1、2022-5-28Chen QingpingAnhui University of Finance and Economy6 - 1An Introduction to International EconomicsChapter 6: Nontariff Barriers and the Political Economy of ProtectionismDominick SalvatoreJohn Wiley & Sons, Inc.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 2Nontariff bar
2、riers to trade The previous chapter explored the effect of tariffs as barriers to international trade. This chapter extends this discussion by considering the effects of barriers to trade other than the tariff such as: Quotas Voluntary export restraints (VERs) Regulations Export subsidies DumpingChe
3、n QingpingAnhui University of Finance and Economy2022-5-286 - 3Nontariff barriers to trade The previous chapter explored the effect of tariffs as barriers to international trade. This chapter extends this discussion by considering the effects of barriers to trade other than the tariff such as: The g
4、rowth of these nontariff barriers is important as they have grown in use in recent years and their effects are typically not as transparent as with a tariff. This increases the opportunity for hidden protectionism.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 4Quotas A quota is a
5、numerical limit on the number of allowed imports. Using the example from tariffs, a quota that reduces imports to the same numerical amount as an equivalent tariff changes the market in a similar way to the tariff.QuotaChen QingpingAnhui University of Finance and Economy2022-5-286 - 5Quotas Initial
6、effects of a quota The equilibrium price under a quota (the quota price) will be the same as the price with an equivalent tariff.QuotaChen QingpingAnhui University of Finance and Economy2022-5-286 - 6Quotas Initial effects of a quota The equilibrium price under a quota (the quota price) will be the
7、same as the price with an equivalent tariff. The level of production will be the same as with a tariff.QuotaProductionChen QingpingAnhui University of Finance and Economy2022-5-286 - 7Quotas Initial effects of a quota The equilibrium price under a quota (the quota price) will be the same as the pric
8、e with an equivalent tariff. The level of production will be the same as with a tariff. The level of domestic consumption will be the same as with a tariff.QuotaConsumptionChen QingpingAnhui University of Finance and Economy2022-5-286 - 8Quotas Initial effects of a quota The level of production will
9、 be the same as with a tariff. The level of domestic consumption will be the same as with a tariff. The allocation of the quota rents depends on how the government allocates the licenses to import the product.QuotaQuota rentChen QingpingAnhui University of Finance and Economy2022-5-286 - 9Quotas Ini
10、tial effects of a quota The level of domestic consumption will be the same as with a tariff. The allocation of the quota rents depends on how the government allocates the licenses to import the product. The same regions of deadweight loss exist.QuotaDeadweight lossChen QingpingAnhui University of Fi
11、nance and Economy2022-5-286 - 10Concerns about quotas The initial effects of a tariff and a quota are similar. The effect of market changes Changes in domestic supply or demand alter imports with a tariff. Since imports are fixed with a quota, the quantity of imports does not change with market chan
12、ges.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 11Concerns about quotas The initial effects of a tariff and a quota are similar. The effect of market changes The effect of imperfect competition By introducing a numerical limit on imports, quotas limit the competition faced by do
13、mestic producers. This better allows domestic producers to exploit their monopoly power.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 12Concerns about quotas The initial effects of a tariff and a quota are similar. The effect of market changes The effect of imperfect competition T
14、he allocation of the quota rents is ambiguous If the government auctions off the licenses, it should capture the quota rent. If the allocation of the quota rent is arbitrary, it is possible that a portion of the quota rent will be lost to the society.Chen QingpingAnhui University of Finance and Econ
15、omy2022-5-286 - 13Voluntary export restraints A voluntary export restraint exists when the exporting nation voluntarily restricts its exports to a numerical limit. Generally, this action is taken to reduce the likelihood of the importing country imposing some other form of barrier to trade. The welf
16、are effects are similar to quotas but with the quota rent going to the foreign producer. In 1981, Japan and the US agreed to a VER of 1.68 million automobiles to be imported annually by the US from Japan.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 14Regulations Health and safety
17、 regulations may serve as barriers to international trade by raising the costs of imported products Government purchasing restrictions may be biased against foreign goods The Buy American Act of 1933Chen QingpingAnhui University of Finance and Economy2022-5-286 - 15International cartels An internati
18、onal cartel may form to limit sales For example, OPEC (the Organization of Petroleum Exporting Countries) acts to limit exports of petroleum. The Energy Information Administration provides a good summary of current activities of OPEC WWW linkChen QingpingAnhui University of Finance and Economy2022-5
19、-286 - 16Dumping Dumping exists when (1) the sales price in the importing country is lower than the sales price in the exporting country or (2) the sales price in the importing country is below the costs of production. Types of dumping Persistent Sporadic PredatoryChen QingpingAnhui University of Fi
20、nance and Economy2022-5-286 - 17Dumping Dumping exists when (1) the sales price in the importing country is lower than the sales price in the exporting country or (2) the sales price in the importing country is below the costs of production. Types of dumping Countervailing duty US international trad
21、e law allows for the imposition of a tariff (known as a countervailing duty) just sufficient raise the domestic price to either the foreign price or the average costs of production.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 18Arguments for protectionism Fallacious argument 1 “T
22、rade restrictions are needed to protect domestic labor against cheap foreign labor.” The cost of labor is only partially determined by wages. Greater productivity may more than offset the advantages offered by low foreign wages.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 19Argum
23、ents for protectionism Fallacious argument 1 “Trade restrictions are needed to protect domestic labor against cheap foreign labor.” Fallacious argument 2 “Scientific tariffs are needed so that domestic producers can compete.” A scientific tariff raises the price of imports to the domestic price. Thi
24、s does increase domestic production but it also eliminates imports.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 20Arguments for protectionism Questionable argument 1 “Trade restrictions are needed to reduce domestic unemployment.” Trade restrictions may reduce imports and lead to
25、 an expansion in the economy which will lower unemployment in the short-run. This conclusion hinges on there being no retaliation by foreign nations.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 21Arguments for protectionism Questionable argument 1 “Trade restrictions are needed t
26、o reduce domestic unemployment.” Questionable argument 2 “ Trade restrictions are needed to cure a balance of payments deficit.” As with the previous argument, trade restrictions may have this effect but the conclusion hinges on a lack of retaliation by other countries.Chen QingpingAnhui University
27、of Finance and Economy2022-5-286 - 22Arguments for protectionism A qualified argument “Infant industries need to be protected so that they can become established industries.” A new industry likely does not have the skills and experience to be a successful competitor in the international market place
28、. To gain these skills the firm must be protected from competition for a limited period of time. Qualifications The protection must be of limited duration. A production subsidy is the lowest cost tool for achieving this end.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 23Strategic
29、 trade policy Oligopolistic markets subject to external economies may benefit from government intervention. Examples Semi-conductors Aircraft production The dispute between Boeing and Airbus taken to the WTO in 2004 is an example of such policy.Chen QingpingAnhui University of Finance and Economy202
30、2-5-286 - 24Strategic trade policy Oligopolistic markets subject to external economies may benefit from government intervention. Concerns Which industries does the argument apply to? Can the government pick winners? Retaliation in other markets may eliminate any gains.Chen QingpingAnhui University o
31、f Finance and Economy2022-5-286 - 25The history of US commercial policy 1930 Smoot-Hawley Tariff Act Raised average import duties to 59 percent by 1932 Spurred international retaliation Chen QingpingAnhui University of Finance and Economy2022-5-286 - 26The history of US commercial policy 1930 Smoot-
32、Hawley Tariff Act 1934 Trade Agreements Act Authorized the president to negotiate mutual tariff reductions by as much as 50 percent Reductions were based on the principle of most favored nation The most favored nation principle extends to all trading partners any reciprocal tariff reduction negotiat
33、ed with any trading partner. For example, a negotiated reduction with Canada would extend to Mexico if it had most favored nation status.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 27The history of US commercial policy 1930 Smoot-Hawley Tariff Act 1934 Trade Agreements Act 1947
34、The General Agreement on Tariffs and Trade (GATT) The U.S. joined the newly formed GATT. GATT is designed to promote expanded international trade through multilateral negotiations.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 28The history of US commercial policy 1930 Smoot-Hawley
35、 Tariff Act 1934 Trade Agreements Act 1947 The General Agreement on Tariffs and Trade (GATT) 1950s Movements away from free trade Peril-point provisions Escape clause National security clauseChen QingpingAnhui University of Finance and Economy2022-5-286 - 29The history of US commercial policy 1947 T
36、he General Agreement on Tariffs and Trade (GATT) 1950s Movements away from free trade 1962 Trade Promotion Act Authorized the president to negotiate across the board tariff reductions of up to 50 percent. Introduced Trade Adjustment Assistance (TAA) to workers displaced by international trade. Allow
37、ed the passage of the Kennedy Round negotiation of the GATT.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 30The history of US commercial policy 1947 The General Agreement on Tariffs and Trade (GATT) 1950s Movements away from free trade 1962 Trade Promotion Act 1974 Trade Reform Ac
38、t Authorized the president to negotiate tariff reductions of up to 60 percent and the elimination of tariffs below 5 percent. Contributed to passage of the Tokyo Round negotiations of the GATT.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 31The history of US commercial policy 1950
39、s Movements away from free trade 1962 Trade Promotion Act 1974 Trade Reform Act 1984 The Trade and Tariff Act Authorized the president to negotiate international agreements for the protection of intellectual property rights. Extended the system by which developing nation exports are granted preferen
40、tial access to US markets.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 32The history of US commercial policy 1950s Movements away from free trade 1962 Trade Promotion Act 1974 Trade Reform Act 1984 The Trade and Tariff Act 1988 Omnibus Trade and Competitiveness Act Required the U
41、.S. Special Trade Representative to set a rigorous schedule for negotiating reductions in trade barriers with countries maintaining high barriers to U.S. exports.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 33The history of US commercial policy 1962 Trade Promotion Act 1974 Trade
42、 Reform Act 1984 The Trade and Tariff Act 1988 Omnibus Trade and Competitiveness Act 1993 The Uruguay Round The Uruguay Round of negotiations of the GATT was completed in December 1993. Given the wide ranging implications of this round of negotiations, it will be considered in detail.Chen QingpingAn
43、hui University of Finance and Economy2022-5-286 - 34The Uruguay Round Eighth round of negotiations for the GATT 123 nations participated in the negotiations The agreement took effect on July 1, 1995Chen QingpingAnhui University of Finance and Economy2022-5-286 - 35Provisions of the Uruguay Round Tar
44、iffs Tariffs on industrial products falls from an average of 4.7 percent to an average of 3 percent. The share of good with zero tariffs increases from 20-22 percent to 40-45 percent. Tariffs removed on pharmaceuticals, constructions equipment, medical equipment, paper products, and steel.Chen Qingp
45、ingAnhui University of Finance and Economy2022-5-286 - 36Provisions of the Uruguay Round Tariffs 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 2004Chen QingpingAnhui University
46、of Finance and Economy2022-5-286 - 37Provisions of the Uruguay Round Tariffs Quotas Antidumping The use of countervailing duties is not eliminated but a new dispute resolution mechanisms are put in place.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 38Provisions of the Uruguay Rou
47、nd Tariffs Quotas Antidumping Subsidies The volume of subsidized agricultural products was to be reduced by 21 percent by 1999. Government subsidies for industrial research were limited to 50 percent of the applied research cost.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 39Prov
48、isions of the Uruguay Round Quotas Antidumping Subsidies Safeguards Countries are barred from implementing health and safety standards that are not based on scientific research. Temporary tariffs are allowed to protect domestic industries from temporary imports surges.Chen QingpingAnhui University o
49、f Finance and Economy2022-5-286 - 40Provisions of the Uruguay Round Quotas Antidumping Subsidies Safeguards Intellectual property The agreement calls for 20 year protection of patents, trademarks, and copyrights. A 10 year phase-in period is allowed for patents over pharmaceuticals in developing cou
50、ntries.Chen QingpingAnhui University of Finance and Economy2022-5-286 - 41Provisions of the Uruguay Round Quotas Antidumping Subsidies Safeguards Intellectual property Services Banking and security markets in Japan and South Korea were opened to U.S. firms.Chen QingpingAnhui University of Finance an
