25-08-2017, 09:32 PM
Instruments of International Trade policy
Instruments of International.ppt (Size: 670.5 KB / Downloads: 44)
Introduction
Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country
While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups
Instruments of Trade Policy
Question: How do governments intervene in international trade?
There are seven main instruments of trade policy
Tariffs
Subsidies
Import quotas
Voluntary export restraints
Local content requirements
Antidumping policies
Administrative policies
Tariffs
A tariff is a tax levied on imports that effectively raises the cost of imported products relative to domestic products
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
Subsidies
A subsidy is a government payment to a domestic producer
Subsidies help domestic producers
compete against low-cost foreign imports
gain export markets
Consumers typically absorb the costs of subsidies
Import Quotas and Voluntary Export Restraints
An import quota is a direct restriction on the quantity of some good that may be imported into a country
Tariff rate quotas are a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota
Voluntary export restraints are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government
A quota rent is the extra profit that producers make when supply is artificially limited by an import quota
Administrative Policies
Dumping is selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value
It can be a way for firms to unload excess production in foreign markets
Some dumping may be predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market, and later raising prices and earning substantial profits