Business Law Principles for Todays

Commercial Environment 5th Edition

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Chapter 10 THE LEGAL ENVIRONMENT OF
INTERNATIONAL TRADE

TRUEFALSE

1. When an international sale is made, the parties often set forth in their contract which country's
law will govern a dispute.

(A) True

(B) False

Answer : (A)

2. Parties to international ventures often agree to arbitrate their disputes in neutral countries.

(A) True

(B) False

Answer : (A)

3. "Know-how" secrets and processes are considered intellectual property rights, which are legally
protectable.

(A) True

(B) False

Answer : (A)

4. A letter of credit agrees to provide the seller with needed currency exchanges when transactions
with foreign buyers occur.

(A) True

(B) False

Answer : (B)

5. The United Nations Conventions on Contracts for the International Sale of Goods (CISG) sets
forth uniform rules to govern international sales contracts.

(A) True

(B) False

Answer : (A)
6. A ‘choice-of-law' provision in an international contract set's forth whether the CISG will govern
the contract.

(A) True

(B) False

Answer : (B)

7. Since 1947 and the end of the World War II era, the goal of the General Agreement on Tariffs and
Trade (GATT) has been to restrict world trade.

(A) True

(B) False

Answer : (B)

8. Under the General Agreement on Tariffs and Trade (GATT), the principle of trade without
discrimination is embodied in the most favored nation clause.

(A) True

(B) False

Answer : (A)

9. The World Trade Organization (WTO) provides a Dispute Settlement Body (DSB) to enable
member countries to resolve trade disputes rather than engage in unilateral trade sanctions or a
trade war.

(A) True

(B) False

Answer : (A)

10. The "Turtle Law" prohibits the importation of shrimp from countries that allow the harvesting of
shrimp that could adversely affect endangered sea turtles.

(A) True

(B) False

Answer : (A)

11. The goal of the North American Free Trade Agreement (NAFTA) is to eliminate all tariffs
between the United States and Europe.
(A) True

(B) False

Answer : (B)

12. The purpose of most-favored-nation treatment is to prohibit one country's discrimination

between its own products and foreign products or services.

(A) True

(B) False

Answer : (A)

13. TRIPS is the WTO agreement that deals with trade rules that impact tariffs and embargoes.

(A) True

(B) False

Answer : (A)

14. TRIPS extends the Paris Convention to special protection for "well-known marks".

(A) True

(B) False

Answer : (A)

15. The World Intellectual Property Organization administers the Berne Convention for international
copyright protections.

(A) True

(B) False

Answer : (A)

16. ​A direct sale by an American firm to a customer abroad, with terms of payment commonly based
on an irrevocable letter of credit, is an import sale.

(A) True

(B) False

Answer : (B)
17. The use of agency arrangements allows a U.S. firm to avoid taxation on sales made in its agent's
country.

(A) True

(B) False

Answer : (B)

18. Franchising is a form of licensing that now is very common in international business.

(A) True

(B) False

Answer : (A)

19. ​Licensing involves the transfer of title of goods to a distributor who bears the financial and
commercial risks for the subsequent sale of the goods.

(A) True

(B) False

Answer : (B)

20. A societé anonyme is the European counterpart of a U.S. corporation.

(A) True

(B) False

Answer : (A)

21. United States antitrust laws have broad extraterritorial reach.

(A) True

(B) False

Answer : (A)

22. The jurisdictional rule of reason addresses the problems that arise when a foreign country has a
significant interest in regulating conduct taking place within the United States.

(A) True

(B) False
Answer : (B)

23. Under the act-of-state doctrine, the courts of one country will not sit in judgment of the acts of
the government of another country conducted within its own territory.

(A) True

(B) False

Answer : (A)

24. Blocking laws prohibit the disclosure, copying, inspection, or removal of documents located in
the enacting country in compliance with orders from foreign authorities.

(A) True

(B) False

Answer : (A)

25. The Securities and Exchange Commission (SEC) is not limited to litigation when a securities law
enforcement investigation runs into secrecy or blocking laws.

(A) True

(B) False

Answer : (A)

26. A common barrier to the free movement of goods across borders is the tariff barrier.

(A) True

(B) False

Answer : (A)

27. The use of import quotas represents the most common form of tariff barrier.

(A) True

(B) False

Answer : (B)

28. The term dumping refers to the sale of damaged goods in a foreign market to cut the losses that
would otherwise be caused by the damage.
(A) True

(B) False

Answer : (B)

29. The "effects doctrine" requires U.S. courts to assume jurisdiction over cases when domestic
commercial activities have a direct and foreseeable effect on international commerce

(A) True

(B) False

Answer : (B)

30. The Foreign Corrupt Practices Act prohibits improper payments to influence foreign officials.

(A) True

(B) False

Answer : (A)

MULTICHOICE

31. ​The General Agreement on Tariffs and Trade (GATT):

(A) ​is a multilateral treaty

(B) ​is subscribed to by the United States

(C) ​has as its goal the liberalization of world trade

(D) ​all of the above

Answer : (D)

32. ​Which is a correct statement about arbitration of contractual disputes regarding international
trade?

(A) ​It is done in court.

(B) ​There is extensive judicial review of the decision.

(C) ​Parties frequently arbitrate in neutral countries.

(D) ​It is not available in disputes of more than $1 million.

Answer : (C)
33. ​Which of the following statements is true regarding the World Trade Organization (WTO)?

(A) ​The WTO has been in place since 1947.

(B) ​The WTO coordinates its activities with GATT.

(C) ​It provides a dispute settlement body to promote the resolution of trade disputes.

(D) ​It has the ability to impose criminal penalties.

Answer : (C)

34. ​The provisions of the United Nations Convention on Contracts for the International Sale of
Goods (CISG) have been strongly influenced by:

(A) ​the GATT's most-favored nation clause.

(B) ​the European Economic Community's Treaty of Rome.

(C) ​the Uniform Commercial Code.

(D) ​the success of the Organization of Petroleum Exporting Companies.

Answer : (C)

35. ​_________, very common in international business, is the granting of permission to use a
trademark, trade name, or copyright under specified conditions.

(A) ​Franchising.

(B) ​Licensing.

(C) ​Letters of credit.

(D) ​Distribution.

Answer : (A)

36. ​Which of the following does not describe the European Union (EU)?

(A) ​It was formerly known as the European Economic Community.

(B) ​It had ten members sign on in 2004.

(C) ​It eliminated internal barriers to the free movement of goods, persons, services, and capital
between member countries.

(D) ​It is administered solely by the heads of state of the member countries.

Answer : (D)
37. ​NAFTA seeks to eliminate tariffs among which countries?

(A) ​all members of the United Nations

(B) ​United States, Canada, and Mexico

(C) ​United States and Japan

(D) ​members of the common market

Answer : (B)

38. ​The most common method used by countries to restrict foreign imports is the ______, which is
essentially a(n) ______ placed on goods as they move into or out of a country.

(A) ​quota, tax.

(B) ​tariff, tax.

(C) ​license, tax.

(D) ​computed value, quota.

Answer : (B)

39. ​The _______ is administered by ___________ to protect trademarks in the international community.

(A) ​Madrid System, the WIPO,

(B) ​Berne Convention, the WIPO.

(C) ​Madrid System, TRIPS.

(D) ​Berne Convention, TRIPS.

Answer : (A)

40. ​A direct sale to customers in a foreign country is a(n):

(A) ​foreign distributorship.

(B) ​agency arrangement.

(C) ​licensed sale.

(D) ​export sale.

Answer : (D)

41. ​All of the following are reasons the U.S. controls the export of goods and technology, except:
(A) ​for national security reasons.

(B) ​foreign policy.

(C) ​short supply of domestic goods.

(D) ​dumping of domestic goods.

Answer : (D)

42. ​The transfer of technology rights in a product to allow another firm in a foreign country to
produce a product in return for royalties or other specified payments is called:

(A) ​exporting.

(B) ​licensing.

(C) ​agency representation.

(D) ​subsidiary sales.

Answer : (B)

43. ​Which of the following allows a domestic firm to maintain the greatest control over its foreign
operations?

(A) ​wholly-owned subsidiaries

(B) ​licensing

(C) ​foreign distributorships

(D) ​agency arrangements

Answer : (A)

44. ​When a U.S. trademark holder licenses a foreign business use of its trademark overseas and a
third party imports these goods into the United States to compete against the U.S. manufacturer's
goods, the foreign-made goods are called __________ goods.

(A) ​"gray market"

(B) ​counterfeit.

(C) ​specially-licensed.

(D) ​dumped goods.

Answer : (A)
45. ​U.S. courts will assume jurisdiction and apply antitrust laws to conduct business outside the
United States if the activities of the business firms outside the United States have a direct,
substantial, and foreseeable impact on U.S. commerce. This is based on what principal?

(A) ​the "jurisdictional rule of reason"

(B) ​the "act-of-state doctrine

(C) ​the "effects" doctrine

(D) ​comity

Answer : (C)

46. ​Three defenses are commonly raised to the extraterritorial application of U.S. antitrust laws.
They are:

(A) ​act-of-state, sovereign compliance, and sovereign immunity doctrines.

(B) ​jurisdictional rule of reason, effects doctrine, and comity.

(C) ​foreign legislation, sovereign compliance, and comity.

(D) ​foreign antitrust laws, sovereign immunity doctrine, and International Monetary Fund
applications.

Answer : (A)

47. ​The Alexo Corporation has been charged in a United States court with violation of American
antitrust laws in its foreign dealings. The firm has raised the defense that its actions were compelled
by the government of its host country. Alexo based its defense on the__________ doctrine.

(A) ​act-of-state

(B) ​sovereign compliance

(C) ​sovereign immunity

(D) ​Treaty of Rome

Answer : (B)

48. ​Under which of the following doctrines is it held that a foreign sovereign cannot be sued unless
it engages in illegal commercial conduct?

(A) ​act-of-state

(B) ​sovereign compliance

(C) ​Timberlane
(D) ​sovereign immunity

Answer : (D)

49. ​Which of the following is NOT a nontariff barrier?

(A) ​government subsidies

(B) ​import quotas

(C) ​complex custom procedures

(D) ​an import or export duty or tax placed on goods as they move in or out of a country

Answer : (D)

50. ​In antidumping cases:

(A) ​The International Trade Administration determines whether foreign goods are being sold in the
United States at less than fair value (LTFV).

(B) ​The International Trade Commission determines if there is an injury to a U.S. industry as a result
of such sales.

(C) ​Remedial action will be taken only if findings of both LTFV sales and injury are present.

(D) ​All of these

Answer : (D)

51. ​In order to strengthen the ________, in 1982 Congress passed the ________ to provide clarity on
the extraterritorial reach of antitrust actions against foreign companies that have a "direct,
substantial, and reasonably foreseeable effect" on U.S. commerce.

(A) ​Rule of Reason Doctrine, Foreign Trade Antitrust Improvements Act

(B) ​Act-of-State Doctrine, Foreign Trade Antitrust Improvements Act

(C) ​Sovereign Compliance Doctrine, Foreign Trade Antitrust Improvements Act

(D) ​Sherman Act, Foreign Trade Antitrust Improvements Act

Answer : (D)

52. ​The jurisdictional ________, which is based on ________, balances the vital interests, including
laws and policies, of the United States with those of the foreign country involved.

(A) ​Rule of Reason, Comity.

(B) ​Effects Doctrine, Comity.

(C) ​Act-of-State Doctrine, Comity.

(D) ​Rule of Reason, Sovereign Immunity.

Answer : (A)

53. ​Legal restrictions of U.S. firms doing business abroad in regard to payments made to foreign
officials for obtaining business are set forth in the:

(A) ​International Corruption Prohibition Act.

(B) ​Global Anti-bribery Control Act.

(C) ​Foreign Corrupt Practices Act.

(D) ​International Graft Prohibition Act.

Answer : (C)

54. ​Which of the following actions is not prohibited by The Foreign Corrupt Practices Act?

(A) ​offers of payments to government officials to influence a decision on behalf of the firm making
the payment

(B) ​payments to government officials to influence a decision on behalf of the firm making the
payment

(C) ​payments to low-level officials for expediting the performance of routine government services

(D) ​all of the above actions are prohibited by The Foreign Corrupt Practices Act

Answer : (C)

ESSAY

55. You plan to enter the export market with a new product that you have just developed. You feel
that the product has great promise, but you are confused over whether you are required to obtain an
export license. Further, your brother-in-law says that he knows someone in the Japanese government
who could greatly assist you in your endeavors for a very modest fee. Discuss this situation.

Graders Info :

International trade is well-regulated in the United States. The majority of the appropriate
regulations come from the Export Administration Regulations. Current Export Administration
Regulations simplify the export process, seeking thereby to enhance export trade by U.S. citizens.
For example, no license is required unless the regulations affirmatively require a license. However,
when no license is required, the exporter must fill out a Shipper's Export Declaration and attach it to
the bill of lading from shipment with the goods being exported.
Your brother-in-law may be leading you directly into a violation of the Foreign Corrupt Practices Act,
as the prospective payment to the Japanese official would be primarily designed to influence a
business transaction decision, rather than to expedite routine governmental services.
If you need assistance, a better option is to consider using a licensed foreign freight forwarder. They
are in the business of handling the exporting of goods to foreign destinations and can attend to all of
the essential arrangements required.​

56. Oswaldo Enterprises began to do business in a small East African nation. The representatives of
Oswaldo bid on government contracts. Although Oswaldo was by far the lowest bidder and offered a
superior product, the company was not awarded a contract. Oswaldo officials learned after inquiring
that the company would have to give substantial sums of money to high-level government officials in
order to receive a contract. Oswaldo officials are considering this as a necessary cost of doing
business, but they are concerned about violating U.S. law. Discuss the implications of this under the
Foreign Corrupt Practices Act.

Graders Info :

Unfortunately, these payments would appear to violate the Foreign Corrupt Practices Act, which
prohibits payments to officials to influence business decisions.

57. The SEC has accused the Acme Company of fraud in connection with the sale of its securities to
American citizens. Although the firm is American-owned, it is located in Switzerland. All of the
accounts and business records of the firm are in several Swiss banks. The SEC has been actively
pursuing the case, although it has not been able to provide a great deal of hope for those victimized
by the fraud. What factors are probably hindering the SEC, and how might this be handled?

Graders Info :

Secrecy laws (which prohibit the disclosure of business records or the identity of bank customers)
and blocking laws (which prohibit the disclosure, copying, inspection, or removal of documents
located in the territory of the enacting country in compliance with orders from foreign authorities)
probably are to blame. The SEC may take action under the 1977 Treaty of Mutual Assistance in
Criminal Matters if the conduct involved constitutes a criminal offense under the laws of both the
United States and Switzerland.