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1、Chen QingpingAnhui University of Finance and Economy,6 - 1,An Introduction to International Economics,Chapter 6: Nontariff Barriers and the Political Economy of ProtectionismDominick SalvatoreJohn Wiley & Sons, Inc.,6 - 2,Nontariff barriers to trade,The previous chapter explored the effect of tariff
2、s as barriers to international trade.This chapter extends this discussion by considering the effects of barriers to trade other than the tariff such as:QuotasVoluntary export restraints (VERs)RegulationsExport subsidiesDumping,6 - 3,Nontariff barriers to trade,The previous chapter explored the effec
3、t of tariffs as barriers to international trade.This chapter extends this discussion by considering the effects of barriers to trade other than the tariff such as:The growth of these nontariff barriers is important as they have grown in use in recent years and their effects are typically not as tran
4、sparent as with a tariff.This increases the opportunity for hidden protectionism.,6 - 4,Quotas,A quota is a numerical limit on the number of allowed imports.Using the example from tariffs, a quota that reduces imports to the same numerical amount as an equivalent tariff changes the market in a simil
5、ar way to the tariff.,Quota,6 - 5,Quotas,Initial effects of a quotaThe equilibrium price under a quota (the quota price) will be the same as the price with an equivalent tariff.,Quota,6 - 6,Quotas,Initial effects of a quotaThe equilibrium price under a quota (the quota price) will be the same as the
6、 price with an equivalent tariff.The level of production will be the same as with a tariff.,Quota,Production,6 - 7,Quotas,Initial effects of a quotaThe equilibrium price under a quota (the quota price) will be the same as the price with an equivalent tariff.The level of production will be the same a
7、s with a tariff.The level of domestic consumption will be the same as with a tariff.,Quota,Consumption,6 - 8,Quotas,Initial effects of a quotaThe level of production will be the same as with a tariff.The level of domestic consumption will be the same as with a tariff.The allocation of the quota rent
8、s depends on how the government allocates the licenses to import the product.,Quota,Quota rent,6 - 9,Quotas,Initial effects of a quotaThe level of domestic consumption will be the same as with a tariff.The allocation of the quota rents depends on how the government allocates the licenses to import t
9、he product.The same regions of deadweight loss exist.,Quota,Deadweight loss,6 - 10,Concerns about quotas,The initial effects of a tariff and a quota are similar.The effect of market changesChanges in domestic supply or demand alter imports with a tariff.Since imports are fixed with a quota, the quan
10、tity of imports does not change with market changes.,6 - 11,Concerns about quotas,The initial effects of a tariff and a quota are similar.The effect of market changesThe effect of imperfect competitionBy introducing a numerical limit on imports, quotas limit the competition faced by domestic produce
11、rs. This better allows domestic producers to exploit their monopoly power.,6 - 12,Concerns about quotas,The initial effects of a tariff and a quota are similar.The effect of market changesThe effect of imperfect competitionThe allocation of the quota rents is ambiguousIf the government auctions off
12、the licenses, it should capture the quota rent.If the allocation of the quota rent is arbitrary, it is possible that a portion of the quota rent will be lost to the society.,6 - 13,Voluntary export restraints,A voluntary export restraint exists when the exporting nation voluntarily restricts its exp
13、orts to a numerical limit.Generally, this action is taken to reduce the likelihood of the importing country imposing some other form of barrier to trade.The welfare effects are similar to quotas but with the quota rent going to the foreign producer.In 1981, Japan and the US agreed to a VER of 1.68 m
14、illion automobiles to be imported annually by the US from Japan.,6 - 14,Regulations,Health and safety regulations may serve as barriers to international trade by raising the costs of imported productsGovernment purchasing restrictions may be biased against foreign goodsThe Buy American Act of 1933,6
15、 - 15,International cartels,An international cartel may form to limit salesFor example, OPEC (the Organization of Petroleum Exporting Countries) acts to limit exports of petroleum. The Energy Information Administration provides a good summary of current activities of OPECWWW link,6 - 16,Dumping,Dump
16、ing exists when (1) the sales price in the importing country is lower than the sales price in the exporting country or (2) the sales price in the importing country is below the costs of production.Types of dumpingPersistentSporadicPredatory,6 - 17,Dumping,Dumping exists when (1) the sales price in t
17、he importing country is lower than the sales price in the exporting country or (2) the sales price in the importing country is below the costs of production.Types of dumpingCountervailing dutyUS international trade law allows for the imposition of a tariff (known as a countervailing duty) just suffi
18、cient raise the domestic price to either the foreign price or the average costs of production.,6 - 18,Arguments for protectionism,Fallacious argument 1 “Trade restrictions are needed to protect domestic labor against cheap foreign labor.”The cost of labor is only partially determined by wages.Greate
19、r productivity may more than offset the advantages offered by low foreign wages.,6 - 19,Arguments for protectionism,Fallacious argument 1 “Trade restrictions are needed to protect domestic labor against cheap foreign labor.”Fallacious argument 2 “Scientific tariffs are needed so that domestic produc
20、ers can compete.”A scientific tariff raises the price of imports to the domestic price.This does increase domestic production but it also eliminates imports.,6 - 20,Arguments for protectionism,Questionable argument 1 “Trade restrictions are needed to reduce domestic unemployment.”Trade restrictions
21、may reduce imports and lead to an expansion in the economy which will lower unemployment in the short-run. This conclusion hinges on there being no retaliation by foreign nations.,6 - 21,Arguments for protectionism,Questionable argument 1 “Trade restrictions are needed to reduce domestic unemploymen
22、t.”Questionable argument 2 “ Trade restrictions are needed to cure a balance of payments deficit.”As with the previous argument, trade restrictions may have this effect but the conclusion hinges on a lack of retaliation by other countries.,6 - 22,Arguments for protectionism,A qualified argument “Inf
23、ant industries need to be protected so that they can become established industries.”A new industry likely does not have the skills and experience to be a successful competitor in the international market place. To gain these skills the firm must be protected from competition for a limited period of
24、time.QualificationsThe protection must be of limited duration.A production subsidy is the lowest cost tool for achieving this end.,6 - 23,Strategic trade policy,Oligopolistic markets subject to external economies may benefit from government intervention.ExamplesSemi-conductorsAircraft productionThe
25、dispute between Boeing and Airbus taken to the WTO in 2004 is an example of such policy.,6 - 24,Strategic trade policy,Oligopolistic markets subject to external economies may benefit from government intervention.ConcernsWhich industries does the argument apply to?Can the government pick winners?Reta
26、liation in other markets may eliminate any gains.,6 - 25,The history of US commercial policy,1930 Smoot-Hawley Tariff ActRaised average import duties to 59 percent by 1932Spurred international retaliation,6 - 26,The history of US commercial policy,1930 Smoot-Hawley Tariff Act1934 Trade Agreements Ac
27、tAuthorized the president to negotiate mutual tariff reductions by as much as 50 percentReductions were based on the principle of most favored nationThe most favored nation principle extends to all trading partners any reciprocal tariff reduction negotiated with any trading partner.For example, a ne
28、gotiated reduction with Canada would extend to Mexico if it had most favored nation status.,6 - 27,The history of US commercial policy,1930 Smoot-Hawley Tariff Act1934 Trade Agreements Act1947 The General Agreement on Tariffs and Trade (GATT)The U.S. joined the newly formed GATT.GATT is designed to
29、promote expanded international trade through multilateral negotiations.,6 - 28,The history of US commercial policy,1930 Smoot-Hawley Tariff Act1934 Trade Agreements Act1947 The General Agreement on Tariffs and Trade (GATT)1950s Movements away from free tradePeril-point provisionsEscape clauseNationa
30、l security clause,6 - 29,The history of US commercial policy,1947 The General Agreement on Tariffs and Trade (GATT)1950s Movements away from free trade1962 Trade Promotion ActAuthorized the president to negotiate across the board tariff reductions of up to 50 percent.Introduced Trade Adjustment Assi
31、stance (TAA) to workers displaced by international trade.Allowed the passage of the Kennedy Round negotiation of the GATT.,6 - 30,The history of US commercial policy,1947 The General Agreement on Tariffs and Trade (GATT)1950s Movements away from free trade1962 Trade Promotion Act1974 Trade Reform Ac
32、tAuthorized the president to negotiate tariff reductions of up to 60 percent and the elimination of tariffs below 5 percent.Contributed to passage of the Tokyo Round negotiations of the GATT.,6 - 31,The history of US commercial policy,1950s Movements away from free trade1962 Trade Promotion Act1974
33、Trade Reform Act1984 The Trade and Tariff ActAuthorized the president to negotiate international agreements for the protection of intellectual property rights.Extended the system by which developing nation exports are granted preferential access to US markets.,6 - 32,The history of US commercial pol
34、icy,1950s Movements away from free trade1962 Trade Promotion Act1974 Trade Reform Act1984 The Trade and Tariff Act1988 Omnibus Trade and Competitiveness ActRequired the U.S. Special Trade Representative to set a rigorous schedule for negotiating reductions in trade barriers with countries maintainin
35、g high barriers to U.S. exports.,6 - 33,The history of US commercial policy,1962 Trade Promotion Act1974 Trade Reform Act1984 The Trade and Tariff Act1988 Omnibus Trade and Competitiveness Act1993 The Uruguay RoundThe Uruguay Round of negotiations of the GATT was completed in December 1993. Given th
36、e wide ranging implications of this round of negotiations, it will be considered in detail.,6 - 34,The Uruguay Round,Eighth round of negotiations for the GATT123 nations participated in the negotiationsThe agreement took effect on July 1, 1995,6 - 35,Provisions of the Uruguay Round,TariffsTariffs on
37、 industrial products falls from an average of 4.7 percent to an average of 3 percent.The share of good with zero tariffs increases from 20-22 percent to 40-45 percent.Tariffs removed on pharmaceuticals, constructions equipment, medical equipment, paper products, and steel.,6 - 36,Provisions of the U
38、ruguay Round,TariffsQuotasQuotas on agricultural products were to be replaced with less restrictive tariffs by 1999Quotas on textiles were to be replaced with less restrictive tariffs by 2004,6 - 37,Provisions of the Uruguay Round,TariffsQuotasAntidumpingThe use of countervailing duties is not elimi
39、nated but a new dispute resolution mechanisms are put in place.,6 - 38,Provisions of the Uruguay Round,TariffsQuotasAntidumpingSubsidiesThe volume of subsidized agricultural products was to be reduced by 21 percent by 1999.Government subsidies for industrial research were limited to 50 percent of th
40、e applied research cost.,6 - 39,Provisions of the Uruguay Round,QuotasAntidumpingSubsidiesSafeguardsCountries are barred from implementing health and safety standards that are not based on scientific research.Temporary tariffs are allowed to protect domestic industries from temporary imports surges.
41、,6 - 40,Provisions of the Uruguay Round,QuotasAntidumpingSubsidiesSafeguardsIntellectual propertyThe agreement calls for 20 year protection of patents, trademarks, and copyrights.A 10 year phase-in period is allowed for patents over pharmaceuticals in developing countries.,6 - 41,Provisions of the U
42、ruguay Round,QuotasAntidumpingSubsidiesSafeguardsIntellectual propertyServicesBanking and security markets in Japan and South Korea were opened to U.S. firms.,6 - 42,Provisions of the Uruguay Round,AntidumpingSubsidiesSafeguardsIntellectual propertyServicesTrade related investment measuresPhases out
43、 the requirement that foreign investors buy supplies locally or export as much as they import,6 - 43,Provisions of the Uruguay Round,SafeguardsIntellectual propertyServicesTrade related investment measuresWorld Trade OrganizationEstablished the World Trade Organization in place of the GATT Secretari
44、at. Allows for more expeditious resolution trade disputes,6 - 44,Continued history of US commercial policy,1974 Trade Reform Act1984 The Trade and Tariff Act1988 Omnibus Trade and Competitiveness Act1993 The Uruguay Round2002 Trade promotion authority granted President BushAllows the president to ne
45、gotiate trade agreements that may not be amended by Congress, only ratified or rejected.,6 - 45,Continued history of US commercial policy,1974 Trade Reform Act1984 The Trade and Tariff Act1988 Omnibus Trade and Competitiveness Act1993 The Uruguay Round2002 Trade promotion authority granted President
46、 BushOn-going Doha round negotiationsThe current round of negotiations for extending the GATT is currently on-going.,6 - 46,Issues confronting the Doha round,Existing on-going trade disputesU.S. tax breaks on income earned from exportsSubsidies to aircraft makers (Boeing and Airbus)EU bans on geneti
47、cally modified foodThe use of anti-dumping regulations,6 - 47,Issues confronting the Doha round,Existing on-going trade disputesDeveloped world agricultural policiesTariffs and subsidies on agricultural products make developing world entry into these markets difficult,6 - 48,Issues confronting the D
48、oha round,Existing on-going trade disputesDeveloped world agricultural policiesThe development of regional trade groups that undermine efforts of global trade expansion,6 - 49,Issues confronting the Doha round,Existing on-going trade disputesDeveloped world agricultural policiesThe development of re
49、gional trade groups that undermine efforts of global trade expansionCalls for uniform labor and environmental standards,6 - 50,Issues confronting the Doha round,Existing on-going trade disputesDeveloped world agricultural policiesThe development of regional trade groups that undermine efforts of global trade expansionCalls for uniform labor and environmental standardsExpansion of the GATT into issues related to investmentElimination of local content rules,
