360-7 - Chapter 7 NonTariff Barriers (NTBs) and Arguments...

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Chapter 7 – NonTariff Barriers (NTBs) and Arguments for Protection 1. NTBs include quotas, subsidies, health & safety standards, government procurement policies. 2. Arguments for protection – protection of jobs, industry restructuring, national defense, government revenue. Conclusions: a) most arguments for protection have no merit, and b) even when arguments in favor of protection are valid (save jobs, etc.), protectionism is seldom the best way to achieve the stated goal. QUOTAS Quotas: Gov’t. imposed limits on imports or exports, either quantity or value, e.g., maximum M of 1.25m tons of sugar/year, or maximum M of $25m of cotton blouses. Effect of quota : Same as tariff, Price _____ , Q S domestically _______ and M _______. Embargo: Complete ban on M or X (Quota = 0), e.g. Cuba embargo on M (1962) and X (1960). Cuba appealing to UN and US to lift embargo. Other current embargoes exist for Iran, Iraq, Libya and N. Korea, see the list as of 2002 at: http://www.itic-members.com/pubs/intSept02tradeprohibitions.htm . Export embargoes are used for national defense reasons, to restrict X of certain “high- tech” goods to unfriendly countries, to limit military expansion or development of weapons. See Dept of State website for current embargoes on defense goods and services to specific countries: http://www.pmdtc.org/country.htm . Quotas are generally more restrictive than tariffs, so the WTO prohibits quotas for most manufactured products, exceptions are agricultural products; and textiles and apparel (being phased out by 2005). As all quotas get phased out, tariff rate quotas (TRQs) are often used, which is a two-part tariff combined with a quota. Up to the quota, tariff rates are low or zero to the “in-quota volume”), and above the quota tariff rates are significantly higher for the (“over quota volume”). Example: U.S. TRQ for peanuts. In-quota volume = 53,000 metric tons, in-quota tariff is free for Canada, Israel, Caribbean Basin, Andean Pact, 9.35¢/kilogram for Argentina. Over quota tariff is 164% for all countries. For $100 of peanuts, the tariff is $164, total cost is $264, or 2.64X the actual value. International trade law also allows temporary quotas for temporary protection of locally distressed industries, or for balance-of-payments problems. 1 January 23, 2012
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Examples of U.S. and other quotas and TRQs in 2001: see p. 183. Voluntary Export Restraints (VERs) are “voluntary” bilateral quota agreements under which the exporting country agrees to limit its Xs to the importing country, e.g. the 1981 VER with Japan for limits on automobiles. These are being phased out. Unallocated Quotas are quotas imposed with a fixed overall limit, but with no quota allocation among different countries. Result: First come-first served, and once quota is reached, latecomers are turned away. Fairly uncommon because: 1. Ports of entry are overloaded during the early part of the quota period, as exporters all rush to get products into the country, resulting in inefficiencies. 2. Some countries may lose their historical market share during a switch to unallocated
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This note was uploaded on 01/23/2012 for the course ECON 360 taught by Professor Staff during the Spring '11 term at University of Michigan.

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360-7 - Chapter 7 NonTariff Barriers (NTBs) and Arguments...

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