- Ukraine sent a secret document to WTO members proposing to raise tariff ceilings on over 350 imported goods worth more than $4.6 billion. This has concerned other WTO members as it could set a precedent for increased global protectionism. - The US said Ukraine's plan raises "serious concerns" but the WTO said members are allowed to renegotiate tariffs under its rules. However, diplomats said Ukraine's proposal to change hundreds of goods at once amounts to reopening its entire trade agreement. - If Ukraine raises tariffs without negotiations, it could undermine the global trading system which is based on mutual tariff reductions. Trade experts fear Ukraine's move could trigger more protectionist policies during economic

1. Protectionism Position Paper
Write a short (1-2 page double spaced) position paper that
outlines your views on protectionism.
Please take a side whether you believe protectionism is
beneficial or hurtful to society. Provide insight by referencing
(put in quotations - Ex.– In the article, The new protectionism
is shutting us out, Stanford states, “”) at least 2 of the four
articles, but also thinking critically about the issue yourself.
Use the textbook reading and 4 articles I have given you to
support your position.
Criteria
Level 1 (5 to 6)
Level 2 (6 to 7)
Level 3 (7 to 8)
Level 4 (8 to 10)
Knowledge
Making connections
with clarity between your position and at least 2 articles
– makes connections
with clarity between your position and at least 2 articles limited
effectiveness
– makes connections
with clarity between your position and at least 2 articles with
some effectiveness
– makes connections

2. with clarity between your position and at least 2 articles with
considerable effectiveness
– makes connections
with clarity between your position and at least 2 articles with a
high degree of effectiveness
Application
Making connections
with insight and accuracy between your position and at least 2
articles
– makes connections
with insight and accuracy between your position and at least 2
articles with limited effectiveness
– makes connections
with insight and accuracy between your position and at least 2
articles with some effectiveness
– makes connections
with insight and accuracy between your position and at least 2
articles with considerable
effectiveness
– makes connections
with insight and accuracy between your position and at least 2
articles with a high degree
of effectiveness

3. Communication
Expression and organization
of ideas and
information (clear expression, logical organization)
in written form
- expresses and
organizes ideas and information with limited effectiveness
– expresses and
organizes ideas and
information with
some effectiveness
– expresses and
organizes ideas
and information
with considerable
effectiveness
– expresses and

4. organizes ideas
and information
with a high degree
of effectiveness
Total
/30 marks
Note: A student whose achievement is below 50% at the end of
a course will not obtain a credit for the course
Protectionism
Read p.62-63 and answer the following 5 questions.
1. State and describe the companies affected by protectionism.
2. What impact does NAFTA have on tariffs?
3. Why did the recession cause the governments to implement
"buy local" campaigns?
4. Why did Canada not establish a "Buy Canadian" policy?
5. What is your opinion of protectionism?
Read the following 3 articles on protectionism
Article 1: The new protectionism is shutting us out
Jim Stanford From Thursday's Globe and Mail

5. When the world plunged into recession in 2008, G20 leaders
ostentatiously pledged not to repeat the errors of the 1930s. To
hasten economic recovery, they would avoid protectionism and
keep trade flowing. Canada’s government has been among the
loudest voices in this free trade chorus.
This is a gross misreading of actual history. World trade
collapsed in the 1930s because of collapsing consumer demand,
not protectionism; competitive tariffs were a response to that
implosion, not its cause. For the same reason, world trade
plunged 12 per cent last year, despite the G20 promises.
More dangerously, the lip service paid by politicians to official
free-trade doctrine is contradicted by an increasingly nasty and
lopsided world marketplace. Almost universally, countries
around the world are becoming more aggressive in protecting
and stimulating domestic output and employment. They don’t
usually jack up tariffs (though that still happens, as in Russia);
instead, they use less visible but equally effective tactics. This
response is understandable, given the mass and protracted
unemployment that now grips most countries. But it’s damaging
the still-shaky global economy – all the more so for countries
like Canada, which pretend to stay above the fray.
The most recent example of unofficial protectionism was the
Bank of Japan’s sudden foray last week into currency markets.
By aggressively buying U.S. dollars (and selling yen), the bank
drove down Japan’s exchange rate by 5 per cent against the
Canadian dollar. That has exactly the same effect as imposing a
5 per cent tariff on all Japanese imports from Canada – yet it’s
entirely “legal.” Japan has pledged to keep doing whatever’s
necessary to weaken the yen and boost exports.
Germany, with the world’s second-largest trade surplus (after
China), uses different techniques to achieve the same goal.

6. Wages have been suppressed for years, dampening spending
(including on imports). At the same time, pro-active government
strategies to boost productivity and technology, combined with
falling unit labour costs, have stimulated exports. Thanks to the
fiscal woes of its European partners, Germany gets further help
from a falling euro. The end result is a massive trade surplus
that propelled Germany to one of the world’s fastest recoveries
– for now.
China, of course, has mastered official mercantilism, through
tight exchange rate manipulation, macroeconomic planning
(controlling consumption and hence imports), constraints on
unions, and lots of fiddling with trade barriers (regardless of
WTO strictures). The combined surpluses of China, Germany,
Japan and a handful of other successful exporters more than
offset the trade deficits of everyone else in the world (including
Canada).
And that’s precisely the problem with this whole strategy. Until
such time as planet Earth learns to export to Mars, every
national surplus must be offset somewhere else with a matching
deficit. One country’s gain is another’s loss. Whether
engineered through “unacceptable” means (like higher tariffs),
or “legal” ones (like currency manipulation, macroeconomic
planning, technology strategies, or grey-zone trade barriers), the
end result is identical: a beggar-thy-neighbour race to boost
trade surpluses that undermines global growth.
Where does Canada fit into this game? As usual, we don our
Boy Scout’s uniform and pledge to play fair. While China,
Japan and others actively manage their currencies, we allow
ours to soar unfettered. As Germany and Korea subsidize and
direct technological advances, we eschew “picking winners” and
leave it up to business. As countries everywhere leverage
government spending into domestic jobs, we pursue trade
agreements that would undermine our already-weak domestic-

7. sourcing policies.
Our passivity in the face of others’ pro-activity has taken us
from trade feast to famine. A $55-billion trade surplus in 2004
melted away to a $27-billion deficit last year, knocking a
whopping 6 percentage points off Canadian GDP. By that
standard, we’ve registered by far the worst trade performance of
any OECD country. As deteriorating trade undermines domestic
growth and employment, Ottawa’s only response is to chase
more free trade pacts – whether with Panama (economically
irrelevant) or Korea and the European Union (potentially
explosive).
There’s no point finger-pointing and hectoring others to “play
by the rules,” too. That will get us nowhere. So long as the
world trade system imposes no requirements for balance or
mutual benefit, protectionism (official or unofficial) will always
make sense for individual countries … and they’ll always find
ways to do it.
John Maynard Keynes was ahead of his time in recognizing the
dangers of trade imbalances for worldwide demand. After the
Second World War, he lobbied for a new global payments
system, forcing both surplus and deficit countries to address
chronic trade imbalances and share the burden of adjustment.
He was overruled by free-marketeers who accepted the logic of
dog-eat-dog global competition. And it’s that logic, regardless
of politicians’ lip service, that’s deepening the global malaise.
Jim Stanford is an economist with the Canadian Auto Workers
union.Article 2: U.S. jobs bill provisions ‘protectionist’ and
‘regrettable,’ Harper says
Sep 16, 2011 – 3:53 PM ET

8. Prime Minister Stephen Harper says the Buy American
provisions in U.S. President Barack Obama’s jobs bill are
“regrettable,” and something the Canadian government will be
taking up with its U.S. counterpart “at the highest levels.”
“We’re obviously quite concerned that provisions in the
president’s initiative, which I think broadly speaking is a good
initiative, but we’re obviously very concerned that once again
they are looking at stimulus spending that has protectionist
elements,” Harper said on Friday in Saskatoon.
The bill, which Obama presented to Congress last week,
outlines nearly $450 billion US in proposals to stimulate the
country’s stagnant job market, of which about $140 billion US
was for infrastructure and public works projects that would be
subject to “Buy American” provisions.
In an email to Postmedia News on Thursday, International Trade
Minister Ed Fast said the Buy America provisions are
“inconsistent with a long-standing Canadian and American
commitment to free and open trade.”
In a 2010 agreement with the U.S., Canada won an exemption to
similar provisions that were contained in a stimulus package
introduced by the Obama administration in the midst of the
global financial downturn in 2008-09.
Fast said he has advised the U.S. ambassador to Canada, David
Jacobsen, that the federal government is “invoking the
expedited consultation mechanism” contained in that agreement
in order to work out an arrangement for the latest bill, which
must still win Congressional approval.
A report from the Canadian Centre for Policy Alternatives said
under the 2010 agreement Canadian firms were eligible for less
than $2 billion US in American projects while U.S. companies

9. had access to about $25 billion in projects here.
Harper deflected criticism Friday that his government had failed
to effectively negotiate in the country’s interests.
“We dealt with this very productively with the Obama
administration last time, we have an ongoing dialogue on these
measures and we obviously will be making our views known,”
Harper said.
“But I think it is a very regrettable development and we will be
expressing that regret and the desire to move forward together
positively at the highest levels of the U.S. government.”
Article 3: Portion of Obama’s jobs plan ‘concerns’
Canadian government
REUTERS/Jim Young
Sep 14, 2011 – 1:09 PM ET | Last Updated: Sep 14, 2011 1:10
PM ET
By Derek Abma
OTTAWA — The Canadian government has “concerns” about
the recently announced jobs-creation plan by U.S. President
Barack Obama because of Buy American provisions attached to
its infrastructure spending.
Last week, Obama outlined nearly US$450-billion worth of
proposals to stimulate his country’s stagnant job market, of
which about $140-billion is for infrastructure and public works
projects.
“Our government will raise with the Obama administration and
Congress concerns regarding measures that impede access for
Canadian workers and businesses to the U.S. market, as we did
for earlier U.S. stimulus programs,” International Trade

10. Minister Ed Fast said in statement Wednesday that
acknowledged that Buy American provisions were contained in
the new U.S. plan.
Fast said government officials would be taking part in a
“consultation process that was established as part of the 2010
Canada-U.S. Agreement on Government Procurement.”
Last year, the two countries worked out a deal that was
supposed to give Canadian firms exemptions to Buy American
rules in previous U.S. stimulus spending in exchange for
allowing U.S. firms to get contracts in some projects carried by
provinces and municipalities in Canada.
“Our government is committed to delivering free trade
leadership, and Canadians can count on our government to
defend free and open trade on the world stage,” Fast said.
The Council of Canadians, a social activist group, called on the
government to let its procurement deal with the U.S. expire as
planned this month, and follow Obama’s lead by increasing
funding for municipalities with Buy Canadian provisions
attached.
“Canada’s cities and towns need over $30-billion in water-
system upgrades alone and another $100-billion for other badly
needed infrastructure,” Meera Karunananthan, a water
campaigner for the Council of Canadians, said in a statement.
Prime Minister Mykola Azarov said last year Ukraine intended
to “start our negotiations with the WTO to adjust some
provisions in our favour.” (FRANCOIS LENOIR/REUTERS)
Ukraine trade demand shocks global partners
TOM MILES GENEVA — Reuters Published Friday, Sep. 21
2012

11. Ukraine has told its trading partners it wants to raise maximum
tariffs on hundreds of imported goods, a move that could
unleash protectionist forces and may even pose a threat to the
$18-trillion global trade system.
In a document marked “secret” sent to members of the World
Trade Organisation last week and seen by Reuters, Ukraine says
it intends to raise the limit on the tariffs it can legally impose
on more than 350 goods. Based on figures in the proposal,
Kiev’s plan would hit overall imports worth more than $4.6-
billion in 2011.
The document, which diplomats said they had received on Sept.
14, consists of 85 pages of annexes detailing the items affected.
It says Ukraine is prepared “to enter into negotations and
consultations” with WTO members for the concessions.
There was no response to requests for comment from Ukraine
officials in Geneva or Kiev. Ukraine, a relative newcomer to the
WTO whose trade deficit widened by more than 50 per cent last
year to $14-billion, has already threatened to block car imports
and said last year it would act to improve its terms at the WTO.
The United States said Ukraine’s possible decision would raise
“serious concerns,” although WTO officials played down the
move, which, though radical, is permissible under the agency’s
rules.
Some trade experts fear the plan, which would force hundreds
of trade deals to be renegotiated, could trigger increasingly
protectionist policies worldwide. The four-year-old global
financial and economic crisis has so far not led to a rush to
protectionism but, under pressure to help their producers
weather the storm, governments have pounced on “unfair”
moves by their rivals. The United States and Brazil were the

12. latest to trade diplomatic blows.
WTO Director General Pascal Lamy, who forecast on Friday
that world trade would grow by a mere 2.5 per cent this year,
has repeatedly warned of the danger of a return to
protectionism.
The WTO oversees the vast majority of global trade, running a
system that assumes every country accepts legal limits on the
tariffs they charge on imports to protect their businesses. If a
country wants to raise the tariff ceiling on one product, it
normally offers to reduce the limit on another to keep its
economic openness unchanged overall.
Some diplomats say Ukraine’s plan to renegotiate on so many
goods – cars, trucks, agricultural machinery, meat, flowers,
fruit, vegetables, washing machines and even syringes – is
tantamount to reopening negotiations on its membership terms.
“We don’t know what is behind Ukraine’s move,” said one trade
diplomat. “Maybe the financial crisis. Maybe political reasons.
Maybe industrial.”
Longstanding WTO members typically have high ceilings and
set tariffs well below the maximum, giving them wriggle-room
in tough times. The tariffs of newer members, many of which
were forced to accept tough terms to join the WTO, are often set
right at the ceiling. Some, including Ukraine, which joined in
2008, have bristled over that constraint.
The sheer size of Ukraine’s demand makes it hard to deal with,
diplomats say. Other countries cannot raise their own tariffs to
punish Ukraine without violating a WTO principle that member
states must offer the same tariff to everybody.
“This decision raises many serious concerns and questions for

13. us,” said Carol Guthrie, spokeswoman for U.S. Trade
Representative Ron Kirk in Washington, without going into
details.
“We expect other WTO members may have similar concerns and
questions. Only after we get additional details from Ukraine
will we be able to fully evaluate the consequences of its
decision and assess next steps.”
WTO spokesman Keith Rockwell declined to characterize
Ukraine’s plans as protectionist. He said it was natural that
some countries would want to renegotiate their trade deals.
“Protectionism is a loaded word. In the trying economic
circumstances we are encountering today, governments face
very strong pressure to act,” Mr. Rockwell said.
“To this point, Ukraine’s actions in this regard have not been
outside the rules.”
But Anwarul Hoda, a former deputy director-general of the
WTO, said the way Ukraine planned to raise its tariff ceiling
posed a real threat.
“If Ukraine just goes ahead and raises the duty and the others
can’t do anything then there would be a systemic failure,” said
Mr. Hoda, whose 2001 book Tariff Negotiations and
Renegotiations under the GATT and the WTO is regarded as an
authority on this area of the WTO rules.
Trade ministries have until Dec. 12 to respond to Kiev’s
proposal, but several diplomats said Ukraine’s document had
not given them enough information and nobody from Ukraine
has yet replied to their many questions such as what new tariff
ceilings Ukraine seeks, and what it might offer in return.

14. Ukraine’s Prime Minister Mykola Azarov said last September
“the time has come for us to start our negotiations with the
WTO to adjust some provisions in our favour. And we will be
doing this,” according to Interfax news agency.
Since the election of President Viktor Yanukovich in 2010, Kiev
has upset many of its trading partners with a string of
aggressive positions, including obstructing bids by Yemen and
Laos to join the WTO and an ongoing challenge to Australia’s
tough new cigarette packaging laws.
The latest proposal uses an area of WTO rules known as Article
28 of the General Agreement on Tariffs and Trade (GATT).
“It’s a loophole in the GATT rules, the legal procedure,” said
one diplomat. “If other countries follow Ukraine, this might be
big trouble.”
Two lawyers said it was impossible to challenge Article 28
under the WTO’s dispute settlement system. Mr. Hoda said he
needed to study the case in depth before being sure.
Article 28 dates from the 1940s and was used often until the
creation of the WTO in 1995 cemented efforts to liberalize
global trade. Since then, it has been used about 30 times, mostly
for small or technical adjustments to a country’s tariffs, and
almost always for fewer than 10 tariffs at a time.
Ukraine’s request was “surprising for its size alone,” said the
European Union trade spokesman John Clancy. “Our
preliminary analysis shows that the tariff increase would affect
a significant amount of trade – and in particular EU exports
worth almost €2-billion ($2.6-billion),” he said in an emailed
response to Reuters questions.
Under Article 28, Ukraine should “pay” for tariff increases by

15. lowering tariffs on other goods.
But Mr. Clancy said Ukraine’s list was so long it could prove
difficult to find enough areas where other tariffs could be cut.
At least 35 WTO members qualify to negotiate with Ukraine,
including the European Union, United States, Japan, South
Korea, Australia, Canada, Brazil, China and India, and the
process is so complicated it would likely take years.
If negotiations don’t work, Ukraine could simply raise its tariffs
unilaterally, leaving its trading partners to raise their own
tariffs to balance out its move. But big trading nations would
find that impossible in practice.
“If you want to exercise retaliation you have to be very careful
about the tariff line that you choose, in order not to hit some
other trading partners,” said a Geneva-based trade lawyer.
“If you get some other countries affected, then these other
countries may initiate a political controversy against you,” he
said. “It is not as easy as one might think.”
In such a situation, Mr. Hoda said, the WTO framework may not
“be adequate. A small player in renegotiations is in a good
position to go ahead and raise the tariffs, without any fear of
reprisal or retaliation.”
The EU’s Mr. Clancy played down such worries and said he
expected negotiations with Ukraine to succeed. “Protectionist
tensions would not be in anyone’s interest,” he said.
Question 1

16. It is now October 2013. A company anticipates that it will
purchase 1 million pounds of copper in
each of February 2014, August 2014, February 2015, and
August 2015.
The company has decided to use the futures contracts traded in
the COMEX division of the CME
Group to hedge its risk.
One contract is for the delivery of 25,000 pounds of copper. The
initial margin is $2,000 per
contract and the maintenance margin is $1,500 per contract. The
company’s policy is to hedge
80% of its exposure. Contracts with maturities up to 13 months
into the future are considered to
have sufficient liquidity to meet the company’s needs.
Assume the market prices (in cents per pound) today and at
future dates are as follows.
*Note: Enter the price in RED, exit the price in BLUE.
Date Oct 2013 Feb 2014 Aug 2014 Feb 2015 Aug 2015
Spot Price 372.00 369.00 365.00 377.00 388.00
Mar 2014 futures price 372.30
Feb14
369.10
Sept 2014 futures price 372.80
Aug14

17. 370.20 364.80
Mar 2015 futures price 370.70
Feb15
364.30 376.70
Sept 2015 futures price 364.20
Aug15
376.50 388.20
Required:
a. Devise a hedging strategy for the company.
b. What is the impact of the strategy you propose on the price
the company pays for copper?
What is the range of price paid under the hedging strategy?
c. What is the initial margin requirement in October 2013? Is
the company subject to any
margin calls?
Question 2

18. Firm A borrows $10 million for 12 months, with floating rate
interest referenced to 3 month AUD
libor, and paid quarterly. For the premium of 0.20% p.a., Firm
A can purchase a cap with a strike
rate of 8% p.a. Libor at the start of each quarter was 8.8%,
8.3%, 8.0% and 7.6% respectively. Firm
A uses a cap to conduct a borrowing hedge.
Required:
a. Compute the net cash flows for today and at the end of the 4
quarters
b. Compute the effective borrowing rate with the cap.
c. Compute the effective borrowing rate without the cap.
Note: Please use the table below to compute your net cash flows
MONTH LIBOR LOAN CAP PUT NET CASH FLOW
0
3 8.8%
6 8.3%
9 8.0%
12 7.6%