MKT 310 - Chapter 7 Review

Governments sometimes use Trade Policy to support their Foreign Policy Objectives. Explain how

- A Government may grant preferential trade terms to a country with which it wants to build strong relations - A Government may use Trade Policy to pressure or punish "rogue states" that do not abide by international law or norms. By applying this pressure, the rogue state will ideally mend its ways or hasten a change of government

What are the 4 main issues at the forefront of the WTO's Agenda?

- Antidumping Policies - Protectionism in Agriculture - Protection of Intellectual Property - Market Access for Nonagricultural Goods and Services

According to the text, the Agricultural sector of many economies is heavily subsidized and is protected by import Tariff barriers. What is the effect of these Protectionist policies?

- Consumers face higher prices - The Volume of Agricultural Trade is reduced - The overproduction of heavily subsidized products is encouraged

What are the two main ways in which insufficient Intellectual Property laws affect International Trade?

- Export Opportunities are Reduced - If the size of the total world market for the Innovative Country is reduced, its incentive to pursue risky and expensive innovations is also reduced

In what way can firms exert a strong influence on Government Policy toward trade?

- Firms can encourage Protectionist Policies - Firms can also encourage the government to support the WTO and push for open markets and freer trade among all nations

Some argue that Governments should use the threat to intervene in Trade Policy as a bargaining tool for interactions with other countries. What are the potential positive and negative outcomes of this approach?

- If this approach works, it may liberalize trade and result in the creation of economic gains - If the country that is being pressured by this approach does not back down, they might respond by raising trade barriers. This would result in an economic loss for every country involved.

According to the text, both Developing and Developed countries have used Local Content Requirements (LCRs). Explain how

- In Developing Countries, LCRs have been used to shift domestic manufacturing bases from the simple assembly of products whose parts are manufactured elsewhere into the local manufacture of component parts - In Developed Countries, LCRs have been used to try to protect local jobs and industries from foreign competition

While Strategic Trade Policy has many benefits, what are the 3 main drawbacks associated with Government Intervention?

- Intervention can be self-defeating because it tends to protect inefficient firms - Intervention may trigger a Trade War - Intervention is unlikely to be well-executed, given the opportunity for such a policy to be influenced by special-interest groups

Most Economists agree that with fewer artificial Barriers to Trade, the Global Economy is better off. What are the 4 main benefits of reduced Trade Barriers?

- It creates an environment for fairer competition - It leads to global growth - It leads to growth opportunities for developing countries - It increases variety, and decreases prices

According to lecture, what are the 4 main problems with Strategic Trade Policy?

- Lack of Competition Leads to Inefficient Products and Companies - Leads to retaliation by other countries, leading to a Trade War - It is difficult to determine which industries and technologies have the potential to be "breakthroughs" in advance, leading to waster money and effort being spent on the wrong technologies - Leads to many industries claiming that they are strategic and asking for similar protections (Lobbyists and Special-Interest Groups get involved)

Arguments In Favor of Government Intervention in Trade Policy take what two paths?

- Political - Economic

What are the main Political Arguments In Favor of Government Intervention in Trade Policy?

- Protecting Jobs and Industries - Protecting National Security - Retaliating against Unfair Competition - Protecting Consumers - Furthering Foreign Policy Objectives - Protecting Human Rights

What are the two primary criticisms made by Economists regarding the Infant Industry Argument?

- Protection from foreign competition does no good unless the protection helps make the Industry Efficient - The Argument relies on an assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market

According to lecture, which groups have primarily benefitted from Free Trade?

- Skilled and Unskilled workers in Developing Countries - Highly Skilled Workers in Developed Countries - Capital Providers in both Developing Countries and Developed Countries

What are the 7 main instruments used in Trade Policy?

- Tariffs - Subsidies - Import Quotas - Voluntary Export Restraints - Local Content Requirements - Administrative Policies - Antidumping Duties

What two conclusions can be derived from the Economic Analysis on the effect of Import Tariffs?

- Tariffs are generally Pro-Producer and Anti-Consumer - Import Tariffs reduce the overall efficiency of the world economy

In future periods, what are the WTO's main goals?

- The WTO's ultimate aim is to reduce tariff rates to zero - The WTO would also like to reduce Tariff Rates on Imports of Nonagricultural Goods into Developing Nations. While many of these Developing Nations use the Infant Industry Argument to justify the continued imposition of high Tariff Rates, these barriers must be reduced for these nations to reap the full benefits of international trade

Which group typically advocates for the tariffs and subsidies that protect the Agricultural Sector? Which group typically opposes them?

- The advanced nations of the world want to protect their agricultural sectors from competition by Low-Cost Producers in Developing Nations - Developing nations have been pushing hard for reforms that would allow their producers greater access to the protected markets of the developed nations

In recent years, what two events have suggested that the world may be shifting back towards greater protectionism?

- The decision by the British to withdraw from the EU (Brexit) - The election of Donald Trump to the presidency of the U.S.

During the 1980s and early 1990s, the trading system erected by the GATT came under strain as pressures for greater protectionism increased around the world. What were the three main reasons for this?

- The economic success of Japan during that time strained the world trading system - The world trading system was strained by the persistent trade deficit in the world's largest economy, the United States - Many countries found ways to get around GATT regulations (e.g., VERs)

According to the WTO, what are the benefits associated with removing the tariffs and subsidies that protect the Agricultural sector?

- The overall level of trade would increase - Consumers would pay lower prices - Global economic growth, especially in Developing Countries, would be encouraged

While they are less common than Import Tariffs, a country can also implement Export Tariffs. What are the two objectives of Export Tariffs?

- To raise Revenue for the Government - To reduce Exports from a sector, often for political reasons

Why should an International Business manager care about the political economy of Free Trade or about the relative merits of arguments for Free Trade and Protectionism?

- Trade Barriers affect the strategy of a firm - Firms can play a role in promoting Free Trade or Trade Barriers

According to lecture, who has been adversely affected by Free Trade?

- Unskilled workers in Developed Countries whose jobs have moved overseas - Workers in all countries feeling the impact of price wars across the globe

What are the 3 main Downsides of Fair Trade?

- Who should determine what is "Fair"? - High Prices - How well can it scale to Mass Production?

Many economists, such as Paul Krugman, suggest that Strategic Trade Policy aimed at establishing Domestic Firms in a dominant position in a global industry is a "beggar-thy-neighbor" policy. What does Krugman mean by this? What is the consequence of such a policy?

A "beggar-thy-neighbor" policy is a policy that boosts national income at the expense of other countries - A country that attempts to use such a policy will probably provoke retaliation - The resulting trade war between two or more interventionist governments will leave all countries involved worse off than if a hands-off approach had been adopted in the first place

What is the "Buy America" Act?

A Local Content Requirement specifying that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage - The Law specifies a product as "American" if 51% of the materials by value are produced Domestically

What is the Trans-Pacific Partnership (TPP)?

A deal between the U.S. and Japan to reduce tariffs on imports of Japanese light trucks in return for Japan adopting U.S. standards on auto parts - This would have made it easier to import and sell American cars in Japan

What are Import Quotas?

A direct restriction on the quantity of a good that can be Imported into a country - This restriction is usually enforced by issuing import licenses to a group of individuals or firms

The Strategic Trade Policy Argument has two components. What is the first main component of the Strategic Trade Policy Argument?

A government can help raise national income if it can somehow ensure that the firm or firms that gain first-mover advantages in an industry are Domestic rather than Foreign Enterprises - According to the Strategic Trade Policy Argument, a government should use subsidies to support promising firms that are active in newly emerging industries

What is the General Agreement on Tariffs and Trade (GATT)?

A multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, etc - The GATT committed its signatories to lower barriers to the free flow of goods across national borders - GATT led to the eventual creation of the World Trade Organization (WTO)

What is Fair Trade?

A policy that ensures: - "Fair" Wages and Labor Conditions - Democracy and Transparency - Community Investment - Environmental Sustainability

What is an Export Ban?

A policy that partially or entirely restricts the Export of a good

What are Voluntary Export Restraints (VER)?

A quota on trade imposed from the Exporting country's side - However, Voluntary Export Restraints are usually imposed at the request of the Importing country's government

What is a Local Content Requirement (LCR)? What are the two ways in which Local Content Requirements can be expressed?

A requirement that some specific fraction of a good be produced Domestically - LCRs can be expressed in Physical Terms (e.g., 75% of component parts for this product must be produced locally) - LCRs can also be expressed in Value Terms (e.g., 75% of the value of this product must be produced locally)

What are Specific Tariffs?

A tariff levied as a fixed charge for each unit of good imported - EX: $4 per barrel of oil

What are Ad Valorem Tariffs?

A tariff levied as a proportion of the value of an imported good - EX: 10% of Steel Imports

What are Tariffs? What are the two categories of Tariffs?

A tax levied on Imports or Exports - Specific Tariffs - Ad Valorem Tariffs

What is an Export Tariff? What is the purpose of implementing an Export Tariff?

A tax placed on the Export of a good - The goal behind an Export Tariff is to discriminate against Exporting in order to ensure that there is sufficient supply of a good within a country - EX: In the past, China has placed an Export Tariff on the Export of Grain to ensure that there is sufficient supply in China

What is the New Trade Theory?

A trade theory arguing that in industries in which the existence of substantial economies of scale implies that the world market will profitably support only a few firms, countries may predominate in the export of certain products simply because they have firms that were able to capture first-mover advantages - EX: Boeing

What are Administrative Policies?

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict Imports or boost Exports - EX: In recent decades, Japan's formal tariff and Non-Tariff barriers have been among the lowest in the world. However, Critics charge that the country's informal Administrative barriers to imports more than compensate for this

With respect to Strategic Trade Policy, what is the argument in favor of Subsidies?

Advocates of Strategic Trade Policy argue that Subsidies can help domestic firms to achieve first-mover advantages in emerging industries - If this is achieved, it is believed that further gains to the domestic economy arise from the employment and tax revenues that a major global company can generate

What is the Infant Industry Argument?

An argument stating that new industries in Developing Countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of Developed Nations - This is the oldest Economic Argument for Government Intervention

What are Tariff Rate Quotas?

An instrument of Trade Policy in which Lower Tariff rates are applied to Imports within the quota than those over the quota - Tariff Rate Quotas are common in Agriculture, where the goal is to limit Imports over Quota - EX: An Ad Valorem tariff rate of 10% might be levied on 1 million tons of rice imports into Korea, after which an out-of-quota rate of 80% might be applied. If Korea were to import over 1 million tons of rice, the amount of rice imported in excess of the quota would be charged at the 80% tariff

What are the two main ways in which Subsidies benefit Domestic Producers?

By lowering production costs, Subsidies help Domestic Producers in two ways: - Competing against foreign Imports - Gaining Export Markets

According to those who advocate for Government Intervention in Trade Policy, when is foreign competition perceived to be "unfair"?

Competition is most often viewed as unfair when producers in an exporting country are subsidized in some way by their government - One of the most common Political Arguments for Government Intervention is that it is necessary for protecting jobs and industries from "unfair" Foreign Competition - EX: It has been repeatedly claimed that Chinese enterprises in several industries, including aluminum, steel, and auto parts, have benefitted from extensive government subsidies

According to many economists, Domestic Policies provide a further reason for not embracing Strategic Trade Policy. Explain how

Economists claim that Domestic Policies are almost certain to be captured by special-interest groups within the economy, which will distort it to their own ends - EX: The EU's support for the Common Agricultural Policy (CAP) benefits inefficient farmers and the politicians that rely on them, but not consumers in the EU, who end up paying more for their foodstuffs

What is a Quota Rent?

Extra profit Domestic Producers make when Supply is artificially limited by an Import Quota - When Imports are limited to a low percentage of the market by a Quota or VER, the price is bid up for that limited Foreign Supply

True or False: For countries that claim to be committed to Free Trade Policies, there is hardly any government involvement in international trade

False - Although many nations are nominally committed to Free Trade, national governments tend to intervene in international trade to protect the interests of politically important groups or promote the interests of key domestic producers - EX: There is a long history of the U.S. government intervening in the steel industry, imposing import tariffs to protect domestic producers from market share losses due to the importation of less expensive foreign steel

True or False: Foreign Producers typically agree to VERs because they already have a desire to reduce their Export volumes

False - Foreign Producers agree to VERs because they fear more damaging punitive Tariffs or Import Quotas might follow if they do not - Agreeing to a VER is seen as a way to make the best of a bad situation by appeasing Protectionist pressures in a country

True or False: Governments always act in the national interest when they intervene in the economy

False - Governments do not always act in the national interest when they intervene in the economy - Politically important interest groups often influence them

True or False: Most economists would probably argue that the best interests of international business are served by a Laissez-Faire Stance

False - The best interests of International Business are likely served by a Free Trade Stance rather than a Laissez-Faire Stance - It is probably in the best long-run interests of the business community to encourage the government to promote Free Trade

True or False: Many governments recognize the value of economic arguments in favor of unrestricted free trade. Thus, they have committed to unilaterally lowering their trade barriers

False - While many governments have recognized the value of these arguments, they have been unwilling to unilaterally lower their trade barriers for fear that other nations might not follow suit - That is, national governments recognize that their respective nations will benefit from lower trade barriers. However, the fear that other nations might now follow prevents them from doing so

True or False: With respect to policy enforcement, the WTO and GATT are exactly the same

False - Countries that have been found by the WTO Arbitration Panel to be in violation of GATT rules may appeal to a permanent appellate body, but its verdict is binding - If offenders fail to comply with the recommendations of the WTO Arbitration Panel, trading partners have the right to compensation or impose trade sanctions - In this sense, the WTO has "teeth"

True or False: Since the successes of the 1990s, the WTO has continued to make progress on the international trade front

False - In recent years, the WTO has struggled to make progress on the International Trade front - A slower growing world economy has made many national governments reluctant to agree to a fresh round of policies designed to reduce trade barriers - As the public face of globalization, some politicians and nongovernmental organizations blame the WTO for a variety of problems such as high unemployment, environmental degradation, etc

True or False: Unlike other Trade Policies, Local Content Requirements (LCRs) benefit consumers

False - Like all other Trade Policies, LCRs provide protection for a Domestic Producer by limiting foreign competition - As the restrictions placed upon Imports increase, higher prices are passed on to the consumer - Thus, LCRs are Pro-Domestic Producer and Anti-Consumer

True or False: In practice, many Subsidies are successful at increasing the international competitiveness of Domestic Producers

False - Many Subsidies are NOT that successful at increasing the international competitiveness of domestic producers - Instead, Subsidies tend to protect inefficient domestic firms and promote excess production

True or False: In the early 1980s, most economists saw little benefit in government intervention and strongly advocated a free trade policy. The same is true of today's economists

False - This position has changed at the margins with the development of strategic trade policy - However, there are still strong economic arguments for sticking to a free trade stance

True or False: If a country imposes Trade Barriers to the Imported Products of all Foreign Firms, the firms of these nations are at a Competitive Disadvantage

False - When the country imposing the trade barriers does so for *all* foreign firm, the higher costs that result do not always translate into a significant competitive disadvantage relative to other foreign firms - When trade barriers are targeted at Exports from a particular nation, firms based in that nation are at a Competitive Disadvantage to firms of other nations

True or False: In recent decades, the GATT and WTO have been successful in limiting all barriers to trade

False - While the GATT and WTO have been successful at limiting Tariff Barriers, they have been less successful at limiting Non-Tariff barriers - Non-Tariff Barriers include instruments such as quotas, voluntary export restraints, and antidumping duties

By lobbying their national governments to engage in Protectionism, what might business firms be giving up?

Firms that lobby their national governments to engage in Protectionism may be denying themselves the opportunity to build a Competitive Advantage by constructing a Globally Dispersed Production System - Protectionist policies might also cause foreign governments to retaliate with barriers of their own, which would cause a firm's overseas sales to decline

What is a Subsidy? Provide examples

Government financial assistance to a Domestic Producer. The purpose of a Subsidy is typically to increase the international competitiveness of Domestic Producers. - Subsidies are typically paid for by taxing individuals and corporations - EX: Cash grants, low-interest loans, tax breaks, government equity participation, etc

What is Strategic Trade Policy?

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market

According to lecture, what products should Governments support with its Strategic Trade Policy? How should this support be provided?

Governments should target Technologies that may be important in the Future and use Subsidies to support entrepreneurial work at commercializing those technologies - The government should help Domestic companies develop first-mover advantages before Foreign Firms - Alternatively, the government could help companies overcome first-mover advantages that are already enjoyed by foreign companies

Economic Analysis has revealed that one of the consequences of Import Tariffs is a reduction in the overall efficiency of the world economy. How do Import Tariffs reduce the efficiency of the world economy?

Import Tariffs reduce efficiency because a protective tariff encourages Domestic Firms to produce products at home that could be produced more efficiently abroad - The consequence of this is an Inefficient utilization of resources

Generally, why are Import Tariffs implemented? When Import Tariffs are implemented, who suffers and who gains?

In most cases, Tariffs are placed on imports to protect Domestic Producers from Foreign Competition by raising the price of Imported goods - The Government gains because the tariff increases Government Revenues - Domestic Producers gain because the Import Tariff affords them some protection from foreign competitors by increased the cost of imported foreign goods - Consumers, however, lose. This is because they must pay more for certain imports

Why is it so important for Intellectual Property Rights within a country to be protected?

Inadequate protections for Intellectual Property reduce the incentive for Innovation - Because innovation is a central engine of economic growth and rising living standards, the argument has been that a Multilateral agreement is needed to protect Intellectual Property

The Strategic Trade Policy Argument has two components. What is the second main component of the Strategic Trade Policy Argument?

It might pay a government to intervene in an industry by helping Domestic Firms overcome the barriers to entry created by foreign firms that have already reaped first-mover advantages

What is "Fairwashing" / "Greenwashing"? Why does it occur?

Most commercial companies use language and appearance to suggest Fair Trade principles or eco-friendliness ("all natural") without actually following established principles of Sustainability - Alternatively, Commercial Companies may limit Fair Trade to a small portion of their portfolio to reach a certain customer segment - Fairwashing / Greenwashing occurs because U.S. Labeling laws are not strict enough to prevent such abuses

According to lecture, how can national governments compensate those hurt by Free Trade in Developing Countries?

National Governments can compensate those hurt by Free Trade in Developing Countries, through vocational training and apprenticeships subsidized by the state - National Governments can also follow the concept of Fair Trade to ensure proper living wages and conditions for workers in Developing Countries

What are Antidumping Policies? How are such policies typically implemented?

Policies designed to punish Foreign Firms that engage in Dumping and thus protect Domestic Producers from unfair foreign competition - If a Domestic Producer believes that a foreign firm is dumping production in the U.s. Market, it can file a petition with two government agencies: The Commerce Department and the International Trade Commission (ITC) - If the complaint has merit, the Commerce Department may impose an Antidumping Duty on the offending Foreign Imports (Countervailing Duties)

According to the text, how can Dumping be used to challenge firms in Foreign Markets?

Producers may use the substantial profits from their home markets to subsidize prices in a foreign market and drive incumbent firms out of the market - Once this has been achieved, the "predatory" firm can raise prices and earn substantial profits

According to lecture, Protectionist Policies are typically popular with what group? Explain why

Protectionist Policies are typically popular with Blue Collar Workers - This is because it gives them hope of jobs - However, such policies rarely deliver results. When they do, it is at the expense of other sectors

How do Quotas affect the strategy of a Firm? How might the firm respond?

Quotas may limit a firm's ability to serve a country from locations outside that country - In response, the firm may establish production facilities in that country

Krugman and other economists may be correct about the danger of Strategic Trade Policy resulting in a Trade War. However, how should a firm respond when its competitors are already being supported by government subsidies?

Rather than engage in retaliatory action (e.g., implementing tariffs, etc), firms should help establish rules of the game that minimize the use of trade-distorting subsidies - Additionally, Antidumping Policies can be used to target competitors supported by subsidies who are selling goods at prices that are below their costs of production

What is Dumping?

Selling goods in a foreign market for less than their cost of production or below their "fair" market value - Dumping is viewed as a method by which firms unload excess production in foreign markets

How do increased Tariff Barriers affect the strategy of a Firm? How might the firm respond?

Tariff Barriers raise the costs of exporting products to a country. This might put the firm at a competitive disadvantage relative to indigenous competitors in that country - In response, the firm might find it economical to locate production facilities in that country so that it can compete on even footing - Alternatively, the firm could move production to countries whose exports are not targeted by the trade barrier

What are the World Trade Organization's two sister bodies?

The WTO acts as an umbrella organization that encompasses the GATT along with its two sister bodies - General Agreement on Trade in Services (GATS) - Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

What is the World Trade Organization (WTO)?

The WTO is responsible for arbitrating trade disputes and monitoring the trade policies of member countries - The great hope of the WTO is that it would emerge as an effective advocate and facilitator of future trade deals, particularly in areas such as services

What is Free Trade?

The absence of barriers to the free flow of goods and services between countries

How does the threat of Antidumping Actions affect the strategy of a Firm? How might the firm respond?

The threat of Antidumping Actions limits the ability of a firm to use aggressive pricing to gain market share in a country - Firms in a country also can make strategic use of Antidumping measures to limit aggressive competition from low-cost foreign producers

What are Multilateral Trade Agreements? What is the purpose of these agreements?

These are reciprocal trade agreements between two or more partners - Multilateral and Bilateral Trade Agreements are designed to capture gains from trade beyond those currently available under WTO treaties - Multilateral and Bilateral Trade Agreements are allowed under WTO rules, and countries entering into these agreements are required to notify the WTO

What is the objective of the Economic Argument In Favor of Government Intervention in Trade Policy?

These arguments are concerned with boosting the overall wealth of a nation (to the benefit of both Producers and Consumers)

What is the objective of the Political Argument In Favor of Government Intervention in Trade Policy?

These arguments are concerned with protecting the interests of certain groups within a nation (usually Producers), often at the expense of other groups (usually Consumers) - This argument might also be concerned with achieving some Political Objective that lies outside the sphere of economic relationships, such as protecting the environment or human rights

Antidumping actions seem to be concentrated in certain sectors of the economy, such as basic metal industries, chemicals, plastics, and machinery and electrical equipment. How might the degree of competition in these industries be related to the high level of Antidumping actions seen in these industries?

These sectors have been characterized by periods of intense competition and excess productive capacity, which have led to low prices and losses for firms in these industries - With this in mind, it may be that the high level of Antidumping actions in these industries represent an attempt by beleaguered manufacturers to use political processes to protect themselves from "unfair" foreign competition

In 2018, Tariffs on Solar Panels and Washing Machines were implemented. What was the purpose of these tariffs?

These tariffs were introduced to "safeguard" domestic producers for a short-period, allowing them to become more competitive

What is the Smoot-Hawley Act?

This act erected a wall of tariff barriers against imports into the U.S. in order to avoid rising unemployment and protect domestic industries - Almost every industry was rewarded with its "made-to-order" tariff - Other countries reacted to this document by raising their own tariff barriers. U.S. exports tumbled in response, and the world slid further into the Great Depression

What is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)?

This organization attempts to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under a common set of international rules

What is the General Agreement on Trade in Services (GATS)?

This organization has taken the lead in extending Free Trade Agreements to Services

According to the Infant Industry Argument, how should governments support New Industries in Developing Countries?

To allow developing industries to get a foothold, the Infant Industry Argument claims that governments to use tariffs, import quotas, and subsidies to support these industries until they have grown strong enough to meet international competition

How do Local Content Regulations affect the strategy of a Firm?

To conform to Local Content Regulations, a firm may have to locate more production activities in a given market than it would otherwise - By not being able to disperse each production activity to the optimal location, the firm may face higher costs

True or False: A number of economists suggest that although Strategic Trade Policy looks appealing in theory, it may be unworkable in practice

True

True or False: An indirect effect of government regulations to protect consumers from unsafe products is to limit or ban the importation of such products

True

True or False: Both Fair Trade and Organic Products use more Inefficient Production Techniques

True

True or False: If a Domestic Industry lacks the capacity to meet Demand, an Import Quota can actually raise prices for both the Domestically Produced and the Imported Good

True

True or False: The Infant Industry Argument has been recognized by the GATT as a legitimate reason for Protectionism

True

True or False: As with Tariffs and Subsidies, both Import Quotas and VERs benefit Domestic Producers

True - Both Import Quotas and VERs benefit Domestic Producers by limiting Import Competition - And as with all restrictions on trade, Quotas do not benefit consumers. Both Import Quotas and VERs raise the domestic price of imported goods

True or False: In most countries, Agriculture tends to be one of the largest beneficiaries of Subsidies

True - EX: The EU has been paying out about 44 billion Euro annually in farm subsidies

True or False: If a developing country has a potential Comparative Advantage in a Manufacturing Industry, firms in that country should be able to borrow money from the capital markets to finance the required investments

True - Given financial support, firms based in countries with a potential Comparative Advantage have an incentive to endure the necessary initial losses in order to make long-run gains without requiring government protection

True or False: The first two decades in the life of the WTO suggest that its policing and enforcement mechanisms are having a positive effect

True - In general, countries have adopted the WTO's recommendations - The fact that countries are using the WTO represents an important vote of confidence in the organization's dispute resolution procedures

True or False: Tariff Rates on Agricultural Products are generally much higher than Tariff Rates on Manufactured Products or Services

True - The implication of this is that consumers in countries with high tariffs are paying significantly higher prices than necessary for agricultural products imported from abroad, which leaves them with less money to spend on other goods and services

True or False: Even when trade barriers do not exist, a firm may still want to locate some production activities in a given country

True - This is to reduce the threat of trade barriers being imposed in the future

True or False: While average tariffs are low, high tariff rates persist on certain imports into Developed Nations

True - This limits market access and economic growth - A particular area for concern is high Tariff Rates on Imports of selected goods from developing nations into developed nations - Additionally, Tariffs on Services remain higher than on Industrial Goods

True or False: If the U.S. and other nations continue to turn their back on new Free Trade Deals, the impact on the world economy will almost certainly be negative

True - This would result in greater protectionism, slower economic growth, and higher unemployment around the globe

Describe the WTO's policy on Dumping. How effective is this policy?

WTO rules allow countries to impose Antidumping Duties on foreign goods that are being sold cheaper than at home or below their cost of production when Domestic Producers can show that they are being harmed - However, the rather vague definition of what constitutes "dumping" has proved to be a loophole that many countries are exploiting to pursue Protectionism