McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 9 Nontariff Barriers to Imports

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 9.1 – Major Types of NTBs

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 9.2 – The Effects of an Import Quota under Competitive Conditions, Small Importing Country

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Tariffs Compared to Quotas Small Country Model Consumption and Production Effects are the same Tariff - Govt gets tariff revenues Quota - depends on how import licenses are allocated Auction - Govt gets revenue similar to tariff revenue Lottery - no govt revenue, kbut no rent seeking costs To rent seekers - inefficiencies

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Tariffs Versus Quotas Small 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

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Import Quota on Sugar Began in 1983

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Tariffs Versus Quotas Small 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

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 9.3 – The Effects of an Import Quota under Competitive Conditions, Large Importing Country

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Tariff, Domestic Monopoly

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Import Quota, Domestic Monopoly

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Domestic Content Regulation Stipulate the minimum percentage of a products 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)Table 5.3

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure Losses and Gains from U.S. Protection, Selected Products, 1990

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. World Trade Organization (WTO) Oversees the global rules for government policies toward international trade. More than 140 member countries. Established 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