Title: Cat for Assignment 3B
Course: 383-303-FD-55-01 • International Economics

Test info catégorie

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Open attachment "383-303-FD_assign3B_Article1."

To answer this question, first read the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse. (Attachment).

Question

In the first paragraph of Christian Deblock's article, we find the expressions "free trade" and "protectionism."

a) What is meant by these two expressions? (4 points)

b) Briefly describe the two main forms protectionism can take. (2 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 4 points for part a), 2 points for part b) a) Free trade is a doctrine that in practice promotes the free circulation of goods and services by eliminating the obstacles to it. It seeks to promote trade and commerce between countries and is characterized by the absence of barriers to international trade. Protectionism is put in place by a country whose goal is to reduce imports from abroad and thus protect certain sectors from foreign competition. By establishing protectionist barriers, a country makes foreign products less competitive in favour of domestic products. Various measures are taken to attain this main objective of reducing imports. b) There are two distinct forms of protectionist barriers: - Customs tariffs: These consist of taxing imports by directly increasing the price on a country's domestic territory. - Non-tariff barriers (NTB): These take the form of quantitative restrictions on imports, political arrangements, administrative controls or even measures to artificially improve the competitiveness of domestic industry. Conversely, free trade suggests a situation or a country that promotes trade with other countries without imposing barriers to limit it.

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Open attachment "383-303-FD_Assign3B_Article1."

To answer this question, consult the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse.

Question

The article deals with the WTO.

a) What is this organization and why was it created? (2 points)

b) How does it operate and what are its objectives? (3 points)

c) Based on Christian Deblock's article, state why he finds that WTO rules can be easily circumvented. (2 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 2 points for part a), 3 points for part b), 2 points for part c) a) With an eye to establishing an international organization dedicated to promoting free trade, negotiations begun in 1946 led to a general agreement on reducing customs tariffs in October 1947; this organization formed an institution called the GATT (General Agreement on Tariffs and Trade). The GATT was not an international organization in the legal sense (no by-laws or permanent officers); rather, it was a formal multilateral agreement. Later, the Uruguay Round of accords ratified the 1995 birth of a new international organization called the WTO (World Trade Organization) to succeed the GATT. b) The GATT and now the WTO govern multilateral trade negotiations, which involve several countries. Membership in the WTO involves supporting in their entirety all the agreements covered by this organization, most of which were concluded under the auspices of the GATT. This new organization committed itself to four main missions: - Set up the Uruguay Round accords. - Establish the new framework (subjects to be discussed, procedures, etc.) for future negotiations. - Regularly monitor and review the trade policies of member countries. - Institute a regulation mechanism for disputes among member countries. c) According to Deblock, the problem comes from the vagueness of the wording, exemptions, loopholes and grey areas that each country, believing strongly in its own case, interprets as it sees fit.

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Open attachment "383-303-FD_Assign3B_Article1."

To answer this question, consult the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse (attachment).

Question

a) The third paragraph dealing with the first lesson to be learned refers to which type of tariff protection? (2 points)

b) Describe in detail three other instruments applied by protectionist countries but discouraged by the WTO. (9 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 2 points for part a), 9 points for part b) (3 points per element) a) The article refers to the allocation of production subsidies. b) In addition to customs tariffs, since the 1970s new forms of protection have appeared or reappeared. These protections tended to be substituted for customs tariffs. They consisted of quotas, self-limitation agreements on exports, dumping, exacting customs formalities and restrictive standards. These measures are called non-tariff barriers (NTB). The student will choose three forms from among these. Quotas are the best-known quantitative restrictions. They are also called quota restrictions. They consist of only accepting a certain amount of imports, by number or value. Self-limitation agreements on exports might look like a variation on quotas. They are also called voluntary qualitative restrictions. They are adopted on a voluntary basis by the exporting country rather than by the importing country. However, it must be pointed out that this solution is often imposed, either following laborious negotiations or following threats of reprisals. Dumping is the practice of selling a product for less in a foreign country than within its own territory. It allows the country to get rid of production surpluses and not have to store costly merchandise. This way, the firms may recover, within their own country, the losses that they would otherwise suffer by selling at a lower price abroad. The practice of dumping is condemned by the WTO, which, under certain conditions, authorizes countries that are victims of dumping to institute anti-dumping measures. Often, to limit or discourage imports, countries have recourse to discriminatory or exacting practices regarding customs procedures. One famous case is that of the Japanese VCRs forced to enter French customs through Poitiers, a city in the middle of the country. Technical, veterinary and health standards, etc., stipulate the conditions that domestic and foreign products alike must satisfy in order to access a country's domestic market. Their goal is to protect the safety of a country's consumers through health or technical standards, to protect the environment through ecological standards, or, in Quebec's case, for example, to protect the French language through labelling standards.

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Open attachment "383-303-FD_Assign3B_Article1."

To answer this question, first read the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse.

Question

The article states that the Uruguay Round allowed clarifications to be introduced.

a) Explain what the Uruguay Round was, as well as the general conclusions it led to. (7 points)

b) Summarize the main agreements resulting from it. (4 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 7 points for part a) (3 points for the first part and 4 points for the conclusions), 4 points for part b) a) The Uruguay Round The GATT operated by negotiation cycle, one of these being the Uruguay Round. It took place from 1986 to 1993 and consisted of approximately 120 participants. There were four main features of the tariff liberalization introduced in the Uruguay Round: - For industrialized countries, the average industrial customs duty, which stood at 6.3%, was lowered to 3.9%a decrease of 38%. - The range of goods covered by the accord was very broad, at nearly 100% for industrialized countries, and it had increased dramatically for developing countries. - The percentage of imports on which there are no customs duties increased dramatically, especially in industrialized countries. - The number of tariff peaks (customs duties in excess of 15%) was reduced by half. b) The main agreements This round of negotiations marked a turning point. In fact, in addition to negotiations on tariff barriers, the Uruguay Round concluded with the signing of several agreements in new areas: - An agreement on trade in services. - An agreement on respecting intellectual property. - An agreement on the textile and clothing trade, dismantling the Multifibre Arrangement system. - An agreement on agriculture aimed at decreasing the protection that had always benefited this sector. - An agreement on the obstacles to foreign direct investments; in particular, local content standards imposed on foreign businesses to get their supplies locally or to export a part of its production were banned. The GATT was transformed into a permanent international organization called the World Trade Organization (WTO).

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Open attachment "383-303-FD_Assign3B_Article1."

To answer this question, first read the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse.

Question

The article deals with the rules and procedures that govern regional trade agreements.

a) Explain what is meant by "regional trade agreement." (3 points)

b) Give an example of an agreement of this type in which Canada is a major participant. (3 points)

c) What are the objectives and general philosophy of this agreement? (3 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 3 points per part a) The expression "regional trade agreements" Regional trade agreements encourage economic cooperation between small groups of neighbouring countries. These agreements are composed of a combination of protectionist and free trade factors, and they lead to closer cooperation than the WTO agreements. b) An example of Canada's participation Since 1994, Canada has been part of NAFTA, a free trade zone with the US and Mexico. In the beginning, this zone covered only Canada and the US and was called the Canada-US Free Trade Agreement (CUSFTA). The goal of CUSFTA was to eliminate trade barriers between the two countries and free up trade in services and investments between the two countries. It also included a mechanism for resolving disputes. NAFTA adopted the philosophy and framework of CUSFTA. c) The objectives of NAFTA The objectives of NAFTA are to: 1. Eliminate the obstacles to trading products and services between member countries and facilitate the transborder movement of these products and services. 2. Encourage loyal competition in the free trade zone. 3. Substantially boost investment possibilities within the member countries' territories. 4. Efficiently and sufficiently protect and uphold intellectual property rights within the member countries' territories. 5. Establish effective procedures for setting up and applying this agreement, for its joint administration, and for settling disputes. 6. Create the framework for more extensive trilateral regional and multilateral cooperation in order to increase and broaden the advantages stemming from this agreement.

To answer this question, first read the article by Christian Deblock entitled "The pendulum swings" ("Le retour du balancier"), published June 14, 2002, in La Presse.

Please write your answer in attachment "383-303-FD_Assign3B_Q6."
Copy and paste the article you chose in the same file.

Question

The article deals with the third lesson that can be drawn from recent decisions made by the US and talks about a mechanism for settling disputes.

a) What does the settlement mechanism consist of? (4 points)

b) Search the Internet for a newspaper article on a trade conflict involving the US (since 2000) on which the WTO rendered a judgment.

Attach this article to your assignment by copying the text from the article and pasting it in the attached Word file, where you will also write your answer. Also include the URL for the article. (4 points)

c) Summarize the article, naming the groups involved, the problem stated and the trade clauses in question. In addition, suggest a possible solution. (11 points)

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Feedback: Problème avec le fichier : 383-303-FD_assign3B_Q6_corr.docx

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Open attachment "383-303-FD_Assign3b_Article2."

To answer this question, read the article by François Pouliot entitled "American dollar under fire: What has happened to all Uncle Sam's money?" ("Le dollar américain sous pression. Où s'en vont les capitaux de l'Oncle Sam ?"), which appeared on June 29, 2002, in Le Soleil.

Question

The article refers to "foreign investors."

a) What are the two major kinds of investments that foreign investors may make? (2 points)

b) Describe the two kinds of investments. (4 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 2 points for part a), 4 points for part b) (2 points per description) a) The study of international movement of capital distinguishes between two kinds of investment: portfolio investment and foreign direct investment. b) Portfolio investment is buying securities in the private or public sector without the intent to exercise control over the economic activities funded. It is considered an international investment but does not give the holder decision-making powers. For instance, a Canadian who buys shares from a US company and holds on to them to see their value increase. This is also the type of investment that institutional investors make (mutual fund managers, for example). It consists of investments made for the sole purpose of reaping returns. The instruments used for portfolio investments come in different forms, such as directly buying company shares (without acquiring control), bonds, treasury bonds, currency deposits and other instruments of the foreign market. Foreign direct investments (FDIs) are capital commitments made with the goal of acquiring a lasting interest in a firm operating abroad, such as creating or expanding a company, training joint-venture firms, buying existing foreign firms or merging with them. FDI basically consists of owning assets that give the holder control of the foreign firm's operations. Control in this sense is defined as owning a certain percentage of assets held by the investor. This percentage varies from country to country. In the US and Canada, it is equal to 10% of assets; in France and Great Britain, it's equal to 20%. The current trend is getting closer and closer to 10%. This percentage depends mostly on the strategy and objectives of the parent company. In fact, FDI very often concerns multinationals whose parent company, based in the country of origin, is expanding and creating subsidiaries in the host country.

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If needed, consult the article from the preceding question titled "American dollar under fire: What has happened to all Uncle Sam's money?" ("Le dollar américain sous pression. Où s'en vont les capitaux de l'Oncle Sam ?"), which appeared in June 29, 2002, in Le Soleil.

Question

The article states that recently "the central bank of Japan has sold a lot of yen against the dollar to prevent its currency from getting too strong and having an adverse effect on its exports."

a) Among the graphs showing supply and demand curves for Japanese currency (yen), which one describes the situation mentioned in the article? Explain how. (7 points)

b) By taking an initial situation in which 100 yen = US$1, how much would the yen be worth after the Japanese central bank intervenes? Explain how Japanese exports could have benefited from these interventions. (6 points)

c) As for Japan's current account balance, is it now a greater positive value or a greater negative value? Explain. (4 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 7 points for part a), 6 points for part b), 4 points for part c) a) Yen market situation The curve representing the yen supply moves to the right because the Japanese central bank offered the Japanese yen, which brought about a decrease in the exchange rate. b) Example with numbers To start with, 100 yen = US$1. With the intervention of the Japanese central bank, parity could now be: 110 yen = US$1. The Americans continue to buy from Japan, as now their dollar can buy 110 yen instead of only 100. c) Current account balance Japan's current account balance (which includes the trade balance: exports and imports) will be a higher positive figure, as foreigners (Americans, for example) are hooked on buying Japanese goods.

Question

We know that the central banks sometimes intervene in the foreign exchange market to make their currency move in the direction they want (up or down). But this is less and less often the case, as the influence of central banks has decreased. In fact, the way the International Monetary System operates has changed.

a) In approximately half a page, describe the basic elements of the monetary system put in place at Bretton Woods. (7 points)

b) In half a page, explain how the monetary system has changed so that the central banks now have little influence on this market. (7 points)

Entrez votre réponse ci-dessous.
Feedback: Marks: 7 points per part Even though the question has been divided into two parts, the grader should be flexible in correcting it if elements of a) appear in b), or vice versa. a) The Bretton Woods monetary system At Bretton Woods in 1944, the countries established the basics of an organized international monetary system. They came to an agreement on the following points: - Over time, each country must ensure that its currency is convertible with the US dollar and with other currencies. - Exchange rates must be fixed. Monetary authorities defined parity and abided by it up until they decided to change it. They used reserves to intervene and maintain this parity. - The US dollar was refundable in gold at a fixed rate of $35 per ounce. The central banks recognized two assets for paying off international transaction balances: the US dollar and gold. - A supranational agency was created. The IMF's main role was to help countries keep fixed exchange rates. Member countries were assigned a quota that determined the amount of their contribution and the share of voting rights assigned to them. b) The change in the monetary system The inflation of reserves of dollars held outside the US stimulated speculation against the dollar. In 1971, Richard Nixon suspended the convertibility of the dollar into gold. This unilateral act, with no prior discussion, surprised the world and was highly criticized. The permanent deficits in the US balance of payments also led to a first devaluation of the dollar in 1971 and a second in 1973. But without gold-convertibility, the reference values became purely theoretical. The year 1973 also marked the beginning of floating exchange rates. In summary, 1973 brought an end to gold-convertibility and fixed exchange rates in the international monetary system. During the period from 1973 to 1985, a system of floating exchange rates took hold, but the central banks exercised strict control over exchange markets. However, from 1985 to today, the effects of deregulation of capital markets have become apparent, and interventions by the central banks on the market prove to be much less effective. In effect, since the deregulation of financial markets, capital has circulated freely and moved from country to country; at the same time, this influences the foreign exchange markets. Furthermore, US currency is not the only one traded: several currencies are speculated upon daily (pound sterling, euro, yen, Swiss franc, etc.). It is a multicurrency system. More stock exchanges have opened and the markets trade currencies for cash and credit. Because of the Plaza Accord (1985) and the Louvre Accord (1987), the International Monetary System is oriented toward reciprocating jurisdiction and agreements with no legal constraints. The markets determine the exchange rates of the various currencies, and the central banks try to influence them. Their ability to intervene is limited by the amount of their reserves; they count more on the credibility of their countries' economic policies. Monetary and financial markets are very powerful.