International economics

Lecture no. 4 Prof. Mazahir saifee

Countervailing duty
‡ A countervailing duty is an import duty or tariff imposed by an importing country to raise the price of a subsidized export product to offset its lower price.

Other non tariff barriers or Administered Protection
‡ Administered protection encompasses a wide range of bureaucratic government actions, which have grown in absolute as well as relative importance over the last decade or more. Most recent VERs are in fact regarded as the outgrowth of administered protection actions. ‡ Important administrative protection measures include the following:

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(i) Health and Product Standards :- Several health and product standards imposed by the developed countries hinder the exports of developing countries because of the added costs or technical requirements. The need for maintaining health and product standards is unquestionable. The objection shmould be to their use with the deliberate intention trade restriction or discrimination.

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The Agreement on Technical Barriers to Trade (also known as the Standards Code) evolved by the Tokyo Round of the GATT lays down that when governments or other bodies adopt technical regulation or standard for reasons of safety, health consumer or environmental protection, or for other purposes, these should not create unnecessary obstacles to trade. Exporters from developing countries complain, however, that this code is not respected by developed countries in several cases

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(ii) Customs Procedures: Certain customs procedures of many countries become trade barriers. For example, studies point out that frequent changes of Japan s customs regulations are themselves a significant barrier to exporters, especially those not affiliated with Japanese overseas joint ventures. The Tokyo Round formulated a Customs Valuation Code intended to provide a uniform and neutral system for the valuation of goods for customs purposes which will conform to the commercial realities and to prevent the use of arbitrary or fictitious value.

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(iii) Consular Formalities : A number of countries insist on certain consular formalities like certification of export documents by the respective consulate, of the importing country, in the exporting country. This becomes a trade barrier when the fees charged for this is very high or the procedure is very cumbersome. ‡ (iv) Licensing: Many countries regulate foreign trade, particularly imports, by licensing. In most cases, the purpose of import licensing is to restrict imports

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‡ (v) Government Procurement : Government procurements often tend to hinder free trade. The Tokyo Round has, therefore, formulated an agreement on government procurement with a view to securing greater international competition in government procurements. ‡ (vi) State Trading : State trading also hinders free trade many a time because of the counter trade practices, canalization, etc. State trading was an important feature of the foreign trade of the centrally planned economics and many developing countries. With the economic liberalizations in most of these countries, the role of state trading has declined.

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‡ (vii) Monetary Controls: In addition to foreign exchange regulations, other monetary controls are sometimes employed to regulate trade, particularly imports. For instance, to tide over the foreign exchange crisis in 1990-91 and 1991-92, the Reserve Bank of India took several measures which included as 25 per cent interest rate surcharge on bank credit for imports subject to a commercial rate of interest of a minimum 17 per cent, the requirement of substantially high cash margin requirement on most imports other than capital goods, and restrictions on the opening of letters of credit for imports.

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‡ (viii)Environmental Protection Laws: The growing concern for environmental protection has led to the extension of environmental protection regulation to the imports. For example, the U.S. congress was considering a legislation to prohibit the import of shrimp harvested with commercial fishing technology which might adversely affect the endangered or threatened sea turtles unless the President certified that the supplying country has a turtle conservation programme comparable to that of the U.S.

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‡ (ix) Foreign Exchange Regulations : Foreign exchange regulations are an important way of regulating imports in a number of countries. This is done by the State monopolizing the foreign exchange resources and not realizing foreign exchange for import of items which the government do not approve of for various reasons. Restrictions on currency convertibility can also affect imports.

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‡ ‡ ‡ ‡ Technical barriers Local content regulations Import licensing procedures Customs valuationa and classification

NTBs Vs Tariffs
‡ Tariffs only disturb the market mechanism whereas many NTBs displace it. ‡ Tariffs are transparent because there are visible to every person and organisation in terms of the percentage or advalorem duty. But NTBs are hidden from the public which does not know that they have been levied. ‡ Tariffs are simple and easy to negociate and implement than some of theNTBs.

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‡ Tariffs bring revenue to the govermentwhile little revenue acccures from NTBs. ‡ NTBs lead to grater Malallocation of resources than tariffs.

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