1. Chapter 8: Nontariff Barriers to Imports
Topics in chapter 8:
The “new” protectionism
Import quotas
Import licences
Voluntary Export Restraints (VER)
Product standards
Costs of protection

2. New protectionism
Although tariffs have historically been the most important trade restriction, there are many other types of trade barriers
As tariffs were negotiated down during the postwar period, the importance of nontariff trade barriers has greatly increased

3. Import quotas
A quota is the most important nontariff barrier to trade. It is a direct quantitative restriction on the amount of a commodity allowed to be imported or exported
Import quotas were very common in Western Europe immediately after World War II. Since then import quotas have been used by practically all industrial nations to protect their agriculture

4. Effects of a quota P S
S + q Pw D Q S0 S1 D1 D0

5. Effects of a quota

6. Quota in a large economy

7. Welfare effects of quotas

8. Welfare effects of a quota
With competition, welfare effects of a quota and a tariff are identical, but there are important differences too
With a quota, an increase in demand will raise prices and domestic production
With a tariff, domestic production and prices will not be affected by an increase in demand
A quota involves the distribution of import licenses

9. Ways to allocate import licenses
Import licenses can be distributed in several ways
Competitive auctions
Fixed favouritism
Resource-using application
Since import licenses result in monopoly profits, potential importers are likely to devote a great deal of effort of lobbying and bribing to obtain them

10. Tariff-quotas
Modul 3

11. Voluntary Export Restraints
An importing country induces another nation to reduce its exports of a commodity “voluntarily” under the threat of higher all-round trade restrictions
VERs have been negotiated since the 1950s by the US, EU and other industrial nations to curtail exports of textiles, steel, electronic products, cars and other products from Japan, Korea and other nations

12. Effects of a VER P
VER quota Pq
Quota rent Pw
Qq Qf Q

13. VER - American cars
From US car production fell by about one third and the share of imports rose from 18 to 29 percent and nearly workers lost their jobs
Japan agreed to limit car exports to 1.68 million units per year from and 1.85 million units for 1984 and 1985
This resulted in a $ 660 price increase for US made cars and $ for Japanese cars
US automakers jobs were saved at a cost of around $ each

14. Technical, Administrative and other regulations
These include
Safety regulations
Health regulations
Labelling restrictions
Domestic content requirement (rules of origin)
Subsidies and countervailing duties

15. Costs of protection Very difficult to measure
Static resource allocation costs are likely to be low (area b + d in our models)
Dynamic long term effects can be much higher
Johnson`s formula for measuring b + d
Net loss/GDP = 1/2 tariff • percent change in import quantity • import value/GDP

16. Rule of origin: Made in….where?
“Rules of origin” are the criteria used to define where a product was made. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti- dumping actions, countervailing duty (charged to counter export subsidies), and more. Rules of origin are also used to compile trade statistics, and for “made in ...” labels that are attached to products.

17. International commercial diplomacy - GATT/WTO

18. WTO – some facts

19. The 10 benefits

20. Benefit nr 1: Peace
Peace is partly an outcome of two of the most fundamental principles of the trading system: helping trade to flow smoothly, and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. It is also an outcome of the international confidence and cooperation that the system creates and reinforces.
History is littered with examples of trade disputes turning into war. One of the most vivid is the trade war of the 1930s when countries competed to raise trade barriers in order to protect domestic producers and retaliate against each others’ barriers. This worsened the Great Depression and eventually played a part in the outbreak of World War 2.

21. Nr 10: Good government

22. The World Trade Organisation

23. Principles of the WTO

24. Why is it called “most-favoured”?
The name sounds like a contradiction. It suggests some kind of special treatment for one particular country, but in the WTO it actually means non-discrimination — treating virtually everyone equally.
Each member treats all the other members equally as “most-favoured” trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same “best” treatment to all the other WTO members so that they all remain “most-favoured”.

25. Exceptions to MFN
About 100 of the 144 members are developing countries - and it it “permitted” to discriminate favourably towards developing countries
Regional trade agreements are permitted, but not encouraged
Bilateralism vs. multilateralism

26. Regional agreements

27. GATT - WTO

28. Did GATT succeed ?
Tariff rates dramatically reduced from 40 % to 4 % on industrial goods
Much smaller success with NTBs
Small or no legal power, but has been much strengthened in the WTO
Outstanding problems
regional agreements
EU and CAP (Common Agricultural Policy)

29. Eight (nine) rounds since 1947

30. What happened in the different rounds of negotiations between 1947 and nowadays?
The first five GATT rounds concentrated largely on tariff reductions. The first round, involving 23 countries in 1947, resulted in 45,000 tariff concessions affecting $10 billion of trade, about one-fifth of the world's total. The 23 also agreed to adopt the General Agreement in Tariffs and Trade, rescued from the failed attempt to create an International Trade Organisation.
The next GATT rounds concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tariffs (non-tariff barriers), and to improve the system. The eighth, the Uruguay Round of , was the latest and most extensive of all. It led to the WTO and a new set of agreements covering goods, services, intellectual property and a new dispute settlement mechanism.

31. Problem nr 1: Agriculture

32. Agriculture - very expensive

33. Solving disputes

34. Much faster than it used to be