International Business Law and Its

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CHAPTER 9—GATT LAW AND THE WORLD TRADE ORGANIZATION: BASIC
PRINCIPLES

TRUE/FALSE

1. The Uruguay round of tariff negotiations was the first major multilateral trade negotiating session
since World War II.

ANS: F PTS: 1

2. The most common device for regulating imports is the quota.

ANS: F PTS: 1

3. Nontariff barriers are any restrictions, interference, or disincentive to trade other than tariffs.

ANS: T PTS: 1

4. Quotas serve to increase the amount of imports of a product.

ANS: F PTS: 1

5. An embargo is a complete ban on trade with a foreign nation.

ANS: T PTS: 1

6. Other examples of nontariff trade barriers include exchange control on currencies, performance
standards, and foreign customs procedures.

ANS: T PTS: 1

7. When a nation's import regulations or procedures are transparent, it is difficult for foreign firms to gain
entrance to its markets.

ANS: F PTS: 1

8. Usually, import restrictions that protect one sector of a country's economy will result in foreign
retaliation against another sector.

ANS: T PTS: 1

9. The General Agreement on Tariffs and Trade is today the most important instrument for regulating
international trade.

ANS: T PTS: 1

10. A "free trade" nation has no barriers to trade.

ANS: F PTS: 1

11. An embargo only applies to imports from a particular nation.

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 ANS: F PTS: 1

12. When import regulations are readily available to importers and exporters, they are considered to be
transparent.

ANS: F PTS: 1

13. Although the 1947 GATT was never ratified by the U.S. Congress, it was considered legally binding in
the United States under international law.

ANS: T PTS: 1

14. The 1947 GATT provided stiff penalties for the misuse of intellectual property.

ANS: F PTS: 1

15. In a tariff concession, one country promises not to levy a tariff on a given product at a level higher
than agreed upon.

ANS: T PTS: 1

16. In the dispute regarding the European Union's importation of Latin American bananas, the dispute
panel found no disparity in tariffs on the European Union's part.

ANS: F PTS: 1

17. Tariff concessions under GATT are recorded in tariff schedules, which are detailed product-by-product
listings of all tariff obligations for that nation.

ANS: T PTS: 1

18. GATT envisages a process of tariff bargaining, and this is accomplished through a hit-and-miss
process of tariff reductions and increases called "rounds."

ANS: F PTS: 1

19. Normal trade relations provides that a nation cannot negotiate a preferential trade agreement with
another nation.

ANS: F PTS: 1

20. Under normal trade relations, when a nation extends some privilege or right to one of its trading
partners, that privilege automatically becomes applicable to all other trading partners.

ANS: T PTS: 1

21. Under the "national treatment" provisions of GATT, imported products may be regulated and taxed
differently than domestic goods after they pass the border and enter a nation's stream of commerce.

ANS: F PTS: 1

22. Under GATT, charges may be imposed upon the movement of imported goods, such as port fees and
inspection fees.

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 ANS: T PTS: 1

23. Tariffication is the process in which quotes, licensing schemes, and other nontariff barriers to trade are
"converted" to tariffs.

ANS: T PTS: 1

24. Almost all products are subject to some technical standards set by government regulations or by
private standard-setting groups.

ANS: T PTS: 1

25. The Trade Agreements Act of 1979 contains a provision allowing standard-setting by the U.S.
government on private U.S. firms.

ANS: F PTS: 1

26. One of the primary objectives of GATT is the elimination of all quotas and quantitative restraints.

ANS: T PTS: 1

27. Due to GATT's prohibition of quotas, a nation may not impose quotas to safeguard its external
financial position and its balance of payments.

ANS: F PTS: 1

28. For the most part, trade in textiles and services are not regulated by the GATT system.

ANS: T PTS: 1

29. The GATT dispute panel found the continuing use of quotas on beef in Korea was justified.

ANS: F PTS: 1

30. WTO DSU reports carry precedential value for future panels by providing definitive interpretations of
GATT provisions.

ANS: F PTS: 1

31. While WTO reports carry no weight as precedent, subsequent panels often consider them, and they can
create legitimate expectations as to the interpretation of the treaty by WTO members.

ANS: F PTS: 1

32. In order to convene a WTO panel, the complaining country must prove it has a "legal interest" in the
case.

ANS: F PTS: 1

33. In order to make a prima facie case of nullification and impairment, a claimant must prove that the
action has trade effects.

ANS: F PTS: 1

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room use.
MULTIPLE CHOICE

1. The U.S. textile industry has had difficulty competing with foreign imports in the past. If the textile
industry lobbies through the president and Congress for quota protection:
a. The U.S. government would have difficulty setting such quotas due to GATT.
b. The textile industry would have to petition directly to the Fiber Institute for such quotas.
c. The U.S. government would have to consider the Multifiber Arrangement.
d. None of the above.
ANS: C PTS: 1

2. The principle of nondiscrimination is central to the GATT and is evident in the following areas:
a. Normal trade relations.
b. National treatment.
c. Elimination of quotas and quantitative restrictions.
d. All of the above.
ANS: D PTS: 1

3. Which of the following may not be a reliable criterion for determining whether import and domestic
goods are "like products"?
a. Consumers' tastes and habits.
b. The product's end uses.
c. The product's uniform tariff classification.
d. Consumers' tastes and habits.
ANS: C PTS: 1

4. A tariff is:
a. An import duty.
b. A tax levied on goods being brought into a country.
c. A ban on trade with a foreign nation.
d. Both A and B.
ANS: D PTS: 1

5. Tariffs are computed:

I. As a percentage of value (ad valorem).
II. On the basis of physical units (specific).

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
ANS: C PTS: 1

6. Tariffs serve all of the following purposes except:

a. Collection of revenue.
b. Enhancement of flow of commerce.
c. Regulation of import competition.
d. Protection of the national defense.
ANS: B PTS: 1

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 7. An embargo can be:
I. A limit on the amount charged for items imported.
II. Government red tape administered by entrenched bureaucrats.

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
ANS: D PTS: 1

8. The phrase to describe when a foreign government's import regulations are not made readily available
to the public or are hidden or disguised in bureaucratic rules or practices is:
a. Not transparent.
b. Unfair trade practices.
c. Bureaucratic procrastination.
d. Limited access.
ANS: A PTS: 1

9. Which of the following are not true regarding WTO dispute settlement procedures?
a. A complaining party can request consultations to seek a solution.
b. Even if a solution is not reached, the panel has no authority to authorize trade sanctions.
c. Other member nations with a "substantial interest" in the case may make written
submissions and oral arguments before the panel.
d. An appellate body of three people will hear appeals from a panel case.
e. All of the above are untrue.
ANS: B PTS: 1

10. When a nation that belongs to WTO imposes a tariff or quota on imported products, it is supposed to
do so within the guidelines established by GATT. If it does not do so within GATT's guidelines:
a. The offending nation may suffer military retaliation by the other GATT members.
b. The offending nation may be subject to a proceeding pursuant to the WTO's Dispute
Settlement Understanding.
c. The offending nation may end up in the World Court being sued for breach of its GATT
contract.
d. None of the above.
ANS: B PTS: 1

11. According to GATT, quotas are considered acceptable devises for regulating trade only where:
a. A nation is imposing a temporary safeguard to protect its balance of payments.
b. They are enacted into law by a nation's legislative body.
c. Nations are engaged in a trade war.
d. A nation has first petitioned the United Nations for permission to do so.
ANS: A PTS: 1

12. The term used to describe some action taken by a GATT member country in violation of the GATT
agreement is:
a. Null and void.
b. Unfair and inequitable.
c. Persona non grata.

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 d. Nullification and impairment.
ANS: D PTS: 1

13. In the decision involving tariffs on Latin American bananas, the panel:
a. Recommended the tariffs be brought in line with the EEC's obligations under GATT.
b. Said the Latin American countries were authorized to impose sanctions on the EEC.
c. Found the EEC's tariffs to be within GATT guidelines.
d. Dismissed the case after the EEC agreed to adopt tariffs that were more in line with its
GATT obligations.
ANS: A PTS: 1

14. All of the following are basic principles of GATT except:

a. Commitment to normal trade relations.
b. Elimination of import quotas.
c. Non-reciprocal tariff increases.
d. Non-discrimination against imported goods.
ANS: C PTS: 1

15. The concept that runs throughout the GATT requires that the products of all nations be treated equally
and without discrimination by importing nations. This is the principal behind:
a. Nullification and impairment.
b. Most-favored-nation trade.
c. Ad valorem tariffs.
d. Nontariff trade barriers.
ANS: B PTS: 1

16. Countries A, B, and C belong to GATT. Countries X and Y do not. A has a 7% tariff on televisions
from B. C, X, and Y also export televisions. Under unconditional most-favored-nation trade of GATT:
a. Countries C, X, and Y are entitled to a 7% tariff on televisions.
b. Countries X and Y are entitled to a 7% tariff on televisions.
c. Country C must petition A under GATT to get a 7% tariff on televisions.
d. Country C gets an automatic 7% tariff rate on televisions.
ANS: D PTS: 1

17. Countries A and B both produce coffee. Both countries belong to GATT. Country A imports coffee
from B. Once B's coffee enters A's stream of commerce, under the national treatment provisions of
GATT:
a. Country A cannot subject B's coffee to higher internal taxes or charges than its domestic
coffee.
b. Country A may now charge higher internal taxes or charges on B's coffee in order to
discourage coffee drinking since the goods have already passed the border.
c. Country A cannot subject B's coffee to any internal taxes or charges, even if it does so to
domestic coffee.
d. None of the above is correct.
ANS: A PTS: 1

18. The U.S. Department of Defense needs to buy several million dollars worth of tires for its armored
personnel carriers. An American manufacturer can supply the tires for $20 million. A foreign supplier
can provide the tires for $15 million. Under these facts:
a. GATT requires that the tires be bought from the foreign supplier.
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 b. A U.S. statute requires that the government buy from the U.S. supplier.
c. Since the foreign supplier is cheaper, the government must buy from the foreign supplier
to save money.
d. None of the above is correct.
ANS: B PTS: 1

19. The GATT Agreement on Technical Barriers to Trade is a code that has as its purpose:
a. To allow free movement of technical equipment among nations.
b. To establish technical data for computer applications.
c. To harmonize standards and standard-setting techniques.
d. None of the above.
ANS: C PTS: 1

20. Virtually all nations provide import protection for domestic agricultural interests:
I. And the GATT Agreement specifically prohibits such protection with no exceptions.
II. And this problem exists because nations try to provide market stability and protection
for farmers.

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
ANS: B PTS: 1

SHORT ANSWER

1. Compare and contrast direct and indirect nontariff barriers.

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

2. In what ways are GATT and the WTO similar? Different?

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

3. Describe the benefits and detriments of enacting a quota?

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

4. Compare and contrast Japan's former Large-Scale Retail Stores Law with its present Large-Scale
Retail Store Location Law.

ANS:

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 Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

5. What are the similarities and differences between the GATT and WTO dispute resolution procedures?

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

6. Compare and contrast unconditional and conditional MFN trade.

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

7. Assess the relative value of a reported U.S. appellate (or trial) decision and a WTO panel report in a
trade dispute.

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

8. Explain the similarities and differences between "like products" and "directly competitive products."

ANS:
Answer not provided.

PTS: 1 OBJ: Comparative Analytical Questions

ESSAY

1. Guador, a small country in South America, is a member of the WTO. American fruit producers
recently succeeded in persuading several members of Congress to introduce a bill to remedy Guador's
alleged unfair trade practices in the citrus fruit industry. The bill provides for a unilateral threefold
increase in the tariff solely applicable to citrus fruits originating in Guador. Furthermore, the bill
imposes periodic testing procedures upon Guadorian citrus fruits from which American producers are
exempt. Finally, the bill caps imports of Guadorian citrus fruits into the United States at $20 million in
value annually. If enacted, would the bill violate American obligations pursuant to the GATT? Why or
why not?

ANS:
Yes, the bill would violate U.S. obligations pursuant to the GATT. The bill proposes a quota by
placing an impermissible numeric limitation upon imports, specifically, upon the value of imported
fruit. The bill also violates normal trade relations by imposing tariffs upon citrus fruits originating
from Guador that are not imposed upon fruit originating from other states. The bill also imposes
testing procedures upon citrus fruits originating from Guador that are not applicable to U.S. citrus
fruits in violation of national treatment. Finally, the bill violates the Dispute Settlement Understanding
by authorizing unilateral retaliation against Guador for its alleged unfair trade practices.

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 PTS: 1

OTHER

1. Draft a document advocating for the elimination of normal trade relations status against countries
involved in human rights abuses.

ANS:
Answer not provided.

PTS: 1 OBJ: Essay/Writing Assignments

2. Draft a document advocating the unilateral elimination of normal trade relations status for countries
that do not abide by their WTO commitments.

ANS:
Answer not provided.

PTS: 1 OBJ: Essay/Writing Assignments

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