international business hill 6

8/20/2019 International Business Hill 6

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Chapter 06 - The Political Economy of International Trade

Chapter 06

The Political Economy of International Trade

True / False Questions

1. (p. 206) A situation where a goernment does not attempt to restrict what its citi!ens can "uyfrom another country or what they can sell to another country is #nown as free trade.TRUE

Difficulty: Easy

$. (p. 207) Tariffs are unam"iguously pro-consumer and anti-producer.FA!E

Difficulty: Medium

%. (p. 207) E&port tariffs are far less common than import tariffs.TRUE

Difficulty: Medium

'. (p. 207) (pecific tariffs are leied as a proportion of the alue of the imported good.FA!E

Difficulty: Medium

). (p. 208) *y lowering production costs+ su"sidies help domestic producers compete againstforeign imports and gain e&port mar#ets.

TRUE

Difficulty: Medium

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6. (p. 209) ,nder a tariff rate uota+ a higher tariff rate is applied to imports within the uotathan those oer the uota.FA!E

Difficulty: Medium

. (p. 210) A common hy"rid of a uota and a rent is #nown as a uota rent.FA!E

Difficulty: Easy

/. (p. 211) ,nli#e other trade policies+ local content regulations tend to "enefit consumers andnot producers.FA!E

Difficulty: Medium

. (p. 211) euirements that some specific fraction of a good "e produced domestically are#nown as local content reuirements.TRUE

Difficulty: Easy

10. (p. 211) *ureaucratic rules designed to ma#e it difficult for imports to enter a country arelocal content reuirements.FA!E

Difficulty: Easy

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11. (p. 211) A company that sells its product in a foreign mar#et "elow the cost of productionmay "e accused of dumping.TRUE

Difficulty: Easy

1$. (p. 212) Antidumping polices are designed to punish firms that are engaged in dumping.TRUE

Difficulty: Easy

1%. (p. 213) Antidumping policies ary drastically from country to country.FA!E

Difficulty: Easy

1'. (p. 214) The ,.(. goernment has used the threat of punitie trade sanctions to try to get theChinese goernment to enforce its intellectual property laws.TRUE

Difficulty: Medium

1). (p. 214) 2any goernments hae long had regulations to protect consumers from unsafe products.TRUE

Difficulty: Easy

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16. (p. 216) The 3elms-*urton Act of 16 was aimed at foreign companies that wereundermining ,.(. trade sanctions against 4i"ya and Iran.FA!E

Difficulty: Medium

1. (p. 217) The infant industry argument is the latest argument for goernment interention intrade.FA!E

Difficulty: Medium

1/. (p. 218) (trategic trade policy suggests that a goernment should use su"sidies to support promising firms that are actie in newly emerging industries.TRUE

Difficulty: Medium

1. (p. 218) 5ATT has not recogni!ed the infant industry argument as a legitimate reason for protectionism.

FA!E

Difficulty: Medium

$0. (p. 219) rugman has suggested that trade policy designed to retaliate against anothercountry7s trade policy would hurt the citi!ens of "oth countries.TRUE

Difficulty: Had

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$1. (p. 220) 5oernments do not always act in the national interest when they interene in theeconomy8 politically important interest groups often influence them.TRUE

Difficulty: Medium

$$. (p. 221) The (moot-3awley Act raised tariff "arriers in the hope of protecting 9o"s anddierting consumer demand away from foreign products.TRUE

Difficulty: Medium

$%. (p. 222) A #ey goal of the 1/6 ,ruguay ound was to e&tend 5ATT to coer trade inserices.TRUE

Difficulty: Medium

$'. (p. 222) :uring the 1/0s and early 10s+ the world trading system erected "y the 5ATTgained momentum as protectionist demands generally decreased across the world.

FA!E

Difficulty: Easy

$). (p. 223) The ;orld Trade


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$6. (p. 223) The ;T< does not hae the power to impose trade sanctions.FA!E

Difficulty: Medium

$. (p. 224) To date+ the ;T


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%1. (p. 227) The ma9ority of antidumping actions are concentrated in 9ust a few industries.TRUE

Difficulty: Medium

%$. (p. 227) ;T< rules do not allow countries to impose antidumping duties on foreign goodsthat are "eing sold cheaper than at home or "elow their cost of production+ een whendomestic producers can show that they are "eing harmed.FA!E

Difficulty: Medium

%%. (p. 228) Tariff rates on agricultural products are generally much lower than tariff rates onmanufactured products or serices.FA!E

Difficulty: Medium

%'. (p. 228) =ree trade in agriculture could 9ump-start economic growth among the world7s poorer nations and alleiate glo"al poerty.

TRUE

Difficulty: Medium

%). (p. 229) The TIP( regulations o"lige ;T< mem"ers to grant and enforce patents lasting atleast $0 years and copyrights lasting )0 years.TRUE

Difficulty: Easy

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%6. (p. 229) Inadeuate protections for intellectual property reduce the incentie for innoation.TRUE

Difficulty: Easy

%. (p. 230) Tariffs on industrial goods remain higher than tariffs on serices.FA!E

Difficulty: Medium

%/. (p. 233) Tariff "arriers lower the costs of e&porting products to a country.

FA!E

Difficulty: Easy

%. (p. 233) The threat of antidumping action limits the a"ility of a firm to use aggressie pricingto gain mar#et share in a country.TRUE

Difficulty: Medium

'0. (p. 233) To conform to local content regulations+ a firm may hae to locate more productionactiities in a gien mar#et than it would otherwise.TRUE

Difficulty: Medium

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"ultiple Choice Questions

'1. (p. 206) =ree tradeA# efers to a situation in which a goernment does not attempt to restrict what its citi!enscan "uy from or sell to another country*. educes the oerall efficiency of the world economy.C. :escri"es the range of policy instruments that goernments use to interene ininternational trade:. Is a goernment payment to a domestic producer

Difficulty: Easy

'$. (p. 206) ;hich of the following is not one of the main instruments of trade policy>A. Tariffs$# Credit portfoliosC. 4ocal content reuirements:. Administratie policies

Difficulty: Medium

'%. (p. 207) In recent decades+ tariff "arriers hae "een ????? while non tariff "arriers hae "een ?????.A# =alling+ rising*. ising+ fallingC. 4eeling+ rising:. =alling+ leeling

Difficulty: Medium

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''. (p. 207) (pecific tariffs areA. 4eied as a proportion of the alue of the imported good$# 4eied as a fi&ed charge for each unit of a good importedC. In the form of manufacturing or production reuirements of goods.

:. 5oernment payment to domestic producers

Difficulty: Medium

'). (p. 207) This is leied as a proportion of the alue of the imported good.A. (pecial tariff *. Ad alorem tariff C. Tariff uota%# (pecific tariff

Difficulty: Medium

'6. (p. 207) Tariffs do not "enefitA. Consumers$# :omestic producersC. 5oernments:. :omestic firms

Difficulty: Medium

'. (p. 207) All of the following are true of tariffs+ e&ceptA# They reduce the reenue for the goernment*. They can "e leied as a proportion of the alue of the imported goodC. They can "e leied as a fi&ed charge for each unit of a good imported:. They impose significant costs on domestic consumers

Difficulty: Had

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'/. (p. 208) *y lowering production costs+ ????? help domestic producers compete againstforeign imports.A. Tariffs*. :uties

C. @uotas%# (u"sidies

Difficulty: Medium

'. (p. 208) ;hich of the following o"serations pertaining to goernment su"sidies isincorrect>A. They must "e paid for+ typically "y ta&ing indiiduals and corporations*. They mainly "enefit domestic producers+ whose international competitieness is increased

C. ;hether they generate national "enefits that e&ceed their national costs is de"ata"le%# They help foreign producers gain a competitie adantage oer domestic producers

Difficulty: Medium

)0. (p. 208) (u"sidies hae "een critici!ed for all of the following reasons e&ceptA. They allow inefficient farmers stay in "usiness*. They encourage to oerproduce heaily su"sidi!ed agricultural productsC. They encourage countries to produce products that could "e grown more cheaply

elsewhere and imported%# They increase international trade in agricultural products

Difficulty: Had

)1. (p. 208) According to the ????? policy+ su"sidies can help a firm achiee a first-moeradantage in an emerging industry.A# (trategic trade*. Antidumping

C. Tariff uota:. =ree trade

Difficulty: Had

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)$. (p. 208) This is a direct restriction on the uantity of some good that may "e imported into acountry.A. (pecific tariff $# Import uota

C. (u"sidy:. Ad alorem tariff

Difficulty: Easy

)%. (p. 208"209) In the ,nited (tates only firms allowed to import cheese are certain tradingcompanies+ each of which is allocated the right to import a ma&imum num"er of pounds ofcheese each year. Identify the trade restriction "eing imposed "y the ,.(. here.A# Import uota

*. (u"sidyC. Ad alorem tariff :. (pecific tariff

Difficulty: Had

)'. (p. 209) A common hy"rid of a uota and a tariff is #nown as aA. @uota rent*. oluntary e&port restraint

C. Ad alorem tariff %# Tariff rate uota

Difficulty: Easy

)). (p. 210) A uota on trade imposed "y the e&porting country+ typically at the reuest of theimporting country7s goernment is referred to as aBnA# oluntary e&port restraint*. (pecific tariff uota

C. Trade reconciliation:. Ad alorem tariff

Difficulty: Easy

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)6. (p. 210) A uota rent isA. A uota on trade imposed "y the e&porting country*. 4eied as a fi&ed charge for each unit of a good importedC. 4eied as a proportion of the alue of the imported good

%# The e&tra profit producers ma#e when supply is artificially limited "y an import uota

Difficulty: Easy

). (p. 210) =oreign producers typically agree to oluntary e&port restrictions "ecauseA. Their manufacturing capacity is limited*. They can diert their e&ports to other countries and charge more for their productsC# They fear far more damaging punitie tariffs or import uotas might follow if they do not:. They are reuired to "y the ;orld Trade A. It "enefits domestic producers "y limiting import competition$# In most cases+ it "enefits consumers.C. It raises the domestic price of an imported good:. It is a ariant of the import uota

Difficulty: Medium

). (p. 211) These are reuirements that some specific fraction of a good "e produceddomestically.A. Import uotas$# oluntary e&port restraintsC. 4ocal content reuirements:. Antidumping duties

Difficulty: Easy

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60. (p. 211) The ????? specifies that goernment agencies must gie preference to American products when putting contracts for euipment out to "id unless the foreign products hae asignificant price adantage.A# *uy America Act

*. Anti-:umping ActC. 3elms-*urton Act:. :7Amato Act

Difficulty: Medium

61. (p. 211) Administratie trade policies areA. euirements that some specific fraction of a good "e produced domestically*. @uotas on trade imposed "y the e&porting country

C# *ureaucratic rules designed to ma#e it difficult for imports to enter a country:. :esigned to punish foreign firms that engage in dumping

Difficulty: Easy

6$. (p. 211"212) ;hich of the following is ariously defined as selling goods in a foreign mar#etat "elow their costs of production or as selling goods in a foreign mar#et at "elow their DfairDmar#et alue>A. E&port restraint

$# :umpingC. 4ocal content reuirement:. Ad alorem

Difficulty: Easy

6%. (p. 212) Antidumping duties are often calledA. (pecial circumstance duties*. Positie duties

C. etroactie duties%# Counterailing duties

Difficulty: Easy

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6'. (p. 214) The ,.(. goernment using the threat of punitie trade sanctions to try to get theChinese goernment to enforce its intellectual property laws is an e&ample of goernmentinterention "ased onA. 3uman rights protection

*. ational securityC. Consumer protection%# etaliation

Difficulty: Medium

6). (p. 216) If a goernment grants preferential trade terms to a country it wants to "uild strongrelations with+ the goernment is employing a policyA.


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6/. (p. 218) ????? suggests that a goernment should use su"sidies to support promising firmsthat are actie in newly emerging industries.A. The infant industry argument$# (trategic trade policy

C. etaliation policy:. The national security argument

Difficulty: Medium

6. (p. 219) ????? argues that a strategic trade policy aimed at esta"lishing domestic firms in adominant position in a glo"al industry is a "eggar-thy-neigh"or policy that "oosts nationalincome at the e&pense of other countries.A. :aid icardo

*. Adam (mithC. 2ichael Porter %# Paul rugman

Difficulty: Had

0. (p. 220) The E,7s Common Agricultural Policy is an e&ample of a ta& policy designed toA. *enefit consumers*. *enefit ta&payers

C# *enefit special interest politics:. *enefit free trade in a deeloped country

Difficulty: Had

1. (p. 221) Economic pro"lems during the 5reat :epression were compounded in 1%0 whenthe ,.(. Congress passed the ?????+ aimed at aoiding rising unemployment "y protectingdomestic industries and dierting consumer demand away from foreign products.A# (mootF3awley Act

*. AntiF:umping ActC. 3elmsF*urton Act:. :7Amato Act

Difficulty: Had

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$. (p. 222) ;hich of the following is not a reason for the pressure for greater protectionism thatoccurred during the 1/0s and early 10s>A# The growing ,.(. trade surplus with Gapan strained the world trading system*. Gapanese economic success strained the world trading system

C. The persistent trade deficit in the ,.(. strained the world trading system:. 2any countries found ways to get around 5ATT regulations

Difficulty: Had

%. (p. 222) In the 1/6 ,ruguay ound+ 5ATT mem"ers sought to write rules for promoting allof the following e&ceptA. Intellectual property protection$# Agricultural su"sidies

C. 5ATT7s monitoring and enforcement mechanisms:. 5ATT rules to coer trade in serices

Difficulty: Medium

'. (p. 223) ,ntil 1)+ 5ATT rules applied to all of the following+ e&ceptA. 2anufactured goods$# (ericesC. Te&tiles

:. Agricultural products

Difficulty: Medium

). (p. 223) According to the 1/6 ,ruguay ound ????? was to "e created to implement the5ATT agreement.A# ;orld Trade


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6. (p. 224) After the ,ruguay ound of 5ATT e&tended glo"al trading rules to coer trade inserices+ the first two industries targeted for reform "y the ;T< wereA. Te&tiles and technology$# Telecommunications and financial serices

C. Automoties and aerospace:. Agriculture and consulting serices

Difficulty: Medium

. (p. 22!) The 2illennium ound ended in 1 withA. A successful record on agricultural products*. A new agenda for the ne&t round focusing on financial sericesC# o agreement on the reduction of "arriers to cross-"order trade in agricultural products and

trade and inestment in serices:. A decision to aoid =:I

Difficulty: Medium

/. (p. 226) ;hich of the following is not a reason why ;T< is "eing critici!ed "y thoseopposing free trade>A. Its trade laws allow imports from low-wage countries and result in a loss of 9o"s in high-wage countries

*. Its rules outlawing the a"ility of nations to stop imports from countries where wor#ingconditions are ha!ardousC. The aderse impact that some of its rulings hae had on enironmental policies%# Its lac# of a"ility to force any mem"er nation to ta#e an action to which it is opposed.

Difficulty: Medium

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. (p. 227) ????? has occurred when foreign goods are "eing sold cheaper than at home or "elow their cost of production.A. 2ar#et saturation*. Price elasticity

C. Production efficiency%# :umping

Difficulty: Medium

/0. (p. 228) The ;T< argues that "y remoing all tariff "arriers and su"sidies to agriculture allof the following would occur+ e&ceptA. The oerall leel of trade would increase$# There would "e oerproduction of products that are heaily su"sidi!ed

C. Prices would fall for consumers:. 5lo"al economic growth would rise

Difficulty: Had

/1. (p. 229) The TIP( regulations esta"lished at the 1) ,ruguay oundA# Esta"lished regulations on patents and copyrights*. (et a new leel of agriculture su"sidiesC.


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/%. (p. 230) ????? are the highest rate that can "e charged+ which is often+ "ut not always+ therate that is charged.A. Ad alorem tariff rates*. Tariff rents

C. (pecific tariff rates%# *ound tariff rates

Difficulty: Medium

/'. (p. 233) Identify the incorrect statement pertaining to trade "arriers.A. They raise the costs of e&porting products to a country$# They may put a firm at a competitie adantage to indigenous competitorsC. They may limit a firm7s a"ility to sere a country from locations outside of that country

:. To conform to local content regulations+ a firm may hae to locate more productionactiities in a gien mar#et than it would otherwise

Difficulty: Had

Essay Questions

/). (p. 207) :iscuss the different types of tariff "arriers. Consider the "eneficiaries of tariff

"arriers and the losers.

There are two types of tariffs+ specific tariffs that are leied as a fi&ed charge for each unit ofa good imported and ad alorem tariffs that are leied as a proportion of the alue of theimported product. The goernment gains from tariffs in the form of increased reenues.:omestic producers also "enefit from the protection against foreign competition. Consumerslose "ecause they must pay more for products that hae "een affected "y tariffs.

Difficulty: Medium

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/6. (p. 208) :iscuss the different types of su"sidies. 3ow do su"sidies help domestic producers>

(u"sidies are essentially a goernment payment to a producer. There are many forms ofsu"sidies including cash grants+ low-interest loans+ ta& "rea#s and goernment euity

participation in domestic firms. (u"sidies "enefit domestic producers in two waysH they helpthem compete against low-cost foreign imports and they help them gain e&port mar#ets.

Difficulty: Medium

/. (p. 208"210) Compare and contrast import uotas and oluntary e&port restraints.

An import uota is a direct restriction on the uantity of some good that may "e imported intoa country. The restriction is normally enforced "y issuing import licenses to a group of

indiiduals or firms. In contrast+ a oluntary e&port restraint BE is a uota imposed "y thee&porting country+ typically at the reuest of the importing country7s goernment. =oreign producers agree to Es "ecause they fear more damaging punitie tariffs or import uotasmight follow if they do not. *oth import uotas and Es "enefit domestic producers+ "uthurt consumers through higher prices.

Difficulty: Medium

//. (p. 210) ;hat is a uota rent> Proide an e&ample of how an import uota affects price.

The e&tra profit that producers ma#e when supply is artificially limited "y an import uota isreferred to as a uota rent. If a domestic industry lac#s the capacity to meet demand+ animport uota can raise prices for "oth the domestically produced and the imported good.(tudents will pro"a"ly use the e&ample of the ,.(. sugar industry when discussing theuestion.

Difficulty: Medium

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/. (p. 211) :iscuss the *uy America Act and its connection with local content reuirements.

The *uy America Act specifies that goernment agencies must gie preference to American products when putting contracts for euipment out to "id unless the foreign products hae a

significant price adantage. The law specifies a product as "eing American if )1 percent of thematerials "y alue are produced domestically. This amounts to a local content reuirementthat calls for a specific fraction of a good to "e produced locally.

Difficulty: Had

0. (p. 211) E&plain how goernments use administratie trade policies to "oost e&ports andrestrict imports. Proide an e&ample of an administratie trade policy.

Administratie trade policies are "ureaucratic rules that are almost always deli"eratelydesigned to restrict the flow of a particular import into a country. The Gapanese are consideredmasters of this trade "arrier. (tudents will pro"a"ly use the e&ample of tulip "ul"s whendiscussing this uestion. The etherlands e&ports tulip "ul"s to almost eery country of theworld e&cept Gapan. The reason is that Gapanese customs inspectors insist on chec#ing eerytulip "ul" "y cutting it ertically down the middle+ which in effect ruins the "ul".

Difficulty: Medium

1. (p. 211"212) ;hat is dumping> 3ow do goernments respond to charges of dumping>

:umping is defined as selling goods in a foreign mar#et at "elow their costs of production oras selling goods in a foreign mar#et at "elow their DfairD mar#et alue. Antidumping policiesare designed to punish foreign firms that engage in dumping. If a firm is found to "e dumping+counterailing duties may "e imposed. These duties can "e fairly su"stantial and stay in placefor up to fie years.

Difficulty: Medium

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$. (p. 212) E&plain the notion of predatory "ehaior with regard to dumping.

A firm that is dumping is selling its product in a foreign mar#et at "elow their costs of production or as selling goods in a foreign mar#et at "elow their DfairD mar#et alue.

:umping may "e the result of predatory "ehaior with producers using su"stantial profitsfrom their home mar#ets to su"sidi!e profits from their home mar#ets to su"sidi!e prices in aforeign mar#et with a goal of driing indigenous competitors out of that mar#et.

There are a num"er of political reasons why goernments interene in mar#ets. The mostcommon reason for interention is to protect 9o"s and industries. 5oernments may alsointerene to protect national security+ to threaten punitie retaliatory actions+ to protectconsumers or to protect human rights and to further foreign policy o"9ecties.

Difficulty: Medium

'. (p. 217"19) :iscuss the economic reasons for goernment interention in mar#ets.

The economic reasons for goernment interaction hae undergone a renaissance in recenttimes as more economists support economic reasons for interention. The oldest argument forinterention is the infant industry argument.(trategic trade policy is the other main reason gien for economic goernment interention inmar#ets.

Difficulty: Medium

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). (p. 217"218) :iscuss the infant industry argument for interention in mar#ets. ;hat is 5ATT7s position on the argument>

Ale&ander 3amilton proposed the infant industry argument for interention in mar#ets in

1$. According to this argument+ many deeloping countries hae a potential comparatieadantage in manufacturing+ "ut new manufacturing industries cannot initially compete withesta"lished industries in deeloped countries. To allow manufacturing to get a toehold+ theargument is that goernments should temporarily support new industries until they haegrown strong enough to meet international competitors. 5ATT has recogni!ed the infantindustry argument as a legitimate reason for protectionism.

Difficulty: Medium

6. (p. 218"219) ;hat is strategic trade policy> Proide an e&ample.

(trategic trade policy suggests that in industries where the e&istence of su"stantial scaleeconomies implies that the world will profita"ly support only a few firms+ countries may predominate in the e&port of certain products simply "ecause they had firms that were a"le tocapture first-moer adantages. *oeing7s dominance in the aerospace industry has "eenattri"uted to these types of factors. According to strategic trade policy+ a goernment can helpraise national incomes if it can ensure that the firms that gain first-moer adantages in suchindustries are domestic rather foreign. =urther the theory argues that it might pay goernmentsto interene in an industry if it helps domestic firms oercome the "arriers to entry created "yforeign firms that hae already reaped first-moer adantages.

Difficulty: Medium

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. (p. 219) ;hat is Paul rugman7s position on strategic trade policy>

Paul rugman suggests that strategic trade policy aimed at esta"lishing domestic firms in adominant position in a glo"al industry is a "eggar-thy-neigh"or policy that "oosts national

income at the e&pense of other countries. Conseuently+ a country that uses this type of policywill pro"a"ly draw retaliatory action. The resulting trade war would leae "oth countriesworse off than if a free trade approach had "een implemented to start. rugman suggests thatto aoid the disruptions a trade war would create+ countries should instead help esta"lish therules of the game that minimi!e the use of trade-distorting su"sidies.

Difficulty: Had

/. (p. 221) :iscuss the esta"lishment of 5ATT. ;hat was 5ATT7s o"9ectie>

The 5ATT was a multilateral agreement whose o"9ectie was to li"erali!e trade "yeliminating tariffs+ su"sidies+ import uotas and other trade "arriers. 5ATT was esta"lished in1' with 1 mem"ers. 2em"ership increased to more than 1$0 nations "y the time it wassuperseded "y the ;T

:uring the 1/0s and early 10s+ the world trading system esta"lished "y 5ATT came under significant strain as pressures for greater protectionism mounted around the world. Threeissues in particular were important. =irst+ the economic success of Gapan strained the worldtrading system. (econd+ the world7s trading system was further strained "y the persistent tradedeficit in the world7s largest economy+ the ,nited (tates. =inally+ many countries found waysto get around 5ATT regulations.

Difficulty: Had

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100. (p. 223"224) ;hat has "een the e&perience of the ;T< to date> ;hat does the future loo#li#e for the organi!ation>

*y $00)+ the ;T< had 1'/ mem"ers with more in the application process. The ;T< has

remained at the forefront of efforts to promote free trade. (o far+ it appears that its policingand enforcement mechanisms are haing a positie effect. Countries are using the ;T< tosettle trade disputes+ which represents an important ote of confidence in the organi!ation7sdispute resolution procedures. (o far+ the users of the system hae included "oth deelopedand deeloping countries+ which is also a promising deelopment. In addition+ some powerfuldeeloped countries+ including the ,nited (tates+ hae "een willing to accept ;T< rulingsthat hae gone against them+ which attest to the organi!ation7s legitimacy.

Difficulty: Medium

101. (p. 227) ;hat are the central issues facing the ;T< at the present time>

=our issues at the top of the agenda for the ;T< are the increase in antidumping policies+ thehigh leel of protectionism in agriculture+ the lac# of strong protection for intellectual property rights in many nations and continued high tariff rates on nonagricultural goods andserices in many nations. These issues were a #ey focus at the :oha ound which "egan in$001.

Difficulty: Medium

10$. (p. 228) ;hy are tariff rates on agricultural products generally higher than tariff rates onmanufactured products or serices>

Tariff rates on agricultural products are typically higher than tariffs on manufactured products.3igh tariff rates on agricultural products were designed to protect domestic agriculture andtraditional farming communities from foreign competition. I2= estimates indicate thatremoing the tariffs and su"sidies could raise glo"al economic welfare "y 1$/ "illionannually.

Difficulty: Medium

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10%. (p. 231"232) :iscuss the :oha ound of trade tal#s>

The :oha ound "egan in $001. Its agenda focused on cutting tariffs on industrial goods andserices+ phasing out su"sidies to agricultural producers+ reducing "arriers to cross-"order

inestment and limiting the use of antidumping laws. The agenda agreed upon at :oha should "e seen as a game plan for negotiations oer the ne&t few years.

Difficulty: Medium

10'. (p. 233) E&plain how trade "arriers affect a firm7s strategy.

There are four main ways trade "arriers affect a firm7s strategy. =irst+ tariffs raise the cost ofe&porting+ putting the firm at a competitie disadantage. (econd+ uotas may limit a firm7s

a"ility to sere a country from outside of that country. Third+ to conform to local contentregulations+ a firm may hae to locate more production actiities in a gien mar#et than itwould otherwise. =inally+ the threat of antidumping actions limits the firm7s a"ility to useaggressie pricing to gain mar#et share in a country.

Difficulty: Medium

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