Question 3 - developing country exporters by as much as $7...

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Question 3: Quotas (5 Points) The United States has used quotas to protect its domestic sugar industry. What has been the likely impact of these quotas on the world price of sugar (relative to the price that would exist under free trade)? Explain. -The quotas had the predictable impact on the US sugar market: prices increased and consumption decreased. But the question asks about the world price of sugar. The sugar that the quota eliminated from the US market was subsequently diverted to the world market, and the world price of sugar fell. The US State Department pointed out that those countries (nearly all developing countries) that have a portion of the US sugar quota receive a premium over the world price, and argued that it is a form of "free" foreign assistance. However, studies of the impact of sugar barriers of OECD countries (of which the United States has the most trade- restrictive) estimate that in 1983 liberalization would have raised foreign exchange earnings of
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Unformatted text preview: developing country exporters by as much as $7 billion and provided net welfare gains of up to $2 billion. Question 4: NAFTA (5 Points) In your opinion, why was the formation of NAFTA so controversial in the US, while the formation of Canada-US FTA was little noticed by most Americans?-The main opposition to the formation of NAFTA came from those who feared that lowering barriers to trade with Mexico would cause U.S. wages to fall and U.S. capital to relocate to Mexico to take advantage of lower wages and regulatory standards there. In contrast, Canadian wages are equal to or slightly higher than U.S. wages and Canadian regulatory laws are significantly more complex than U.S. laws. Thus, the major opposition to that agreement was by some segments of the Canadian populace on the grounds that Canadian firms could not compete with U.S. firms and that more open markets between the two countries would diminish the cultural differences between the two societies....
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