Non-tariff barriers to international trade, Quantitative restrictions on international trade, Export quotas, & quot; Voluntary & quot; export restriction - International Economics

Non-tariff barriers to international trade

Currently, the use of tariffs in regulating international trade is becoming increasingly problematic. One of the main reasons for this is tight control over tariff restrictions by international organizations, and primarily the World Trade Organization (WTO), which consistently pursue a policy of reducing the level of customs duties in international trade.

There are other circumstances that make it difficult for the national governments to use tariff and customs regulation for protectionist purposes. In particular, the general lack of cost, or price, methods of regulation is their indirect impact on the national economy. So, in a number of cases, foreign exporters are going to pay higher tariffs by lowering their own profit level, thus distorting the forecast on import volumes. In addition, when importing goods with a low level of elasticity (for example, oil), a change in the tariff may not affect the volume of imports.

The listed shortcomings of customs duties led to the development and use of alternative import control measures that directly affect the quantitative and cost parameters of deliveries of the imported goods.

The most commonly used non-tariff methods of the trade policy are divided into quantitative and financial.

Key terms:

quantitative trade restrictions; quoting (quoting); licensing; voluntary import restriction; financial methods of foreign trade policy; export subsidy; internal subsidy; dumping; hidden methods of foreign trade policy.

Quantitative restrictions on international trade

Quantitative restrictions are an administrative form of state regulation of foreign trade turnover, which determines the range and quantity of goods allowed for export or import. These include: quota allocation, licensing, & quot; voluntary & quot; export restriction.

The greatest distribution among the above quantitative methods of restrictions on foreign trade have import quotas , or a quantitative restriction on the volume of foreign products allowed to be imported into the country for a certain period. What are the import quotas preferable to similar tariff restrictions?

1. Import quotas allow national producers, who are afraid of price competition with foreign suppliers, to retain a certain market share without the threat of confrontation in price competition.

2. At the macro level, quantitative restrictions make it possible, by rigidly fixing the volume of imports, to forecast the value of the country's foreign exchange expenditures.

3. Quotas provide the government with greater flexibility and power in the implementation of foreign economic policy, while the increase in tariff rates is regulated, as already noted, by international trade agreements.

4. The sectors of the domestic economy that are in need of protection also prefer import quotas, since it is easier for them to achieve a quota introduction than introducing or increasing the tariff.

Taking into account such a high "competitiveness" customs import quotas in relation to the customs tariff, we will carry out a deeper comparative analysis of customs quotas and duties. First of all, we note that both the quota and the duty on its consequences on the economy of the country are largely equivalent. To understand the microeconomic essence of the quota, we investigate this equivalence using the graphical model shown in Fig. 12.1.

In free trade, equilibrium is achieved at the point E, where the schedule of domestic import demand intersects with the schedule of the foreign supply (export) SS. The country imports 50 thousand units. import products at a price of 1200 USD per unit.

Equivalence of Import Quotas and Fees

Fig. 12.1 . Equivalence of import quotas and duties

Suppose that the government of this country has introduced a quota of 40 thousand units. (per month), as it is reflected in Fig. 12.1 by the vertical line Q. Such a quota will be effective, since it is lower than the inflow of imports to the country in the conditions of free trade that existed before it (50 thousand units). The price on the domestic market will increase to 1300 USD per unit of imports, which corresponds to the new equilibrium point F. The price in the world market will be determined by the corresponding coordinate of the point H and will be 1000 USD per unit of output.

Like the import tax, the import quota, thus, "drives the wedge" between domestic and world prices.

It is not difficult to see that the government could have obtained the same result for the price and quantity parameters of imports if instead of the quota in question a 30% ad valorem duty was introduced: in Fig. 12.1 the result of its introduction is reflected by a new curve of the sentence S1S1.

Similar in this case are the economic losses of the country. In this, it is easy enough to see if the import quo is

Losses of the country in terms of import quota

Fig. 12.2. Country losses in terms of import quota

The illustration is illustrated on the equilibrium model of domestic demand D ext and internal sentence SBH, shown in Fig. 12.2. The aggregate economic losses of the state, due to the introduction of the quota, will amount to the sum of the areas of figures 2 and 4, as in the previously considered variant with a duty.

What is the difference between import duties and quota?

The main difference lies in the interpretation of the income effect corresponding to the area of ​​the rectangle 3 in Fig. 12.2. In the case of an import duty, these revenues are redistributed from consumers to the state budget. In the case of an import quota, they are redistributed in accordance with the principles of the distribution of import licenses adopted in the country, which give the right to import goods within the quota.

The main ways to distribute import licenses are competitive bidding and a system of explicit preferences.

The most profitable for the country and the most fair way of distribution of licenses is an auction. If an open auction is well organized, then public auction on it must be competitive. At an auction, such a price for import licenses should be established, which is approximately equal to the difference between the importer's price and the highest domestic price at which the imported goods can be sold. With such an open auction, the quota brings the same income to the state budget as the equivalent tariff.

However, despite the fact that open auctions are the most effective way of distributing import licenses, in real life they are never used.

Another variant of the auction is different on another competitive basis: in the conditions of corruption of state authorities, those who give the largest bribe to them become holders of import licenses.

Import licenses can be placed on the basis of a system of explicit preferences, when the state fixes import licenses for certain firms without any preliminary struggle, bids or negotiations. Most often, import licenses are granted to the most authoritative firms, and in the amount corresponding to their share in the total import value in the previous temporary discretion. In this case, the state's income is freely and free of charge distributed among the relevant domestic firms.

One of the distinctive features of quoting is the non-market, administrative nature of such regulation of foreign trade, while the use of customs duties only modifies the operation of the market mechanism. In addition, the import quota costs the economic system more than the equivalent tariff, if it becomes the reason for the monopolization of the domestic market. A dominant firm in the domestic industry can not gain monopoly power from the introduction of a non-discriminatory tariff, as it is opposed by an elastic competing offer at a price equal to the world level plus a tariff.

However, under the conditions of quota, the domestic firm will not be afraid of inflation of prices, as it will be sure that the volume of deliveries of the competing foreign goods will not exceed the size of the quota. As a result, the quota enables the dominant domestic firm, with an inelastic demand curve, to obtain monopoly profits by setting high prices.

Consider a graphical model illustrating a similar situation (Figure 12.3), where MS is the curve of the marginal price of an internal monopolist (supply curve); AR - a graph of domestic demand; P w - the level of the world price with an absolutely elastic schedule of the export offer P W G. Under free trade conditions, the domestic price corresponds to the world price P W, according to which the domestic producer sells units P W H in an equilibrium state, and HG units are imported to the country.

Suppose that the government of a given country introduces a certain import duty (say, the size P W P t) • The internal price in this case increases to the value P t, as a result, the consumption in the country is reduced to the volume P t K, from which P t U produces a potential domestic monopoly and only UK, which is significantly less than in free trade, imported by import.

Imagine now that the government decides to replace the duty on the quota, allowing only the import of UK units

Potential Monopoly and Quota

Fig. 12.3. Potential monopoly and quota

products. The demand curve for the domestic producer's products in this case will be represented by the line AR ' with the corresponding function of marginal revenue MR'. The maximum profit of the monopolist is determined, as is known, by the coordinates of the equilibrium point E, in which the marginal revenue curve MR ' intersects the marginal cost curve of the MS: this is P 1 and Q 1.

Thus, when a duty is replaced by a quota, the monopolist gets the opportunity to reduce the volume of production and raise the price for his products. In this case, the transition from duty to quota turns a potential monopolist into an active one.

There are other, perhaps less important, differences between the import quota and the import duty, in particular, in the different force of the restrictive impact that the tariff and quota have on the volume of imports in the conditions of changing demand or supply of goods. In Fig. 12.4 provides a graphical model illustrating this difference.

From the above graphical model it follows that for an equivalent tariff and quota, the growth of domestic demand for goods from D to D'BH will have different consequences. In case of using the duty, when the demand for goods (DBH → D ' BH ) increases, the volume

Fig. 12.4. Analysis of the strength of the restrictive impact on imports with increasing demand: a - duty; b is the quota

import of the goods into the country (by the amount Q4Q5) at the same level of the internal price P t. If the quota is used, the volume of imports to the country remains, naturally, the same (Q3Q4 = QSQ6), and the internal price increases to the level of Pg '.

The analysis of the force of the restrictive impact on imports in the context of reducing the internal supply of readers is proposed to implement independently.

Quotas for export

A country can use its monopoly power in foreign trade, directly controlling the volume (amount) of exports. For practical implementation of this goal, the government uses export licenses, the distribution of which is similar to the distribution of import licenses.

As with the export duty considered earlier, the export quota causes an increase in the price of goods in foreign markets and a decrease in the domestic price.

As a result, conditions are created to provide domestic consumers with sufficient stocks of goods at relatively low prices, to prevent depletion of natural resources, and to increase export prices by limiting supplies to foreign markets.

& quot; Voluntary & quot; export restriction

In some cases, the importing country, using the & quot; argument & quot; threats of imposing an import duty or quota, & quot; convinces & quot; foreign countries & quot; voluntarily & quot; to reduce the volume of their exports. This paradoxical situation combines the usually lobbyist pressure of domestic manufacturers of the corresponding goods with the desire of the government of the importing country to hide from the public its protectionist goals. The consequences of such & quot; voluntary & quot; export restrictions affect the welfare of importing countries very negatively, while "voluntary exporters" have a significant economic gain from import quotas.

Indeed, the entire redistributed surplus of consumers & quot; is caught & quot; in this case, not by domestic importers, but by foreign exporters, who are able to raise the price of their products. Thus, for the importing country, the & quot; voluntary & quot; the export restriction of the exporting country means, along with irreparable losses (see Figures 2 and 4 in Figure 10.1) the total loss of the results of the income effect corresponding to the area of ​​the rectangle 3 in the same figure.

In addition, it should be borne in mind that & quot; voluntary & quot; restrictions do not always work: exporting countries often find workarounds. Here are some of them.

Switching to product categories that are not subject to restrictions. For example, South Korea in the late 1970s and early 1980s. voluntarily agreed to limit its exports of non-rubber footwear to the United States. Switching to shoes with rubber soles, she actually was able to increase the volume of shoe exports to the US by 115% during the first year of this restriction. In addition to this, during the same period, shoe exporters from the "unreached" & quot; voluntary & quot; the limitations of countries increased their share in the American markets from 4 to 15%.

Education of enterprises abroad. For example, if & quot; voluntary & quot; export restrictions on the export of Japanese cars to the US divert their potential buyers to the side of car manufacturers from other countries, Japanese firms build factories abroad (including the US), thereby avoiding restrictions on the export of their products.

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)