Session 9

Non-tariff Barriers to Imports

The Effect of an Import Quota underCompetitive Condition (Small Importing Country)

World Price

Import with free trade

Quota will increase the supply

Domestic price with quota

Domestic supply increased by quota

Domestic demand decreased by quota

Quota

Sd +Qq

Gainers and Looser

World PriceDomestic price with quota

Decreased Consumer Surplus

Increased Producer Surplus

Extended Effect of an Import Quota

Depends on how a nation allocate quota

Deadweight Loss

Sd +Qq

Ways to Allocate Import Licenses1.Fixed Favoritism

The government simply assigns the licenses to firms (and/or individual) without competition, application or negotiation.

The importers can take an advantage by resellingthe imports at the higher domestic price.

Sd +Qq

2.Auction

The government sell import to licenses on a competitive to the highest bidders.

The importer and the governmenttake the advantage from the import quota.

Sd +Qq

The importer take the advantage from the import quota.

The government take the advantage from the import quota.

3.Resource-using Procedures

The government sell import to licenses to the importer(s) on the basis of demonstrating need or worthiness; or on the basis of negotiation.

The selected importer take the advantage from the import quota.

The importer take the advantage from the import quota.

The government take the advantage from the import quota.

When the License Also Charged

When the Bribe Play Role

With bribe, the importer take the advantage from the import quota.

Bribe ( go to individual)

The Effect of an Import Quota underCompetitive Condition (Large Importing Country)

Initial World Price World Price with quota policy

Quota will increase the supply

Domestic Price with quota policy

Quota

Decreased Consumer Surplus

Increased Producer Surplus

Deadweight Loss

Sd +QqExtended Effect of an

Import Quota

Gainer and Looser

1.Fixed Favoritism

2.Auction

3.Resource-using Procedures

Other Non-tariff Barriers

1. Voluntary Export Restraints (VERs)

2. Product Standards

Genetically Modified Organism

3. Domestic Content Requirements

4. Government Procurement