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# Governments of developing countries occasionally enter into economic

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Governments of developing countries occasionally enter into economic  [#permalink]

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Updated on: 08 Sep 2019, 08:04
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Governments of developing countries occasionally enter into economic development agreements with foreign investors who provide capital and technological expertise that may not be readily available in such countries. Besides the normal economic risk that accompanies such enterprises, investors face the additional risk that the host government may attempt unilaterally to change in its favor the terms of the agreement or even to terminate the agreement altogether and appropriate the project for itself. In order to make economic development agreements more attractive to investors, some developing countries have attempted to strengthen the security of such agreements with clauses specifying that the agreements will be governed by “general principles of law recognized by civilized nations”—a set of legal principles or rules shared by the world’s major legal systems. However, advocates of governments’ freedom to modify or terminate such agreements argue that these agreements fall within a special class of contracts known as administrative contracts, a concept that originated in French law. They assert that under the theory of administrative contracts, a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law. However, their argument is flawed on at least two counts.

First, in French law not all government contracts are treated as administrative contracts. Some contracts are designated as administrative by specific statute, in which case the contractor is made aware of the applicable legal rules upon entering into agreement with the government. Alternatively, the contracting government agency can itself designate a contract as administrative by including certain terms not found in private civil contracts. Moreover, even in the case of administrative contracts, French law requires that in the event that the government unilaterally modifies the terms of the contract, it must compensate the contractor for any increased burden resulting from the government’s action. In effect, the government is thus prevented from modifying those contractual terms that define the financial balance of the contract.

Second, the French law of administrative contracts, although adopted by several countries, is not so universally accepted that it can be embraced as a general principle of law. In both the United States and the United Kingdom, government contracts are governed by the ordinary law of contracts, with the result that the government can reserve the power to modify or terminate a contract unilaterally only by writing such power into the contract as a specific provision. Indeed, the very fact that termination and modification clauses are commonly found in government contracts suggests that a government’s capacity to modify or terminate agreements unilaterally derives from specific contract provisions, not from inherent state power.
1. In the passage, the author is primarily concerned with doing which one of the following?

(A) pointing out flaws in an argument provided in support of a position
(B) analyzing the weaknesses inherent in the proposed solution to a problem
(C) marshaling evidence in support of a new explanation of a phenomenon
(D) analyzing the risks inherent in adopting a certain course of action
(E) advocating a new approach to a problem that has not been solved by traditional means

2. It can be inferred from the passage that the author would be most likely to agree with which one of the following assertions regarding the “general principles of law” (Highlighted)?

(A) They fail to take into account the special needs and interests of developing countries that enter into agreements with foreign investors.
(B) They have only recently been invoked as criteria for adjudicating disputes between governments and foreign investors.
(C) They are more compatible with the laws of France and the United States than with those of the United Kingdom.
(D) They do not assert that governments have an inherent right to modify unilaterally the terms of agreements that they have entered into with foreign investors.
(E) They are not useful in adjudicating disputes between developing countries and foreign investors.

3. The author implies that which one of the following is true of economic development agreements?

(A) They provide greater economic benefits to the governments that are parties to such agreements than to foreign investors.
(B) They are interpreted differently by courts in the United Kingdom than they are by courts in the United States.
(C) They have proliferated in recent years as a result of governments’ attempts to make them more legally secure.
(D) They entail greater risk to investors when the governments that enter into such agreements reserve the right to modify unilaterally the terms of the agreements.
(E) They have become less attractive to foreign investors as an increasing number of governments that enter into such agreements consider them governed by the law of ordinary contracts.

4. According to the author, which one of the following is true of a contract that is designated by a French government agency as an administrative contract?

(A) It requires the government agency to pay for unanticipated increases in the cost of delivering the goods and services specified in the contract.
(B) It provides the contractor with certain guarantees that are not normally provided in private civil contracts.
(C) It must be ratified by the passage of a statute.
(D) It discourages foreign companies from bidding on the contract.
(E) It contains terms that distinguish it from a private civil contract.

5. It can be inferred from the passage that under the “ordinary law of contracts” (Highlighted), a government would have the right to modify unilaterally the terms of a contract that it had entered into with a foreign investor if which one of the following were true?

(A) The government undertook a greater economic risk by entering into the contract than did the foreign investor.
(B) The cost to the foreign investor of abiding by the terms of the contract exceeded the original estimates of such costs.
(C) The modification of the contract did not result in any increased financial burden for the investor.
(D) Both the government and the investor had agreed to abide by the general principles of law recognized by civilized nations.
(E) The contract contains a specific provision allowing the government to modify the contract.

6. In the last paragraph, the author refers to government contracts in the United States and the United Kingdom primarily in order to

(A) Cite two governments that often reserve the right to modify unilaterally contracts that they enter into with foreign investors.
(B) Support the assertion that there is no general principle of law governing contracts between private individuals and governments.
(C) Cast doubt on the alleged universality of the concept of administrative contracts.
(D) Provide examples of legal systems that might benefit from the concept of administrative contracts.
(E) Provide examples of characteristics that typically distinguish government contracts from private civil contracts.

7. Which one of the following best states the author’s main conclusion in the passage?

(A) Providing that an international agreement be governed by general principles of law is not a viable method of guaranteeing the legal security of such an agreement.
(B) French law regarding contracts is significantly different from those in the United States and the United Kingdom.
(C) Contracts between governments and private investors in most nations are governed by ordinary contract law.
(D) An inherent power of a government to modify or terminate a contract cannot be considered a general principle of law.
(E) Contracts between governments and private investors can be secured only by reliance on general principles of law.

8. The author’s argument in lines (Highlighted at the end of Passage) would be most weakened if which one of the following were true?

(A) The specific provisions of government contracts often contain explicit statements of what all parties to the contracts already agree are inherent state powers.
(B) Governments are more frequently put in the position of having to modify or terminate contracts than are private individuals.
(C) Modification clauses in economic development agreements have frequently been challenged in international tribunals by foreign investors who were a party to such agreements.
(D) The general principles of law provide that modification clauses cannot allow the terms of a contract to be modified in such a way that the financial balance of the contract is affected.
(E) Termination and modification agreements are often interpreted differently by national courts than they are by international tribunals.

• Source: LSAT Official PrepTest 5 (June 1992)
• Difficulty Level: 650

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Lahoosaher

Originally posted by lahoosaher on 14 Sep 2009, 04:24.
Last edited by SajjadAhmad on 08 Sep 2019, 08:04, edited 4 times in total.
Updated - Complete topic (462).
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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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02 Mar 2019, 00:22
Explaination to Answer to question 7?

A vs C vs D?
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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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20 Jun 2019, 07:49
<...> In order to make economic development agreements more attractive to investors, some developing countries have attempted to strengthen the security of such agreements with clauses specifying that the agreements will be governed by “general principles of law recognized by civilized nations”—a set of legal principles or rules shared by the world’s major legal systems. However, advocates of governments’ freedom to modify or terminate such agreements argue that these agreements fall within a special class of contracts known as administrative contracts, a concept that originated in French law. They assert that [i]under the theory of administrative contracts, a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law. <...>[/i]

1. In the passage, the author is primarily concerned with doing which one of the following?
(A) pointing out flaws in an argument provided in support of a position

Hi, could anybody please point out what I'm missing here? I can't understand the portion of the answer A that I have underlined. From the portion of the text that I have supplied above, my take is that some countries have come up with contractual provision that may give more assurance to foreign investors. The provision claims, simply said, that governments assume the responsibility to come through the contract. The legal instrument established in the provision, "general principles", basically take away the signatory government's unilateral right to terminate or modify the contract however it wishes to do. Now these advocates of the French law sort of dispute such an idea, claiming that it doesn't matter that governments include such a provision to the contracts since they have inherent right to do so anyway. I suppose that their contradiction is marked by the word "However". So looking from my prospective, the second part of A cannot be true. Yet, I assume that OA for Q1 is correct, there must be something wrong with my reasoning.

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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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27 Jun 2019, 08:13
prototypevenom wrote:
Explaination to Answer to question 7?

A vs C vs D?

To understand the author's main conclusion, let's break down the passage. The passage:

• Introduces a problem: host governments sometimes unilaterally change or terminate an economic development contract
• Identifies a possible solution to the problem: host governments could add a clause into the agreements that specifies they will adhere to the "general principles of law"
• Identifies an argument that weakens this solution: these types of agreements are actually "administrative contracts," which means that host governments can change/terminate the contracts whenever they want and still follow the general principles of law

And then the passage states that the argument above is flawed in two ways:

• Flaw 1: Not all government contracts are administrative contracts, it has to be designated as such before a contractor enters into the agreement. Also, the government must compensate the contractor for any "increased burden" caused by the change.
• Flaw 2: Administrative contracts are not universal, and therefore cannot be designated as general principles of law.

Overall, the author's main goal is to argue against the idea that government contracts are actually administrative contracts, and that therefore the host government can change/terminate those contracts at will. He/she makes this point by showing that not all government contracts are inherently administrative contracts, and that the use of administrative contracts is not universal enough to qualify as a "general principle of law."

Quote:
(A) Providing that an international agreement be governed by general principles of law is not a viable method of guaranteeing the legal security of such an agreement.

This answer choice focuses on the potential solution identified in the second bullet point above. The viability of this solution is not the main concern of the author -- the author merely identifies an argument against this solution, and then points out the flaws in that argument. (A) is out.

Quote:
(C) Contracts between governments and private investors in most nations are governed by ordinary contract law.

In the last paragraph, the author states that "in both the United States and the United Kingdom, government contracts are governed by the ordinary law of contracts." We cannot infer from this that government contracts in MOST nations are governed by ordinary contract law. The author just uses this information to prove that the concept of administrative contracts is not universal enough to qualify as a general principle of law. Because the information in (C) may or may not be true, and the relevant piece of the passage is actually included to support a different idea, (C) does not reflect the main conclusion of the passage.

Quote:
(D) An inherent power of a government to modify or terminate a contract cannot be considered a general principle of law.

The author's intent in writing the passage is to point out flaws in the argument that "under the theory of administrative contracts, a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law." He/she does so by arguing that only a narrow set of contracts are actually administrative contracts, and by saying that the use of such contracts is not universal enough to count as a general principle of law. This is best summed up in answer choice (D), which is the correct answer for question #7.

I hope that helps!
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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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27 Jun 2019, 10:07
I doubt that all options in Q1 are wrong. I cant even find a best suitable option. Can anyone help me what flaws did the author point. I understand the passage that author explained/justified the flawed reasoning that the advocates arguments.
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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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28 Jun 2019, 12:41
Explanation

1. In the passage, the author is primarily concerned with doing which one of the following?

Difficulty Level: 650

Explanation

(A) This answer choice very nicely captures the author’s purpose as revealed to us in line 22.

(B) is beyond the scope of the text. What solution? What problem?

(C) The author doesn’t offer any “new explanation;” he simply marshals evidence to rebut an argument with which he’s not in agreement.

(D), too, is beyond the scope of the text. What “course of action” does the author supposedly analyze?

(E) Again, what problem? The author’s just countering an argument; he’s not out to solve any problem.

Hope it helps

krishnabalu wrote:
I doubt that all options in Q1 are wrong. I cant even find a best suitable option. Can anyone help me what flaws did the author point. I understand the passage that author explained/justified the flawed reasoning that the advocates arguments.

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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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28 Jun 2019, 20:12
1
jawele wrote:
<...> In order to make economic development agreements more attractive to investors, some developing countries have attempted to strengthen the security of such agreements with clauses specifying that the agreements will be governed by “general principles of law recognized by civilized nations”—a set of legal principles or rules shared by the world’s major legal systems. However, advocates of governments’ freedom to modify or terminate such agreements argue that these agreements fall within a special class of contracts known as administrative contracts, a concept that originated in French law. They assert that [i]under the theory of administrative contracts, a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law. <...>[/i]

1. In the passage, the author is primarily concerned with doing which one of the following?
(A) pointing out flaws in an argument provided in support of a position

Hi, could anybody please point out what I'm missing here? I can't understand the portion of the answer A that I have underlined. From the portion of the text that I have supplied above, my take is that some countries have come up with contractual provision that may give more assurance to foreign investors. The provision claims, simply said, that governments assume the responsibility to come through the contract. The legal instrument established in the provision, "general principles", basically take away the signatory government's unilateral right to terminate or modify the contract however it wishes to do. Now these advocates of the French law sort of dispute such an idea, claiming that it doesn't matter that governments include such a provision to the contracts since they have inherent right to do so anyway. I suppose that their contradiction is marked by the word "However". So looking from my prospective, the second part of A cannot be true. Yet, I assume that OA for Q1 is correct, there must be something wrong with my reasoning.

Your analysis is essentially correct, but it overlooks one significant detail: (A) talks about pointing out the flaws in an argument that supports "a position," but it does not specify what that position actually is.

While the advocates of the government's freedom to change/terminate contracts do dispute the solution proposed earlier in the passage, they also put forward their own position: that these contracts can be defined as administrative contracts, that "a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law."

The author is primarily concerned with pointing out flaws in this argument, which supports the position that governments can change/terminate economic development contracts at will. The fact that this argument challenges another idea proposed in the passage is not a deal breaker -- on its own, the argument supports a certain position, and the author points out flaws in the argument. For this reason, (A) is the correct answer.

krishnabalu wrote:
I doubt that all options in Q1 are wrong. I cant even find a best suitable option. Can anyone help me what flaws did the author point. I understand the passage that author explained/justified the flawed reasoning that the advocates arguments.

Check out the end of the first paragraph:

Quote:
However, advocates of governments’ freedom to modify or terminate such agreements argue that these agreements fall within a special class of contracts known as administrative contracts, a concept that originated in French law. They assert that under the theory of administrative contracts, a government retains inherent power to modify or terminate its own contract, and that this power indeed constitutes a general principle of law. However, their argument is flawed on at least two counts.

"They" and "their" (highlighted above) refer to "advocates of governments’ freedom to modify or terminate such [economic development] agreements [between developing countries and foreign investors]."

These advocates argue in support of the position that governments have the freedom to modify or terminate such agreements. The author then states that the advocates' argument is "flawed on at least two counts". The second and third paragraphs elaborate on those flaws.

So we can say that the author is primarily concerned with pointing out flaws in the advocates' argument--an argument provided in support of the position that governments have the freedom to modify or terminate such agreements.

It's a bit confusing, but (A) fits!
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Re: Governments of developing countries occasionally enter into economic  [#permalink]

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08 Sep 2019, 01:04
Can someone please explain Q4 here? I am confused on why the 3rd option is incorrect.
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Governments of developing countries occasionally enter into economic  [#permalink]

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09 Sep 2019, 01:44
Explanation

4. According to the author, which one of the following is true of a contract that is designated by a French government agency as an administrative contract?

Difficulty Level: 700

Explanation

In lines 27-30, the author notes that contracts designated by French government agencies as administrative contracts include “certain items not found in private civil contracts.”

(A) Lines 30-34 reveal that government agencies are only required to pay unanticipated costs if these costs result from a unilateral change in the contract made by the government.

(B) Au contraire. If anything, administrative contracts generally provide contractors with fewer guarantees than private civil contracts.

(C) distorts info in para 2, which says that there are two ways that an administrative contract can be created in France: (1) by statute or (2) through the initiative of a government agency.

(D) The passage says nothing about foreigners being discouraged from bidding on French contracts. What the passage does imply is that some foreigners have been concerned about entering into contracts with governments in developing countries.

Hope it helps

hemachal.92@gmail.com wrote:
Can someone please explain Q4 here? I am confused on why the 3rd option is incorrect.

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Governments of developing countries occasionally enter into economic   [#permalink] 09 Sep 2019, 01:44
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