1. Policy in a Global Setting (Chs. 5, 6) Trade concepts and global equilibrium Trade concepts and global equilibrium Restrictive trade policy impacts Restrictive trade policy impacts Domestic commodity impacts on other countries Domestic commodity impacts on other countries The World Trade Organization (WTO) The World Trade Organization (WTO) U.S. food and ag. policy in a general world policy setting U.S. food and ag. policy in a general world policy setting

2. Trade and global equilibrium Figure A5.2 in textbook Figure A5.2 in textbook Without restrictions, world price determined in world market Without restrictions, world price determined in world market Gains from trade Gains from trade –Exporting countries export at world price higher than domestic isolation price –Importing countries import at world price lower than domestic isolation price

3. Restrictive trade policy impacts Import quotas (Fig. A5.3) Import quotas (Fig. A5.3) Import tariffs (Fig. A5.4) Import tariffs (Fig. A5.4) Export subsidies (Fig. A5.5) Export subsidies (Fig. A5.5) Exchange rate manipulation (Fig. A5.6) Exchange rate manipulation (Fig. A5.6)

4. Other restrictions Sanitary & health restrictions Sanitary & health restrictions State trading State trading

5. U.S. food & ag. policy in a general world policy setting Ag. policy not independent of trade, other economic, foreign, defense policies Ag. policy not independent of trade, other economic, foreign, defense policies Increasingly the case with “globalization”—economic, market, and policy integration on a global scale. Increasingly the case with “globalization”—economic, market, and policy integration on a global scale.

6. Economic integration Remove barriers to commercial interaction Remove barriers to commercial interaction Allows buying & selling of goods & services and the free flow of resources (labor, capital) Allows buying & selling of goods & services and the free flow of resources (labor, capital) It facilitates the coordination of economic policies It facilitates the coordination of economic policies

7. Market integration Allows the flow of goods between countries on the same terms as within countries Allows the flow of goods between countries on the same terms as within countries Main requirement is the absence of barriers to entry and exit of resources Main requirement is the absence of barriers to entry and exit of resources

8. Policy integration Consists of a common set of policies, laws, & regulations Consists of a common set of policies, laws, & regulations

9. Current major globalization issues (observable in WTO) Market access (lower import barriers) Market access (lower import barriers) Export subsidies (reducing/eliminating) Export subsidies (reducing/eliminating) Trade distorting domestic policies Trade distorting domestic policies Economic development, particularly in the LDCs Economic development, particularly in the LDCs

10. WTO Internatl. Monetary Conference in 1944 created the IMF & World Bank Internatl. Monetary Conference in 1944 created the IMF & World Bank Failed effort for an international trade organization resulted in GATT in 1947—bring more order to world trade Failed effort for an international trade organization resulted in GATT in 1947—bring more order to world trade –GATT’s strength came from Most Favored Nation principle –GATT’s offices (now WTO) in Geneva, Switzerland

11. WTO (cont.) Over time, GATT had major impact on lowering trade barriers in manufactured goods Over time, GATT had major impact on lowering trade barriers in manufactured goods Among industrialized countries, average tariffs on manufactured goods fell from 40% in 1964 to 5% in 1979 Among industrialized countries, average tariffs on manufactured goods fell from 40% in 1964 to 5% in 1979

12. WTO (cont.) GATT Rounds GATT Rounds –Geneva (1947) –Annecy (1949) –Torquay (1951) –Geneva (1956) –Dilion (1960/61) –Kennedy (1964-1967) –Tokyo (1974-1979) –Uruguay (1986-1993) –Doha (2001--)

13. WTO (cont.) GATT evolved into WTO during the Uruguay Round (1994) GATT evolved into WTO during the Uruguay Round (1994) –Included ag. trade for the first time –Gave WTO Commission power to enforce agreements, resolve disputes

14. WTO classifies programs into 4 categories “Green box”—minimally trade distorting; no concern. (Research/extension, income support not tied to production) “Green box”—minimally trade distorting; no concern. (Research/extension, income support not tied to production) “Blue box”—minimally trade distorting because production constraints prevent farmers from increasing output in response to subsidies “Blue box”—minimally trade distorting because production constraints prevent farmers from increasing output in response to subsidies

15. 4 categories (cont.) “Amber box”—domestic supports that distort market prices and trade (input subsidies, price supports w/o production controls, direct payments linked to production) “Amber box”—domestic supports that distort market prices and trade (input subsidies, price supports w/o production controls, direct payments linked to production) “Red box”—strictly prohibited (none specified yet) “Red box”—strictly prohibited (none specified yet)