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CHAPTER 3 TRADE DISTORTIONS AND MARKETING BARRIERS

MULTIPLE CHOICE 1. Perhaps, the most credible argument for protectionist measures is a) keeping money at home c) enhancing national security e) protecting infant industry (X) 2. A penalty duty to offset a subsidy is a) protective tariff c) tariff surcharge e) variable duties b) revenue tariff d) countervailing duty (X) b) reducing unemployment d) equalizing cost and price

3. Compared to a protective tariff, a revenue tariff is a) lower (X) c) about the same b) higher

4. Compared to tariff surcharge, countervailing duties are a) temporary c) equal in terms of duration 5. A duty of $1/gallon is a) specific duties (X) c) compound duty b) ad valorem duties d) combined rates b) permanent (X)

6. The duties stated as a fixed percentage of the invoice value are a) specific duties c) compound duty 7. The United States uses a) single-stage sales tax (X) c) cascade tax b) value added tax d) excise tax b) ad valorem duties (X) d) combined rates

8. This kind of tax is collected at each point in the distribution chain and levied on the total value of a product. a) single-stage sales tax c) cascade tax (X) 9. This is not a nontariff barrier. a) documentation c) product inspection b) quota d) countervailing duties (X)
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b) value added tax d) excise tax

e) license 10. This is not a form of subsidy. a) cash c) tax e) all of them are subsidies (X) b) interest rate d) freight and infrastructure

11. GATT's Subsidies Code prohibits the use of export subsidies on a) nonprimary products (X) b) primary products c) both primary and nonprimary products d) neither nonprimary nor primary products 12. This kind of quota is the most restrictive. a) absolute quota (X) c) voluntary quota b) tariff quota d) VER

13. When a country permits an import of limited quantities at low rates of duty but subjects an excess amount to a much higher rate, this kind of quota is used. a) absolute quota c) relative quota b) voluntary quota d) tariff quota (X)

14. In the mid-1980s, Japan signed an orderly marketing agreement (OMA) restricting its auto exports to the United States to 1.68 million units per year. This OMA is a(n) a) absolute quota c) voluntary quota (X) b) tariff quota

15. This type of trade barriers is easiest to deal with. a) tariffs (X) c) private barriers 16. These barriers are least transparent. a) tariffs c) government barriers b) nontariff barriers d) private barriers (X) b) nontariff barriers d) international barriers

17. South Korea's chaebol and Japan's keiretsu are examples of a) tariffs c) private barriers (X) b) nontariff barriers d) government barriers

18 . This world organization monitors trade and resolves disputes. a) WTO (X) b) GSP

c) UNCTAD e) IMF

d) World Bank

19. This world organization wants to achieve a broad, multilateral, and free worldwide system of trading. a) WTO (X) c) UNCTAD b) GSP d) MFN

20. This organization does not allow a nation to veto a panels decision a) GATT c) UN b) WTO (T) d) NAFTA

21. This organization is a permanent organ of the United Nations General Assembly, and its goal is to encourage development in Third World countries and enhance their export positions. a) GATT c) UNCTAD (X) b) GSP d) IMF

22. The system which gives LDCs' exports a preferential treatment is called a) GATT c) UNCTAD b) GSP (X) d) MFN

23. The United States promotes economic development in some 140 poor countries by making it easier for them to export to the United States under a) IMF c) GSP (X) b) GATT d) MFN

TRUE OR FALSE 1. Protectionism is ineffective in reducing unemployment. (T) 2. Without trade, cost/price equalization is very unlikely. (T) 3. A nation can never be completely self-sufficient. (T) 4. Protectionist policies rarely achieve their objectives. (T) 5. The mere existence of a government can distort international trade even without tariffs or other trade restrictions. (T) 6. A cartel is legal in the United States. (F) 7. It is debatable whether the United States is the most liberal nation in promoting free trade. (T) 8. Countervailing duties are imposed on imported products that are subsidized by foreign governments. (T)

9. Duties "according to value" of the imported goods are specific duties. (F) 10. A value-added tax is a multi-stage, noncumulative tax on consumption. (T) 11. A value-added tax cannot be rebated on exports. (F) 12. The use of VAT affects only about a quarter of the world's population. (F) 13. Only a small number of countries use VAT. (F) 14. Tariffs are more nontransparent than nontariff barriers. (F) 15. A trade barrier should be made transparent. (T) 16. The "national treatment" provision of the Government Procurement Code allows the signatory nations to give preferential treatment to their own citizens/suppliers. (F) 17. GATT's Subsidies Code prohibits the use of export subsidies on primary products (e.g., farm products) but not on nonprimary products (i.e., manufactures). (F) 18. Manufactured products are not allowed by GATT to be subsidized. (T) 19. Affluent countries have been heavily subsidizing their agricultural businesses. (T) 20. Unlike developing countries, affluent countries do not significantly subsidize their agricultural businesses. (F) 21. Because all parties and suppliers must adhere to the same product specifications, detailed product specifications are necessary to treat all bidders fairly. (F) 22. From a policy standpoint, a quota is more desirable than a tariff. (F) 23. VER and OMA are used to circumvent GATT's market safeguard of the most-favored-nation principle. (T) 24. When a foreign subsidiary is not allowed to freely remit the profit to its parent, the parent firm should bill its subsidiary for royalties, management fees, and engineering fees. (T) 25. Compared to nontariff barriers, private barriers are pretty much transparent. (F) 26. GATT's MFN (most favored nation) principle moves countries away from multilateral bargaining to bilateral bargaining. (F) 27. The most-favored-nation principle allows a country to give preferential treatment to the other member nations of the same free trade area or customs union. (F) 28. The most-favored-nation principle allows a country to give preferential treatment to domestic companies while discriminating against foreign companies. (F) 29. The MFN (Most Favored Nation) principle and the NTR (Normal Trade Relations) status are the same thing. (T)

30. Based on GATT's recent rounds of negotiation, the most favored nation principle is weakened because countries are allowed to retaliate against a certain country on an individual basis. (T) 31. The Uruguay Round of multilateral trade negotiations was concluded successfully as originally scheduled due to countries' recognition of the importance of free trade. (F) 32. The quantitative effects of the Uruguay Round should benefit almost all countries in the long run. (T) 33. GATT has been replaced by the World Trade Organization. (T) 34. Unlike GATT, the WTO is more permanent and legally secure. (T) 35. Unlike its predecessor (GATT), the WTO has less authority to settle trade disputes. (F) 36. The World Trade Organization allows a nation to veto a decision of the WTO's panel. (F) 37. GSP is the U.S. system which gives less developed countries' exports a preferential treatment. (T) 38. GSP is the tariff preference system employed by less developed countries to give preferential treatment to other less developed countries. (F) 39. The CBI (Caribbean Basin Initiative) reduces the benefits of GSP to designated countries in the Caribbean Basin region. (F) 40. There is no evidence that outward orientation is superior to inward orientation in terms of economic growth. (F) 41. There is no evidence that outward-oriented trade policy produces greater economic success than inward-oriented policy. (F) 42. U.S. trade policy is guided by the crowbar theory which states that foreign markets do not open except under threat. (T) 43. There is strong evidence that the United States is less unfair in trade than other countries. (F) 44. The Multi-Fiber Arrangement (MFA) removes trade barriers against LDC exporters. (F) 45. According to the positive externalities assumption, government intervention is appropriate because the development of a certain industry has a positive impact on a broader segment of the economy. (T) 46. Positive externalities are usually presumed than documented. (T) 47. Countries that protect domestic economies against international competition have experienced major economic losses. (T) 48. Countries tend to be protectionist because they are able to shift the costs of protection to the others (i.e., selling nations). (F)