Module 4

  • Uploaded by: muneerpp
  • 0
  • 0
  • May 2020
  • PDF

This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA


Overview

Download & View Module 4 as PDF for free.

More details

  • Words: 540
  • Pages: 17
Module 4

Objectives of the module • Tariffs • Subsidies • Local content requirements, • Administrative Policies • Anti-dumping policies • Political and economic argument for intervention

• Classical Theories supporting Free trade • Government intervention due to political interests

Trade policy uses seven main instruments

– – – – – – –

Tariffs Subsidies Import Quotas Voluntary export restraints Local content requirements Administrative policies Antidumping duties

TARIFFS • A tax levied on imports • Two categories – Specific tariff & Ad valorem tariffs

• Specific Tariffs – are levied as a fixed charge for each unit of a good imported

• Ad valorem tariffs – are levied as a proportion of the value of the imported good

• A tariff raises the cost of imported products. • In most cases tariffs are put in place to protect domestic producers from foreign • • They also raise revenues for the government • Domestic producers gain, because the tariffs affords them some protection against foreign competitors by increasing the costs of imported goods • Consumer may lose because they must pay more for certain imports

Conclusion • Tariffs are unambiguously proproducer and anti-consumer • Tariffs reduce the overall efficiency of the world economy

Subsidies • A Subsidy is a government payment to a domestic producer • Forms of Subsidy – – – –

Cash grants Low interest loans Tax-breaks Government equity participation

Issues with Subsidies • Subsidies tend to protect the inefficient and promote excess production • E.g., Agriculture subsidies

– Allow inefficient farmers to stay in business – Encourage countries to overproduce the subsidized product – Encourage countries to produce products that could be grown more cheaply elsewhere and imported – Therefore, reduce international trade in agriculture

Import Quotas • An import Quota is a direct restriction on the quantity of some good that may be imported into a country • This restriction is enforced by issuing import license to a group of individuals or firms

Voluntary Export Restraint • A quota on trade imposed by the exporting country, typically at the request of the importing country’s government. • The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent.

Local content requirements • A requirement that some fraction of a good can be produced domestically • This requirement can be expressed in terms either in physical terms (75% of component parts should be produced locally) or in value terms (75% of the value of this product must be produced locally )

Administrative Policies • Bureaucratic rules that are designed to make it difficult for imports to enter a country

Anti-dumping policies • Dumping is defined as selling the goods in a foreign market at below their costs of production or below fair market value • Anti-dumping policies are designed to punish foreign firms that engage in dumping • The objective is to protect domestic producers from the unfair foreign competition

Government Intervention • Political reasons • Economic reasons

Political Arguments for government Intervention • Protecting jobs and industries • National Security • Retaliation • Protecting customers • Furthering foreign policy objectives • Protecting human rights

Economic Arguments for intervention • The Infant industry argument • Strategic Trade Policy

Related Documents

Module 4
May 2020 20
Module 4
December 2019 27
Module 4
October 2019 24
Module 4
April 2020 25
Module 4
June 2020 12
Module 4 Resource
October 2019 15

More Documents from ""