Ch9_Non-Tariff Barriers


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Unformatted text preview: NON-TARIFF BARRIERS TO IMPORTS NON- 1 Agenda • Examine various NTBs and their effects • Examine the evidence on how large the deadweight losses actually are • As the GATT and the WTO helped reduce tariffs NTBs have grown 6 Overview • Tariffs are not the only way to limit or impede import Politicians are much more clever than that! • Among the techniques: Import quotas Voluntary Export Restraints (VERs) Discriminatory product standards Buy-at-home rules for government purchases Local content requirements Red tape to harass importers Import licensing 8 •1 Overview (cnt) cnt) • NTBs for sure Help producers that compete with the targeted imports Harm domestic consumers • NTBs Probably hurt the importing nation as a whole Almost surely hurt the word as a whole 9 Overview (concl.) concl.) • A very destructive property of NTBs not considered in the models we study is that they provide easy opportunities for government corruption, bribes, etc. • Corruption and the opportunities created for it is a big problem in developing and underdeveloped countries Not that developed countries are immune! 10 Non-Tariff Barriers Any policy other than tariffs used by government to reduce imports government • Import quotas Limit on the total quantity of imports allowed into a country 11 •2 Non-Tariff Barriers • Voluntary export restraints The importing country government coerces foreign exporters to agree “voluntarily” to restrict their exports to the country 12 Non-Tariff Barriers • Other non-tariff barriers Product standards in the name of health, sanitation, safety, etc. Government procurement Domestic content requirements Import licensing 13 Import Quota • More precise than a tariff in reducing imports to the desired levels The impact of a tariff on imports may be uncertain. In particular, it wouldn’t be as effective if foreign exporters reduce prices 14 •3 Import Quota • Quotas do not generate revenues for the government directly • BUT, Government official receive greater power from a quota! They have administrative authority over who gets the import licenses 15 Import Quota • The welfare consequences of a quota may be worse than a tariff : When import licenses are allocated inefficiently this creates monopoly power When there is growth the effect is worse The quota-imposing country shuts out the benefits of technological innovations from the import 16 16 Free Trade Equilibrium (Small Country) Sd 500 Gains from free trade 368 World price 300 Dd 210 0.60 1.06 1.60 17 •4 Equilibrium With Quota (Small Country) Sd +Quota Sd Who gets F? A D 351 B Price with quota F E G 300 World price C Import Quota 0.60 Dd 0.25 0.94 1.19 1.60 Losses from quota 18 Demand and Supply Of Imports (Small Country) Domestic market International market Dd - Sd 351 300 0.60 0.94 1.19 1.60 0.25 1.0 19 Effects of a Quota • The effects are analogous to that of a tariff There is a quota that will match price and quantity of a tariff, in a static environment (0 growth) • Four big differences: 20 •5 Effects of a Quota • Someone other than the home government is likely to get the “tariff revenue” Distributed by Auction (gov gets revenues) Allocation of licenses to importers Fixed favoritism Some of these use resources to make things worse! • If world prices drop or home production becomes more inefficient, consumers lose more 21 Effects of a Quota • As the economy grows the level of protection rises unless the quotas are increased • Helps monopolists maintain their monopolies 22 With Demand and Supply of Imports (Large open economy) Domestic market 0.60 - 0.80 1.10 1.60 = Losses from imposing the quota International market 0.30 1.00 Additional world losses 23 •6 Equilibrium With Quota (Large Country) Sd Sd + Quota Quota A D PQuota B PFreeTrade PWorldPrice F E C Sd + SForeign Dd M QDomestic - G H QQuota = Minimum Losses from imposing the quota 24 Voluntary Export Restraints (VER) The government of the importing country coerces the exporting country to agree to restrict “voluntarily” voluntarily” specific exports to the country • Formally, VERs do not violate agreements that limit tariffs or quota restrictions For example GATT Also, it may be politically easier to introduce them 25 VERs (concl) concl) • For the importing country, the welfare losses are larger as it loses the implied tariff revenue • For the exporting country, the welfare consequences could be positive or negative They get the implied tariff revenue! • It may lead to strategies of “quality upgrading” from the exporting country same quantity but higher value exported Encourages other countries to “fill the void” 26 •7 Allocation of Import Licenses • Government allocates licenses for free This may generate some favoritism Sometimes it is based on shares of imports before the quota This may reduce opposition from importers because importers will appropriate the surplus It sounds like bribing the importers … 34 Allocation of Import Licenses (cnt) cnt) • Government allocates licenses with auctions It allows the government to appropriate the surplus Just like with a tariff Not very common 35 Allocation of Import Licenses • Government allocates licenses application and selection procedures through Based on First-come, first-served Demonstration of need or worthiness Negotiations This encourages lobbying practices and the waste of resources Of course it makes campaign financing easier! 36 •8 Other Non-Tariff Barriers Non• Product Standards: Often imposed in the name of health, sanitation, safety, the environment Hard to tell what is “non-discriminatory” Turtle-safe fish catch Cheese must be made from pasteurized milk in the U.S. Sealed-beam headlights! Is beer made with male hops really beer? Is hormone-fed beef dangerous to your health? Are GM foods dangerous to you or to the environment? 37 Other NTBs (cnt) cnt) • Domestic Content Requirements: Mandating that a product produced and sold in a country must have a minimum amount of domestic value-added From labor costs From materials and components produced within the country 38 Other NTBs • Government Procurement: Governments tend to buy domestically produced goods even if they are more expensive than foreign goods. Since the volume of government purchases tends to be high, this could be considered an economically important protection mechanism USAF doesn’t fly Migs and Mirages! It does fly Harriers! 39 •9 Other NTBs • Restrictions on services trade restrictions on foreign insurance companies foreign ships not allowed to carry cargo between domestic ports (U.S., etc.) foreign airlines cannot transport passengers within the U.S. landing rights for foreign aircraft are limited Open space? Canada, E.U. versus U.S. Open skies policy hard to put in place 40 Other NTBs • Foreign exchange controls exporters are required to sell their foreign exchange earnings to the central bank, which in turn parcels out to importers selectively Advance deposit requirement license to import is awarded only if the importing firm deposits with the government specific funds 41 Costs of Protection • The text discusses how some of the costs are calculated Read it if you are curious • Figure 9.4 shows one set of calculations done in 1990 42 •10 Costs of Protection (cnt) cnt) • Some obvious conclusions VERs offer strong protection (they are very expensive) Consumers always lose much more than consumers! Around $2 per $1 of protection U.S. consumers carry the brunt of protectionism But the total losses are not eye-popping (~0.2% of GDP) Seeking the optimal tariff is not the explanation here ToT gains are often negative 43 The Politics of Protection • To understand why there is protection and so much resistance to dismantling such protection, ask yourselves: What is the per/capita loss to a business when protection is lifted? What is the per/capita gain to consumers when protection is lifted? Who is more likely to lobby, support, finance, or bribe politicians to vote favorably to them? 44 44 Summary: The Impact of NTBs • NTBs for sure Help producers that compete with the targeted imports Harm domestic consumers • NTBs Probably hurt the importing nation as a whole Almost surely hurt the word as a whole 45 45 •11 Summary: The Impact of NTBs • Governments can get very inventive in trying to protect domestic producers • Many of the methods used hurt the consumers and the country more than tariffs! 46 THE END 47 •12 ...
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