Chapter 8 (15th)

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chapter 7 answers
International Business (고려대학교)
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International Business: Environments and Operations, 15e (Daniels et al.)

Chapter 7 Cross-National Cooperation and Agreements
1) ________ integration is the political and economic agreements among countries that give
preference to member countries to the agreement.
A) Global
B) Economic
C) Bilateral
D) Regional
Answer: B
Diff: 1
Learning Outcome: Define the fundamental concepts of international business
Skill: Concept
Objective: 1
2) Country A and Country B make an agreement to cooperate more closely and implement tariff
reductions. Which of the following best describes this agreement?
A) double commodity integration
B) multilateral integration
C) regional integration
D) bilateral integration
Answer: D
Diff: 1
Skill: Application
Objective: 1
3) The European Union is an example of ________ integration.

A) regional
B) relative
C) global
D) bilateral
Answer: A
Diff: 2
Skill: Concept
Objective: 1
AACSB: Diverse and multicultural work environments
1
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4) Global integration occurs as countries from all over the world decide to cooperate through the
________.
A) EU
B) NAFTA agreement
C) WTO
D) CARICOM
Answer: C
Diff: 1
Skill: Concept
Objective: 1
5) Which of the following statements most accurately describes the relationship between trading
groups and MNEs?
A) Trading groups have no influence on the size of the regional market.
B) Regional trading groups can define the rules under which companies must operate within that
region.
C) Companies never need to change their organizational structure to take advantage of regional
trading groups.
D) Regional trading groups have no influence on an MNE's strategy since they operate
worldwide.
Answer: B
Diff: 2
Skill: Concept
Objective: 1
6) Anderson Enterprises is a U.S. firm that manufactures light fixtures for commercial and
residential consumers. Anderson is looking to expand internationally, so the firm should most
likely ________.
A) focus on developing new recruitment strategies and selection tests
B) change their organizational structure to fit the norms of the foreign country
C) disregard changes in trading groups because they have little effect on a company
D) look to expand beyond the triad regions currently controlled by the top 500 MNEs
Answer: B
Diff: 2
Learning Outcome: Discuss factors affecting the organizational structures of international
businesses
Skill: Application
Objective: 1
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7) Baldani Manufacturing, an Italian firm, plans to expand into Asia. In order to take advantage
of regional trading groups, Baldani will most likely need to change its ________.
A) operating strategies
B) selection test methods
C) bilateral trade agreements
D) economic integration methods
Answer: A
Diff: 2
Skill: Application
Objective: 1
8) Which of the following is NOT one of the regions included in the triad regions of the world?
A) South America
B) Europe
C) North America
D) Asia
Answer: A
Diff: 2
Skill: Concept
Objective: 1
AACSB: Dynamics of the global economy
9) The ________ clause embodied the fundamental principle of GATT—trade without

discrimination.
A) most-favored-nation
B) nontariff barriers
C) free rider
D) normal trade relations
Answer: A
Diff: 1
Skill: Concept
Objective: 1
10) Which of the following accurately identifies a difference between GATT and the WTO?
A) GATT could enforce member compliance with agreements, but the WTO cannot.
B) At its inception, GATT had more member nations than the WTO currently has.
C) GATT withdrew the most-favored-nation clause, but the WTO reinstated it.
D) GATT rules did not cover trade in services, but the rules of the WTO do.
Answer: D
Diff: 2
Skill: Concept
Objective: 1
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11) Under the WTO agreement, ________.

A) a dispute resolution mechanism allows countries to bring grievances to the WTO against
countries that levy inappropriate trade discrimination measures
B) there is no dispute resolution mechanism except for trade involving environmental products
C) countries are allowed to place trade barriers on member countries with no particular
justification, because like GATT the WTO has no enforcement mechanism
D) tariffs are permitted to be levied by developed countries against developing countries but not
against each other
Answer: A
Diff: 2
Skill: Concept
Objective: 1
AACSB: Ethical understanding and reasoning
12) A major problem with the Doha Round is that ________.

A) developing countries want developed countries to better protect their intellectual property
B) developing countries want a reduction in agricultural subsidies maintained by the developed
countries
C) the WTO does not want the developing countries to liberalize their investment rules
D) because of security issues, not all countries were able to attend the meetings, so it was
impossible to get a consensus vote
Answer: B
Diff: 2
Learning Outcome: Discuss arguments for and against regional economic integration
Skill: Concept
Objective: 1
13) Most trade groups contain countries in the same area of the world. Why is this so?
A) The distances that goods need to travel between such countries are short.
B) Distribution channels are not easily established in adjacent countries.
C) Adjacent countries are reluctant to coordinate policies.
D) Neighboring countries usually lack a common history and interests.
Answer: A
Diff: 3
Skill: Concept
Objective: 4
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14) Which of the following groups of countries is most likely to form a regional trading group?
A) India, Argentina, France
B) Canada, United States, Mexico
C) Brazil, Ukraine, Japan
D) Spain, South Africa, Mongolia
Answer: B
Diff: 2
Skill: Application
Objective: 4
15) The 27 member EU negotiates trade agreements as one. The EU and Brazil have negotiated a
strategic trade alliance which is an example of a ________.
A) customs union
B) global free trade agreement
C) bilateral agreement
D) multilateral agreement
Answer: C
Diff: 2
Skill: Application
Objective: 2
16) The goal of a ________ is to abolish all tariffs among member countries.
A) customs union
B) common market
C) free trade agreement
D) common internal tariff
Answer: C
Diff: 1
Skill: Concept
Objective: 4
17) Of the following possibilities, the European Union is best described as a ________.
A) customs union
B) domestic organization
C) global bargaining unit
D) common language agreement
Answer: A
Diff: 2
Skill: Concept
Objective: 4
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18) A ________ results when free mobility of factors of production is added to a customs union.
A) customs union
B) common market
C) free trade agreement
D) regional trade agreement
Answer: B
Diff: 1
Skill: Concept
Objective: 4
19) Members of the Andean Community (CAN) have a common external tariff. CAN is most
likely a ________.
A) free trade agreement
B) customs union
C) domestic trade zone
D) free trade sovereignty
Answer: B
Diff: 1
Skill: Application
Objective: 4
20) ________ effects of trade agreements are the shifting of resources from inefficient to
efficient companies as trade barriers fall.
A) Dynamic
B) Static
C) Economic
D) Barrier
Answer: B
Diff: 1
Skill: Concept
Objective: 3
21) ________ effects of economic integration are the overall growth in the market and the impact
on a company caused by expanding production and by the company's ability to achieve greater
economies of scale.
A) Dynamic
B) Static
C) Economic
D) Barrier
Answer: A
Diff: 1
Skill: Concept
Objective: 3
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22) Trade shifting to countries within a regional trade agreement at the expense of trade with
countries not in the agreement is called ________.
A) a dynamic effect
B) trade creation
C) trade diversion
D) economy of scale
Answer: C
Diff: 2
Skill: Concept
Objective: 3
23) When the European Union was formed, the size of the market increased for European
companies. This is most likely an example of a ________.
A) dynamic effect
B) static effect
C) trade diversion
D) trade reflection
Answer: A
Diff: 2
Skill: Application
Objective: 3
24) Since production has shifted to more efficient producers due to comparative advantage,
consumers in Country X have had access to more goods at lower prices. Which of the following
most likely exists?
A) trade specialization
B) trade diversion
C) trade creation
D) trade internalization
Answer: C
Diff: 2
Skill: Application
Objective: 3
25) A free trade agreement is likely to increase efficiency because of ________.

A) decreased competition
B) increased competition
C) decreased trade diversion
D) decreased trade creation
Answer: B
Diff: 2
Skill: Concept
Objective: 3
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26) Assume that U.S. companies are importing the same product from Mexico and Taiwan. The
United States enters into an FTA with Mexico but not with Taiwan. Consequently, the United
States begins to import more goods from Mexico (due to lower tariffs) than from Taiwan, even
though the Mexican products are not any better or cheaper. This is most likely an example of
________.
A) trade specialization
B) trade internalization
C) trade creation
D) trade diversion
Answer: D
Diff: 2
Skill: Application
Objective: 3
27) Because the size of the market increases when trade barriers fall, companies can increase
their production, which will result in lower costs per unit. This phenomenon is known as
________.
A) trade creation
B) economies of scale
C) diseconomies of scale
D) increased competition
Answer: B
Diff: 1
Skill: Concept
Objective: 3
28) The ________ is the European Union's ultimate decision-making body and is composed of
the different ministers of the member countries.
A) European Commission
B) Council of the European Union
C) European Parliament
D) European Court of Justice
Answer: B
Diff: 2
Skill: Concept
Objective: 5
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29) The three major responsibilities of the ________ are legislative power, control over the
budget, and supervision of executive decisions.
B) European Council
D) European Court of Justice
Answer: C
Diff: 2
Skill: Concept
Objective: 5
30) The EU organization that provides political leadership, drafts laws, and runs the daily
programs of the EU is the ________.
B) Council of Ministers
D) European Central Bureaucracy
Answer: A
Diff: 2
Skill: Concept
Objective: 5
31) The EU organization that ensures consistent interpretation and application of EU treaties is
the ________.
B) Council of Ministers
C) Court of Justice
D) Council of Treaties and Laws
Answer: C
Diff: 2
Skill: Concept
Objective: 5
AACSB: Ethical understanding and reasoning
32) Which of the following was primarily responsible for establishing the euro?
A) Lisbon Treaty
B) Treaty of Maastricht
C) European Finance Act
D) Single European Act
Answer: B
Diff: 2
Skill: Concept
Objective: 5
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33) Critics of the Lisbon Treaty primarily argue that the legislation will ________.
A) reduce national sovereignty
B) implement trade restrictions
C) develop a monetary union
D) weaken decision making
Answer: A
Diff: 2
Skill: Application
Objective: 4
34) The ________ is the common currency of the European Union.

A) franc
B) pound
C) euro
D) mark
Answer: C
Diff: 1
Skill: Concept
Objective: 5
35) Which of the following statements about the euro is true?

A) It was adopted by all existing EU members when it was first initiated.
B) It must be adopted by countries as a precondition to joining the EU.
C) It cannot be used by countries that are not members of the EU.
D) It was designed to eliminate currency as a barrier to trade in the EU.
Answer: D
Diff: 3
Skill: Concept
Objective: 5
36) Which of the following members of the European Union has NOT adopted the euro?
A) United Kingdom
B) Estonia
C) Germany
D) Greece
Answer: A
Diff: 2
Skill: Concept
Objective: 5
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37) Hudson Manufacturing is an MNE based in the U.S. with operations in Asia. The firm is
considering expansion into the European Union. Which of the following questions is most
relevant to the decision?
A) What is the primary language of most workers?
B) Which country has the best production location?
C) Which currency has the most favorable value of the euro?
D) Which country has the lowest tariffs for manufactured products?
Answer: B
Diff: 2
Skill: Critical Thinking
Objective: 5
AACSB: Reflective thinking
38) Hudson Manufacturing is an MNE based in the U.S. with operations in Asia. The firm is
considering expansion into the European Union. Executives at the firm are debating whether
central Europe or Eastern Europe would be best for the firm. Which of the following best
supports a decision to establish operations in Eastern Europe?
A) Hudson wants to implement a high-performance work system.
B) Hudson plans to staff the foreign facility with local managers.
C) Hudson wants to minimize costs by keeping wages low.
D) Hudson recently lost money in a joint venture.
Answer: C
Diff: 3
Objective: 5
39) Korman Industries is a foreign multinational that recently established operations in the
European Union. What is the most likely advantage for Korman as a result?
A) Governance processes are streamlined because local governments have been eliminated.
B) Market size is larger because of the elimination of internal tariff barriers.
C) Differential external tariff barriers exist for product shipments.
D) The EU uses English as its official language.
Answer: B
Diff: 2
Skill: Application
Objective: 5
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40) Which of the following recently threatened the future of the EU's common currency?
A) refusal of the UK to use the euro
B) failed mergers and acquisitions
C) debt crisis in Greece
D) human rights issues
Answer: C
Diff: 2
Skill: Concept
Objective: 5
41) Which of the following are members of NAFTA?

A) the United States, Canada, and Mexico
B) North America and Latin America
C) the United Kingdom, the United States, and Canada
D) the United States, Canada, and Brazil
Answer: A
Diff: 1
Skill: Concept
Objective: 5
42) NAFTA was primarily formed because the member nations have ________.
A) static and dynamic liberalization policies
B) similarly sized economies and resources
C) geographic proximity to each other
D) competing interests with the EU
Answer: C
Diff: 2
Skill: Concept
Objective: 5
43) NAFTA is a good example of ________.

A) trade divestment
B) trade diversion
C) the theory of trade disruption
D) the theory of trade implementation
Answer: B
Diff: 2
Skill: Concept
Objective: 5
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44) Compared to the European Union, the North American Free Trade Agreement ________.
A) has a stronger currency linkage due to the U.S. dollar
B) has more trade problems since it is a customs union
C) is significantly larger in population and total GNI
D) is slightly smaller in population and GDP
Answer: D
Diff: 2
Skill: Concept
Objective: 5
45) Under NAFTA, rules of origin ensure that ________.

A) only goods produced mostly within the region are eligible for liberal tariff conditions
B) only American products are shipped to Canada and Mexico duty-free
C) all members import products only from member nations
D) all members have the same external and internal tariffs
Answer: A
Diff: 2
Skill: Concept
Objective: 5
46) According to regional content rules, at least ________ of the net cost of most products must
come from the NAFTA region in order to get access to the tariff reductions of NAFTA.
A) 62.5%
B) 50%
C) 45%
D) 40.5%
Answer: B
Diff: 2
Skill: Concept
Objective: 5
47) Which of the following is a unique provision of NAFTA?

A) tariff elimination
B) common currency
C) environmental standards
D) immigration oversights and policies
Answer: C
Diff: 2
Skill: Concept
Objective: 5
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48) The major trade group in South America involving Brazil, Paraguay, Uruguay, and Argentina
is ________.
A) MERCOSUR
B) UNASUR
C) APEC
D) CACM
Answer: A
Diff: 1
Skill: Concept
Objective: 5
49) The ________ is a preferential trade agreement that was organized in 1967 and comprises
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand,
and Vietnam.
A) APEC
B) OAU
C) ASEAN
D) CAFTA
Answer: C
Diff: 1
Skill: Concept
Objective: 5
50) Which of the following is the primary focus of the African Union (AU)?
A) FDI influx
B) democracy
C) economic integration
D) intrazonal trade relations
Answer: B
Diff: 2
Skill: Concept
Objective: 5
51) An NGO is ________.

A) an agency of the United Nations
B) a private institution independent of a government
C) any organization working on environmental issues
D) an organization that is concerned only with workers' rights
Answer: B
Diff: 1
Skill: Concept
Objective: 6
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52) Which of the following is most likely a true statement about the relationship between the
United Nations and NGOs?
A) The UN must license an NGO for it to be involved in any international relief efforts.
B) A UN committee discusses issues of importance to NGOs but does not regulate their
activities.
C) The UN determines which NGOs can work on international humanitarian issues and relief
efforts.
D) NGOs typically operate in only one country, whereas UN agencies can operate anywhere in
the world.
Answer: B
Diff: 3
Skill: Concept
Objective: 6
53) Many NGOs, including Africa Now, Quaker Peace and Social Witness, and Save the
Children, are members of the ________.
A) Ethical Trading Initiative
B) International Red Cross Council
C) United Nations Global Compact
D) United Nations Economic and Social Council
Answer: A
Diff: 1
Skill: Concept
Objective: 6
54) Commodity agreements ________.

A) were initially established to attempt to stabilize commodity prices
B) are effective in regulating the price of grains but not minerals
C) are effective in regulating the prices of both grains and minerals
D) were disbanded by the United Nations for being non-competitive
Answer: A
Diff: 2
Skill: Concept
Objective: 6
55) The role of most commodity agreements now is to ________.

A) discuss issues and disseminate information about commodities
B) keep consumer countries from controlling commodity prices
C) allow producer countries to control inflation by keeping commodity prices low
D) stabilize prices through regional alliances between producer and consumer countries
Answer: A
Diff: 2
Skill: Concept
Objective: 6
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56) An example of an effective commodity agreement is ________.

A) the Organization of Petroleum Exporting Countries
B) the Organization of Petroleum Importing Countries
C) the International Tin Alliance
D) the International Cotton Alliance
Answer: A
Diff: 2
Skill: Concept
Objective: 6
57) The Organization of Petroleum Exporting Countries ________.

A) uses import tariffs to control oil prices
B) stabilizes prices based on demand
C) uses quotas to control oil prices
D) produces all of the world's oil
Answer: C
Diff: 2
Skill: Concept
Objective: 6
58) Which of the following primarily triggered Toyota's investment in the European Union?
A) Europeans demanded affordable, high quality cars from Japan.
B) A common currency gave Europeans more buying power.
C) The EU lowered trade barriers on foreign auto imports.
D) Japan and the EU formed a free trade agreement.: 타국가도 있음
Answer: C
Diff: 2
Skill: Concept
Objective: 2
AACSB: Analytical thinking
59) Which of the following is Walmart's competitive advantage in Mexico?

A) Walmart purchased all Mexican retail chains and eliminated competitors.
B) Walmart is able to transfer its "everyday low prices" concept to Mexico.
C) Walmart offers affordable, unique products for niche markets in Mexico.
D) Customers prefer to buy from American companies instead of Mexican companies.
Answer: B
Diff: 2
Skill: Concept
Objective: 2
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60) What was the primary purpose of the formation of Sinergia?

A) charge tariffs on Walmart imports
B) purchase Walmart's major suppliers
C) better compete with Walmart on price
D) include Walmart in the regional supply chain
Answer: C
Diff: 2
Skill: Concept
Objective: 2
61) Regional integration is better known as global integration through the World Trade
Organization.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 2
62) The European Union is an example of regional integration.

Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2
63) As companies expand internationally, they must change their organizational structure and
operating strategies to take advantage of regional trading groups.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2
64) Most MNEs generate a majority of their revenues in their home regions.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
65) GATT's contribution to trade liberalization made possible the expansion of world trade in the
second half of the twentieth century.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
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66) The most-favored-nation policy is a WTO privilege that allows member nations to restrict
tariff cuts to members.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1
67) One of the reasons that neighboring countries tend to ally is similar consumer tastes.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 2
68) Most trade groups contain countries in the same area of the world, even though neighboring
countries usually lack a common history and interests.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
69) The goal of a free trade agreement is to abolish all tariffs among member countries.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2
70) When free mobility of factors of production is added to a common market, the result is a
customs union.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
71) Static effects are the overall growth in the market and the impact on a company caused by
expanding production and by the company's ability to achieve greater economies of scale.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 3
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72) The shifting of resources from inefficient to efficient companies as trade barriers fall
produces static effects.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 3
73) Trade creation allows consumers access to more goods at a lower price than would have been
possible without integration.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2
74) The shifting of trade to countries in a regional group at the expense of trade with countries
not in the group is known as trade internalization.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
75) The European Commission is the European Union's ultimate decision-making body and is
composed of the different ministers of the member countries.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 5
76) The three major responsibilities of the European Parliament are legislative power, control
over the budget, and supervision of executive decisions.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
77) The introduction of the euro has eliminated currency as a barrier to trade in all European
countries.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 5
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78) The Single European Act set steps to accomplish monetary union in the European Union,
including the creation of the euro.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 5
79) Production location is not an important choice when doing business in the European Union.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 5
80) Although the European Union is a common market, member countries have different
economic growth rates.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
81) NAFTA is an example of a common market.

Answer: FALSE
Diff: 2
Skill: Concept
Objective: 5
82) The most important rationales for NAFTA are geographic proximity and trading importance.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
83) Each country in NAFTA sets its own tariffs to the rest of the world.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
84) The major trade groups in South America are CAN and MERCOSUR.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 5
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85) The formation of CARICOM has primarily been triggered by the desire of Jamaica, Trinidad,
and Tobago to expand the region's market size and attract more FDI.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 5
86) An NGO is a private institution independent from the government.

Answer: TRUE
Diff: 2
Skill: Concept
Objective: 6
87) NGOs must be recognized by the United Nations in order to do humanitarian work in
developing countries.
Answer: FALSE
Diff: 2
Skill: Application
Objective: 6
88) Very few commodity agreements are successful in bringing together supplier and consumer
countries to stabilize commodity prices.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 6
89) OPEC is an example of a producer's cartel that is successful because of its ability to institute
tariffs on oil exports.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 6
90) Toyota has been successful in Europe by exporting cars to Europe as well as designing and
manufacturing cars in Europe for the European market.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2
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91) Describe the different types of regional economic integration and give an example of each
type.
Answer:
a. Free trade area (FTA): The goal of a free trade area is to abolish all tariffs among member
countries. Free trade agreements usually begin modestly by eliminating tariffs on goods that
already have low tariffs, and there is usually an implementation period over which all tariffs are
eliminated on all products. In addition, each member country maintains its own external tariffs
against non-FTA countries. Examples: the North American Free Trade Agreement, the
Association of South East Asian Nations
b. Customs union: In addition to eliminating internal tariffs, member countries levy a common
external tariff on goods being imported from nonmembers. Example: MERCOSUR
c. Common market: A common market has all the elements of a customs union, plus it allows
free mobility of production factors such as labor and capital. Example: the European Union
Diff: 3
Skill: Application
Objective: 4
92) Explain the static effects and dynamic effects of economic integration. What is the difference
between trade creation and trade diversion resulting from economic integration?
Answer: Static effects are the shifting of resources from inefficient to efficient companies as
trade barriers fall. Dynamic effects are the overall growth in the market and the impact on a
company of expanding production and achieving greater economies of scale. Static effects may
develop when either of two conditions occurs:
a. Trade creation: Production shifts to more efficient producers for reasons of comparative
advantage, allowing consumers access to more goods at a lower price than would have been
possible without integration.
b. Trade diversion: Trade shifts to countries in the group at the expense of trade with countries
not in the group, even though the nonmember company might be more efficient in the absence of
trade barriers.
Dynamic effects of integration occur when trade barriers come down and the size of the market
increases, allowing companies to achieve economies of scale.
Diff: 3
Objective: 3
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93) What are the functions of the European Commission, the European Parliament, the Council,
and the European Court of Justice?
Answer:
a. The European Commission provides the European Union's political leadership and direction.
The commission is composed of commissioners nominated by each member government and
approved by the European Parliament. It drafts laws that it submits to the European Parliament
and Council of the EU.
b. The three major responsibilities of the European Parliament are: legislative power, control
over the budget, and supervision of executive decisions. The commission presents community
legislation to the parliament. Parliament may approve legislation, amend it, or reject it outright.
Parliament also approves the EU's budget each year and monitors spending.
c. The Council is composed of the ministers of the member countries. The Council passes laws
and makes and enacts major policies. It works closely with the Commission and Parliament in
adopting policies.
d. The European Court of Justice ensures consistent interpretation and application of EU
treaties. Member states, community institutions, or individuals and companies may bring cases to
the court. The Court of Justice is an appeals court for individuals, firms, and organizations fined
by the commission for infringing treaty law. The Court of Justice is relevant to MNEs because it
deals mostly with economic matters.
Diff: 3
Skill: Application
Objective: 5
94) What are the rules of origin and regional content provisions of NAFTA?
Answer: Because NAFTA is a free trade agreement and not a customs union, each country sets
its own tariffs for the rest of the world. Rules of origin ensure that only goods that have been the
subject of substantial economic activity within the free trade area are eligible for the more liberal
tariff conditions created by NAFTA. According to regional content rules, at least 50 percent of
the net cost of most products must come from the NAFTA region. The exceptions are 55 percent
for footwear, 62.5 percent for passenger automobiles and light trucks and the engines and
transmissions for such vehicles, and 60 percent for other vehicles and automotive parts.
Diff: 3
Skill: Application
Objective: 5
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95) What has been the impact of NAFTA on trade and employment in NAFTA nations?
Answer: Trade and investment among the NAFTA members has increased significantly since the
agreement was signed in 1994. The U.S. is the largest trade partner of Canada and Mexico, and
both countries are among the most important exporters and importers for the U.S. Due to lower
wages in Mexico, a lot of FDI has poured into Mexico, potentially displacing jobs in the United
States. U.S. firms have come under criticism for taking advantage of cheaper wages and lax
environmental standards. In addition, the agreement has not stopped the flow of illegal
immigrants from Mexico to the U.S.
Diff: 3
Skill: Synthesis
Objective: 2, 5
96) Identify and briefly compare the major regional trading groups in Latin America, Asia, and
Africa.
Answer:
a. The major trade group in South America is MERCOSUR. In 1991, Brazil, Argentina,
Paraguay, and Uruguay established MERCOSUR. MERCOSUR is significant because of its size;
it generates 75 percent of South America's GNP. Another major group in South America is the
Andean Group (CAN), which is composed of Bolivia, Colombia, Ecuador, and Peru. There are
three major regional trading groups in Central America and the Caribbean: the Central American
Common Market, the Central American Free Trade Agreement-Dominican Republic (which
includes the United States), and the Caribbean Community and Common Market (CARICOM).
These groups are hampered by their small markets and dependence on the United States for
trade.
b. In Asia, the key group is the Association of South East Asian Nations (ASEAN), which was
organized in 1967 and comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand, and Vietnam. It is promoting cooperation in many areas,
including industry and trade. In 1993, the ASEAN countries formed the ASEAN Free Trade Area
(AFTA) to deal with the specific intrazonal trade issues.
c. The Asia Pacific Economic Cooperation (APEC) is massive since it includes every country
that borders the Pacific Ocean. In spite of the size of APEC, it does not engage in treaties like the
other trade agreements, so it has potential but not much teeth.
d. Africa is divided into many different trading groups based on geographic proximity and links
to former colonial powers. Most groups are hampered by poverty, small market size, and
dependence on former colonial powers. The African Union is modeled loosely on the EU, but
that type of integration will likely be very difficult.
Diff: 3
Objective: 5
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97) Are commodity agreements effective? Why or why not?

Answer: Commodity agreements used to be influential in helping to stabilize commodity prices,
but now they are more involved in disseminating information and promoting research. OPEC is
an example of an effective producers' cartel that operates on quotas to try to stabilize prices. In
general, very little can be done outside of market forces to influence price.
Diff: 3
Objective: 6
98) Why is geography important to most regional trade agreements? Provide examples of RTAs
to illustrate your answer.
Answer: There are a number of reasons why geography matters in the case of RTAs.
Neighboring countries often, though not always, share a common history, language, culture, and
currency. Unless the countries are at war with each other, they usually have already developed
trading ties. Close proximity reduces transportation costs, thereby making traded products
cheaper in general. Armenia has RTAs in force with Kazakhstan, Moldova, the Russian
Federation, Turkmenistan, and Ukraine. India has a number of trade agreements with most of the
countries in its region. Germany, a member of the European Union, exports 62.9 percent of its
merchandise exports to other EU members and imports 58.3 percent from them. Switzerland,
which is not a member of the EU but which has a trade agreement with the EU, exports 59.7
percent of its merchandise exports to EU countries and imports 78 percent from them. NAFTA
includes Canada, the United States, and Mexico.
Diff: 3
Skill: Synthesis
Objective: 2, 5
99) In a brief essay, explain the roles of the World Trade Organization and the United Nations in
international trade.
Answer: The World Trade Organization (WTO) replaced GATT in 1995 as a continuing means
of trade negotiations that aspires to foster the principle of trade without discrimination and to
provide a better means of mediating trade disputes and of enforcing agreements. The United
Nations is composed of representatives of most of the countries in the world and influences
international trade and development in a number of significant ways. The UN family of
organizations is too large to list, but it includes the WTO, the International Monetary Fund, and
the World Bank. If the UN performs its responsibilities, it should improve the environment in
which MNEs operate around the world, reducing risk and providing greater opportunities.
Diff: 3
Skill: Synthesis
Objective: 1, 6
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100) What is the difference between a free trade agreement and a customs union? Provide
examples of each in your answer.
Answer: The goal of an FTA is to abolish all tariffs between member countries. It usually begins
modestly by eliminating tariffs on goods that already have low tariffs, and there is usually an
implementation period during which all tariffs are eliminated on all products. Moreover, each
member country maintains its own external tariffs against non-FTA countries. NAFTA is an
example of a free trade agreement. The EU is considered a customs union by the WTO. In
addition to eliminating internal tariffs, member countries levy a common external tariff on goods
being imported from nonmembers. For example, the EU removed internal tariffs from 1959 to
1967, when it established a common external tariff. Now it negotiates as one region in the WTO
rather than as separate countries. Customs unions account for less than 10 percent of the RTAs
identified by the WTO.
Diff: 3
Skill: Synthesis
Objective: 4, 5
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International Business (고려대학교)

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International Business: Environments and Operations, 15e (Daniels et al.)

3) The European Union is an example of ________ integration.

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9) The ________ clause embodied the fundamental principle of GATT—trade without

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11) Under the WTO agreement, ________.

12) A major problem with the Doha Round is that ________.

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25) A free trade agreement is likely to increase efficiency because of ________.

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34) The ________ is the common currency of the European Union.

35) Which of the following statements about the euro is true?

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41) Which of the following are members of NAFTA?

43) NAFTA is a good example of ________.

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45) Under NAFTA, rules of origin ensure that ________.

47) Which of the following is a unique provision of NAFTA?

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51) An NGO is ________.

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54) Commodity agreements ________.

55) The role of most commodity agreements now is to ________.

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56) An example of an effective commodity agreement is ________.

57) The Organization of Petroleum Exporting Countries ________.

59) Which of the following is Walmart's competitive advantage in Mexico?

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60) What was the primary purpose of the formation of Sinergia?

62) The European Union is an example of regional integration.

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81) NAFTA is an example of a common market.

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86) An NGO is a private institution independent from the government.

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97) Are commodity agreements effective? Why or why not?

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