C. Fundamental economic factors affecting international trade
other national policies affecting trade
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Transcript of other national policies affecting trade
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University of DhakaUniversity
of Dhaka
Department of FinanceDepartment of Finance
International Trade and Finance
Other National Policies Affecting Trade
Course Teacher: Md. Rabiul Islam
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IMPORT QUOTAIMPORT QUOTA
Import quotas are limitations on the quantity of goodsthat can be imported into the country during aspecified period of time.
An import quota is a type of protectionist traderestriction that sets a physical limit on the quantity ofa good that can be imported into a country in a given
period of time(for instance 1 year). Quotas, like other trade
restrictions, are used to benefit the producers of agood in a domestic economy at the expense of allconsumers of the good in that economy.
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Reasons for Import Quotas?Reasons for Import Quotas?
Governments choose import quotas for the
following reasons:
To protect further increases in import
spending to improve balance of payments;
and
To gain government officials greateradministrative flexibility and power.
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Quota vs Tariff with competitionQuota vs Tariff with competition
Tariffs and Quotas are quantative restriction
both serve the purpose of controlling the
number of foreign products that can enter thdomestic market.
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Quota vs Tariff withQuota vs Tariff with
competitioncompetition There are a few reasons why tariffs are a more attractive option
than import quotas which are as follows: Tariffs Generate Revenue for the Government. Import Quotas Can Lead to Administrative Corruption. Import Quotas Are More Likely to Cause Smuggling.
However, Import Quotas have the protective effect on the import-competing industries. Quotas are more protective of the domesticindustry because they limit the extent of import competition to afixed maximum quantity. In contrast, tariffs simply raise theprice, but do not limit the degree of competition or trade volumeto any particular level.
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Quota vs Tariff withQuota vs Tariff with
competitioncompetitionGraphical representation:
P
DD
d
b
cWorld Price
Domestic price with quota
O
200
220
Sd
Sd +Q
so s1 D1DoQ
US market for bicyclesp
Quota
Quota
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Quota vs tariff with monopolyQuota vs tariff with monopoly
powerpowerDomestic monopoly increases cost of
imports under more than tariff.
The quota can harm the nation more than a
tariff by giving monopoly power to foreign
exporters.
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Ways to Allocate ImportWays to Allocate Import
LicensesLicenses The quota license to import is a license to buy the product from foreign
suppliers at the world price and resell these units at the domestic price .
Here are the main ways to allocate import licenses:
The government allocates the licenses for free to importers using a ruleor process that involves (almost) no resource costs.
The government auctions off the licenses to the highest bidders.
The government allocates the licenses to importers through applicationand selection procedures that require the use of substantial resources.
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Import DiscriminationImport Discrimination
There are import discriminations made by
developed countries by imposing import
barriers like tax/tariffs, quotas etc. For instance, EC have done import
discriminations by allowing free trade
between the member countries whilerestricting imports from other countries.
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Trade Creation and TradeTrade Creation and Trade
DiversionDiversionTrade Diversion: Trade diversion means
that a free trade away from a more efficient
supplier outside FTA, towards a lessefficient supplier within FTA.
In some cases, trade diversion reduces a
countrys national welfare.
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Trade Creation and TradeTrade Creation and Trade
DiversionDiversionTrade Creation: Trade creation means that a
Free Trade area which creates trade.
As a result, supply occurs from a more
efficient producer/supplier of the product.
In all cases, trade creation raises a countrys
national welfare.
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Export BarriersExport Barriers
*Trade barriers are generally defined asgovernment laws, regulations, policy, or practicesthat either protect domestic products from foreigncompetition or artificially stimulate exports of
particular domestic products.
*The most common foreign trade barriers aregovernment-imposed measures and policies thatrestrict, prevent, or impede the internationalexchange of goods and services. These are asfollows:
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Export BarriersExport Barriers
Strategic: International agreements limit trade in, and the transfer of,certain types of goods and information e.g. goods associated with weaponsof mass destruction, arms and torture.
Tariffs: A tariff is a tax placed on a specific good or set of goods exportedfrom or imported to a country, creating an economic barrier to trade. Subsidies: To subsidize an industry or company refers to, in this instance,
a governmental providing supplemental financial support to manipulate theprice below market value.
Subsidies are generally used for failing industries that need a boost indomestic spending. Subsidizing encourages greater demand for a good orservice because of the slashed price.
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Export Subsidies and CountervailingExport Subsidies and Countervailing
DutiesDutiesExport Subsidies: An export subsidy
refers to a payment of cash or a form of financial
assistance paid to private sector business toencourage exports.
Subsidies can be regarded as a form of
protectionism or trade barriers by makingdomestic goods and services artificiallycompetitive against imports.
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Export Subsidies and CountervailingExport Subsidies and Countervailing
DutiesDuties Countervailing Duties: A tariff levied against
imports that are subsidized by the exporting countrys
government designed to offset (countervail) the effect
of subsidy.
Countervailing duties are duties imposed under
WTO Rules to neutralize the negative effects of
other duties. They are imposed when a foreigncountry subsidizes its exports, hurting domestic
producers in the importing country.
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DumpingDumping
Dumping refers to any kind of predatory pricing.Dumping is defined as the act of a manufacturer in onecountry exporting a product to another country at a
price which is either below the price it charges in itshome market or is below its costs of production.
Predatory Dumping- It occurs when the firmdiscriminates in favour of some foreign buyers
temporarily with the purpose of eliminating somecompetitors and of later raising the price of after thecompetition is over.
Persistent Dumping- It goes indefinitely.
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Retaliation against DumpingRetaliation against Dumping
On the demand of the import-competing firms, thegovernment of importing countries often imposeantidumping tariffs to protect dumping by the foreign
suppliers. There is no question that international trade cannot
proceed without any limitations or restrictions. Everycountry has its own specific concerns related to theirdomestic industries and economic well-being, therefore,
there will always be a need for some degree ofprotectionism. International Anti-dumping code signed bymost parties to GATT in 1967.