Deck 11: Regional Economic Arrangements

Question 1

Preferential trade agreements are troublesome in the sense that they weaken the important principle of international trade policy known as:

A) TC.
B) TD.
C) WTO.
D) MFN.
E) RTAA.

Answer 1

MFN.

Question 2

Preferential trade agreements inherently discriminate against countries that do not belong to the agreement and inflict losses on their exporters. This phenomenon is know as:

A) Trade deflection.
B) Trade creation.
C) Trade diversion.
D) The gains from trade.
E) None of the above

Answer 2

Trade diversion.

Question 3

Which of the following is an exception to the most favored nation principle?

A) Trade in petroleum
B) trade with Japan
C) A free-trade area or a customs union
D) Trade in services
E) None of the above

Answer 3

A free-trade area or a customs union

Question 4

Regional trade agreements:

A) are the same for all countries.
B) reduce tariffs and trade barriers equally in all countries.
C) result in the negotiating countries obtaining a margin of preference over countries that are not part of the agreement.
D) favor developed countries.
E) are now very rare.

Question 5

In order for a preferential trade agreement to be legal under international trade rules:

A) it must reduce trade barriers on all agricultural products among member countries.
B) it must reduce trade barriers on a substantial proportion of trade among the member countries.
C) it must reduce restrictions on the mobility of labor and capital among member countries.
D) it must provide a common external tariff for member countries.
E) All of the above

Question 6

GATT/WTO regulations state that in order for a regional trade agreement to be legal:

A) trade barriers must be reduced on substantially all trade within the group.
B) trade barriers must be reduced on only some of the trade within the group.
C) all countries must come to an agreement on the number and size of the quotas that will be in force.
D) all members will be subject to membership fees.
E) All of the above

Question 7

Which of the following is not a level of economic integration between countries?

A) A free-trade area
B) A customs union
C) A common union
D) An economic union
E) None of the above

Question 8

The least integrated category of economic integration is:

A) a common market.
B) a free-trade area.
C) an economic union.
D) a customs union.
E) a political union.

Question 9

A significant feature of a customs union is:

A) that agricultural products are always excluded.
B) that corporate tax rates are always made common.
C) that the only WTO legal customs union is the EU.
D) a common external tariff.
E) a uniform tariff.

Question 10

Which statement is correct?

A) Both customs unions and free-trade areas have a common external tariff.
B) A free-trade area has a common external tariff and a custom union does not.
C) Neither free-trade areas nor customs unions have a common external tariff.
D) A customs union has a common external tariff but a free-trade area does not.
E) Preferential trade agreements cover trade in services.

Question 11

To solve the problems associated with trade deflection within an FTA, countries may adopt:

A) a common market.
B) a common external tariff.
C) rules of origin.
D) rules of negotiation.
E) an industrial policy.

Question 12

What is the major difference between a customs union and a free-trade area?

A) Each country replaces its national tariff schedule with a common external tariff under a customs union.
B) A customs union usually means a shallower level of economic integration.
C) A free-trade area is national in nature and a customs union is regional.
D) In a customs union, tariffs are eliminated and in a free-trade area they are not.
E) A customs union does not have a common external tariff.

Question 13

Which of the following is not one of the features of a common market?

A) Free mobility of labor
B) Free mobility of capital
C) A common external tariff
D) A common currency
E) A political union

Question 14

Which of the following is not a characteristic of a common market?

A) Capital and labor can freely move within member countries.
B) The are no trade restrictions between member countries.
C) Member countries have a common external tariff.
D) Member countries have a common currency.
E) None of the above

Question 15

To create an economic union, countries must complete all of the following except:

A) for the adoption of a common currency.
B) for the harmonizing of specific country policies to those of other members.
C) providing for the mobility of labor and capital among member countries.
D) creating only one political party within the member countries.
E) None of the above

Question 16

Rules of origin are necessary for which of the following reasons?

A) To determine which company produced the product
B) To determine which country produced the product
C) To determine which country consumes the product
D) To determine where the profits of the firm are taxed
E) To certify FDI.

Question 17

When compliance costs associated with the rules of origin exceed the value associated with the reduction of the tariff, then rules of origin become:

A) an effective nontariff barrier to trade.
B) an effective tariff imposed on the foreign firm.
C) a non-effective nontariff barrier to trade.
D) a non-effective tariff imposed on the foreign firm.
E) None of the above

Question 18

Rules of origin are used to counteract:

A) offshore assembly provisions.
B) trade deflection.
C) technical regulations.
D) government procurement regulations.
E) trade diversion

Question 19

Which of the following is not one of the reasons rules of origin are necessary?

A) To gather statistical information on imports
B) To enforce health and safety regulations
C) To enforce higher tariffs on imports from nonWTO countries
D) To assist in balancing the balance of payments
E) None of the above

Question 20

Traditionally, the U.S. has relied on the _____ transformation test to determine the "nationality" of an import.

A) imports
B) environmental
C) substantial
D) legal
E) overall

Question 21

In recent trade agreements, the U.S. has been moving toward defining the origin of imports using a percentage of ______.

A) value added
B) imports
C) exports
D) weight
E) profits

Question 22

Trade creation refers to:

A) the expansion of trade among member countries as a result of the elimination of tariffs.
B) the creation of new products for trade in countries.
C) the creation of a trade program that enhances multinational corporations.
D) the creation of government sanctioned trade with terrorist countries.
E) a form of economic sanctions.

Question 23

When preferential trade agreements are formed, the result is often a reduction of trade with countries that are not members of the group. Such a result is known as:

A) reciprocity.
B) trade creation.
C) purchasing power parity.
D) trade diversion.
E) trade distortion.

Question 24

The U.K. joins the EU and imports wheat from France rather than from Canada and/or the U.S. This is an example of:

A) trade creation.
B) trade diversion.
C) trade modification.
D) trade deflection.
E) trade distortion.

Question 25

When developed countries extend tariff preferences to developing countries and imports from the latter displace imports from the former, a phenomenon known as _____ is taking place.

A) trade creation
B) trade inflation
C) trade diversion
D) trade deflection
E) trade distortion

Question 26

The following figure illustrates Country A's domestic market for a specific imported good.


-With free trade Country A imports:

A) Q1 to Q9 from Country B.
B) Q2 to Q8 from Country C.
C) Q3 to Q7 from Country B.
D) Q4 to Q6 from Country C.
E) None of the above

Question 27

The following figure illustrates Country A's domestic market for a specific imported good.


-If Country A imposes a tariff on imports from both Country B and C, Country A will import:

A) Q1 to Q9 from Country B.
B) Q2 to Q8 from Country C.
C) Q3 to Q7 from Country B.
D) Q4 to Q6 from Country C.
E) Q2 to Q3 from country B.

Question 28

The following figure illustrates Country A's domestic market for a specific imported good.


-Suppose Country A forms a customs union with Country B, Country A will import:

A) Q1 to Q9 from Country B.
B) Q2 to Q8 from Country C.
C) Q3 to Q7 from Country B.
D) Q4 to Q6 from Country C.
E) Q2 to Q5 from country B.

Question 29

The following figure illustrates Country A's domestic market for a specific imported good.


-Suppose Country A forms a customs union with Country C, Country A will import:

A) Q1 to Q9 from Country B.
B) Q2 to Q8 from Country C.
C) Q3 to Q7 from Country B.
D) Q4 to Q6 from Country C.
E) Q1 to Q2 from Country B.

Question 30

The following figure illustrates Country A's domestic market for a specific imported good.


-Suppose Country A forms a customs union with Country C, trade creation is represented by the area:

A) a + b + c + d + e.
B) a + e.
C) b + c + d.
D)+ g + h.
E) d only.

Question 31

The following figure illustrates Country A's domestic market for a specific imported good.


-Suppose Country A forms a customs union with Country C, trade diversion is represented by the area:

A) g.
B)+ h.
C)+ g + h.
D) b + c +d.
E)only.

Question 32

The economic integration of Western Europe began in the:

A) 1930s.
B) 1950s.
C) 1970s.
D) 1990s.
E) 2000s.

Question 33

The beginning of the European Union can be traced back to the early 1950s and the creation of:

A) the European Coal and Steel Community.
B) the European Monetary Union.
C) the International Monetary Fund.
D) the Treaty on European Enlargement.
E) the Maastricht Treaty.

Question 34

European economic integration began with:

A) the European Coal and Steel Community.
B) the Treaty of Rome.
C) the European Economic Community.
D) the European Free Trade Area.
E) end of WWI.

Question 35

The treaty in the late 1950s calling for establishment of a European common market known as the EEC was:

A) the Treaty of Paris.
B) the Treaty of Rome.
C) the Treaty of Brussels.
D) the Treaty on European Union.
E) the Maastricht Treaty.

Question 36

The European Union is:

A) a free-trade area.
B) a customs union.
C) a limited preferential trade agreement covering only agricultural products.
D) an economic union.
E) only a political entity.

Question 37

Which of the following countries is not a member of the EU?

A) Portugal
B) Austria
C) Switzerland
D) Finland
E) the UK.

Question 38

Which of the following countries was not among the founders of what is now known as the EU?

A) Belgium
B) the U.K.
C) Italy
D) France
E) Luxembourg.

Question 39

A U.S. exporter of wheat to the EU faces the same tariff rate on exports to Germany and the U.K. This type of tariff schedule is called:

A) a common external tariff.
B) a common agricultural policy.
C) a common internal tariff.
D) a common market.
E) a uniform tariff.

Question 40

The Common Agricultural Policy was adopted by which group of countries?

A) EFTA
B) EU
C) NAFTA
D) WTO members
E) NAFTA.

Question 41

Which of the following is the acronym for the EU policy of subsidizing farmers?

A) APA
B) EURO
C) CAP
D) CBI
E) MTN

Question 42

Which of the following is not strongly in favor of liberalizing world trade in agricultural products?

A) New Zealand
B) The EU
C) Australia
D) Chile
E) Canada

Question 43

Which of the following is not true concerning the EU?

A) Its integration began over 50 years ago.
B) Its integration began with the ECSC.
C) It includes all Western European countries.
D) It does not include Turkey.
E) It has a common external tariff.

Question 44

One of the most problematic areas for the EU is:

A) the common currency.
B) agriculture.
C) labor movements between member countries.
D) trade barriers between member countries.
E) FDI.

Question 45

Which country is not a member of the European Union?

A) Norway
B) Spain
C) Greece
D) The UK
E) Germany

Question 46

The creation of the Euro was an important milestone for the EU. This new currency was created through the:

A) Treaty of Rome.
B) Uruguay Round.
C) Maastricht Treaty.
D) European Free Trade Association.
E) the Treaty of London.

Question 47

The name of the currency to be issued by the European Monetary Union is the _________ and it began to circulate as a currency in __________ .

A) Eurodollar; 2000
B) ECU; 2002
C) euro; 2005
D) euro; 2002
E) euro, 2007

Question 48

NAFTA is:

A) a free-trade area.
B) a customs union.
C) a limited preferential trade agreement covering only trade in automobiles and parts.
D) an economic union.
E) no longer in force.

Question 49

The NAFTA agreement was most strongly opposed in the U.S. by which group?

A) Automobile firms
B) Labor unions
C) Manufacturing firms
D) Financial institutions
E) farmers.

Question 50

NAFTA:

A) is a free-trade area.
B) must be renewed every five years.
C) will eventually eliminate restrictions on the movement of labor among the member countries.
D) is a customs union.
E) is illegal under WTO rules.

Question 51

The level of integration provided under NAFTA is:

A) a free-trade area.
B) a customs union.
C) a common market.
D) an economic union.
E) a preferential trade agreement.

Question 52

When NAFTA was authorized in 1994, the maximum phase in period for tariff reductions was:

A) 1 year.
B) 3 years.
C) 8 years.
D) 15 years.
E) 20 years.

Question 53

NAFTA and its side agreements do not have provisions dealing with which of the following:

A) tariff reductions.
B) environmental regulations.
C) labor standards.
D) a common currency.
E) FDI.

Question 54

Which of the following statements is correct concerning NAFTA?

A) The agreement includes Mexico, Canada, and the U.S.
B) The agreement covers merchandise trade, trade in services, and investment.
C) Tariff reductions are to be phased in over 15 years.
D) All of the above
E) None of the above

Question 55

Which of the following is not a member of MERCOSUR?

A) Brazil
B) Uruguay
C) Paraguay
D) Venezuela
E) Mexico

Question 56

Which of the following countries is not a full member of MERCOSUR?

A) Brazil
B) Chile
C) Argentina
D) Uruguay
E) Paraguay

Question 57

Until the _____, trade liberalization was occurring primarily through _____ .

A) 1970s, WTO
B) 1980s, multilateral trade negotiations
C) 1950s, GATT
D) 1990s, MFN
E) 2000s, MFN

Question 58

Which form of economic integration is closer to the degree of economic integration characteristic of a country?

A) free-trade agreement
B) customs union
C) common market
D) economic union
E) NAFTA

Question 59

If the U.S. and Mexico sign free-trade agreement, then Japan could experience:

A) trade creation.
B) trade diversion.
C) trade deflection.
D) the harmonization problem.
E) none of the above

Question 60

The founding document of the EU is:

A) the treaty of Maastricht.
B) the treaty of Rome.
C) the articles of Brussels.
D) the Magna Carta.
E) the treaty of Versailles.

Question 61

The EU was formed in:

A) 1914
B) 1946
C) 1957
D) 1962
E) 1971

Question 62

Multilateral reductions in the MFN tariff are essentially nondiscriminatory.

Question 63

Regional trade agreements are inherently discriminatory because they include some countries and exclude other countries.

Question 64

Regional trade agreements and the associated reduction of trade barriers embodied in them are nondiscriminatory.

Question 65

Preferential trade agreements are relatively rare in today's world economy.

Question 66

Free-trade areas and customs unions were legal under GATT and also under the WTO.

Question 67

Regional trade agreements between countries are becoming less important than they were 20 years ago because most countries now participate in multilateral trade negotiations.

Question 68

In terms of the depth and scope of trade, a free-trade area usually is a more comprehensive agreement concerning free trade than the agreement associated with a customs union.

Question 69

If two countries mutually eliminate their tariffs, trade between them will generally increase. This effect is called trade creation.

Question 70

One of the characteristics of a common market is that member countries agree to eliminate trade with nonmember countries.

Question 71

Members of a free-trade area generally allow unrestricted movements of labor and capital among member countries.

Question 72

Preferential trade agreements make the rules of origin governing imports less important.

Question 73

The rules of origin refer to the determination of what company actually produced the product.

Question 74

Rules of origin are so trivial that they have no impact on international trade.

Question 75

Rules of origin are more important when a country is a party to various preferential trade agreements.

Question 76

The U.S. currently relies on the export transformation test to determine the nationality of an imported product.

Question 77

If the costs of complying with a country's rules of origin are higher than the cost of the tariff then the importer is better off just paying the tariff.

Question 78

The increasing complexity of rules of origin allows countries to legally engage in a new form of protectionism.

Question 79

Businesses engaging in international trade would like to see a global harmonization of the rules of origin.

Question 80

The principle embodied in the rules of origin is to determine the "nationality" of the imported product.