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True False
2. Specific tariffs are levied as a proportion of the value of the imported good.
True False
True False
True False
5. Under a tariff rate quota, a higher tariff rate is applied to imports within the quota
than those over the quota.
True False
True False
7. Unlike other trade policies, local content regulations tend to benefit consumers
and not producers.
True False
8. The Buy America Act specifies 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 disadvantage.
True False
9. Bureaucratic rules designed to make it difficult for imports to enter a country are
called local content requirements.
True False
10. Local content regulations provide protection for a domestic producer of parts by
limiting foreign competition.
True False
11. A company that sells its product in a foreign market below the cost of production
may be accused of dumping.
True False
12. Antidumping policies are designed to punish foreign firms that are engaged in
dumping.
True False
True False
14. Protecting industries deemed important for national security, and retaliating
against unfair foreign competition are economic arguments for intervention.
True False
15. The Helms-Burton Act of 1996 was aimed at foreign companies that were
undermining U.S. trade sanctions against Libya and Iran.
True False
16. According to the infant industry argument, many developing countries have a
potential comparative advantage in manufacturing, but new manufacturing
industries cannot initially compete with established industries in developed
countries.
True False
17. The infant industry argument is the latest argument for government intervention in
trade.
True False
18. Strategic trade policy suggests that a government should use subsidies to support
promising firms that are active in newly emerging industries.
True False
19. GATT has not recognized the infant industry argument as a legitimate reason for
protectionism.
True False
20. Krugman has suggested that trade policy designed to retaliate against another
country's trade policy would hurt the citizens of both countries.
True False
21. Governments do not always act in the national interest when they intervene in the
economy; politically important interest groups often influence them.
True False
22. The Smoot-Hawley Act raised tariff barriers in the hope of protecting jobs and
diverting consumer demand away from foreign products.
True False
23. The Great Depression had roots in the failure of the world economy to mount a
sustained economic recovery after the end of World War I in 1918.
True False
24. During the 1980s and early 1990s, the world trading system erected by the GATT
gained momentum as protectionist demands generally decreased across the
world.
True False
25. A key goal of the 1986 Uruguay Round was to extend GATT to cover trade in
commodities.
True False
26. The World Trade Organization was created as part of the Uruguay Round.
True False
27. The WTO does not have the power to impose trade sanctions.
True False
28. A key issue in the "millennium round" of the WTO was to increase barriers to
cross-border trade in agricultural products.
True False
29. Human rights activists see WTO rules as outlawing the ability of nations to stop
imports from countries where child labor is used or working conditions are
hazardous.
True False
30. The WTO has the ability to force any member nation to take an action to which it
is opposed.
True False
31. One issue at the forefront of the current agenda of the WTO is the increase in tariff
rates on nonagricultural goods and services in many nations.
True False
32. WTO rules do not allow countries to impose antidumping duties on foreign goods
that are being sold cheaper than at home, or below their cost of production, even
when domestic producers can show that they are being harmed.
True False
33. Antidumping actions are concentrated in certain sectors of the economy such as
basic metal industries, chemicals, plastics, and machinery and electrical
equipment.
True False
34. Free trade in agriculture could jump-start economic growth among the world's
poorer nations and alleviate global poverty.
True False
35. The TRIPS regulations oblige WTO members to grant and enforce patents lasting
at least 20 years and copyrights lasting 50 years.
True False
36. Inadequate protections for intellectual property reduce the incentive for
innovation.
True False
True False
True False
39. The threat of antidumping action limits the ability of a firm to use aggressive
pricing to gain market share in a country.
True False
40. To conform to local content regulations, a firm may have to locate more
production activities in a given market than it would otherwise.
True False
Multiple Choice Questions
41. Which of the following is NOT one of the main instruments of trade policy?
A. Tariffs
B. Credit portfolios
D. Administrative policies
A. consumers.
B. domestic producers.
C. governments.
D. domestic firms.
44. Import tariffs:
45. By lowering production costs, _____ help domestic producers compete against
foreign imports.
A. subsidies
B. duties
C. quotas
D. tariffs
B. Subsidies are used to reduce exports from a sector, often for political reasons.
C. Whether subsidies generate national benefits that exceed their national costs is
debatable.
48. According to the _____ policy, subsidies can help a firm achieve a first-mover
advantage in an emerging industry.
A. strategic trade
B. antidumping
C. tariff quota
D. free trade
49. _____ is a direct restriction on the quantity of some good that may be imported
into a country.
A. Import tariff
B. Import quota
C. Import subsidy
D. Ad valorem tariff
50. A common hybrid of a quota and a tariff is known as a(n):
C. ad valorem tariff.
51. _____ is a quota on trade imposed by the exporting country, typically at the request
of the importing country's government.
C. Trade reconciliation
D. Ad valorem tariff
52. The Japanese government was pressurized by the U.S. government to place limits
on the number of vehicles exported to the United States by Japanese automobile
producers in 1981. This is an example of:
B. specific tariffs.
D. ad valorem tariff.
53. Tariff rate quotas are common in agriculture, where their goal is to:
D. the extra profit producers make when supply is artificially limited by an import
quota.
B. they can divert their exports to other countries and charge more for their
products.
C. they fear far more damaging punitive tariffs or import quotas might follow if
they do not.
A. import quotas
D. antidumping duties
58. According to the Buy America Act, if a company wishes to win a contract from a
U.S. government agency to provide some equipment, it must ensure that at least
51 percent of the product by value is manufactured in the United States. This is an
example of:
A. antidumping duties.
C. import quotas.
A. Export restraint
D. Ad valorem
62. _____ is variously defined as selling goods in a foreign market at below their costs
of production or as selling goods in a foreign market at below their "fair" market
value.
A. Export restraint
B. Dumping
D. Ad valorem
63. In 1997, two South Korean manufacturers of semiconductors, LG Semicon and
Hyundai Electronics, were accused of selling dynamic random access memory
chips (DRAMs) in the U.S. market at below their costs of production. It was alleged
that the firms were trying to unload their excess production in the United States.
This is an example of:
A. ad valorem tariff.
B. subsidy.
C. dumping.
D. import quota.
64. The U.S. government has used the threat of punitive trade sanctions to try to get
the Chinese government to enforce its intellectual property laws. This is an
example of government intervention based on:
B. national security.
C. consumer protection.
D. retaliation.
65. Which of the following acts allows Americans to sue foreign firms that use property
in Cuba confiscated from them after the 1959 revolution?
A. D'Amato Act
B. Smoot-Hawley Act
C. Helms-Burton Act
D. Antidumping Act
66. According to the _____ argument, governments should temporarily support new
industries until they have grown strong enough to meet international competition.
A. retaliatory action
B. human rights
C. infant industry
D. antidumping
67. The infant industry argument is criticized because it relies on an assumption that:
B. selling goods in a foreign market at below their "fair" market value is legally and
ethically justified.
A. government intervention is not required because firms can borrow money from
the capital markets to finance the required investments.
B. selling goods in a foreign market at below their "fair" market value is legally and
ethically justified.
D. a government should use subsidies to support promising firms that are active in
old, established industries.
69. Economic problems during the Great Depression were compounded in 1930 when
the U.S. Congress passed the _____, aimed at avoiding rising unemployment by
protecting domestic industries and diverting consumer demand away from foreign
products.
A. Smoot-Hawley Act
B. Antidumping Act
C. Helms-Burton Act
D. D'Amato Act
C. The persistent trade surplus in the United States strained the world trading
system.
72. Until 1995, GATT rules applied to all of the following EXCEPT:
A. manufactured goods.
B. services.
C. textiles.
D. agricultural products.
73. According to the 1986 Uruguay Round, the _____ was to be created to implement
the GATT agreement.
C. United Nations
D. World Bank
74. After the Uruguay Round of GATT extended global trading rules to cover trade in
services, the first two industries targeted for reform by the WTO were:
76. The WTO argues that removing tariff barriers and subsidies in the agricultural
sector could:
78. TRIPS regulations oblige WTO members to all of the following EXCEPT:
C. comply with the rules within five years in the case of rich countries.
D. comply with the rules within 10 years in the case of the poorest countries.
79. _____ are the highest rate that can be charged, which is often, but not always, the
rate that is charged.
B. Tariff rents
C. They may limit a firm's ability to serve a country from locations outside of that
country.
Essay Questions
81. Compare and contrast import quotas and voluntary export restraints.
82. What is a quota rent? Provide an example of how an import quota affects price.
83. Discuss the Buy America Act and its connection with local content requirements.
84. Explain how governments use administrative trade policies to boost exports and
restrict imports. Provide an example of an administrative trade policy.
85. What is dumping? How do governments respond to charges of dumping?
87. What are the political reasons for governments to intervene in markets?
88. Discuss the economic reasons for government intervention in markets.
89. Discuss the infant industry argument for intervention in markets. What is GATT's
position on the argument?
93. What happened to GATT during the 1980s and early 1990s?
94. What has been the experience of the WTO to date? What does the future look like
for the organization?
95. What are the central issues facing the WTO at the present time?
96. Why are tariff rates on agricultural products generally higher than tariff rates on
manufactured products or services?
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
2. Specific tariffs are levied as a proportion of the value of the imported good.
FALSE
Tariffs fall into two categories. Specific tariffs are levied as a fixed charge for
each unit of a good imported. Ad valorem tariffs are levied as a proportion of
the value of the imported good.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
4. A subsidy helps domestic producers to compete against foreign imports.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
5. Under a tariff rate quota, a higher tariff rate is applied to imports within the
quota than those over the quota.
FALSE
Under a tariff rate quota, a lower tariff rate is applied to imports within the
quota than those over the quota.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
6. A common hybrid of a quota and a rent is known as a quota rent.
FALSE
The extra profit that producers make when supply is artificially limited by an
import quota is referred to as a quota rent.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
7. Unlike other trade policies, local content regulations tend to benefit consumers
and not producers.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
8. The Buy America Act specifies 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 disadvantage.
FALSE
A little-known law in the United States, the Buy America Act, specifies 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
9. Bureaucratic rules designed to make it difficult for imports to enter a country are
called local content requirements.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
10. Local content regulations provide protection for a domestic producer of parts
by limiting foreign competition.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
11. A company that sells its product in a foreign market below the cost of
production may be accused of dumping.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
12. Antidumping policies are designed to punish foreign firms that are engaged in
dumping.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
14. Protecting industries deemed important for national security, and retaliating
against unfair foreign competition are economic arguments for intervention.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
15. The Helms-Burton Act of 1996 was aimed at foreign companies that were
undermining U.S. trade sanctions against Libya and Iran.
FALSE
In 1996 the U.S. Congress passed the Helms-Burton Act. This act allows
Americans to sue foreign firms that use property in Cuba confiscated from them
after the 1959 revolution.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
16. According to the infant industry argument, many developing countries have a
potential comparative advantage in manufacturing, but new manufacturing
industries cannot initially compete with established industries in developed
countries.
TRUE
The infant industry argument is by far the oldest economic argument for
government intervention. According to this argument, many developing
countries have a potential comparative advantage in manufacturing, but new
manufacturing industries cannot initially compete with established industries in
developed countries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
17. The infant industry argument is the latest argument for government intervention
in trade.
FALSE
The infant industry argument is by far the oldest economic argument for
government intervention. Alexander Hamilton proposed it in 1792.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
18. Strategic trade policy suggests that a government should use subsidies to
support promising firms that are active in newly emerging industries.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
19. GATT has not recognized the infant industry argument as a legitimate reason
for protectionism.
FALSE
The infant industry argument has had substantial appeal for the governments of
developing nations during the past 50 years, and the GATT has recognized the
infant industry argument as a legitimate reason for protectionism.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
20. Krugman has suggested that trade policy designed to retaliate against another
country's trade policy would hurt the citizens of both countries.
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-03 Summarize and explain the arguments against strategic trade policy.
Topic: The Revised Case for Free Trade
21. Governments do not always act in the national interest when they intervene in
the economy; politically important interest groups often influence them.
TRUE
Governments do not always act in the national interest when they intervene in
the economy; politically important interest groups often influence them.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-03 Summarize and explain the arguments against strategic trade policy.
Topic: The Revised Case for Free Trade
22. The Smoot-Hawley Act raised tariff barriers in the hope of protecting jobs and
diverting consumer demand away from foreign products.
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
23. The Great Depression had roots in the failure of the world economy to mount a
sustained economic recovery after the end of World War I in 1918.
TRUE
By the 1930s, the British attempt to stimulate free trade was buried under the
economic rubble of the Great Depression. The Great Depression had roots in
the failure of the world economy to mount a sustained economic recovery after
the end of World War I in 1918. Things got worse in 1929 with the U.S. stock
market collapse and the subsequent run on the U.S. banking system.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
24. During the 1980s and early 1990s, the world trading system erected by the GATT
gained momentum as protectionist demands generally decreased across the
world.
FALSE
During the 1980s and early 1990s, the world trading system erected by the GATT
came under strain as pressures for greater protectionism increased around the
world.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
25. A key goal of the 1986 Uruguay Round was to extend GATT to cover trade in
commodities.
FALSE
In the Uruguay Round, member countries sought to extend GATT rules to cover
trade in services. They also sought to write rules governing the protection of
intellectual property, to reduce agricultural subsidies, and to strengthen the
GATT's monitoring and enforcement mechanisms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
26. The World Trade Organization was created as part of the Uruguay Round.
TRUE
The Uruguay Round dragged on for seven years before an agreement was
reached December 15, 1993. It went into effect July 1, 1995. The World Trade
Organization was created to implement the GATT agreement.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
27. The WTO does not have the power to impose trade sanctions.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
28. A key issue in the "millennium round" of the WTO was to increase barriers to
cross-border trade in agricultural products.
FALSE
At the end of November 1999, representatives from the WTO's member states
met in Seattle, Washington. The goal of the meeting was to launch a new round
of talks—dubbed "the millennium round"—aimed at further reducing barriers to
cross-border trade and investment.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
29. Human rights activists see WTO rules as outlawing the ability of nations to stop
imports from countries where child labor is used or working conditions are
hazardous.
TRUE
Human rights activists see WTO rules as outlawing the ability of nations to stop
imports from countries where child labor is used or working conditions are
hazardous.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
30. The WTO has the ability to force any member nation to take an action to which
it is opposed.
FALSE
The WTO lacks the ability to force any member nation to take an action to
which it is opposed. The WTO can allow member nations to impose retaliatory
tariffs on countries that do not abide by WTO rules, but that is the limit of its
power.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
31. One issue at the forefront of the current agenda of the WTO is the increase in
tariff rates on nonagricultural goods and services in many nations.
TRUE
Four issues at the forefront of the current agenda of the WTO are the increase
in antidumping policies, the high level of protectionism in agriculture, the lack of
strong protection for intellectual property rights in many nations, and continued
high tariff rates on nonagricultural goods and services in many nations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
32. WTO rules do not allow countries to impose antidumping duties on foreign
goods that are being sold cheaper than at home, or below their cost of
production, even when domestic producers can show that they are being
harmed.
FALSE
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
33. Antidumping actions are concentrated in certain sectors of the economy such as
basic metal industries, chemicals, plastics, and machinery and electrical
equipment.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
34. Free trade in agriculture could jump-start economic growth among the world's
poorer nations and alleviate global poverty.
TRUE
Developing nations have been pushing hard for reforms that would allow their
producers greater access to the protected markets of the developed nations.
Free trade in agriculture could help to jump-start economic growth among the
world's poorer nations and alleviate global poverty.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
35. The TRIPS regulations oblige WTO members to grant and enforce patents
lasting at least 20 years and copyrights lasting 50 years.
TRUE
The TRIPS regulations oblige WTO members to grant and enforce patents
lasting at least 20 years and copyrights lasting 50 years. Rich countries had to
comply with the rules within a year. Poor countries, in which such protection
generally was much weaker, had five years' grace, and the very poorest had 10
years.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
36. Inadequate protections for intellectual property reduce the incentive for
innovation.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
FALSE
Tariffs on services remain higher than on industrial goods. The average tariff on
business and financial services imported into the United States, for example, is
8.2 percent, into the EU it is 8.5 percent, and into Japan it is 19.7 percent. Given
the rising value of cross-border trade in services, reducing these figures can be
expected to yield substantial gains.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
39. The threat of antidumping action limits the ability of a firm to use aggressive
pricing to gain market share in a country.
TRUE
The threat of antidumping action 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
40. To conform to local content regulations, a firm may have to locate more
production activities in a given market than it would otherwise.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
A. Tariffs
B. Credit portfolios
D. Administrative policies
Trade policy uses seven main instruments: tariffs, subsidies, import quotas,
voluntary export restraints, local content requirements, administrative policies,
and antidumping duties. Tariffs are the oldest and simplest instrument of trade
policy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
42. Specific tariffs are:
Specific tariffs are levied as a fixed charge for each unit of a good imported (for
example, $3 per barrel of oil).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
43. Tariffs do not benefit:
A. consumers.
B. domestic producers.
C. governments.
D. domestic firms.
The important thing to understand about an import tariff is who suffers and who
gains. The government gains, because the tariff increases government revenues.
Domestic producers gain, because the tariff affords them some protection
against foreign competitors by increasing the cost of imported foreign goods.
Consumers lose because they must pay more for certain imports.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
44. Import tariffs:
Import tariffs reduce the overall efficiency of the world economy. They reduce
efficiency because a protective tariff encourages domestic firms to produce
products at home that, in theory, could be produced more efficiently abroad.
The consequence is an inefficient utilization of resources.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
45. By lowering production costs, _____ help domestic producers compete against
foreign imports.
A. subsidies
B. duties
C. quotas
D. tariffs
By lowering production costs, subsidies help domestic producers in two ways: (1)
competing against foreign imports and (2) gaining export markets.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
46. Which of the following observations about subsidies is true?
B. Subsidies are used to reduce exports from a sector, often for political
reasons.
C. Whether subsidies generate national benefits that exceed their national costs
is debatable.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
47. Which of the following is a consequence of subsidies?
In practice, many subsidies are not that successful at increasing the international
competitiveness of domestic producers. Rather, they tend to protect the
inefficient and promote excess production.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
48. According to the _____ policy, subsidies can help a firm achieve a first-mover
advantage in an emerging industry.
A. strategic trade
B. antidumping
C. tariff quota
D. free trade
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
49. _____ is a direct restriction on the quantity of some good that may be imported
into a country.
A. Import tariff
B. Import quota
C. Import subsidy
D. Ad valorem tariff
An import quota is a direct restriction on the quantity of some good that may
be imported into a country. The restriction is usually enforced by issuing import
licenses to a group of individuals or firms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
50. A common hybrid of a quota and a tariff is known as a(n):
C. ad valorem tariff.
A common hybrid of a quota and a tariff is known as a tariff rate quota. Under a
tariff rate quota, a lower tariff rate is applied to imports within the quota than
those over the quota.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
51. _____ is a quota on trade imposed by the exporting country, typically at the
request of the importing country's government.
C. Trade reconciliation
D. Ad valorem tariff
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
52. The Japanese government was pressurized by the U.S. government to place
limits on the number of vehicles exported to the United States by Japanese
automobile producers in 1981. This is an example of:
B. specific tariffs.
D. ad valorem tariff.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
53. Tariff rate quotas are common in agriculture, where their goal is to:
Under a tariff rate quota, a lower tariff rate is applied to imports within the
quota than those over the quota. Tariff rate quotas are common in agriculture,
where their goal is to limit imports over quota.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
54. A quota rent is:
The extra profit that producers make when supply is artificially limited by an
import quota is referred to as a quota rent.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
55. Foreign producers typically agree to voluntary export restrictions because:
B. they can divert their exports to other countries and charge more for their
products.
C. they fear far more damaging punitive tariffs or import quotas might follow if
they do not.
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
56. Which of the following statements concerning a voluntary export restraint is
NOT true?
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
57. According to _____, some specific fraction of a good must be produced
domestically.
A. import quotas
D. antidumping duties
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
58. According to the Buy America Act, if a company wishes to win a contract from a
U.S. government agency to provide some equipment, it must ensure that at
least 51 percent of the product by value is manufactured in the United States.
This is an example of:
A. antidumping duties.
C. import quotas.
The Buy America Act specifies 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 percent of the materials by value are produced
domestically. This amounts to a local content requirement.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
59. Local content regulations:
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
60. Administrative trade policies are:
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
61. The Netherlands exported tulip bulbs to almost every country in the world
except Japan. This was because in Japan, customs inspectors insisted on
checking every tulip bulb by cutting it vertically down the middle. This is an
example of which of the following trade barriers?
A. Export restraint
D. Ad valorem
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
62. _____ is variously defined as selling goods in a foreign market at below their
costs of production or as selling goods in a foreign market at below their "fair"
market value.
A. Export restraint
B. Dumping
D. Ad valorem
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
63. In 1997, two South Korean manufacturers of semiconductors, LG Semicon and
Hyundai Electronics, were accused of selling dynamic random access memory
chips (DRAMs) in the U.S. market at below their costs of production. It was
alleged that the firms were trying to unload their excess production in the
United States. This is an example of:
A. ad valorem tariff.
B. subsidy.
C. dumping.
D. import quota.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
64. The U.S. government has used the threat of punitive trade sanctions to try to
get the Chinese government to enforce its intellectual property laws. This is an
example of government intervention based on:
B. national security.
C. consumer protection.
D. retaliation.
Some argue that governments should use the threat to intervene in trade policy
as a bargaining tool to help open foreign markets and force trading partners to
"play by the rules of the game." The U.S. government has used the threat of
punitive trade sanctions to try to get the Chinese government to enforce its
intellectual property laws.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
65. Which of the following acts allows Americans to sue foreign firms that use
property in Cuba confiscated from them after the 1959 revolution?
A. D'Amato Act
B. Smoot-Hawley Act
C. Helms-Burton Act
D. Antidumping Act
In 1996 the U.S. Congress passed the Helms-Burton Act. This act allows
Americans to sue foreign firms that use property in Cuba confiscated from them
after the 1959 revolution. Later in 1996, Congress passed a similar law, the
D'Amato Act, aimed at Libya and Iran.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
66. According to the _____ argument, governments should temporarily support new
industries until they have grown strong enough to meet international
competition.
A. retaliatory action
B. human rights
C. infant industry
D. antidumping
The infant industry argument is by far the oldest economic argument for
government intervention. According to this argument, many developing
countries have a potential comparative advantage in manufacturing, but new
manufacturing industries cannot initially compete with established industries in
developed countries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
67. The infant industry argument is criticized because it relies on an assumption
that:
B. selling goods in a foreign market at below their "fair" market value is legally
and ethically justified.
The infant industry 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. Consequently, governments have been required
to subsidize long-term investments.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
68. According to the strategic trade policy argument:
B. selling goods in a foreign market at below their "fair" market value is legally
and ethically justified.
D. a government should use subsidies to support promising firms that are active
in old, established industries.
According to 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.
The second component of the strategic trade policy argument is that 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
69. Economic problems during the Great Depression were compounded in 1930
when the U.S. Congress passed the _____, aimed at avoiding rising
unemployment by protecting domestic industries and diverting consumer
demand away from foreign products.
A. Smoot-Hawley Act
B. Antidumping Act
C. Helms-Burton Act
D. D'Amato Act
Economic problems were compounded in 1930 when the U.S. Congress passed
the Smoot-Hawley tariff. Aimed at avoiding rising unemployment by protecting
domestic industries and diverting consumer demand away from foreign
products, the Smoot-Hawley Act erected an enormous wall of tariff barriers.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
70. The Smoot-Hawley Act aimed at:
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
71. Which of the following is a reason for the pressure for greater protectionism
that occurred during the 1980s and early 1990s?
C. The persistent trade surplus in the United States 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. From a political perspective, the
matter was worsened in 1992 by the $45 billion U.S. trade deficit with Japan, a
country perceived as not playing by the rules.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
72. Until 1995, GATT rules applied to all of the following EXCEPT:
A. manufactured goods.
B. services.
C. textiles.
D. agricultural products.
Until 1995, GATT rules applied only to industrial goods (i.e., manufactured goods
and commodities). Until the Uruguay Round, GATT rules had applied only to
trade in manufactured goods and commodities. In the Uruguay Round, member
countries sought to extend GATT rules to cover trade in services.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
73. According to the 1986 Uruguay Round, the _____ was to be created to
implement the GATT agreement.
C. United Nations
D. World Bank
The Uruguay Round contained the following provision: The World Trade
Organization was to be created to implement the GATT agreement.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
74. After the Uruguay Round of GATT extended global trading rules to cover trade
in services, the first two industries targeted for reform by the WTO were:
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
75. The "millennium round" ended in 1999 with:
At the end of November 1999, representatives from the WTO's member states
met in Seattle, Washington. The goal of the meeting was to launch a new round
of talks—dubbed "the millennium round"—aimed at further reducing barriers to
cross-border trade and investment. The talks ended December 3, 1999, without
reaching any agreement.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
76. The WTO argues that removing tariff barriers and subsidies in the agricultural
sector could:
The WTO argues that removing tariff barriers and subsidies could significantly
boost the overall level of trade, lower prices to consumers, and raise global
economic growth by freeing consumption and investment resources for more
productive uses.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
77. The TRIPS regulations established at the 1995 Uruguay Round:
The 1995 Uruguay agreement that established the WTO also contained an
agreement to protect intellectual property (the Trade-Related Aspects of
Intellectual Property Rights, or TRIPS, agreement). The TRIPS regulations oblige
WTO members to grant and enforce patents lasting at least 20 years and
copyrights lasting 50 years.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
78. TRIPS regulations oblige WTO members to all of the following EXCEPT:
C. comply with the rules within five years in the case of rich countries.
D. comply with the rules within 10 years in the case of the poorest countries.
The 1995 Uruguay agreement that established the WTO also contained an
agreement to protect intellectual property (the Trade-Related Aspects of
Intellectual Property Rights, or TRIPS, agreement). The TRIPS regulations oblige
WTO members to grant and enforce patents lasting at least 20 years and
copyrights lasting 50 years. The very poorest countries had 10 years to comply
with the rules.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
79. _____ are the highest rate that can be charged, which is often, but not always,
the rate that is charged.
B. Tariff rents
Bound tariff rates are the highest rate that can be charged, which is often, but
not always, the rate that is charged. Australia and South Korea, both OECD
countries, still have bound tariff rates of 15.1 percent and 24.6 percent,
respectively, on imports of transportation equipment.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
80. Identify the INCORRECT statement about trade barriers.
C. They may limit a firm's ability to serve a country from locations outside of
that country.
Tariff barriers raise the costs of exporting products to a country (or of exporting
partly finished products between countries). This may put the firm at a
competitive disadvantage to indigenous competitors in that country.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
Essay Questions
81. Compare and contrast import quotas and voluntary export restraints.
An import quota is a direct restriction on the quantity of some good that may
be imported into a country. The restriction is normally enforced by issuing
import licenses to a group of individuals or firms. In contrast, a voluntary export
restraint (VER) is a quota on trade imposed by the exporting country, typically at
the request of the importing country's government. Foreign producers agree to
VERs because they fear more damaging punitive tariffs or import quotas might
follow if they do not. Both import quotas and VERs benefit domestic producers,
but hurt consumers through higher prices.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
82. What is a quota rent? Provide an example of how an import quota affects price.
The extra profit that producers make when supply is artificially limited by an
import quota is referred to as a quota rent. If a domestic industry lacks the
capacity to meet demand, an import quota can raise prices for both the
domestically produced and the imported good. This happened in the U.S. sugar
industry, in which a tariff rate quota system has long limited the amount foreign
producers can sell in the U.S. market. According to one study, import quotas
have caused the price of sugar in the United States to be as much as 40 percent
greater than the world price.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
83. Discuss the Buy America Act and its connection with local content
requirements.
The Buy America Act specifies 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 being "American" if 51 percent of the materials by value are
produced domestically. This amounts to a local content requirement that calls
for a specific fraction of a good to be produced locally.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
84. Explain how governments use administrative trade policies to boost exports and
restrict imports. Provide an example of an administrative trade policy.
Administrative trade policies are bureaucratic rules that are almost always
deliberately designed to restrict the flow of a particular import into a country.
The Japanese are considered masters of this trade barrier. Students will probably
use the example of tulip bulbs when discussing this question. The Netherlands
exports tulip bulbs to almost every country of the world except Japan. The
reason is that Japanese customs inspectors insist on checking every tulip bulb by
cutting it vertically down the middle, which in effect ruins the bulb.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
85. What is dumping? How do governments respond to charges of dumping?
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
86. Explain the notion of predatory behavior with regard to dumping.
A firm that is dumping is selling its product in a foreign market at below their
costs of production, or is selling goods in a foreign market at below their "fair"
market value. Dumping may be the result of predatory behavior, with producers
using substantial profits from their home markets to subsidize profits in a
foreign market with a goal of driving indigenous competitors out of that market.
Once the firm achieves its goal, the company will raise prices and earn
substantial profits.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
87. What are the political reasons for governments to intervene in markets?
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
89. Discuss the infant industry argument for intervention in markets. What is GATT's
position on the argument?
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
90. What is strategic trade policy? Provide an example.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Understand why governments sometimes intervene in international trade.
Topic: The Case for Government Intervention
91. What is Paul Krugman's position on strategic trade policy?
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-03 Summarize and explain the arguments against strategic trade policy.
Topic: The Revised Case for Free Trade
92. Discuss the establishment of GATT. What was GATT's objective?
The GATT was a multilateral agreement whose objective was to liberalize trade
by eliminating tariffs, subsidies, import quotas, and other trade barriers. GATT
was established in 1947 with 19 members. Membership increased to more than
120 nations by the time it was superseded by the WTO. Under GATT, tariff
reduction was spread over eight rounds. The last round, the Uruguay Round,
resulted in the establishment of the WTO which, among other things took over
the role of GATT in the global economy.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
93. What happened to GATT during the 1980s and early 1990s?
During the 1980s and early 1990s, the world trading system established by GATT
came under significant strain as pressures for greater protectionism mounted
around the world. Three issues in particular were important. First, the economic
success of Japan strained the world trading system. Second, the world's trading
system was further strained by the persistent trade deficit in the world's largest
economy, the United States. Finally, many countries found ways to get around
GATT regulations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
94. What has been the experience of the WTO to date? What does the future look
like for the organization?
By 2011, the WTO had 153 members with more in the application process. The
WTO has remained at the forefront of efforts to promote free trade. So far, it
appears that its policing and enforcement mechanisms are having a positive
effect. Countries are using the WTO to settle trade disputes, which represents an
important vote of confidence in the organization's dispute resolution
procedures. So far, the users of the system have included both developed and
developing countries, which is also a promising development. In addition, some
powerful developed countries, including the United States, have been willing to
accept WTO rulings that have gone against them, which attest to the
organization's legitimacy.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
95. What are the central issues facing the WTO at the present time?
Four issues at the top of the agenda for the WTO are the increase in
antidumping policies, the high level of protectionism in agriculture, the lack of
strong protection for intellectual property rights in many nations, and continued
high tariff rates on nonagricultural goods and services in many nations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
96. Why are tariff rates on agricultural products generally higher than tariff rates on
manufactured products or services?
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
97. What is the TRIPS agreement? Why was it established?
The 1995 Uruguay agreement that established the WTO also contained an
agreement to protect intellectual property (the Trade-Related Aspects of
Intellectual Property Rights, or TRIPS, agreement). The TRIPS regulations oblige
WTO members to grant and enforce patents lasting at least 20 years and
copyrights lasting 50 years. The basis for this agreement was a strong belief
among signatory nations that the protection of intellectual property through
patents, trademarks, and copyrights must be an essential element of the
international trading system. 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
98. Discuss the Doha Round of trade talks.
The Doha Round began in 2001. Its agenda focused on cutting tariffs on
industrial goods and services, phasing out subsidies to agricultural producers,
reducing barriers to cross-border investment, and limiting the use of
antidumping laws. Estimates suggest that a successful Doha Round would raise
global incomes by as much as $300 billion annually, with 60 percent of the gain
going to the world's poorer nations, which would help to pull 150 million people
out of poverty. As of early 2011, the goal was to reduce tariffs for manufactured
and agricultural goods by 60 to 70 percent, and to cut subsidies to half of their
current level, but getting nations to agree to these goals was proving
exceedingly difficult.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
99. Explain how trade barriers affect a firm's strategy.
There are four main ways trade barriers affect a firm's strategy. First, tariffs raise
the cost of exporting, putting the firm at a competitive disadvantage. Second,
quotas may limit a firm's ability to serve a country from outside of that country.
Third, to conform to local content regulations, a firm may have to locate more
production activities in a given market than it would otherwise. Finally, the threat
of antidumping actions limits the firm's ability to use aggressive pricing to gain
market share in a country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
100. What are the drawbacks of government intervention?
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers