Import Quotas and Orderly Market Arrangements

- Import quotas specify a maximum quantity of a product that may be

imported during a specified period while ensuring the orderly and
equitable development of this trade and avoiding disruptive effects in
individual markets and on individual lines of production in both
importing and exporting countries
Non automatic Import Licenses
Non automatic import licenses are issued on a discretionary basis and
are used to restrict imports of a given product. Licensing requirements
can restrict the volume of imports, as do quotas, or they can be used to
impose on the exporter or importer specific conditions that will result in
fewer imports
Automatic Import Licenses
-Automatic licenses are used by the importing country's
government for the purpose of import surveillance
Voluntary Import Expansion (VIE)
- a country agrees to open its markets to imports . Voluntary
import expansions increase foreign access to a domestic
market, while increasing competition and reducing prices
Voluntary Export Restraints (VER)
-self-imposed quotas and constitute a barrier to trade often
used in the 1980s to protect local industries
Price Controls: Increasing Prices of Imports
Increasing the price of imports to match minimum prices of
domestic offerings is one such strategy that is frequently
used for both products and for retailers.
Price Controls: Para tariff Measures
Para tariff measures are charges that increase the costs of
imports in a manner similar to tariffs. Such measures include
allowing an initial number of product units to enter, the
country duty-free and charging tariffs to subsequent
shipments in excess of this quota; they also include advance
import deposits, additional import charges, seasonal tariffs,
and customs charges
Standards
-Standards as barriers to trade are frequently used as barriers to
imports, primarily imposed by highly industrialized countries. Standards
that discriminate against foreign firms in particular, or that simply create
more bureaucratic hurdles for importing firms, act as nontariff barriers to
trade.
Local Content Requirements and Foreign Ownership:
Percentage Requirements
-Governments of many emerging market economies mandate that a
certain percentage of the products imported are locally produced.
Manipulating and/ or assembling the product on the territory of the
importing country-usually in a foreign trade zone can often meet this
requirement.
Boycott
-ban on consumption of all goods associated with a
particular company and/or country
Embargoes and Sanctions
-Embargoes and sanctions are imposed by a country (or a number of
countries) against another country.
An embargo prohibits all business deals with the country that is the
target of the embargo, often affecting businesses from third countries
that do business with both the country (or countries) imposing the
embargo and the country under embargo.
The embargo could be limited to a particular product and/or to particular
circumstances.
Currency and Capital Flow Controls
-Strategies involving currency and capital flow controls are
used in economies that are under tight government control
and/or that are experiencing hard-currency shortages. In the
case of capital flow, countries use arguments of self-
determination to ensure that regions in the country are
uniformly developed or that there would not be a capital
flight from the country . Among the currency controls used
by governments are the following:
 Blocked currency
 Differential exchange rates
 Foreign exchange permits
 Blocked Currency
A country using a blocked currency strategy does not allow importers
to exchange local currency for the seller's currency. This strategy can
be used as a political weapon, to create obstacles for international
business attempting to enter the country
 Differential Exchange Rates
Two types of differential exchange rates can be used.
The first, which is government imposed, refers to a strategy the
government uses to promote imports of desirable and necessary goods,
such as armament and petrol
A second type of differential exchange rate is favourable to the
international firm importing products into this market
 Foreign Exchange Permits
Countries attempting to control foreign exchange often
require the use of foreign exchange permits. Such permits
are typically provided by the Central Bank. They also give
priority to imports of goods that are in the national interest
and delay access to foreign exchange for products that are
not deemed essential
Even before the Second World War ended, monetary
experts in the U.S.A. and the U.K. began planning to
solve the monetary problems likely to be faced after
the war.
Known after their authors as the Keynes Plan and the
White Plan, both sets of proposals were subjected
to intensive discussion and furnished the basis for
the Bretton Woods Conference, which decided to
set up the two organizations, the IMF and the IBRD
Its main objectives are:
1. To promote exchange stability and orderly exchange
arrangements and to avoid competitive devaluation.
2. To help re-establish multilateral system of trade and
payments and to eliminate foreign exchange
restrictions.
3. To provide for international adjustment, superior to
deflation, by making available increased
international reserves.
4. To facilitate the expansion and balanced growth of
international trade.
The basic functions of IMF are:

1. To lay down ground rules for the conduct of

international finance.
2. To provide short and medium-term assistance for
overcoming short-term balance of payments
deficits.
3. Creation and distribution of reserves in the form of
SDRs.
Main features of the international monetary system
as it existed upto 1973
 Par value system: The exchange value of a member‘s
currency was fixed in terms of gold. Since the price of gold
was officially fixed at U.S. $ 35 per ounce, it also meant that
par values were fixed in terms of dollar. Dollar was used as
the intervention currency as at that time dollar was as good
as gold. In fact, members preferred to keep dollars in
reserve, in as much as dollars earned interest while gold
reserves did not.
Main features of the international monetary system
as it existed upto 1973
 Change in par value: In order to achieve short-term balance
of payments equilibrium, members could borrow funds from
the international Monetary Fund.
If the IMF help did not serve the purpose, the IMF was
required.
If the proposed change was greater than 10 per cent, it could
be allowed provided (i) there was a fundamental
disequilibrium, and (ii) devaluation would be the right
remedy for solving the fundamental disequilibrium.
Main features of the international monetary system
as it existed upto 1973
 Exchange control was not permitted on current transactions
except (i) when a member‘s currency was under massive
attack, and (ii) when the Fund declared some currency as
scarce. Members could use exchange control so far as the
use of that currency was concerned.
Changes made after 1973 :
1. A member can peg its currency to (i) either a single major
currency, or (ii) a basket of currencies, or (iii) allow it to float
independently, or (iv) adjust it to a set of indicators. Thus,
there is a complete departure from the par value system. It
is, however, subject to surveillance by the fund.
2. A reduction in the role of gold in the International Monetary
System. There is now no statutory price for gold. In fact,
one-third of the gold stock with the IMF was disposed of to
create a Trust Fund to be used to provide additional balance
of payments support on concessional terms to 59 eligible
developing members. S.D.R. is now the unit of account for
Fund‘s transactions.
Regular facilities:
Reserve Tranche: A member has a reserve tranche position if the IMF‘s holdings of
its currency in the General Resources Account. A member may draw up to the full
amount of its reserve tranche position at any time, subject only to the member‘s
representation of a balance of payments need.
Credit tranches: IMF credit is subject to different conditions and phasing, depending
on whether it is made available in the first credit ‗tranche‘ (segment) of 25 per
cent of a member‘s quota or in the upper credit tranches (any segment above 25
per cent of quota). For drawings in the first credit tranche, members must
demonstrate reasonable efforts to overcome their balance of payments
difficulties.
Upper credit tranche drawings are made in installments, or phased, and
are released when performance targets are met. Such drawings are normally
associated with Stand- By or Extended Arrangements, which typically seek to
resolve balance of payments difficulties and to support structural policy reforms
where appropriate. Performance criteria and periodic reviews are used to assess
policy implementation.
Stand-By Arrangements: Stand-By Arrangements give
members the right to draw up to a specified amount of IMF
resources during a prescribed period.
Extended fund facility (EFF): The EFF provides assistance for
members‘ adjustment programs over longer periods and with
generally larger amounts of financing than under Stand-By
Arrangement.
Concessional facility:
Enhanced structural adjustment facility (ESAF): This facility,
established by the Executive Board in 1987 and extended and
enlarged in February 1994, is the principal means by which
the IMF provides financial support, in the form of highly
concessional loans, to low-income member countries facing
protracted balance of payments problems.
Special facilities:
Compensatory and contingency financing facility (CCFF): This
provides timely financing to members experiencing a
temporary shortfall in export earnings or excess in cereal
import costs, attributable to factors largely beyond the
member‘s control.
Buffer stock financing facility (BSFF): Under this facility, the
IMF helps finance a member‘s contribution to approved
international buffer stocks if the member demonstrates a
balance of payments need. No drawings have been made
under this facility since January 1984.
Special facilities:
Supplemental reserve facility (SRF): The IMF established the supplemental
reserve facility in reaction to the unprecedented level of demand for IMF
resources during the recent Asian crisis. The facility provides financing to
members experiencing exceptional balance of payments difficulties owing
to a large short-term need resulting from a sudden and disruptive loss of
market confidence reflected in pressure on the capital account and the
member‘s reserves.

Contingent credit lines (CCL): In April 1999, the Board agreed to provide
Contingent Credit Lines for a two-year period. The CCL is designed to
provide short-term financing to help members overcome expectational
balance of payments problems arising from a sudden and disruptive loss of
market confidence
Other forms of financial assistance :
 Support for currency stabilization funds
 Emergency financing mechanism (FEM)
 Emergency Assistance

Special drawing rights (SDRs):

SDR is an international reserve asset created by the
Fund as supplement to the existing reserve assets.
They were first allocated to all member-countries of
the IMF in 1970-72 on the basis of the then existing
quotas.