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International economics > Non-Tariff Trade Barriers > Flashcards

Non-Tariff Trade Barriers Flashcards

1
Q

What examples are there of non-tariff trade barriers?

A
  • Import quotas
  • Voluntary export restraints
  • Regulations
  • Anti-dumping
  • Export subsidy
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2
Q

Why have non-tariff barriers increased?

A
  • WTO introduced different barriers in order to reduce tariffs
  • Tariffs have decreased over time as many countries are now members of the WTO
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3
Q

What is a quota? and different types

A

• A quota is a direct quantitative restriction on the amount of a commodity allowed to be imported or exported

  • Import quota
  • Export quota inc voluntary export restraints
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4
Q

What is an import quota?

A

Quantitative restriction imposed by an importer country on imports

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5
Q

What is an export quota?

A

Quantitative restriction imposed by a export country e.g. china had a rare metal so restricted the exports of that metal

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6
Q

Explain the import quota graph

A
  • Quota of 40 units increases domestic price so supply increases and demand falls
  • Allows importers to buy at the lower world price and then sell at the quota price which generates a profit
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7
Q

What is the role of a quota rent?

A

The role of quota rents is similar to the role of tariff

revenue if the government gets the quota rent

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8
Q

What are different forms of quota rent distribution?

A
  • Auction the import licenses in a competitive market. Government gets the revenue
  • Government decides the importers and provides the import licenses freely. The importers reap the revenue”.
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9
Q

What are the issues with the distribution of quota rent?

A

• What are the criteria to select the importers? Efficiency? Connection to governemnt?
-can lead to bribery in getting a license leading to no welfare gain

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10
Q

What are the overall welfare effects of an import quota?

A
  • Producer surplus increase and consumer surplus fall (higher price and less consumption)
  • Quota rent is a gain
  • Overall net effect is a deadweight loss
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11
Q

What are the main differences between an import quota and a tariff?

A
  • The impacts of a market change
  • Quota rent vs tariff revenue
  • Trade effects
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12
Q

Explain the impact of market change difference of tariff and quota

A

For a demand shift:
• For a tariff, domestic price and production stays the same but imports increase
• For a quota, there is an increase in the domestic price and production while the import quantity remains the same (shifts up to a new price)

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13
Q

Explain the Quota rent vs tariff revenue difference of tariff and quota

A
  • Tariff revenue is the revenue of the government

* but quota rent can be distributed differently

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14
Q

Explain the Trade effects difference of tariff and quota

A

• Import quota limits imports to the specified level with
certainty
• Trade effect of an import tariff may be uncertain (shape or elasticity of demand and supply)

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15
Q

What is an example of an import quota?

A

The Multifibre Arrangement (MFA)

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16
Q

Explain The Multifibre Arrangement (MFA)

A

1) The MFA allowed industrial countries to restrict imports of textile and apparel products from developing counties.
2) very detailed and specified the amount of each product that each developing country could sell to the countries inc US, Canada and Europe.
3) expired on January 1 2005.

17
Q

What were the impacts of removing the MFA?

A

• Growth in export from China e.g. jerseys by 1000% and other countries
- Exports to US in 2005 rose by more than 40%.
• Drop in export price e.g. china by nearly 40%
• quality downgrading

18
Q

What is quality downgrading in relation to removing thee MFA?

A
  • low priced goods had larger price drops than high-priced goods so
  • likely demand shift to the low-priced goods, suggesting a “quality-downgrading”
  • or when US applying the quota, there is a “quality-upgrading” effect.
  • Given the quantity restriction, exporting firms would have an incentive to export high-priced goods.
19
Q

What are voluntary export restraints?

A

A voluntary export restraint exists when the
exporting nation voluntarily restricts its exports to
a numerical limit

20
Q

Explain a voluntary export restraint

A

• Generally done to reduce the likelihood of the importing country imposing some other form of
barrier to trade
• Welfare effects similar to import quota but quota rent instead goes to foreign producer- as they raise their price due to the set amount to the import countries price level

21
Q

What is an example of a voluntary export restraint?

A

Before 1981-Japan exported a lot leading to 1/5 fall in car production and job loss
• so VER agreed but Japan increased price

22
Q

Explain the regulations barrier to trade?

A
  • Regulations may serve as barriers to international trade by raising the costs of imported products through safety or health requirements
  • or Gov purchasing restrictions must be biased against foreign goods e.g.Buy American Act of 1933
23
Q

What is the brexit context of regulations?

A

UK gov doesn’t want to stick by EU regulations of trade as it could impact their ability to trade with other countries

24
Q

When does dumping exist?

A

It exists when the price in the foreign
market
• is lower than the price in the domestic country; or
• is lower than the costs of production

25
Q

Why does dumping occur?

A
  • Profit-seeking, e.g. persistent dumping
  • or a strategy to acquire monopoly power and raise the price in the future, e.g. predatory dumping (achieve market share and drive out competition)
26
Q

Is dumping profitable and why?

A
  • Dumping is profitable for exporters despite the price being lower than average cost because marginal costs are still less than the exporting price
  • Dumping is not profitable for domestic firms as they will make a loss
27
Q

What is the outcome of dumping?

A

Because of low prices, domestic products cannot compete with the dumping products

28
Q

What is the process of enacting anti-dumping regulations?

A
  • A country that suspects dumping will start anti-dumping investigations by checking the difference between the exporters AC and their domestic price
  • Any evidence can cause a duty to be imposed
29
Q

What does the anti-dumping (countervailing) duty allow in the US?

A

US international trade law allows for the imposition of a tariff (duty) just sufficient to raise the domestic price to either the foreign price or the average costs of production.
(find example )

30
Q

What are export subsidies?

A

Export subsidies are the direct payments, or the granting of tax relief to exporters, or subsidized loans to foreign buyers to stimulate a nation’s exports.

31
Q

What are two examples of export subsidies?

A
  • Export subsidies in agriculture. e.g. Common Agricultural Policy (CAP)-per unit support
  • Export subsidies in High-tech industries. e.g. aircraft industries in both Europe and US
32
Q

Explain the per-unit export subsidy graph?

A
  • Takes the view of exporting country so prices above equilibrium
  • e..g export price is 70 but you get 80
  • Higher price means more exports
33
Q

What is the net welfare effect of a per unit export subsidy

A

• Consumer surplus falls with higher price
-(A+B)
• Producer surplus increases-higher price
+ (A+B+C)
• Government revenue: falls because of subsidy
-(B+C+D)
• Overall welfare: falls with deadweight loss
-(B+D)
hence why economists advocate free trade

34
Q

Why are export subsidies banned by the WTO?

A
  • Potential to distort competition
  • If firm has AC above the price in free trade they will exist the market but subsidy allows them to export and stay in the market
  • Could promote inefficient business
35
Q

What diagram can be used to show the strategic use of export subsidy?

A

Payoff matrix between only two major players ina n industry e.g. boeing and airbus

36
Q

What is the payoff matrix outcome (nash equilibrium) without an export subsidy?

A
  • If Boeing produces, then the best strategy for airbus is not to produce and vice versa
  • so nash equilibrium for both firms is (produce, not produce) and (not produce, produce)
  • who that produces benefits
37
Q

If one business (airbus) gets an export subsidy, how does the payoff matrix change?

A
  • If Boeing produces, the best strategy for Airbus is to produce as the subsidy exceeds the loss
  • If boeing does produce, airbus should
  • If airbus produces, boeing should not as no subsidy to cover loss
  • If airbus doesn’t produce, boeing should (Not produce , Produce) is the Nash equilibrium for Boeing and Airbus
  • Airbus now produces and Boeing does not produce. Airbus now gains
38
Q

What are the welfare effects of an export subsidy for strategic use?

A
  • Export subsidy can be beneficial to the society welfare as extra profits are bigger than welfare and airbus earns more profit in int. markets (similar to tariff in large country)-
  • but this affect can also be negative depending in the size of the subsidy or if other firm has a cost advantage

International economics (7 decks)

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