CHAPTER 6TRADE REGULATIONS AND INDUSTRIAL POLICIES

MULTIPLE CHOICE
1. The World Trade Organization was established by the ____ of multilateral trade negotiations:
a
.
Kennedy Round
b
.
Tokyo Round
c
.
ruguay Round
d
.
!linton Round
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&. nder .$. commercial 'olicy( the esca'e clause results in:
a
.
Tem'orary )uotas granted to firms in*ured by im'ort com'etition
b
.
Tariffs that offset e+'ort subsidies granted to foreign 'roducers
c
.
Ta+ ad,antages e+tended to minority-owned e+'orting firms
d
.
.uties which offset commercial dum'ing on the 'art of foreign firms
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/. "d*ustment assistance is sometimes used to assist:
a
.
0n retraining workers dis'laced by im'orts
b
.
0n retraining workers dis'laced by e+'orts
c
.
1oreign firms in*ured by our )uotas
d
.
1oreign firms in*ured by our tariffs
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2. The 3+'ort-0m'ort 4ank of the nited $tates encourages "merican firms to sell o,erseas by 'ro,iding
direct loans and loan guarantees to foreign 'urchasers of "merican goods. To "merican firms( this
re'resents a:
a
.
$'ecific subsidy
b
.
"d ,alorem subsidy
c
.
.omestic subsidy
d
.
3+'ort subsidy
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5. The $moot-6awley Tariff "ct of 17/8 has generally been associated with:
a
.
1alling tariffs
b
.
0ncreases in the ,olume of trade
c
.
0ntensifying the worldwide de'ression
d
.
3fforts to liberalize nontariff trade barriers
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9. " trade 'olicy designed to alle,iate some domestic economic 'roblem by e+'orting it to foreign
countries is known as a :an;:
a
.
0nternational dum'ing 'olicy
b
.
Trade ad*ustment assistance 'olicy
c
.
<ost-fa,ored-nation 'olicy
d
.
4eggar-thy-neighbor 'olicy
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=. nder .$. commercial 'olicy( which clause 'ermits the modification of a trade liberalization
agreement on a tem'orary basis if serious in*ury occurs to domestic 'roducers as a result of the
agreement>
a
.
"d*ustment assistance clause
b
.
3sca'e clause
c
.
<ost-fa,ored-nation clause
d
.
Reci'rocal-trade clause
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?. Which 'olicy reflects the notion that if society en*oys gains due to increased efficiency stemming from
trade liberalization( some sort of com'ensation should be 'ro,ided to those who are tem'orarily hurt
by im'ort com'etition>
a !ounter,ailing duties
.
b
.
Trade ad*ustment assistance
c
.
.omestic subsidies
d
.
<ost-fa,ored-nation standard
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7. The ruguay Round of <ultilateral Trade #egotiations accom'lished all of the following e+ce't:
a
.
%laced 'rimary em'hasis on nontariff trade barriers
b
.
0s estimated to yield modest gains in world out'ut and em'loyment
c
.
"chie,ed cuts in tariffs but not in nontariff trade barriers
d
.
"bolished all barriers to trade in agricultural 'roducts
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18. The @eneral "greement on Tariffs and Trade and its successor( the World Trade Organization( ha,e
resulted in:
a
.
Termination of e+'ort subsidies a''lied to manufactured goods
b
.
Termination of im'ort tariffs a''lied to manufactured goods
c
.
3ncouragement of beggar-thy-neighbor 'olicies
d
.
Reductions in trade barriers ,ia multilateral negotiations
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11. 1or the nited $tates( which organization makes loans to foreign buyers of .$. manufactured goods>
a
.
3+'ort-0m'ort 4ank
b
.
.omestic 0nternational $ales !or'oration
c
.
Organization for 3conomic !oo'eration and .e,elo'ment
d
.
!ommodity !redit !or'oration
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1&. The high 'oint of .$. 'rotection culminated with the 'assage of the:
a
.
$moot-6awley "ct of 17/8
b
.
@eneral "greements on Tariffs and Trade in 172=
c
.
Trade Reduction "ct of 179&
d
.
"d*ustment "ssistance "ct of 17=8
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1/. !ounter,ailing duties are intended to neutralize any unfair ad,antage that foreign e+'orters might gain
o,er domestic 'roducers because of foreign:
a
.
Tariffs
b
.
$ubsidies
c
.
Auotas
d
.
4uy-national 'olicies
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12. Trade theory suggests that the nited $tates would gain from a subsidy 'ro,ided by Ba'an to its
calculator 'roducers if the gains to "merican consumers of calculators more than offset the losses to
"merican calculator 'roducers. This occurs as long as the nited $tates:
a
.
0s a net im'orter of calculators
b
.
0s a net e+'orter of calculators
c
.
6as an absolute ad,antage in calculator 'roduction
d
.
6as a com'arati,e ad,antage in calculator 'roduction
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15. nder the original 'ro,isions of the Reci'rocal Trade "greements "ct( the 'resident of the nited
$tates was authorized to cut tariffs u' to:
a
.
18 'ercent
b
.
58 'ercent
c
.
=5 'ercent
d
.
188 'ercent
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19. The .$. Ctrade-remedy lawsC could establish all of the following e+ce't:
a
.
0m'ort tariffs to 'rotect .$. firms seriously in*ured by foreign com'etition
b
.
!ounter,ailing duties which neutralize foreign e+'ort subsidies
c
.
"ntidum'ing duties which 'rotect .$. firms from im'orts sold at less-than-fair-,alue
d
.
3conomic sanctions le,ied against hostile nations
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1=. The 'rinci'le of normal trade relations :most-fa,ored-nation;treatment was established with the
'assage of the:
a
.
1ordney-<c!umber "ct of 17&&
b
.
$moot-6awley "ct of 17/8
c
.
Reci'rocal Trade "greements "ct of 17/2
d
.
Trade "ct of 17=2
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1?. Throughout the 'ost-World War 00 era( the im'ortance of tariffs as a trade barrier has:
a
.
0ncreased
b
.
.ecreased
c
.
Remained the same
d
.
#one of the abo,e
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17. "s a way of hel'ing "merican firms trade in the world market( .$. trade law 'ro,ides antitrust
e+em'tions for horizontal combinations of "merican firms engaged solely in e+'ort trade. $uch firms
are 'ermitted to form:
a
.
3+'ort trade associations
b
.
.omestic international sales cor'orations
c
.
3+'ort-im'ort banks
d
.
!ommodity sales cor'orations
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&8. ____ attem't to 'roduce a fair and free-trading en,ironment in which there e+ists a le,el 'laying field.
a
.
Trade-remedy laws
b
.
0ndustrial 'olicies
c
.
$trategic trade 'olicies
d
.
3conomic sanctions
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&1. $u''ose the nited $tates im'oses trade sanctions :e+'ort )uotas; on grain sold to the Russians.
"ssuming other nations do not increase grain e+'orts to the Russians( all of the following would occur
e+ce't:
a
.
@rain 'rices would rise in Russia
b
.
!onsumer sur'lus would decrease for the Russians
c
.
@rain 'rices would rise in the nited $tates
d
.
3+'ort re,enues would decrease for .$. 'roducers
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&&. 0n 17?8 the nited $tates announced an embargo on grain e+'orts to the $o,iet nion in res'onse to
the $o,iet armed in,asion of "fghanistan. The embargo was mainly resisted by:
a
.
.$. grain consumers and 'roducers of bread
b
.
.$. farmers and grain com'anies
c
.
@rain 'roducers in foreign countries
d
.
@rain consumers in foreign countries
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&/. 3+'ort embargoes induce greater losses in consumer sur'lus for the target country:
a
.
The lesser its initial de'endence on foreign 'roduced goods
b
.
The more elastic the target countryDs demand schedule
c The greater the a,ailable out'ut from alternati,e su''liers
.
d
.
The more inelastic the target countryDs su''ly schedule
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&2. $u''ose the 'resident lowers tariffs on radios as the result of negotiations under the trade agreements
'rogram. Radio 'roducers in the nited $tates can a''eal under the:
a
.
3sca'e clause if rising im'orts substantially in*ure the .$. radio industry
b
.
3sca'e clause if rising unem'loyment occurs e,en though im'orts remain unchanged
c
.
0nfant industry clause if rising im'orts cause unem'loyment to rise among .$. radio
workers
d
.
0nfant industry clause if rising im'orts result in losses for .$. radio com'anies
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&5. .uring the 'ast four decades:
a
.
#ontariff barriers :#T4s; and tariffs ha,e increased in im'ortance
b
.
#T4s and tariffs ha,e decreased in im'ortance
c
.
#T4s ha,e increased and tariffs ha,e decreased in im'ortance
d
.
#T4s ha,e decreased and tariffs ha,e increased in im'ortance
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&9. The strongest 'olitical 'ressure for a trade 'olicy that results in higher 'rotectionism comes from:
a
.
.omestic workers lobbying for im'ort restrictions
b
.
.omestic workers lobbying for e+'ort restrictions
c
.
.omestic consumers lobbying for e+'ort restrictions
d
.
.omestic consumers lobbying for im'ort restrictions
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&=. The ruguay Round of trade negotiations was 'rimarily concerned with:
a
.
0m'ort tariffs
b
.
3+'ort tariffs
c
.
3conomic sanctions
d
.
#ontariff trade barriers
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&?. The ruguay Round of trade negotiations lowered:
a
.
Trade sanctions le,ied against $outh "frica
b
.
Trade sanctions le,ied against the $o,iet nion
c
.
Tariffs( but not nontariff trade barriers
d
.
Tariffs as well as nontariff trade barriers
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&7. The a,erage tariff rate today on dutiable im'orts in the nited $tates is a''ro+imately:
a
.
5 'ercent of the ,alue of im'orts
b
.
15 'ercent of the ,alue of im'orts
c
.
&8 'ercent of the ,alue of im'orts
d
.
&5 'ercent of the ,alue of im'orts
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/8. Those who argue in fa,or of im'ort 'rotection generally gi,e the im'ression that such restricted trade
will:
a
.
.ecrease the le,el of national security
b
.
%ro,ide benefits to some 'articular industry
c
.
%ro,ide benefits to the entire nation
d
.
#ot yield welfare losses for the nation
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/1. 0n 1778 the nited $tates and its allies im'osed trade embargoes on e+'ortsEim'orts toEfrom 0ra) in
res'onse to its in,asion of Kuwait. The embargoes would induce smaller losses in 0ra)Ds consumer
sur'lus the:
a Fesser its initial de'endence on foreign 'roducts
.
b
.
Fess elastic 0ra)Ds demand schedule
c
.
Fesser the a,ailable out'ut from alternati,e su''liers
d
.
<ore inelastic 0ra)Ds su''ly schedule
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/&. 0n .$. trade law( $ection /81 cases in,ol,e accusations of:
a
.
0nternational dum'ing by .$. com'anies
b
.
1ull-cost 'ricing by .$. com'anies
c
.
nfair trade 'ractices by foreign nations
d
.
Trade embargoes by foreign nations
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//. 0ndustrial 'olicy attem'ts to fulfill all of the following ob*ecti,es e+ce't:
a
.
0m'ro,ing the infrastructure for an industry
b
.
3asing transitions for workers in declining industries
c
.
$u''orting troubled industries if the difficulty is tem'orary
d
.
1ostering industries which offer long-run com'arati,e disad,antage
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/2. !ounter,ailing duties may be im'osed:
a
.
0n res'onse to a foreign e+'ort subsidy
b
.
0n res'onse to a foreign antidum'ing tariff
c
.
To 'romote e+'orts of domestic com'anies
d
.
To 'romote im'orts of domestic consumers
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/5. The World Trade Organization 'ro,ides for all of the following e+ce't:
a The usage of the normal-trade-relation :most-fa,ored-nation; clause
.
b
.
"ssistance in the settlement of trade disagreements
c
.
<ultilateral tariff reductions
d
.
4ilateral tariff reductions
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/9. 0n .$. trade law( which measure 'ermits the le,ying of restrictions on fairly traded im'orts that harm
or threaten to harm "merican manufacturers>
a
.
"ntidum'ing duty
b
.
!ounter,ailing duty
c
.
#ational security clause
d
.
3sca'e clause
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/=. Which international organization sti'ulates 'rocedures for the settlement of international trade
dis'utes>
a
.
World Trade Organization
b
.
World 4ank
c
.
0nternational <onetary 1und
d
.
Organization of 3conomic .e,elo'ment
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/?. The most recent round of multilateral trade negotiations is the:
a
.
Kennedy Round
b
.
Tokyo Round
c
.
.oha Round
d
.
@ene,a Round
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/7. 0n 17?9 the nited $tates enacted the !om'rehensi,e "nti-"'artheid "ct which 'ro,ided for all of the
following e+ce't the termination of:
a
.
#ew .$. loans to the $outh "frican go,ernment
b
.
#ew .$. in,estment in $outh "frica
c
.
.$. im'orts of $outh "frican gold coins
d
.
.$. im'orts of all $outh "frican goods
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Assume Boeing Inc. (of the United States) and Airbus Industrie (of Europe) rival for monopoly profits
in the Canadian aircraft maret. Suppose the t!o firms face identical cost and demand conditions" as
seen in #igure $.%.
Figure 6.1. Strategic Trade P!ic"# $ei%g &er'u' Air(u'
28. Referring to 1igure 9.1( assume that 4oeing is the first to enter the !anadian market. Without a
go,ernmental subsidy( the firm ma+imizes 'rofits by selling ____ aircraft at a 'rice of G____( and
realizes 'rofits totaling G____.
a
.
2( G1& million( G19 million
b
.
2( G19 million( G1& million
c
.
?( G1& million( G19 million
d
.
?( G19 million( G1& million
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21. !onsider 1igure 9.1. "t the mono'oly 'rice as established by 4oeing( !anadian consumers realize
G____ of consumer sur'lus from the a,ailability of aircraft.
a
.
G2 million
b
.
G? million
c
.
G1& million
d
.
G19 million
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2&. !onsider 1igure 9.1. $u''ose the 3uro'ean go,ernment 'ro,ides "irbus a subsidy of G2 million on
each aircraft manufactured( and that the subsidy con,inces 4oeing to e+it the !anadian market. "s the
mono'oly seller( "irbus ma+imizes 'rofit by selling ____ aircraft at a 'rice of G____( and realizes
'rofits totaling G____.
a
.
9( G18 million( G/9 million
b
.
9( G1& million( G&2 million
c
.
1&( G18 million( G/9 million
d
.
1&( G1& million( G&2 million
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2/. Referring to 1igure 9.1( the total cost of the "irbus subsidy to the 3uro'ean ta+'ayer e)uals:
a
.
G19 million
b
.
G&8 million
c
.
G&2 million
d
.
G&? million
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22. Referring to 1igure 9.1( the "irbus subsidy leads to a :an; increaseEdecrease in !anadian consumer
sur'lus of G____( as com'ared to the consumer sur'lus that e+isted in the absence of a subsidy.
a
.
0ncrease of G? million
b
.
0ncrease of G18 million
c
.
.ecrease of G? million
d
.
.ecrease of G18 million
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25. !onsider 1igure 9.1. 1or 3uro'e as a whole :"irbus and 3uro'ean ta+'ayers;( the subsidy leads to a
:an; increaseEdecrease in net re,enues of G____.
a
.
0ncrease of G1& million
b
.
0ncrease of G19 million
c
.
.ecrease of G1& million
d
.
.ecrease of G19 million
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#igure $.& illustrates the calculator maret for 'e(ico" assumed to be a small nation that is unable
influence the South )orean (!orld) price. Assume the South )orean price to be *$+ per calculator.
Figure 6.). E**ect' * a% E+,rt Su('id"
29. !onsider 1igure 9.&. With free trade( <e+ican consumers 'urchase ____ calculators( <e+ican firms
'roduce ____ calculators( and ____ calculators are im'orted.
a
.
18( 2( 9
b
.
18( 9( 2
c
.
18( ?( &
d
.
18( &( ?
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2=. !onsider 1igure 9.&. With free trade( <e+icans attain G____ of consumer sur'lus from the a,ailability
of calculators( while <e+ican 'roducer sur'lus e)uals G____.
a
.
G288( G&88
b
.
G&88( G288
c
.
G588( G1?8
d
.
G588( G&28
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2?. !onsider 1igure 9.&. To hel' its firms further 'enetrate e+'ort markets( su''ose the $outh Korean
go,ernment 'ro,ides them a 'roduction subsidy of G&8 'er calculator. With the subsidy( $outh Korean
firms charge a 'rice of G____ and e+'ort ____ calculators to <e+ico.
a
.
G28( ?
b
.
G28( 18
c
.
G&8( ?
d
.
G&8( 18
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27. !onsider 1igure 9.&. The $outh Korean subsidy hel'sEhurts <e+ican manufacturers( since their
'roducer sur'lus risesEfalls by G____.
a
.
6el's( rises( G98
b
.
6el's( rises( G188
c
.
6urts( falls( G98
d
.
6urts( falls( G188
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58. !onsider 1igure 9.&. "s a result of the $outh Korean subsidy( <e+icans find their consumer sur'lus:
a
.
Rising by G198
b
.
Rising by G&&8
c
.
1alling by G198
d
.
1alling by G&&8
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51. !onsider 1igure 9.&. 1or <e+icoDs 'roducers and consumers as a whole( the $outh Korean subsidy
leads to a:
a
.
G1&8 welfare gain
b
.
G/&8 welfare gain
c
.
G1&8 welfare loss
d
.
G/&8 welfare loss
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#igure $., represents the Ira-i computer maret. Assume Ira- purchases all of its computers from the
United States.
Figure 6.- Ira.i C/,uter Mar0et a%d Ec%/ic Sa%cti%'
5&. !onsider 1igure 9./. With free trade( 0ra) 'urchases ____ com'uters at a 'rice of G____( and realizes
G____ of consumer sur'lus from the a,ailability of com'uters.
a
.
/8( G/(888( G&5(888
b
.
/8( G/(888( G/5(888
c
.
/8( G/(888( G25(888
d
.
/8( G/(888( G55(888
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5/. !onsider 1igure 9./. 0n res'onse to 0ra)Ds armed in,asion of neighboring countries( su''ose the nited
$tates im'oses a 'artial embargo that limits e+'orts to 0ra) to 18 com'uters. The e+'ort )uota leads to
an increaseEdecrease in the 'rice of com'uters e)ual to G____( and an increaseEdecrease in consumer
sur'lus e)ual to G____.
a
.
0ncrease( G&888( decrease( G28(888
b
.
0ncrease( G2888( decrease( G98(888
c
.
.ecrease( G&888( increase( G28(888
d
.
.ecrease( G2888( increase( G98(888
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52. !onsider 1igure 9./. Of the )uota-induced change in 0ra)i consumer sur'lus( G____ is not transferred
to other sectors of 0ra)Ds economy and re'resents deadweight loss.
a
.
G5888
b
.
G18(888
c
.
G15(888
d
.
G&8(888
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55. !onsider 1igure 9./. Of the )uota-induced change in 0ra)i consumer sur'lus( the amount of the change
in 0ra)Ds consumer sur'lus that is transferred to other sectors of 0ra)Ds economy is ca'tured by the
nited $tates as:
a
.
Ta+ re,enue
b
.
3+'ort re,enue
c
.
%roducer sur'lus
d
.
!onsumer sur'lus
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59. !onsider 1igure 9./. 1or the nited $tates( the e+'ort )uota results in a :an;:
a
.
0m'ro,ement in its terms of trade with 0ra)
b
.
0ncrease in its e+'ort re,enue
c
.
0ncrease in domestic com'uter 'rices
d
.
.ecrease in domestic consumer sur'lus
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5=. The im'licit industrial 'olicies of the .$. go,ernment ha,e included:
a
.
1ormulating industry-s'ecific economic 'olicies designed to 'romote national
cham'ions
b
.
#ationalizing basic industries such as steel and autos
c
.
3ncouraging cartelization of aircraft and aluminum manufacturers
d
.
0m'ro,ing the setting for industry such as communications and infrastructure
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5?. 3conomic sanctions are most effecti,e in causing the target nation to modify its beha,ior when the:
a
.
Target nation had negligible economic relationshi's with the im'osing nation 'rior to the
sanctions
b
.
%eo'le of the target nation ha,e weak cultural ties to the 'eo'le of the im'osing nation
c
.
$anctions are le,ied by a large number of nations
d
.
Target go,ernment is su''orted by the ma*ority of its 'eo'le
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57. 0n 1775 the ____ was established to administer the new global trade rules agreed in the ruguay
Round of multilateral trade negotiations.
a
.
World Trade Organization
b
.
Organization for 3conomic !oo'eration and .e,elo'ment
c
.
@eneral "greement on Tariffs and Trade
d
.
nited #ations
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98. 0n 1775 the @eneral "greement on Tariffs and Trade was re'laced by the ____.
a
.
"gency for 0nternational .e,elo'ment
b
.
Organization for 3conomic !oo'eration and .e,elo'ment
c
.
nited #ations !enter for Trade and .e,elo'ment
d
.
World Trade Organization
"#$: . %T$: 1
91. The most im'ortant determinants of sanctions include
a
.
!ultural factors including nationalistic attitudes
b
.
$trength of 'olitical o''osition in the targeting nation
c
.
The number of nations im'osing sanctions
d
.
"ll of the abo,e
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9&. 0ndustrial 'olicies
a
.
Re)uire formal e+'licit efforts by go,ernments
b
.
<ay be im'licit
c
.
6a,e ne,er been used by the .$. go,ernment
d
.
4oth a and b
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9/. Trade ad*ustment assistance 'olicies
a
.
!an resol,e all workersD challenges to free trade
b
.
"ttem't to share gains from free trade with disad,antaged workers
c
.
6a,e ne,er been used to sustain a losing business concern
d
.
"re financed by state and local ta+ re,enues
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92. The nited $tates
a
.
6as been a hea,y user of antidum'ing laws to 'rotect domestic 'roducers
b
.
6as rarely used antidum'ing laws to 'rotect domestic 'roducers
c
.
6as targeted antidum'ing action against !hina( Ba'an( !anada( 0taly( and @ermany
d
.
4oth a and c
"#$: . %T$: 1
TRUE1FALSE
1. The high 'oint of .$. 'rotectionism occurred with the 'assage of the Kennedy "ct in the 1798s.
"#$: 1 %T$: 1
&. With the 'assage of the $moot-6awley "ct in 17/8( .$. a,erage tariffs were raised to o,er 58 'ercent
on 'rotected im'orts.
"#$: T %T$: 1
/. %ro'onents of the $moot-6awley "ct of 17/8 ,iewed it as a means of combating domestic
unem'loyment.
"#$: T %T$: 1
2. 0t is generally agreed that the $moot-6awley "ct of 17/8 led to im'ro,ements in .$. e+'orts and an
o,erall increase in .$. out'ut and em'loyment.
"#$: 1 %T$: 1
5. "ccording to the Reci'rocal Trade "greements "ct of 17/2( the %resident could lower tariffs by u' to
18 'ercent of the e+isting le,el without congressional a''ro,al.
"#$: T %T$: 1
9. nder the normal-trade-relations :most-fa,ored-nation; 'rinci'le( two nations agree to a''ly tariffs to
each other at rates as low as those a''lied to any other nation.
"#$: T %T$: 1
=. "ccording to the normal-trade-relations :most-fa,ored-nation; 'rinci'le( if the nited $tates e+tends
<1# treatment to !hina and then grants a low tariff on im'orts of shirts from $outh Korea( the nited
$tates is obligated to 'ro,ide the identical low-tariff on im'orts of shirts from !hina.
"#$: T %T$: 1
?. .$. tariffs on im'orts from countries issued normal-trade-relations :most-fa,ored-nation; status are
often three or four times as high as those on com'arable im'orts from nations not recei,ing that status.
"#$: T %T$: 1
7. "ccording to the @eneral "greement on Tariffs and Trade and its successor( the World Trade
Organization( only bilateral trade negotiations can take 'lace between a country and its trading
'artners.
"#$: 1 %T$: 1
18. <embers of the @eneral "greement on Tariffs and Trade and its successor( the World trade through
Trade Organization( agree to the 'rinci'le of nondiscrimination in trade and the reduction of trade
barriers by multilateral negotiations.
"#$: T %T$: 1
11. The ruguay Round of trade negotiations resulted in the @eneral "greement on Tariffs and Trade
being succeeded by the World Trade Organization.
"#$: T %T$: 1
1&. The only members of the @eneral "greement on Tariffs and Trade and its successor( the World Trade
Organization( are de,elo'ing countries rather than de,elo'ed countries.
"#$: 1 %T$: 1
1/. "ccording to the fast-track 'ro,ision of .$. trade law( once the %resident has com'leted trade
negotiations( their outcome is sub*ect to a ,ote :without amendment; in !ongress within 78 legislati,e
days of submission.
"#$: T %T$: 1
12. The fast-track 'ro,ision of .$. trade law has the affect of s'eeding u' the timetable during which the
%resident negotiates trade agreements with foreign go,ernments.
"#$: T %T$: 1
15. The main focus of the ruguay Round of multilateral trade negotiations was on tariff barriers rather
than nontariff trade barriers.
"#$: 1 %T$: 1
19. "lthough the ruguay Round of multilateral trade negotiations succeeded in reducing nontariff trade
barriers( it could not achie,e reductions in tariff trade barriers.
"#$: 1 %T$: 1
1=. "mong the codes of conduct addressed at the Tokyo Round of multilateral trade negotiations were
customs ,aluation( 'roduct standards( subsidies and counter,ailing duties( go,ernment 'rocurement
'olicies( and im'ort licensing 'rocedures.
"#$: T %T$: 1
1?. nder the go,ernment 'rocurement 'olicy of the World Trade Organization( federal-state-local
go,ernments are 're,ented from discriminating in fa,or of the 'roducts of domestic su''liers on
contracts ,alued at G1 million and more.
"#$: 1 %T$: 1
17. nlike the Tokyo Round of multilateral trade negotiations( the ruguay Round addressed the issues of
intellectual 'ro'erty 'rotection( trade barriers in ser,ices( and agricultural subsidies.
"#$: T %T$: 1
&8. The .$. trade-remedy laws attem't to redress hardshi's for .$. firms resulting from actions and
'olicies of foreign firms and go,ernments.
"#$: T %T$: 1
&1. "ccording to .$. trade law( the esca'e clause 'ro,ides relief to .$. firms due to unfair foreign
com'etition.
"#$: 1 %T$: 1
&&. "ccording to the esca'e clause( tem'orary trade restrictions may be im'osed in industries where
domestic 'roducers are substantially being harmed by surging im'orts.
"#$: T %T$: 1
&/. The 'ur'ose of Ccounter,ailing duties(C as le,ied by the domestic go,ernment( is to neutralize im'ort
tariffs im'osed by foreign go,ernments.
"#$: 1 %T$: 1
&2. nder the 'ro,isions of the World Trade Organization( !anada would ha,e the right to im'ose
counter,ailing duties on im'orts of $outh Korean steel when the $outh Korean go,ernment 'ro,ides
e+'ort subsidies to its steelmakers.
"#$: T %T$: 1
&5. 3conomic theory suggests that if 1rance is a net im'orter of automobiles( whose 'roduction is
subsidized by the Korean go,ernment( the o,erall welfare of 1rance decreases because of the Korean
subsidy.
"#$: 1 %T$: 1
&9. "n antidum'ing duty le,ied on im'orts of foreign-'roduced steel leads to an increase in consumer
sur'lus in the home country.
"#$: 1 %T$: 1
&=. .$. antidum'ing duties are intended to neutralize e+'orts to the nited $tates at 'rices below a,erage
total cost or e+'orts to the nited $tates at 'rices lower than those charged in the e+'orterDs home
market.
"#$: T %T$: 1
&?. 0ntellectual 'ro'erty refers to holdings of rare books and 'ieces of art that are traded on the world
market.
"#$: 1 %T$: 1
&7. !o'yrights( trademarks( and 'atents are used to 'rotect the intellectual 'ro'erty of a nation from
foreign imitators.
"#$: T %T$: 1
/8. nder the trade ad*ustment assistance 'rogram( a domestic firm or worker can file for go,ernmental
assistance only if it demonstrates that it suffered economic hardshi' due to im'orts of foreign-
subsidized goods.
"#$: 1 %T$: 1
/1. 0ndustrial 'olicy attem'ts to foster the de,elo'ment of industries that offer long-run com'arati,e
disad,antages and which are insulated from other sectors of the economy.
"#$: 1 %T$: 1
/&. .uring the 'ost World War 00 era( the nited $tates has ado'ted e+'licit industrial 'olicies similar to
those of 1rance and Ba'an.
"#$: 1 %T$: 1
//. 0ndustrial 'olicies of the .$. go,ernment ha,e included subsidizing 'articular firms to 'romote
national cham'ions( nationalizing basic industries( and encouraging cartelization of industries.
"#$: 1 %T$: 1
/2. The 3+'ort-0m'ort 4ank 'ro,ides e+'ort-credit subsidies to .$. 'roducers of agricultural goods.
"#$: 1 %T$: 1
/5. <a*or beneficiaries of e+'ort-credit subsidies( granted by the 3+'ort-0m'ort 4ank( ha,e included .$.
'roducers of aircraft( telecommunications( and 'ower-generating e)ui'ment.
"#$: T %T$: 1
/9. The !ommodity !redit !or'oration makes a,ailable e+'ort credit financing for .$. agricultural
e+'orts.
"#$: T %T$: 1
/=. "s a way of hel'ing .$. business firms trade in the world market on a more e)ual terms with their
organized foreign com'etitors( the .$. go,ernment 'ermits them to form e+'ort trade associations
and e+'ort trading com'anies.
"#$: T %T$: 1
/?. 0f the .$. go,ernment 'ursued a Cknowledge-based growth 'olicy(C it would subsidize 'articular
firms to hel' them com'ete in the world economy.
"#$: 1 %T$: 1
/7. 0n the 'ost World War 00 era( the Ba'anese go,ernment formed industrial 'olicies to encourage the
de,elo'ment of its steel( auto( shi'building( and machine tool industries.
"#$: T %T$: 1
28. nlike Ba'an and the nited $tates( 1rance has refrained from forming e+'licit industrial 'olicies to
enhance the com'etiti,eness of its national cham'ions.
"#$: 1 %T$: 1
21. "ccording to the strategic- trade- 'olicy hy'othesis( go,ernmental subsidies granted to domestic
'roducers can hel' them in ca'turing economic 'rofits from foreign com'etitors.
"#$: T %T$: 1
2&. The strategic-trade-'olicy hy'othesis assumes that domestic firms o'erate under increasing cost
conditions as well as in 'erfectly com'etiti,e markets.
"#$: 1 %T$: 1
2/. "ccording to the strategic-trade-'olicy hy'othesis( go,ernment can alter the terms of com'etition to
fa,or domestic com'anies( thus increasing their 'rofits at the e+'ense of their ri,als.
"#$: T %T$: 1
22. The classical theory of com'arati,e ad,antage assumes that firms o'erate in im'erfectly com'etiti,e
markets( while the theory of strategic trade 'olicy assumes that firms o'erate in 'erfectly com'etiti,e
markets.
"#$: 1 %T$: 1
25. "ccording to the strategic-trade-'olicy hy'othesis( a subsidy granted to domestic e+'orters may lead
to increased e+'ort 'rofits which more than offset the cost of the subsidy to domestic ta+'ayers.
"#$: T %T$: 1
29. 4y reducing a,ailable su''lies of a 'roduct( an e+'ort embargo leads to falling 'rices in the target
nation and increasing target-nation consumer sur'lus.
"#$: 1 %T$: 1
2=. "ssume that the nited $tates is the only su''lier of grain to !hina and that it le,ies a 'artial e+'ort
embargo against !hina. The embargo leads to increased .$. welfare if the resulting im'ro,ement in
the .$. terms of trade with !hina more than offset the costs of the lower e+'ort ,olume to !hina.
"#$: T %T$: 1
2?. 3conomic sanctions are most effecti,e in 'ressuring the target country to modify its beha,ior when the
sanctions are im'osed by a small number of countries and when the target country had weak economic
ties to the im'osing countries before the sanctions were initiated.
"#$: 1 %T$: 1
27. 0t is widely recognized that the economic sanctions le,ied against 0ra) in 1778 were a ma*or factor
causing 0ra) to withdraw its military forces from Kuwait.
"#$: 1 %T$: 1
58. "ssume that Russia has a com'arati,e ad,antage in ,odka. 0f the nited $tates e+tends Russia the
benefits of the normal-trade-relations :most fa,ored nation;'rinci'le( .$. consumer sur'lus decreases
in the ,odka market.
"#$: 1 %T$: 1
51. "ssume that the nited $tates im'orts chemicals from @ermany. Trade theory 'redicts that if the
@erman go,ernment grants an e+'ort subsidy to its chemical firms( the o,erall welfare of the nited
$tates will increase.
"#$: T %T$: 1
5&. !oncerning industrial 'olicy( the nited $tates has nationalized its ma*or industries in an attem't to
'romote global cham'ions.
"#$: 1 %T$: 1
5/. The ruguay Round of multilateral trade negotiations succeeded in establishing the World Trade
Organization.
"#$: T %T$: 1
52. 3stablished in 1775( the World Trade Organization took charge of administering the new global trade
rules agreed in the ruguay Round of multilateral trade negotiations.
"#$: T %T$: 1
55. The World Trade Organization brings into the multilateral trading system manufactured goods and
agricultural 'roducts( but not trade in ser,ices( intellectual 'ro'erty 'rotection( and in,estment.
"#$: 1 %T$: 1
59. The @eneral "greement on Tariffs and Trade was founded in 1775 as a successor to the World Trade
Organization.
"#$: 1 %T$: 1
SHORT ANS2ER
1. What is the essential idea behind strategic trade 'olicy>
"#$:
The essential notion underlying strategic trade 'olicy is im'erfect com'etition.
%T$: 1
&. What is the basis for trade ad*ustment assistance>
"#$:
The rationale of trade ad*ustment assistance is that if society in general en*oys welfare gains from the
increased efficiency stemming from trade liberalization( some sort of com'ensation should be
'ro,ided for those who are tem'orarily in*ured by im'ort com'etition.
%T$: 1
ESSA3
1. 6as industrial 'olicy contributed significantly to Ba'anDs economic growth>
"#$:
The e+tent to which industrial 'olicy has contributed to Ba'anDs economic growth is unclear. Ba'an has
benefited from a high domestic sa,ings rate( an educated and highly moti,ated labor force( good labor
management relations( a shift of labor from low-'roducti,ity sectors to high-'roducti,ity
manufacturing( entre'reneurs willing to assume risks( and the like. These factors ha,e enhanced
Ba'anDs transformation from a low-technology nation to a high-technology nation. 0t is debatable how
ra'idly this transformation would ha,e occurred in the absence of an industrial 'olicy. "lthough Ba'an
has the most ,isible industrial 'olicy of the industrial nations( the im'ortance of that 'olicy to Ba'an
should not be e+aggerated.
%T$: 1
&. 3+'lain how ad,ocates of strategic trade 'olicy differ from the classical free traders in their treatment
of e+ternalities>
"#$:
"d,ocates of strategic trade 'olicy recognize that the classical argument for free trade considered
e+ternalities at length. The difference( they maintain( is that the classical theory was based on 'erfect
com'etition and thus could not a''reciate the most likely source of the e+ternality( whereas modern
theories based on im'erfect com'etition can. The e+ternality in )uestion is the ability of com'anies to
ca'ture the fruits of e+'ensi,e inno,ation. !lassical theory based on 'erfect com'etition neglected this
factor because large fi+ed costs are in,ol,ed in inno,ation and research and de,elo'ment( and such
costs ensure that the number of com'etitors in an industry will be small.
%T$: 1