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EC336 - TRADE > Rest Of Trade Policy > Flashcards

Rest Of Trade Policy Flashcards

1
Q

From whose perspective do we analyse an export subsidy from?

A

Exporting country

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2
Q

Are an export subsidy’s effect symmetric to tariff??

A

NO

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3
Q

2 types of export subsidies

A
  1. specific/per unit = payment per unit exported.

2. ad valorem = payment as % of value of exported.

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4
Q

impact of export subsidy on price in exporting country and why?

A

RAISES the price of the good since domestic firms more willing to export –> excess demand domestically = price rises.

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5
Q

impact of export subsidy on price in foreign countries and why?

A

LOWERS the world price of the good since domestic firms more willing to export –> excess supply in global market = price falls.

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6
Q

Under what condition does a subsidy affect world price?

A

LARGE country = able to influence world supply and demand and therefore price.

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7
Q

impact of export subsidy on TOT

A

WORSE TOT for exporting country since world Px falls.

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8
Q

Subsidy equilibrium and why?

A

Ps - Ps* = s
No arbitrage condition: domestic producers compensated to still sell at home. Indifferent between exporting and selling domestically.

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9
Q

How do Ps, Ps* and Pw compare?

A

Ps > Pw

Ps* < Pw

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10
Q

Impact of export subsidy on domestic consumers

A

Internal Ps rises = demand falls and loss of CS

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11
Q

Impact of export subsidy on domestic producers

A

Internal Ps rises = domestic supply rises and increase in of PS

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12
Q

Impact of subsidy on government

A

Cost of subsidy = s * quantity of exports.

Remember s = Ps - Ps*

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13
Q

Impact of subsidy on trade

A

Domestic producers have greater incentive to export + domestic demand falls = XS rises.

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14
Q

Effect of subsidy on welfare

A

UNAMBIGUOUSLY -VE: efficiency losses + TOT loss.

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15
Q

Impact of subsidy on TOT

A

Ps* = world price of exports FALLS = TOT LOSS.

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16
Q

CAP was created when and by how many countries?

A

1962 by EU’s 6 founding countries

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17
Q

2 things CAP does

A
  1. fixes high domestic prices for agricultural products.

2. Subsidises exports to dispose of excess production.

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18
Q

Direct cost of CAP to EU

A

$50BN = 42% of budget

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19
Q

% of GDP agriculture is in EU

A

2%

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20
Q

How do support, autarky and free trade prices compare under CAP?

A

Support price > autarky price > world price.

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21
Q

Under free trade, would EU be exporter or importer of agriculture?

A

Importer: D > S at world free trade price.

22
Q

How does fair trade affect prices? How does this differ to subsidy?

A

Pushes up prices above free trade price.

But not just to government payment - voluntarily paid by consumers in developed countries.

23
Q

GE effect of fair trade

A

Fair trade producers increase supply = lowers world price . Oversupply means non fair trade producers lose out.

24
Q

2 -VE of fair-trade in LR

A
  1. doesn’t help developing countries diversify

2. Supermarkets try to skim off consumer’s WTP higher prices through feel good factor.

25
Q

Import quota =

A

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

26
Q

How is a quota enforced?

A

LICENSES: given to domestic firms or foreign governments as permits to import/export.

27
Q

What is a BINDING import quota?

A

One that affects the prevailing demand and supply.

28
Q

How does a quota affect domestic price and why?

A

Restrict imports means domestic demand > domestic supply + imports = excess demand pushes up price of imports.

29
Q

What are quota rents? who do they go to?

A

Revenue from being able to sell imports at a higher price = goes to license holders (domestic firms / foreign governments).

30
Q

Impact of quota on domestic consumers

A

Higher internal price of imports = lower demand and CS

31
Q

Impact of quota on domestic producers

A

Higher internal price of imports = higher supply and PS

32
Q

Net effect of quota

A

Ambiguous - depends on where quota rents go.

33
Q

Voluntary export restraint =

A

like an import quota, but imposing voluntarily by the exporting country.

34
Q

Why is a VER in realistic not voluntary?

A

They’re requested by importing country & threaten harsher punishments otherwise.

35
Q

2 gains of VER to exporting country

A
  1. get to sell restricted quantity at higher price.

2. get to give out licenses = quota rents

36
Q

example of multilateral VER

A

MFA 22 countries until 2005.

37
Q

Local content requirement =

A

a REGULATION requiring a specific fraction of the final good to be produced domestically.

38
Q

How may a local content requirement be expressed?

A

In % of value terms or physical units.

39
Q

How does LCR affect domestic producers of INPUTS

A

+VE effect: protects them in the same way as a quota.

40
Q

How does LCR affect domestic producers that must buy inputs

A

Increases costs of production from monitoring/changing production and not being able to source cheapest.

41
Q

Does a LCR mean firms have to reduce imports of inputs?

A

NO - they can keep them to same/increase as long as also use more domestic inputs.

42
Q

Do LCR have government revenue / rents>

A

NO

43
Q

Who pays for LCR restrictions?

A

The difference between the price of domestic inputs and imports is average into the price of the final good & passed onto consumers.

44
Q

Whats a related issue to LCR?

A

Rules of origin

45
Q

state 3 other trade policies

A
  1. export credit subsidies
  2. government procurement
  3. bureaucratic regulations
46
Q

What are export credits subsidies?

A

A subsidised loan to foreign buyers of domestic exports and subsidised insurance in case foreign buyers don’t pay.

47
Q

What’s government procurement?

A

Govs required to buy from domestic suppliers even if foreign ones are lower price and/or better quality.

48
Q

What’s bureaucratic regulations?

A

Safety, health, quality, red tape etc - forms of trade restrictions.

49
Q

Skiing example of bureaucratic regs.

A

Skis exported from Europe into Japan were subject to additional tests because the Japanese claim their snow was different. Technical barrier to trade.

50
Q

Overall welfare effect of VER o country requesting it

A

-VE. Gain PS, loss CS, rents abroad.

51
Q

How do welfare effects of VER cf quota and tariff?

A
  • Typically more costly than quota

- Always more costly than tariff

EC336 - TRADE (9 decks)

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