Policy in a Global Setting (Chs. 5, 6)

1. Policy in a Global Setting (Chs. 5, 6) • Trade concepts and global equilibrium • Restrictive trade policy impacts • Domestic commodity impacts on other countries • The World Trade Organization (WTO) • U.S. food and ag. policy in a general world policy setting

2. Trade and global equilibrium • Figure A5.2 in textbook • Without restrictions, world price determined in world market • Gains from trade • Exporting countries export at world price higher than domestic isolation price • Importing countries import at world price lower than domestic isolation price

3. Restrictive trade policy impacts • Import quotas (Fig. A5.3) • Import tariffs (Fig. A5.4) • Export subsidies (Fig. A5.5) • Exchange rate manipulation (Fig. A5.6)

4. Other restrictions • Sanitary & health restrictions • State trading

5. U.S. food & ag. policy in a general world policy setting • Ag. policy not independent of trade, other economic, foreign, defense policies • Increasingly the case with “globalization”—economic, market, and policy integration on a global scale.

6. Economic integration • Remove barriers to commercial interaction • Allows buying & selling of goods & services and the free flow of resources (labor, capital) • It facilitates the coordination of economic policies

7. Market integration • Allows the flow of goods between countries on the same terms as within countries • Main requirement is the absence of barriers to entry and exit of resources

8. Policy integration • Consists of a common set of policies, laws, & regulations

9. Current major globalization issues (observable in WTO) • Market access (lower import barriers) • Export subsidies (reducing/eliminating) • Trade distorting domestic policies • Economic development, particularly in the LDCs

10. WTO • Internatl. Monetary Conference in 1944 created the IMF & World Bank • Failed effort for an international trade organization resulted in GATT in 1947—bring more order to world trade • GATT’s strength came from Most Favored Nation principle • GATT’s offices (now WTO) in Geneva, Switzerland

11. WTO (cont.) • Over time, GATT had major impact on lowering trade barriers in manufactured goods • Among industrialized countries, average tariffs on manufactured goods fell from 40% in 1964 to 5% in 1979

12. WTO (cont.) • GATT Rounds • Geneva (1947) • Annecy (1949) • Torquay (1951) • Geneva (1956) • Dilion (1960/61) • Kennedy (1964-1967) • Tokyo (1974-1979) • Uruguay (1986-1993) • Doha (2001--)

13. WTO (cont.) • GATT evolved into WTO during the Uruguay Round (1994) • Included ag. trade for the first time • Gave WTO Commission power to enforce agreements, resolve disputes

14. WTO classifies programs into 4 categories • “Green box”—minimally trade distorting; no concern. (Research/extension, income support not tied to production) • “Blue box”—minimally trade distorting because production constraints prevent farmers from increasing output in response to subsidies

15. 4 categories (cont.) • “Amber box”—domestic supports that distort market prices and trade (input subsidies, price supports w/o production controls, direct payments linked to production) • “Red box”—strictly prohibited (none specified yet)