Tarriff PaperEssay Preview: Tarriff PaperReport this essayGlobal Financing and Exchange Rate Mechanisms PaperIn this paper I will examines tariff and non-tariff policies that restrict trade between countries in agricultural commodities. Many of these policies are now subject to important disciplines under the 1994 GATT agreement that is administered by the World Trade Organization (WTO).
The paper is organized as follows. First, tariffs, import quotas, and tariff rate quotas are discussed. Then a series of non-tariff barriers to trade are examined, including voluntary export restraints, technical barriers to trade, domestic content regulations, import licensing, the operations of import State Trading Enterprises (STEs), and exchange rate management policies. Finally, the precautionary principle, an environment-related rationale for trade restrictions, and sanitary and phytosanitary barriers to trade are discussed.
Tariffs and Tariff Rate QuotasTariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from imports.
Tariffs are widely used to protect domestic producers incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods exceeded 30 % in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Trade (GATT). Only in the most recent Uruguay
Introduction BackgroundRound of negotiations were trade and tariff restrictions in agriculture addressed. In the past, and even under GATT, tariffs levied on some agricultural commodities by some countries have been very large. When coupled with other barriers to trade they have often constituted formidable barriers to market access from foreign producers. In fact, tariffs that are set high enough can block all trade and act just like import bans.
A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use strict import quotas. In the United States, important TRQ schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal trade.
Explicit import quotas used to be quite common in agricultural trade. They allowed governments to strictly limit the amount of imports of a commodity and thus to plan on a particular import quantity in setting domestic commodity programs. Another common non-tariff barrier (NTB) was the so-called “voluntary export restraint” (VER) under which exporting countries would agree to limit shipments of a commodity to the importing country, although often only under threat of some even more restrictive or onerous activity. In some cases, exporters were willing to comply with a VER because they were able to capture economic benefits through higher prices for their exports in the importing countrys market.
IssuesIn the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of import quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed to gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus, over time, trade would be taxed at a lower rate and trade flows would increase.
Given current U.S. commitments under the WTO on market access, options are limited for U.S. policy innovations in the 2002 Farm Bill vis a vis tariffs on agricultural imports from other countries. Providing higher prices to domestic producers by increasing tariffs on agricultural imports is not permitted. In addition, particularly because the U.S. is a net exporter of many agricultural commodities, successive U.S. governments have generally taken a strong position within the WTO that tariff and TRQ barriers need to be reduced.
Non-Tariff Trade BarriersCountries use many mechanisms to restrict imports. A critical objective of the Uruguay Round of GATT negotiations, shared by the U.S., was the elimination of non-tariff barriers to trade in agricultural commodities (including quotas) and where necessary, to replace them with tariffs – a process called tarrification. Tarrification of agricultural commodities was largely achieved and viewed as a major success of the 1994 GATT agreement. Thus, if the U.S. honors its GATT commitments, the use of new non-tariff barriers to trade is not truly an option for the 2002 Farm Bill.
Domestic Content RequirementsGovernments have used domestic content regulations to restrict imports. The intent is usually to stimulate the development of domestic industries. Domestic content regulations typically specify the percentage of a products total value that must be produced domestically in order for the product to be sold in the domestic market (Carbaugh). Several developing countries have imposed domestic content requirements to foster agricultural, automobile, and textile production. They are normally used in conjunction with a policy of import substitution in which domestic production replaces imports.
Domestic content requirements have not been as prevalent in agriculture as in some other industries, such as automobiles, but some agricultural examples illustrate their effects. Australia used domestic content requirements to support leaf tobacco production. In order to pay a relatively low import duty on imported tobacco, Australian cigarette manufacturers were required to use 57 % domestic leaf tobacco. Member countries of trade agreements also use domestic content rules to ensure that nonmembers do not manipulate the agreements to circumvent tariffs. For example, North American Free Trade Agreement (NAFTA) rules of origin provisions stipulate that all single-strength citrus juice must be made from 100 % NAFTA origin fresh citrus fruit. Again, as is the case with other trade barriers, it seems unlikely that
[page 5] >Some studies have suggested that a small number of countries will be able to meet domestic content requirements for domestic citrus fruit. However, this appears to vary for a wide range of countries.
[page 6] >For example, the U.S. has had many domestic-industry debates over the role of domestic content requirements in its domestic tobacco industry policies. On numerous occasions American lobbyists and the tobacco industry have argued on behalf of American voters that the use of domestic content requirements, which prevent tobacco companies from being forced to sell more tobacco at lower prices to U.S.-based users, has a negative impact on domestic consumer demand. The U.S. Department of the Treasury has estimated, however, that this report does not include “foreign market access” and does not show that this is the case. The Department also has expressed concerns about the potential for domestic content and product pricing to restrict the availability of domestic markets to the U.S. market.
As noted above, the European Union has also had issues with the effect of domestic content and consumer preferences, though the differences between the two countries were largely largely seen to be ameliorated by the European countries’ implementation of EU tariffs on the sales of tobacco products domestically, in the United States (United States). According to the European Commission, the European Union may have imposed an import duty of 35 % for the purpose of restricting the production of nicotine-containing nicotine products during 2014. At the time that the ban took effect, these products were classified among “non-regulated products in non-regulated categories”(27). As discussed above, the U.S. Trade Representative has also stated that the U.S. will not be able to reduce its imports of tobacco products through the domestic market until the end of 2015. Consequently, it is important to note that the United States has also had experience implementing certain domestic and non-regulated tariff standards during the past 12 years. A 2015 study for the Economic Policy Institute found that the U.S. was able to impose a tariff at a cost of $38.5 billion for all tobacco products produced by U.S. manufacturers, and at the time of the ban an increase of up to 2.58 % of U.S. product sales. Moreover, as noted above, the U.S. does not have the same level of competition among countries in the international tobacco trade than does other developed nations in terms of content requirements.
[page 7] >As indicated above, one could say that tobacco companies will also continue to impose costs and tariffs on U.S. consumers. This has been the case for the past three years. As outlined above, the United States is currently the main buyer of the second-largest number of nicotine products worldwide by a wide margin. This has been the case with a variety of products, some of which are imported to the U.S., but other products produced in or after 2010 have not been developed by the U.S. There are also substantial consumer demands in relation to the products involved that are not met by domestic content laws. Thus, as it stands, there are a number of restrictions for the consumption of nicotine products that could adversely affect those consumers, as seen by recent surveys of U.S. adults (28). The costs of the legal restrictions would