Transcript Non-Tariff Barriers

NON-TARIFF BARRIERS
Chapter 4: Daniels Text
NON-TARIFF BARRIERS
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Import quotas or just “quotas”
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Voluntary Export Restraints (VER)
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Export Subsides and Countervailing Duties
(CVDs)
Dumping
Other such as Health and Safety Standards,
“Buy American” legislation, etc.
SUGAR CANE—GRASS AND SUGAR CANE AFTER HARVEST
FAST FACTS: SUGAR MARKET (INFO TAKEN FROM “2010 OUTLOOK OF
THE U.S. AND WORLD
WON W. KOO)
SUGAR MARKETS, 2009-2019” RICHARD D. TAYLOR AND
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Sugar is produced in over _______ countries worldwide.
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Sugarcane is a perennial grass that is produced in
tropical and subtropical climate zones.
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In the US:
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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.
HARVESTING SUGAR CANE—BY HAND
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Sugarcane is harvested by hand and mechanically.
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Hand harvesting accounts for more than half of production,
and is dominant in the developing world.
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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.
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http://www.youtube.com/watch?v=HpDOR2UfIl0
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http://www.youtube.com/watch?v=6JhFXfeDJwM
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.
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http://www.youtube.com/watch?v=viR1XdhSGLc
HARVESTING SUGAR CANE-MECHANIZATION
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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?v=Hx2SOZnoMJo
THE WORLD MARKET FOR SUGAR
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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.
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For the 2005-2009 period, annual global sugar production was
approximately 154 million metric tons.
o
The largest sugar producing region:
o
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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.
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In the last 20 years, the average per person sugar intake in the US has
increased from 26 pounds to _________________ per year!
US SUGAR POLICY
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The U.S. sugar program was established by the Food
and Agricultural Act of 1981.
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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.
QUOTAS—WHICH 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:
o
1.
2.
3.
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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)
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The sugar quota has been allocated among more than 40 quota-holding
countries,
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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.
BRAZIL—SUGAR ETHANOL (FUEL)
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Brazil is the world's second largest producer of
ethanol fuel and the world's largest exporter of
ethanol.
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Together, Brazil and the United States lead the industrial
production of ethanol fuel, accounting together for _____ of
the world's production in 2009.
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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.
BRAZIL—SUGAR ETHANOL CONTINUED
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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 country’s
nearly total dependence on derivatives of crude oil.
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By the middle of the 1980s, 96% of all new cars sold in Brazil
were running on ethanol.
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In 1975, a program known as “Proalcool” was born, using the
government’s 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.
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 “bicombustible.”
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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.
ADVANTAGES OF ETHANOL
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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).
VOLUNTARY EXPORT RESTRAINTS (VERS)
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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
VER EXAMPLE: US AND JAPANESE CARS-1980S
o
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1980s, US auto manufacturers were facing strong competition from
Japanese cars for three primary reasons:
1.
_________________________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
2.
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.
3.
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.
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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.
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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
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The VERs didn’t apply to Japanese cars MADE in the US.
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Beginning in 1982 with Honda’s Marysville plant in Ohio, Japanese automakers
began to shift production from Japan to the United States.
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By 1990, sales of vehicles—autos and light trucks—produced at these so-called
“transplants” accounted for nearly 10 percent of all light-vehicle sales.
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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)
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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-autosales.html#autosalesE
EXPORT SUBSIDIES
Export subsidy:
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This promotes exports and increases revenue for domestic firms (makes
them more competitive)
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Effects of the export subsidy:
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Subsidy increases domestic production and therefore increases global
supply and exports.
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Because global supply increases, _______________________________
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The lower price causes the foreign producers to produce less (worse off)
and consumers import more at the lower price (better off).
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President Bush enacted subsidies for steel industry in US; Japan has
export subsidies on steel; common in agriculture
CURRENT EXAMPLE-2010 SUBSIDIES IN AIRLINE
INDUSTRY
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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
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The subsidies allow foreign airline carriers price breaks that make
it more difficult for our airlines to compete globally.
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This includes US carriers like Delta, United, etc because Boeing is
based in Chicago.
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)
OTHER NON-TARIFF BARRIERS
Countervailing Duties:
o
If Japan has an export subsidy for steel that
effectively lowers their price and makes it
difficult for US firms to compete then
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US government may enact a CVD which
would tax steel coming into the US from
Japan.
DUMPING
Dumping:
o
o
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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.
US AGRICULTURE SECTOR AND DUMPING
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In the case of U.S. agriculture, some of this is due to changes in
regulations
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After ___________________________________________ many
government programs used to control supply and maintain
prices of commodities were eliminated.
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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.
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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.
TRADE BENEFITS
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Trade benefits:
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Comparative advantage remains the major driver of global
trade flows increasing efficiency and providing benefits to
countries and their citizens.
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Trade expansion has fueled faster growth and raised incomes
in countries that have liberalized.
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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.
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Americans are $300 billion better off today than they would be
otherwise because of the greater product variety from imports.
COSTS OF BARRIERS TO TRADE
o
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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:
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How much does it cost to protect a job?
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An average of ____________________, figured across just 20 of
the many protected industries here in the US.
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Costs range from $132,870 per job saved in the costume jewelry
business to $1,376,435 in the benzenoid chemical industry.
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Protectionism costs U.S. consumers nearly __________________.
It increases not just the cost of the protected items but
downstream products as well.
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Example: Protecting sugar raises candy and soft drink prices;
protecting lumber raises home-building costs; protecting steel makes
car prices higher; and so forth.
CLASS HANDOUT FROM DALLAS FED