Exam 7: Government Policy and International Trade

A) GATT attempted to liberalize trade restrictions in one go.
B) In its early years, GATT was unsuccessful and hence was superseded by the World Bank.
C) GATT regulations were mostly enforced by the EU nations rather than by a mutual monitoring mechanism.
D) Tariff reductions through negotiations were completed in three rounds.
E) The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

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A) VERs benefit consumers by limiting import competition.
B) VERs reduce the domestic price of an imported good.
C) When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply.
D) Foreign producers agree to VERs because they fear economic instability in the world economy.
E) VERs negatively affect domestic producers by increasing import competition.

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A) protection of manufacturing from foreign competition is harmful.
B) absolute advantage cannot sustain productivity of an industry.
C) foreign firms too come under the definition of infant industry when they newly enter a foreign market.
D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.
E) foreign competition will eventually cause domestic firms to improve the quality of their products.

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A) Domestic producers
B) Consumers
C) Exporters and importers
D) Foreign producers
E) International bodies such as WTO

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A) It enhanced protection of patents, copyrights, and trademarks (intellectual property) .
B) It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries.
C) It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.
D) It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements.
E) It reduced the export of pirated imitations of patented innovations pioneered in a different country.

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A) Decrease in subsidies
B) Decrease in protectionism
C) Occurrence of a trade war
D) Huge financial debts for the countries involved
E) Occurrence of a global recession

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C

A) Abiding by the rules enforced by the WTO
B) Curbing the competition offered by foreign firms to domestic firms
C) Reducing exports from a sector, often for political reasons
D) Maintaining a positive trade deficit
E) Increasing the flow of capital in the international market

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First and most obvious, tariff barriers ...

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A) It encourages dumping by foreign companies.
B) It could result in increased tariff barriers by the country that is being pressured.
C) It may expose certain industries that are important for national security to foreign competition.
D) It allows firms to sell goods in the foreign market at below their fair market value.
E) It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market.

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A) First World War.
B) U.S. stock market collapse.
C) spread of communism through Europe.
D) Cold War between the world's superpowers.
E) harvest failure in Great Britain and famine in Ireland.

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B

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The WTO acts as an umbrella organization...

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A) monopolism.
B) dumping.
C) offshoring.
D) nearshoring.
E) subsidizing.

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A) A wide range of services were to be excluded from GATT fair trade and market access rules.
B) Tariffs on industrial goods were to be raised by more than one-third, and tariffs were to be scrapped on more than 50 percent on a wide range of services.
C) The International Monetary Fund (IMF) was to be created to implement the GATT agreement.
D) Barriers on trade in textiles were to be significantly reduced over 10 years.
E) Average tariff rates imposed by developed nations on manufactured goods were to be raised by 20 percent of the value, the highest level in modern history.

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The strategic trade policy argument has two components. First, it is argued that by appropriate actions, 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. Thus, according to the strategic trade policy argument, a government should use subsidies to support promising firms that are active in newly emerging industries. 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. If these arguments are correct, they support a rationale for government intervention in international trade. Governments should target technologies that may be important in the future and use subsidies to support development work aimed at commercializing those technologies. Furthermore, government should provide export subsidies until the domestic firms have established first-mover advantages in the world market. Government support may also be justified if it can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors and emerge as viable competitors in the world market.

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