Re: Subsidies ...

From: (Jean-Francois Mezei)
Organization: DECUServe
Date:         21 Mar 96 02:38:03 
References:   1 2 3
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There has been talk about how certain countries become unfairly competitive
(hence the word subsidy) because of their currency.

When the canadian dollar drops and makes our wood EXTREMELY competitive, the
USA cries foul and decides that our way of allocating forests to timber
companies is a subsidy and hence forces extra taxes on our exports to the USA
(since they hurt USA based timber companies).

But when the USA dollar drops and makes US products very competitive abroad, it
is, of course, not considered a subsidy.

My problem is that the USA mis-uses the term "subsidy" and has abused it so
much that it is a case of the cry-wolf syndrome. When the USA says the word
"subsidy", those outside that country just respond "yeah, another complaint
from the USA about its own industry not being competitive".

As far as currency control is concerned, some have stated that currency is
purely inthe hands of the markets made of of thousands of small investors.
1- Some governments have direct control over currency exchange.
2- Some government have direct control over interest rates in their country.
3- Most governments have a good say in the interest rates (at least).
4- Almost all governments have control over monetary policies.

All of the above have direct repercussions on the value of that country's
currency against others. In the case of the USA, the chairman of the federal
reserve may not report directly to the president and may have a mind of his
own, but he still represents the USA government. He has enough power to affect
other currencies as well. So, please do not state that currency values are
dicated solely by market demands. The markets react to government monetary
policies. And I will not even get in to the big speculators which can also
help sway a currency one way or the other.