International EconomicsBy Robert J. Carbaugh

8th Edition

Chapter 6:

Nontariff Trade Barriers

Import quotas

• Quotas are a restriction on the quantity of a good that may be imported in any one period (usually below free-trade levels)

• Global quotas restrict the total quantity of an import, regardless of origin

• Selective quotas restrict the quantity of a good coming from a particular country

Types of non-tariff barriers

Import quota: trade & welfare effects

Types of non-tariff barriers

Effects of a quota on sugar importsTypes of non-tariff barriers

Comparing tariffs and quotas

Types of non-tariff barriers

Tariff-rate quota

• The tariff-rate quota is a two-tiered tariff– A specified number of goods (up to the quota

limit) may be imported at one (lower) tariff rate, while imports in excess of the quota face a higher tariff rate

Types of non-tariff barriers

Tariff-rate quota: trade & welfare effects

Types of non-tariff barriers

Orderly marketing agreements

• Market sharing pact signed by trading partners

• Intended to protect less efficient domestic producers

• Usually involve voluntary export restraints, or export quotas

Types of non-tariff barriers

Effects of a voluntary export quota

Types of non-tariff barriers

Domestic content requirements

• Rules that require a certain percentage of a product’s total value to be produced domestically

• Often has the effect of forcing lower-priced imports to include higher-cost domestic components or be assembled in a higher-cost domestic market

Types of non-tariff barriers

Domestic content: trade & welfare effects

Types of non-tariff barriers

Subsidies

• Domestic subsidy– Payments made to import-competing producers

to raise the price they receive above the market price

• Export subsidy– Payments and incentives offered to export

producers intended to raise the volume of exports

Types of non-tariff barriers

Subsidies: trade & welfare effectsTypes of non-tariff barriers

Subsidies: trade & welfare effectsTypes of non-tariff barriers

Dumping

• The practice of selling a product at a lower price in export markets than at home (or exporting at prices below production cost)– Sporadic dumping - to clear unwanted

inventories or cope with excess capacity– Predatory dumping - to undermine foreign

competitors– Persistent dumping - reaping greater profits by

engaging in price discrimination

Types of non-tariff barriers

Other NTBs

• Government procurement policies

• Social regulations (health, environmental and safety rules can also restrict trade)

• Sea transport and freight restrictions

Types of non-tariff barriers