Copyright ©2005, Thomson/South-Western International Economics By Robert J. Carbaugh 10th Edition Chapter 5: Nontariff Trade Barriers

Carbaugh, Chap. 5 2 Import quotas  Quotas are a restriction on the quantity of a good that may be imported in any one period (usually below free-trade levels)  Global quotas restrict the total quantity of an import, regardless of origin  Selective quotas restrict the quantity of a good coming from a particular country Types of non-tariff barriers

Carbaugh, Chap. 5 3 Import quota: trade & welfare effects Types of non-tariff barriers

Carbaugh, Chap. 5 4 Effects of a quota on sugar imports Types of non-tariff barriers

Carbaugh, Chap. 5 5 Comparing tariffs and quotas Types of non-tariff barriers

Carbaugh, Chap. 5 6 Tariff-rate quota  The tariff-rate quota is a two-tiered tariff  A specified number of goods (up to the quota limit) may be imported at one (lower) tariff rate, while imports in excess of the quota face a higher tariff rate Types of non-tariff barriers

Carbaugh, Chap. 5 7 Tariff-rate quota: trade & welfare effects Types of non-tariff barriers

Carbaugh, Chap. 5 8 Orderly marketing agreements  Market sharing pact signed by trading partners  Intended to protect less efficient domestic producers  Usually involve voluntary export restraints, or export quotas  Recent trade negotiations have restricted the use of these agreements Types of non-tariff barriers

Carbaugh, Chap. 5 9 Effects of a voluntary export quota Types of non-tariff barriers

Carbaugh, Chap Domestic content requirements  Rules that require a certain percentage of a product’s total value to be produced domestically  Often has the effect of forcing lower-priced imports to include higher-cost domestic components or be assembled in a higher- cost domestic market Types of non-tariff barriers

Carbaugh, Chap Domestic content: trade & welfare effects Types of non-tariff barriers

Carbaugh, Chap Subsidies  Domestic subsidy  Payments made to import-competing producers to raise the price they receive above the market price  Export subsidy  Payments and incentives offered to export producers intended to raise the volume of exports Types of non-tariff barriers

Carbaugh, Chap Subsidies: trade & welfare effects Types of non-tariff barriers

Carbaugh, Chap Subsidies: trade & welfare effects Types of non-tariff barriers

Carbaugh, Chap Dumping  The practice of selling a product at a lower price in export markets than at home (or exporting at prices below production cost)  Sporadic dumping - to clear unwanted inventories or cope with excess capacity  Predatory dumping - to undermine foreign competitors  Persistent dumping - reaping greater profits by engaging in price discrimination Types of non-tariff barriers

Carbaugh, Chap Dumping: International price discrimination Types of non-tariff barriers A price-discriminating firm maximizes profits by equating marginal revenue, in each submarket, with marginal cost. The firm will charge a higher price in the less-elastic-demand (less competitive) market and a lower price in the more-elastic-demand (more competitive) market. Successful dumping leads to additional revenue and profits for the firm compared to what would be realized in the absence of dumping.

Carbaugh, Chap Other NTBs  Government procurement policies  Social regulations (health, environmental and safety rules can also restrict trade)  Sea transport and freight restrictions Types of non-tariff barriers