other national policies affecting trade

8/14/2019 other national policies affecting trade

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University of DhakaUniversity

of Dhaka

Department of FinanceDepartment of Finance

International Trade and Finance

Other National Policies Affecting Trade

Course Teacher: Md. Rabiul Islam


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IMPORT QUOTAIMPORT QUOTA

Import quotas are limitations on the quantity of goodsthat can be imported into the country during aspecified period of time.

An import quota is a type of protectionist traderestriction that sets a physical limit on the quantity ofa good that can be imported into a country in a given

period of time(for instance 1 year). Quotas, like other trade

restrictions, are used to benefit the producers of agood in a domestic economy at the expense of allconsumers of the good in that economy.


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Reasons for Import Quotas?Reasons for Import Quotas?

Governments choose import quotas for the

following reasons:

To protect further increases in import

spending to improve balance of payments;

and

To gain government officials greateradministrative flexibility and power.


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Quota vs Tariff with competitionQuota vs Tariff with competition

Tariffs and Quotas are quantative restriction

both serve the purpose of controlling the

number of foreign products that can enter thdomestic market.


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Quota vs Tariff withQuota vs Tariff with

competitioncompetition There are a few reasons why tariffs are a more attractive option

than import quotas which are as follows: Tariffs Generate Revenue for the Government. Import Quotas Can Lead to Administrative Corruption. Import Quotas Are More Likely to Cause Smuggling.

However, Import Quotas have the protective effect on the import-competing industries. Quotas are more protective of the domesticindustry because they limit the extent of import competition to afixed maximum quantity. In contrast, tariffs simply raise theprice, but do not limit the degree of competition or trade volumeto any particular level.


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Quota vs Tariff withQuota vs Tariff with

competitioncompetitionGraphical representation:

P

DD

d

b

cWorld Price

Domestic price with quota

O

200

220

Sd

Sd +Q

so s1 D1DoQ

US market for bicyclesp

Quota

Quota


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Quota vs tariff with monopolyQuota vs tariff with monopoly

powerpowerDomestic monopoly increases cost of

imports under more than tariff.

The quota can harm the nation more than a

tariff by giving monopoly power to foreign

exporters.


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Ways to Allocate ImportWays to Allocate Import

LicensesLicenses The quota license to import is a license to buy the product from foreign

suppliers at the world price and resell these units at the domestic price .

Here are the main ways to allocate import licenses:

The government allocates the licenses for free to importers using a ruleor process that involves (almost) no resource costs.

The government auctions off the licenses to the highest bidders.

The government allocates the licenses to importers through applicationand selection procedures that require the use of substantial resources.


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Import DiscriminationImport Discrimination

There are import discriminations made by

developed countries by imposing import

barriers like tax/tariffs, quotas etc. For instance, EC have done import

discriminations by allowing free trade

between the member countries whilerestricting imports from other countries.


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Trade Creation and TradeTrade Creation and Trade

DiversionDiversionTrade Diversion: Trade diversion means

that a free trade away from a more efficient

supplier outside FTA, towards a lessefficient supplier within FTA.

In some cases, trade diversion reduces a

countrys national welfare.


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Trade Creation and TradeTrade Creation and Trade

DiversionDiversionTrade Creation: Trade creation means that a

Free Trade area which creates trade.

As a result, supply occurs from a more

efficient producer/supplier of the product.

In all cases, trade creation raises a countrys

national welfare.


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Export BarriersExport Barriers

*Trade barriers are generally defined asgovernment laws, regulations, policy, or practicesthat either protect domestic products from foreigncompetition or artificially stimulate exports of

particular domestic products.

*The most common foreign trade barriers aregovernment-imposed measures and policies thatrestrict, prevent, or impede the internationalexchange of goods and services. These are asfollows:


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Export BarriersExport Barriers

Strategic: International agreements limit trade in, and the transfer of,certain types of goods and information e.g. goods associated with weaponsof mass destruction, arms and torture.

Tariffs: A tariff is a tax placed on a specific good or set of goods exportedfrom or imported to a country, creating an economic barrier to trade. Subsidies: To subsidize an industry or company refers to, in this instance,

a governmental providing supplemental financial support to manipulate theprice below market value.

Subsidies are generally used for failing industries that need a boost indomestic spending. Subsidizing encourages greater demand for a good orservice because of the slashed price.


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Export Subsidies and CountervailingExport Subsidies and Countervailing

DutiesDutiesExport Subsidies: An export subsidy

refers to a payment of cash or a form of financial

assistance paid to private sector business toencourage exports.

Subsidies can be regarded as a form of

protectionism or trade barriers by makingdomestic goods and services artificiallycompetitive against imports.


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Export Subsidies and CountervailingExport Subsidies and Countervailing

DutiesDuties Countervailing Duties: A tariff levied against

imports that are subsidized by the exporting countrys

government designed to offset (countervail) the effect

of subsidy.

Countervailing duties are duties imposed under

WTO Rules to neutralize the negative effects of

other duties. They are imposed when a foreigncountry subsidizes its exports, hurting domestic

producers in the importing country.


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DumpingDumping

Dumping refers to any kind of predatory pricing.Dumping is defined as the act of a manufacturer in onecountry exporting a product to another country at a

price which is either below the price it charges in itshome market or is below its costs of production.

Predatory Dumping- It occurs when the firmdiscriminates in favour of some foreign buyers

temporarily with the purpose of eliminating somecompetitors and of later raising the price of after thecompetition is over.

Persistent Dumping- It goes indefinitely.


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Retaliation against DumpingRetaliation against Dumping

On the demand of the import-competing firms, thegovernment of importing countries often imposeantidumping tariffs to protect dumping by the foreign

suppliers. There is no question that international trade cannot

proceed without any limitations or restrictions. Everycountry has its own specific concerns related to theirdomestic industries and economic well-being, therefore,

there will always be a need for some degree ofprotectionism. International Anti-dumping code signed bymost parties to GATT in 1967.

other national policies affecting trade

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