NON-TARIFF BARRIERS

Chapter 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 CANEGRASS 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 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?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
500kilograms (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.
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!

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.

QUOTASWHICH 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.

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.

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.

By the middle of the 1980s, 96% of all new cars sold in Brazil
were running on ethanol.

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.

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.

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

o
CARS-1980S
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 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-autosales.html#autosalesE

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

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

The subsidies allow foreign airline carriers price breaks that make
it more difficult for our airlines to compete globally.

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:

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.

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.

US AGRICULTURE SECTOR AND

In the case of U.S. agriculture, some of this is due to changes in
DUMPING
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:

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
TRADE
BENEFITS

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 TRADE

o

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