Question 1

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."

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?

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

Question 2

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."

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)

Question 3

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."

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)

Question 4

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."

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. ( points)

b) Summarize the main agreements resulting from it. (

Question 5

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."

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

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

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

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

Question 6

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."

Copy and paste the article you chose.

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?

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. Also include the URL for the article.

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

Question 7

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

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.

Question 8

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 amricain sous pression. O s'en vont les capitaux de l'Oncle Sam ? "), which appeared in June 29, 2002, in "Le Soleil."

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)

Question 9[/14 points]

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)

The Pendulum Swings The protectionism game can't last much longer; there are too many interests in play for the United States to continue down this road. Christian Deblock It's all very well to say that the upsurge of protectionist fever gripping the United States is primarily due to electoral considerations and is no more than a quick fix, but now no one knows what to expect from an administration that persistently preaches free trade and accuses others of protectionism, but is the first to pick and choose how it will apply free trade and the first to use protectionism when it suits its purpose. Already hurt by the new competitiveness shamelessly indulged in by every nation on the planet, starting with the most powerful, the multilateral trading system has been seriously shaken this time. Four lessons can be learned from the latest American decisionsfour lessons that may have an impact on the future. Four lessons that can be learned First lesson: to realize to what extent the WTO rules can be easily, and legally, bypassed. This can be seen in the example of the Farm Bill; the measures taken do not actually contravene the established rules because the grants and subsidies for production are lowerUS$19.1 billion a yearthan the limit set by the WTO. The problem is rather in the vague writing, the exemptions and exceptions clauses, and the grey areas that people feel free to interpret as they please. The Uruguay Round made it possible to introduce clarifications and to better control recourse to the use of safeguard, countervailing and anti-dumping measures, but the problem remains. In this respect, it is significant to note that the rules and procedures that govern regional trade agreements, today by far the main derogation of the non-discrimination principle, remain unclear, which suits everyone. The result is that the Committee on Regional Trading Agreements (CRTA), created in 1996, is completely paralyzed. Second lesson: the trade negotiations launched with much difficulty at Doha have been filed under the development and integration of developing countries in the world economy. But how much credit should be given to the new discourse regarding "capability building"? Is it anything more than a decoy to obtain from developing countries even more concessions with regard to openness and recognition of investors' rights? Are developed countries really ready, as they have promised, to open their markets and help developing countries to profit from globalization? . . . Assignment 3B, Article 1 2 International Economics 383-303-FD (55.1) Third lesson: the dispute resolution mechanism, one of the largest gains from the Uruguay Round, is clearly showing its limitations. The United States needs the WTO too much to challenge the institution, and they are the ones who are trying the hardest. And, as the Trade Representative likes to remind us, even if some decisions go against them, in the main, they are the big winners with the new dispute resolution mechanism. However the procedures are still too long, and not every government has the physical inputs of the United States to track the trade policies of others. But on a more fundamental level, there is the entire problem of trade sanctions. The WTO prefers to talk about compensatory and suppression measures rather than trade sanctions, which, in the institution's mind, should make it possible to re-open talks and bring the offender back to the fold. But what is really happening? First, there is no doubt that these really are sanctions, each country or region trying hard to find technicalities that will do the greatest harm to the other, with the result that things are very quickly getting nasty. Second, it is the "injured" country and not the WTO that applies the decisions or sanctions. Third, the sanctions have reached staggering amounts that are, for all practical purposes, inapplicable; for example, between US$1 and US$4 billion in the case of a dispute between Europeans and Americans in the matter of tax benefits given to exporting companies (Foreign Sales Corporations). And above all, fourth: no one has the means to follow up on these conditions. Although, in principle, all countries are equal at the WTO, in this little game, equality does not win out. Except for strategic reasons, the United States has never hesitated to impose sanctions if their rights are contravened, often before all possible solutions have been explored. Europe, despite its trade power, is much more reluctant to do so. But what about medium-sized countries such as Canada, let alone developing countries? Do they really have the means to impose sanctions? This was evident in the dispute that pitted Canada against Brazil: Canada could not resort to trade sanctions against Brazil as these would have had little impact. It preferred to show subtlety by subsidizing Bombardier's contracts, only to finally find itself right back where it started from. In the softwood lumber issue, the problem was different, but the result was the same. Even though Canada won its case at the WTO, does it dare sanction a partner on whose economy it is so dependent and risk a trade war that it cannot possibly win? . . . Finally, the fourth lesson: it has perhaps been forgotten, but trade is also a matter of lobbying. The very least we can say is that the lumber, steel and farming lobbies are highly organized. For all practical purposes, free trade lobby groups, such as the National Trade Council, the Business Roundtable or the Emergency Committee for American Trade have scarcely made their voices heard, or have done so belatedly, and then mainly to worry about how the decisions made could have a negative impact on their own activities. At the time of the Uruguay Round negotiations and the Canada-US negotiations, remember, these groups brought much pressure to bear on the presidential administration, the public and the media to bring negotiations to an end, and they were ultimately successful. But, as The Economist observed, the major part of what could have been obtained was obtained with NAFTA, the Uruguay Round, the Financial Services Agreement, etc. The results of the Doha Assignment 3B, Article 1 3 International Economics 383-303-FD (55.1) negotiations or hemispheric negotiations will, in the end, be only minor compared with what has already been acquired. Hence the lack of willingness on the part of these groups to launch an attack, as the companies are more occupied with developing markets and generating profits from the last negotiations than with hounding elected officials and threatening to cut off their election campaign financing. The pendulum has swung to the side of protectionism for the moment, but rest assured that it can't last much longer; there are too many interests in play for the United States to continue with this little game. The fact remains that it is increasingly a question of picking and choosing when it comes to free trade. The author is the director of the Centre tudes internationales et Mondialisation de l'Universit du Qubec Montral (www.ceim.uqam.ca). This is the second and last part of the text published by La Presse. 2002 La Presse. All rights reserved. Deblock, C. (2002, June 14). The Pendulum Swings. La Presse, p. A-13. (Le retour du balancier)

The American Dollar Under Fire What has happened to all Uncle Sam's money? Franois Pouliot It was supposed to be unshakeable. The ultimate in value; it had dethroned gold. But now the American dollar is failing. What has happened to all Uncle Sam's money? Is it really time to make a run for it? Since mid-March, the greenback has lost 11.3% against the Swiss franc, 12.2% against the euro, 9.8% against the yen and 5.5% against the Canadian dollar. Economists and analysts explain that foreign investors have lost faith in corporate America. Shaken by events at WorldCom, Enron, Tyco, Xerox, Adelphia, Credit Suisse, Merrill Lynch and elsewhere, they are deserting a land apparently rife with convoluted accounting and unethical behaviour. It will be several weeks before the full scope of the disinvestment is known. Data regarding local and foreign capital movement are not available at the moment. Foreign exchange dealers say they have not yet witnessed catastrophic withdrawals from the United States. "For the moment, it's mainly a lack of demand. The United States has a trade deficit of $30 billion a month. Previously, the deficits were covered by incoming investments; now, there are fewer. There are also fewer exporters deciding to leave the money they receive there. They prefer to reconvert," said Franois Barrire, head of foreign sales at BNP Paribas. Which doesn't stop experts from wondering about the timing of withdrawals of US funds. "What concerns us the most, is where else do investors want to invest," said Michael Manford, chief strategist at Canaccord Capital. Manford said he finds it hard to understand the repatriation of capital to Europe or Japan. Their economies may be less shaken by scandal, but their economic health is still in doubt. Lately, 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. In the first quarter, the Japanese GDP grew by 1.4% over the previous year. Even though a number of economists see in this a slight economic upturn, statistics are not hastening to corroborate this view. The employment rate dropped by 1.4% over the last year. Personal income dropped by 2% over a 12-month period and household income by 3.2% (taking deflation into account). Corporate profits are still half of what they were three years ago. Industrial production shrunk by 7.2% in a year. And, these last few weeks, the credit agencies downgraded the Japanese public debt. "The heart of the problem is that the banking system is bankrupt. If the Assignment 3B, Article 2 2 International Economics 383-303-FD (55.1) investments that should have been written off had been (especially in real estate), the system's capital base would be as thin as ice in July," claims Manford. He added that the Japanese political system is sinking and is starting to look like that of Italy a few decades ago. Somewhat better in Europe, but... The strategist is also sceptical about Europe. "Depending on your definition of Europe, things are either very slow or at a complete standstill," he said. Eurozone economists are scratching their heads over the latest statistics regarding wage progression. If wages increase at the current rate of 3.2%, but productivity gains continue to advance at a snail's pace, where is the progress? Inflation also raises questions. After reaching 2.4% in April, it suddenly dropped to 1.7% in June. But experts believe that the surprise might not last and that the central bank will have to tighten its monetary policy. "Prospects for price stability have gotten worse," said Lorenzo Codogno, economist with the Bank of America, referring to the surge in the price of services. All the while, Germany is in a recession. "This suggests that a recovery could only occur outside of central Europe," according to Michael Manford. In short, Europe and Japan are both hoping that the American economy will recover. An economy that, despite the scandals, still seems to be growing. "It's the biggest economy in the world and the most productive. People don't have confidence in the published numbers, but their confidence will return in time," said Franois Dupuis, an economist with the Desjardins Group. Dupuis is of the opinion that investors' eyes are too riveted on government contracts and the setbacks in the tele communications and technology companies. "If we look at national accounts (which also take into account private corporations), the profits are coming back," he said. That said, in his opinion, the best economy in the industrialized countries is actually here, in Canada. Marc Lvesque, an economist with the TD Bank, goes one better, "Clearly, it's the Canadian economy that is performing best." The Canadian GDP gained 6% in the first quarter, an increase identical to that of the American GDP. The Canadian gain is, however, of better quality, the economist feels. "In the United States, it's mainly a question of liquidating inventories. But there wasn't such a high demand for new orders." Lvesque is waiting for the American economic growth to slow down in the second quarter and come back at around 2 to 2.5%. In Canada, it should maintain its momentum and hold at around 5%. How can the strength of the Canadian economy be explained when it is so closely linked with that of its neighbour? There are a few reasons, according to Marc Lvesque and Clment Gignac, economist and strategist at National Bank Financial: 1. Canada is a net exporter of energy, while Uncle Sam is a net importer. When petroleum prices are high, as is currently the case, Canada is a winner. Assignment 3B, Article 2 3 International Economics 383-303-FD (55.1) 2. The weakness of the Canadian dollar has worked in favour of exports in recent months. 3. Canadians' level of savings is higher because there was less destruction of wealth. Approximately 50% of American households hold stock. The proportion is much lower in Canada, said Gignac, without being able to give a number. 4. The high technology sector is currently the most scorned. The economic space it occupies here represents only one-third of what it occupies in the American economy. 5. The price of natural resources has a tendency to rebound, and nearly 30% of the Canadian economy is based on those resources. Marc Lvesque believes that the Canadian economy should continue to do better than the American economy at least until the end of the year. "In the longer term, it will be a question of productivity, and the American economy has always been better than ours on that score," he said. Category: Economy Uniform subject(s): Stock exchange and foreign exchange market; GDP/GNP; Interest rates; National economy Size: Long, 2002 Le Soleil. All rights reserved. Doc.: news 20020629 LS0069 Pouliot, F. (2002, June 29). The American dollar under fire: What has happened to all Uncle Sam's money? Le Soleil, p. B3. (Le dollar amricain sous pression. O s'en vont les capitaux de l'Oncle Sam ?)