AEM 2300 Prelim #2 Review - AEM 2300 Prelim #2 Review...

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AEM 2300 Prelim #2 Review Chapter 5: Nontariff Trade Barriers Nontariff Trade Barriers (NTB) - policies other than tariffs that restrict international trade Have become the most widely discussed topics at recent rounds of international trade negotiations. Although tariffs have come down in recent decades, nontariff trade barriers have multiplied. Import Quota Import Quota - a physical restriction on the quantity of goods that may be imported during a specific time period; the quota generally limits imports to a level below that which would occur under free-trade conditions. Import License - used to administer an import quota; a license specifies the volume of imports allowed. o Licenses can be sold to importing companies at a competitive price, or simply a fee. Governments may also just give them away to preferred importers. o Import quotas on manufactured goods have been outlawed by the World Trade Organization. Global Quota - this technique permits a specified number of goods to be imported each year, but it does not specify from where the product is shipped or who is permitted to import. o In practice, the global quota becomes unwieldy because of the rush of both domestic importers and foreign exporters to get their goods shipped into the country before the quota is filled. Global quotas are plagued with accusations of favoritism against merchants fortunate enough to be the first to capture a large portion of the business. Selective Quota - an import quota allocated to specific countries o Selective quotas suffer from many of the same problems as global quotas. Another feature of quotas is that their use may lead to domestic monopoly of production and higher prices. Because a domestic firm realizes that foreign producers cannot surpass their quotas, it may raise its prices. Tariffs do not necessarily lead to monopoly power, because no limit is established on the amount of goods that can be imported into the nation. Trade and Welfare Effects o By restricting available supplies of an imported product, a quota leads to higher import prices. This price umbrella allows domestic producers of the import-competing good to raise prices. Te result is a decrease in consumer surplus. Of this amount, the welfare loss to the importing nation consists of the protective effect, the consumption effect, and that portion of the revenue effect that is captured by the foreign exporter. Allocating Quota Licenses o Governments use different methods to allocate the limited supply of imports among domestic importers.
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o In oil and dairy products, the U.S. government has issued import licenses on the basis on their historical share of the import market. But this method discriminates against importers seeking to import goods for the first time. o
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This note was uploaded on 08/12/2010 for the course AEM 2300 taught by Professor Lee,d.r. during the Spring '06 term at Cornell University (Engineering School).

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AEM 2300 Prelim #2 Review - AEM 2300 Prelim #2 Review...

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