Part 4 - Non- tariffs barriers to trade

Question 1

Non-tariff barriers to trade include

Answer 1

inter alia import quotas (limitations on the quantity of imports), export restraints (limitations on the quantity of exports), technical regulations and product standards.

Question 2

An import quota is…

Answer 2

a restriction on the quantity of a good that may be imported.

Question 3

How import quota is enforced?

Answer 3

This restriction is usually enforced by issuing licenses or quota rights.

Question 4

How an import quota will affect the price of a good? explain it.

Answer 4

A binding import quota will push up the price of the import because the quantity demanded will exceed the quantity supplied by Home producers and from imports.

Question 5

Quota vs tariff affect on government revenue:

Answer 5

When a quota instead of a tariff is used to restrict imports, the government receives no revenue.
• Instead, the revenue from selling imports at high prices goes to quota license holders.
• These extra revenues are called quota rents.

Question 6

similarity and distinction between tariffs and quota:

Answer 6

• similarity - the price of the import also goes up

* distinguishing - government does not receive a revenue when it comes to quota but on tariffs it does.

Question 7

Imports of sugar into the United States are unlimited

TRUE OR FALSE?

Answer 7

FALSE - Imports of sugar into the United States are limited and quota rights passed on to foreign governments.

Question 8

Price of sugar in the United States has remained well above the world market price for sugar
TRUE OR FALSE?

Answer 8

TRUE - U.S. consumers are clearly the main losers from this policy and U.S. producers of raw sugar the main winners. Furthermore, foreigners enjoy the quota rents.

Question 9

U.S. and World Raw Sugar Prices, 1989–2015

Answer 9

• due to non tariff barriers to trade in the US, the US sugar price is constantly and afeta substantially higher than in the rest of the world.
• difference can be up to $300 per ton.
• the U.S. sugar price has substantially risen again, being almost double the world price in 2015.

Question 10

Estimates of economic effects of the U.S. sugar quota (2014):

Answer 10

• higher costs for US consumers
• the producers that uses raw sugar as an input lose as well
• winners are the sugar producers, specially the sugar refiners (more than the farmers)
• total costs of 4.4 and benefits of 3.9 give and negative economic effect.

Question 11

Explain the U.S. import quota on sugar as a good example for the political economy of trade policy.

Answer 11

• Small group of producers profits from protection against imports. The small US producers would not survive if they had to face world market prices, so the import quota is a life-or-death issue.
• Large number of consumers are main losers from this trade policy.
• Furthermore, a drop in U.S. sugar prices due to end of import quota would most likely create 17,000 to 20,000 new jobs in chocolate and confectionary manufacturing firms (with estimates job losses for sugar producers between 500-2,000)  » which means that jobs are lost not saved due import quota.

Question 12

Collective action problem, give an example

Answer 12

While it is in the interest of the group as a whole to press for favorable policies, it is not in any individual’s interest to do so.

Import quota on sugar is a good example.