Presentation on theme: "International Economics"— Presentation transcript:
1 International Economics Li YumeiEconomics & Management Schoolof Southwest University
2 International Economics Chapter 9Non-tariff Trade Barriers and the New Protectionism
3 Organization 9.1 Introduction 9.2 Import Quotas 9.3 Other Non-tariff Barriers and the New Protectionism9.4 The Political Economy of Protectionism9.5 Strategic Trade and Industrial Policies9.6 History of U.S. Commercial Policy9.7 The Uruguay Round and Outstanding Trade ProblemsChapter SummaryExercises
4 Protectionism ( Freedom) 9.1 IntroductionTariffNon-tariffDuring the past three decades the non-tariff has beenwidely used to restrict trade , such as quotas andNew forms of protectionism (Voluntary ExportRestraints, Technical or other Regulations, Cartels,Dumping, Subsidies)Protectionism ( Freedom)Political Economy, Strategic Trade, Industrial Policy
5 9.2 Import QuotasEffects of an Import QuotasComparison of an Import Quota to an Import TariffConclusion
6 Effects of an Import Quotas Import quotas can be used to protect a domestic industry, toprotect domestic agriculture, and /or for balance of paymentsreasons. Import quotas were very common in Western Europeafter World War Ⅱ.For all industrial nationsTo protect agricultureFor developing nationsTo stimulate import substitution of manufactured products andfor balance of payments.
7 Effects of an Import Quotas Partial Equilibrium Effects of an Import QuotaFIGURE 9-1 Partial Equilibrium Effects of an Import Quota.
8 Effects of an Import Quotas Explanation of Figure 9.1DX and SX represent the demand curve and supply curve of commodity X;With free trade, the world price of PX=$1, the nation consumes 70X (domestically produced 10X, imported 60X);With an import quota of 30X, it leads to the domestic price of X to $2, the nation consumption is decreased to 50X (domestically produced 20X, imported 30X);With the increased DX to D’X, the given import quota of 30X,it results in the domestic price of X rising to PX=$2.5, the nation consumes 55 X (domestic supply 25X, imported 30X)
9 Effects of an Import Quotas Conclusion of Figure 9.1The import quotas lead to the increase of the domestic supply, the decrease of the domestic consumption and the rising of the imported commodity price ;With the increased domestic demand, the given import quota must lead to the domestic rising further while the imported amount of commodities can not be increased with the increased domestic demand.
10 Comparison of an Import Quota to an Import Tariff There are three differences between an import quotaand an import tariff:With a given import quota, an increase in demand will result in a higher domestic price and greater domestic production than with an equivalent import tariff. With a given import tariff, an increase in demand will leave the domestic price and domestic production unchanged but will result in higher consumption and imports than with an equivalent import quota (see figure 9.1 point K)
11 Comparison of an Import Quota to an Import Tariff The quota involves the distribution of import license (three situations)If the government can auction off import licenses to the highest bidder in a competitive market, the revenue effect will go to the government;If the importers have strong bargaining power to obtain the imported goods with the lower price and then sell them at higher price, the revenue effect will go to the importers;If the exporters have strong bargaining power to sell the goods at higher price and then the revenue effect will go to the exporters;Government distributes the import license may lead to so-calledrent-seeking activities or the corruption.
12 Comparison of an Import Quota to an Import Tariff An Import quota limits imports to the specified level with certainty, while the trade effect of an import tariff may be uncertainWith the increased domestic demand, the nation import will increase under an import tariff as long as the domestic consumers are willing or afford to buy;With the increased domestic demand, the nation import will not increase , it only leads to the increase of domestic supply.
13 ConclusionImport quotas are more restrictive than equivalent import tariff;Import quotas have the same economic effects of the equivalent import tariff;The revenue effect of an import quota is uncertain;Domestic producers strongly prefer the import quotas to import tariffs due to its less “visible”;Uruguay Round was to change import quotas and other non-tariff barriers into equivalent tariffs ( a process known as “tariffication”, such as agriculture goods).
14 9.3 Other Non-tariff Barriers and the New Protectionism Voluntary Export RestraintsTechnical, Administrative, and Other RegulationsInternational CartelsDumpingExport SubsidiesConclusion
15 Voluntary Export Restraints They refer to the case where an importing country inducesanother nation to reduce its exports of a commodity“voluntary”, under the threat of higher all-round traderestrictions, when these exports threaten an entire domesticindustry. Sometimes, it is called “orderly marketingarrangements”Economic Effects of Voluntary Export RestraintsThey have the same economic effects of equivalent importquotas, except that administered by the exporting country andthe revenue effect or rents are captured by foreign exporters.
16 Voluntary Export Restraints Evaluation of Voluntary Export RestraintsVoluntary export restraints were less effective in limitingimports than import quotas because the exporting nations agree reluctantly to curb their exports. Foreign exporters also tend to fill their quota with higher-quality and higher-priced units of the product over time (such as Japanese Automobile upgrading).Voluntary export restraints may lead the door open for other nations to replace part of the exports of the major suppliers and also from transshipments through third countries.Case Study 9-1(page 278)
17 Technical, Administrative, and Other Regulations They includes safety regulations, health regulations (hygienic production) and labeling requirements (origin and contents)Laws regulationsSuch as “Buy American Act” passed in 1933 (GovernmentProcurement Policies)Border taxesRebates(减税) for domestic export and imposed on importers;Value-added tax (VAT);International commodity agreements and multiple exchange rates (Chapter 11, Chapter 18)
18 International Cartels An international cartel is an organization of suppliers of acommodity located in different nations (or a group ofgovernments) that agrees to restrict output and exports of thecommodity with the aim of maximizing or increasing the totalprofits of the organization. (such as OPEC)A Successful International CartelAn international cartel is more likely to be successful if thereare only a few international suppliers of an essentialcommodity for which there are no close substitutes.
19 International Cartels Evaluation of International CartelsThe power of cartels lies in its ability to restrict output and exports, there is incentive for any one supplier to remain outside the cartel or to “cheat” on it by unrestricted sales at slightly below the cartel price;As predicted economic theory, cartels are inherently unstable and often collapse or fail;The cartel may be successful if a cartel could behave exactly as a monopolist (a centralized cartel) in maximizing its total profits
20 Dumping Dumping Types of Dumping Dumping is the export of a commodity at below cost or at leastthe sale of a commodity at a lower price abroad thanDomestically.Types of DumpingPersistent dumping (持续倾销)Persistent dumping or international price discrimination, is thecontinuous tendency of a domestic monopolist to maximizetotal profits by selling the commodity at a higher price in thedomestic market (which is insulated by transportation costsand trade barriers) than internationally (where it must meet thecompetition of foreign producers)
21 Dumping Predatory dumping (掠夺倾销) It is the temporary sale of a commodity at below cost or at alower price abroad in order to drive foreign producers out ofbusiness, after which prices are raised to take advantage ofthe newly acquired monopoly power abroad.Sporadic dumping (偶尔倾销)It is the occasional sale of a commodity at below cost or at alower price abroad than domestically in order to unload anunforeseen and temporary surplus of the commodity withouthaving to reduce domestic prices.
22 The Economic Effects of Anti-dumping Duties Dumping restrictions usually take the form of anti-dumpingduties to offset price differentials, or the threat to impose suchduties.The Economic Effects of Anti-dumping DutiesIt’s hard to determine the type of dumping, while domesticproducers demand protection against any form of dumping, asa result, they discourage imports and increase their ownproduction and profits. And in some cases of the persistentand sporadic dumping , the benefits to consumers from lowprices may actually exceed the possible production losses ofdomestic producers.
23 Examples of Anti-dumping Examples of DumpingJapanese steel and television sets in U.S;European Union having persistently dump agricultural commodities arising from their farm support programs;Examples of Anti-dumpingAnti-dumping laws;U.S. trigger-price mechanism (触发价格机制);Anti-dumping measures in forceCase Study 9-2 (page 282)
24 Measures to Support Exports Export SubsidiesExport SubsidiesExport subsidies are direct payments or the gaining of taxrelief and subsidized loans to the nation’s exporters orpotential exporters and /or low-interest loans to foreign buyersso as to stimulate the nation’s exports.Export subsidies can be regarded as a form of dumping.Measures to Support ExportsExport-Import BankTax Relief (减税)or Tax Exemption (免税)Domestic High Support Prices (e.g. agricultural goods)Case Study 9-3(page 284)
25 Countervailing Duties (反补贴税) Export SubsidiesCountervailing Duties (反补贴税)Countervailing duties are often imposed on imports to offsetexport subsidies by foreign governments.Case Study 9-4 (page 285)Partial Equilibrium Effects of an Export SubsidiesDX and SX represent Nation 2’s demand and supply curves of commodity X;With free trade, world price of X were $3.5, Nation 2 would produce 35X, consume 20X, exporting 15X. Nation 2 became an exporter rather than being an importer of X at prices above $3 (point E)
26 FIGURE 9-2 Partial Equilibrium Effect of an Export Subsidy.
27 Economic Effects of an Export Subsidies With an export subsidy of $0.5, PX rises to $4.00 for domestic producers and consumers of X. Nation 2 produces 40X while domestic consuming 10X, the remaining of 30X for export.Economic Effects of an Export SubsidiesHigher price benefits producers but harms consumers;Four EffectsConsumption effect: a’+b’Production effect: a’+b’+c’Government subsidy: b’+c’+d’Protection effect: d’Deadweight loss: b’+d’
28 The Reason to use an export subsidy Export SubsidiesThe Reason to use an export subsidyThe domestic producers may successfully lobby thegovernment for the subsidy or the nation wants to promote theindustry.Case Study 9-5 (page 286)
29 ConclusionTariff belongs to the law regulations while non-tariff belongs to the administrative regulations;Tariff need a long time to formulate while non-tariff used at any time ;Non-tariff trade restrictions are much more flexible and disguised (隐蔽) forms compared with tariff trade restrictions.
30 9.4 The Political Economy of Protectionism Fallacious and Questionable Arguments for ProtectionThe Infant-industry and Other Qualified Arguments for ProtectionWho gets Protected?Conclusion
31 Fallacious and Questionable Arguments for Protection To protect domestic labor against cheap foreign laborProductivity of laborEven if domestic wages are higher than wages abroad,domestic labor costs can still be lower if the productivity oflabor is sufficiently higher domestically than abroad.Comparative advantageMutually beneficial trade could still be based on comparativeadvantage, with the cheap-labor nation specializing in theproduction of and exporting labor-intensive commodities, andthe capital-labor nation specializing in the production of andexporting capital-intensive commodities.
32 Fallacious and Questionable Arguments for Protection To impose scientific tariffThis is the tariff rate that would make the price of importsequal to domestic prices and allow domestic producers tomeet foreign competition. This would eliminate internationalprice differences and trade in all commodities subject to such“scientific” tariff.To reduce domestic unemploymentThis is belong to the beggar-thy-neighbor argument forprotection because they come at the expense of other nations.To cure a deficit in the nation’s balance of paymentThis is the beggar-thy-neighbor argument for protection.
33 The Infant-industry and Other Qualified Arguments for Protection Infant-industry ArgumentIt holds that a nation may have a potential comparativeadvantage in a commodity, but because of lack of know-howand the initial small level of output, the industry will not be setup or, if already started, cannot compete successfully with moreestablished foreign firms. Temporary trade protection is thenjustified to establish and protect the domestic industry duringits “infancy” until it can meet foreign competition achieveeconomies of scale, and reflect the nation’s long-runcomparative advantage. At that time, protection is to beremoved.
34 The Infant-industry and Other Qualified Arguments for Protection The Valid Infant-industry ArgumentOn the whole, the returns in the grown-up industry must besufficiently high to offset the higher prices paid by domesticconsumers of the commodity during the infancy period. Thereare several important qualifications to cover the argument:It is more reasonable for developing nations ( due to the inefficient capital market) than for industrial nationsIt is difficult to identify the industry or potential industry qualifies for this treatment, and once protection given, it is hard to removeDomestic subsidy can do better than tariff (the former is the direct form of aid and easy to remove, the latter is hard to remove)
35 The Infant-industry and Other Qualified Arguments for Protection Other types of domestic distortionExternal economy (benefit to the society, not the specific industry) — to restrict imports, or subsidy for the specific industry), or direct taxTo correct a domestic distortion — with domestic policies rather than trade policyConclusionTrade protections may be advocated to protect domesticindustry for national defense.Direct production subsidies are generally better than tariff protectionTariff may arouse retaliation so that in the end all of nations lose
36 Who gets Protected?By increasing the commodity price, trade protection benefits producers and harms consumers ( usually the nation as a whole)Producers have a strong incentive to lobby the government to adopt protectionist measure. Since they are few and stand to gain a great deal from protection;Consumers are many, their losses are diffused among them , each of whom loses very little from the protection, they are not likely to effectively organized to resist protectionist measures
37 Who gets Protected?In industrial nations, protection is more likely to be provided to labor-intensive industries employing unskilled, low-wage workers who would have great difficulty in finding alternative employment if they lost their present jobs. And highly organized industries receive more trade protection than less organized industriesMore protection seems to go to geographically decentralized industries that employ a large number of workers than to industries that operate in only some regions and employ relatively few workers
38 Who gets Protected?Protection seems to be more easily obtained by those industries that compete with products from developing countries because these countries have less economic and political power in industrial countries to successfully resist trade restrictions against their exportsConclusionThese theories have been only partially confirmed empirically.Case Study 9-6 (page290)
39 Trade protection is inefficient from the economic ConclusionTrade protection is inefficient from the economicpoint of view, while from the political point of view it is reasonableThe usual government measures to correct the domestic distortionImport tariffDirect domestic subsidyDomestic direct taxThe domestic subsidy and direct tax are better than import tariff(no direct distortion of domestic commodity prices)
40 9.5 Strategic Trade and Industrial Policies Strategic Trade PolicyStrategic Trade and Industrial Policies with Game TheoryThe U.S. Response to Foreign Industrial Targeting and Strategic Trade PoliciesConclusion
41 Strategic Trade Policy Strategic trade policy is a relatively recent developmentadvanced in favor of an activist trade policy and protectionism,and suggests that by encouraging high-technology industries,the nation can reap the large external economies that resultfrom them and enhance its future growth prospects.Evaluation of Strategic Trade PolicyIt is extremely to pick winners;Since most leading nations undertake strategic trade policies at the same time, their efforts are largely neutralized, so that the potential benefits to each may be small;When a country does achieve substantial success with strategic trade policy, this comes at the expense of other countries.
42 Strategic Trade and Industrial Policies with Game Theory Game theory can examine the strategic trade and industrialpolicy. There are three situations: negative , positive, zerogames.As for the strategic trade, it is the positive and zero game.Take Two-firm Competition for the Strategic Trade PolicyU.S. Boeing company and Europe Airbus company (page 292)One single company can earn a profit of $100;Both produce the aircraft, each losses $10;If using domestic subsidy, one company can compete with the other company (strategic comparative advantage)
43 Strategic Trade and Industrial Policies with Game Theory Game theory can examine the strategic trade and industrialpolicy. There are three situations: negative , positive, zerogames.As for the strategic trade, it is the positive and zero game.Take Two-firm Competition for the Strategic Trade PolicyU.S. Boeing company and Europe Airbus company (page 292)One single company can earn a profit of $100;Both produce the aircraft, each losses $10;If using domestic subsidy, one company can compete with the other company (strategic comparative advantage)
44 Strategic Trade and Industrial Policies with Game Theory Evaluation of the Theory and PolicyIt shows that how a nation could overcome a market disadvantage and acquire a strategic comparative advantage in a high-tech field by using an industrial and strategic trade policy.The real world is much more complex, It is very difficult to accurately forecast the outcome of government industrial and trade policies. So there are many economists would say that free trade may still be the bestpolicy after all.
45 The U.S. Response to Foreign Industrial Targeting and Strategic Trade Policies To stimulate education and encourage basic research as a way of increasing U.S. international competitivenessGovernment subsidies in industries and commercial technologies (picking winners)Supported list of 26 technologies in the early 1990s (electronic materials, high-performance metals, computing networking, medical technology and so on)To take unilateral steps to force foreign markets to open and retaliate with restriction of its own against nations that fail to respondSemiconductor agreement with JapanBanana trade disputes with European Union (beef with hormones)
46 ConclusionStrategic trade and industrial policy is anotherqualified argument for protection. It suggests thatby encouraging high-tech industries, a nation canreap the large external economies that result fromthem and enhance its future growth prospects.Strategic trade and industrial policy does face,however, many practical difficulties because it isdifficult for nations to pick winners and because itinvites retaliation. Thus, free trade may still be thebest policy after all
47 9.6 History of U.S. Commercial Policy The Trade Agreements Act of 1934The General Agreement on Tariffs and Trade (GATT)The 1962 Trade Explanation Act and the Kennedy RoundThe Trade Reform Act of 1974 and the Tokyo RoundThe 1984 and 1988 Trade ActsConclusion
48 The Trade Agreements Act of 1934 Smoot-Hawley Tariff ActIt was originally introduced to aid U.S. agriculture. Under thisact the average import duty reached all time high of 59 percentin 1932, provoking foreign retaliationTrade Agreements Act of 1934The act transferred the formulation of trade policy from themore politically minded Congress to the President andauthorized the President to negotiate with other nationsmutual tariff reductions by as much as 50 percent of the ratesset under the Smoot-Hawley Tariff Act. It was renewed a totalof 11 times before it was replaced in 1962 by the TradeExpansion Act. By 1947, the average import duty was 50percent below its 1934 level
49 The Trade Agreements Act of 1934 Most-favored-nation principleThis non-discrimination principle extended to all tradepartners any reciprocal tariff reduction negotiated by U.S. withany of its trade partnersBilateral tradeThe bilateral tariff reduction negotiated between any other twonations that were signatories of the most-favored-nationagreement. The bilateral trade approach faced the seriousshortcoming that tariff reductions were negotiated for themost part only in commodities that dominated bilateral trade
50 The General Agreement on Tariffs and Trade (GATT) It was created in 1947 and headquartered in Geneva, devotedto the promotion of freer trade through multilateral tradenegotiations.Three PrinciplesNondiscriminationElimination of non-tariff trade barriersConsultation among nations in solving trade disputes within the GATT frameworkProtectionist DevicesPeril-point provisions (危险点条款)Escape clauseNational Security clause
51 The 1962 Trade Explanation Act and the Kennedy Round Trade Expansion Act of 1962The act authorized the president to negotiate across-the-board tariff reductions of up to 50 percent of their 1962 (reduction by a total of about 35 percent in five different trade negotiations between 1947 and 1962) levelTrade Adjustment Assistance (TAA) helped the displacedworkers and firms injured by tariff reductions (such asretraining , moving assistance, tax relief, low-cost loans,technical help)The principle of adjustment assistance was the mostsignificant aspect of the Trade Expansion Act of 1962 since society at large was to bear, or at least share, the burden of adjustment
52 The 1962 Trade Explanation Act and the Kennedy Round Under the authority of the 1962 Trade Expansion Act, U.Sinitiated the wide-ranging multilateral trade negotiationsknown as the Kennedy RoundKennedy Round was completed in 1967 and resulted in an agreement to cut average tariff rates on industrial products by a total of 35 percent of their 1962 level, to be phased over a five-year period. By the end of 1972, when the agreement was fully implemented , average tariff rates on industrial products were less than 10 percent in industrial nations. But there are many non-tariff trade barriers, especially in agriculture
53 The Trade Reform Act of 1974 and the Tokyo Round This authorized the president (1) to negotiate tariff reductionsof up to 60 percent and remove tariffs of 5 percent or less;(2)to negotiate reductions in non-tariff trade barriers; and alsoliberalized the criteria for adjustment assistanceThe Tokyo RoundNegotiated tariff reductions phased over an eight-year period, starting in 1980, averaged 31 percent for the U.S, 27 percent for the European Union, and 28 for JapanNon-tariff trade barriers(1) agreement on a government procurement code; (2) uniformity in the application of duties in countervailing and antidumping cases; (3) a “generalized system of preferences” (GSP) to the manufactured, semi-manufactured, and selected other exports of developing nations.
54 The 1984 and 1988 Trade Acts Trade and Tariff Act of 1984 It has three major provisions:It authorized the President to negotiate international agreements for the protection of intellectual property rights and to lower barriers to trade in services, high-technology products, and direct investmentsIt extended the Generalized System of Preferences (GSP), which granted preferential access to the exports of developing countries to U.SIt provided authority for negotiations that led to a free trade agreement with Israel
55 Omnibus Trade and Competitiveness Act of 1988 (贸易与竞争法) The 1984 and 1988 Trade ActsOmnibus Trade and Competitiveness Act of 1988 (贸易与竞争法)It includes 301 provision, which (1) calls on the U.S. Special Trade Representative (USTR) to designate priority countries that maintain numerous and pervasive trade barriers; (2) sets a rigorous schedule for negotiations to be held on eliminating those barriers; (3)requires retaliation by curbing imports from those countries if the negotiations are not successfulUnder Super 301 Act, Nations faces tariffs of 100 percent on selected exports to U.S. if they did not relax trade restrictions
56 FIGURE 9-3 U.S. Average Tariff Rates on Dutiable Imports, 1900-2000.
57 ConclusionIn history, U.S. adjusted the commercial policymany timesOne the whole, U.S trade policy prefers to the freer trade policyThe multilateral trade system has been developed by U.S trade acts. So U.S trade acts played a great role in establishing the multilateral trade system
58 9.7 The Uruguay RoundThe Uruguay RoundOutstanding Trade ProblemsConclusion
59 The Uruguay Round Uruguay Round It started in 1986 in Punta del Este in Uruguay and completedin 1993 after seven years of negotiations. Altogether, therewere 123 countries participating the negotiations. Its aim wasto establish rules for checking the proliferation of the newprotectionism and reverse its trend; bring services, agriculture,and foreign investments into the negotiations; negotiateinternational rules for the protection of intellectual propertyrights; and improve the dispute settlement mechanism byensuring more timely decisions and compliance with GATTrulings.
60 The Uruguay Round Major Provisions Case Study 9-7 (page 303) Tariffs QuotasAnti-dumpingSubsidiesSafeguardsIntellectual propertyServicesOther industry provisionsTrade-related investment measuresWorld Trade OrganizationCase Study 9-7 (page 303)
61 Outstanding Trade Problems Subsidies and tariffs in Agricultural Products remain very high. Quantitative restrictions on textiles and apparel will not be completely removed until the end of 2004, and even then tariffs on these products will remain very highMany of the trade problems of developing countries have not been adequately addressed (such as textiles and agricultural trade)No any special provision to help transitional economy countriesThe tendency for the world to break into three major trading blocks (EU, NAFTA, Asian bloc.)It did not deal with labor and environmental standardsInternational Trade and the anti-globalization(page306)Doha Round in 2001 to 2004 (failed)
62 Chapter SummaryNon-tariff Trade BarriersPolitical Economy of ProtectionismU.S Commercial Policy on the impact of Multilateral Trade SystemMultilateral Trading System (eight negotiation rounds before WTO )
63 ExercisesDiscussion Problems:Page 310 to 311 from 1 to 14 questions
64 Exercises Additional Reading For a discussion of tariffs, quotas, and other nontariffbarriers, see:J.N.Bhagwati, “ On the Equivalence of Tariffs and Quotas,” in the R.E.Baldwin et al., eds., Trade, Growth and the Balance of Payments: Essays in Honor of Gottfried Haberler ( Chicago: Rand McNally, 1965) ppOECD, Post-Uruguay Round Tariff Regimes (Paris: OECD,1999)On industrial and strategic trade policy, see:J.A.Brander and B.Spencer, “Export Subsidies and International Market Share Rivalry,” Journal of International Economics, February 1985, ppP.R.Krugman, “ Is Free Trade Pass?” Journal of Economic Perspectives, Fall 1987, pp
65 Internet Materials http://www.state.gov http://www.usitc.gov