200591 Lecture Notes - Lecture 3: Import Quota, National Treatment, Import Substitution Industrialization
Week 3- Chapter 3: The political economy of trade and investment
POLITICAL ECONOMY The political, economic and legal systems and forces that
govern economy and business activity
3.1-instruments for trade policy-
either restrict or promote trade-TSIVLAAE
1)tariff- A tax levied by governments on imports or exports
SPECIFIC TARIFF A tariff levied as a fixed charge for each unit of good imported
VALOREM TARIFF A tariff levied as a proportion of the value of the imported good
The government benefits because the tariff increases government revenues.
Consumers lose because they must pay more for certain imports and/or purchase less desirable
products.
Domestic producers, at least those in the targeted industry, gain because the tariff affords them
some protection against foreign competitors by increasing the cost of imported foreign goods.
They are able to increase prices.
those producers, however, who use the imported product as an input to their own production
lose as their costs of production rise.
Tariffs on exports are less common than tariffs on imports. In general, export tariffs have two
objectives: (1) to raise revenue for the government; and (2) to reduce exports from a sector,
often for political reasons.
2)subsidies- A subsidy is a government payment to a domestic producer. As a non-tariff
barrier, subsidies take many forms, including cash grants, low-interest loans, tax breaks and
government equity participation in domestic firms. By lowering production costs, subsidies help
domestic producers in two ways. They allow them to: (1) compete against foreign imports; and
(2) gain export markets.
japan,korea-high subsidies to farmers-higher protection to farmer
3)import quotas and voluntary export restraints
import quota is a direct restriction on the quantity of some good that may be imported into
a country. restriction -enforced by issuing import licences
TARIFF RATE QUOTA -The process of applying a lower tariff rate to imports within the import
quota than those over the quota
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VOLUNTARY EXPORT RESTRAINT (VER) A quota on a trade imposed by the exporting
country, typically at the request of the importing countryās government
4) local content requirement is a requirement that some specific fraction of a good be produced
domestically. The requirement can be expressed either in physical terms (for example, 75 per
cent of the component parts for a product must be produced locally) or in value terms (for
example, 75 per cent of the value of a product must be produced locally).
developing countries to shift their manufacturing base from the simple assembly of products
whose parts are manufactured elsewhere into the local manufacture of component parts. They
have also been used in developed countries to try to protect local jobs and industry from foreign
competition
. A prevalent form of local content requirements is the so-called āculture quotaā, particularly as it
applies to television and radio broadcasting.
Cultural rationales for these local content requirements tend to be couched in terms of
preserving local culture and promoting national cohesion and identity.
5)ADMINISTRATIVE TRADE POLICIES- Rules and procedures adopted by governments that
can be used to restrict imports or boost exports
labelling regulations-restrict trade-eg)wine costs-different label for each export market
6)Antidumping policies-
DUMPING -Selling goods in a foreign market for less than their cost of production or below their
fair market value
antidumping policy-
Rules designed to penalise foreign firms that engage in dumping and thus protect domestic
producers from unfair foreign competition
Barriers to trade-custom inspection practices,health and safety assessments
trade remedy-country blocks market access because of unfair pricing by exporters
COUNTERVAILING DUTIES Temporary tariffs imposed to protect domestic producers from the
dumping of imports that have benefited from foreign government subsidies
3.2-gov intervention in trade arguments
why gov intervene in trade?PNIRPFPP
protect jobs
-protect industries
-retaliate against unfair foreign competiton
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-protect consumers-mixed berries cause hepatis b āsafety standards,improving labelling
-further goals of foreign policy
-protect human rights in exporting countries
-protect enviro
economic
infant industry argument-works only if protection make industry efficient and globally
competition within reasonable time
industries developing starting-supported-tariffs,local content ,import substitution,develop local
imports so donāt rely on other firms
political arguments for intervention
a)Protecting jobs ā
-from unfair foreign
industries maintained defence
-gov imposing non-tarrif barriers to protecting domestic businesses
b)national security-
protect certain industries such as aerospace,adv. electronics,semiconductors as imp for national
security
waessenger arrangement-41 countries control exports of dual use tech.
mining and exploration industries-subject to export control and sanctions:
certain survey equipment, spectrometers, chemical processing equipment and even certain
professional services,
concern:if terrorists get control over encryption tech
low-income agricultural economies, such protection is seen as necessary to ensure viable
incomes for the large rural-based population.
Retaliation-
some say gov should have threats for trade policy changes-to free up trade and force trading
partners to āplay by the rules of the gameā.
depends on bargaining strength
United States threatened to impose 100 per cent tariffs on a range of Chinese imports, the
Chinese agreed to tighter enforcement of intellectual property regulations.
4)Protecting consumers-
The WTO Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures allows
governments to restrict or prohibit trade in order to protect human, animal or plant life and
health, provided they do not discriminate or use this as disguised protectionism.
aus-quarantine for protection
especially to avoid transmission of diseases-mad cows,foot and mouth,Gm grains,hormone
treated bf-triggered sps measures
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Document Summary
Week 3- chapter 3: the political economy of trade and investment. Political economy the political, economic and legal systems and forces that govern economy and business activity. 3. 1-instruments for trade policy- either restrict or promote trade-tsivlaae. 1)tariff- a tax levied by governments on imports or exports. Specific tariff a tariff levied as a fixed charge for each unit of good imported. Valorem tariff a tariff levied as a proportion of the value of the imported good. The government benefits because the tariff increases government revenues. Consumers lose because they must pay more for certain imports and/or purchase less desirable products. Domestic producers, at least those in the targeted industry, gain because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods. They are able to increase prices. those producers, however, who use the imported product as an input to their own production lose as their costs of production rise.
