Non-Tariff Barriers Flashcards
Quota
a direct quantitative restriction on the amount of
a commodity allowed to be imported or exported.
Quota Rent
World price is low and domestic price is high.
Import and gain from margin in prices shown by box on graph
Differences between quota and tariff
- The impacts of a market change, e.g. a demand shift, are
different.
- An increase of demand in import quotas increases the
domestic price and production, while it keeps the domestic
price and production the same and increases the imports in
import tariff. - Tariff revenue is the revenue of the government, but the
quota rents are not necessarily the government revenue,
depending on how to distribute the import licenses. - An import quota limits imports to the specified level with
certainty, while the trade effect of an import tariff may be
uncertain (shape or elasticity of demand and supply, passthrough of tariff to foreign exporters). - Import tariff effects aren’t conceivable as foreign exporters may absorb tariff by increasing effeciency or accepting lower profits. Quota is restrictive and effects will be realised by society
Example of Quota rent (MFA)
The Multifibre Arrangement (MFA)
1) The MFA allowed industrial countries to restrict imports
of textile and apparel products from the developing
counties.
2) In practice, the import quotas were very detailed and
specified the amount of each product that each developing
country could sell to the countries including US, Canada
and Europe.
3) The MFA expired on January 1 2005.
Removal led to and increase of exports from china, trouser prices tripled and there were 40% more exports to US in 2005
Voluntary export restraints
A voluntary export restraint exists when the
exporting nation voluntarily restricts its exports to
a numerical limit.
Generally, this action is taken to reduce the likelihood
of the importing country imposing some other form of
barrier to trade.
The welfare effects are similar to import quotas but
with the quota rent going to the foreign producer.
Net loss = -(b+c+d)
In 1981, Japan and the US agreed to a VER of 1.68
million automobiles to be imported annually by the US
from Japan.
1982 - US steel imports limited to 20% of market leading to 20,000 saved jobs
Dumping and why
Dumping is, in general, a situation of
international price discrimination, where
exporting price is lower than its “normal value”,
e.g. the price in domestic market.
It is done for profit seeking reasons as it allows firms to acquire monopoly power and raise the price in the future.
Can happen when a foreign country subsidizes products but can lead to over production to meet subsidy rate causing distortion in the allocation of resources
Anti-dumping
Anti-dumping duties are the measures applied
by importing country to counter dumping.
* Anti-dumping duties are increasingly more
nowadays. 880 in 1998 to 1,683 in 2011
WTO Members can impose anti-dumping duties,
if:
➢ Dumping is occurring
➢ Material injury because of the dumping
Example: EU extends anti-dumping and countervailing duties on Chinese coated fine paper imports
Export Subsidy
A subsidy is defined as a “financial contribution”
by a government which provides a benefit. The
forms that a subsidy can take include:
1. a direct transfer of funds (e.g., a grant, loan, or infusion
of equity);
2.a potential transfer of funds or liabilities (e.g., a loan
guarantee);
3.foregone government revenue (e.g., a tax credit); or
4.the purchase of goods, or the provision of goods or
services (other than general infrastructure).
4 types:
enterprise
industry
regional
prohibited
US Export-Import Bank - expired 2014
For small nations domestic producers gain and consumers loss due to higher price meaning foreign consumers gain more units allowing nation to be an exporter
How quota rent is allocated
- Quota licenses
Firms can import at Pw and sell at a higher price
Net welfare: - b+d - Rent Seeking
Firms may overproduce if licenses are allocated based on proportion to each firms production.
Can lead to bribes and lobbying causing welfare gains to be lost due to waste of resources used to get quota
Net: - (b+c+d)
Auction Quota:
In a well organised competitive auction the revenue will be collected to equal value of rent and this is earned by home government
Auction revenue = +c
Brexit
Carbon boarder taxes imposed by EU
36% of UK manufacturing companies note EU companies are less willing to work with them
Rising costs due to delays and not adhering to EU rules on the likes of soil types for agricultural companies
New single trade window 2024 will reduce and simplify admin tasks
Quota Extra reading
US 2005 quota limiting sugar imports to 1.4 million tons lead to a loss of consumer surplus
Import quota replaces market mechanism due to effects on demand and supply and increase in price
- potential for import licenses to lead to lobbying and bribing govt officials
Infant Industry Argument
Country may have potential for comparative advantage but their is a lack of know how and initial small output.
Industry not set-up to compete with established foreign firms
Temporary trade protection is justified to establish and protect domestic industry until it can compete, achieve economies of scale, long run comparative advantage
However return in grown-up industry must be high to offset the high prices paid by domestic consumers
Interest group theory hilmann
Highly organised industries such as automobile more likely to receive trade protection + produce consumer focused products
Doha Round 2001
- Liberalisation of production and trade in agriculture and industrial products
- Tightening rules for anti-dumping measures and safeguards
Failed in 2015 but the WTO is looking to find commonalities on reducing red tape around the world
