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TARIFF AND
1

NON

TARIFF BARRIERS

Prepared by: Ashish Juneja For SIMT KashipurWednesday, August 28, 2013

PROTECTIONISM
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Main

feature

of

international

trading

environment

is

Proliferation of trade barriers

world tariff average in manufacturing countries has gone down to level of 40 percent in 1947, 3 percent in industrial countries Developed countries have been replaced by growing protectionism

Reasons attributed to protectionism-currency crisis, recession and high unemployment and trade deficit
2

ARGUMENTS IN FAVOR OF PROTECTION

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Protection of infant industry

Diversification of economic activities

Improving terms of trade Improving balance of payments Anti-dumping measure Bargaining Employment protection
3

ARGUMENTS IN FAVOR OF PROTECTION (CONTD.)

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Employment protection National defense Key industry

Strategic trade policy

Keeping money at home The pauper labor Size of home market Equalization of cost of production
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DEMERITS OF PROTECTION
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Against interest of consumers Protection makes producers less quality conscious Encourage domestic monopoly Secure under protection and discourage motivation Corruption Reduces volume of trade Uneconomic utilization of resources

METHODS OF PROTECTION
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Tariff Barriers Non-Tariff Barriers

TARIFF BARRIERS
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Tariff in international trade refers to the taxes or duties imposed on goods when they cross international borders.

Tariff rates are generally high in developing countries.

With liberalization tariff rates have reduced and NTBs are part of trade liberalization.

Economists and organizations like WTO prefer tariff

to Non Tariff Barriers

Impact of a Tariff on Steel

S + Tariff
Price of Steel (US $ per kg)

28 20

Amount of the tariff per unit

D 350 500
Quantity of Steel Bought and Sold from Abroad

NON-TARIFF BARRIERS

Any methods not covered by a tariff, most usually: Rules Regulations Voluntary Export Restraints (VERs) Legislation Exacting Standards or Specifications

NON-TARIFF BARRIERS
Examples include setting exacting standards on fuel emissions from cars, the documentation required to be able to sell drugs in different countries, the ingredients in products some of which may be banned in the destination country NTBs are difficult to prove when do you accuse a country of protectionism could be a legal or cultural issue? The main method involved in NTBs is not to prevent trade but to make the cost of doing so prohibitive to the potential exporter

REASONS
Protect domestic industries Protect domestic employment Strategic reasons Political pressures Protect culture? Prevent Dumping selling goods in the destination country below cost to break into that market

Impact of a Quota on Steel

Price of Steel (US $ per Kg)

Quota level

S
The Pre-trade quota restricts the position supplybefore to a set amount a quota. (250 in the example) which is likely to result in a shortage of this good and a subsequent rise in its price.

30

20

D 250 500
Quantity of Steel Bought and Sold from Abroad

NON TARIFF BARRIERS AND NEW PROTECTIONISM

Introduction

Since

the birth of GATT, in 1947, tariffs have been negotiated downwards New measures of protection such as import quotas, voluntary export restraints and anti-dumping actions have come in.

IMPORT QUOTAS

Quota- quantitative restriction on the amount

of a commodity to be imported/exported. Effects of a Quota.-used usually to protect, domestic industry or for BOP reasons

PARTIAL EQUILIBRIUM EFFECTS -QUOTA

QUOTA

Before Quota

-Nation consumes 70X(AB), 10X(AC) produced

domestically and 60X imported(CB) is imported Quota -Imposition of an import quota of 30X(JH) raises, the price to $2 so that Demand can match 20X domestically produced plus30X(JH), allowed by the imposition of a quota -Consumption is reduced by 20X and domestic pdn is increased by 10X.

TARIFF & QOUTA

With

a given import quota, increase in dd will result in higher domestic prices than an equivalent tariff Also with a given import tariff an increase in dd will not change domestic price and pdn, but results in higher consumption and imports than quota Involves distribution of import licenses, which may result in rent seeking and monopoly profits Quota-limits imports to specific levels, while trade effect of a tariff is uncertain.

OTHER NON-TARIFF BARRIERS

1.Voluntary

export restraint (VER)- Negotiated

settlement, e.g in clothing, steel 2.Technical, Administrative and other Regulations Safety regulations-automobile and electrical Health regulations-food Labeling regulations-showing origin and contents Procurement policies Border taxes-rebates of internal taxes given to exporters of a commodity International commodity agreements and multiple exchange rates.

INTERNATIONAL CARTEL

International agreement in the restriction of output and exports among countries. E.g OPEC.

DUMPING
It is the sale of a commodity at below cost or at least the sale of a commodity at a lower price abroad than domestically Examples Persistent Dumping-continuous tendency of monopolist selling a product more expensive in a domestic market than international(face competition) Predatory-selling cheaply abroad to drive out local producers and raise prices after death of local industry. Sporadic-once off to off load unexpected production

EXPORT SUBSIDIES
Direct payments to nation exporters/ low interest loans to boost nation exports. Form of dumping

IF A SUBSIDY IS IMPOSED, DOMESTIC CONSUMERS SUFFER AS DOMESTIC PRICES RISE FROM 3.5 TO 4 AFTER IMPOSITION OF
A EXPORT SUBSIDY

GATT
General

Agreement on Tariffs and Trade Created to promote free trade Principles included, non discrimination,elimination of non tariff trade barriers,consultation among nations to resolve trade disputes, Many other meetings followed including Tokyo Round,Uruguay Round , Marrakech Agreement

URUGUAY ROUND-1993
Focused on Tariffs 1-Qouta 2-Anti-dumping Subsidies Safeguards Intellectual property Services Other Industry Provisions Trade related investment measures WTO.

TRADE LIBERALISATION

TRADE LIBERALISATION
Aims to free up world trade and break down the barriers to international trade Basic philosophy rests on the principle of comparative advantage Talks to achieve trade liberalisation have been ongoing for many years

TRADE LIBERALISATION
GATT General Agreement on Tariffs and Trade First signed in 1947 talks on-going since then! Uruguay Round 1994 set up the World Trade Organisation (WTO) as well as agreements covering a range of trade liberalisation measures WTO provides the forum through which trade issues can be negotiated and works to help implement and police trade agreements

TRADE LIBERALISATION

Potential benefits: Promotes international specialisation and increases world output Promotes efficient use and allocation of world resources Allows developing countries access to the heavily protected markets of the developed world thus helping promote development Facilitates the working of the international market system and the working of price signals to ensure efficient allocation of resources, international competition and the associated benefits to all

TRADE LIBERALISATION
World agreements are very difficult to achieve Witness the issues over the removal or reduction of agricultural subsidies, tariffs on steel in the United States, the banana wars, etc!