Non-Tariff Barriers

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Non-Tariff Barriers

• Chapter 4 Daniels Text

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NON-TARIFF BARRIERS

• Import quotas or just quotas
• Voluntary Export Restraints (VER)
• Export Subsides and Countervailing Duties (CVDs)
• Dumping
• Other such as Health and Safety Standards, Buy
  American legislation, etc.

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Sugar canegrass and sugar cane after harvest
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Fast facts sugar market (info taken from 2010
Outlook of the U.S. and World Sugar Markets,
2009-2019 Richard D. Taylor and Won W. Koo)

• Sugar is produced in over _______ countries
  worldwide.
• Sugarcane is a perennial grass that is produced
  in tropical and subtropical climate zones.
• In the US
• Internationally,
• It matures in 12 to 16 months. Once the cane is
  harvested, the sucrose starts breaking down
  immediately.
• Therefore, sugarcane mills are located close to
  the cane fields to minimize transport costs and
  sucrose losses. Mills convert sugarcane into raw
  sugar which is shipped to refineries for further
  processing.

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Harvesting sugar caneby hand

• Sugarcane is harvested by hand and mechanically.
• Hand harvesting accounts for more than half of
  production, and is dominant in the developing
  world.
• In hand harvesting, the field is first set on
  fire. The fire burns dry leaves(eliminating the
  trash from harvesting) and kills snakes,
  without harming the water-rich stalks and roots.
• http//www.youtube.com/watch?vHpDOR2UfIl0
• http//www.youtube.com/watch?v6JhFXfeDJwM
• Harvesters then cut the cane just above
  ground-level using cane knives or machetes. A
  skilled harvester can cut 500 kilograms (1,100
  lb) of sugarcane per hour.
• http//www.youtube.com/watch?vviR1XdhSGLc

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Harvesting sugar cane--mechanization

• Due to changes in technology, industrialized
  nations now use machinery to harvest sugar cane.
• Use of mechanization increases efficiency (yield
  per day) and eliminates the need for controlled
  burning.
• http//www.youtube.com/watch?vHx2SOZnoMJo

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The world market for sugar

• About 70 of world sugar production is consumed
  domestically which historically has allowed for
  the development of a large export market for the
  largest producers of sugar around the world.
• For the 2005-2009 period, annual global sugar
  production was approximately 154 million metric
  tons.
• The largest sugar producing region
• The US
• U.S. consumption of sugar increased by 20.4 from
  about 8.0 million metric tons in 1992 to 9.4
  million metric tons in 2009 in large part due to
  sweetened beverages and pre-prepared meals.
• In the last 20 years, the average per person
  sugar intake in the US has increased from 26
  pounds to _________________ per year!

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US sugar policy

• The U.S. sugar program was established by the
  Food and Agricultural Act of 1981.
• Several modifications were made by the Food
  Security Act of 1985 the Food, Agriculture,
  Conservation, and Trade Act of 1990 the Federal
  Agriculture Improvement and Reform Act of 1996
  the Farm Security and Rural Investment (FSRI) Act
  of 2002 and the Food, Conservation and Energy
  Act of 2008.
• The core policy tools in the sugar program are a
  loan program (for farmers to supplement income
  when storing sugar due to low world prices),
  import restrictions (quotas), and production
  allotments (controlling quantity supplied).
• U.S. import quotas on raw sugar are now
  implemented as _______________________, implying
  that a specified amount of sugar can be imported
  at the lower of two alternative duty rates.

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Quotaswhich countries get best access to us
export market?

• There are three ways in which the distribution of
  the quota amount (import restrictions) is
  typically determined
• US sugar raw sugar quotas are based on historical
  sales in the US for each country between
  1975-1981 (when the TRQ first went into practice)
• The sugar quota has been allocated among more
  than 40 quota-holding countries,
• allowing imports of specific quantities of sugar
  at first-tier duty rates (the lower rate) then
  open to all countries at second tier rate.
• US quotas for refined sugar, organic sugar and
  others are distributed on a first come, first
  serve basis.

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Brazilsugar ethanol (fuel)

• Brazil is the world's second largest producer of
  ethanol fuel and the world's largest exporter of
  ethanol.
• Together, Brazil and the United States lead the
  industrial production of ethanol fuel, accounting
  together for _____ of the world's production in
  2009.
• In 2009 Brazil produced 24.9 billion liters (6.57
  billion U.S. liquid gallons) representing
  ________ of the world's total ethanol used as
  fuel.
• Brazil is considered to have the world's first
  sustainable biofuels economy and the biofuel
  industry leader with its sugar cane ethanol
• In 2010, the U.S. EPA (Environmental Protection
  Agency) designated Brazilian sugarcane ethanol as
  an advanced biofuel due to its 61 reduction of
  total life cycle greenhouse gas emissions.

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Brazilsugar ethanol continued

• After the first great global oil crisis in 1973,
  the Brazilian government decided to create an
  alternative fuel, ethanol, which would substitute
  for gasoline and do away with the countrys
  nearly total dependence on derivatives of crude
  oil.
• In 1975, a program known as Proalcool was born,
  using the governments resources for the research
  and development into new fuels. The program also
  provided subsidies for sales of the vehicles
  using ethanol and the fuel itself, while also
  reducing taxes.
• By the middle of the 1980s, 96 of all new cars
  sold in Brazil were running on ethanol.
• When global oil prices dropped at the start of
  the 1990s, Brazilians went back to buying
  gasoline cars. By 2003, barely 10 of all new
  cars sold in Brazil were using ethanol.
•  
• In 2004, another revolution took place the
  introduction of new cars that have flexible
  motors known as flex or bi-combustible.
• These cars operate by using either alcohol or
  gasoline, or with a mixture of both fuels in
  various proportions. Because alcohol prices were
  low, consumption of the fuel grew. Car sales
  reflected that pattern. By last December, 73 of
  all cars sold in Brazil were flex cars.

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Advantages of ethanol

• The price of a liter of alcohol is
  ______________lower than the price of gasoline in
  Brazil.
• Motors using ethanol consume more fuel per mile
  than gasoline motors, but it costs 30 less to
  market ethanol compared to gasoline.
• In addition,
• This industry in Brazil has created more than
  _____ ____________ jobs for its citizens and
  reduced reliance on petroleum products from other
  countries (improving trade balance).

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Voluntary export restraints (VERs)

• Just like an absolute quota (restricting quantity
  of imports of a particular kind)
• The difference is that quotas are legislatively
  determined and take a long time to enact and once
  enacted they are difficult to repeal
• VERs are voluntary so they are not monitored by
  the international community 

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Ver example US and japanese cars-1980s

• 1980s, US auto manufacturers were facing strong
  competition from Japanese cars for three primary
  reasons
• _________________________early in the decade and
  the resulting increases in demand for more
  fuel-efficient vehicles gave Japanese automakers
  an advantage over domestic producers, because
  Japanese vehicles were smaller and more fuel
  efficient
• the average fuel economy of Japanese cars and
  trucks sold in the United States was 5 miles per
  gallon greater than that of American vehicles in
  the 1980s.
• within the small-car segment, ____________________
  __ _________________________ during that
  decade, Japanese automakers enjoyed substantial
  cost advantages that allowed them to sell
  comparable vehicles at lower prices. 
• Sales of vehicles imported from Japan made up
  17-22 of overall US sales in the early 1980s.

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• The intense competition from Japanese brands
  generated calls for trade protection.
• An already existing ____________________ on
  trucks protected the truck segment of the US
  market. The US asked Japan to voluntary restrict
  (or reduce) the number of cars exported to the
  US.
• Like a quota, this effectively reduce the supply
  of cars in the US and increases the price (less
  competition) helping the domestic producers.
• Beginning in 1981, the Japanese agreed to
  voluntary export restraints on their automobile
  imports to the U.S. market.
• Initially, the program allowed just 1.68 million
  Japanese automobiles into the United States each
  year.
• The cap was raised to 1.85 million per year in
  1984 and to 2.3 million in 1985, where it
  remained through the end of the decade.
• However, the cap applied only to imports from
  Japan and did not include any sales of
  automobiles that Japanese firms produced in the
  United States.

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Unintended consequence of the trade restriction

• The VERs didnt apply to Japanese cars MADE in
  the US.
• Beginning in 1982 with Hondas Marysville plant
  in Ohio, Japanese automakers began to shift
  production from Japan to the United States.
• By 1990, sales of vehiclesautos and light
  trucksproduced at these so-called transplants
  accounted for nearly 10 percent of all
  light-vehicle sales.
• Taken together, sales of Japanese vehicles
  produced in Japan and sales of those manufactured
  in the United States grew over the 1980s and by
  1990 made up more than 25 percent of overall
  sales.
• Toyota Motor Corp (TMC)
• In 2008, TMC was ranked the ________largest
  company in the world by Fortune Global 500.
• Now third in US market behind GM and Ford
  (overtook Chrysler)
• http//online.wsj.com/mdc/public/page/2_3022-autos
  ales.htmlautosalesE

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Export Subsidies

• Export subsidy
•  
• This promotes exports and increases revenue for
  domestic firms (makes them more competitive)
• Effects of the export subsidy
• Subsidy increases domestic production and
  therefore increases global supply and exports.
• Because global supply increases,
  _______________________________
• The lower price causes the foreign producers to
  produce less (worse off) and consumers import
  more at the lower price (better off).
• President Bush enacted subsidies for steel
  industry in US Japan has export subsidies on
  steel common in agriculture

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Current example-2010 subsidies in airline industry

• The US Import-Export Bank, the agency that
  provides subsidies to US companies exporting
  products, currently subsidize foreign airline
  carriers in their purchases of Boeing (US)
  planes. Same is true in Europe for Airbus.
• These subsidies are not granted to airlines who
  are headquartered in countries where Boeing and
  Airbus planes are manufactured
• This includes US carriers like Delta, United, etc
  because Boeing is based in Chicago.
• The subsidies allow foreign airline carriers
  price breaks that make it more difficult for our
  airlines to compete globally.
• For example, Delta paid an average rate of
  interest of 9 to purchase planes from Boeing
  whereas, subsidized carriers paid only 3.47
  interest!
• Issue becomes protecting one US industry
  (airplane manufacturing) at the expense of
  another (airline carriers)

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Other Non-Tariff barriers

• Countervailing Duties
• If Japan has an export subsidy for steel that
  effectively lowers their price and makes it
  difficult for US firms to compete then
• The US government may enact a CVD which would tax
  steel coming into the US from Japan.

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dumping

• Dumping
• In some cases,
• In other situations,
• US agriculture is often under investigation for
  dumping. In 2003,
• US wheat was exported at 28 percent below its
  cost of production,
• soybeans were dumped at 10 percent,
• corn was dumped at 10 percent,
• cotton was dumped at 47 percent and
• rice was dumped at 26 percent.

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US agriculture sector and dumping

• In the case of U.S. agriculture, some of this is
  due to changes in regulations
• After ___________________________________________
  many government programs used to control supply
  and maintain prices of commodities were
  eliminated.
• As a result there is a massive overproduction of
  commodities resulting in _________________________
  ___________ After supplying product domestically,
  firms attempt to get any price (revenue) from
  exports to cover expenses.
• US agriculture firms receive _____________________
  from US government (covering part of their
  production and transportation costs to export
  markets) which also allows them to lower price
  below cost and not always lose money.

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Trade benefits

• Trade benefits
• Comparative advantage remains the major driver of
  global trade flows increasing efficiency and
  providing benefits to countries and their
  citizens.
• Trade expansion has fueled faster growth and
  raised incomes in countries that have
  liberalized.
• Studies find that a _____percentage-point gain in
  trade as share of the economy raises per capita
  income by ____ percent.
• Global elimination of all barriers to trade in
  goods and services would raise global income by
  2 trillion and U.S. income by almost 500
  billion.
• Competition from trade delivers lower prices and
  more product variety to consumers.
• Americans are 300 billion better off today than
  they would be otherwise because of the greater
  product variety from imports.

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Costs of barriers to trade

• Trade barriers impose large, net costs on the
  U.S. The cost to the economy per job saved in
  protected industries far exceeds the wages paid
  to workers in those jobs.
• Study by Dallas Federal Reserve Bank
• How much does it cost to protect a job?
• An average of ____________________, figured
  across just 20 of the many protected industries
  here in the US.
• Costs range from 132,870 per job saved in the
  costume jewelry business to 1,376,435 in the
  benzenoid chemical industry.
• Protectionism costs U.S. consumers nearly
  __________________. It increases not just the
  cost of the protected items but downstream
  products as well.
• Example Protecting sugar raises candy and soft
  drink prices protecting lumber raises
  home-building costs protecting steel makes car
  prices higher and so forth.

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Class handout from dallas fed