Chapter 7 GI, GATT and WTO Q and Answers PDF

International Business: The New Realities, 4e, GE (Cavusgil) Chapter 7 Government Intervention and Regional Economic Integration 1) ________ is at odds with free trade, the unrestricted flow of products, services, and capital across national borders. A) Lower-cost import B) Trade openness C) FDI D)...

International Business: The New Realities, 4e, GE (Cavusgil) Chapter 7 Government Intervention and Regional Economic Integration 1) ________ is at odds with free trade, the unrestricted flow of products, services, and capital across national borders. A) Lower-cost import B) Trade openness C) FDI D) Factors of production Answer: B 2) ________ are checkpoints at the ports of entry in each country where government officials inspect imported products and levy tariffs. A) Nontariff trade barriers B) Customs C) Quotas D) Subsidies Answer: B 38) Protectionist policies may also lead to ________. A) price inflation B) increased choices for buyers C) easy availability of products D) high incentive to improve quality Answer: A 4) Governments impose offensive barriers to ________. A) protect domestic industries B) promote national security C) increase employment D) safeguard the interests of special interest groups Answer: C 5) Governments impose defensive barriers to ________. A) generate tax revenues B) increase employment C) pursue strategic policy objectives D) promote national security Answer: D 6) Which of the following is true with regard to protectionism? A) It increases the availability of raw materials for domestic industries. B) It decreases the cost of products sold in the home market. C) It increases the availability of products sold in the home market. D) It can trigger retaliation from foreign governments, which reduces sales prospects for exports. Answer: D 7) Which of the following statements is true about protection of an infant industry? A) Governments can impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market. B) Such protection is easy to remove. C) Protected companies become more efficient and produce products with lower prices. D) Protecting infant industries rarely allows countries to develop a modern industrial sector. Answer: A 8) ________ refers to a government measure intended to manage or prevent the export of certain products or trade with certain countries. A) Quota B) Export control C) Customs D) Subsidy Answer: B 9) A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs. Answer: TRUE 10) Governments impose offensive barriers to safeguard industries, workers, and special interest groups and to promote national security. Answer: FALSE 11) Nontariff trade barriers have increased in popularity partly because they ________. A) generate profits for foreign firms B) are easier to conceal from the WTO C) restrict trade by imposing direct tax D) have been fairly successful in eliminating smuggling along international borders Answer: B 12) Subsidies may allow a manufacturer to practice dumping-that is, to charge an unusually low price for exported products. Answer: TRUE 13) Dumping violates WTO rules because it amounts to unfair competition. Answer: TRUE 14) Which of the following was the first major effort to systematically reduce trade barriers worldwide? A) WIPO B) GATT C) NAFTA D) WTO Answer: B 15) The GATT created a forum for resolving trade disputes. Answer: TRUE 16) If high tariffs are present, managers may consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers. Answer: TRUE 17) A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a(n) ________. A) quota arrangement B) free trade agreement C) memorandum of association D) memorandum of understanding Answer: B 18) NAFTA is an example of which of the following levels of regional integration? A) free trade area B) political union C) economic union D) common market Answer: A 19) Regional integration greatly increases the scale of the marketplace for firms inside the economic bloc. Answer: TRUE 20) Dumping violates WTO rules because it amounts to unfair competition. Answer: TRUE 21) Which of the following was the first major effort to systematically reduce trade barriers worldwide? A) WIPO B) GATT C) NAFTA D) WTO Answer: B 22) WTO is established during -- -round in city date ______________________ Answer: Uruguay Round negotiations (1986-94) Marrakesh , Morocco 1994 but it starts from 1.1. 1995. 23) In short explain the WTO Answer: The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible. The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since the end of the Second World War. Whereas the GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property. The birth of the WTO also created new procedures for the settlement of disputes. All major decisions are made by the WTO's member governments: either by ministers (who usually meet at least every two years) or by their ambassadors or delegates (who meet regularly in Geneva). The primary purpose of the WTO is to open trade for the benefit of all. The WTO has 164 members representing 98 per cent of world trade. Over 20 countries are seeking to join the WTO. Ministerial conferences usually take place every two years. Ngozi Okonjo-Iweala is the seventh Director-General of the WTO. She took office on 1 March 2021, becoming the first woman and the first African to serve as Director-General. Her term of office will expire on 31 August 2025. 24) In a short essay, describe two methods of government intervention and explain the four major defensive motives for government intervention. Answer: Government intervention is often motivated by protectionism. Protectionism refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition. Protectionism is typically manifested by tariffs, nontariff barriers such as quotas, and arbitrary administrative rules designed to discourage imports. A tariff is a tax imposed by government on imported products, effectively increasing cost of acquisition for the customer. A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs. Four major defensive motives are particularly relevant: protection of the nation's economy, protection of an infant industry, national security, and national culture and identity. 1. PROTECTION OF THE NATIONAL ECONOMY : Proponents argue that firms in advanced economies cannot compete with those in developing countries that employ low-cost labor. Protectionists demand trade barriers to curtail the import of low-priced products. The action is intended to protect jobs and ensure higher wages for workers in advanced economies. 2. PROTECTION OF AN INFANT INDUSTRY: In an emerging industry, companies are often inexperienced and lack the latest technologies and know-how. They also may lack the large size typical of competitors in established industries abroad. A very young industry may need temporary protection from foreign competitors. A government may impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market. 3. NATIONAL SECURITY: Countries impose trade restrictions on products viewed as critical to national defense and security. These include military technology and computers that help maintain domestic production in security-related products. 4. NATIONAL CULTURE AND IDENTITY: Governments may impose trade barriers to restrict imports of products or services seen to threaten such national assets. In the United States, authorities opposed Japanese investors' purchase of the Seattle Mariners baseball team because it is viewed as part of the national heritage. France does not allow significant foreign ownership of its TV stations because of concerns about foreign influence on French culture. 25) In a short essay, describe the negative effects to the economy when a government intervenes in international trade. Answer: Critics counter that protectionism is at odds with the theory of comparative advantage, according to which nations should engage in more international trade, not less. Trade barriers interfere with country-specific specialization of labor. When countries specialize in the products that they can produce best and then trade for the rest, they perform better in the long run, delivering superior living standards to their citizens. Critics also charge that blocking imports reduces the availability and increases the cost of products sold in the home market. Industries cannot access all the input products they need. Finally, protection can trigger retaliation, whereby foreign governments impose their own trade barriers, reducing sales prospects for exporters. 26) Import tariffs are a principle instrument of trade intervention. In a short essay, briefly describe the five main types of import tariffs. Answer: The most common type of tariff is the import tariff, a tax levied on imported products. Import tariffs are usually ad valorem. They are assessed as a percentage of the value of the imported product. In other cases, a government may impose a specific tariff. A specific tariff is a flat fee or fixed amount per unit of the imported product. It is based on weight, volume or surface area, such as barrels of oil or square meters of fabric. A revenue tariff is intended to raise money for the government. A tariff on cigarette imports, for example, produces a steady flow of revenue. A protective tariff aims to protect domestic industries from foreign competition. A prohibitive tariff is one so high that no one can import any of the items. 27) In a short essay, explain how the GATT changed international trade. Answer: In 1947, twenty-three nations signed the General Agreements on Tariffs and Trade (GATT), the first global effort to systematically reduce trade barriers worldwide. The organization proved extremely effective and resulted in the greatest global decline in trade barriers in history. The GATT created: (1) a process to reduce tariffs through continuous negotiations among member nations; (2) an agency to serve as a watchdog over world trade; (3) a forum for resolving trade disputes. The GATT introduced the concept of most favored nation (renamed normal trade relations in 1998), according to which each signatory nation agreed to extend the tariff reductions covered in a trade agreement with a trading partner to all other countries. Thus, a concession to one country became a concession to all. 28) Briefly describe the five levels of economic integration. Answer: There are five possible levels of regional integration. We can think of these levels as a continuum, with economic interconnectedness progressing from a low level of integration-the free trade area-through higher levels to the most advanced form of integration- the political union. The political union represents the ultimate degree of integration among countries, which no countries have yet achieved. The free trade area is the simplest and most common arrangement, in which member countries agree to gradually eliminate formal barriers to trade in products and services within the bloc. Each member country maintains an independent international trade policy with countries outside the bloc. The second level of regional integration is the customs union. It is similar to a free trade area except that member states harmonize their external trade policies and adopt common tariff and nontariff barriers on imports from nonmember countries. In the third stage of regional integration, member countries establish a common market (also known as a single market), in which trade barriers are reduced or removed, common external barriers are established, and products, services, and factors of production such as capital, labor, and technology are allowed to move freely among the member countries. Like a customs union, a common market also establishes a common trade policy with nonmember countries. An economic union is the fourth stage of regional integration, in which member countries enjoy all the advantages of early stages but also strive to have common fiscal and monetary policies. At the extreme, each member country adopts identical tax rates. The bloc aims for standardized monetary policy, which requires establishing fixed exchange rates and free convertibility of currencies among the member states, in addition to allowing the free movement of capital. This standardization helps eliminate discriminatory practices that might favor one member state over another. Through greater mobility of products, services, and production factors, an economic union enables firms within the bloc to locate productive activities in member states with the most favorable economic policies. 29) Describe four advantages of regional integration. Provide an example to illustrate each point. Answer: a. Expand market size-Regional integration greatly increases the scale of the marketplace for firms inside the economic bloc. For example, while Belgium has a population of just 10 million, the absence of trade barriers with other countries in the EU gives Belgian firms easier access to a total market of roughly 500 million buyers. b. Achieve scale economies and enhanced productivity-Expansion of market size within an economic bloc gives member country firms the opportunity to increase the scale of operations in both production and marketing. This leads to greater concentration and increased efficiency in these activities. For instance, where a German firm may be only moderately efficient when producing 10,000 units of a good strictly for the German market, it greatly increases its efficiency by producing 50,000 units for the much larger EU market. c. Attract direct investment from outside the bloc-Compared to investing in stand-alone countries, foreign firms prefer to invest in countries that are part of an economic bloc because factories that they build within the bloc receive preferential treatment for exports to other member countries. For example, many non-European firms-including General Mills, Samsung, and Tata-have invested heavily in the EU to take advantage of Europe's economic integration. By establishing operations in a single EU country, these firms gain free-trade access to the entire EU market. d. Acquire stronger defensive and political posture-Economic blocs allow countries to obtain greater bargaining power and political power in world affairs. For example, the EU enjoys greater influence with the World Trade Organization in trade negotiations than any individual member country. Broadly speaking, countries are more powerful when than cooperate together than when they operate as individual entities.