International Economics By Robert J. Carbaugh 7th Edition

1. International EconomicsBy Robert J. Carbaugh7th Edition Chapter 6: Non-tariff trade barriers

2. Types of non-tariff barriers Import quotas • Quotas are a restriction on the quantity of a good that may be imported in any one period (usually below free-trade levels) • Global quotas restrict the total quantity of an import, regardless of origin • Selective quotas restrict the quantity of a good coming from a particular country Carbaugh, Chap. 6

3. Types of non-tariff barriers Import quota: trade & welfare effects SUS SUS+Q Price ($) Quota a b c d SEU DUS Carbaugh, Chap. 6

4. Types of non-tariff barriers Effects of a quota on sugar imports Price of raw sugar (cents/lb.) SUS 21.8 Quota premium a c b d SW+T 17.8 Duty SW 15.0 Quantity of raw sugar per year (mill. short tons) DUS 4.296 6.045 9.025 9.356 Quota Carbaugh, Chap. 6

5. Types of non-tariff barriers Comparing tariffs and quotas Tariff restriction Quota restriction Price ($) Price ($) SUS0 SUS0 SJ1 SJ0 SJ0 DUS1 DUS1 DUS0 DUS0 Carbaugh, Chap. 6

6. Types of non-tariff barriers Tariff-rate quota • The tariff-rate quota is 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 Carbaugh, Chap. 6

7. Types of non-tariff barriers Tariff-rate quota: trade & welfare effects SUS Price ($) SW+20% d c g SW+10% e f a b SW DUS Carbaugh, Chap. 6

8. Types of non-tariff barriers Orderly marketing agreements • Market sharing pact signed by trading partners • Intended to protect less efficient domestic producers • Usually involve voluntary export restraints, or export quotas Carbaugh, Chap. 6

9. Types of non-tariff barriers Effects of a voluntary export quota Japanese export quota with German imports Japanese export quota Price ($) Price ($) SUS SUS SUS+Q SUS+Q+N k k h h j j i i l l SG SG a a c d c d e f e f g g b b SJ SJ DUS DUS Carbaugh, Chap. 6

10. Types of non-tariff barriers Domestic content requirements • Rules that require a certain percentage of a product’s total value to be produced domestically • Often has the effect of forcing lower-priced imports to include higher-cost domestic components or be assembled in a higher-cost domestic market Carbaugh, Chap. 6

11. Types of non-tariff barriers Domestic content: trade & welfare effects Price ($) ST a b SJ c d DA Carbaugh, Chap. 6

12. Types of non-tariff barriers Subsidies • Domestic subsidy • Payments made to import-competing producers to raise the price they receive above the market price • Export subsidy • Payments and incentives offered to export producers intended to raise the volume of exports Carbaugh, Chap. 6

13. Types of non-tariff barriers Subsidies: trade & welfare effects Domestic subsidy SUS0 Price ($) Subsidy SUS1 a b SW DUS Carbaugh, Chap. 6

14. Types of non-tariff barriers Subsidies: trade & welfare effects Export subsidy SJ0 Price ($) G Subsidy SJ1 E F DUS Carbaugh, Chap. 6

15. Types of non-tariff barriers Dumping • The practice of selling a product at a lower price in export markets than at home (or exporting at prices below production cost) • Sporadic dumping - to clear unwanted inventories or cope with excess capacity • Predatory dumping - to undermine foreign competitors • Persistent dumping - reaping greater profits by engaging in price discrimination Carbaugh, Chap. 6

16. Types of non-tariff barriers Other NTBs • Government procurement policies • Social regulations (health, environmental and safety rules can also restrict trade) • Sea transport and freight restrictions Carbaugh, Chap. 6