There are four things I have to respond to and I do not know how to answer them. The bolded numbers.
In my own opinion, I think export tax is the best method to use because it is capable of controlling inflation in the country by restricting the amount of good entering and leaving the country. By altering the export tax, government can be able to evade inflation in the country. With export taxes, the employees will not ask for more salaries and wages and also what they get will be enough to serve their needs.
1. Given the complexity of taxation systems, and inflation, how will trade regulate inflation?
2. What is the correlation between export tax and labor? Please provide an example of how this is accomplished.
In response to your peers, what is your opinion about the subsidies on which they reported? Do you support your peers’ opinions about the subsidies or not? Justify your answer. Be sure to clearly state your sources in both your initial post and in your answers to peers, using APA style.
3.Because my best friend lives in Bogota, I have decided to look into export subsidies in Colombia. While there are 18 products that Colombia is allowed to subsidize, I am going to look at one of, if not the most, famous one: coffee (WTO, 2004). In particular, I will talk about a raised subsidy on coffee that caused coffee farmers to strike in 2013.
The strike began when farmers asked for more assistance from the government due to lower revenue brought on by poor weather, suffering currency and crop disease. Coffee farmers went on strike, which lead to the Colombian government increasing the subsidies to 115,000 pesos from 60,000 pesos. However, this was not nearly enough. Production costs were 650,000 pesos, and farmers were only receiving 521,000 pesos for 125-kg bags (Colombia, 2013).
While there are cons to subsidies on agricultural products, such as hurting other agricultural businesses that aren’t covered by the subsidy, I ultimately think that this particular move was warranted. Coffee is Colombia’s second highest dollar value export at 6.9% of exports and $2.6 billion in 2017 (Workman, 2018). If that were to fall short, the country could suffer even more.
Export subsidies are government and legislative intervention for exporters, generally through (1) Service subsidy: trade information, trade shows, feasibility studies, foreign representation, etc. (2) Cash subsidy: (a) rebate on imported raw materials and duty-free import of manufacturing equipment ; or (b) drawback as a percentage of the value of exports or direct cash subsidy.
The imposition of export subsidies on foreign import for products are commonly justified by the following:
- Increasing domestic employment as related to production
- Mitigates competition in lower foreign wages for workers
- Protection of infant Industry
- Addressing unfair trade practices by foreign markets. i.e. dumping
- Encouraging domestic production of goods that are deemed critical to the security of the national economy.
4.Export subsidies can be beneficial to the aggregate domestic economy but they tend to be most beneficial, and thus most commonly promoted by, domestic firms facing competition from foreign imports. Higher sales, greater profits, and more income to resource owners drive the desire for intervention. Domestic consumers also benefit with more production and lower prices. However, export subsidies are paid for by domestic taxpayers (Amosweb.com, 2018). Somewhat like robbing Peter to pay Paul.
Cotton, a long time principle crop and traditional foothold in U.S. farming industry, has been a direct beneficiary of export subsidies. At the turn of the century, the move from domestic agriculture to industrialization, post-WWI and the economic depression, brought about legislation and programs to help farmers and address the fall in product prices. Government programs afforded through The Agricultural Adjustment Act of 1938 included: production controls, government purchase of commodities, subsidized sale for export and to domestic consumers, and direct payments in exchange for certain actions such as land idling and destruction of livestock. This paved the way for modern-day Farm Bills in the U.S. and the recurring renewal precedents every 5 years.
After WWII, agricultural exports from the U.S. increase from 4 million tons toe 19 million annually. Export subsidies were used to bring the price of U.S. product price lower than world market and keep domestic prices higher. Moving into the 80s up until the mid-2000s the Export Enhancement Program helped the exporters by awarding cash payments, enabling sales of certain commodities to specified countries at competitive prices.
The 2002 iteration of the US Farm Bill brought additional funding but was believed to be in violation of the WTO guidelines and drew direct scrutiny. Brazil levied claims against the U.S. (world’s third largest cotton producer), noting significant growth over a 10 year period. US cotton shares in world trade grew from 25% to an average 37%. The cotton industry has received large amounts of domestic support; an average of $3.4 billion a year is allocated towards production subsidies. After finding the US Government at fault/in violation in 2010, the WTO and Brazilian Cotton Institute were able come to an agreement to prevent retaliation in the market, including $147.3 million annual payments to the Brazil Cotton Institute
The Brazil Cotton Dispute and export subsidy outcomes proves the interconnectedness and delicate balance of world trade. Whereas protectionist measures in the 20th century were favored to increase domestic development, it’s clear excessive support to domestic commodity programs will now draw international scrutiny (Penn Wharton Public Policy Initiative, 2015).
Protectionist strategy and some sort of regulations are necessary to cover liability in global economics. However, as demonstrated it is not always fair or considerate of all parties involved. While export subsidies seek to mitigate loss and change, for developed countries, it may level a playing field, but for developing nations it intervenes in potential growth and only allow for the big money players to succeed. In 2015 the WTO Members agreed to eliminate all export subsidies, a major achievement that will abolish one of the most trade-distorting measures and level the playing field for U.S. agriculture(Ustr.gov, 2018).
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