A tax on goods coming into or leaving a country is called a(n) ______.
Tariff
______ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country.
Tariff Barriers
Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are called
Tariffs
In order to preserve protectionism, many countries are looking to which of these loopholes associated with antidumping?
The vague definition of dumping
Krugman argues that if each country seeks to follow a strategic trade policy to protect its interests, this may lead to a ______.
Trade war
True or false: To limit imports over the set quota, tariff rate quotas are common in agriculture.
True
One purpose of the Smoot-Hawley Act, passed by the US Congress in 1930, was to
avoid rising unemployment
When manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, it is called ______.
dumping
Strategic trade policy suggests a(n) ______ justification for government intervention in trade.
economic
The WTO is more successful than GATT because the WTO has ______ mechanisms that make it more effective.
enforcement
If a country places a 20% tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.
export tariff
GATT was put into place by the US government as a way to
foster free trade
According to ______ trade theory, in reality, strategic trade policy is unworkable.
free
Tariffs, quotas, and subsidies are forms of government _____.
intervention
A(n) ______ states that some percentage of a good must be produced domestically.
local content requirement
Reciprocal trade agreements between two or more partners are called _____ trade agreements.
multilateral
The stalled Doha Round has caused many nations to use _____ to foster trade.
multilateral trade agreements
Higher tariff rates on agricultural products come from a desire to ____________________ domestic agriculture and traditional farming areas. (Choose protect or outsource.)
protect
Unilateral lowering of trade barriers has not occurred mostly due to a lack of _____ among governments.
trust
The trade sanctions on Iraq that were imposed in 1991 after the Gulf War are an example of
using trade policy to punish rogue states.
A self-imposed trade restriction on the quantity of a good that the exporting country is allowed to export to another country is called a(n)
voluntary export restraint
In the mid 1800s, ______ was the first nation to officially follow free trade.
Great Britain
Which economist was a key figure in the early free trade movement in Great Britain?
Ricardo
______ permit a specific quantity of imported goods to enter the country under a reduced rate of duty during the quota period.
Tariff rate quotas
True or False: The United States has imposed trade sanctions on other countries in order to protect and promote human rights.
True
True or false: After analyzing current practices, it can be said that subsidies are not that successful at increasing the international competitiveness of domestic producers.
True
True or false: The fact that countries are using the WTO represents an important vote of confidence in the WTO's dispute resolution procedures.
True
What organization now arbitrates trade disputes and monitors trade policies of member countries?
WTO
Governments develop ______ policies to punish foreign companies that sell their products at below fair market value.
antidumping
The United States has placed a limit on the amount of tuna in airtight containers that can be imported into this country. This is an example of a(n) _____.
import quota
Today, many nations are _____ new trade policies associated with the WTO.
opposed to
The nationwide company, Nightingale Health Systems, received a tax break from the government when it was faltering and ready to declare bankruptcy. This subsidy helped the company with production costs and allowed it to have a stronger presence in the competitive health industry. This tax break is a type of _____.
subsidy
Japan imposed a limit on auto exports to the US as a result of pressure by the US government. What instrument of trade policy does this represent?
voluntary export restraint
True or false: Krugman advocates that it is logical to expect the US government to ignore special-interest politics when forming policy.
False
When governments intervene in foreign trade, they often claim they are protecting ______ from unfair foreign competition.
jobs
Export tariffs are _____________________ (more or less?) common than import tariffs.
less
What are four main instruments of trade policy?
local content requirements antidumping duties import quotas tariffs
The basic metals, chemicals, plastics, and machinery and electrical equipment industries account for the ______ of antidumping actions.
majority
Governments occasionally protect certain industries, like defense-related industries, for ______ reasons.
national security
The main objective of antidumping policies is to
protect domestic producers from unfair foreign competition.
The economic benefit gained when the supply is artificially restricted by an import quota is called quota ______.
rent
Protecting intellectual property through patents, trademarks, and copyrights, fosters innovation and can lead to what two results? (Check all that apply.)
rising living standards economic growth
The _________________ trade policy argument suggests that governments should subsidize promising domestic firms in emerging industries and should also assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages.
strategic
According to strategic trade policy, governments should use ______ to support development work aimed at commercializing target technologies.
subsidies
A(n)______ tariff is a tax that is levied on a good on the basis of its value, not on the basis of its weight or quantity.
ad valorem
The infant industry argument has what potential negative consequence?
causing infant industries to lack efficiency.
When the Smoot-Hawley Act was put into place it _______ as a way to protect domestic industries.
created a wall of tariff barriers.
A government would impose administrative trade policies in order to
make it difficult for imports to enter a country.
______ is the acronym for the multilateral agreement established in 1947 aimed at the abolition of quotas and the reduction of tariff duties among the contracting nations.
GATT
What occurs when a company practices dumping?
The firm is unloading excess production in a foreign market.
A country might create safety standards for certain products that other nations can't comply with. As a result, these nations can't be involved with exporting parts for those goods and trade does not exist. These safety standards are a form of _____.
administrative trade policy
Tariff rates on ______ products are generally much higher than tariffs on manufactured products or services.
agricultural
Sometimes governments pay subsidies to help companies survive challenging economic climates. In effect, these companies have
an unfair competitive advantage.
A consequence of subsidies paid to companies during difficult economic times -- for example, the Japanese farm subsidies -- is
giving recipients an unfair competitive advantage.
According to a study cited in the text, if advanced countries stopped providing subsidies to farmers, global trade in agricultural products would
increase by 50%
The European Union's support for the Common Agricultural Policy illustrates why strategic trade policy is problematic. In this instance, the government was influenced by ______ to the detriment of consumers.
interest groups
Country A wants to lower trade barriers with its neighbor, Country B. While both countries support free trade, they are both reluctant to lower their barriers because they are not sure the other country will reciprocate. What obstacle is preventing the advancement of free trade between these countries?
lack of trust
Developing countries use ______ to move their manufacturing base from simply assembling component parts to the manufacturing of those parts by requiring that a specific fraction of a good be produced domestically.
local content requirements
If we accept that the tenets of strategic trade policy are correct, then the government _____ intervene in international trade.
should
Country A subsidizes oil development and Country B is losing any competitive advantage because of it. Krugman would agree that Country B hopes to minimize subsidies to prevent a
Trade war
What are two reasons countries should remain focused on opening markets? (Check all that apply.)
Because of high tariff rates on imports of selected goods from developing nations into developed nations Because average tariffs on services remains higher than on industrial goods
______ is the organization that encompasses GATT, GATS and TRIPS.
WTO
As noted in the text, the US government used the threat of trade sanctions to try to convince the _____ government to enforce its intellectual property laws since massive copyright infringements in that country have cost US companies millions of dollars in lost revenue.
Chinese
What are three ongoing priorities for the WTO and agenda items at Doha? Check all that apply.
cutting tariff rates on services phasing out agriculture subsidies limiting antidumping laws
When the government does not use quotas, taxes or other means to restrict what its citizens can buy from or sell to another country, it is called ________________ trade.
free
The ______ argument for trade intervention states that developing countries need to support new industries until they are strong enough to compete globally.
infant industry
The oldest argument for government intervention in trade where developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument.
infant industry
Many developing nations use the _____ to justify high tariff rates on nonagricultural goods, but the WTO believes that the nations would benefit from increased international trade by lowering tariffs.
infant industry argument
Which of the following functions did the members of the WTO expect it to perform? (Check all that apply.)
Facilitate future trade deals. Be effective at policing global trade.
A foreign nation is concerned that all jobs in the computer manufacturing industry will be lost to another country. The government decides to step in and prevent this from happening and implements tariffs on certain imports. The leader is praised for this action and reminds voters of this during the next election. In this situation, government intervention is based on a _____ argument.
political
According to the text, what are three economic effects of import tariffs? (Check all that apply.)
Tariffs are anti-consumer. Tariffs are generally pro-producer. Tariffs reduce the overall efficiency of the world economy.
What extended GATT rules to provide enhanced protection for intellectual property and significantly reduced barriers on trade in textiles?
The Uruguay Round
According to the text, which of the following two world events imply that free trade is not a global consensus?
The election of Donald Trump The withdrawal of Britain from EU
What are three reasons that the global trading system erected under GATT was strained during the 1980s and early 1990s? (Check all that apply.)
The persistent trade deficit in the United States The economic success of Japan. Countries finding ways to get around GATT regulations
In what two ways can a government use intervention in trade as a foreign policy instrument? (Check all that apply.)
To grant preferential trading terms to countries it wants to build relations with To pressure or punish "rogue states"
What are the two reasons that export tariffs are levied? (Check all that apply.)
To raise revenue for the government To reduce exports from an industry sector, often for political reasons
The WTO will continue to work to ______ markets because this will lead to an increase in world income, including an increase in income to developing nations.
open
When analyzing the economic effects of import tariffs, it has been concluded that tariffs are considered anti-consumer and pro-_____.
pro-producer
Which two groups are negatively impacted when an import tariff is enacted? (Check all that apply.)
Consumers Foreign producers
The Uruguay Round started in 1986 and addressed which three issues?
Reducing tariffs on manufactured goods Reducing tariffs on industrial goods Reducing agricultural subsidies
A tax on imports that is specified as a fixed monetary amount per unit of import is called a(n) ______ tariff.
Specific
Many Western countries imposed trade sanctions against ______ during the 1980s and 1990s to encourage the country to improve human rights policies.
South Africa
If a country assesses a fixed charge of $5 per unit of rice that's imported, it is using a(n) ______ tariff.
Specific
The _____ Round started in 2001 and continues today to deal with the issues of agriculture protectionism, protection of intellectual property, and other priorities of the WTO.
Doha
Which two groups are positively impacted when an import tariff is enacted? (Check all that apply.)
Domestic producers Government
True or false: Quota rent refers to the tax agricultural producers must pay when excess supply is produced and must be stored by the government.
False
With regard to strategic trade policy, which two actions can governments take in response to pressure from business firms? (Check all that apply.)
Increase protectionism. Push for more open markets and freer trade.
What are two drawbacks of government intervention in free trade? (Check all that apply.)
It invites retaliation and trade wars. It protects inefficient industries.
As the text notes, Donald Trump appears to embrace which view on trade?
Mercantilist
Government intervention may NOT be well executed due to the possibility that policy will be captured by ______.
special interest groups
What is a bound tariff rate?
The highest tariff rate that can be charged
What are two ways trade barriers hamper a firm's productive activities? (Check all that apply.)
Quotas limit the ability to serve a country from outside locales. They raise the cost of exporting products.
What are the two components of strategic trade policy? (Check all that apply.)
Governments should subsidize promising domestic firms in emerging industries. Governments should intervene to assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages.
In order to win a contract in Mexico, QVB Auto Manufacturing must make 65% of the component parts of their vehicles in Mexico. This is an example of a
Local content requirement
Which three industries are frequently targeted by antidumping actions? (Check all that apply.)
Plastics Chemicals Basic metal
The WTO does allow ______ to be imposed on foreign goods sold below their cost of production when domestic producers are being hurt.
antidumping duties
What are the four issues currently at the forefront of the WTO agenda?
antidumping policies, protectionism in agriculture, high tariffs on nonagricultural goods and services, lack of intellectual property protection
Countries base the decision for intervention on ______ when protecting aerospace and semiconductor industries.
protecting national security
By threatening ______ trade sanctions, one country can convince another country to open its markets.
punitive
The TRIPS agreement is based on the notion that inadequate protection of intellectual property the incentive for innovation. (Choose reduces or increases.)
reduces
A(n) ______ is a payment by the government to a domestic producer to help lower production costs so they are better able to compete with foreign imports.
subsidy
What's the main reason a country would use export tariffs?
to ensure sufficient supply of a good within the country
