CHAPTER 46: International Law in a Global Economy 743
Chapter 46
International Law in
a Global Economy
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. An international custom is a general practice accepted in the international arena as law.
ANSWER: T PAGE: 1109 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
2. A treaty is a contract or other agreement between two or more nations that must be ratified by the United Nations to take effect.
ANSWER: F PAGE: 1109 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
3. Legal systems around the world are generally divided into common law and civil law systems.
answer: t PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
4. In a civil law system, the only official source of law is a statutory code.
answer: T PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
5. Common law and civil law systems are wholly distinct.
answer: f PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
6. In a civil law system, courts impose only civil sanctions for the commission of crimes.
answer: F PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
7. In a common law system, the courts independently develop the rules governing certain areas of the law.
answer: T PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
8. The principle of comity is based primarily on international treaties.
ANSWER: F PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
9. Under the principle of comity, a foreign business that deals with a U.S. business may be subject to U.S. law.
ANSWER: T PAGE: 1110 TYPE: +
NAT: AACSB Analytic LOC: AICPA Legal
10. Under the principle of comity, foreign nations are exempt from the jurisdiction of U.S. courts.
ANSWER: F PAGE: 1110 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
11. Under the act of state doctrine, a firm whose assets a foreign government has expropriated may not recover compensatory damages in a U.S. court.
ANSWER: T PAGE: 1111 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
12. The act of state doctrine provides that if a nation states how it will act, it must act in compliance with that statement.
ANSWER: F PAGE: 1111 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
13. Confiscation occurs when a government seizes private property for a proper public purpose and awards “just confiscation.”
ANSWER: F PAGE: 1111 TYPE: +
NAT: AACSB Analytic LOC: AICPA Legal
14. A foreign state is immune from the jurisdiction of U.S. courts unless the state is involved in commercial activity within the United States.
ANSWER: F PAGE: 1111 TYPE: +
NAT: AACSB Analytic LOC: AICPA Legal
15. The simplest way for a U.S. firm to do business in a foreign market is to export its products directly to that market.
ANSWER: T PAGE: 1112 TYPE: =
NAT: AACSB Reflective LOC: AICPA Critical Thinking
16. A party to a licensing agreement agrees to keep certain information confidential.
ANSWER: T PAGE: 1113 TYPE: =
NAT: AACSB Reflective LOC: AICPA Critical Thinking
17. A party to a licensing agreement generally agrees to pay “royalties” to a foreign official.
ANSWER: T PAGE: 1113 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
18. Franchising is a form of licensing.
ANSWER: T PAGE: 1113 TYPE: =
NAT: AACSB Analytic LOC: AICPA Critical Thinking
19. Congress cannot impose any restrictions on exports except taxes.
ANSWER: F PAGE: 1114 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
20. Dumping is the exporting of environmentally polluting goods to a foreign market
ANSWER: F PAGE: 1116 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
21. Restrictions on exports may include tariffs.
ANSWER: F PAGE: 1116 TYPE: +
NAT: AACSB Analytic LOC: AICPA Legal
22. Quotas are limits on the prices at which imported goods can be sold.
ANSWER: T PAGE: 1116 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
23. Tariffs are taxes on imports.
ANSWER: T PAGE: 1116 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
24. Antidumping duties are the responsibilities of international environmental polluters.
answer: F PAGE: 1116 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
25. The chief aim of the World Trade Organization and other trade agreements is to maximize trade barriers among their members.
ANSWER: F PAGE: 1116 TYPE: N
NAT: AACSB Reflective LOC: AICPA Critical Thinking
26. The primary aim of the North American Free Trade Agreement is to eliminate tariffs among the United States, Canada, and Mexico.
ANSWER: T PAGE: 1116 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
27. When a forum-selection clause is included in an international contract, legal proceedings are more complex and attended by more uncertainty.
ANSWER: F PAGE: 1118 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
28. A force majeure clause stipulates eventualities that excuse a party from liability for nonperformance of a contract.
ANSWER: T PAGE: 1119 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
29. Under a letter of credit, the issuer is bound to pay the beneficiary after the beneficiary complies with the terms of the letter.
ANSWER: T PAGE: 1121 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
30. The whistleblower provisions of the Sarbanes-Oxley Act of 2002 have foreign, as well as domestic, application.
ANSWER: F PAGE: 1123 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
31. Generally, a foreign government cannot sue under U.S. antitrust laws in U.S. courts.
ANSWER: F PAGE: 1123 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
32. Any conspiracy that has a substantial effect on U.S. commerce is within the reach of the U.S. antitrust laws.
ANSWER: T PAGE: 1123 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
33. A foreign citizen can bring a civil suit in a U.S. court for a violation of a treaty of the United States.
answer: t PAGE: 1123 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
34. A U.S. citizen can bring a civil suit in a U.S. court against a U.S. entity for a tort allegedly committed overseas.
answer: T PAGE: 1123 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
35. U.S. laws that prohibit discrimination in employment do not apply to U.S. employees working for U.S. firms located abroad.
ANSWER: F PAGE: 1125 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
MULTIPLE-CHOICE QUESTIONS
1. The government of Iran violates an international law. Persuasive tactics to remedy the situation fail. The only recourse of other nations is to
a. approve the European Union’s enforcement of the law.
b. ask the International Court of Justice to enforce sanctions.
c. seek enforcement of the law through the United Nations.
d. take coercive action—sever relations, impose boycotts, go to war.
ANSWER: D PAGE: 1109 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
2. The government of the United States and the governments of other nations have the power to enforce their respective national laws within their borders. The power to enforce international law within the borders of all nations rests with
a. no court or international organization.
b. the European Union.
c. the International Court of Justice.
d. the United Nations General Assembly.
ANSWER: A PAGE: 1109 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
3. The Association of Southeast Asian Nations is a regional trade association that was created through
a. a bilateral agreement.
b. a lateral agreement.
c. a multilateral agreement.
d. a unilateral agreement.
answer: C PAGE: 1109 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
4. China and India form an agreement to govern their commercial exchanges with one another. This is
a. a bilateral agreement.
b. a lateral agreement.
c. a multilateral agreement.
d. a unilateral agreement.
answer: A PAGE: 1109 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
5. Yokio, Ltd., and Zeno, S.A., transact an international sale of goods. For these parties, and other international buyers and sellers, the United Nations Convention on Contracts for the International Sale of Goods spells out the duties that apply
a. if Article 2 of the Uniform Commercial Code does not apply.
b. if a dispute is submitted to the International Court of Justice.
c. if the parties have not agreed otherwise in their contracts.
d. under all circumstances.
answer: C PAGE: 1109 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
6. Mexico has a civil law system. In theory, in this system, the courts
a. are obligated to follow the doctrine of stare decisis.
b. may not develop their own laws.
c. must create new rules of law.
d. must develop legal concepts by case law.
answer: B PAGE: 1110 TYPE: N
NAT: AACSB Analytic LOC: AICPA Legal
7. Michael, a citizen of Ireland, and Nina, a citizen of the United States, enter into a contract. When Nina breaches the contract, Michael obtains an award of damages in an Irish court. He asks a U.S. court to enforce the award. The U.S. court defers to and enforces the Irish court’s decree. This is
a. a travesty of justice.
b. the act of state doctrine.
c. the doctrine of sovereign immunity.
d. the principle of comity.
ANSWER: D PAGE: 1110 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
8. Sudan seizes the assets of Triage Medical, Inc., a U.S. firm. Triage’s recovery from Sudan in a U.S. court may be prevented by
a. the act of state doctrine.
b. the doctrine of sovereign immunity.
c. the Foreign Corrupt Practices Act.
d. the principle of comity.
ANSWER: A PAGE: 1111 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
9. Call Center Corporation, a U.S. firm, owns property in India. The government of India seizes the property for a proper public purpose and pays Call Center just compensation. This is
a. confiscation.
b. defalcation.
c. dumping.
d. expropriation.
ANSWER: D PAGE: 1111 TYPE: +
NAT: AACSB Reflective LOC: AICPA Legal
10. Mountain Mining Company, a U.S. firm, owns property in Bolivia. The government of Bolivia seizes the property for an illegal purpose without paying just compensation. This is
a. confiscation.
b. defalcation.
c. dumping.
d. expropriation.
ANSWER: A PAGE: 1111 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
11. UniOil, a U.S. firm, owns property in Venezuela. When the government of Venezuela seizes the property, UniOil asks a U.S. court to order the property’s return. The court rules that Venezuela is exempt from the court’s jurisdiction. This is
a. a travesty of justice.
b. the act of state doctrine.
c. the doctrine of sovereign immunity.
d. the principle of comity.
ANSWER: C PAGE: 1111 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
12. WiFi Corporation, a U.S. firm, signs a contract with Bueno Computadores, Ltd., an Argentinean firm, for a shipment and payment for WiFi’s goods. This is
a. a distribution agreement.
b. a joint venture.
c. direct exporting.
d. licensing.
ANSWER: C PAGE: 1112 TYPE: =
NAT: AACSB Reflective LOC: AICPA Critical Thinking
13. Optima Medico Corporation, a U.S. firm, signs a contract with Pharma Beneficial, Ltd., a Canadian firm, to give Pharma the right to sell Optima’s products in Canada. This is
a. a distribution agreement.
b. a joint venture.
c. direct exporting.
d. licensing.
ANSWER: A PAGE: 1112 TYPE: =
NAT: AACSB Reflective LOC: AICPA Critical Thinking
14. Significant business develops in Mexico for Natural Beauty Cosmetics, Inc., a U.S. firm. Natural Beauty appoints Ojos, Ltd., a Mexican firm, to act as Natural Beauty’s marketing representative in Mexico. This is
a. a joint venture.
b. franchising.
c. indirect exporting.
d. licensing.
ANSWER: C PAGE: 1112 TYPE: N
NAT: AACSB Reflective LOC: AICPA Critical Thinking
15. KO Marketing Company, a U.S. firm, signs a contract with Librador Corporacion, a Chilean firm, to give Librador the right to use Innovative’s animation techniques and characters in product promotions. This is
a. a distribution agreement.
b. a joint venture.
c. direct exporting.
d. licensing.
ANSWER: D PAGE: 1113 TYPE: +
NAT: AACSB Reflective LOC: AICPA Legal
16. Adroit Manufacturing Company, a U.S. firm, signs a contract with Bolivar Corporacion, a Columbian firm, to give Bolivar the right to use Adroit’s production processes. This is
a. a distribution agreement.
b. establishing a foreign manufacturing facility.
c. indirect exporting.
d. licensing.
ANSWER: D PAGE: 1113 TYPE: N
NAT: AACSB Reflective LOC: AICPA Critical Thinking
17. Senator Wyden and other politicians want to limit the flow of technologically advanced products and data from the United States to other countries. To carry out this objective, Congress can
a. do nothing.
b. assess antidumping duties.
c. impose export taxes.
d. impose export restrictions on these products.
ANSWER: D PAGE: 1114 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
18. World Trading Company imports products made in South America to North America, including the United States. Restrictions on these imports may include
a. neither quotas nor tariffs.
b. quotas only.
c. quotas or tariffs.
d. tariffs only.
ANSWER: C PAGE: 1115 TYPE: =
NAT: AACSB Analytic LOC: AICPA Legal
19. Congresswoman Pelosi and other politicians want to prohibit the import of certain agricultural products that pose a danger to domestic crops. With respect to these products’ import, Congress can
a. do nothing.
b. impose quotas, but not tariffs.
c. impose tariffs, but not quotas.
d. prohibit the imports.
ANSWER: D PAGE: 1115 TYPE: N
NAT: AACSB Reflective LOC: AICPA Legal
20. The government of Canada sets a limit on the amount of beef that can be imported from the United States. This is
a. a dumping duty.
b. an antidumping duty.
c. a quota.
d. a tariff.
ANSWER: C PAGE: 1116 TYPE: =
NAT: AACSB Reflective LOC: AICPA Legal
21. Vieux Carré S.A., a French firm, imports its goods into the United States and offers those goods for sale at “less than fair value.” “Fair value” is the price of
a. comparable goods in a select “basket” of other countries.