Deck 8: Government Intervention in International Business

Question 1

A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs.

Answer 1

True

Question 2

Governments often impose trade barriers to restrict imports of products or services seen to threaten national assets.

Answer 2

True

Question 3

FDI and ownership restrictions increase the competitive advantage of foreigners while diminishing that of the local firms.

Answer 3

False

Question 4

Increasing trade barriers are a major factor in the growth of developing nations and global commerce.

Question 5

Import substitution refers to substituting exports for imports.

Question 6

Investment barriers is an example of commercial risk in the context of international business.

Question 7

Economic freedom of a nation is based on the military capability, environmental wellness, and income of citizens.

Question 8

A revenue tariff aims to protect domestic industries from foreign competition.

Question 9

Subsidies may allow a manufacturer to practice dumping-that is, to charge an unusually low price for exported products.

Question 10

Governments impose defensive barriers to pursue strategic or public policy objectives, such as increasing employment or generating tax revenues.

Question 11

Dumping violates WTO rules because it amounts to unfair competition.

Question 12

Currency controls harm companies that export their products from the host country, but favor those that rely heavily on imported parts and components.

Question 13

Subsidies can help counterbalance harmful consequences that disproportionately affect the poor.

Question 14

Nations with economies based on agriculture and textile manufacturing generate more economic revenue than do nations with many high-tech industries.

Question 15

A countervailing duty slows the import of products or services and hinders the investment activities of firms.

Question 16

Governments intervene in international trade and investments in order to protect the interests of foreign investment firms.

Question 17

Export-led development refers to government policies that impose high tariffs and quotas on imports from the developed world.

Question 18

Anti-dumping duty reduces or eliminates the competitive advantage of imported products priced at abnormally low levels.

Question 19

Governments impose offensive barriers to safeguard industries, workers, and special interest groups and to promote national security.

Question 20

Economic freedom flourishes when government supports the institutions necessary for that freedom and provides an appropriate level of intervention and regulation.

Question 21

________ 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

Question 22

One approach for reducing exposure to trade barriers is to have exported products classified in the appropriate harmonized product code.

Question 23

If high tariffs are present, managers should consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers.

Question 24

Which of the following is an example of nontariff trade barrier?

A) Gayle Inc. is a U.S.-based retailer that imports cosmetic products manufactured in Thailand. These products pass through U.S. customs and are subject to a 5 percent import duty.
B) The U.S. imports chocolates manufactured in Belgium that cost $65 a box with taxes.
C) The U.S. Department of Commerce announced that white sugar imports will be limited to 7,500 million tons.
D) Spices imported from India to the U.S. for sale in the domestic market are subject to a 10 percent import duty.

Question 25

Maquiladoras refer to export-assembly plants in northern Mexico along the U.S. border that produce components and typically finished products destined for the United States on a tariff-free basis.

Question 26

Which of the following refers to an often-used form of nontariff trade barrier?

A) premium
B) subsidy
C) quota
D) grant

Question 27

A quantitative restriction on specific imports for a set period of time is referred to as ________.

A) tariff
B) quota
C) investment barrier
D) country risk

Question 28

Tariffs rarely vary with the form of an imported product.

Question 29

The WTO was created in 1947 to reduce tariffs through continuous negotiations among member nations.

Question 30

Which of the following is often a result of protectionist policies?

A) price inflation
B) increased choices for buyers
C) easy availability of products
D) high incentive to improve quality

Question 31

The recent global recession and financial crisis arose largely from inadequate regulation and insufficient enforcement of current regulations in the banking and finance sectors.

Question 32

The GATT created a forum for resolving trade disputes.

Question 33

________ is at odds with free trade, the unrestricted flow of products, services, and capital across national borders.

A) Lower-cost import
B) Government intervention
C) FDI
D) Factors of production

Question 34

The purpose of protectionism is to protect ________.

A) domestic industries from foreign competitors
B) foreign firms from domestic competition
C) domestic exports from high production costs
D) foreign and domestic firms from labor unions

Question 35

Which of the following situations is an example of country risk?

A) Fiesta Corp. is an automobile manufacturer based in the U.S. The company's negotiation attempts with China to open a manufacturing factory in Beijing failed owing to cultural differences.
B) Frostees Inc. is a food and beverages company based in the U.S. Its attempt to set up an outlet in Thailand failed primarily owing to a misinterpretation of the memorandum of understanding by a potential business partner in Thailand.
C) Alpha Corp., a rice manufacturer based in Pakistan, suffered losses when the U.S. Department of Commerce decided to impose tariffs on the import of paddy rice to avoid competition for the domestic industry.
D) Tamiaz LLC is a U.S. based manufacturer of clothing with outlets in China, Vietnam, and India. The company incurred a loss due to delayed payments from India owing to fluctuations in the currency exchange rates.

Question 36

Singapore and South Korea used export-led development to achieve high growth from the 1970s onward.

Question 37

Tariffs and most nontariff trade barriers apply to FDI, whereas investment barriers apply to exporting.

Question 38

Obtaining economic development incentives from host- or home-country governments increases the cost of trade and investment barriers.

Question 39

A government policy that impedes trade through means other than explicit tariffs is known as a(n) ________.

A) investment incentive
B) subsidy
C) maquiladora
D) nontariff trade barrier

Question 40

Which of the following is NOT a country risk in international business?

A) government policies that favor domestic firms
B) investment barriers
C) government protectionism
D) currency exchange rate

Question 41

An import license refers to a(n) ________.

A) tax charged on an imported product whose price is below usual prices in the local market
B) list of complex procedures imposed on importers that hinder trade and investment
C) complicated system of establishing quotas
D) government authorization granted to a firm for importing a product

Question 42

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.

Question 43

Which of the following is an example of an offensive rationale for government intervention?

A) The government of Erbia imposes trade restrictions on the export of plutonium to certain countries.
B) The government of Berylia imposes a trade barrier to curtail the import of low-priced products from manufacturers in the developed economies.
C) The government of Argonia imposes investment barriers to safeguard special interest groups.
D) The government of Rhodia requires foreign companies to enter its huge markets through joint ventures with local firms.

Question 44

________ represent a major driver of market globalization.

A) Continuous reductions
B) Export controls
C) Import controls
D) Prohibitive tariffs

Question 45

The Chinese government's policy of requiring foreign firms to enter the Chinese market via joint ventures is intended to ________.

A) limit the amount of FDI
B) create jobs for Chinese workers
C) protect China's national security
D) stimulate foreign investment

Question 46

________ refer to rules that limit the ability of foreign firms to invest in certain industries or acquire local firms.

A) Quotas
B) Regulations and technical standards
C) FDI and ownership restrictions
D) Administrative and bureaucratic procedures

Question 47

In Cadmia, foreign-owned automobile manufacturing companies must be managed by a Cadmian national and most board members must be Cadmian citizens. This exemplify ________.

A) FDI and ownership restrictions
B) administrative and bureaucratic procedures
C) Regulations and technical standards
D) Anti-dumping duty

Question 48

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.

Question 49

Advocates of government intervention in international trade argue that blocking imports will ________.

A) reduce the availability of products sold in the home market
B) protect home-country employment opportunities
C) encourage manufacturers to outsource jobs
D) limit intellectual property theft

Question 50

Under the ________, Canada, Mexico, and the United States have eliminated nearly all tariffs on product imports from each other.

A) APEC
B) FTAAP
C) GATT
D) NAFTA

Question 51

The United Nations estimated that trade barriers alone cost developing countries ________ in lost trading opportunities with developed countries every year.

A) $100 billion
B) $200 billion
C) less than $100 billion
D) more than $500 billion

Question 52

________ 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

Question 53

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

Question 54

Governments impose defensive barriers to ________.

A) generate tax revenues
B) increase employment
C) pursue strategic policy objectives
D) promote national security

Question 55

Products are classified under about 8,000 different unique codes in the ________ schedule, a standardized system used worldwide.

A) harmonized tariff
B) protective tariff
C) revenue tariff
D) specific tariff

Question 56

Typically, administrative and bureaucratic procedures ________.

A) speed up the investment activities of firms
B) slow the import of products or services
C) boost investment activities
D) harm late importers

Question 57

Governments impose export controls for the purpose of ________.

A) improving available opportunities for domestic sales
B) boosting derived demand in the domestic market
C) preventing the export of certain products to certain countries
D) boosting derived demand in foreign markets

Question 58

Governments impose offensive barriers to ________.

A) protect domestic industries
B) promote national security
C) increase employment
D) safeguard the interests of special interest groups

Question 59

Tariffs that are ad valorem are ________.

A) based on the weight or size of the imported product
B) assessed as a percentage of the imported product's value
C) intended to provide a steady flow of income for the government
D) charged regardless of the imported product's value

Question 60

Blocking imports ________.

A) increases the availability of raw materials
B) increases the availability of products sold in the home market
C) reduces the availability of products sold in the home market
D) decreases the cost of products sold in the home market

Question 61

Which of the following criteria is used to evaluate a country's Index of Economic Freedom?

A) environmental wellness
B) military capability
C) level of trade barriers
D) income of non-residents located in that country

Question 62

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following most supports abolishing the cotton quota over maintaining it?

A) The cotton growers have a competitive edge over foreign cotton growers, and they are profitable.
B) The fabric manufacturer, a prime contributor to the nation's annual revenue, can earn better returns by shifting to another country that does not impose cotton quotas.
C) A competing fabric manufacturer is considering opening a production facility in Zanzi.
D) The price of cotton fabric has remain unchanged over the last decade.

Question 63

What is the primary ethical concern regarding the import of products from poor countries?

A) Higher tariffs hurt poor nations more than developed nations.
B) Nations lacking economic freedom cannot afford to export.
C) Emerging nations use government intervention to protect domestic industries.
D) Lack of subsidies adversely affect poor countries.

Question 64

Which of the following Asian countries had launched an ambitious program of industrialization and export-led development that contributed to its rise from poverty in the 1940s to one of the world's wealthiest countries by the 1980s?

A) Indonesia
B) China
C) Japan
D) India

Question 65

Which of the following countries has the lowest degree of economic freedom?

A) South Korea
B) Mexico
C) North Korea
D) Botswana

Question 66

Which of the following countries has the highest degree of economic freedom?

A) Australia
B) China
C) Brazil
D) Venezuela

Question 67

Governments sometimes retaliate against subsidies by imposing ________, tariffs on products imported into a country to offset subsidies given to producers or exporters in the exporting country.

A) local content requirements
B) investment incentives
C) countervailing duties
D) antidumping duties

Question 68

Import substitution failed during the 1950s in Latin America because ________.

A) domestic companies felt exposed to the threats of foreign competition
B) protected enterprises required constant subsidizing and never competed globally
C) high quotas and tariffs did not generate enough revenue to support the government
D) local manufacturing firms required parts and labor from other nations

Question 69

Which of the following is true about a nation's level of economic freedom?

A) One way of evaluating the effects of government intervention is to examine each nation's level of economic freedom.
B) Economic freedom reflects the estimated value of the total worth of a country's production and services.
C) Economic freedom flourishes only in the total absence of governmental intervention and regulation.
D) All advanced economies and emerging markets are characterized by a low degree of economic freedom.

Question 70

In the 1950s, ________ adopted protectionist policies aimed at industrialization and economic development.

A) Latin America
B) Singapore
C) Africa
D) South Korea

Question 71

The so-called ________ specifies that a certain proportion of products and supplies, or of intermediate goods used in local manufacturing, must be produced within the bloc.

A) safe harbor
B) local content requirement
C) rules of origin requirement
D) ad valorem tariff

Question 72

________ are transfer payments or tax concessions made directly to foreign firms to entice them to invest in the country.

A) Investment incentives
B) Antidumping duties
C) Countervailing duties
D) Quotas

Question 73

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following questions would be most important for government officials to evaluate when considering the controversy over the cotton quota?

A) What would be the short-term effect of additional agricultural quotas?
B) What other nations utilize agricultural quotas and what are the effects?
C) Does the government of Zanzi impose heavy duties on dumping?
D) What will be the long-term effect of the cotton quota on the Zanzi economy?

Question 74

By adopting procurement policies, governments ________.

A) incentivize dumping
B) increase the costs of production of domestic industries
C) alienate domestic industries
D) restrict purchases to home-country suppliers

Question 75

Which of the following exemplifies local content requirements?

A) Titania charges a 27 percent tariff on imported dairy products.
B) At least 40 percent of the value of all computers assembled in Titania must be from parts or other inputs produced in Titania.
C) Titania bans imports of firearms.
D) Titania imposes extensive inspections and bureaucratic procedures on the import of alcoholic beverages.

Question 76

Which of the following may allow a manufacturer to practice dumping?

A) countervailing duties
B) subsidies
C) currency control
D) import license

Question 77

In 1938, the United States passed the Smoot-Hawley Tariff Act, which ________.

A) opened foreign markets for U.S. agricultural products
B) led to the consolidation of the U.S. banking system
C) instituted strict regulations to contain intellectual property theft
D) raised U.S. tariffs to near-record highs of more than 50 percent

Question 78

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following best supports maintaining the existing cotton quota?

A) Zanzi cotton growers are protected from cheaper cotton imports.
B) Zanzi cotton growers have an advantage when they export cotton fabric to other countries.
C) The local fabric manufacturer pays high prices for cotton.
D) The local fabric manufacturer uses mostly Zanzi-grown cotton.

Question 79

Which of the following is a frequent problem in national customs agencies?

A) a shortage of customs agents in airports
B) ambiguous product classification
C) arbitrary tariffs and duties
D) lack of understanding of contemporary trade issues among customs agents

Question 80

Restrictions on the outflow of hard currency from a country or on the inflow of foreign currencies is called ________.

A) antidumping duty
B) currency appreciation
C) currency control
D) currency depreciation