CHAPTER
9 International Economics
Nontariff Barriers and the New
Protectionism
Introduction - Instruments of Trade Policy
▪ Non-Tariffs
✓ Quota
✓ Subsidies
✓ Voluntary export restraints
✓ Local content requirements
✓ Others
Import Quotas
◼ Import quota is a direct quantitative restriction
on the amount of a commodity allowed to be
imported during a specific period of time
➢ In year 2021, only 1,000 tons of sugar are allowed to be imported by the
Vietnamese Gov.
➢ In 2020, there were 2,000 tons of paddy rice allowed to be imported by
the Phillip. Gov.
◼ Export quota is a direct quantitative restriction
on the amount of a commodity allowed to be
exported during a specific period of time
Import Quotas
◼ Global quota: permits a specified number of
goods to be imported each year
➢ Does not specify from where the product is shipped or
who is permitted to import
Eg.
◼ Selective quota: import quota allocated to
specific countries
Eg.
◼ It is banned by the WTO but it still exists.
TABLE 5.1 Examples of U.S. import quotas*
=> Global quota & selective quota? Why the gov. differ
global quota and selective quota…? What for?
5
Import Quotas
◼ Effects of import quota on economy’s welfare:
▪ Higher domestic price than import tariff
▪ Higher domestic production than import tariff
▪ Lower consumption than import tariff
▪ Lower imports than import tariff
Sx and Dx: supply
and demand curves
Small nation
of X for Nation 2
(small economy)
FIGURE 9-1 Partial Equilibrium Effects of an Import Quota.
Import Quotas
◼ Import Quota vs. Equivalent Import Tariff
◼ Import quota involves distribution of import
licenses, while tariff does not.
◼ If not auctioned by government in competitive
markets, receiving firms will reap monopoly profits.
◼ Allocation decision often based on arbitrary
judgments rather than efficiency concerns.
◼ Monopoly profits lead firms to lobby for licenses in
rent-seeking activities.
◼ Thus, import quotas replace market mechanism ,
resulting in waste, and possible corruption.
Import Quotas
◼ Import Quota vs. Equivalent Import Tariff
◼ Import quota limits imports to specified levels
with certainty, while the trade effect of an
import tariff may be uncertain.
◼ When elasticity of demand and supply are not
known, it is difficult to estimate the import tariff
required to restrict imports to desired level.
◼ Foreign exporters cannot maintain export quantity
simply adjust to barrier by increasing efficiency or
accepting lower profits, as with tariff
◼ Because import quota is less “visible”, domestic
producers prefer them over tariffs.
Import Quotas
◼ Import Quota vs. Equivalent Import Tariff
◼ Since import quotas are more restrictive than
equivalent import tariffs, society should resist
domestic producers’ efforts to use quotas
instead of tariffs.
Import quota and import tariff
◼ Import quota restrict quantity while import tariff
works through prices
◼ The output effect, consumption effect and import
restrictive effect of tariff and quota are the same. The
only difference is the area of revenue. If import
licenses are auctioned off the importers then
government would earn revenue from the auction
◼ The main advantage of a quota is that it keeps the
volume of imports unchanged. But a tariff permits
imports to raise when demand increases, particularly
if the demand for imports becomes inelastic
Import quota and import tariff
◼ If officials charged with allocation of import
licenses are likely to be exposed to bribery.
Under this situation, import tariff is
preferable to import quota
◼ Import quotas have the tendency to distort
international traded much more than tariffs
since its effects are more vigorous and
arbitrary
Tariff – Rate Quotas
◼ Two – tier tariff
◼ A quota that defines the maximum volume of
imports
◼ And charges the within – quota tariff
◼ Any imports above this level face a higher
tariff rate
▪ Over – quota tariff
Tariff Rate Quotas
(Beef, 2017, 0201101BEEF03)
Quota License/ Quota/ Quota/License Quota
Country Name Country Maximum Allocated Quality Region/Country
Quantity Percent Filled
Argentina 20,000,000 kg 0.00%
Australia 378,214,000 kg 231,295,828 61.15%
Canada 0.00%
Japan 200,000 kg 200,000 100.00%
Mexico 0.00%
New Zealand 213,402,000 kg 181,862,170.7 85.22%
Uruguay 20,000,000 19,984,380.25 99.92%
Vietnam-TRQs (WTO)
TRQ volumes are subject to 0% import duty.
The regime is regulated in accordance with bilateral memoranda
concluded in 2005 (Lao PDR) and 2007 (Cambodia)
Case study 9-1 (pp.259):
The Economic Effects of the US. Quota on Sugar
Imports
1. Why does the United States have an import
quota on sugar?
2. What are the effects of the U.S quota on
sugar imports?
3. Calculate net total loss to the US = $
Other Nontariff Barriers and the New
Protectionism
◼ Voluntary Export Restraints (VERs)
◼ With VERs, an importing country induces another
nation to reduce its exports voluntarily, under
threat of higher trade restrictions.
◼ Sometimes called orderly marketing arrangements,
VERs allow industrial nations to appear to support
the principle of free trade.
◼ Less effective in limiting imports than import
quotas because exporters tend to fill the quota with
higher quality, higher priced goods over time.
.
Voluntary Export Restraint
• A VER works like an import quota, except
that the quota is imposed by the exporting
country rather than the importing country
• These restraints are usually requested by the
importing country
• The profits or rents from this policy are
earned by foreign governments or foreign
producers.
– Foreigners sell a restricted quantity at an
increased price.
Example of VERs
Other Nontariff Barriers and the New
Protectionism
◼ Export Subsidies
◼ The granting of tax relief to exporters or
subsidized loans to foreign buyers to stimulate
a nation’s exports.
◼ Can be regarded as a form of dumping.
◼ Export subsidies are illegal by international
agreement, but often used in disguised form.
◼ Example
Small Nation 2
FIGURE 9-2 Partial Equilibrium Effect of an Export Subsidy.
Other Nontariff Barriers and the New
Protectionism
◼ Technical barriers
◼ Technical barriers are various types which restrict
import:
➢ Health and safety regulations
➢ Sanitary regulations
➢ Labelling and packaging regulations
➢ Requirements for environmental performance, et.
◼ Eg: all imports of food products into the US must
meet Food and Drug Administration's standards
.
Other Nontariff Barriers and the New
Protectionism
◼ Local content regulations
◼ A specified amount of commodity must be supplied in
the domestic market by the producer.
◼ It is to help local labour and domestic suppliers of goods
◼ Government may state:
◼ Labour requirement
◼ Input requirement
◼ Component required at a local level
.
Other Nontariff Barriers and the New
Protectionism
◼ International Cartels
◼ Organization of suppliers from different
nations that agrees to restrict output and
exports of a commodity with the aim of
maximizing or increasing total profits.
◼ For example, OPEC (the Organization of
Petroleum Exporting Countries) quadrupled
the price of crude oil between 1973 and 1974
by restricting production and exports.
Other Nontariff Barriers and the New
Protectionism
◼ Dumping
◼ The export of a commodity at below cost, or
the sale of a commodity at a lower price
abroad than domestically.
◼ Three types of dumping:
1. Persistent dumping is the continuous tendency of
a domestic monopolist to maximize total profits
by selling the commodity at a higher price in the
domestic market.
.
Other Nontariff Barriers and the New
Protectionism
◼ Dumping
◼ The export of a commodity at below cost, or
the sale of a commodity at a lower price
abroad than domestically.
◼ Three types of dumping:
1. Persistent dumping
2. Predatory dumping is the temporary sale of a
commodity at below cost or a lower price abroad
to drive foreign producers out of business.
Other Nontariff Barriers and the New
Protectionism
◼ Dumping
◼ The export of a commodity at below cost, or
the sale of a commodity at a lower price
abroad than domestically.
◼ Three types of dumping:
1. Persistent dumping
2. Predatory dumping
3. Sporadic dumping is the occasional sale of a
commodity at below cost or lower price abroad
to unload surplus of the commodity without
reducing domestic prices.
Other Nontariff Barriers and the New
Protectionism
◼ Administration dealings
◼ Currency control
◼ Embargo
◼…
The Political Economy of Protectionism
Fallacious Arguments for Protection
1. Trade restrictions are needed to protect
domestic labor against cheap foreign labor.
◼ Even if domestic wages are higher than wages
abroad, domestic labor costs can still be lower
if the productivity of labor is sufficiently
higher domestically than abroad.
◼ Mutually beneficial trade could be based on
comparative advantage, with cheap labor
nation specializing in labor-intensive
commodities.
The Political Economy of Protectionism
Fallacious Arguments for Protection
2. Scientific tariffs are needed so that domestic
producers can compete.
◼ A scientific tariff raises the price of imports to
the domestic price.
◼ This would eliminate price differences and
trade in all commodities subject to such
“scientific” tariffs.
The Political Economy of Protectionism
Questionable Arguments for Protection
◼ Protection is needed to:
1. Reduce domestic unemployment, and
2. To cure a deficit in the nation’s balance of
payments
◼ Protection would lead to substitution of imports
with domestic production.
◼ These are beggar-thy-neighbor arguments for
protection because they come at the expense of
other nations.
◼ Other nations retaliate; all nations lose in the end.
The Political Economy of Protectionism
A Qualified Argument for Protection
◼ Infant-industry Argument
◼ Temporary trade protection is justified to
establish and protect a domestic industry during
its “infancy” until it can meet foreign
competition, achieve economies of scale, and
reflect the nation’s comparative advantage.
◼ To be valid, the return in the grown-up industry
must be high enough to offset the higher prices
paid by domestic consumers of the commodity
during infancy.
The Political Economy of Protectionism
A Qualified Argument for Protection
◼ Infant-industry Argument
◼ Requires several qualifications which,
together, take away most of its significance:
1. More justified for developing nations than
industrial nations.
2. May be difficult to identify which industry
qualifies for protection, which, once given,
is difficult to remove.
3. What trade protection can do, an equivalent
production subsidy to the infant industry
can do better.
Strategic Trade and Industrial Policies
◼ According to the strategic trade policy argument,
a nation can create a comparative advantage in
industries deemed crucial to future growth in the
nation.
◼ Nation may use temporary trade protection,
subsidies, tax benefits and cooperative
government-industry programs.
◼ Similar to infant-industry argument in
developing nations.
Strategic Trade and Industrial Policies
◼ Concerns
◼ Difficult to pick winners and devise
appropriate policies to nurture them.
◼ Efforts largely neutralized when leading
nations undertake strategic trade policies at
the same time.
◼ Retaliation in other markets may eliminate
any gains.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
◼ GATT’s eighth round of negotiations, with 123
countries participating.
◼ Began in September 1986 with completion
scheduled for December 1990.
◼ Disagreements between United States and
European Union, on reducing agricultural
subsidies, delayed conclusion for three years.
◼ Agreement took effect in July, 1995.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Aims of the Uruguay Round:
◼ Establish rules for monitoring protectionism and
reversing the trend.
◼ Bring services, agriculture and foreign
investments into negotiations.
◼ Negotiate international rules for protection of
intellectual property rights.
◼ Ensure more timely decision and compliance with
GATT rulings on dispute settlements.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Tariffs
◼ Tariffs on industrial products to be cut from an
average of 4.7% to an average of 3%.
◼ The share of good with zero tariffs to increase
from 20-22% to 40-45%.
◼ Tariffs removed on pharmaceuticals,
constructions equipment, medical equipment,
paper products, and steel.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Quotas
◼ Quotas on agricultural products were to be
replaced with less restrictive tariffs by 1999
◼ Quotas on textiles were to be replaced with less
restrictive tariffs by 2004
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Antidumping
◼ Tougher and quicker resolution of disputes
resulting from antidumping laws, but not a ban
on their use.
◼ Subsidies
◼ The volume of subsidized agricultural products
was to be reduced by 21 percent, with
government subsidies for industrial research
limited to 50% of the applied research cost.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Safeguards
◼ Countries barred from implementing health and
safety standards that are not based on scientific
research.
◼ Temporary tariffs allowed to protect domestic
industries from temporary imports surges.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Intellectual property
◼ Twenty-year protection of patents, trademarks,
and copyrights.
◼ A 10 year phase-in period for patents over
pharmaceuticals in developing countries.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Services
◼ United States failed to gain access to markets in
Japan, Korea and many developing nations for
banks and security firms.
◼ United States did not succeed in having France
and the European Union lift restrictions on
showing American films and TV programs in
Europe.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Other Industry Provisions
◼ United States and Europe agreed to talks on
limiting government subsidies to civil aircraft
makers, opening up distance telephone market,
and limiting European steel subsidies.
◼ United States expressed intention to negotiate
opening Japanese computer chip market.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ Trade-Related Investment Measures
◼ Phased out requirement that foreign investors
buy supplies locally or export as much as they
import.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ The Uruguay Round
Major Provisions of Uruguay Accord:
◼ World Trade Organization (WTO)
◼ Established the WTO in place of the GATT
Secretariat, with authority in industrial and
agricultural products and services.
◼ Trade disputes to be settled by vote of two-thirds
or three-quarters of nations rather than
unanimously.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ Outstanding Trade Problems
◼ Trade disputes between the United States and
the European Union.
◼ EU subsidies to Airbus
◼ EU ban on US exports of hormone-raised beef
and genetically modified food
◼ High subsidies and tariffs on agricultural
products, and frequently abused antidumping
laws.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ Outstanding Trade Problems
◼ Tendency for world to divide into three major
trade blocs:
◼ European Union (EU)
◼ North American Free Trade Area (NAFTA)
◼ Asian Bloc
◼ Call by some developed nations for labor and
environmental standards, to ensure “leveling
of working conditions” and avoid “social
dumping”
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ Doha Round
◼ Launched in November, 2001, in Doha, Qatar.
◼ Agenda included:
◼ Further liberalization of production and trade
in agriculture, industrial products, and
services.
◼ Further tightening of antidumping regulations,
investment and competition policies.
The Uruguay Round, Outstanding Trade
Problems, and the Doha Round
◼ Doha Round
◼ Developing nations reluctant to make concessions
because of feeling that Uruguay Round failed to
deliver on promises.
◼ Developing nations insisted on making Doha Round
a true “development round”.
◼ Intended to conclude by end of 2004, all but
collapsed in 2006 over disagreements over
agricultural subsidies between developed and
developing nations.
◼ As of beginning of 2009, still not concluded.
TBT
SPS
Source: . [Link]
Tariff_Measures_in_ASEAN_en.pdf
Source: . [Link]
Tariff_Measures_in_ASEAN_en.pdf
Source: . [Link]
Tariff_Measures_in_ASEAN_en.pdf
Q&A