Question

Report 1.

"How A Tax On Chicken Changed The Playing Field For U.S. Automakers"

German families in the 60s loved cheap American-raised chicken. And Americans loved cheap VW Beetles. The report is about how a trade dispute over frozen chicken parts changed the American auto industry.

In the early '60s, the U.S. was going through a Beetle invasion - and no, not John, Paul, George and Ringo. German Beetles cars were everywhere in the late '50s and early '60s.Everybody had to have one Beetle, two Beetles. They had to have a Beetle plus a Volkswagen bus. And it became sort of a cult object.

Now, while the U.S. was falling in love with the Beetle, postwar Europe had arisen again and was starting to buy cheap, delicious frozen American chicken. In Germany, there's a lot of fast-food fried chicken places, and it's an extremely popular food. And the U.S., of course, at the time and probably today, is the world's most efficient producer of chickens.

In one year, sales of U.S. chicken in West Germany went up nearly 23 percent. Now German chicken farmers got all worried, so their government slapped a nearly 50 percent tariff on our chicken. In retaliation, we looked around for something we could tax, so we found German pickup trucks. And in 1963, the U.S. put a 25 percent tariff on all trucks imported from outside the U.S. It's called the chicken tax. The chicken tax is one of the most important determinants of how the industry looks today and how it operates today in the U.S.

That's because essentially from that point forward, U.S. pickup truck makers had no foreign competition. He says if not for the chicken tax, pickup trucks in general would be less expensive, there would be more choice. And they would be more fuel efficient on average. The flipside of that is we would have fewer plants in the U.S. building pickup trucks.

Question 1.

What type of trade barrier is this report discussing? Can you list another FOUR types of trade barriers?

Question 2.

Is the chicken tax against free trade? Why do you think the chicken tax is still needed today?

Report 2.

"Organic Farmers Call Foul On Whole Foods' Produce Rating System"

Nobody really likes to be graded. Especially when you don't get an A.

Some organic farmers are protesting a new grading system for produce and flowers that's coming into force at Whole Foods. They say it devalues the organic label.

The rating system is called "Responsibly Grown." And the company developed it as a way to give customers more information about how their food is grown, says Matt Rogers, a global produce coordinator for Whole Foods.

The labels on produce at Whole Foods always told shoppers what country or state supplied those vegetables, as well as whether it was grown organically.

The new rating system takes into account much more.

Whole Foods is asking its suppliers to pay a fee to get into the program, then answer a long questionnaire. There are questions about how they protect the soil and wildlife on their farms, whether they limit their use of pesticides, how they conserve energy and irrigation water and how they treat their workers.

Based on those answers, a farm's produce gets a grade: Unrated, Good, Better or Best. Those grades show up right beside each bin of produce on brightly colored stickers with the words: "Responsibly Grown."

Rogers says that more than 50 percent of the farms that have gone through this process so far have been rated "Good." "We have few examples of 'Best' ratings at this point," he says.

But here's what is making organic farmers angry. At a Whole Foods store in Washington, D.C., I found nonorganic onions and tomatoes, presumably grown with standard fertilizers and pesticides, that were labeled "Best." A few feet away, I found organic onions and tomatoes that were graded merely "Good" or just "Unrated."

For Vernon Peterson, who grows and packs organic fruit in Kingsburg, Calif., this is dumbfounding.

"Organic is responsibly grown, for goodness sake," he says. "Organic should be the foundation of anything that Whole Foods might do."

Whole Foods says its new rating system is a way to talk to farmers and customers about issues that the organic rules don't encompass, like water, energy, labor and waste.

Peterson says that organic certification is harder to get and means more than the new ratings from Whole Foods. Following the organic rules is expensive, and there are third-party auditors making sure that you follow those rules, he adds. There are no such outside auditors in the Whole Foods system.

Question 1:

What kind of perspective has Whole Food demonstrated on their corporate social responsibility, minimalist, cynical, defensive, or proactive?

Question 2:

Is "Responsibly Grown" a Philanthropy program, or a strategic CSR program?

Question 3:

What stakeholders may benefit from Whole Food's new rating system?

Answer 1

Q 1a) This report is discussing tariff as a trade barrier.

Trade barriers are government-induced restrictions on international trade. Tariffs - tax on imports - is a very common example. Tarrifs raise the price of the imported goods relative to the price at home.

Another four are:

i) Import quotas: Sets a physical limit on the quantity of a good that can be imported into a country in a period of time.

ii) Voluntary Export Restraints: Government-imposed limit on the quantity of some category of goods that can be exported to a specified country during a specified period of time.

iii) Regulatory Barriers: Any “legal” barriers that try to restrict imports. These include things like safety standards, pollution standards, product standards set by the domestic government.

iv) Subsidies: Makes those goods cheaper to produce than in foreign markets. This results in a lower domestic price.

Q 1b) Yes, strictly speaking the chicken tax - the tax in the US on pickup trucks - is against free trade.

David Ricardo popularized the idea of comparative advantage,

arguing that free trade works even if one partner in a deal holds absolute advantage in all areas of production – that is, one partner makes products cheaper, better and faster than its trading partner.

The key takeaway of Ricardo's idea is that

in choosing future course of growth

instead of being generalist the country should be a specialist - they should specialize in the production of those commodities which can squeeze the most juice out of their own natural endowments

of land, labor, natural resources like petroleum and valuable minerals, climatic conditions (e.g. rainfall)

but also more abstract things like technical progress, intellectual progress, the countrypeople's general "attitude" towards life which may be more or less beneficial for economic activity.

And thus they should always specialize, and under free trade - a deficit for some commodity somewhere is met by surplus flying in from elsewhere. And conjoined with the idea of a freely adjusting price mechanism of the classical (and neoclassical) paradigms, it is the price mechanism which will influence the hivemind of economic agents to collectively bring about this phenomenon.

However, most generally trade barriers don't allow deficits to be met from the outside - in reality a specific trade barrier only inhibits the inflow to a lesser or greater extent. This means the price signal isn't freely adjusting anymore, and strictly speaking economic agents do not necessarily bring about the social optimum or even near optimum.

Thus I have seeked to substantantiate my initial answer (yes to all tariffs being against free trade) by establishing that tariffs have effects contrary to the underlying criteria behind the very concept of free trade, and thus contrary to the theoretical benefits from free trade also.

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Things in Economics usually have two sides to them - the macroscopic (aggregate) and the microscopic (individual).

A macroscopic explanation for the continuance of the Chicken Tax is that in the absence of the stern disciplinarian which is competition, the domestic industry has stagnated in technology and good habits so much that

if the tariff were abolished they could not hold their own in quality and/or price next to inevitable foreign competition. This could mean companies going out of business, people losing jobs and everything that follows from there.

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Of course the free market believer would argue this literal struggle for existence will push domestic producers to innovate. And this may be true. But while the word "push" is neutral in 2D

- it is very scary indeed in 3D, living, breathing life where there's rent to pay, kids to feed.

To put it another way, all domestic producers may eventually survive and hold the market with some ingenuity. But in the adjustment period - which may be years - the threat is very real.

En midst of this painfully real uncertainty people back to building, using and holding on to human connections . And this is the microscopic explanation - it's bureaucracy.