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CHAPTER 9 NONTARIFF BARRIERS TO IMPORTS Objectives of the Chapter This chapter notes the numerous other ways to restrict foreign trade without using a tariff. Nontariff barriers (NTBs) have gained importance since World War II as a result of continuous multilateral negotiations to cut tariffs. Many of these barriers reduce imports to a fixed amount by either setting an import quota or coercing the exporting country to limit its exported quantity. Other barriers restrict the quantity of imports through discrimination by quality or content. Import tariffs, import quotas, and voluntary export restraints (VERs) all have the same effects on the home country’s producers and consumers: the producers win and the consumers lose. The major difference in economic impact comes in who receives the profits from higher-priced imports. In the case of a tariff, the government collects the revenue in the form of the import tax. In the case of a quota, the government may auction rights to import the limited quota amount (in which case the quota looks just like a tariff), or the government may use some alternative form of license distribution such as favoritism (in which case the cronies who receive the licenses get the windfall). With a VER, the windfall goes to the agents in the exporting country who get the privilege of selling expensive imports to the country. After studying Chapter 9 you should know 1. the rationale behind imposing nontariff trade barriers. 2. the import quota and reasons for using it. 3. how a tariff and a quota can be equivalent. 4. the ways to allocate import licenses. 5. the comparisons between import quotas and VERs. 6. other costs that arise from erecting import barriers, such as foreign retaliation. Important Concepts Domestic content requirements: Directs that a product made or assembled in a country must have a certain amount of “domestic value,” in the form of local factors of production that are used in (or locally made components that are part of) the finished product. Fixed favoritism:
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This note was uploaded on 02/18/2010 for the course ECON 343 taught by Professor Dblack during the Fall '09 term at University of Delaware.

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