CASE ANALYSIS: Agricultural Subsidies
Case Analysis Read the CASE ANALYSIS: Agricultural Subsidies (page 144).
Write a 5 page paper (1500 or morewords) in APA format in response to these questions at least siting four peer reviewed journals articles
a. Provide an overview of this case analysis; summarize the key points
b.Discuss how the Uraguay Round and the Doha Development Agenda impact agricultural subsidies.
c.Discuss the findings in Table 7.3 (page 145). How would you address the findings in a presentation?
Below is a recommended outline.
4. Cover page (See APA Sample paper)
a.A thesis statement
b.Purpose of paper
c.Overview of paper
6. Body (Cite sources using in â€“ text citations.)
a. Provide an overview of this case analysis; summarize the key points
b. Discuss how the Uraguay Round and the Doha Development Agenda impact agricultural subsidies.
c. Discuss the findings in Table 7.3 (page 145). How would you address the findings in a presentation?
â€“Summary of main points
a. Lessons Learned and Recommendations
â€“ List the references you cited in the text of your paper according to APA format.
(Note: Do not include references that are not cited in the text of your paper)
The Logic of Collective Action
Given that the costs to consumers are so high for each job saved,why do people tol-
erate tariffs and quotas? Ignorance is certainly the case for some goods,but for some
tariffs and quotas,the costs have been relatively well publicized.For example,many
people are aware that quotas on sugar imports cost each man,woman,and child in
the United States between $5 and $10 per year.The costs are in the form of higher
prices on candy bars,soft drinks,and other products containing sugar.Few of us work
in the sugar industry,so the argument that our jobs depend on it is weak at best.
In a surprising way, however, we probably permit our tariffs and quotas
because of a version of the jobs argument.The economist Mancur Olson studied
this problem and similar ones and noticed two important points about tariffs and
quotas.First,the costs of the policy are spread over a great many people.Second,
the benefits are concentrated.For example,we all pay a little more for candy bars
and soft drinks,but a few sugar producers reap large benefits from our restrictions
on sugar imports.Olson found that in cases such as this,there is an asymmetry in
the incentives to support and to oppose the policy.With trade protection,the ben-
efits are concentrated in a single industry and,consequently,it pays for the indus-
try to commit resources to obtaining or maintaining its protection.The industry
will hire lobbyists and perhaps participate directly in the political process through
running candidates or supporting friendly candidates. If people in the industry
think their entire livelihood depends on their ability to limit foreign competition,
they have a very large incentive to become involved in setting policy.
The costs of protection are nowhere near as concentrated as the benefits
because they are spread over all consumers of a product.The $5 to $10 per year
that sugar quotas cost each of us is hardly worth hiring a lobbyist or protesting inWashington. Thus, one side pushes hard to obtain or keep protection, and the
other side is silent on the matter. Given this imbalance, an interesting question
asks why there are not more trade barriers.
C A S E S T U D Y
Agricultural issues have long sparked conflict among the members of the WTO.
Some cases have pitted high-income countries against each other, among them
disputes between the United States and Japan over apples and EU-U.S.disputes
over bananas. More recently, the WTOâ€™s Doha Development Agenda has tried
to address agricultural issues that are central to relations between developing
and industrial countries. In particular, three issues are on the table: tariffs and
quotas (market access), export subsidies given by countries to encourage farm
exports,and production subsidies granted directly to farmers.
Direct subsidies are viewed as harmful because they lead to overproduction,
squeeze out imports,and in some cases result in the dumping of the surplus product
Chapter 7 Commercial Policy 145
TABLE 7.3 Agricultural Subsidies, 2007
(Millions of US$) As a Percent of
Australia 1,827 6
Canada 7,001 18
European Union 134,318 26
Japan 35,230 45
United States 32,663 10
The EU provides the largest subsidies, both in absolute terms and as a share of GDP but
Japanese farmers are more dependent on agricultural subsidies.
Source: OECD, Producer Support Estimate by Country. http://www.oecd.org/tad/support/psecse.
in foreign markets. The original GATT agreement included language on agricul-
ture, but there were so many loopholes that it had little impact. Not until the
Uruguay Round was finalized in 1993,nearly 50 years after the signing of the origi-
nal GATT agreement, were significant changes made in the rules for agricultural
trade. Many quotas were converted to tariffs, and industrial countries agreed to
reduce their direct support for the farm sector by 20 percent.Indirect supports such
as research and development and infrastructure construction were recognized as
While direct-support payments were curtailed, the Uruguay Round left
intact direct payments to farmers that theoretically do not increase production,
are part of a countryâ€™s environmental or regional development plan, or are
intended to limit production. If you think these are a lot of loopholes, you are
right. Consequently, the current round of trade negotiations, the Doha
DevelopmentAgenda,has taken up the issue of agriculture again,and develop-
ing countries in particular are pushing to limit government practices that block
their access to markets in high-income countries or that subsidize production
by industrial countries.
Table 7.3 shows the range of direct-support payments to agricultural producers
in many industrial nations. The twenty-seven members of the EU are grouped
together because their trade and agricultural policies are formulated at the EU
level,not at the national level.In terms of both absolute support and the percent-
age of its GDP that it transfers to farmers,the EU is the biggest subsidizer.Japan
is close in percentage terms but is at about one-half the level in absolute dollar
amounts.The United States is also a large subsidizer, and Canada is similar. Not
all countries subsidize agriculture, however. Australiaâ€™s supports are less than
one-half the level of the United States as a share of GDP, , and despite the lower
support levels,it uses its comparative advantages to be among the top fifteen agri-
cultural exporting countries in the world.
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