Chapter 9

Nontariff Trade Barriers

and the New Protectionism

Lecture overview
 Import quotas
 Voluntary Export Restraints
 Administrative regulations
 International Cartel
 Dumping
 Export Subsidies

Non-tariff barriers (NTB)

 After the WW2
 a lot of negotiations have been conducted
 the reduction in tariff
 increase in non-tariff trade barriers.
 NTBs:
 any trade barrier other than tariffs
 such as quotas, voluntary export restraints
(VERs), government regulations, international
cartels, dumping, and export subsidies.
 The effects of NTBs are similar
 either restrict imports or stimulate exports
 cause a misallocation of resources in the world.
3

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 IMPORT QUOTA

Concept of Import Quota

 A import (export) quota: a direct quantitative
restriction on the amount of a commodity
allowed to be imported (exported).
 Why use import quota?
 Protect domestic industry
 Protect domestic agriculture
 Balance-of-payment reasons

Production, consumption, trade and price effects

of an import quota
PX > Pw
Identify the autarky PX, - Identify the free trade PX, Pw, QD, QS and QI?
QD, QS and QI?
- PX = PW= 1$, QD = 70X. QS = 10X. QI = 60X
PX = 3$, QD= QS= 30X.
Px($) Quota = 30X
6 Sx
-Identify PX, PW, QD, QS and QI in tariff case?
5
-QI = 30X, Pw= 1 $, PX = 2$, QD = 50X, QS = 20 X,
4
E
3 Price effect
G J H SF +T Effects
PW + t = 2 Consumption
T of and production
A C M N B
PW = 1 S quota effects
Dx F
0 X
Trade effect
0 10 20 30 40 50 60 70 80 90 100
Quota = Effects of an
equivalent tariff of Revenue effect 6
Import before quota
100%.

CuuDuongThanCong.com https://fb.com/tailieudientucntt
Summary of production, consumption, trade
and price effects of an import quota (cont.)

Autarky Free Quota Effect

trade
QS 30 10 20 Decrease

QD 30 70 50 Increase

QI 0 60 30 Decrease

PX 3 1 2 Increase

Production, consumption, trade and

price effects of an import quota

CS ↓ by area
AGHB =
(a+b+c+d)

Quota = 30X PX ↑ (1$  2$)

PS ↑ by area National
GJAC = a = 15 $ welfare↓

↑ by area JHNM
=c= 30 $

The nation is
G worse off
auc if G if
off tioned s iv e
im p rm ce
lice ort Fi re rt
n se s po e
m s
fir im en
lic

Social welfare effects of an quota

CuuDuongThanCong.com https://fb.com/tailieudientucntt
Summary of welfare effects of a quota
Question: Who will be losers and winner of a tariff?
 Winners:
 Government/Firms +c
 Producers +a
 Losers:
 Consumers - (a+b+c+d)
 So, quota are unambiguously pro-producer and anti-consumer.
 National welfare effects?
 If domestic firms receive import license free of charge or
government auction off the import licencse:
 National welfare effect = - (b+d)
 If foreign firms receive import license free of charge:
 National welfare effect = - (b+d+c) => loss more
10

Comparison of an import quota to

an import tariff

 Similarities:
 Barrier to trade
 Import quota and an equivalent import tariff has
similar effects on
 Quantity imported
 Domestic price
 CS
 PS
 Government revenue

11

Comparison of an import quota to

an import tariff (cont.)

 1st Difference:
 Quota: increase in demand
=> higher domestic price
=> higher domestic production
 Import tariff: an increase in demand

 leave the domestic price and domestic production

unchanged
 higher consumption and imports

12

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 Comparison of an import quota to
an import tariff (cont.)
With a given Assume an
How Dx changes?
import quota of increase in demand
30X

How Px changes?

- Px increases
-Production increases
-Consumption increases

13

Comparison of an import quota to

an import tariff (cont.)
With a given Assume an
How Dx changes?
import tariff of increase in demand
100%

-Price unchanged???

- Production unchanged
-Consumption increases
-Import increases
t = 100%

14

Comparison of an import quota to

an import tariff (cont.)
 Fairness in trade
 Quota:
 Depending on the distribution of import licenses
 Firms receive import licenses will get monopoly profit.
=> rent seeking activities
 Tariff:
 As for import tariff, the government collects it for all the
imports.
 Certainty of import limits
 Import quota limits import to the specified level with
certainty
 while the trade effect of an import tariff may not be
uncertain.
=> What does a domestic producer likes: import
tariff or import quota? Why? 15

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 Voluntary export restraints

16

Voluntary Export Restrains

 a nontariff barrier
 importing country induces another nation to
reduce its export of a commodity “voluntarily”,
under the threat of higher all around trade
restrictions

17

Effect of VERs
they have all the economic effects of equivalent import quotas

6Px($) Sx

3
a b c d e
2
f g h i k l m
Dx
1

0 X
0 10 20 30 40 50 60 70 80 90 100
18

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 Technical, Administrative, and Other
Regulations

 Administrative
 Customs
 Buy domestic products
 Technical
 Other Regulations
 Safety regulations
 Health regulations
 Labeling requirements
 Packing of imported products
 Environmental regulations
=> A lot of technical regulations are disguised tools to limit the
imports
19

International Cartel
 An organization of suppliers of a commodity located
in different nations (or a group of governments) that
agrees to restrict output and export of the commodity
with the aim of maximizing or increasing the total
profits of the organization.
 E.g: OPEC
 Conditions for success:
 Few international suppliers
 Essential commodity for which there are no close
substitutes

20

Dumping
 Definition:
 the export of a commodity at below cost
 or at least the sale of a commodity at a lower
price abroad than domestically

21

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 EXPORT SUBSIDIES

22

What is an export subsidy?

 Export subsidies:
 Payments/Assistance given by the government
 to producers of exported goods or exporters.
 to encourage export
 What are goods often subsidized?
 The United States:
 Export Enhancement Program (EEP)
 Vietnam
23

The effects of export subsidies

in a small country
P

Autarky? Subsidize: s/ton of

S
cotton exported
Free Trade? Impacts:
PW 1. Quantity demanded
QEX = QS - QD
PE
E 2. Quantity produced
3. Quantity exported
D 4. World price
5. Consumer surplus
Q1 Q2 Q 6. Producer surplus

Export before subsidy 7. National welfare

24

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 The effects of export subsidies
in small country
P
Export after subsidy
B S
C
PS
Subsidy per unit
a b c d
PW
PE F G
E

D
A

Q3 Q1 Q2 Q4 Q

Export before subsidy

25

Results for discussion

Criteria How change How much change?
Increase From PW to PS
Domestic Price

World price Unchanged 0

Increase Q4 –Q2
Quantity produced

Quantity consumed Decrease Q1 –Q3

Quantity exported Increase Q3Q4 - Q1Q2

Consumer surplus Decrease (a+b)

Producer surplus Increase (a+b+c)

Government revenue Decrease - (b+c+d)

Total national welfare Decrease - (b+d)

26

The effects of export subsidy

in small country

An export subsidy results in an unambiguous net loss in national

welfare consisting of efficiency loss due to production and
consumption distortions ( b+d)

27

CuuDuongThanCong.com https://fb.com/tailieudientucntt
 Key words
 Non-tariff trade barriers
 Quota
 Welfare effects of quota
 International cartel
 Technical, administrative and other regulations
 Dumping
 Voluntary Export Restraint
 Export subsidies
 Welfare effects of export subsidies

28

10

CuuDuongThanCong.com https://fb.com/tailieudientucntt