INTERNATIONAL TRADE POLICY  Free trade maximizes world output and benefits all nations but all nations impose some restrictions on the free flow of international trade. Tariffs Non-tariff trade barriers

TARIFFS  Easily applied  Most common tool  Mostly taken from imports  GATT tries to decrease the rates Turkey: 8% (1999) USA: 4,1% (2000) S.Korea: 7,5% (2000)

TARIFFS  A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary.  Aim: To raise revenue for the government Protection of domestic industries  Partial protection  Prohibitive tariff

TARIFFS  Specific: Fixed sum per physical unit of the traded commodity.  Ad valorem (FOB, CIF): Fixed percentage of the value of the traded commodity.  Compound: Combination of ad valorem and specific tariff.

TARIFFS: Effects  Production effect Domestic production increases Provides protection  Consumption effect Consumption decreases

TARIFFS: Effects  Foreign trade effect Imports fall  Revenue effect Government tax revenue increases  Income distribution effect Income transfer from consumers to producers Consumer and producer surpluses

TARIFFS: Effects  Macroeconomic Effects: Balance of payments National income Terms of trade Income distribution

Effective Protection  How much protection is actually provided to the domestic processing of the import- competing commodity.  g=(t j -a i.t i )/(1-a i ) g: rate of effective protection to producers of the final commodity. t: nominal tariff rate of final commodity a i : cost of imported input/price of final commodity before tariff t i : nominal tariff rate on the imported input

Special Trade Regimes  1. Temporary imports and exports  2. Entrepot  3. Transit Transportation 1959 Geneva TIR (Transit International Router) Agreement  4. Border and coastal trade  5. Free imports  6. Free zone

NON-TARIFF TRADE BARRIERS  A. Quantitative Restrictions  B. Foreign Exchange Restrictions  C. New Protectionism  D. Export and Import Taxes  E. Monopolies and Cartels

A. Quantitative Restrictions  Import Quotas An import quota is a direct quantitative restriction on the amount of a commodity allowed to be imported.  Import Prohibitions Imports of some commodities are prohibited.

Import Quotas  Aim: Balance of payments Sectoral protection  Applied for a specific time period.  Custom tariffs can also be applied.

Import Quotas  Global Quota: Only quantity is determined. The determined quantity can be imported from any nation.  Reserved Import Quota (Tahsisli Kota): Quotas are distributed among importers according to pre-determined criteria.  Custom Tariff Quota (Gümrük Tarife Kotası)

Import Quotas  Production increases.  Consumption decreases.  Income distribution is effected.  Scarcity surplus arises Surplus that arises as a result of the import scarcity due to high import prices.

Import Quotas  Scarcity surplus: Mostly importer firms benefit. Exporter firm will benefit if it as a monopoly. If government is selling the import licenses with an auction, government will benefit.

Import Quotas vs. Tariffs :  Disadvantages of quotas: 1. Quotas are more strict. 2. Commodities that cannot be imported legally, may enter the country illegally. 3. The upper price limit in domestic sales is not known. 4. No transparency. 5. Necessities extensive bureaucracy in its determination, application and control. 6. If demand for the commodity is high in the domestic market, having a share from the quota brings privilege.

Import Quotas vs. Tariffs :  Advantages of a quota: 1. In some cases tariffs are not effective in decreasing imports. 2. The quantity of imports are definitely known.

Import Prohibitions  Foreign exchange is saved by prohibiting imports of unnecessary and luxury goods.  Domestic industry is protected from foreign competition.  Helps to cure trade deficits.  Imports of illegal goods are stopped.  Embargos

Import Prohibitions  Larger effects on protection, consumption and income distribution.  Government cannot raise revenues.  In Turkey these restrictions are not applied any more. 1981: Quotas 1990: Import prohibitions

NON-TARIFF TRADE BARRIERS  A. Quantitative Restrictions  B. Foreign Exchange Restrictions  C. New Protectionism  D. Export and Import Taxes  E. Monopolies and Cartels

B. Foreign Exchange Restrictions  Multiple Exchange Rate System: Under fixed exchange rate systems, different exchange rates might be applied in trade of some goods and services.  Foreign Exchange Controls: Government controls and interventions on the foreign exchange operations.

Multiple Exchange Rate System  Applied together with other tools like quotas or import prohibitions.  Simply there are two exchange rates: High exchange rate in the market:  Imports: Luxury goods  Exports: Exports of goods that are encouraged

Multiple Exchange Rate System Low Official Exchange Rate  Imports: Essential consumption goods, raw materials, intermediate and investment goods  Exports: Easily exported traditional agricultural products

Foreign Exchange Controls  Applied under fixed exchange rate systems.  Applied with import quotas and under multiple exchange rate systems.  Central Bank is the single authority to buy and sell foreign exchange.

Foreign Exchange Controls  Developing countries apply frequently to control balance of payments deficits.  National currency is not convertible.  Before 1980’s, it caused a black market to emerge in Turkey (Tahtakale)

NON-TARIFF TRADE BARRIERS  A. Quantitative Restrictions  B. Foreign Exchange Restrictions  C. New Protectionism  D. Export and Import Taxes  E. Monopolies and Cartels

C. New Protectionism  Voluntary Export Restraints Export quota Protection: Not to create unemployment in the domestic industries Political or economic pressure Example: Japan-USA steel and textile trade Resource allocation is deteriorated Benefit to the exporter country: To increase profits, quotas are filled with high quality, expensive products (product upgrading). Uruguay Round: New VERs are prohibited.

C. New Protectionism  Technical, Administrative and Other Regulations Some are groundless: Japan prohibited imports of ski Labeling, packaging, marketing Environmental protection Costs of control; international monitoring companies Laws regarding public bids

C. New Protectionism  Export Subsidies Aim: To increase profitability of exports Direct payments or the granting of tax relief and subsidized loans to the nation’s exporters or potential exporter’s and/or low-interest loans to foreign buyers so as to stimulate the nation’s exports. Economic effects:   Terms of trade effect: If export prices decrease in terms of foreign currency, terms of trade deteriorates.  Foreign exchange earnings: If the import demand elasticity for the nation’s exports is high-enough, foreign exchange earnings will increase, besides the deterioration of the terms of trade.

C. New Protectionism  Export Subsidies Domestic consumers lose.  High price  Subsidies are financed by their tax payments Export subsidies on industrial products are prohibited by GATT. Countervailing Duties: They are often imposed on imports to offset export subsidies by foreign governments.

C. New Protectionism  Subsidies to industries that are sell in the domestic market: They compete with imports so they are protected against foreign competition. Good is sold at world prices in the domestic market. The difference between the world price and the domestic cost is paid to the producer. Consumer surplus does not fall, but the subsidy is financed by taxes. Burden on government budget. It might cause transfer of resources to inefficient, high cost industries.

NON-TARIFF TRADE BARRIERS  A. Quantitative Restrictions  B. Foreign Exchange Restrictions  C. New Protectionism  D. Export and Import Taxes  E. Monopolies and Cartels

D. Export and Import Taxes  Countervailing taxes on imports: Mainly used for agriculture. It’s effects are similar to import quotas. In order to prevent imports with low world prices, the difference between the high domestic prices and low world prices are filled with an import tax. Example: EU Common Agriculture Policy

D. Export and Import Taxes  Export Taxes: Aims to restrict exports. Common in developing countries. (Example: Cotton and hazelnut exports of Turkey before) Aim:  Raise revenue for the government  To encourage the usage of raw materials domestically  To protect natural resources  To improve terms of trade

NON-TARIFF TRADE BARRIERS  A. Quantitative Restrictions  B. Foreign Exchange Restrictions  C. New Protectionism  D. Export and Import Taxes  E. Monopolies and Cartels

E. Monopolies and Cartels Dumping is the sale of a commodity at a lower price abroad than domestically. Types of dumping:  Sporadic  Predatory  Persistent

E. Monopolies and Cartels Sporadic Dumping:  Occasional sale of a commodity at below cost in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices.

E. Monopolies and Cartels Predatory Dumping:  Temporary sale of a commodity at below cost or a lower price abroad in order to derive foreign producers out of business, after which prices are raised to take advantage of the monopoly power abroad.

E. Monopolies and Cartels Persistent Dumping:  Continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally (to meet the competition of foreign rivals)

E. Monopolies and Cartels  Dumping: International price discrimination Conditions:  Domestic and foreign markets must be separated.  Demand elasticity of the product must be different in two markets. The good can be sold with a lower price where the demand elasticity is high; and with a higher price where demand elasticity is low. 

E. Monopolies and Cartels  Dumping: GATT: Anti-dumping duties Dumping investigation

E. Monopolies and Cartels  ÇİN HALK CUMHURİYETİ VE SUUDİ ARABİSTAN'A ANTİ-DUMPİNG VERGİSİ Avrupa Konseyi'nin, 10 Mart 2005 tarihli düzenlemesine göre, Avrupa Birliği'ne ithal edilen, Çin Halk Cumhuriyeti ve Suudi Arabistan menşeli polyester kesik elyaflara %5 ve %49,7 oranları arasında anti-damping vergisi uygulamaya başlamıştır. (  Bazı ülkeler kendi çelik üreticilerini korumak amacıyla damping, korunma ve sübvansiyon adı altında Türk demir-çelik ürünlerine telafi edici vergi uygulamaktadırlar. ABD, Türkiye'den ithal ettiği borular, inşaat demirleri ve filmaşine, Kanada soğuk yassı ve inşaat demirine, Singapur inşaat demirine, Endonezya filmaşine ve Mısır ise inşaat demirine telafi edici vergi uygulamaktadırlar. Ayrıca, Arjantin Türk lama demir ve L profillerine, Avrupa Birliği çelik halata, Rusya Federasyonu ise demir-çelik borulara haksız rekabete neden olduğu gerekçesi ile 2000 yılında anti- damping soruşturması başlatmış olup bu soruşturmalar halen devam etmektedir. Demir-çelik ürünlerimize karşı uygulanan anti-damping vergileri ihracatçılarımızın bu pazarlardaki paylarının azalmasına neden olmaktadır. (  anti-damping soruşturması.doc anti-damping soruşturması.doc

E. Monopolies and Cartels  Cartels: An international cartel is an organization of suppliers of a commodity located in different nations that agrees to restrict output and exports of the commodity with the aim of maximizing or increasing the total profit of the organization.

E. Monopolies and Cartels  Example: OPEC  A cartel is more successful if there are only a few international suppliers of an essential commodity for which there are no close substitutes.