Topic 4 Trade Policies & Tariffs-quotas.ppt

Topic 4 Trade Policies & Tariffs-quotas.ppt - Trade...

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Trade Policy & Tariffs 1. Instruments of trade policy Tariffs Quotas Other Non-tariff Barriers to Trade Lecturer: Mwangi Isaac [email protected]
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Tariffs Tariff: A tariff is a tax on imported good. specific tariff: (a monetary sum that must be paid to import 1 physical unit of a product) Advantage: easy to collect Disadvantage: doesn’t take price changes into account ad valorem tariff: (a percentage of the monetary value of 1 unit of import) Advantage: takes price changes into account Disadvantage: Need to know the monetary value of the good and seller is tempted to undervalue the price
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Tariffs Other instruments Import subsidy negative import tariff Export tariff/subsidy (levied/paid on home- produced goods that are destined for export) Why impose tariff? To discourage consumption To raise revenue To discourage imports To protect domestic industries
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4 Features of Tariff Schedules Preferential duties products form certain countries are subject to lower tariffs than the normal tariff rate Generalized System of Preferences ( GSP ) for developing countries Most-favoured-nation ( MFN ) treatment = normal trade relations (NTR) “if country A grants country B the status of most- favoured nation, it means that B’s exports will face tariff that are no higher (nor lower) than those applied to any other country that A calls a MFN” (Economics A-Z in The Economist website)
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Optimal Tariff For a small country: A zero tariff rate For a large country that can affect the terms of trade: Maximize the difference between the gain (s) and the losses from a tariff
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6 Non-tariff Barriers to Trade Import Quotas: A limit on the quantity of imports a government agency allocates the rights to import limits the number of goods (not the price) for a given time period Now consider the gains and losses from the quota: -Note that the effects are identical with those of a tariff. -Because the quota raises the domestic price, domestic sellers are better off, and domestic buyers are worse off. -However, the surplus from the quota is different from the case of a tariff. (This is important and the distinctive character of a quota from a tariff). To measure the gains and losses, we look at the changes in consumer surplus, producer surplus, and quota surplus.
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Non-tariff Barriers to Trade “Voluntary” export restraints (VER) foreign suppliers agree to “voluntary” refrain from sending some exports Government procurement provisions restriction on purchasing foreign products by the domestic government agencies Domestic content provisions a given percentage of the value of a good must consist of domestic components or labour
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8 Non-tariff Barriers to Trade Administrative classification different tariffs to different product categories + leeway for customs officials to decide on classification Restrictions on services trade Trade-related investment measures
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