ibm-unit 2- tariffs & non tariff barriers
TRANSCRIPT
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Trade Barriers - Tariffs &Non Tariff Barriers
Unit II
Anjali Singh
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Trade Barriers What ?
Part of the foreign trade policy
Protective measures to achieve certainnational objectives.
Manmade barriers to foreign trade
Two broad barriers
Tariff Barriers
Non- Tariff Barriers
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Objective
Protect domestic industries
Curb imports of a particular item
Increase revenue for government Discourage or encourage imports from a
particular country
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Tariff & Non-Tariff BarriersThe most important type of trade restriction
historically is the tariff.
This is a tax or duty on the imports orexports.
Imposition of the tariff changes the price forthe individual buyer. However the nation as a
whole faces the unchanged world price.
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Tariffs
Tariffs can be ad-Valorem, specific, orcompound. Ad-Valorem tariff is expressed as a fixed
percentage of the value of the tradedcommodity.
Specific tariff is expressed as a fixed sum perphysical unit of the traded commodity.
A compound tariff is a combination of an Ad
Valorem and a specific tariff.
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Trade Restrictions /Trade Barriers
An import tariff - duty on the importedcommodity, while an export tariff is a duty onthe exported commodity.
Export tariffs are prohibited by the U.S.
Constitution, common amongst developingcountries
Developing nations rely heavy on export tariff toraise revenues because of their ease of collection.( Ghana cocoa, Brazil coffee)
On the other hand, industrial countries invariablyimpose tariffs or other trade restrictions to protectsome(usually labor-intensive)industry, while usingmostly income taxes to raise revenues.
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Advantages
Protect the domestic Industry
Government gets more revenue
Protects jobs in domestic Industry
Also helps protect ancillary industries,servicing and market intermediaries.
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Disadvantages
Consumers pay a higher prices both forimported product and domestic product
Inefficient resource allocation
encourages inefficient production inimporting country and discouragesefficient production in exporting country
May result in retaliation by imposing tariffson the exports of the importing country
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Non Tariff Barriers
Measures other than import duties which acountry adopts to restrict foreign tradeeither directly or indirectly.
Range of measures
Aim at reducing imports though some mayboost exports
Non- Tariff barriers interfere with marketforces and free competition
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Non-Tariff Barriers
Non-Tariff Barriers displace the marketforces
Effects of non-tariff barriers are not visible
as these are hidden devices
Non-tariff do not generate revenue
Non- tariff barriers cause greater mal-
allocation of resources.
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Main Non-Tariff Barriers
Quantitative restrictions
Exchange Control
Fiscal measures
Subsidies
Administrative Regulations
Technical Barriers
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Main Non-Tariff Barriers
Quantitative restrictions
Import Quotas
Voluntary Export Restraint
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Main Non-Tariff Barriers -Exchange
Control
Exchange Restrictions
Blocked Accounts
Multiple Exchange Rates
Exchange Intervention
Exchange clearing Arrangements
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Main Non-Tariff Barriers Fiscal
Measures
Anti Dumping Duties
Countervailing Duties
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Main Non-Tariff Barriers
Subsidies Refund of duties paid on inputs
Priority in allotment of scarce resources
Finance at lower rates of interest
Grants for market research/surveys
Aid for research and development
Supply of inputs at concessional reates
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Main Non-Tariff Barriers
A
dministrative Administrative regulations
Long and complicated forms
Delay and red tape
Elaborate and expensive import licensingprocedure
Complicated procedure for obtaining permit
Routing imports through a particular port
Samples to be provided at the time of applyingfor import license
Minimum deposit requirement
Counter trade arrangement
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Main Non-Tariff Barriers
Technical Barriers Health and safety barriers
Sanitary regulations
Quality standards
Packing and labeling standards
Local content requirement
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Trade Barriers (Contd)
According to Stolper-Samuelson theorem , anincrease in the relative price of a commodity(for example, as a result of a tariff) raises thereturn or earnings of the factor usedintensively in its production.
For example, if a capital-abundant nationimposes an import tariff on the laborintensive commodity, wages in the nation
will rise.
However, since the nations benefit comes atthe expense of other nations, latter are likelyto retaliate, so that in the end all nations
usually lose.
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Trade Barriers (Contd)
Two arguments are that protection is needed toreduce domestic unemployment and a deficitbalance of payments.
A more valid argument for protection is theinfant-industry argument.
However, what trade protection can do, directsubsidies and taxes can do better in overcomingpurely domestic distortions.The same is true for
industries important for national defense.Theclosest we come to a valid economic argument forprotection is the optimal tariff (which,however,invites retaliation).
Trade protection in the United States is usuallyiven to low-wa e workers and to lar e well
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Non-Tariff Barriers International trade also hampered by
numerous
Technical, administrative, and otherregulations.
These include safety regulations forautomobile and electrical equipment, health
regulations for the hygienic Production and packaging of imported food
products, and labeling requirementsshowing origin and contents.
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Non Tariff Barrier [Subsidies] National government sometimes grant
subsidies to domestic producers to helpimprove their trade position. Such devices areindirect form of protection provided todomestic businesses, whether they may beimport competing producers or exporters.
Two types of subsidies can be distinguished: a
domestic subsidy , which is sometimesgranted to producers of import-competinggoods,and an export subsidy, which goes toproducers of goods that are to be sold
overseas.
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Other Non Tariff Barriers
Government Procurement Policies:Because government agencies are largebuyers of goods and services, they are
attractive customers for foreign suppliers.Most governments however, favor domesticsuppliers over foreign ones in theprocurement materials and products. E.g,
Government often extend preferences todomestic suppliers in the form of buy-nationalpolicies campaigns.
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Impact of trade barriers
Advanced industrial nations committedthemselves after World War II to removingbarriers to the free flow of goods, services,andcapital between nations
This goal was enshrined in the General Agreementon Trade and Tariffs [GATT]
Under the umbrella of GATT, eight rounds ofnegotiations among member states(nownumbering 146) have worked to lower barriers to
the free flow of goods and services The most recent round of negotiations, known as
the Uruguay Round, was completed inDec,1993.The Uruguay round further reducedtrade barriers; extended GATT to cover services
as well as manufactured goods; provided
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Impact of trade barriers
In the late 2001, the WTO launched a newround of talks [Doha,Qatar] aimed at furtherliberalizing the global trade and investment
framework. The agenda included cutting tariffs on
industrial goods, services,and agriculturalproducts; phasing out subsidies to agricultural
producers; reducing barriers to cross borderinvestments; and limiting the antidumpinglaws.
The rich nations spend around $300 billion a
year in subsidies to support their farm
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Counter Trade
Counter trade denotes whole range of barterlike agreements; its principle is to tradegoods and services for other goods and
services when they cannot be traded formoney.Some examples are;
1. An Italian co. that manufactures powergenerating equipment, ABB SAE Sadelmi SpA,
was awarded a720 Million Baht $17.7Mn)contract by the Electricity GeneratingAuthority of Thailand.The contract specifiedthat the company had to accept 218 millionbaht($5.4 million) of Thai farm products aspart payment.
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Counter Trade
2.Saudi Arabia agreed to buy 10 747 jets fromBoeing with payment in crude oil, discountedat 10 percent below posted world prices.
3. GE won a contract for a $ 150 million electricgenerator project in Romania by agreeing tomarket $150 million of Romanian products inmarkets to which Romania did not haveaccess.
4.The Venezuelan government negotiated acontract with Caterpillar under whichVenezuela would trade 3,50,000 tons of ironore for Caterpillar earthmoving equipment.