Cengage Advantage Books Introduction to

Business Law 4th Edition Beatty Solutions

Manual
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CHAPTER 8-INTERNATIONAL LAW

TRUE/FALSE

1. Multinational enterprises are companies doing business in several countries simultaneously.

ANS: T PTS: 1 MSC: AACSB Analytic

2. The United States is the world’s largest exporter of agricultural products.

ANS: T PTS: 1 MSC: AACSB Analytic

3. Tariffs are generally higher in developing countries than in developed countries.

ANS: T PTS: 1 MSC: AACSB Analytic

4. Generally, consumers are not adversely affected by tariffs since tariffs affect wholesale prices, not
retail prices.

ANS: F PTS: 1 MSC: AACSB Analytic

5. Ad valorem duty is based on the fair market value of the imported good as of the date it reaches the
United States, not the price actually paid for the good when sold for export to the United States.

ANS: F PTS: 1 MSC: AACSB Analytic

6. Although the United States government officially signed the GATT treaty, the United States Congress
has refused to ratify the agreement.

ANS: F PTS: 1 MSC: AACSB Analytic

7. The European Union is one of the world’s most powerful regional associations with 42 member
nations as of 2011.
 ANS: F PTS: 1 MSC: AACSB Analytic

8. A contract involving the sale of goods from a Texas seller to a French wholesaler must always use the
United Nations Convention on Contracts for the International Sale of Goods (CISG).

ANS: F PTS: 1 MSC: AACSB Analytic

9. If the United States sets a limit on the number of cars that can be imported, this action is a form of
tariff.

ANS: F PTS: 1 MSC: AACSB Analytic

10. It is not a violation of United States law for a domestic company to pay money to a foreign
governmental official in order to obtain a contract with the foreign government if this type of
“commission” is commonly paid in that foreign country.

ANS: F PTS: 1 MSC: AACSB Analytic | AACSB Ethics

11. The Presidents of Oxtron, Inc., a U.S. company, and Dunka, Inc. a German company, met in Munich,
Germany. Oxtron and Dunka are direct competitors in over-the-counter medicines. The presidents
agree to fix prices on their major products. This agreement may violate U.S. antitrust law even though
the agreement was made in Germany.

ANS: T PTS: 1 MSC: AACSB Reflective Thinking

12. Trein, Inc., a U.S. company entered into an exclusive distributorship agreement with Posty, Inc., a
Zambian company. This means that Trein will only use Posty to distribute products in Zambia.

ANS: T PTS: 1 MSC: AACSB Analytic

13. Under European Union law, any agreement, contract, or discussion that distorts competition within
European Union countries is illegal.

ANS: T PTS: 1 MSC: AACSB Analytic

14. International comity holds that the courts of one nation lack the jurisdiction to hear suits against
foreign governments.

ANS: F PTS: 1 MSC: AACSB Analytic

15. The two principal requirements of the Foreign Corrupt Practices Act involve bribes and grease
payments.

ANS: F PTS: 1 MSC: AACSB Analytic | AACSB Ethics

MULTIPLE CHOICE

1. For manufactured goods, the United States and European Union impose an average tariff of ________
percent, and major trading partners around the world impose tariffs of ________ percent for identical
items.
a. 10; 5
b. less than 4; 10 to 30
c. 25; 39 to 70
 d. 10 to 30; less than 4
ANS: B PTS: 1 MSC: AACSB Analytic

2. Axle Corporation imports goods into the United States. Who is required to pay the duty on the
imported goods?
a. The importer, Axle Corporation.
b. The World Trade Organization.
c. Each party pays one-half the duty.
d. The exporter of the goods.
ANS: A PTS: 1 MSC: AACSB Analytic

3. The United States and Argentina have signed the Convention on Contracts for the International Sale of
Goods (CISG). Oxtron, Inc., a U.S. company, and Leer, an Argentinean company, have entered into a
contract under which Oxtron is to ship medical devices to Leer. The contract does not include a choice
of law provision. The contract will be governed by:
a. the CISG.
b. the UCC.
c. the domestic contract law of Argentina.
d. the domestic contract law of the United States.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking

4. The United States and Singapore have signed the Convention on Contracts for the International Sale of
Goods (CISG). Notren, Inc., a U.S. company, and SWT, a Singapore company, have entered into a
contract under which SWT is to ship party supplies to Notren. One of the terms of the contract states,
"The validity and performance of this contract will be governed by the Uniform Commercial Code
(UCC) of the state of New York, not the Convention of the International Sale of Goods (CISG)." The
contract will be governed by the:
a. CISG.
b. Uniform Commercial Code of New York.
c. common law.
d. World Trade Law.
ANS: B PTS: 1 MSC: AACSB Reflective Thinking

5. Oxtron, Inc., a U.S. company, and Leer, an Argentinean company, orally agreed to a contract under
which Oxtron is to ship medical devices to Leer. The contract is governed by the CISG. Which
statement is correct?
a. The contract is not enforceable because it is oral.
b. Whether the contract is enforceable without a written agreement depends on the value of
the medical devices.
c. Whether the contract is enforceable without a written agreement depends on whether the
medical devices are a necessity.
d. The contract is enforceable without a written agreement.
ANS: D PTS: 1 MSC: AACSB Reflective Thinking

6. In Marubeni America Corp. v. United States, the federal appellate court ruled that the Nissan
Pathfinder was, for tariff classification purposes a motor vehicle for the transport of passengers. The
classification of goods is significant because:
a. the tariffs will vary depending on the classification.
b. the fair value will vary depending on the classification.
c. the subsidy will vary depending on the classification.
 d. the dumping duty will vary depending on the classification.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking

7. If a foreign company "dumps" goods on the United States market:

a. the goods will be considered illegal goods and not be allowed to be sold in the United
States.
b. the United States will issue trade sanctions against the country that allowed the dumping.
c. a "dumping duty" will be imposed on the dumped goods if the Commerce Department
determines the goods are being sold at less than fair value and that this harms an American
industry.
d. All the above are correct.
ANS: C PTS: 1 MSC: AACSB Reflective Thinking

8. Notren, Inc., a U.S. company, and SWT, a Singapore company, entered into a contract under which
SWT is to ship party supplies to Notren. One of the terms of the contract states, "Any disputes that
arise under this contract will be resolved in the courts of Singapore." This contract term is a:
a. letter of credit.
b. choice of language clause.
c. choice of forum clause.
d. draft clause.
ANS: C PTS: 1 MSC: AACSB Reflective Thinking

9. What is a major argument against the GATT Treaty?

a. The United States will have to compete against countries with unlimited pools of exploited
labor.
b. The United States will lose millions of jobs involving low-end employment and these
types of workers are least capable of finding other employment.
c. Both a and b above are major arguments against GATT.
d. Neither a nor b above is a major argument against GATT.
ANS: C PTS: 1 MSC: AACSB Analytic

10. The European Union has adopted a currency known as the:

a. Yuri.
b. Common Union.
c. Yen.
d. Euro.
ANS: D PTS: 1 MSC: AACSB Analytic

11. Zebra Toy Company, located in Chicago, sells $500,000 worth of toys to a London, England,
wholesaler. This contract could be governed by:
a. Illinois's Uniform Commercial Code.
b. English law.
c. the CISG.
d. All the above are correct.
ANS: D PTS: 1 MSC: AACSB Reflective Thinking

12. With respect to United States patents and copyrights, GATT:

a. expressly excludes controversies involving patent and copyright violations.
b. will allow the United States to assess tariffs against a country that refuses to honor U.S.
copyrights or patents.
 c. imposes sanctions against any country refusing to honor another signatory country's
patents or copyrights.
d. requires retribution to be paid to the United States by any country ignoring U.S. patents or
copyrights.
ANS: B PTS: 1 MSC: AACSB Analytic

13. The primary goal of the North American Free Trade Agreement (NAFTA) is to:
a. allow Canada, the United States, and Mexico to compete as a common economic entity
against other countries in the world.
b. allow for the free and unrestricted movement of people from one country to another to
improve the labor market of all three counties.
c. eliminate almost all trade barriers between the three nations.
d. All the above are correct.
ANS: C PTS: 1 MSC: AACSB Analytic

14. What is a major difference between a United States lawsuit versus a French lawsuit?
a. In a French civil lawsuit, there is usually no right to a jury trial.
b. The French legal system does not engage in extensive discovery procedures commonly
used in the United States.
c. In a French lawsuit, the rules of evidence are more flexible.
d. All of the above are correct.
ANS: D PTS: 1 MSC: AACSB Analytic

15. The primary antitrust law in the United States is the:

a. Wagner Act.
b. Sherman Act.
c. SEC Act of 1933.
d. Robinson-Patman Act.
ANS: B PTS: 1 MSC: AACSB Analytic

16. Hardhat Machine Company sold goods to Irish Eyes Company of Northern Ireland. Big Bank issued a
letter of credit on behalf of Irish Eyes and the letter was given to Hardhat. The "account party" is:
a. Irish Eyes.
b. Hardhat Machine Company.
c. Big Bank.
d. None of the above.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking

17. Hardhat Machine Company sold goods to Irish Eyes Company of Northern Ireland. Big Bank issued a
letter of credit on behalf of Irish Eyes and the letter was given to Hardhat. The documents required by
the letter of credit are presented to the bank for payment while the goods are still in transit. Is Hardhat
entitled to be paid?
a. No, payment is not due until the goods are delivered.
b. No, payment is not due until 30 days after delivery.
c. No, payment is not due until the buyer has had a reasonable time to inspect the goods.
d. Yes, the letter of credit is a promise by the bank to pay when certain documents are
presented.
ANS: D PTS: 1 MSC: AACSB Reflective Thinking
18. When considering both imports and exports, the country trading the most goods with the
United States is:
a. Canada.
b. China.
c. Japan.
d. Mexico.
ANS: A PTS: 1 MSC: AACSB Analytic

19. Zebra Toy Company invests a large sum of money in retail stores located in a foreign country. Zebra
intends to bring its foreign earnings back home to the United States. This practice is known as:
a. repatriation of profits.
b. inflow profit streaming.
c. expropriation.
d. comity.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking

20. The Australian government has opened a for-profit tourist information center in New York City. If a
dispute arises over the lease of the storefront, may the landlord sue the Australian government in the
United States courts?
a. Yes, because the Australian government was engaged in a commercial activity.
b. No, because of the Foreign Sovereign Immunities Act which forbids U.S. courts from
hearing any cases involving foreign governments.
c. It depends. The Australian government can only be sued if it signed a written waiver
giving up its immunity.
d. It depends. The Australian government can only be sued if it is a signatory on the CISG.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking

21. MagNet, a small United States computer company, started doing business in a foreign country. The
foreign country later decided to take over all computer industry, including MagNet's operation. The
foreign country paid MagNet adequate compensation in United States dollars. The foreign country’s
action is called:
a. comity.
b. repatriation.
c. expropriation.
d. inflow profit streaming.
ANS: C PTS: 1 MSC: AACSB Reflective Thinking

22. Kjell is the vice president of international sales for Oxtren, Inc, a U.S. company. To secure a
multimillion dollar contract for his company, Kjell paid a Mongolian governmental officer $10,000.
Kjell:
a. has violated the Foreign Corrupt Practices Act.
b. has not violated the Foreign Corrupt Practice Act because the payment was a grease
payment.
c. has not violated the Foreign Corrupt Practices Act because the government official was
from Mongolia, not the United States.
d. has not done anything illegal because Congress has not ratified the Convention of
Combatting Bribery of Foreign Public Officials in International Transactions.
ANS: A PTS: 1 MSC: AACSB Reflective Thinking | AACSB Ethics
 23. The Marcel Company is opening an office in Mexico. The cost to obtain electrical service is $500, but
the clerk suggests that service could be started faster if an additional $50 is paid, which the clerk will
keep. If the Marcel official pays the additional $50:
a. he will have violated the Foreign Corrupt Practices Act.
b. he will not have violated the Foreign Corrupt Practices Act because this would be
considered a “grease” or facilitating payment, which is legal.
c. he will be guilty of violating the Foreign Corrupt Practices Act only if the payment was
illegal under the written law of Mexico.
d. he will be guilty of violating both the Foreign Corrupt Practices Act and the Convention of
Combatting Bribery of Foreign Public Officials in International Business Transactions.
ANS: B PTS: 1 MSC: AACSB Reflective Thinking | AACSB Ethics

24. Archer Co. has decided it wants to expand into international business, but it is concerned about
expropriation of its property or losses caused by political unrest. Archer is considering purchasing
insurance through the Overseas Private Investment Corporation (OPIC). OPIC:
a. provides insurance, but the cost is relatively high.
b. provides insurance, but the list of countries in which it is willing to provide such
protection is fairly short.
c. has had remarkable success at no cost to the U.S. government.
d. insures against expropriation, but not against losses stemming from political violence.
ANS: C PTS: 1 MSC: AACSB Reflective Thinking

25. The United States has agreed to which of the following?

a. GATT.
b. NAFTA.
c. CISG.
d. All of the above.
ANS: D PTS: 1 MSC: AACSB Analytic

ESSAY

1. Explain what the General Agreement on Tariffs and Trade (GATT) is and give pro and con arguments
concerning this agreement.

ANS:
GATT refers to the General Agreement on Tariffs and Trade. The United States and 125 other
countries formally signed GATT in 1994. The general purpose of GATT is to eliminate trade barriers
between signatory countries and to bolster commerce.

Proponents of GATT claim that the United States will be a primary beneficiary since this country has
traditionally assessed lower tariffs than other countries. Accordingly, the U.S. will be able to compete
on a more level footing with foreign competitors. The result will be a great increase in world trade and
greater income for this country.

Opponents of GATT argue that this country will lose millions of jobs since labor-intensive goods will
be made via exploited labor in foreign countries. Given the low cost of production, American
companies will not be able to compete. Additionally, opponents claim that domestic job losses will be
in low-end employment, so those put out of work are the ones least able to find alternative
employment.

PTS: 1 MSC: AACSB Communication

2. Explain the origin and purpose of the World Trade Organization.

ANS:
The WTO was established by GATT. It has the authority to resolve trade disputes between signatory
countries. The WTO addresses primarily tariff violations or nontariff barriers. This international
"court" may order compliance from any nation violating GATT and may penalize countries by
imposing trade sanctions.

PTS: 1 MSC: AACSB Communication

3. Yount, Inc. is interested in expanding its business to include exporting its products to several other
countries. Discuss two federal statutes that should be considered before making the decision to export.

ANS:
All nations limit what may be exported. In the United States, the Export Administration Act of 1985
attempts to balance the need for free trade with requirements of national security. This statute permits
the federal government to restrict exports if they endanger national security, harm foreign policy goals,
or drain scarce resources. The Secretary of Commerce makes a Controlled Commodities List, and no
one may export a commodity on the list without a license. A second statute that limits exports is the
Arms Export Control Act. This statute permits the president to create a second list of controlled goods,
all related to military weaponry. Again, no one may export any listed item without a license.

PTS: 1 MSC: AACSB Communication | AACSB Reflective Thinking

4. MagNet is a U.S. company based in Utah. It is negotiating to sell $4 million worth of computer goods
to a French company, L'la. L'la is insisting that the contract be governed by the CISG. What are some
of the primary differences between the UCC and the CISG?

ANS:
Under the UCC, a contract for the sale of goods valued at over $500 must be evidenced in writing;
under the CISG, an oral agreement is enforceable despite the dollar amount involved. The UCC states
an offer is irrevocable if it is in writing and states the offer will be held open for a fixed period of time
(this is called a UCC firm offer); the CISG makes some types of offers irrevocable even if executed
orally. The UCC does not follow the mirror image rule relative to the acceptance of offers; the CISG
recognizes the mirror image rule. The UCC generally only permits money damages for a successful
plaintiff; the CISG allows for specific performance under a variety of situations.

PTS: 1 MSC: AACSB Communication | AACSB Reflective Thinking

5. MagNet is a U.S. company based in Utah. It is negotiating to sell $4 million worth of computer goods
to a French company, Legran. MagNet's attorney suggests that payment be by a letter of credit. What
is a letter of credit and why does MagNet's attorney recommend payment by letter of credit?

ANS:
A letter of credit is a commercial device used to grant greater assurance of payment in international
transactions. The purpose for obtaining a letter of credit is to assure payment for the goods. Legran is
the "account party" and MagNet is the "beneficiary" of the letter. Legran will instruct its bank to issue
a letter of credit to MagNet. The letter of credit is a promise by the Legran's bank to pay MagNet upon
receipt of certain documents. If Legran's bank forwards the letter of credit to MagNet's bank, MagNet's
bank can confirm the letter of credit, thus providing MagNet with even greater assurance of payment.

PTS: 1 MSC: AACSB Communication | AACSB Reflective Thinking

6. Identify the term for and discuss the legality of a government’s taking of property owned by foreign
investors. Discuss what action a company might take if it wants to do business abroad but is concerned
about losing its property to a foreign government.

ANS:
A government’s taking of property owned by foreign investors is called “expropriation.” This practice
is common and is legal if there is adequate compensation. The U.S. government acknowledges that
expropriation of American interests is legal if the host government pays the owners promptly and fully
in dollars. If the compensation is long delayed, inadequate, or made in a local currency that is hard to
exchange, the taking is considered to be confiscation. The courts of almost all nations agree that
confiscation is illegal. A company wanting to do business abroad but concerned about expropriation
can purchase insurance. The Overseas Private Investment Corporation (OPIC) insures U.S. investors
against overseas losses resulting from political violence or expropriation. The OPIC insurance is
available to investors at relatively low rates and covers investments in almost any country.

PTS: 1 MSC: AACSB Communication