NON-TARIFF BARRIERSChapter 4: Daniels Text

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.

SUGAR CANE—GRASS AND SUGAR CANE AFTER HARVEST

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.

HARVESTING SUGAR CANE—BY 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?v=HpDOR2UfIl0

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. http://www.youtube.com/watch?v=viR1XdhSGLc

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?v=Hx2SOZnoMJo

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.

o The largest sugar producing region:

o 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!

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.

QUOTAS—WHICH COUNTRIES GET BEST ACCESS TO US EXPORT MARKET?o There are three ways in which the distribution of the quota

amount (import restrictions) is typically determined:1.

2.

3.

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.

BRAZIL—SUGAR 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.

BRAZIL—SUGAR 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 country’s nearly total dependence on derivatives of crude oil. 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.

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.

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).

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 

VER EXAMPLE: US AND JAPANESE CARS-1980So 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.

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.

UNINTENDED CONSEQUENCE OF THE TRADE RESTRICTION The VERs didn’t apply to Japanese cars MADE in the US. Beginning in 1982 with Honda’s Marysville plant in Ohio, Japanese

automakers began to shift production from Japan to the United States.

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.

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-autosales.html#autosalesE

EXPORT SUBSIDIESExport 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

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)

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

The US government may enact a CVD which would tax steel coming into the US from Japan.

DUMPINGDumping:

o In some cases,

o 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 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.

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.

COSTS OF BARRIERS TO TRADEo 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.

CLASS HANDOUT FROM DALLAS FED