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