International Trade and Trade Restrictions

1. International Trade and Trade Restrictions Presented By: Nathan Groce And Josh Thurman

2. Introduction • For more than two decades after World War II, international trade of the United States was viewed primarily as a matter of rapidly expanding export markets and to acquisition of foreign assets by U.S. investors. • Over a relatively short time the U.S. economy experienced a transition to a state of considerable international interdependence. • International trade is highly important to U.S. agriculture because exports represent approximately ¼ of the total revenue from sales of U.S. farm products. • Both exports and imports have increased over time.

3. Introduction • There are two types of agricultural imports • 1. animal and vegetable products • 2. products not produced here (coffee, bananas, and tea) • Agricultural trade is a key factor in agricultural policy, and there appears to be a strong inverse relationship between the volume of exports of the U.S. farm products and domestic price-support expenditures. • Because U.S. Agriculture is heavily dependent on exporting its products, U.S. farmer have a strong stake in maintaining an open economy.

4. Comparative Advantage • Comparative advantage provides a basis for trade between individuals in different countries. • Comparative advantage is determined by opportunity cost. • If trade is freely permitted, goods will tend to flow across borders until price in any given country differs from the price in other countries only by the amount of transportation cost.

5. Barriers To Trade • Import barriers are the most common form of protectionism and tariffs are a common type of import barrier. • If a per unit tariff is imposed, the price of imports increase, domestic consumption decreases and domestic production increases as the tariff provides a protective umbrella. • The easier it is to make substitutions in consumption and production, the larger the effect of a tariff.

6. Nontariff Barriers • The most inflexible nontariff barrier is the import quota, which sets an absolute limit on the quantity of the product that may be imported. • “Voluntary” import controls represent another means of reducing imports. • Import barriers are harmful to domestic consumers regardless of the means by which imports are restricted. • Some people, in particular agricultural interest, view the United States as free-trade island in a sea of protectionism.

7. Export Subsidies and Restrictions • The price-support and production-control programs instituted during the 1930’s, in which were held above world price levels, resulted in the chronic accumulation of surplus stocks. • To reduce these stocks, there has been pressure over the years to subsidize exports. • The seeds of export subsidies were sown in the 1920’s in the proposed McNary-Haugen bills.

8. Section 32 • Export subsidies began with an amendment to the 1933 AAA, Section 32 which authorized the use of 30 percent of import tariff revenues to subsidize agricultural exports and domestic consumption of “surplus” commodities. • Although section 32 funds are no longer used to pay for export subsidies.

9. Credit Programs Including Public Law 480 • Public Law 480 (PL480), which was a component of the Agricultural Trade Development and Assistance Act of 1954. It is commonly called the Food for Peace Program. • PL 480 was designed to reduce the CCC stocks acquired the price-support programs. • The 480 program has led export subsidies to become strongly embedded in U.S. farm policy

10. Continued • Pl 480 and other export subsidy programs historically have been strongly linked to low farm prices and the disposal of surplus farm products.

11. Other Agricultural Export Subsidies • The Export Enhancement Program (EEP), was initiated in 1985. Under the EEP, exporters are awarded bonus payments. • Dairy Export Incentive Program subsidizes exports of U.S. dairy products for purposes of “market development.”

12. Gatt, The World Trade Organization, and Agricultural Trade Policy • The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty among governments dating from 1947. • The GATT’s purpose was to liberalize and expand trade through negotiated reductions in trade barriers. • The Uruguay Round created the World Trade Organization. • Until the Uruguay Round, agriculture had received special treatment under GATT trade rules through various loopholes, exceptions, and expenditures from most of the disciplines the applied to manufactured goods.

13. Reductions in Agricultural Trade Barriers • The principal agreements achieved under the Uruguay Round include • Reducing the value of export subsidies by 36% and the quantity o products subsidized by 21%. • Reducing the level of domestic subsides to agriculture by approximately 20%. • Converting quotas to tariffs and tariff rate quotas and then phasing them out over a specified number of 6 yrs. • Providing minimum levels of market access for products previously barred from entering specific countries, such as rice into Japan, and then gradually increasing access levels. • Establishing rules to make sanitary and phytosanitary regulations more science based.

14. Technical Restrictions • Some import restrictions affecting foreign producers may be similar to those imposed on domestic producers. • Sanitary and similar measures restrict imports and may be initiated and supported by producer groups for protectionist purposes. • Sometimes it is not clear whether a health and safety regulation resulted from legitimate health concerns or was erected as a barrier to trade.

15. Domestic Agricultural Policies AndInternational Trade • Before the Uruguay Round, an exemption from GATT provisions was in effect for agricultural products. • The United States insisted on the exemption because of its own widespread use of price supports for dairy, sugar, peanuts, and tobacco. • Price supports hamper international trade in two ways. • Price supports, however are not the only source of worldwide distortions in agricultural markets.

16. North American Free Trade Agreement (NAFTA) • NAFTA is a regional trade agreement. • Under NAFTA, the United States, Canada, and Mexico agreed to lower or eliminate barriers to trade with other member countries over a fifteen year period.

17. International Trade and the Elasticity of Demand for Farm Products • The U.S. farm price-support programs were originally developed on the assumptions that the domestic demands for the affected products were inelastic, while world demand was elastic because of greater availability of substitutes. • U.S. farmers reacted strongly to the export boom of the mid- 19702 for farm products.