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 1930s, 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
  1920s 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.

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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 GATTs 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.

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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.

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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.