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Lecture 10

Lecture 10

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McGill University
Management Core
MGCR 382
John Saba

International Business Lecture 10Homework read chapter 10 page 268301 thProject due March 24Send assignment and documents to jesabahotmailcom Final Exam Tuesday April 12thChapter 9Formulation of National Trade Policies cont Objective 4Describe the major tools countries use to restrict trade conte Effects of tariffsTariffs and quotas and TRQs Tariff Rate Quotas change the domestic economys structure by encouragingDomestic consumers who must now pay a higher price for a less available product to either switch to cheaper domestic made goods or stop buying good Domestic producers increase their output of goods that compete with the imported goods as demand switches from foreign to domestic made goods Tariffs quotas and TRQs exact a cost on countries because they lessen the gains from trade Ex Effect of an import tariff on foreign made SUVs on demand for US madeSee figure 93 and example on page 253 SUVsf Non tariff barriersSee figure 95 in textbook at page 258Quantitative Restrictions and Other NonTtariff barriersndNontariff barriers NTB are the 2 category of governmental controls on international trade These are any government regulation policy or procedure other than a tariff that has the effect of impeding international tradeOverview3 types of nontariff barriers that impede international trade1Import and export quotas 2Numerical export controls 3Other nontariff barriers 1Import and export quotasA quota is a numerical limit restriction on the quantity of a good that may be imported into or exported from a country during some time period such as a yearQuotas have traditionally been used to protect politically powerful industries such as agriculture automobiles clothing and textiles from the threat of competition Governments administer quota systems by granting quota licenses to other countries firms or governments import quotas and domestic producers export quotasReasons behind each of these quotasImport quotas1Protect domestic producers of a good by placing a limit on the amount of goods entering the country 2Force outside firms to compete for market accessExport quotas1A country may wish to maintain supplies in the home market eg limiting the export of key natural resources 2A country may limit supply on world markets to raise the world priceTariff rate quotas TRQA tariff rate quota TRQ imposes a low tariff rate on a limited amount of imports of a specific good Above that threshold a TRQ imposes a prohibitively high tariff rate on the good See figure 94 page 253NoteWorld trade agreements like the Uruguay round have compelled many countries to replace quotas with tariff rate quotas TRQEx Canada for imports of eggs dairy products and poultry has replaced its previous quota with a TRQ carrying tariffs as high as 350 above its stated thresholdJapan imposes an equivalent 400 TRQ on imports of riceAdvantages of tariff rate quotas TRQ over pure quotas1Exporters are permitted to increase the sales of their products unlike the fixed limit with quotas as long as they are willing to pay the high tariff 2TRQs since they are really tariffs and more visible than quotas are more easy to eliminate through trade negotiationsEffects of tariffs and quotasSimilarities in tariff and quota effects They both result inA decrease in quantity of imports An increase in price paid by domestic consumers A decrease in total domestic consumptionKey differences in tariff and quota effectsTariffs
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