concept of protectionism

Concept of Protectionism: Concept of Protectionism: Trade Barriers- Trade Barriers-

Tariff and Non-Tariff Barriers

Tariff Barriers

Tariffs, which are taxes on imports of commodities into a country or region. They are implemented for two economic purposes :

◦ Revenue Generation ◦ Protection for Domestic

producers

Tariff Barriers include:

Export Subsidies & Domestic SupportDumpingQuotaExport Controls

Domestic SupportDomestic Support National policies that support domestic prices or

subsidized production often encourage over production.

This squeezed out imports in international markets and block entry of developing countries.

As per WTO, the domestic support in the agriculture sector is categorized by green, and amber boxes.

Green Box : All subsidies that minimal trade distorting effects and do not have the ‘effect of providing price support to producers’, exempt for reduction commitments. Following subsidies are allowed:

◦Government expenditure on agricultural research, pest control, marketing, and promotional services. Payment for natural disaster; Payment under environmental programmes.

Amber Box:

This category of domestic support refers to the amber colour of traffic lights, which means ‘slow down’. As per AOA agreement :

Minimal supports are allowed (5% of agricultural production for developed countries, 10% for developing countries).

Export SubsidiesExport Subsidies

Transportation charges financed by government to send consignment from factory to port.

Provide finance assistance in terms of export credit at lower rate of interest.

The Agreement on Agriculture prohibits export subsidies. WTO members to cut subsidies.

The Agreement on Subsidies and The Agreement on Subsidies and Countervailing MeasuresCountervailing Measures

This agreement (SCM) administers the use of subsidies and regulates on the basis of following ways:

◦The importing country can use the WTO’s dispute settlement procedure to seek the withdrawals of the subsidy.

◦Importing country can launch its own investigation and charge extra duty (countervailing duty) on subsidized imports.

Countervailing Duty Cases Filed Against Fastener Imports From China

and TaiwanUS. Department of Commerce and the

U.S. International Trade Commission reported against imports of standard fasteners from China and Taiwan.

The petitions, which were filed on behalf of Nucor Fastener, against Chinese exports of standard fasteners.

These exports, such as structural bolts, nuts, and cap screws, have received subsidies from the Chinese government, and Chinese and Taiwanese producers of fasteners are dumping their products in the United States.

The petitions imposed average dumping margins for Chinese imports of 145 percent, and of 74 percent for imports from Taiwan.

Dumping Dumping

A product is considered to be dumped if:

◦The export price is less than the cost of that product in the exporting country.

Anti-dumping measures can only be applied

if the dumping is hurting the industry in the importing country.

Anti -Dumping MeasuresAnti -Dumping Measures

International market competition get distorted mainly by unfair trade practices

as:

◦If exported goods are dumped in overseas markets.

The agreement on ‘Anti-dumping’ Practices (ADP) authorizes importing countries to levy compensatory duties on import of products.

India and US on Anti-dumpingIndia and US on Anti-dumpingMeasures relating to ShrimpMeasures relating to Shrimp

•The US Southern Shrimp Alliance (SSA) – an alliance of eight southern coastal States representing the harvesters, processors and distributors of US wild caught shrimp, filed a petition in 2003 in the US Department of Commerce (DOC).

The petition was the exporters from Thailand, China, Vietnam, India, Brazil and Ecuador were selling shrimp at lower prices than in their home markets and were materially injuring the domestic industry in the US.

This was justified by showing the sudden drop in the harvest of Shrimp by more than half from $1.25bn in 2000 to $560mn during 2002 in the US market.

Imposition of anti-dumping duty by the US on Indian shrimp impacted export of marine products to the US, which declined by 21.6 percent to 43,758 tonnes in 2006-07 as against 55,817 tonnes in 2005-06.

Recently, US has decreased its anti-dumping duty to 1.69 per cent from 14 per cent on shrimp exports.

Quota:

Quantitative restriction on the importation of goods in terms of units (e.g. 10,000 shirts)

Unlike tariff, Quotas hold the promise of definitive, quantifiable protection of domestic producers.

Export Controls :

It is to be used to prevent the export of goods that are vital to domestic industry and nation as per requirement. It includes:

Export control on Some natural resources, oil and grains etc.

Export control on arms and weapons.

Non-Tariff Barriers

Any restriction imposed on the free flow of goods apart from tariffs is non-tariff barriers to trade.

Such barriers are often criticized because of lack of transparency.

Growing use of unconventional Non-tariff barriers such as:

Import Policy Barriers (Requirement of import License )

Embargo and BoycottsCustoms valuationPre-shipment InspectionHealth and safety measuresLabour LawEnvironmental controls

Non-Tariff BarriersNon-Tariff Barriers Import Licensing Procedures :

◦It is generally considered as complex and non-transparent, which block market entry of foreign products.

◦Concern importing country issues license which takes 30-60 days to deal with an application.

◦For simplification purpose, WTO has introduced an agreement which sets criteria for automatic issuance of some licenses so that the procedures do not restrict trade.

Embargoes and Boycotts :

Embargo is the prohibition on exportation to a designated country.

Example:

US has applied an embargo primarily to Iraq and Iran.

Boycotts

It is prohibition on importation of all or some goods and services from a designated country.

Example: U.S. medical equipment company was fined for supporting Arab boycott against Israel.

Customs Valuation :

◦This agreement aims a fair, uniform and neutral system for the valuation;

◦Custom can reject the transaction value in such situations only if it has reasons to doubt the truth or accuracy of the declared price of the imported good.

Agreement on Custom Valuation of WTO require national legislation on the following rights:

• Rights to withdraw imported goods from customs, when there is likely to be delay in determination of custom value.

•Right to appeal without fear of penalty.

Pre-shipment Inspection:

◦The basic purpose of pre-shipment inspection is to check shipment details (price, quantity and quality of goods) ordered overseas.

◦The agreement establishes an independent review procedure administered jointly by the International Federation of Inspection Agenc-

ies (IFIA), representing inspection agencies and International Chamber of Commerce (ICC),

representing exporters.

Environmental Issue

The shrimp and turtle case brought up by the US against some developing nations to monitor environmental governance.

It all started in 1989 when the US Congress passed a law to prohibit the import of shrimp harvested in ways which were harmful to sea turtles, which are listed in the Endangered Species Act.

The contention was that turtles should not be killed while harvesting shrimps and The use of turtle excluder devices (TEDs) to minimize turtle kills was also recommended.