Term Paper: Trade Issues Surrounding an Internationally Traded Good

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Trade Issues for Agricultural Products

With market liberalization and globalization, along came a multitude of issues which must be addressed and resolved. As such, since more and more countries are able to freely exchange their products, services, capital and even human resources, international organizations have been established to supervise these operations. Such an organization is the WTO, World Trade Organization, established in 1995 and headquartered in Geneva, Switzerland (Official Website of the WTO, 2008), which is aimed at regulating the international trade of all products and services, including agricultural products.

Product Description

The class of agricultural products encompasses a wide array of products destined for consumption and deriving from activities of working the land and raising animals. "Agricultural products, sometimes also referred to as "food and fiber" products, cover a broad range of goods from unprocessed bulk commodities like soybeans, feed corn, wheat, rice, and raw cotton to highly-processed, high-value foods and beverages like sausages, bakery goods, ice cream, beer and wine, and condiments sold in retail stores and restaurants" (United States Department of Agriculture, 2008).

The list of all agricultural products is far from being exhaustive, but it includes everything from milk and dairy, to vegetables, spice, sugar, meat to such goods such as the Christmas trees. A more detailed classification of the products in the agricultural sector is offered by the Nevada Legislature, which defines the types of products as well as the standards they must comply with in order to be considered qualitatively adequate and be able to be internationally traded. These standards are basically implemented at the time of crossing the border in order to ensure an export control (United Nations Economic Commission for Europe, 2008).

The most relevant standards require for the products traded to be "intact, sound, clean, free from pests, free from damage, abnormal external moisture and any foreign smell or taste; free from blemishes and rancidity and well formed" (United Nations Economic Commission for Europe, 2007).

3. Producers and consumers

The agricultural products are manufactured by numerous individuals and groups in several countries of the globe and address a wide array of customers. Basically, the target market of agricultural products is rather difficult to be segmented as the products are aimed for daily consumption by all inhabitants of the planet. Given that they are the basis for all sorts of foods, the agricultural products address all age and all income categories, regardless of employment status, geographical positioning, demographics and cultural background.

A more and more common feature of the agricultural activities is that they tend to encompass marketing procedures. To better explain, the consumers that once purchased whatever the producer was offering are now changing and increasing their demands, forcing as such the producers to develop and adapt to their requirements (Ballenger and Blaylock, 2003). A most relevant example in this sense is the increasing concern over pests usage and an increased demand for organic foods.

The producers of agricultural goods are those individuals or groups geographically spread across the globe and who engage in activities of working the land in order to retrieve products for the mass consumption of the market. "Agricultural producer means a person regularly engaged in the business of using land for the production of an agricultural commodity or livestock. The term includes persons engaged in agricultural, viticultural, fruit, vegetable, milk, honey, poultry, egg and livestock production. Livestock means cattle, horses, mules, burros, sheep, lambs, poultry, swine, ostrich, llama, alpaca and goats or other animal raised for food, fiber or hide production, and alternative livestock. [...] Agricultural producer does not include a person who breeds or markets animals, birds, or fish for domestic pets nor a person who cultivates, grows, or harvests plants or plant products primarily for his own consumption" (Colorado Department of Revenue, 2002).

The agricultural producers are generally organized into associations of producers, meaning "any association of producers of agricultural products engaged in marketing, bargaining, shipping, or processing" (U.S. Committee on Agriculture, Nutrition and Forestry, 2002). These associations can be local, national or international. A most renowned such international organization is the IFAP, or the International Federation of Agricultural Producers.

4. History of trade disputes

Just like production, the trading of agricultural products is supported and supervised by numerous organizations, such as the International Food and Agricultural Trade Policy Council. The IPC is basically in charge of "agricultural trade negotiations, agricultural and rural development policies and food technology and standards" (Official Website of IPC, 2008). The international organization works in close collaboration with the WTO and supports the idea of a liberalized market for the trade of agricultural goods. The existence of such organizations is compulsory even more due to the rich history of agricultural trade and the numerous events and features affecting the actions.

Agricultural trade within the United States first commenced in the seventeenth century with the export of tobacco. A century later, the country was also exporting rice, indigo, grain, meat and meat products. During this time, the first tariff act came into force. In the nineteenth century, cotton becomes the most traded product and numerous laws are installed to protect and regulate its trade. At the end of the century, the agricultural product accounted for 73% of the country's total exports, with a total annual value of $703 million. Throughout the twentieth century, the exports continued to increase in significance and in total values and numerous acts came into force in order to protect the act of international trading, the products and the parties involved, including the manufacturers, the consumers and other intermediaries. At the end of the century, agricultural exports occupied no more than 15% of the total exports, but their value had increased to an annual amount of $35.6 billion (Agriculture in the Classroom).

But as the growth and development of international agricultural trade continued, the number of disputes increased. And "the number of trade disputes is likely to increase in the future - primarily from less developed countries, arguing that U.S. farm policy is a vehicle by which the United States is dumping export products abroad" (Schmitz, Koo and Moss, 2003). In other words, the United States is accused of exporting agricultural products at extremely low prices, placing as such the local manufacturers in the incapability to compete with the foreign products. This dispute is further more accentuated by a lacking legislature on the matter.

Another major dispute is related to the labeling of the agricultural products which make the subject of international trade. With numerous previous accusations on inadequate labeling, the Farm Security and Rural Investment Act introduced the COOL in 2002. The Country-of-Origin Labeling regulated the information which has to be contained by the products' labels; but this then generated increased costs - about $2 billion in 2004. The dispute regards the recipient of the labeling costs, since "the Food Marketing Institute believes that suppliers should bear the brunt of these types of costs, while many suppliers think the costs should be shifted to the retailers" (Schmitz, Koo and Moss, 2003).

Another important dispute is based on agricultural export subsidies, payments made by governments to support and encourage farmers to exports their products. This process is said to harm the manufacturers in the importing countries, which are then incapable to compete with the low prices of the imported goods. "One of the main export subsidy programs in the U.S. is called the Export Enhancement Program (EEP). Its stated purpose is to help U.S. farmers compete with farm products from other subsidizing countries, especially the European Union, in targeted countries. The EEP's major objectives are to challenge unfair trade practices, to expand U.S. agricultural exports, and to encourage other countries exporting agricultural commodities to undertake serious negotiations on agricultural trade problems. As a result of Uruguay round commitments, the U.S. has established annual export subsidy quantity ceilings by commodity and maximum budgetary expenditures. Commodities eligible under EEP initiatives are wheat, wheat flour, semolina, rice, frozen poultry, frozen pork, barley, barley malt, table eggs, and vegetable oil" (Suranovic, 2003).

The World Trade Organization is increasing their efforts to reduce subsidies in order to create a fair market, free from state interventions and where the rules are made by demand and offer. Currently, 25 countries (Australia, Brazil, Bulgaria, Canada Colombia, Cyprus, the Czech Republic, the European Union, Hungary, Iceland, Indonesia, Israel, Mexico, New Zealand, Norway, Panama, Poland, Romania, the Slovak Republic, Africa, Switzerland-Liechtenstein, Turkey, the United States of America, Uruguay and Venezuela) are allowed by the WTO to subsidize their exports, and only under strict promises and measures to reduce the subsidies in the future; countries which do not intend to reduce them are not allowed to subsidize their exports (Official Website of the WTO, 2008).

5. Present situation and the Doha Round

The Organization for Economic Cooperation and Development allows three measures for the protection and encouragement of agricultural products international trade:

Trade protection that ensures that domestic producer prices exceed international prices (so-called… [END OF PREVIEW]

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