AGRICULTURAL POLICIES IN U.S. & EUROPE.   Term Paper ID:23689 Click to get this paper

Essay Subject: Evolution of policy, economic theories & systems, pricing, treaties, effects of export subsidies on trade.... More...

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Paper Abstract: Evolution of policy, economic theories & systems, pricing, treaties, effects of export subsidies on trade. Paper Introduction: This paper discusses agricultural subsidies in the United States and the European Community, and their effects on trade between the two trading areas. In this respect, the paper provides a brief overview of the European and U.S. agricultural policies and discusses subsidies in both trading areas and their effects on mutual trade. Countries engage in international trade because it is a mutually beneficial process. At the macro level, national welfare increases. At the micro level, individual exporters earn profits, provide an additional source of employment, and supply convertible foreign exchange which is used to pay for imported goods and services. In terms of national welfare and economic common sense, imports are the ultimate rationale for trade. By definition, a Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. However, since the 196 s, U.S. (3) Consultations. Fluctuating exchange rates made the system of levies andsubsidies unworkable, and so a new system of fixed parities was agreedupon. Chicago: University of Chicago Press, 1996.Shmitz, M., McCalla, A., Mitchell, D., & Carter, C. agricultural policies and discusses subsidies in bothtrading areas and their effects on mutual trade. Gale D. agricultural production inworld markets if the United States attempts to exploit its monopoly power. Furthermore, since one country's imports areanother country's exports, failure to import by country A reduces thesupply of foreign exchange needed by other countries to buy A's exports. Washington, D.C.: American EnterpriseInstitute for Public Policy Research, 1988.Drew, John. The costs and benefits of theCAP are difficult to quantify, since it was developed for a complex rangeof economic, social, political and defense reasons. On the one hand,it consistently has lowered its common external tariff in GATTnegotiations; on the other hand, its common agricultural policy (CAP) hashad a significant impact on the farm trade of the Community, mainly in theform of excluding the competitive farm products of the Unitd States andother agricultural producers. Gale D. Moreover, the1985 legislation made compliance with land conservation provisions of thebill a requirement for continued participation in commodity programs. In1987, some 6 percent of farmland had been put into the conservationreserve, most of it in the western states. Recently, in view of growing world protectionism and the need tomaintain employment, the protectionist aspects of the Community policieswith respect to agricultural production are less criticized. For example, a country withabundant land and labor tends to be an efficient producer of agriculturalgoods, whereas an abundance of capital and a scarcity of labor encouragesefficiency in sophisticated manufacturing that requires laborsavingmachinery. This area is of considerableconcern, because of fluctuations of Community currencies. Agriculture. High tariffs andother barriers to imports increase costs to consumers, lower real incomes,and reduce their freedom at the marketplace. The EEC for its part has been concerned about what it sees as anaggressive stance on steel and agriculture and the lack of U.S.sensitivity on political as well as commercial issues. agricultural policy isstill viewed as less stable than other markets, because of the inelasticityof demand and weather shocks on the supply side, leading to highlyunstable farm incomes. trade policy since the 196 s. Target prices and deficiency payments wereintroduced as a means of transferring income without intervening directlyin commodity markets. From the EC's viewpoint, code-based restrictions on its exportsubsidies on agricultural products or on the agricultural-product componentof processed goods are completely unacceptable. Closer economic relations with the EEC have been the overall priorityitem of the U.S. During that period, both the United States and the EC (the latterthrough its Common Agricultural Policy) offered roughly equivalent levelsof subsidy supports to their respective farming communities, with eachspending about $25 billion and more per year by the middle of thedecade.[vii] However, whereas the United States predominantly sought toabsorb the costs of its farm support programs through domestic taxes,central elements of the CAP have been variable levies on most agriculturalimports and external venting of at least a significant part of ECagricultural surpluses through the use of export subsidies. "Agricultural Policy for the 198 s". Commoditiesimported into the United States, such as sugar, citrus juices, dairyproducts, wool, and meats, are protected by means of tariffs orquantitative restrictions on imports. However,the main highlight of U.S. Cambridge, MA: Ballinger, 1981.Tracy, Michael. In terms of business, the relationship between the Community and theUnited States is a close one. Systematic programs to support agricultural commodity prices datefrom the initial New Deal legislation of 1933.[v] Wheat was one of theoriginal "basic" commodities supported (the others were cotton, corn, hogs,rice, tobacco, and milk). Endnotes BibliographyAntle, John M. Although the GATT is the central international organization concernedwith trade, a number of important regional organizations have come on thescene. Cooperation Among Nations. Washington, D.C.:Institute for International Economics, 1987.Johnson, Gale D. London:Butterworths, 1983.Grieco, Joseph M. Genappe,Belgium: Agricultural Policy Studies, 1993.-----------------------John M. When exchangerates were fixed, so also were Community prices, in terms of the nationalcurrencies. One of the major sources ofprice disciplines and incentives for innovation by domestic industry isimport competition. While not fundamentally different from previous farm legislation, the1985 farm bill differed from its predecessors of the 196 s and 197 s in itsconservation provisions. The CAP accounts for about 7 percent of the Community's totalbudget, indicating that this area is where European integration has gonethe furthest. prices above corresponding world market levels. The CAP protects Community farmers against cheap importsfrom other countries by a system of import levies. Thispolitical scene also explains why in many countries agricultural policycreates inefficiencies in production, resulting in producing other goodsthat have an economic advantage in international trade. The system of international trade which has evolved since the end ofWorld War II has sought to reduce governmentally imposed trade barriers anddistortions as fast as political sensitivities would allow. This paper discusses agricultural subsidies in the United States andthe European Community, and their effects on trade between the two tradingareas. Hence the chronic problem of surplusproduction in the United States and other countries (notably those of theEC) using this kind of policy. U.S. The attempt to keep the EECoutward-looking was the basis for the United States to play a leadershiprole in promoting trade liberalization ever since the passage of the TradeAgreements Program in 1934. The Food and Agricultural Act of 1965 introduced policymodifications that have remained in place until now.[i] Price supportswere allowed to follow shifts in market conditions more closely, andincomes were supported through direct payments to farmers in connectionwith acreage control. Johnson, n.p. By absorbing domestic demand, imports areintrinsically deflationary. No new trade barriers should be implementedunannounced. The EC's policy regarding agricultural export subsidies eventuallyled to American actions during the mid-198 s suggesting that the UnitedStates itself had become concerned about relative achievements of gainsgenerated by the Subsidy and Countervailance Measures agreement. As U.S.export market shares declined in the early 198 s, foreign agriculturalassistance for agricultural research became controversial. Food and Agriculture in a Market Economy. The policy is mainlyconcerned with markets rather than structures.[iv] It operates more orless successfully, and the agricultural market support system for virtuallyall farm products is integrated through it. The most significant of these regional trade groups is the customsunion formed by the European Economic Community (EEC), often referred to asthe Common Market. Countries engage in international trade because it is a mutuallybeneficial process. Johnson, n.p.(Washington, D.C.: American Enterprise Institute, 1981).Andrew Shmitz and others, Grain Export Cartels (Cambridge, MA:Ballinger, 1981), n.p.John Drew, Doing Business in the European Community (London:Butterworths, 1983), 19.Anne O. Existing and potential trade disputes should besubmitted for consultation. "Agriculture and the GATT: Rewriting the Rules".Policy Analyses in International Economics. Policymakers have argued that a pricesupport or an output control policy is desirable because the United Statespossesses market control in the international commodity markets.[iii]However, the recent experience with wheat shows that the U.S. In the European Economic Community, agricultural policy has beendictated by the Common Agricultural Policy (CAP). Gale Johnson, "Agricultural Policy for the 198 s," in Foodand Agricultural Policy for the 198 s, ed. It sets in ECU commonprices throughout the Community, which are then transposed into nationalcurrencies through green rates of exchange. It created the Conservation Reserve Program,whose goal was to remove from production land that was highly erodible,estimated to be as much as 1 percent of total cropland. and European Community trade relations remainsthe serious imbalance in agricultural products. Moreover,with agricultural development continuing throughout the world, a growingglobal productive capacity can replace the U.S. Grain Export Cartels. This in turn meansan increased standard of living in the importing country. New York: CornellUniversity Press, 199 .Hathaway, Dale E. Agriculture (Washington, D.C.: American EnterpriseInstitute for Public Policy Research, 1988), 84.D. Tariffs, not quotas, are the sanctioned meansof protecting domestic industries from foreign competition. The ultimate basis for international trade is price differentiation.Each country is endowed with a different relative mixture of the factors ofproduction. monopolypower is indeed limited by the large amount of land around the world thatcan be converted to wheat cultivation when the price is high. The three basic principles ofGATT follow: (1) Nondiscrimination. Antle, World Agricultural Development and the Future ofU.S. Realismand neoliberal institutionalism can both claim to have the capacity toaccount for the EC's acceptance of support for the customs and anti-dumpingaccords, the countervailing measures half of the subsidies agreement, aswell as the EC's hostile attitude toward international discipline over theuse of agricultural export subsidies. The Political Economy of American Trade Policy. Subsequent to its creation in 1948, the General Agreement onTariffs and Trade (GATT) has served as the negotiating and moral focalpoint for efforts at trade liberalization. Grieco, Cooperation Among Nations (New York: CornellUniversity Press, 199 ), 177-18 .Dale E. Modern U.S. Doing Business in the European Community. Throughout the 198 s, the European Community resolutely opposed anaggressive interpretation of the subsidies rules contained in the Subsidiesand Countervailing Measures Code.[vi] One of the specific code obligationsto which the EC ascribed a minimalist interpretation involved thenotification of subsidies. (2) Tariff protection. Obtaining goods from abroad at cheaper prices increases consumers'buying power, and, as a consequence, real incomes rise. Allindustrialized countries have accepted in principle the advantages of freertrade. By definition, a good is unlikely to beimported unless it meets at least one of three criteria: (1) it is cheaperthan domestically produced counterparts; (2) it is of better quality thanits domestic competition; or (3) it is either unavailable or in shortsupply in the domestic market. The United States has beenconcerned about EEC export subsidies on sugar, wheat, flour and other farmproduce. The 1977 Food Bill reportedly based target prices onthe cost of production, a difficult task since major components of the costof production, notably land rents, themselves depend on products' prices.Difficulties associated with the setting of target prices continued toplague the writing of the 1981 and 1985 farm bills.[ii] Other important components of the U.S. In a closed economy, a policy that keeps prices above marketequilibrium for a substantial period inevitably encourages productionbeyond market clearing levels. Krueger, The Political Economy of American Trade Policy(Chicago: University of Chicago Press, 1996), 291.Joseph M. This EC resistance to anyGATT-based constraints on its agricultural export subsidies appears to havebeen grounded in the actual facts surrounding agricultural trade in the198 s. The ability of a given country to be efficient incertain industrial products (e.g., Japan in electronics and the UnitedStates in computers) cannot be explained adequately only in terms of land,labor, and capital. Wheat continues to be one of the most heavilysupported commodities. Traditionally, differences in the relative abundance orscarcity of land, labor, and capital determined the domestic pricestructure and production possibilities. World Agricultural Development and the Future of U.S. In this respect, the paper provides a brief overview of theEuropean and U.S. Two fundamentalquestions, given the diversity of agriculture across the Community, are towhat extent and how farmers should be supported and whether Europe needs tobe more or less dependent on food imports in the future for reasons ofsecurity, regionalization of world trade or the increasing competitivenessof Third World industry. Both sides pressed for substantial progressin the Tokyo round of the General Agreement on Tariffs and Trade. Hence, the more programs that it notified, the greater the riska signatory ran of becoming a target of partners' countervailing measuresor dispute-settlement actions at the GATT code level. Washington,D.C.: American Enterprise Institute, 1981.Krueger, Anne O. agricultural policy hasgradually moved toward separation of market intervention and incomesupport. At the macro level, national welfare increases. The means of support have been predominantlydomestic market intervention, i.e., government purchases, supply controls,payments to producers, but border measures have inevitably been required tomaintain U.S. agricultural policy during thepast several decades have been the continuing support of public sectorresearch and development as well as agricultural development. The EC's agricultural policy is led by political motives, mostnotably by the discipline over their countries' general employment. Hathaway, "Agriculture and the GATT: Rewriting theRules," Policy Analyses in International Economics (WashingtonD.C.: Institute for International Economics, 1987), 76-77.----------------------- 12 agricultural policy was shaped in the years of the GreatDepression. In terms of national welfare and economic common sense, imports arethe ultimate rationale for trade. In Food andAgricultural Policy for the 198 s, ed. Atthe micro level, individual exporters earn profits, provide an additionalsource of employment, and supply convertible foreign exchange which is usedto pay for imported goods and services. Since international trade today is much more sophisticated thanin simpler times when wine was swapped for cloth, many economists nowaccept a fourth and even a fifth factor of production: technology andmanagerial talent. While the EEC is deeply committed to internal freetrade, it is ambivalent in its policy toward outsiders. Compliance by one's partners with those rulesyielded very important information about those partners' subsidy programs.At the same time, however, one's own compliance involved a risk, fornotifying subsidy programs could be taken as evidence that the programswere affecting trade and might be harming the trading interests ofpartners. Each country's negotiated concessions applyequally to all signatories; i.e., the products of all other countriesreceive the same treatment afforded to the most-favored nation. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.