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Chapter 9

Nontariff Barriers to Imports

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Figure 9.1 – Major Types of NTBs

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Figure 9.2 – The Effects of an Import Quota under Competitive Conditions, Small

Importing Country

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Tariffs Compared to Quotas Small Country Model Consumption and Production Effects

are the same Tariff - Gov’t gets tariff revenues Quota - depends on how import

licenses are allocated Auction - Gov’t gets revenue similar to

tariff revenue Lottery - no gov’t revenue, kbut no rent

seeking costs To rent seekers - inefficiencies

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Tariffs Versus QuotasSmall Country Model

Consider a decrease in the world price Tariffs

Domestic P down Imports Up, Qs down, Qd up

Quotas No change in domestic P, Qd, Qs, since

imports cannot increase

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Import Quota on Sugar Began in 1983

Sugar Price (per pound)

0

5

10

15

20

25

30

35

Year 19611963196519671969197119731975197719791981198319851987198919911993199519971999200120032005Year

Price per pound

World Price

US Price

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Tariffs Versus QuotasSmall Country Model

Consider an Increase in Domestic Demand Tariffs

No change in the world price or the domestic price

Imports Up, Qs, no change, Qd up Quotas

Domestic P up, Qd up, Qs up, and no change in imports since imports cannot increase

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Figure 9.3 – The Effects of an Import Quota under Competitive Conditions, Large

Importing Country

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Tariff, Domestic Monopoly

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Import Quota, Domestic Monopoly

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Domestic Content Regulation

Stipulate the minimum percentage of a product’s total value to qualify for zero tariff rates Purpose: Limit outsourcing Pressurizes firms that sell products in the

country to use domestic inputs in production Often used by developing countries to foster

domestic automobile production (Table 5.3)

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Voluntary Export Restraints (VERS

Voluntary restraint pact with the Japan (1981/

Unpopular with smaller Japanese automakers Record profits for Japanese auto majors U.S. consumer paid higher prices 44,000 jobs saved in the U.S.; consumer cost

per job saved being $100,000 By 1985: Japanese companies open plants in

the U.S.; decline in imports coupled with decline in market share for U.S. firms

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Figure 9.4 - Losses and Gains from U.S. Protection, Selected Products, 1990

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World Trade Organization (WTO)

Oversees the global rules for government policies toward international trade. More than 140 member countries. Established 1995.

Succeeds and subsumes the General Agreement on Tariffs and Trade (“interim” agreement, 1947).

Principles: Liberalization of trade restrictions, move toward

free trade Nondiscrimination among countries, often called

the most favored nation (MFN) principle No unfair encouragement for exports