http://southeastfarmpress.com/soybeans/us-soybean-industry-protests-argentina-s-unfair-export-tax
The link above leads to a working paper discussing the reasoning behind differential export taxes and the effects of removing these taxes from those countries that commonly use them. Essentially a differential export tax is a tax which is higher for exported goods which are lower on the value added chain and lower for exports which are higher on the value added chain. The working paper commonly refers to the soybean industry in Argentina and its differential export tax which taxes the exportation of unprocessed soybeans much more heavily than soybean-based products such as biodiesel.
Argentina developed this differential export tax to combat a series of tariffs created by its trading partners on soybeans and other agricultural goods. The idea is that by rewarding the production of goods higher up the value chain Argentina stimulated investment in the production of goods less heavily tariffed by other countries. Unfortunately this has distorted the world market of soybeans, and the American soybean industry is particularly unhappy. The second link above leads to an article on the unrest of the US soybean industry and what its members think needs to be done to remedy the problem.
They claim that differential export taxes are against the World Trade Organization’s policies and are worried that because Argentina’s use of differential export taxes have gone unopposed, more and more middle market economies such as Ukraine and Indonesia will increase their use of the same kinds of taxes. This could be particularly harmful to the United States’ economy as it is more developed and exports many goods that are higher on their value added chains. These differential export taxes are also a problem because the government of the United States cannot even use them because export taxes are illegal under constitutional law.
In the end, the working paper shows that these differential export taxes are indeed causing distortions in the market which are hurting many people worldwide. The paper shows that were some of the import tariffs on agricultural goods lifted then countries would not be forced to use differential export taxes to stimulate their economies. This in turn would create more consistent world prices and a better allocation of resources worldwide.
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ReplyDeleteWell Michael it seems that developed countries such as the United States have shot themselves in the foot by using tariffs on the goods such as soybeans in the past. Argentina's clever tax now has flooded the market with exports that are higher up the value added chain in which the U.S. also produces, so in effect the TOT of the U.S. have decreased. Has the U.S. or any other developed country sought a petition from the WTO into the legality of these sorts of differential export taxes?
ReplyDeleteIt’s pretty ridiculous how trade taxes can get so out of hand that they cause such distortion of world markets. When the U.S. proposed the idea to establish tariffs for Argentinian imports, they should have considered the counterargument that Argentina could retaliate by creating an opposing tax. I’m sure if the consumer’s best interest were in mind, the proposed tariffs would have never been established.
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