Chapter 7 - Government Intervention

Question 1

Protectionism

Answer 1

national economic policy that restricts free trade
- raise revenue
- protect domestic industries

Question 2

Customs

Answer 2

checkpoint at national ports of entry where officials inspect imported goods and levy tariffs

Question 3

Consequences of protectionism

Answer 3

• low supply of goods for buyers (fewer choices)
• price inflation
• lower competitiveness w/ other nations

Question 4

Protection of a national economy vs an infant industry

Answer 4

• Weak or young economies sometimes need protection from foreign competitors
• young industry may need protection, to give it a chance to grow and succeed

Question 5

National Strategic priorities (what does protection do)

Answer 5

• helps ensure the development of industries
• growth in IT, automotive, pharmaceuticals, or financial services
• ## helps preserve domestic jobs

Question 6

Tariff

Answer 6

tax imposed on imported products
- generates gov. revenue, discourages product imports

Question 7

Quota

Answer 7

quantitative restriction on imports of a product during a specified time period

Question 8

Local content requirements

Answer 8

requirement that firms include a minimum percentage of locally sourced inputs in the production of given products or services

Question 9

Regulations and technical standards

Answer 9

safety, health, technical regulations, labeling restrictions

Question 10

Administrative and bureaucratic procedures

Answer 10

complex procedures or requirements imposed on importers or foreign investors that hinder trade and investment

Question 11

FDI and ownership restrictions

Answer 11

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

Question 12

Subsidy

Answer 12

government grants intended to ensure success by facilitating production at reduced prices, or encouraging exports (tax breaks, infrastructure, cash)

Question 13

How do firms respond to gov. intervention?

Answer 13

1) research to gather knowledge and intelligence
2) choose an appropriate entry strategies
3) take advantage of foreign trade zones
4) seek good customs classifications for exported products
5) take advantage of gov. support programs (ex: investment incentives)
6) lobby for freer trade & investment

Question 14

Regional economic integration

Answer 14

• 50% of world trade occurs under trade agreements signed by groups of countries
• cooperating nations: increased living standards, lower prices, more efficient resource

Question 15

Economic bloc

Answer 15

• geographic area consisting of two or more countries to pursue economic integration (reducing tariffs & barriers)

Question 16

Four possible levels of regional integration

Answer 16

1) Free trade area - countries agree to get rid of trade barriers in BLOC and maintain international trade policies outside BLOC
2) Customs Union - harmonize their trade policies toward nonmember countries (tarrif/non-tarrif barriers)
3) Common Market - like a customs union but factors of production (capital, labor, and technology) move freely among the member countries
4) Economic Union - like a common market but aim for common fiscal and monetary policies, and standardized commercial regulations

Question 17

What are some leading economic BLOCS in the European Union?

Answer 17

1) market access (barriers are eliminated)
2) common market (Barriers to cross-border movement of production factors)
3) trade rules (Cross-national customs procedures and regulations have been eliminated)
4) standards harmonization (Technical standards,
regulations, and enforcements = harmonized)
5) common taxation, social welfare policies (ultimate goal)

Question 18

European Union factors

Answer 18

• 28 members
• founders = Belgium, Italy, France, Germany, Netherlands

Question 19

Passage of NAFTA

Answer 19

• 1994 facilitated by the maquiladora program
• US firms found factories to access low-cost labor without significant tariffs

Question 20

MERCOSUR

Answer 20

• leading economic bloc in South America for all regions’ GDP
• initial members = Argentina, Brazil, Paraguay, and Uruguay

Question 21

Why do nations pursue economic integration?

Answer 21

• to expand market size
• achieve economies of scale and productivity
• attract direct investment from outside the BLOC
• acquire stronger defensive and political posture

Question 22

Implication of regional integration for the firm

Answer 22

• Internationalization by firms inside the economic bloc
• Rationalization of operations
• Regional products and marketing strategy
• Internationalization by firms from outside the
  bloc