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Nontariff Barriers

Nontariff Barriers. Chapter 7. Nontariff Barriers. Quotas: Import Export Tariff Rate Quota Subsidies Import Export Qualitative Restrictions Health and safety standard. Quotas.

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Nontariff Barriers

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  1. Nontariff Barriers Chapter 7

  2. Nontariff Barriers • Quotas: • Import • Export • Tariff Rate Quota • Subsidies • Import • Export • Qualitative Restrictions • Health and safety standard

  3. Quotas • Quotas are government-imposed limits on the quantity or value of good that can be either exported or imported from the country • Example: Government may choose to limit imports of a products to no more than 1.25 million tons a year. • United States has import quotas on sugar, textile and apparel, peanuts, cheese

  4. Effects of Import Quotas (small country case) Price Quota Pq=$1,500 c a b d Pw=$1,000 Quantity 24,000 44,000 10,000 50,000

  5. Welfare Effects of Quotas • Change in CS:-a-b-c-d • Change in PS:+a • Change in Government revenue: +c • Total Net Change in Welfare: -b -d

  6. Quota Rents • Quota rents are profits that go to the license holders • Licenses can be obtained at the auction by competitive bidding • Licenses can be given to domestic producers • Licenses can be given to foreigners – Voluntary Export Restraint (VER) agreement

  7. Similarities and dissimilarities of tariffs and quotas • Tariffs and quotas are similar in their effects on prices, output, and imports • The interpretation of area c differs • Effects of these alternative policies on the behavior of the protected industry (monopolist’s behavior) • If domestic firm has a market power in its own market, then it will charge higher prices and produce less under quota protection and under tariff protection

  8. Similarities and dissimilarities of tariffs and quotas • Tariff and quota are different if market forces change over time • These two forms of protection has to do with administrative difficulties • Quota protection encourages much more draft and corruption

  9. Tariff Rate Quotas • Quotas are viewed as being more restrictive than tariffs • Tariff rate quotas (TQRs) • Phaseout of worldwide textile and apparel quotas is to be completed in 2005 • Used for temporary protection of locally distressed industries

  10. Other nontariff barriers • Export subsidy: a payment (direct or indirect) by a government to an industry that leads to an expansion of exports by that industry • Exporters charge a lower price • Exporters are able to gain a larger share in the world market • Export subsidies on manufactured goods are forbidden by WTO, WTO permits it on primary products (US subsidizes export of some of agricultural products)

  11. Other forms of export subsidies: tax rebates, subsidized loans to foreign purchasers, government funding for research and development, direct grants • To deal with export subsidies and to raise the price for a product a country can impose a tariff on the subsidized exports, which is called countervailing duty

  12. Government procurement policies • “Buy American” Acts, 1933 (12% rule, exception for the Department of Defense) • Other countries have similar policies: “Buy Britain”, Japan purchasing or leasing high tech from their own producers • In 1979 countries that signed a special code would grant each other equal access to government contracts • In 1994 during a Uruguay Round agreement, the government procurement code was expanded

  13. Government Procurement Policies • This agreement also known as the WTO Agreement on Government Procurement, included US, Canada, EU, Japan, Norway, Switzerland, and Korea • Health and Safety Standards • Governments regulate production of products deemed to be hazardous to the health and safety of their citizens

  14. Health and Safety Regulations • In mid-80s, the government of Japan banned all foreign made skis • In 1989 EU imposed an embargo on beef imports containing growth hormones • This ban had an effect on US beef exports, and in 1996 US initialized a formal WTO dispute with the EU • In 1997 an independent WTO panel ruled in favor of US

  15. Failure to Protect Intellectual Property Rights • Intellectual property is defined as the innovative or creative ideas of inventors, artists, or authors • In mid-1990s US computer software industry estimated that 49 out of 50 programs used in China were pirated, loss in sales of these programs to China was estimated as $500 million annually • US pharmaceutical companies have lost $600 million annually in their exports because of Argentine policy

  16. Intellectual Property Rights • Intellectual property protection of pharmaceutical products is a controversial issue now • Another problem in trade is the counterfeit goods • Because of these problems US pushed Uruguay Round to create the Trade Related Intellectual Property Rights agreement

  17. NTBs in industrialized countries • Table 7.3(page 196) shows percentage of product categories affected by NTBs for 1988 and 1993

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