International ag trade

world trade organization WTO

-geneva switzerland -january 1 1995 -157 countries created by uruguay round negotiations -head is robert azevedo, brazil -administering trade agreements. a) goods, b)services, c) intellectual value

problems with the classical model

-incomplete, doesn't explain why difference in productivity levels exist between countries -prediction that country will completely specialize in the production of exportable goods -greatest gains from trade between countries with dissimilar technologies

protection policies

-protect a new industry -protect national security -protect national health -protect domestic programs -protect balance of payments -improve international terms of trade -protect against unfair trade polices

how substantial are these gains from trade. example japan

-was an autarky till 1858 -specialized in two major exports:silk and tea -in autarky their prices were very low -with trade, prices went up -prices of imports fell with in 12 years foreign trade had increased by 7000%

united states-european union (us-eu)

28 countries

how much of us ag output is exported

30%

trade theories

classical neoclassical modern

walras law

in a world with n markets, if any n-1 markets are in equilibrium, so too will be in the nth marker. The economic process that makes both the triangle equal is known as reciprocal demand

perfect competition

prevails in both industries and in both countries no exteralities in production. mc=price

export tax

tax collected on exported goods. can be set on a specific or an ad valorem basis.

amber box

trade distortion limit- 19 mil/year

absolute advantage

(Adam Smith) every country should specialize/produce the commodity n which they have absolute advantage

comparative advantage

(Richard Ricardo) countries should specialize in their largest absolute advantage

specific import tariff

(fixed rate) is levied as a fixed change per unit of imports

the Heckler-Ohlin theorem

-a country will have comparative advantage in, and therefore will export, that good whose production is relatively intense in the factor with which that country is relatively well endowed

common characteristics of economic behavior

-abstracts from reality -simpler then the real world -not always correct in their explanation or predictions about the behavior

common features of all theories in economics

-can be used to conduct both positive and normative analysis -positive analysis studies economic behavior without making recommendations -normative analysis make value judgements regarding what is or should be

Heckscher-Ohlin model

-countries differ form each other according to the factors of production they possess -goods differ form each other according to the factors that are required in the production -argued that a country will be able to produce at a lower cost then those whose production requires large amounts of factors of production with which the country is relatively well endowed.

how much total us economy is exported

10%

average tariff for agriculture

62%

ARC

ag risk coverage, guarantee revenues based on a five year average- direct payments, income

tariff rate import quota

allow a specified quantity of goods to be imported at a reduced tarrif rate during the specified quota period

factors of production

are perfectly mobile between the two industries within each country

commodity preferences in consumption

can be represented by a consistent set of commodity indifference curves

CCP

counter cyclical payment

COOL

country of origin labeling

true/false: china is planning to change their cotton domestic policy from target prices to stockpiling

false

firms and consumers

firms make decisions based upon profit maximization and consumer maximize utility through consumption decision

terms of trade

free international trade leads to each country to specialize int he production of its comparative advantage good. -production of the good with lower autarky price expands -production and trade follow the line of comp advantage

GMO

genetically modified food

voluntary export restraints

is restriction set by a government on the quantity of goods that can be exported out of the country during an specified period of time. often the word voluntary is placed in quotas because these restraints are typically implemented upon the instances of the importing nations

autarky

isolated country with no imports/exports

ad valorem import tariff

levied as a fixed percentage of of the observed international price of the commodity imported. latin for on value or in proportion to the value

absolute import quota

limit the the quantity of imports to a specified level during a specified period of time

import quotas

limitations on the quality of goods that can be imported into the country during a specified period of time

green box

mini trade distortion- decoupled

import tarrifs

most important

export subsides

payment made by the gov to encourage the export of specific products. can be leveled on a specific or ad valorem basis.

PLC

price loss coverage, would provide support through a price floor set in the farm bill.- direct payments, price

PPF

production possibilities frontier

SCO

supplemental coverage option, will protect farmers form "shallow losses- in other words up to 80 percent of insured crops

SNAP

supplemental nutrition assistance program, or food stamps

economic model

theoretical description of the behavior. verbal and mathematical

TPA

trade promotion authority

TPP

trans pacific partnership, 11 countries