NONTARIFF TRADE BARRIERS AND THE NEW PROTECTIONISM

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NONTARIFF TRADE BARRIERS AND THE NEW PROTECTIONISM

• Policies other than tariffs that restricts
  international trade.
• NTB trade coverage ratio
• percentage of imports subject to NTBs.

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Import Quota

• Direct quantitative restriction on the amount of
  good allowed to be traded (usually below the
  free-trade level)
• Import quotas can be
• Global quota
• Selective quota

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Global Quota

• Restrict total quantity of an import, regardless
  of origin.
• Leads to
• rush of import
• distant locations are discriminated against
• well connected large importers are favored

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Selective Quota

• restrict the quantity of a good coming from a
  particular country.
• Distant location discrimination is eliminated
• Others remain

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Sugar Import Quotas

• Traditionally U.S. sugar growers received govt.
  subsidies (price support of .17/lb).
• In 1982 sugar price plunged to .06. Govt. cost
  of maintain price was 800m.
• One way to increase price was to raise tariff.
  But U.S. tariff code prohibited imposing tariff
  more than 50.
• In 1982, Govt. imposed quota to increase domestic
  price that fixed nation-by-nation import
  allocations for 24 countries.

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Economic Effects of Sugar Quota

• U.S. sugar quota is 1.4 million tons per year.
• It double the price with 2.5 billion loss of
  consumer surplus. Out of that, producers get 1.8
  billion, .4 billion goes to foreign exporters,
  and .3 billion deadweight loss.
• Thus the net loss to the U.S. is .7 billion.
• Average every American spends 8.33 (2.5
  billion/300 million) more due to quota.
• Average profit of a few thousand large firms
  increases by about 1-2 million.
• 9700 jobs saved due to quota costs consumers
  258,000/job, (2.5 billion/9700).

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Import Quota vs. Import Tariffs

• Govt. revenue goes to importers or exporters
• Shift in the demand curve
• price quantity effect
• Distribution of import licenses
• Auction in a competitive market
• Captures monopoly profit
• Official judgments
• Corruption
• Import quota limits import to a specified level
  with certainty

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Tariff-rate Quota(A Two-tiered Tariff)

• A specified number of goods (up to the quota
  limit) may be imported at one (lower) tariff
  rate, while imports in excess of the quota face a
  higher tariff rate.
• License on demand allocation Licenses are
  required to import at within-quota tariff. If
  demand for licenses is less than the quota then
  first-come-first served system. If demand exceeds
  quota, import request is reduced proportionally.

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Orderly Marketing Agreements (OMA)

• Market sharing pact signed by trading partners
• Intended to protect less efficient domestic
  producers
• Usually involve voluntary export restraints, or
  export quotas

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Export quota effects

• Under import quota, disposition of revenue effect
  is indeterminate. It is shared by domestic
  importers foreign exporters depending on
  bargaining power.
• Under export quota, the foreign exporter will
  capture larger share.
• Exporters prefer export quota over import quota.
• Country incurs revenue deadweight loss.

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Japanese Auto Restraints Put Brakes on U.S.
Motorists

• Fall in domestic auto sales (1981)
• Voluntary restraint pact with the Japan
• Unpopular with smaller Japanese automakers
• Record profits for Japanese auto majors
• U.S. consumer paid higher prices
• 44,000 jobs saved in the U.S. consumer cost per
  job saved being 100,000
• By 1985 Japanese companies open plants in the
  U.S. decline in imports coupled with decline in
  market share for U.S. firms

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Domestic Content Requirements

• Minimum percentage of a products total value
  that must be produced domestically to qualify for
  zero duty.
• It increases production cost.
• It imposes welfare losses on domestic consumers.

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Production Subsidy

• Payments made to import-competing producers to
  raise the price they receive above the market
  price.
• It can be cash disbursements, tax concessions,
  insurance arrangements loans at below market
  rates.
• It increases domestic production reduces
  imports.
• Subsidy revenue accruing to the producer is
  absorbed by producer surplus production
  deadweight loss.

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Production subsidy versus tariff

• Production subsidy is easy to remove
• Production subsidy distorts only production
  whereas tariff distorts production consumption

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Export Subsidy

• Direct payment to exporters or low-interest loans
  to foreign buyers to stimulate domestic export
• Export-Import Bank
• Low-interest loans finance 10 of U.S. export
  40 export of Japan France.

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Domestic International Sales Corporation (DISC)

• Reduces the effective rate of taxation on export
  income.

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Common Agricultural Policy (CAP)

• Maintain farmers' income in EEC
• Also EEC subsidy to Airbus industry

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Dumping

• The practice of selling a product at a lower
  price in export markets than at home (or
  exporting at prices below production cost)

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Types of Dumping

• Sporadic dumping
• To clear unwanted inventories or cope with excess
  capacity.
• Predatory
• Temporary price reduction abroad to drive foreign
  producers out of the market.
• Persistent dumping
• Reaping greater profits by engaging in price
  discrimination.

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Trigger-price Mechanism (1978)

• Speedy antidumping investigation in steel
  industry. Price is raised to that of lowest-cost
  country.

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Other NTBs

• Safety regulations
• Automobile, electrical equipment
• Health regulations
• Hygienic production, packaging of food products,
  labeling requirements showing origin contents
• Buy American Act of 1933
• Govt agencies give price advantage of up to 12
  to domestic suppliers (50 to defense contracts).

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Department of State

• The Department of State reports on the history,
  politics, and economic and trade policies of the
  countries with which U.S. regularly trades
  http//www.state.gov/

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Information on Trade Restrictions

• Report on foreign trade barriers can be found at
  the web site of the Office of the U.S. Trade
  Representatives (OUSTR) http//www.ustr.gov/repor
  ts/index.shtml
• The Sectoral Trade Barriers Database of
  selected countries prepared by European Union can
  be accessed through http//mkaccdb.eu.int/