GCE N2008

(a) (i) How does the value of the Yuan in September

2006 compare to its value in 2000? [1
The Yuan has appreciated against the USD
between 2000 to 2006.
(a) (ii) !escribe what happened to the "S balance on
current account over the period 1##$ to 2006% [2
General Trend and refineent!

US e"#erien$ed a trade deficit on the $urrent

a$$ount fro %&&8 to 2006.

The trade defi$it was increasin& and had

ore than doubled between %&&8 to 2006.

'f there is #oor use of e$onoi$ terinolog()

e.g. negati*e $urrent a$$ount balan$e or
falling balan$e. +No ar,s to be awarded-
(b) 'dentif( and e)plain an( evidence contained in the data that su&&ests
that the *hinese &overnment is a +currenc( manipulator,% [-

Establish what is eant b( .$urren$(

ani#ulator/
go*t inter*ene in the foreign e"$hange
ar,et
fi" e"ternal #ri$e of the Yuan below the
e.uilibrium price in the fore" ar,et.
(b) 'dentif( and e)plain an( evidence contained in the data that su&&ests
that the *hinese &overnment is a +currenc( manipulator,% [-

'dentif( and e"#lain an( 2 #ie$es of rele*ant $ase aterial!

Table 0! no chan&e in value of Yuan unli,el( that this will

ha##en in the free ar,et. 1i,el( Chinese authorities were
.fi"ing/ #ri$e of Yuan below e2 #ri$e in fore" ,t

3igure 2! si&nificant rise in *hina,s forei&n e)chan&e

reserves fro 2000 to 2006.
ust ean that Chinese authorities are selling Yuan
4in$rease SS of Yuan in 35 ar,et6 and #ur$hasing
foreign e"$hange 4in$rease DD for 356 o*er the
(ears
e)ert downward pressure on the *alue of the Yuan.
(c) /)plain how (ou would decide whether the low price of *hinese shoes in /"
mar0ets occurred as a result of +dumpin&,% [1

Define du#ing!

Du#ing o$$urs when &oods are sold in

overseas
ar,ets at a price below the mar&inal cost
of production.

Usuall( o$$urs to drive domestic producers

out of the ar,et establish ono#ol(
#ower in the future.
(c) /)plain how (ou would decide whether the low price of *hinese shoes in /"
mar0ets occurred as a result of +dumpin&,% [1

Thesis!
.Ta" e"e#tions) $hea# finan$e or subsidi7ed rent/ 4e"tra$t 06 fro
the Chinese go*t redu$e the #ri$e of e"#orts to EU ar,ets.
1ower #ri$es not due to lower $osts of #rodu$tion) but
deliberate go*ernent #oli$( 4state su##ort6.
Case of du#ing +%-

8ntithesis!
9 1ower in#ut $osts low C:; due to China ha*ing a C.8.
in labour intensi*e industries #rodu$tion su$h as shoes
$o#ared to EU $ountries Not a $ase of du#ing. +%-
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

'ntroduction!
9 'dentif( 'ndian &overnment,s treatment of S$ot$h
whis,e( imposition of tariffs on i#orted drin,s
fro EU
9 'dentif( /" &overnment,s treatment of i#orted
bras .uotas i#osed on te"tile i#orts fro China
'#osition of tariffs and 2uotas are e"a#les of
protectionism (define)
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

3hesis4 5rotectionism is 2ustified in terms of

economic theor(%

3o protect a&ainst infant industr( Potential C.A.

from the industry if no #rote$tion) the industr( unable
to sur*i*e lose an industr( with C.8. in the future.
E$onoi$ welfare not a"iised.

3o protect a&ainst sunset industries protect

domestic producers and high Un if no #rote$tion)
a( result in assi*e Un $ost of Un is high.
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

3hesis4 5rotectionism is 2ustified in

terms of economic theor(%

3o diversif( the econom( reduce reliance

on M #re*ent o*er sus$e#tibilit( to e"ternal
sho$,s.

3o prevent dumpin& a( lead to

inefficient allocation of resources in the LR
due to establishent of monopoly power.
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$
3hesis4 5rotectionism is 2ustified in terms of economic theor(%
'n the $ase of Chinese ade bras) <the Chinese were a$$used of du#ing bras
in the EU ar,et with the hel# of state su##ort in the for of ta" e"e#tions)
$hea# finan$e or subsidi7ed rents=
hared EU #rodu$ers and hen$e the e$ono( in
ters of Un and slow growth
- >estri$tions on i#orts in$rease in dd for Euro#ean
substitutes greater ?ob se$urit( for EU wor,ers) raise
C le*els) i#ro*e @:; #osition 8D and growth in EU
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

3hesis4 5rotectionism is 2ustified in terms of

economic theor(%

'n the $ase of 'ndia) tariffs on S$ot$h Ahis,e( is .u# to

B" that of 'ndian substitute/
in$rease in dd for lo$al substitutes greater ?ob
se$urit( for 'ndian wor,ers C $han$e for 'ndian
doesti$ drin,s industr( gi*en a $han$e to grow
and gain C8 4identified as infant industr( E"tra$t 66
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

6nti7thesis4 5rotection is not 2ustified in terms of

economic theor(
5rotectionism &oes a&ainst the theor( of *6.
Dowe*er) in the $ase of EU) 2uotas i#osed a( be un?ustified.
Ah(E Fa( ha*e fa$ed an erosion of C8 in su$h labour intensi*e inds
while China a( be en?o(ing a $ost ad*antage 4huge #ool of
relati*el( uns,illed wor,ers hen$e lower C:;6 China relatively
more efficient in producing laour intensive goods li!e ras
protectionism leads to inefficient allocation of resources.
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

6nti7thesis4 5rotection is not 2ustified in terms of

economic theor(

Protection of infant industry and sunset industry

should only take place in the short run
'n the $ase of 'ndia/s tariffs on S$ot$h whis,e() #rote$ting
infant industr( logi$al arguent.
Dowe*er it is often diffi$ult to identif( whi$h $urrent
.un#rofitable/ industr( as the one with C8 e*entuall(
$ontinued #rote$tion leads to inefficiency in the LR.
(d) !iscuss whether the 'ndian &overnment,s treatment of Scotch
whis0e( and the /" &overnment,s treatment of imported bras from
*hina can be 2ustified in terms of economic theor(% [$

8verall evaluation4
;rote$tionis ?ustified based on the e$onoi$
theor(E De#ends on reasons for #rote$tionis.

'f $an be #ro*en that du#ing is $ause behind

i#osition of 2uotas #rote$tionis $an be ?ustified
a*oid ineffi$ient allo$ation of resour$es in the 1>.

'ndia/s $ase of #rote$tionis $annot be ?ustified

based on e$onoi$ theor(.
(e)6ssess whether the +&rowin& doubt about &lobalisation,
is well founded9 usin& both the case stud( and (our own
relevant 0nowled&e% [10

:'; 3erm 24
Globalisation