Exam 2 Chapters 6 - 10 Flashcards
Define Nationalization
A government taking control of a company or industry. (Most common in developing countries).
Define Privatization.
The transfer of ownership of property or business from a government to a privately owned entity.
List 4 reasons why firms are nationalized.
1) to extract more money from the firms, if the government suspects that the firms are concealing profits;
2) profitability—the government believes it can run the firms more efficiently and make more money;
3) ideology;
4) job preservation—to save jobs by putting dying industries on life-support systems;
5) because the government has pumped money into a firm or an industry, and control usually follows money;
6) happenstance, as with the nationalization after World War II of German-owned firms in Europe
Explain why businesses proposer more when a government is stable.
With stability there is more power and better performance. There is confidence in investors and money, expertise and technology will come.
Explain why interest groups often succeed in getting import restrictions when free trade would benefit more people. (on final exam)
The government officials who make decisions about import restrictions are particularly sensitive to the interest groups that will be hurt by the international competition. These groups consist of a small, easily identified body of people or organizations—as contrasted to the large, widespread number of consumers who typically benefit from free trade. In political debates over a proposed import restriction, the protectionist group will usually be united in exerting pressure on government officials, whereas pro-trade consumers rarely mount an organized effort.
Explain the following reasons for trade restrictions and the free trade response: National Defense
Certain industries need protection from imports because they are vital to security and must be kept operating even though they are not competitive with foreign suppliers. (U.S. Shoe Industry).
Explain the following reasons for trade restrictions and the free trade response: Protecting Infant Industries
Advocates for the protection of an infant industry may claim that in the long run the industry will have a comparative advantage but that firms need protection from imports until the required investment capital is obtained, the labor force is trained, production techniques are mastered, and economies of scale are achieved. Without the protection, advocates argue, a firm will not be able to survive because lower-cost imports from more mature foreign competitors will underprice it in its local market.
Explain the following reasons for trade restrictions and the free trade response: Retaliation
Representatives of an industry whose exports have had import restrictions placed on them by another country may ask their government to retaliate with similar restrictions. The EU banned hormone-treated beef from the U.S. and closed it’s markets to U.S. beef in 1988. U.S. retaliated by putting import duties on about $100 million worth of EU products. Then EU threatened to ban U.S. shipments of certain products worth $140 million. U.S. complied with EU ban on all EU meat.
How do free trade advocates respond to claims that domestic jobs must be protected from cheap foreign labor? (on final exam)
First, wage costs are neither all of the productions costs nor all of the labor costs. The comparison is misleading (lower foreign hourly wage rates, then they can flood home-market with low-priced goods). Second, productivity per worker may be much greater in richer countries because of more capital per worker, superior management and advanced technology. Labor cost component of the goods being produced could be lower even though wages are higher.
Describe dumping.
Another form of retaliation - The WTO defines dumping as selling a product abroad for less than
i. the average cost of production in the exporting nation,
ii. the market price in the exporting nation, or
iii. the price to third countries.
How do subsidies restrict imports?
Another cause of retaliation. - subsidies that a government makes to a domestic firm either to encourage exports or to help protect it from imports. Some examples are cash payments, government participation in ownership, low-cost loans to foreign buyers and exporters, and preferential tax treatment.
List and describe the 3 types of import duties.
Import duties are
i. Ad Valorem – As a percentage of the invoice value of the product
ii. Specific – is a fixed sum of money charged for a specified physical unit of the product.
iii. A combination of the two called compound - When the flavoring extracts and fruit flavors just mentioned contain more than 50 percent alcohol by weight, they are subject to a specific duty of $0.12 per pound plus a 3 percent ad valorem. Thus, on a $10,000 shipment weighing 5,000 pounds, the importer would have to pay a compound duty of $900 [($.12 × 5,000 pounds) + (0.03 × $10,000) = $600 + $300].
Describe how the following non tariff barriers restrict trade: Quotas
Quotas
i. Which set numerical limits for specific kinds of goods that a country will permit to be imported during a specified period.
ii. Quota Absolute – Once the specified amount has been imported, further importation for the rest of the persion (usually a year) is prohibited.
iii. Global Quota – A total amount is fixed without regard to source.
iv. Allocated Quota – The government of the importing nation assigns quantities to specific countries.
Describe how the following non tariff barriers restrict trade: Voluntary export restraints
Is a government-imposed limit on the quantity of some category of goods that can be exported to a specified country during a specified period of time. Typically, VERs arise when industries seek protection from competing imports from particular countries.
Describe how the following non tariff barriers restrict trade: Customs & other administrative procedures
These barriers cover a large variety of government policies and procedures that either discriminate against imports or favor exports.
Describe how the following non tariff barriers restrict trade: Standards
Both governmental and private standards to protect the health and safety of a nation’s citizens certainly are desirable, but for years exporting firms have been plagued by many standards that are complex and discriminatory.
Why is the rule of law better for international business? (on final exam)
This encourages foreign investment because foreign businesses know that their interests will be protected. Following the rule of law also makes ensuring protection of human rights of local people easier.
Define extraterritorial application of laws.
Countries enforcing their laws outside their borders by traditional legal means.
Explain the choice-of-law clause.
A choice-of-law clause in a contract specifies which law will govern in the event of a dispute.
Explain the UN Convention on the International Sale of Goods (CISG).
Is a treaty that is a uniform international sales law. The CISG established uniform legal rules to govern the formation of international sales contracts and the rights and obligations of the buyer and seller. The CISG applies automatically to all contracts for the sale of goods between traders from different countries that have ratified the CISG.
Explain arbitration.
Arbitration is a dispute resolution mechanism that is an alternative to litigation. Arbitration is usually quicker, less expensive, and more private than litigation, and it is usually binding on all parties.
Describe the World Intellectual Property Organization.
World Intellectual Property Organization (WIPO) Arbitration and Mediation Center handles technological, entertainment, and intellectual property disputes.
Define antitrust laws.
Competition laws (known in the United States as antitrust laws) are intended to prevent inappropriately large concentrations of economic power, such as monopolies. Actions brought to enforce competition laws or antitrust laws usually involve government actions brought against business, but also may involve business actions against other businesses.
List 4 ways US liability laws differ from those in Europe and Japan.
1) The EU allows companies to use “state-of-the-art” or “developmental risks” defenses, which allow the designer/manufacturer to show that at the time of design or manufacture, the most modern, latest-known technology was used.
2) They also are permitted to cap damages.
3) Europe and Japan will limit or prevent product liability awards by European and Japanese courts.
4) Outside the United States, judges, not juries, hear product liability cases. Judges are less prone to emotional reactions than juries are, and even if the judge is sympathetic toward a plaintiff, punitive damages are not awarded by non-U.S. courts.
Describe the Foreign Corrupt Practices Act. (on final exam)
The Foreign Corrupt Practices Act (FCPA) is a federal United States law aimed at preventing the bribery of foreign government officials in an effort to obtain or retain business. The FCPA also requires companies whose securities are listed in the U.S. to adhere to accounting provisions outlined under the Securities Exchange Act of 1934. (G)
Define the Bretton Woods system.
Also called the gold exchange standard and the fixed rate system, which served as the basis of the international monetary system from 1945 to 1971
Describe the following currency arrangements: Exchange arrangements with no separate legal tender
One country adopts the currency of another or a group of countries adopt a common currency
Describe the following currency arrangements: Fixed peg
A “peg,” or fixed-rate relationship where exchange rate fluctuations are allowed within a narrow band of less than 1 percent. The peg could be to one currency or to a basket of currencies.
