MAN3600 Exam 2 Study Guide
Mixed systems
Two or more legal systems operating together The contrast between civil and common law has become blurred as countries combine both systems
Civil law is found in where (countries)
Found in France, Germany, Italy, Japan, Turkey, and much of Latin America
*Why do nations pursue economic integration?* (4)
1) Expand market size 2) Achieve economies of scale and productivity 3) attract direct investment from outside the bloc 4) acquire stronger defensive and political posture
The GATT's concept of most favored nation
*(aka normal trade relations)* requires each member nation extend the tariff reductions covered in a trade agreement with one country to all other countries
If an economic integration has factor mobility, free move of product, labor, and capital, it should be ______________. [Hint: please read all answer choices before making your selection.] free trade agreement only customs union only common market only economic union only either common market or economic union
*either common market or economic union* (not positive that this is the correct answer)
6 ways to respond to gov't intervention
-*RESEARCH* (to gather knowledge and intelligence) -*ENTRY STRATEGIES* (choose the most appropriate) -*FTZs* (take advantage of foreign trade zones) -*Customs Classifications* (seek favorable customs classifications for exported products) -*Investment Incentives* (take advantage of these and other gov't support programs) -*LOBBY* (for free trade and investment)
Managing Country risks (4)
-Proactive *environmental scanning* -Strict adherence to *ethical standards* -Alliances with qualified *local partners* -Protection through *legal contracts*
Consequences of Protectionism
-Reduced supply of goods to buyers -Price inflation -Reduced variety, fewer choices available to buyers -Reduced industrial competitiveness -Various adverse unintended consequences (e.g., while the home country dithers, other countries can race ahead)
4 objectives of Defensive Barriers
-Safeguarding industries, workers, special interest groups -Protecting infant industries -Promoting national security (export controls) -National Culture and Identity
Country risk arising from HOST country (6)
-foreign investment laws -controls on operating firms and practices -marketing and distribution laws -laws on income repatriation -environmental laws -contract laws
2 objectives of Offensive Barriers
-national strategic priorities (value-adding industries) -increase employment
Who are the main actors in political and legal systems?
-the government, or the "public sector" -International organizations such as the World Bank, WTO, and United Nations -regional economic blocs (such as the European Union, NAFTA) -local competing firms
*4 Main Objectives of Gov't Intervention*
1) To generate revenue 2) To ensure citizen safety, security, and welfare 3) To pursue economic, political, and social objectives 4) To serve company and industrial interests (to stimulate development of homegrown industries)
*implications of economic integrations* (4)
1) internationalization by firms inside the economic bloc 2) internationalization by firms outside the bloc 3) regional products and marketing strategy 4) rationalization of operations
5 characteristics of the EU Economic Union
1) market access 2) common market 3) trade rules 4) standards harmonization 5) common fiscal, monetary, taxation, and social welfare policies
Maquiladoras account for about ___ of Mexico's exports
1/2
how many members are in the EU
27?
*economic bloc*
A geographic area consisting of two or more countries that agree to pursue economic integration by reducing tariffs and other barriers to the cross-border flow of products, services, capital, and, in more advanced cases, labor.
export controls
A government measure intended to manage or prevent the export of certain products or trade with certain countries
Testing, certification, or inspection requirements are a type of _______________________. Quotas Local content regulations Subsidies Administrative barriers Tariff barriers
Administrative barriers
Which of the following countries is NOT on the U.S. Sanction Program according to the course materials? Iran North Korea Afghanistan Zimbabwe
Afghanistan
International Cartels
An association of producers of a particular good (e.g., OPEC- Organization of Petroleum Export Countries) who agree to fix prices, allocate sales territories, and restrict production.
Who is on the U.S. Sanction list
Balkans, Belarus, Burma (Myanmar), Cuba, Iran Iraq, Libya, Lebanon, North Korea, Somalia, Sudan, Syria, Zimbabwe
Civil law
Based on all-inclusive system of laws that have been "codified" - clearly written by legislative bodies Laws are more "cast in stone" and not strongly subject to interpretation by court
founder members of EU
Belgium, Italy, France, Germany, Luxembourg, and the Netherlands.
Explain socialism
Capital is vested in the state and used primarily as a means of production for use rather than for profit *Group welfare outweighs individual welfare* Gov role is to control the basic means of production, distribution, and commercial activity Socialism occurs often as social democracy (e.g. Western Europe, Brazil, India)
CAFTA (definition and name)
Central American Free Trade Agreement Provide immediate and retroactive duty relief for textile and apparel merchandise shipped to/from the following member
3 socialist countries
China, India, Russia
4 kinds of legal systems
Common law Civil law Religious law Mixed systems
_____ is the seizure of corporate assets without compensation. Sanction Embargo Confiscation Expropriation
Confiscation
2 totalitarian countries
Cuba, North Korea
Democracy and Openness
Democracy is associated with "openness", the lack of regulation and barriers to the entry of firms in foreign markets
Explain democracy
Economic activity occurs freely, as per market forces -limited government -private property rights
The Rule of Law
Existence of a legal system where rules are clear, publicly disclosed, fairly enforced, and widely respected by individuals, organizations, and the gov
what is country risk?
Exposure to potential loss or adverse effects on company operations and profitability cause by developments in a country's political and/or legal environments
Which of the following is currently NOT active? The European Union FTAA NAFTA CAFTA
FTAA
What is the FCPA?
Foreign Corrupt Practices Act (1966; U.S.) made it illegal to offer bribes to foreign parties. But the act may harm U.S. firms because foreign competitors are usually not so constrained
FTAA (definition and name)
Free Trade Area of the Americas A general agreement to form a regional trading zone stretching from Point Barrow, Alaska to Tierra Del Fuego at the tip of Argentina by 2005.
GATT stands for
General Agreement on Tariffs and Trade
Explain totalitarianism
Gov controls all economic and political matters Either theocratic (religion-based) or secular Led by a dictator
non-tariff trade barrier
Government policy, regulation, or procedure that impedes trade.
Most important religious legal systems are based on what religions' law (3)
Hindu, Jewish, and Islamic
Which of the following is NOT true about NAFTA? It has common tariffs arranged among the member countries against non-member countries. The member countries include Mexico, Canada, and the United States. It is a free trade agreement. There have been increased trades among member countries since it was introduced. All of the above are true.
It has common tariffs arranged among the member countries against non-member countries.
Economic Union
Like a common market, but members also aim for common fiscal and monetary policies, and standardized commercial regulations. example: The EU is moving toward an economic union by forming a monetary union with a single currency, the euro.
Common market
Like a customs union, except products, services, and factors of production such as capital, labor, and technology can move freely among the member countries.
_____________ is an economic bloc in Latin America. MERCOSUR ASEAN TPP NAFTA EU
MERCOSUR
Protectionism
National economic policies that restrict free trade. Usually intended to raise revenue or protect domestic industries from foreign competition.
Quota
Quantitative restriction on imports of a specific product (e.g., Imports of Japanese cars).
Political Union
Perfect unification of all policies by a common organization; submersion of all separate national institutions
What are the two sources of country risk?
Political systems and legal systems
RCEP and definition
Regional Comprehensive Economic Partnership a proposed free trade agreement between the ten member states of the Association of Southeast Asian Nations (ASEA)
investment barriers
Rules or laws that hinder foreign direct investment (e.g., Mexico's restrictions in its oil industry).
Customs Union
Similar to a free trade area except the members harmonize their trade policies toward nonmember countries, by enacting *common tariff and nontariff barriers* on imports from nonmember countries. Example: MERCOSUR
*free trade area*
Simplest, most common arrangement. Member countries agree to gradually eliminate formal trade barriers within the bloc, while each member maintains an independent international trade policy with countries outside the bloc. example: NAFTA
Why do some firms favor FTA while others don't?
Strong firms in the industry will favor FTA. Weak firms will oppose it. example: sugar industry Basically, their *strengths in the international market will determine a firm's position* on whether favoring an FTA or not.
Religious law is:
Strongly influenced by religious beliefs, ethical codes, and moral values, viewed as mandated by a supreme being Most important religious legal systems are based on Hindu, Jewish, and Islamic law
examples of mixed economies
Sweden and Singapore
______ affects all industries and all firms in a country. Systematic country risk Unsystematic country risk An expropriation Controllable country risk
Systematic country risk
T/F Continued decline in average tariff rates represent a major driver of market globalization
TRUE
T/F Protectionism/isolationism and the Great Depression prevailed in early 20th century world trade.
TRUE
T/F Agricultural products have higher tariffs than non-agricultural products usually
TRUE Gov't trying to protect certain industries!
example of boycotts
The French hate American brands and boycotted Wendy's and Starbucks
economic freedom is
the absence of government coercion so that people can work, produce, consume, and invest however they want to.
Common law definition
The basis of law is tradition, past practices and legal precedents set by courts via interpretation of statutes, legislation, and past rulings. Judges have much power to interpret laws based on the circumstances of individual cases. Thus, common law is relatively flexible.
Customs
The checkpoint at national ports of entry where officials inspect imported goods and levy tariffs.
Fortress Europe
The concerns of countries outside the EU (non-member countries) that integration of the EU may result in increased restrictions and barriers to trade and investment by outsiders.
*Regional Economic Integration*
The growing economic interdependence that results when nations within a geographic region form an alliance aimed at reducing barriers to trade and investment.
Relationship between Economic and Political Freedom
There is a positive relationship between economic and political freedom. That means if a society has a high level of political freedom then the society is likely to have a high level about economic freedom
Protective Tariff
To protect certain industries or companies in the countries
Punitive Tariff
To punish certain companies or entities
Revenue Tariff
To generate revenue (governments need money for their operations!)
3 major types of political systems
Totalitarianism Socialism Democracy
Largely democratic countries
U.S., Australia, Canada, Japan, New Zealand, Most European and Latin American countries
Which 5 countries have the highest country risk?
Venezuela, Zimbabwe, Afghanistan, Iran, and Libya
GATT eventually became
WTO
Compound tariff
a combination of the two tariffs. $.50 per unit + 7%
Ad valorem tariff
a fixed percentage of the value of the product. ex: 10% of value
Arbitration
a neutral third party hears both sides of a case and decides in favor of one party or the other, based on an objective assessment of the facts
What is a political system?
a set of formal institutions that constitute a government The system also defines how these groups interact with each other
What is a legal system?
a system for interpreting and enforcing laws It incorporates institutions and procedures for ensuring order and resolving disputes in commercial activities
tariff
a tax on imports
The Trans-Pacific Partnership (TPP)
a trade agreement discussed among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The Rule of Law is common in ______ economies
advanced
Systematic country risk
affects all industries, all firms in a country
Unsystematic Country Risk
affects only a subset of firms
Tariffs that are ad valorem are ________. assessed as a percentage of the imported product's value based on the weight or size of the imported product intended to provide a steady flow of income for the government charged regardless of the imported product's value
assessed as a percentage of the imported product's value
*The Index of Economic Freedom*
assesses the rule of law, trade barriers, regulations, and other criteria.
Sanctions are
bans on international trade with extra tariffs, trade barriers, import duties, and import/export quotas
Common law is also known as
case law
Totalitarianism is associated with ______ economies.
command;wherein the state makes all decisions on what to produce, how much at what prices
Which of the following legal systems is based on legal precedents and past practices set by the nation's courts through interpretation of statutes, legislation, and past rulings? civil laws religious laws socialist laws common laws
common laws
Democracy is associated with _____ law, _____ law, and ______________.
common, civil, and mixed systems
3 approaches for resolving contract disputes:
conciliation, arbitration, and litigation
Governments sometimes retaliate against subsidies by imposing ________, tariffs on products imported into a country to offset subsidies given to producers or exporters in the exporting country. countervailing duties local content requirements investment incentives antidumping duties
countervailing duties
Which of the following terms indicates potential loss or adverse effects on company operations and profitability caused by developments in a country's political and/or legal environments? cross-cultural risk country risk currency risk commercial risk
country risk
Conciliation
is a formal process of negotiation whose objective is to resolve differences in a friendly manner. It is the least adversarial method and common in China
Members of ________ agree to adopt common tariffs and non-tariff barriers that are applied to imports from nonmember countries. customs unions free trade areas the NAFTA the EFTA
customs union
two types of rationale for protectionism
defensive barriers and offensive barriers
Administrative barriers
documentations and procedures testing, certification, or inspection requirements
*Antidumping duties*
duties imposed on products whose prices government officials deem too low Fight against some unfair activities and dumping activities of a foreign company in the US or in the domestic market
When the rule of law is weak, _______
economic activity suffers and uncertainty increases
A(n) ______ is an official ban on entire exports to or imports from a particular country, in order to isolate it and punish its government. embargo confiscation sanction expropriation
embargo
Maquiladoras
export assembly plants in northern Mexico along the U.S. border an example of FTZ
Which of the following terms refer to the application of home-country laws to persons or conduct outside national borders? anti-dumping policies anti-boycott regulations extraterritoriality transparency
extraterritoriality
subsidy
financing or other resources that government grants to a firm or group of firms, to ensure their survival or success
Maquiladoras enables...
firms from the U.S., Asia, and Europe to tap low-cost labor, favorable duties, and gov't incentives while serving the U.S. market
GATT was the...
first major effort to reduce trade barriers systematically worldwide
3 types of FDI incentives
fiscal incentives financial incentives non-financial incentives
A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a(n) ________. free trade agreement quota arrangement memorandum of association memorandum of understanding
free trade agreement
NAFTA is an example of which of the following levels of regional integration? free trade area political union economic union common market
free trade area
5 potential levels of regional integration
free trade area, customs union, common market, economic and (sometimes) monetary union, political union
*Countervailing Duties*
government tariffs to offset suspected subsidies provided by foreign governments to their producers
Governments impose offensive barriers to ________. increase employment protect domestic industries promote national security safeguard the interests of special interest groups
increase employment
war and insurrection
indirect effects can be disastrous for company activities
difference between trading blocs (economic blocs) and international cartels
int. cartels are well spread over different geographic areas
OPEC is an example of ______________. international cartel free trade area political union economic union common market
international cartel
________ are transfer payments or tax concessions made directly to foreign firms to entice them to invest in the country. Investment incentives Antidumping duties Countervailing duties Quotas
investment incentives
Common law is mainly _____ in origins and based on _______ ________, whereas civil law is mainly _______ and based on ______________________ .
judicial; court decisions legislative; laws passed by national and state legislature
Embargos are
makes trade activities with specific countries ILLEGAL
Democracy is associated with _________ economies
market
Socialism is associated with _______ economies
mixed; which have features of both market and command economies (e.g. Sweden and Singapore)
If the State of Georgia agreed to purchase the cars assembled by Kia Motors in Georgia, an FDI into Georgia from South Korea, it is a ______________ incentive. fiscal financial non-financial physical
non-financial
A government policy that impedes trade through means other than explicit tariffs is known as a(n) ________. non-tariff trade barrier maquiladora subsidy investment incentive
non-tariff trade barrier
Litigation
occurs when one party files a lawsuit against another. The most adversarial approach, it is common in the US (common in low-context societies!)
Prohibitive Tariff
one so high that no one can import any of the items
Common law originated in where and spread to where
originated in England, and spread to Australia, Canada, USA, and other former members of the British Commonwealth
Country risk is also known as:
political risk
Protectionist policies may also lead to ________. price inflation increased choices for buyers easy availability of products high incentive to improve quality
price inflation
The Smoot-Hawley Act (1937)
raised U.S. tariffs to more than 50% (compared to only 3% today).
Totalitarianism is most associated with _____ law and ______ law
religious, socialist
local content requirements
requirement that firms include a minimum percentage of locally sourced inputs in the production of given products or services ex: cars (locally sourced parts)
Specific tariff
set amount charged per unit ex: $.25 per unit Based on weight, volume, or surface area
Harmonized Code
standardized worldwide system that determines tariff amount
fiscal incentives include
tax breaks
Extraterritoriality
the application of home-country laws to other countries. For example, the European Union pursued Microsoft for monopolistic practices
what does "limited government" mean?
the gov performs only essential functions that serve all citizens, such as national defense, maintaining law & order, foreign relations, and providing basic infrastructure
Passage of NAFTA was facilitated by what
the maquiladora program
terrorism
the threat or actual use of force of violence to attain a political goal through fear and intimidation
GOAL of FTAA
to provide free market access for goods and services to the entire continent by 2005.
A ________ government seeks to control not only all economic and political matters but also the attitudes, values, and beliefs of the citizenry. totalitarian socialistic mixed democratic
totalitarian
Boycotts against firms and nations
voluntary refusal to engage in commercial dealings with a nation or a company
terrorism particularly effects which industries
§ - tourism, hospitality, aviation, finance, and retailing
Home country legal systems
§ The foreign corrupt practices act (FCPA) § Anti-Boycott regulations § Accounting and reporting laws § Transparency in financial reporting
Home country legal systems: (4)
§ The foreign corrupt practices act (FCPA) § Anti-Boycott regulations § Accounting and reporting laws § Transparency in financial reporting
what is creeping expropriation
§ The most common expropriation today § The gov. gradually modifies laws and regulations after foreign MNE's have made big local investments
cooperating nations in regional economic integration obtain:
§ increased product choices, productivity, living standards, § lower prices, and § more efficient resource use.
The GATT did:
§Reduced tariffs via continuous worldwide trade negotiations; §Created an agency to supervise world trade §Created a forum for resolving trade disputes; and §Most favored nation
Current EU member states:
· Austria * · Belgium * · Denmark · Finland * · France * · Germany * · Greece * · Ireland * · Italy * · Luxembourg * · Netherlands * · Portugal * · Spain * · Sweden · BREXIT (was the UK)
*Positive Impacts* of FDI (Host Country)
· Capital formation · Transfer of technology and management skills · Regional and sectorial development · Internal competition and entrepreneurship · Favorable effect on balance of payments · Increased employment
*Negative Impacts* of FDI (Home Country)
· Domestic job loss · Giving away technology and competitive position
NAFTA:
· Eliminated tariffs and most non-tariff barriers for products and services. · Established trade and investment rules, uniform customs procedures, and intellectual property rights. · Provided procedures for settling trade disputes.
Non-financial incentives include
· Government purchases · Protection from competitors · Infrastructure
*Positive Impacts* of FDI (Home Country)
· Increase in GNP · Stimulus to economic growth
*Negative Impacts* of FDI (Host Country)
· Industrial dominance · Technological dependence · Disturbance of economic plans · Cultural change
financial incentives include
· Land · Building · Loans · Loan guarantees
El Mercado Comun del Sur (MERCOSUR)
· The leading economic bloc in South America, accounting for nearly all of the region's GDP. · Launched in 1991, the four initial members were Argentina, Brazil, Paraguay, and Uruguay. · Established free movement of products and services, common external tariff and trade policy, and coordinated monetary and fiscal policies.
Countries involved in CAFTA
· United States · Dominican Republic · Costa Rica · El Salvador · Guatemala · Honduras · Nicaragua