Trade Protection Flashcards
What is GATT?
General Agreement on Tariffs and Trade
What is the WTO
World Trade Organization
What is the RTA
Regional Trade Agreement
The GATT put limits on what?
tariff levels, bringing them closer to zero. The organisation, however, did not have a mandate to limit non-tariff barriers including quotas, which is one of the things that led to subsequent trades wars and a replacement of the GATT with the WTO.
Neither the GATT and the WTO rules out safety standards, in fact, the WTO specifically allows trade barriers for such reasons
What is the objective of Quotas?
to push down the price on global markets and push the price in the country up
- limits the gap between what we consume and produce
What is the difference between tariffs and quotas?
tariff - effect the price to effect quantity
quotas - effect quantity directly to effect price
- every tariff has an equivalent quota and vice versa
Economically there are no difference between them
(Tariffs: p to effect q,
Quotas: q to affect p)
affecting exports affects imports - everything is linked
What happens when a country is large?
they reduce imports in the world which increases their quota rents
What is a VER
Voluntary Export Restraint
Driving export price up is the same as what?
driving imported price down
What happens if a large countries uses a VER
world price rises
-> the large country exploits market power
What are non-tariff barriers to trade?
Voluntary Export Restraints
Anti-dumping duties
Sanitary and Phytosanitary Standards - consumer protection rather than “trade restrictions”
Technical Barriers to Trade - can’t bring in products that were used with child labour
Licensing Requirements - bring in services, like FE1s, Accounting exams, Work Visa - J1, quota only let a certain amount in. - reduce amount of low-skilled workers, drive up price of low-skilled workers in the U.S.
Limit import - price goes down what happens to the price of what we sell to the rest of the world
The price of what we sell to the rest of the world goes down
Limit exports - price goes up what happens to the price of what we sell to the rest of the world
The price of what we sell to the rest of the world goes up
What are additional reasons for protection?
externalities like pollution gives an incentive to reduce the amount of production
- By offsetting pollution, total surplus increases
- encourage what isn’t happening enough
- discourage what is happening too much
What are problems with national security/infant industry?
- picking a winner
- getting rid of protection
- better policies
-> government picks a firm that can learn by doing -> succeed
-> protect industry
-> get good at doing + maybe export if they’re very good
-> then get rid of protection
can lead to inefficiency:
US government subsidize corn, they protect home production so much that they export excess Tortilla chips to Africa
US government protect Milk by subsidizing it. Too much milk -> make cheese with it. They export excess to Africa.
What are additional reasons for Protection?
Social Welfare Weights
CS + TR + 4PS money moved to people/firms who benefit the most
3CS + 1/2TR + PS money ends up in private sector producer firms: government inefficient
Collective Action
- lobbying the government
Adjustment Costs & Conservative Social Welfare - moving costs, psychological costs
-> gradually lower your tariffs to give people time to adjust
What does it mean to lobby the government when looking at collective action
when an individual or a group tries to persuade someone in Parliament to support something e.g. a quota.
- support something
